Examining the causes and consequences of the recent listing gap between the United States and Europe
Published as part of the Financial Integration and Structure in the Euro Area 2024
Recent high-profile delistings from European stock exchanges and a gap in the number of listings in Europe compared with the United States have prompted concerns about the attractiveness of European equity markets.[1],[2] The role of listed shares issued by large non-financial corporations is fundamental in bolstering the depth and liquidity of public equity markets. However, unlike their counterparts in countries such as the United States, EU firms predominantly rely more on non-listed equity financing than listed shares.[3] Expanding the presence of listed equity is crucial for the growth of EU capital markets for a number of reasons, including its greater liquidity and its accessibility to a wider array of retail investors.[4] Moreover, listed equity can play a significant role in supporting the decarbonisation of economies.[5] One of the priorities of the 2020 CMU action plan for making financing more accessible to EU companies was to support access to public markets.[6] Against this backdrop, this box aims to shed more light on the gap in listings between the United States and Europe, and examines the reasons behind the delisting activities of EU companies. Additionally, it takes stock of dual and direct listings of EU companies in the United States to gauge the relative attractiveness of European and US markets for EU companies.
The number of listed companies in Europe and the United States were on a similar downward trend between the early 2000s and 2019, but the gap in market capitalisations increased significantly. Although the decline in the number of listed companies in Europe and the United States was initially comparable, the number of companies listed in Europe rose temporarily prior to the global financial crisis. It fell again thereafter, however, with the number of companies listed in the EU generally remaining slightly above that in the United States. At the same time, the average market capitalisation of US companies has historically been much higher than that of EU companies, a gap that has widened significantly since 2010, with US companies achieving, on average, a 3.3 times higher market capitalisation than EU companies in 2022 (Chart A, panel a).
However, since 2019 the number of listed companies has surged, with growth in US-listed companies significantly outpacing that in Europe – which is particularly evident for foreign company listings. The number of listed companies on the two main US stock exchanges has increased much more rapidly since 2019 and now exceeds that on the four major European exchanges for the first time in two decades.[7] By contrast, the number of listed companies in Europe continues to be substantially lower than it was before the global financial crisis. This suggests that US stock markets have been more successful in attracting new company listings. Moreover, the share of foreign companies as a percentage of all listed companies in the United States rose considerably, from around 18% in 2017 to 24% in 2022 (Chart A, panel b). Over the same period, foreign listings on European markets were on a slight downward trend.[8]
Concerns about a possible trend in delisting from European stock exchanges do not seem to be supported by the evidence. In light of the increase in the number of listed companies since 2019, recently observed delistings represent only a small share of the overall market capitalisation. For instance, yearly delistings reached 10.3% of the year-end market capitalisation at Euronext in 2019 – in a period when the number of listed companies was generally on the rise. By contrast, delistings represented only 4.8%, on average, over the period 2019-22 in terms of market capitalisation (Chart A, panel c). This compares with capital raised through initial public offerings (IPOs) equivalent to 0.17% of market capitalisation over the same period. Overall, delistings outweigh capital raised through IPOs, although these figures do not include capital raised and withdrawn from the market while the firm remains listed.[9]
Chart A
Aggregate dynamics of listing and delisting: comparing the United States with Europe and the United Kingdom
Sources: Panels a) and b): World Federation of Exchanges and ECB staff calculations; panel c): Euronext and ECB staff calculations.
Notes: Panel a): Number of listed companies (domestic and foreign) aggregated across a relevant subset of US exchanges including NYSE and Nasdaq (blue bars) and a subset of relevant EU exchanges, including the London Stock Exchange, Deutsche Börse, Euronext and Nasdaq Nordic constituents (yellow bars). The underlying data for World Federation of Exchanges are based on reporting at the exchange federation level. Average market capitalisation represents averages of domestically listed companies. Panel b): The sample comprises foreign listed companies, depicted as a percentage share of listed companies, for a relevant subset of US exchanges (blue line) and a subset of relevant EU exchanges, including the London Stock Exchange (yellow line). Importantly, for specific European domestic exchanges, the sample comprises companies domiciled in European countries that are not the same as the location of the respective reporting exchange. Panel c): The chart shows the size of aggregated delistings at Euronext per year relative to year-end market capitalisation of Euronext in terms of listed companies. For comparison, in 2022 25% of shares traded in Europe were exchanged on Euronext markets.
In addition, the primary reasons for delisting have not changed and remain largely related to acquisitions, mergers and takeovers (Chart B, panel a).[10] The most recent delistings by EU and UK companies were due to acquisitions, mergers or takeovers, and remained roughly in line with historical proportions. By contrast, the share of privatisations, i.e. decisions by company owners to revert to non-listed equity funding, has remained quite low over time. These observations are common to all major European exchanges, although Börse Frankfurt has a somewhat lower share of mergers and acquisitions (Chart B, panel b). This low prevalence of delistings as a result of privatisation or a failure to meet listing conditions could suggest that the burden of listing rules and the associated costs are not the main factor at play in companies’ decisions to delist.
Chart B
Drivers and reasons behind the delisting of European companies
Formerly listed EU and UK-domiciled companies
(percentages)
Sources: Panels a) and b): Bureau Van Dijk’s Orbis, Bloomberg and Compustat databases, and ECB staff calculations.
Notes: Panel a) depicts relative shares of delisting reasons over time for the 4,554 companies reported as delisted in our sample. Panel b) clusters these reasons across different European exchanges for the period 2015-22. 1,001 firms were reported for the chosen stock exchanges for this period, including 92 for Börse Frankfurt, 32 for Euronext Amsterdam, 280 for Euronext Paris, 452 for the London Stock Exchange and 143 for Nasdaq OMX – Stockholm. Privatisation comprises companies that voluntarily exited stock exchanges without a significant change in the shareholder structure. The data were compiled by identifying formerly publicly listed companies in Bureau Van Dijk’s Orbis database and identifying delisting reasons in Bloomberg’s corporate action database and the Compustat database. The category “privatisation” includes reasons such as buybacks, being delisted at the company’s request and securities called for redemptions. The category “Other” includes reasons such as transfer of shares, cancellation of listing, and security expired or inactive.
More worryingly, there is some evidence that the recent listing gap between the United States and Europe is due, at least in part, to the greater attractiveness of US stock markets for foreign firms. A narrative at times voiced in the financial press in recent years has been that there may be strong incentives for European firms, notably large companies, to move their primary listings to US exchanges.[11] In addition to benefiting from higher market depth and a broader investor base in the United States, large European firms listing there may also benefit from listing standards for foreign issuers at the NYSE that are geared towards large companies.[12] Another reason is that dual-listed firms also take advantage of the foreign private issuer status granted by the US Securities and Exchange Commission, which alleviates a considerable share of the compliance costs associated with listing. Accordingly, the number and market capitalisation of EU-domiciled companies that are dual-listed in both the EU and the United States, have also increased steadily in recent decades (Chart C). To some extent, this is also true for EU-domiciled companies that are listed in the United States only. In 2022 EU-domiciled companies that are dual-listed in both the EU and the United States were around six times more numerous than EU companies listing only in the United States. This, in turn, represents an aggregated market capitalisation that is 18.8 times larger for EU-domiciled dual-listed companies than for EU firms listed in the United States only.
Chart C
Comparison of EU companies dual-listed in the United States and EU-domiciled companies listed solely in the United States
Sources: Compustat and ECB staff calculations.
Notes: The set of dual-listed companies comprises the set of companies observed in both the Compustat North America database (filtered to only include NYSE and Nasdaq-listed companies) and the Compustat Global databases (filtered to only include EU stock markets) for a given year. Similarly, the set of EU companies identified as solely listed in the United States includes EU-domiciled companies that only appear in the Compustat North America database for a given year.
If the listings gap between EU and US stock markets were to widen further, particularly for larger firms, this would likely exacerbate existing differences in market depth and liquidity. US stock markets already benefit from higher market depth and liquidity, owing to higher integration, a larger pool of institutional investors and a more dynamic tech sector.[13] If US listings of large EU firms were to continue to increase, this would accelerate this positive US feedback loop and deprive EU capital markets of further growth opportunities. For example, in 2022 EU-domiciled firms made up over 12% of US-listed foreign firms (comparing Chart C, panel a) with Chart A, panel a), making the EU the largest segment of foreign companies listed on US exchanges, i.e. Nasdaq and NYSE (Chart A, panel b).
In recent years EU public policy on stock listing has focused on reducing the regulatory costs of listing, in particular with a view to making it more attractive for smaller companies. This was reflected in initiatives such as the creation of small and medium-sized enterprise (SME) growth markets under MiFID II[14], which were promoted further in 2019[15], and the 2022 proposal for an EU Listing Act[16], which aims to alleviate the administrative burden of listing.[17] These policy measures are aimed mainly at facilitating the listing of smaller companies and at enabling them to diversify and supplement their sources of financing.
This calls for reflection on policy measures that would make listing on EU stock markets more attractive, also for larger companies that may otherwise choose to list elsewhere. For larger companies, making it easier to list in the EU may not be as effective as making it more attractive to list in the EU – and for dual-listed companies, making investing in their EU stock more attractive – primarily by deepening the depth and liquidity of EU stock markets. The fragmentation of the EU stock exchange landscape is a concern in this regard, as there is evidence that larger and more efficient stock markets generate more IPO activity and liquidity.[18] This could lead to a negative feedback loop whereby the lack of public listings leads to further delistings, while the opposite dynamic materialises in the United States and potentially other jurisdictions, as noted above. The attractiveness of listing in the EU could thus benefit from further consolidation of EU stock exchanges, as well as measures to support the build-up of EU-based institutional investors, such as asset managers and pension funds. Tax incentives, both for corporations by reducing the debt-equity bias and for retail investors investing in equity, could also contribute to deepening EU public equity markets.[19]
Such delistings include Flutter Entertainment, CRH, Linde, Rothschild & Co and Smurfit Kappa, which were delisted from EU exchanges in 2023 and at the start of 2024. Some companies, such as British semiconductor company ARM Holdings, chose not to list in Europe at all, but to go directly to US exchanges to launch their initial public offerings (IPOs).
See, for example, Augar, P., “How the US is crushing Europe’s domestic exchanges”, Financial Times, 25 September 2023.
See, for example, Financial Integration and Structure in the Euro Area, ECB, Frankfurt am Main, March 2020, p. 7: “…the euro area financial structure is characterised by a continuing dominance of non-marketable financing instruments, such as loans and unlisted shares”.
For an overview of the main determinants of listing decisions, see Lowry, M., Michaely, R. and Volkova, E., “Initial public offerings: A synthesis of the Literature and Directions for Future Research”, Foundations and Trends in Finance, Vol. 11, Issues 3-4, January 2017, pp. 154-320. Reasons include financing of investment needs, achieving higher valuations, capital structure adjustments, liquidity needs and diversification of the ownership base.
De Haas, R. and Popov, A., (2023) “Finance and green growth”, The Economic Journal, Vol. 133, No 650, February 2023, pp. 637-668.
See Capital markets union 2020 action plan: A capital markets union for people and businesses, European Commission, 2020.
The comparison focuses on the largest stock exchanges in both jurisdictions, taking into account that European stock exchanges are more numerous and fragmented.
Importantly, for selected European domestic exchanges, the sample comprises companies domiciled in European countries that are not the same as the location of the respective reporting exchange. Notably, both Europe and the United States experienced a small downtick in listings in 2022, but this is more likely the result of cyclical factors than a delisting trend.
This statement does not take into account transferred securities or direct listings.
For an overview of the classification, see Macey, J., O’Hara, M. and Pompilio, D., “Down and Out in the Stock Market: The Law and Economics of the Delisting Process”, The Journal of Law and Economics, Vol. 51, No 4, November 2008, pp. 683-714.
See, for example: Mathurin, P. and Chassany, S., “Flight risk? London listings are the most vulnerable to New York’s allure”, Financial Times, 25 March 2023. While press reports link this narrative to the attractiveness of US markets, other factors such as US-based shareholders or expanding US-based operations may also lead firms to list in the United States.
For instance, for a foreign firm to qualify to list at the NYSE solely on the basis of its market capitalisation, it must reach a valuation of USD 750 million compared with the GBP 30 million of issued securities requirement at the London Stock Exchange. For more details, see the Overview of NYSE Quantitative Listing Standards.
Martin, K. and Asgari, N., “Why Europe’s stock markets are failing to challenge the US”, Financial Times, 25 April 2023.
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, OJ L 173, 12.6.2014, p. 349.
Regulation (EU) 2019/2115 of the European Parliament and of the Council of 27 November 2019 amending Directive 2014/65/EU and Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets, OJ L 320, 11.12.2019, p. 1.
See “Capital Markets Union: new proposals on clearing, corporate insolvency and company listing to make EU capital markets more attractive”, press release, European Commission, 7 December 2022.
However, there is some evidence that size and profitability are key factors in a company’s decision to list, with the impact of regulatory costs being less relevant. For further details, see Bessler et al., “Why do firms down-list or exit from securities markets? Evidence from the German Stock Exchange”, Review of Managerial Science, Vol. 17, No 4, May 2023, pp. 1175-1211. A higher number of listed companies on a single stock exchange would also limit the impact of rules capping the weight of individual firms in indices, which may, in turn, contribute to delisting decisions in some cases.
See Wright, W. and Friis Hamre, E., “The problem with European stock markets”, New Financial, March 2021.
See the European Commission’s Proposal for a Council Directive on laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes, COM/2022/216 final, 11 May 2022.