Working Paper: NBER ID: w21909
Authors: Alexander Ljungqvist; Lars Persson; Joacim TG
Abstract: Over the past two decades, the U.S. stock market has been shrinking as the public firm model has begun to fall out of favor. We develop a political economy model of delistings 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. By facilitating companies’ departures from the stock market, private equity firms can trigger a chain of events that may lead to long-term reductions in aggregate investment, productivity, and employment.
Keywords: Private Equity; Delistings; Political Economy; Investment; Productivity
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 |
|---|---|
| delistings (G33) | reduction in stock market size (G10) |
| reduction in stock market size (G10) | diminishes citizen-investors' exposure to corporate profits (G35) |
| diminishes citizen-investors' exposure to corporate profits (G35) | decline in public support for business-friendly policies (L52) |
| delistings (G33) | shift in voting behavior of the middle class towards left-wing parties (D72) |
| shift in voting behavior of the middle class towards left-wing parties (D72) | lower aggregate investment and productivity (E22) |
| delistings (G33) | long-term economic consequences such as increased unemployment (F66) |
| delistings (G33) | decrease in overall economic welfare (D69) |