The flow of companies in and out of the Milan stock exchange. Does the political orientation of the government matter?

Abstract

Over the past few years, the Italian political instability resulting from short governments and frequent changes in key positions within the Council of Ministers, has been a significant influencing factor in the Italian market economy. Among the different effects, its impact on the stock market has not yet been fully investigated. To address this issue, this work has explored whether both the government’s orientation and the policy-related instability influence the evolution of the Italian capital market and companies' decision to delist from the Italian stock exchange. Using a set of regression models based on data from 2000 to 2022, this work has established that a government categorized as independent is often associated with greater economic policy uncertainty as measured by the EPU index. Furthermore, we provide evidence that when compared to an independent government, both left- and right- wing governments have a positive effect on the number of listed large companies and a negative one in the case of listed small companies. Importantly, although its impact trended oppositely between large and small companies, the government’s orientation does not have a significant effect on the total number of listed companies. Lastly, we extended our results on the delisting decision by showing that the Italian government’s political orientation does not directly influence companies’ willingness to exit the stock market. Taken together, these findings suggest that political instability, i.e., a factor of great impact in recent Italian history, drastically reduces the possibility of the Italian government to effectively impact its national stock market.

Date of Award	19 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)