How much equity capital did the Tokyo Stock Exchange really raise?

Even though the channelling of equity capital from savers to listed firms is one of the primary functions of a stock market, not much effort has been devoted to the problem of measuring the phenomenon. External equity financing, traditionally associated with the issue of new shares, depends also on the sale of already issued shares. This additional form of collection of equity capital becomes relevant when the firms of the market are connected by cross-shareholdings (as in Japan): the phenomenon of equity carve-out is a relevant example of equity financing obtained through the sale of existing shares. The paper presents a model for computing the equity capital raised by companies listed in a given stock exchange over a specified period of time, which is non trivial when firms are connected by cross-shareholdings. A numerical computation of the net amount of equity financing in the Tokyo Stock Exchange in the period 1971-1992 is reported: it shows that the net (or true) measure is significantly different and, in most cases, lower than the conventional one. © 1995 Kluwer Academic Publishers.