Working Paper: CEPR ID: DP11075
Authors: Alexander P. Ljungqvist; Lars Persson; Joacim TG
Abstract: Over the past two decades, private equity has contributed to a shrinking of the U.S. stock market. We develop a political economy model of private equity activity to study the wider economic consequences of this trend. We show that private and social incentives to delist firms from the stock market are not always aligned. Private equity firms could inadvertently impose an externality on the economy by reducing citizen-investors? exposure to corporate profits and thus undermining popular support for business-friendly policies. This can lead to long-term reductions in aggregate investment, productivity, and employment.
Keywords: delistings; investment; political economy; private equity; productivity; stock market
JEL Codes: G24; G34; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private equity firms (G24) | number of publicly listed firms (G32) |
| number of publicly listed firms (G32) | citizen-investors' exposure to corporate profits (G38) |
| citizen-investors' exposure to corporate profits (G38) | political preferences of citizen-investors (D72) |
| political preferences of citizen-investors (D72) | support for business-friendly policies (L53) |
| support for business-friendly policies (L53) | aggregate investment (E22) |
| support for business-friendly policies (L53) | productivity (O49) |
| support for business-friendly policies (L53) | employment (J68) |
| citizen-investors' exposure to corporate profits (G38) | overall economic welfare (D69) |
| number of publicly listed firms (G32) | political preferences of citizen-investors (D72) |
| number of publicly listed firms (G32) | support for business-friendly policies (L53) |
| number of publicly listed firms (G32) | aggregate investment (E22) |
| number of publicly listed firms (G32) | productivity (O49) |
| number of publicly listed firms (G32) | employment (J68) |