Working Paper: CEPR ID: DP571
Authors: Colin P Mayer; Lan Alexander
Abstract: This paper examines the influence of stock markets on corporate performance. It compares large private and publicly listed companies in the UK. It finds that, controlling for size and industry, quoted firms invest more and grow more rapidly than unquoted firms. They earn higher profits and pay out a higher proportion of their earnings as dividends. They raise more equity finance but use this to purchase equity in other companies. In contrast, private companies are concentrated in low technology industries. There is therefore no evidence of adverse effects of stock markets on corporate performance. The proposition that firms are involuntarily driven to seek listings, however, cannot be rejected.
Keywords: stock markets; short termism; corporate finance; investment
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| quoted firms (G24) | investment levels (F21) |
| quoted firms (G24) | growth rates (O40) |
| quoted firms (G24) | profits (L21) |
| quoted firms (G24) | equity finance (G32) |
| equity finance (G32) | acquisition spending (M30) |
| quoted firms (G24) | dividend payouts (G35) |
| stock markets (G10) | corporate performance (G38) |