Stock Markets
UK performance

The widespread beliefs that stock market quotations hinder firms' growth by forcing them to take a `short-termist' view of their investment needs are supported by few theories and little empirical evidence; but there is a general conviction that financial markets in countries such as Germany and Japan take longer-term perspectives than stock markets in the UK and US.
In Discussion Paper No. 571, Programme Director Colin Mayer and Ian Alexander assess the influence of stock markets on corporate performance in the UK by directly comparing the performance of large private and publicly listed companies during 1980-87. Controlling for size and industry, they find that quoted firms invest more and grow more rapidly than unquoted firms. They also earn higher profits, pay out higher proportions of their earnings as dividends and raise more equity finance; although they use some of this to purchase equity in other companies. In contrast, private companies are concentrated in low-technology industries, which invest little in R&D. Mayer and Alexander conclude that there is no evidence to support the simple `short-termism' proposition that the UK stock market has exerted adverse effects on corporate performance. Nevertheless these findings cannot reject the possibility that UK firms are involuntarily driven to seek listings on the stock market in order to raise the finance they require to expand, which may be less readily available from the banking sector; and alternative institutional arrangements may serve other countries' corporate sectors better than the stock market does in the UK.
Professor Mayer presented this paper at a December lunchtime meeting, reported in greater detail in this issue of the Bulletin.

Stock Markets and Corporate Performance: A Comparison of Quoted and Unquoted Companies
Colin P Mayer and Ian Alexander

Discussion Paper No. 571, August 1991 (AM)