From the viewpoint of a company's controlling shareholder, the optimal ownership structure generally involves some measure of dispersion, to avoid excessive monitoring by other shareholders. The optimal dispersion of share ownership can be achieved by going public, but this choice also entails some costs (the cost of listing and the loss of control over the shareholder register). If the controlling shareholder sells shares privately instead, he avoids the costs of going public but must tolerate large external shareholders who may monitor him too closely. Thus, the owner faces a trade-off between the cost of providing a liquid market and overmonitoring. The incentive to go public is stronger, the larger the amount of external funding required. The listing decision is also affected by the strictness of disclosure rules for public relative to private firms, and the legal limits on bribes aimed at dissuading monitoring by shareholders.

In the context of an overlapping-generations model, we show that Uquidity constraints on households (i) raise the saving rate, (ii) strengthen the effect of growth on saving, (iii) increase the growth rate if productivity growth is endogenous, and (iv) may increase welfare. The first three positions are supported by cross-country regressions of saving and growth rates on indicators of liquidity contraints on households. The results suggest that financial deregulation in the 1980s has contributed to the decline in national saving and growth rates in the OECD countries.