Developing equity funding
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 pandemic, low returns offered by traditional savings products and solid growth prospects for EU companies.
At present, EU corporates and particularly SMEs rely predominantly on debt (bank loans and debt securities) for their external financing, resulting in a significant equity gap, and this trend has increased during the Covid crisis with the exceptional measures put in place to support the economy. This insufficient role of equity is due to several supply and demand side factors including 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 / MiFIR review initiatives. A Listing Act was proposed in December 2022 with measures to simplify listing requirements for companies, particularly SMEs, wanting to raise funds on public markets, an improvement of the proportionality of the market abuse framework and the introduction of multiple vote share structures. Additional CMU measures that may have an impact on equity financing include the review of the ELTIF framework, the creation of a EU data hub for facilitating the access to corporate information (ESAP) and the implementation of an EU consolidated tape and improvements to MiFID II rules regarding research and market infrastructures. The DEBRA (Debt-equity bias reduction allowance) initiative may also contribute to this objective by proposing to introduce an allowance that will grant to equity the same tax treatment as debt; this project is however at a standstill at present.
Eurofi documents
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Panel discussion summaries
SME equity funding: Listing Act and ESAP proposals - Stockholm High Level Seminar - April 2023
Improving SME equity financing - Paris High Level Seminar - February 2022
How can banks contribute more to the CMU? - Paris High Level Seminar - February 2022
Optimizing the financing of EU corporates - Ljubljana Financial Forum - September 2021
Developing equity funding - Lisbon Virtual Seminar - April 2021
Eurofi Views Magazine chapters
SME equity funding: Listing Act and ESAP proposals - April 2023
Alexandra Jour-Schroeder - European Commission | Kęstutis Kupšys - European Economic and Social Committee (EESC) | Peter Palus - Permanent Representation of the Slovak Republic to EU
Listing Act and DEBRA: prospects for equity markets - September 2022
Carmine Di Noia - Organisation for Economic Co-operation and Development | Benoît de Juvigny - Autorité des Marchés Financiers | Märten Ross - Ministry of Finance, Estonia | Alain Godard - European Investment Fund | Gerassimos Thomas - European Commission | Sophie Javary - BNP Paribas | Gerben Everts - European Investors’ Association
SME equity financing - February 2022
Benoît de Juvigny - Autorité des Marchés | Alain Godard - European Investment Fund | Beatriz Alonso-Majagranzas - SIX | Rimantas Šadžius - European Court of Auditors
Optimizing the financing of EU corporates - September 2021
Carmine Di Noia - Commissione Nazionale per le Società e la Borsa | Duncan van Limbergen - De Nederlandsche Bank | Roger Havenith - European Investment Fund | Bjørn Sibbern - Nasdaq | Ed Cook - BlackRock
Mario Nava - European Commission | Elke Kallenbach - Federal Ministry of Finance, Germany | Sebastien Raspiller - Ministry of the Economy, Finance and the Recovery Plan, France | Jesús González Nieto-Márquez - BME