The EU prospectus regulation and its impact on SME listings

Abstract

This study analyses the “regulatory overreach hypothesis”, which asserts regulatory complexity as the cause for the IPO decline in Western countries, by focusing on the novel EU growth prospectus for SMEs introduced by the Prospectus Regulation. Using a hand-collected database of initial offerings at EU exchanges (2016–2022), we find the EU growth prospectus successfully streamlined SME IPOs without jeopardising investor protection. Despite being less complex in terms of word counts, it remains informative. SMEs are more likely to use it unless the offering becomes relatively large. We do not substantiate that fixed listing costs were reduced. Using a triple difference analysis, we do not find robust evidence of an increase in IPO activity. While questioning the regulatory overreach hypothesis, our findings show that IPO regulation can be simplified and made less burdensome without curtailing investor protection.