Economic growth and concentrated ownership in stock markets

This paper presents a theoretical framework to analyze the implications on economic growth of a stock market that grows but is not well-developed in other aspects (concentrated ownership, low liquidity, poor legal and judiciary systems, and credit constraints). Family firms are modeled as consisting of risk-averse owners concerned with keeping the control of their firms while deciding to go public. It is suggested that in this type of economies there may be a non-linear relationship between stock market size and economic growth and that, in particular, the formation of an equity market may retard economic growth when institutions are weak.