One of the most important functions of a financial system is to bring together people with an abundance and a shortage of capital. Financial markets can efficiently bring innovative companies and investors together. This has a positive effect on the real economy – think of employment and competition (in the form of lower consumer prices).
In recent years, however, we have seen a tendency for shares to disappear from the stock exchange (on May 31, Sioen was still delisted from the Brussels stock exchange). There are several reasons for such delistings, such as costs, disclosure requirements and an increased chance of acquisitions. There are also economic variables that can influence such a decision (just think of a recession).
A third aspect, which is often overlooked, is political stability. A recent example of political influence was the proposal for a dividend freeze by Vooruit chairman Connor Rousseau. Political uncertainty does not create the best climate to stimulate entrepreneurship, among other things.
There is (limited) research showing that a poor political climate leads to more delistings. An important question, therefore, is whether this is a problem for Jan Modaal. I argue so. And a huge problem.
One of the most important functions of a financial system is to bring together people with an abundance and a shortage of capital. Financial markets can efficiently bring innovative companies and investors together. This has a positive effect on the real economy – think of employment and competition (in the form of lower consumer prices).
In recent years, however, we have seen a tendency for shares to disappear from the stock exchange (on May 31, Sioen was still delisted from the Brussels stock exchange). There are several reasons for such delistings, such as costs, disclosure requirements and an increased chance of acquisitions. There are also economic variables that can influence such a decision (just think of a recession).
A third aspect, which is often overlooked, is political stability. A recent example of political influence was the proposal for a dividend freeze by Vooruit chairman Connor Rousseau. Political uncertainty does not create the best climate to stimulate entrepreneurship, among other things. There is (limited) research showing that a poor political climate leads to more delistings. An important question, therefore, is whether this is a problem for Jan Modaal. I argue so. And a huge problem.
1. Capital Efficiency
One of the great advantages of a well-functioning stock exchange is that a link is found between the investor (who has a surplus of capital) and companies (who have a shortage of capital).
With well-functioning exchanges, that link is found in the most efficient way possible. With concentration, and especially too high a concentration, capital will no longer be distributed in an efficient way – with efficiency being expressed as “more (less) money to growing (weakened) sectors”.
That means that capital ends up in the hands of companies that can handle that capital in an inefficient way. This too has an (indirectly) severe effect on economic growth.
2. Innovation and Competition
A consequence of the capital inefficiency created by too high a stock market concentration is that capital finds its way more difficult to the innovative companies, and this has a negative effect on competition between companies. This has an indirect effect on the economy (a decline in growth due to the lack of efficiency gains due to technological progress) or consumers (higher prices due to the lack of competition between companies).
A fall in the number of stock exchange listings therefore not only has an effect on “the rich”, but clearly also on Jan Modaal. We should therefore not underestimate this. The Belgian economy was one of the most successful economies in the world in the 19th century – a period when we had one of the most liberal governments (eg interest rates were allowed to fluctuate freely, companies were easier to set up,…).
Marginalising the stock market to a place where only the millionaires and billionaires can find what they want – which is regularly discussed on social media – is not a successful strategy, when we look at the last 200 years.
Prof. Gertjan Verdickt is a lecturer at KU Leuven and specialises in financial economics and investment theory.