The Value Gap: Europe Cannot Scale

Bo Becker, Efraim Benmelech and João Monteiro

No 35577, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 2008, the aggregate market value of U.S.-listed firms was roughly one-third higher than that of European-listed firms. By 2023, it was more than 300% higher, a difference of $34 trillion. The valuation gap is broad-based, rather than concentrated among a few superstar firms, and is driven by differences in firm values, not in the number of listed firms. Across sectors, the gap is larger in R&D-intensive industries and in industries with high returns to scale. European firms’ size is strongly correlated with home-country GDP, whereas U.S. firms’ size is unrelated to home-state GDP. Smaller European firms also face a particularly large cost-of-capital gap and do not appear able to substitute debt for limited access to equity financing, including venture capital. Taken together, these facts suggest that financial and product-market frictions constrain European firms’ ability to scale.

JEL-codes: G12 G15 G32 O36 (search for similar items in EconPapers)
Date: 2026-08
Note: AP CF EFG IFM ITI PR
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