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Equity Finance and Capital Market Integration in Europe

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Equity Finance and Capital Market Integration in Europe

Bruegel,

5 min read
5 take-aways
Audio & text

What's inside?

Private equity can play a critical role in capital raising in the euro area.

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Editorial Rating

7

Qualities

  • Analytical
  • For Experts

Recommendation

A deep-rooted bank financing culture still holds in Europe, constraining the development of external sources of capital for businesses. The eventual end of cheap money would seem to open the door to alternatives to bank credit, yet onerous and duplicative regulations hinder private equity’s growth. This scholarly report by researchers Inês Gonçalves Raposo and Alexander Lehmann highlights the gap that remains between financing needs and availability. The authors note that private equity can act as a critical bridge, particularly for smaller companies. This astute analysis offers substantive insights to policy analysts, investors and financial professionals.

Summary

Preferential tax treatment accorded to debt, along with corporate governance obstacles that effectively hinder minority shareholder participation, have typically led European companies to rely on bank debt over external equity for financing. In the aggregate, however, the share of firms’ financing through bank loans has decreased since 2008. In the euro zone’s core countries, and particularly for large corporations, the use of public and private equity financing has risen. The results are similar, though less pronounced, in the euro-area crisis countries. The EU member states&#...

About the Authors

Inês Gonçalves Raposo and Alexander Lehmann are professionals with Bruegel.

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