Institutional investment and the changing role of public equity markets: International evidence

Using country-level data, we study the relation between institutionalization of capital and various measures of reliance on public equity markets. For developed and developing countries, assets under institutional management (mutual funds, pension funds, and insurance companies) are negatively related to the number of listed companies, market capitalization, and trading volume. The negative relationships are estimated on the margin, as other factors such as GDP have countervailing positive partial effects and are generally stronger for more highly developed countries. Results indicate that as direct ownership of equity by retail investors is displaced by investing through institutions, financial systems become less public-market-centric.