AAA Spark Meeting of the Regions

Is Information Production for the U.S. Stock Market Becoming More Concentrated?

• In Event: Capital Markets Information

Abstract

The US stock market has experienced dramatic shifts in structure in the past two decades. While small firms have disappeared, large ones have increasingly gained market share. We investigate whether large firms’ market dominance creates positive spillover for or shifts resources away from small firms’ information production. Using a shift-share IV approach and a difference-in-difference design, our identification strategy isolates two independent sources of variation in large firms’ market share plausibly exogenous to small firms’ fundamentals. We find that as large firms gain market share, they attract information production resources, including the attention of financial analysts and institutional investors, away from small firms, even when the size of small firms and business fundamentals remain unchanged. Our evidence suggests that information production for the US stock market is becoming more concentrated on large firms, which is likely a consequence of increasing market share concentration.

Authors

• Yang Cao, Boston College

• Miao Liu, Boston College

• Xi (Rachel) Zhang, National University of Singapore