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Developing equity funding

Context

Developing equity funding is essential for the funding of growing and innovative companies and also for strengthening the resilience of the European corporate sector. The post-Covid context provides fresh opportunities for developing equity funding with record retail savings built up during the crisis, low returns offered by traditional savings products and growth prospects for EU companies.

At present EU corporates rely predominantly on debt (bank loans and debt securities) for their external financing and this trend has increased during the Covid crisis with the exceptional measures put in place to facilitate bank loans. This is due to several supply and demand side factors including the challenges raised by equity financing for issuers (transparency, dilution issues, burden of listing processes), the more favourable tax treatment of debt financing, the limited appetite of EU citizens for equity investments and also the high cost of equity investment for insurance companies and banks due to current prudential requirements.

EU equity markets also face several structural issues with fragmented infrastructures and under-developed equity ecosystems.

Strengthening EU equity markets and improving their attractiveness are among the objectives of the on-going CMU and MiFID II initiatives. The measures proposed include the simplification of listing rules, the review of the ELTIF framework, the creation of a EU data hub for facilitating the access to corporate information, the implementation of an EU consolidated tape and improvements to MiFID II rules regarding research and market infrastructures.

Contributions to the policy debate

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)