- Prospectus — Financial regulation — Monetary union
This chapter zooms in on the ‘light’ disclosure regime for small and medium-sized enterprises (SMEs). It shows that SME financing through capital markets is no easy task. On the supply side, adverse selection and lack of liquid secondary markets hamper the access of both retail and professional investors. On the demand side, lack of financial literacy, costs of compliance, and the possibility for the owners to lose control of the firm discourage SMEs from turning to capital markets for funds. For both reasons, it is therefore understandable why SMEs are typically financed through banking and banks maintain a ‘monopolistic’ power over SMEs. In this context, the chapter argues that the light disclosure regime introduced by the Prospectus Regulation is mostly toothless. Still shaped by the ‘myth of the informed layman’ and of little use to institutional investors, the EU Growth prospectus does reduce compliance costs for issuers but suffers the lack of a EU-based ‘eco-system’ fully supporting SMEs seeking finance.
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