MACRO: Rising Intangible Capital and the Disappearance of Public Firms; Dr Hanbaek LEE (University of Tokyo)

Abstract

Since the mid-1990s, the number of listed firms in the U.S. has decreased by half. Over the same period, the listed firms’ financial disclosure has become significantly more opaque. To explain these observed patterns, we develop a general equilibrium model where the endogenous choices of going public or private and the transparency of the voluntary disclosure are characterized in the closed form. In the equilibrium, the stock market with the directed search and the private equity market with the random search endogenously co-exist. According to the estimation, the increased intangible share is the key driver of the observed patterns, as sharing knowledge has become significantly costlier. Using the model, we characterize a policymaker’s dilemma between maximizing welfare and productivity for the disclosure policy and analyze the optimal policy.