Private Equity's Unintended Dark Side: On the Economic Consequences of Excessive Delistings
50 Pages Posted: 2 Feb 2016
There are 3 versions of this paper
Private Equity's Unintended Dark Side: On the Economic Consequences of Excessive Delistings
The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings
Private Equity's Unintended Dark Side: On the Economic Consequences of Excessive Delistings
Date Written: January 2016
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 Classification: G24, G34, P16
Suggested Citation: Suggested Citation