26 June 2023

Bruegel's Lehmann: The Listing Act: no more than a minor boost to EU equity markets

There is a growing sense of unease around the trends in European primary equity markets. The number of listed companies has been declining and continues to decline, and initial public offerings by European firms are now regularly done in the United States.

This is the opposite of what European Union regulators want. They emphasise regularly that public equity should play a bigger role in funding innovative companies, and would allow a variety of retail and institutional investors to share in the risks and growth of the corporate sector.  

Capital raised on European equity markets in 2022 was the lowest since 1995, at only €89 billion (Suarez, 2023). First-time public offerings (IPOs) are a diminishing subset of this total and within the EU amounted to only €16 billion (more than half of which was accounted for by one large transaction in Germany). Equity issuance on so-called junior markets, where small and medium-sized enterprises (SMEs) benefit from a lower regulatory burden, fell by roughly two-thirds, while the volume of new listings is now minuscule.

The rebound in primary listing activity in 2021 following the COVID-19 pandemic appears to have been transient. Volumes of capital raised and the number of transactions in IPOs seem to have reverted to the more lacklustre levels of previous years. Meanwhile, equity markets in the US and Asia have grown, both relative to the size of the respective economies and compared to global markets overall.

Private equity investors, which do little to foster the benefits of market liquidity and suffer from other shortcomings (Lehmann, 2020a), continue to step into the fold. Notwithstanding the disappointing issuance volumes in EU public equity markets, private equity investments registered their second-highest level ever, at €130 billion ¹ , while fundraising broke a new record.

Figure 1: IPO volumes and number of firms newly listed on European exchanges

Bruegel

© Bruegel