Why is stock market concentration bad for the economy?

Kee-Hong Bae, Warren Bailey and Jisok Kang

Journal of Financial Economics, 2021, vol. 140, issue 2, 436-459

Abstract: The stock market should fund promising new firms, thereby breeding competition, innovation, and economic growth. However, using three decades of data from 47 countries, we show that concentrated stock markets dominated by a small number of very successful firms are associated with less efficient capital allocation, sluggish initial public offering and innovation activity, and slower economic growth. These findings are robust to alternative sample periods, econometric specifications, and competing explanatory variables. Our evidence is consistent with the paradox that the capital market of a competitive economy can impede the continuing competitiveness of that economy.

Keywords: Stock market concentration; Capital allocation; IPO; Innovation; Economic growth (search for similar items in EconPapers)
JEL-codes: E44 G15 O16 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:2:p:436-459

DOI: 10.1016/j.jfineco.2021.01.002

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