Financing High-Growth Firms in Europe: Market Integration Matters, but so does Depth

Europe’s competitiveness challenge is increasingly linked to its limited ability to generate and scale high-growth firms. This paper examines how capital market development shapes firms’ access to equity finance and how equity financing is associated with subsequent investment and innovation. Combining firm-level data from the European Investment Bank Investment Survey (EIBIS) with ORBIS financial statements and country-level indicators of capital market development, we analyse equity issuance across the European Union, the United Kingdom and the United States. We distinguish between two dimensions of capital market development: capital market depth and market size. Our results show that firms located in deeper and larger capital markets are significantly more likely to issue equity, with the strongest effects observed among young, high-growth and high-tech firms. Firms that issue equity subsequently exhibit higher investment rates, greater innovation intensity and stronger intangible investment. Simulation exercises suggest that aligning EU capital markets with deeper and more integrated benchmarks could substantially expand firms’ access to equity finance. Overall, the results indicate that both the depth and scale of capital markets matter for financing firms with the greatest growth potential, thereby supporting policy efforts to deepen and integrate European capital markets.