Working Paper No. 1115

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

Published: March 4, 2016, revised November 2016 and February 2018Pages: 47Keywords: Political economy; Stock market; Delistings; Corporate investment; ProductivityJEL-codes: G34; G24; P16

The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings Alexander Ljungqvist, Lars Persson and Joacim Tåg


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.

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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