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Predatory Value ExtractionHow the Looting of the Business Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored$
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William Lazonick and Jang-Sup Shin

Print publication date: 2019

Print ISBN-13: 9780198846772

Published to Oxford Scholarship Online: January 2020

DOI: 10.1093/oso/9780198846772.001.0001

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The Stock Market as a Value-Extracting Institution

The Stock Market as a Value-Extracting Institution

(p.41) 3 The Stock Market as a Value-Extracting Institution
Predatory Value Extraction

William Lazonick

Jang-Sup Shin

Oxford University Press

This chapter debunks the conventional wisdom that the primary function of the stock market is to be a value-creating institution, raising cash for corporations by pointing to the fact that the separation of ownership and control in the past occurred because of a managerial constraint, not a capital constraint, as well as the fact that, throughout the twentieth century and continuing in the twenty-first century, the U.S. stock markets have been net extractors of money from the corporate sector. The chapter explains the five general functions of the stock market: Control; Cash; Creation; Combination; and Compensation. It then analyzes how a broad adoption of the MSV view changed the relative importance of those functions and eventually brought about the imbalance between value creation and value extraction.

Keywords:   Stock market, value extraction, ownership and control, managerial constraint, cash, combination, compensation

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