Institutional Investment and the Changing Role of Public Equity Markets: International Evidence

We study the relation between institutionalization of capital and the reliance on public markets. Evidence indicates that for developed and developing countries capital under institutional management (mutual funds, pension funds, and insurance companies) is negatively related to the number of publicly listed companies, aggregate market capitalization, and trading volume on public markets. The negative relationships are stronger for more highly developed countries, and potentially strong enough to result in absolute listings declines in countries such as the United States. The results indicate that, as direct ownership of equity by retail investors declines, financial systems become less public-market-centric and more institution-centric.