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The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings

Author

Listed:
  • Ljungqvist, Alexander

    (Stern School of Business, New York University)

  • Persson, Lars

    (Research Institute of Industrial Economics (IFN))

  • Tåg, Joacim

    (Research Institute of Industrial Economics (IFN))

Abstract

Over the past two decades, the U.S. stock market has halved in size as the “public firm model” has begun to fall out of favor. We develop a political economy model of delistings from the stock market to study the wider economic consequences of this trend. We show that the private and social incentives to delist firms from the stock market need not be aligned. Delistings can inadvertently impose an externality on the economy by reducing citizen-investors’ exposure to corporate profits and thereby undermining popular support for business-friendly policies. A shrinking stock market can trigger a chain of events that leads to long-term reductions in aggregate investment, productivity, and employment.

Suggested Citation

  • Ljungqvist, Alexander & Persson, Lars & Tåg, Joacim, 2016. "The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings," Working Paper Series 1115, Research Institute of Industrial Economics, revised 06 Feb 2018.
    • Handle: RePEc:hhs:iuiwop:1115
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Political economy; Stock market; Delistings; Corporate investment; Productivity;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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