Improving Italy’s capital market will boost growth opportunities for Italian companies and savers

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Mr Giuseppe CONTE, Italian Prime Minister. Copyright: European Union

This article is brought to you in association with OECD.


Italy’s structural reforms of recent years have improved the financial health of the corporate sector and contributed to a gradual economic recovery. However, the Italian economy still lags other large European economies. Improving the way capital markets function would help drive investment in the real economy, creating jobs and boosting productivity, according to a new OECD report.

The OECD Capital Market Review of Italy says that reforms to the institutional and regulatory framework will give corporations better conditions to finance new long-term investments and citizens better opportunities to diversify their savings and share in the success of Italian business.

The Italian capital market is less developed than in many other advanced economies. Over the last ten years, less than four companies per year listed on the regulated market of the Italian stock exchange and the Italian market capitalisation as a percentage of GDP remains well below that of its European peers. By the end of 2018, the total value of Italian listed shares represented only 31% of GDP, much less than in Germany (46%) and France (88%).

“Reforming the capital market will help release the full potential of the Italian economy and drive sustainable growth,” said OECD Secretary-General Angel Gurría, presenting the report with Italian Minister of Economy and Finance Roberto Gualtieri and European Commission Executive Vice-President Valdis Dombrovskis, in Rome. “At the same time, minimising economic, social and political uncertainty will be instrumental in harvesting the full benefits of reforms and reinforcing the trust of entrepreneurs, investors and households.”

The report reveals that Italy is one of the large European economies with the highest proportion of high-growth firms (23%). However, there are still too few high-growth companies compared to the large number of small companies with low productivity. More developed capital markets would help by providing the financial means for companies to invest, grow and obtain a critical competitive scale, according to the report.

Italian companies also remain highly dependent on debt financing. Moreover, overall 40% of their assets are financed by short-term debt, a significantly higher ratio than their European peers. This constrains growth-oriented investments and increases the vulnerability of the non-financial sector in times of macroeconomic shocks. Better access to and more efficient allocation of long-term capital, such as equity capital and longer-term corporate bonds, would allow more strategic risk-taking. This will increase research, development and innovation and improve the productivity of both the human and fixed capital stock in Italian industry.

The report notes that most of the money in global capital markets is invested through large institutions that use passive investment strategies that track a pre-defined index. However, Italy is receiving a relatively smaller share of investments from global institutional funds. One reason is that the free-float of Italian listed companies is relatively low compared to most advanced markets. Increasing the free-float ratios in Italy is essential to help companies attract the growing pool of capital from global institutional investors.

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