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

Alexander Ljungqvist (), Lars Persson and Joacim Tåg

No 1115, Working Paper Series from Research Institute of Industrial Economics

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.

Keywords: Political economy; Stock market; Delistings; Corporate investment; Productivity (search for similar items in EconPapers)
JEL-codes: G24 G34 P16 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-03-04, Revised 2018-02-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1115

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