This report provides a comprehensive review of the Spanish capital markets, drawing on in-depth empirical analysis based on original data, as well as a unique survey of listed and unlisted Spanish companies conducted by the OECD. It identifies areas for reform and offers recommendations to guide policy makers in their efforts to promote Spanish capital market development.
The 2008 financial crisis and subsequent euro crisis had significant and lasting negative impacts on the Spanish economy and capital markets. Both have since seen a partial recovery (although temporarily halted by the COVID-19-induced downturn), but it has been a drawn-out process. Part of the reason is the lacking size and depth of the Spanish capital market. Overreliance on bank financing and a lack of diversity in funding options served to prolong the crises and restrict companies’ access to the capital required for a rapid and sustained recovery. They also limit the longer-term growth prospects of the Spanish economy – a clear majority of Spanish small and medium-sized enterprises (SMEs) consider access to finance to be a barrier to investment.
Capital market development has been a key topic in EU-level debate in recent years. The advancement of the Spanish capital market not only constitutes an important part of that broader European project but will also be important to allow Spain to fully reap the benefits of larger and more integrated European capital markets. Spain should therefore benefit from the current momentum to implement policy reform that will help expand the use of capital markets to the benefit of firms, households and domestic investors.
This report analyses the Spanish capital market landscape in detail. Drawing from an empirical mapping, together with a unique OECD survey of Spanish companies conducted specifically for this review as well as in-depth interviews with a range of market stakeholders, it formulates policy recommendations to improve the functioning of the Spanish capital markets and thereby the dynamism of the Spanish economy.
The report provides a holistic assessment of Spanish capital markets, and therefore contains numerous policy recommendations. It is important to note that these form a coherent whole and that piecemeal implementations will be much less impactful than a co-ordinated, whole-of-government approach. Nevertheless, there may be significant differences in the time and effort needed to implement various recommendations. To help focus and prioritise reform efforts, five key recommendations have therefore been identified below based on their expected impact and breadth in scope. The other recommendations are outlined in the roadmap in section 1.2 and are further detailed in each subsection of chapter 1.
Increasing retail participation in capital markets contributes to three key goals: it provides households with an avenue to partake in corporate wealth creation; it facilitates corporate access to finance, especially for smaller companies; and it contributes to improved secondary market liquidity. The empirical mapping illustrates the relevance of all three issues in Spain. Household assets are heavily concentrated in real estate and financial wealth is lower than in peer countries. Spanish companies see access to finance as a major barrier to investment, and the gap between large and small firms is wider than in comparable countries. Liquidity has decreased over time, even when accounting for fragmentation in trading across venues. Increased household engagement in capital markets can contribute to improvements in all these areas. Following successful examples in other European countries, a key recommendation is therefore the creation of a dedicated individual investment savings account. This account should give savers the flexibility to decide on their own asset allocation and benefit from simplified capital gains taxation. Fiscal incentives could apply if deemed appropriate.
The Spanish domestic institutional investor sector in general – and the occupational pension fund sector in particular – is undersized. Pension funds are key investors in major capital markets, so in addition to complementing the publicly funded Pillar I system on which Spain is currently heavily reliant, increasing the size of this sector would have significant positive effects on capital market development. It is vital that Spain continues current efforts to promote occupational pension funds and create a policy environment that enables and encourages these funds to engage in capital markets, including equity markets.
Given their liability structures, pension funds are uniquely suited to long-term investment. This is dependent on a relatively high degree of certainty with respect to future fund outflows. The legislation introduced in Spain in 2015, whereby households can unconditionally withdraw their pension savings starting 10 years after the contribution was made, significantly limits this foresight and therefore the extent to which pension funds can contribute to long-term investment needs. A pension account should not serve to cover liquidity needs before retirement – this role should be filled by an individual savings account like that recommended in this report. The possibility of early withdrawals should therefore be removed. Contributions made under the assumption of the availability of early withdrawal (i.e. from 2015 until the law is amended) should retain this possibility.
The Spanish tax system, like many others around the world, currently favours debt over equity since interest payments on debt are tax deductible while equity financing has no equivalent benefit. Its perpetual structure makes equity well-suited to financing long-term, high-risk and productivity-enhancing ventures. It plays a critical role in enabling a dynamic economy and a resilient financial system. The existing debt bias can therefore be detrimental to economic development more broadly. Spain should consider removing this bias by introducing an allowance for corporate equity along the lines of the EU’s DEBRA proposal.
Raising awareness about the availability of market-based financing among smaller companies is key to creating an ecosystem with diverse sources of funding and a natural progression between different types of financing, including both private (venture capital and private equity/credit) and public markets (growth markets and regulated exchanges). A public-private co-operation, including for example the Chamber of Commerce, Spanish stock exchange operators and private capital associations, co-ordinated by the Ministry of Economy and/or the CNMV would be impactful in this regard. It could include educational seminars and serve to keep companies up to date about relevant recent developments, such as the possibility of voluntarily disclosing information through the upcoming European Single Access Point.
Public equity markets. Since 2000, the main Spanish stock market has seen almost twice as many delistings as new listings. Both the amount of capital raised and secondary market liquidity have decreased substantially. Only 17% of Spanish non-financial companies’ equity financing corresponds to listed equity, 11 percentage points less than the euro area aggregate. Moreover, listed companies have low free float ratios (shares available for trading) compared to many peer markets, which results in Spain being underweighted in international indices. Spain’s share in total EU market capitalisation is 23 per cent lower than its GDP share would suggest. In the OECD survey of Spanish companies, no more than six per cent of respondents were planning to go public within the next three years. The most cited reasons for staying private were an unwillingness to share control with others and a perceived lack of size. For listed companies, the low level of secondary market liquidity was identified as the main challenge, followed by compliance costs, share price volatility and transparency and disclosure requirements.
Smaller companies’ use of capital markets. Ninety-nine per cent of all businesses in Spain are small- or medium-sized. They comprise more than two-thirds of the workforce and nearly three-fifths of total value added in the economy. However, the productivity levels of these firms are low when compared internationally and a significant share face financing constraints restricting them from making the investments needed to grow. While the SME segment of the main Spanish public equity market has been more dynamic than the main market, with over three times as many new listings as delistings since the 2008 financial crisis, many firms still see themselves as too small to use capital markets and therefore remain heavily reliant on bank financing.
Institutional investors. The domestic institutional investor sector (pension funds, insurance companies and investment funds) in Spain is undersized and characterised by a lack of investment in corporate securities (both debt and equity). The occupational pension sector amounts to no more than 2.5% of GDP. Growth has been stagnant in recent years. Similarly, the insurance sector’s assets represent a much smaller share of the economy than in peer countries. Investment fund growth has also been low in a global context, partly driven by an unfavourable regulatory environment. In addition, institutional investors’ portfolio allocations are generally very conservative and unconducive to further use of capital markets, in particular equity, by Spanish companies. Only a quarter of Spanish publicly traded equities is held by institutional investors, of which 95% refers to foreign entities. This is particularly visible among smaller companies, only 7% of whose equity is in the hands of institutional investors. As shares of GDP, corporate equity and debt holdings by all three categories of institutional investors are significantly below peer country averages. The limited size and capital market activity by these investors severely limits the growth capacity of the Spanish markets.
Household savings and participation in capital markets. The Spanish household savings rate is around half of that in most peer countries. Consequently, household financial assets are also low when compared internationally (190% of GDP in 2023, compared to an average of 256% in peer countries). Household assets are heavily concentrated in real estate, which is three times higher than financial wealth as a share of disposable income. One aspect influencing the level of household wealth is the composition of assets: Spanish households allocate almost two-fifths of their assets to currency and deposits, leaving household wealth largely dependent on the savings rate.
Market-based debt financing. The Spanish corporate bond market is dominated by financial companies, which represent 86% of total issuance since 2000. Spanish non-financial companies instead rely predominantly on bank loans (90% of debt financing). The number of bond issuers has increased since the 2008 financial crisis but remains very low at an average of 16 from 2012 to 2023. The market is still reserved for large companies, with a median issue size of over EUR 500 million in 2023.
Sustainable financing instruments. Spanish companies make significant use of sustainable financing instruments, in particular green loans. Since 2016, Spain has had the highest aggregate amount of green loan borrowing among peer countries. Green bond issuance is broadly in line with other European economies. Other types of sustainable financing instruments (social, sustainable and sustainability-linked securities) are less common.
