The European Central Bank has published a working paper finding that euro area firms with geographically diversified shareholders sustained investment better during severe economic disruption. Among firms in sectors most exposed to the COVID-19 shock, where exports fell 16% on average, firms with more home biased ownership reduced investment by 20% more than comparable firms with more diversified shareholders. The study combines securities holdings and financial statement data for listed firms across 19 euro area countries from 2015 to 2023. Domestic investors held 57% of firms’ equity on average, while investors from other euro area countries held only 9%, with these shares remaining broadly stable. The investment gap mainly reflected weaker equity resilience among firms with home biased ownership, whose book equity fell 13% relative to more diversified peers, while differences in sales and bank financing were limited. The authors conclude that deeper cross-border equity integration could strengthen private risk sharing and corporate resilience, although they caution that the estimates may represent an upper bound on the effect of equity diversification because unobserved firm characteristics may also contribute.
European Central Bank publishes research linking diversified ownership to 20% stronger investment resilience
A European Central Bank working paper finds that firms with home biased shareholders cut investment by 20% more than diversified peers after severe COVID-19 exposure. Domestic investors held 57% of euro area firms’ equity, compared with 9% held elsewhere in the euro area, while weaker equity resilience rather than sales or bank financing differences primarily explained the investment gap.