Europe’s push for deeper capital markets assumes that cross-border equity ownership matters. This column shows that it does. Euro area listed firms remain heavily owned by domestic investors. When COVID-19 struck, firms in the hardest-hit sectors with more domestically concentrated shareholders cut investment more, lost more value, and raised less equity than peers with diversified shareholder bases. Capital markets union is hence not just about financial integration. It is about real economic resilience.

Recent policy reports by Draghi (2024), Letta (2024), and the ECB (2024) all point in the same direction: Europe needs a stronger capital markets union (CMU). Deeper, more integrated capital markets would reduce firms’ dependence on banks, enhance private risk sharing, and make the economy more resilient.

Research supports this view. Gossé and Jehle (2024) show that European investors would gain from greater cross-border stock diversification, highlighting the persistence and cost of home bias within EU equity markets. Venditti et al. (2025) find that deeper capital markets can lower the cost of capital and support investment, while Angeloni and Cavallini (2026) argue that reform should prioritise innovation investment as Europe seeks to close the gap with global competitors.

A key part of the CMU agenda is cross-border equity investment. Yet European equity markets remain strikingly national. Yet European equity markets remain strikingly national: investors overweight domestic assets – the classic equity home bias – even within the euro area (Beck et al. 2024). For firms, this means ownership often remains concentrated among domestic shareholders. That concentration may matter. A narrow domestic investor base can limit access to external equity, weaken international risk sharing, and force firms to adjust more sharply when shocks hit.

Existing research shows that opening stock markets to foreign investors can raise growth and improve firm performance (Bekaert et al. 2005, 2011, Mitton 2006) and that foreign institutional investors benefit firm investment (Kacperczyk et al. 2021). But we know much less about how the geography of a firm’s entire shareholder base shapes real outcomes, particularly in crises, when international diversification should be most valuable but may also be most fragile.

Persistent home bias in euro area equity ownership

In a new paper (Banu et al. 2026), we make use of the ECB’s Securities Holdings Statistics at the sector level (SHS-S) to measure firm-level shareholder diversification. 

Figure 1, Panel (a), reveals that euro area firms remain largely domestically owned. The average euro area firm has 57% of its equity held by domestic investors. Investors from other euro area countries hold just 9%, while investors from outside the euro area account for the remaining 34%. This average ownership structure has barely moved since 2015.

Panel (b) shows the same pattern country by country for 2023. Domestic investors dominate in most member states, although less so in some smaller economies. But where domestic ownership is lower, the gap is filled mainly by investors from the rest of the world, not by investors from other euro area countries. Intra-euro area equity investment remains thin almost everywhere.

The limited cross-border holdings that do exist within the euro area come mainly from larger countries — notably Germany and France — and from Luxembourg, reflecting its role as a major hub for investment funds. Taken together, the evidence points to a clear conclusion: despite monetary union and years of capital-markets integration efforts, euro area equity ownership remains fragmented along national lines. 

Figure 1 Geographical distribution of shareholders

a) Over time

b) Cross-country flows 2023

Notes:  This figure shows the cross-sectional average of holding shares by investor region. Panel (a): average shares of domestic, other euro area, and rest-of-the-world holdings over time. Panel (b): average share of holdings by holder country and country of the issuing firm in 2023. We exclude issuers from Slovakia because of a limited number of observations. For all other countries we observe at least five issuing firms in 2023.

Measuring geographical shareholder concentration at the firm level

To measure how far each firm’s ownership is from a fully integrated benchmark, we construct a firm-level home bias measure based on each country’s aggregate holdings of euro area non-financial corporate equity. The measure has a simple interpretation. It equals one when a firm has no foreign shareholders and ownership is entirely domestic. It equals zero when the firm’s foreign ownership share is exactly what would be expected under the integrated benchmark. It becomes negative when foreign investors hold more of the firm’s equity than the benchmark would imply, that is, when domestic investors are underrepresented.

The resulting distribution shows substantial dispersion across firms. Some firms remain overwhelmingly domestically owned, while others have much more international shareholder bases. This heterogeneity is driven largely by differences in holdings by investors from outside the euro area, which vary sharply across firms. Over time, however, firm-level ownership structures are highly persistent.

Shareholder diversification and firm investment resilience during COVID-19

We use the COVID-19 pandemic as a large, unexpected shock to test whether the geography of a firm’s shareholder base matters for real outcomes.

Firms with more geographically diversified shareholders should be better able to absorb macroeconomic shocks. A broader investor base can lower the cost of equity by improving risk sharing, while prior visibility among international investors may make it easier to raise equity when conditions deteriorate (Errunza and Losq 1985, Merton 1987, Stulz 1999). But this advantage is not guaranteed. In crises, investors may retreat towards domestic assets, potentially weakening the benefits of international diversification.

We measure firms’ exposure to the COVID-19 shock using the fall in exports at the industry-country level, following the logic of Aghion et al. (2021). Our empirical strategy then compares firms with high and low home bias in highly exposed industries after the onset of the pandemic, in a difference-in-differences setting. To ensure that we compare similar firms, we combine this with propensity-score matching based on pre-crisis firm characteristics.

The results are large and persistent. Figure 2 shows that among firms in highly exposed industries, those with more domestically concentrated ownership cut investment by 20% more than comparable firms with more diversified shareholder bases. The gap appears in 2020 and widens through 2022.

The evidence also points to an equity-financing channel. High-home-bias firms experience larger declines in market valuations and rely less on equity financing during the crisis. Their book value of equity relative to firm size falls by 13% compared with otherwise similar firms.

In short, our findings point to a close relationship between shareholder geographical diversification and firms’ ability to sustain investment in the face of large external disruptions.

Figure 2 Estimated effect of a high home bias on firm investment

a) Differential effect

b) Predicted levels

Notes:  This figure shows the estimated effect of an above-median home bias in the matched sample of firms facing a large export shock, with log investment as the outcome and controlling for log sales. Panel (a): differential effect of high home bias. Panel (b): predicted levels for low- and high-home-bias firms, both normalised to the sample-wide average predicted outcome in 2019. Bars represent 90% confidence bands based on standard errors clustered at the firm level.

International investors did not retreat broadly during the crisis. Among low-home-bias firms, the share held by investors outside the euro area fell slightly, offset partly by domestic investors and partly by a rise in holdings from other euro area countries. Their shareholder base remained substantially more international throughout the crisis, while high-home-bias firms stayed overwhelmingly domestically owned.

These results are not driven by stronger sales resilience through a higher international revenue share, nor by better access to other funding. Differences in bank debt are small, insignificant and short-lived, and controlling for pre-COVID cash holdings leaves the results unchanged. The results also survive controls for investment-fund and majority ownership, so they do not simply reflect other features of the ownership structure.

Policy implications: Capital market integration matters when it is most needed

These findings point to substantial unrealised gains from greater cross-border equity holdings within the euro area. So far, diversification has mainly been towards the rest of the world, leaving considerable untapped potential for diversification within the euro area.

A more geographically diversified shareholder base can strengthen private risk sharing and make firms more resilient to macroeconomic shocks. This matters most precisely when markets are under stress. 

For the EU’s capital markets union agenda, the findings have clear implications. Cross-border equity integration is not only about developing deeper financial markets or reducing firms’ reliance on banks. It can also improve the real economy’s ability to absorb severe crises. In that sense, capital market integration matters most when it is most needed.

Source : VOXeu