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What is meant by the “hollowing out” of corporate Canada?

The business community and politicians have recently expressed concerns that the low value of the dollar is leading to a series of foreign takeovers of Canada’s largest companies, which they have referred to as “the hollowing out of corporate Canada”.

The impact of this process on the stock market has been the replacement of large companies in the stock market index by smaller less developed companies. Since 2000, 14 companies with a value of approximately $77 billion have disappeared from the stock market index. The majority of these companies were taken over by foreign buyers. The companies that have replaced them are much smaller in terms of market capitalization. Most of the larger corporations that remain have ownership controls or have a large controlling shareholder, which is unlikely to sell. The major problem is that such structural changes have resulted in trading becoming concentrated in about 75 companies that have enough liquidity for large investors such as pension funds and Canadian institutional investors. Liquidity is important because these investors want to sell their shares very quickly if the situation warrants it. If large numbers of shares of smaller companies were sold their share values would decline considerably resulting in a more volatile stock market and share price declines from which small companies may never recover. Such a situation also increases the level of risk in general since fewer blue chip Canadian stocks remain. This process has also resulted in an increase in the migration of middle management jobs to the U.S. and a reduction of the amount of corporate funding available for communities and their infrastructure.