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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 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. 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. The recently launched DEBRA (Debt-equity bias reduction allowance) initiative should also contribute to this objective by proposing to introduce an allowance that will grant to equity the same tax treatment as debt.

Contributions to the policy debate

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

Public and private
sector views

SME equity financing - February 2022 new

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

Equity funding - April 2021

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