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Should we worry about the decline of the public corporation? A brief survey of the economics and external effects of the stock market

Koptyug, Nikita ; Persson, Lars LU and Tåg, Joacim LU (2019) In North American Journal of Economics and Finance
Abstract

In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market's primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be efficiently achieved. The main economic roles of the stock market's secondary market, the trade in existing shares,... (More)

In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market's primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be efficiently achieved. The main economic roles of the stock market's secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery and to provide diversification opportunities. Positive external effects from an active stock market may arise for consumers, labor and private firms due to increased corporate investment, more socially responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.

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author
publishing date
type
Contribution to journal
publication status
epub
subject
keywords
External effects, Growth, Productivity, Real effects, Stock market
in
North American Journal of Economics and Finance
article number
101061
publisher
Elsevier
external identifiers
  • scopus:85072515033
ISSN
1062-9408
DOI
10.1016/j.najef.2019.101061
language
English
LU publication?
no
id
080710da-76e5-41ca-8d8f-ad9bb81df493
date added to LUP
2020-01-23 15:51:29
date last changed
2020-01-24 14:45:37
@article{080710da-76e5-41ca-8d8f-ad9bb81df493,
  abstract     = {<p>In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market's primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be efficiently achieved. The main economic roles of the stock market's secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery and to provide diversification opportunities. Positive external effects from an active stock market may arise for consumers, labor and private firms due to increased corporate investment, more socially responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.</p>},
  author       = {Koptyug, Nikita and Persson, Lars and Tåg, Joacim},
  issn         = {1062-9408},
  language     = {eng},
  publisher    = {Elsevier},
  series       = {North American Journal of Economics and Finance},
  title        = {Should we worry about the decline of the public corporation? A brief survey of the economics and external effects of the stock market},
  url          = {http://dx.doi.org/10.1016/j.najef.2019.101061},
  doi          = {10.1016/j.najef.2019.101061},
  year         = {2019},
}