The changing landscape of firm financing in Europe, the United States and Japan

We re-examine the structure of the financial sector, with a focus on firm financing, household assets and the structure of the banking sector of the 28 EU member countries, Japan and the United States. Our analysis is based on an extended panel dataset of 25 indicators over the period 1995-2016. This paper is an update and extension of a previous study by Bijlsma en Zwart (2013). Using principal components analysis as in Bijlsma and Zwart (2013), we classify the EU-28 countries into different groups according to their financing patterns in 2015. We find four groups of EU countries, namely market-based countries, bank-based countries, Eastern European countries and outliers – countries with disproportionally large financial sectors in relation to their country size. Our classification is consistent with that of Bijlsma and Zwart (2013) for 2006, suggesting a strong persistence of financial structures in Europe over time. We then discuss the development of a wide range of financial indicators before and after the 2007/8 global financial crisis. We observe a considerable decline in bank credit to non-financial firms, especially in bank-based and Eastern European countries. Furthermore, we see a shift in the capital market away from equity financing towards bond financing, especially in market-based EU countries and the US. The growth of alternative forms of financing is rapid. However, their size remains relatively small as a percentage of GDP. For the Netherlands, we observe a moderate increase in market financing and strong growth of alternative forms of financing such as factoring. Our research provides a useful comparative tool of the financial sector across Europe for policy makers.