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1 MOTIVATION AND MAIN CONCEPTS 10 1.1 Introduction 10 1.2 Main concepts 10 2 THE FINANCIAL POSITION OF NON-FINANCIAL ENTERPRISES 12 2.1 Financial position 12 Box 1: The financial situation of non-financial corporations in the euro area, the United States, Japan and the United Kingdom 15 2.2 Explaining country differences in financing choices: theory and empirical evidence 24 Box 2: Stylised facts on financial structure and institutional features in the euro area countries 26 Box 3: Financial position of non-financial corporations in the ten new EU Member States (NMS-10) 29 2.3 Concluding remarks 32 3 THE FINANCING OF SMES 34 3.1 SMEs and financing constraints 35 3.2 Surveys 35 3.3 The academic literature 40 3.4 How different is the financing of SMEs from that of large firms? 42 Box 4: The impact of firms' financial position on investment decisions: An analysis with firm-level data 46 3.5 Concluding remarks 52 4 CHANGES IN THE FINANCIAL LANDSCAPE OF THE EURO AREA 53 4.1 The development of market-based financing in EMU 55 4.1.1 The corporate bond market 55 4.1.2 The equity market 57 Box 5: The cost of capital for euro area corporations 59 4.2 Financial innovations and new financing avenues for corporations 60 4.2.1 Broad developments in securitisation 62 4.2.2 The development of the syndicated loan market to corporate borrowers 64 Box 6: Fact-finding exercise with market participants 66 4.3 New financial market players: Institutional investors and private equity funds 69 4.3.1 Institutional investors 69 4.3.2 Private equity in the euro area (venture capital and buyout funds) 73 Box 7: Corporate governance in the euro area and recent policy reforms 76 4.4 Concluding remarks 80 5 REFERENCES 82 ANNEX 1 Description and comparison of the bach database and the national and financial accounts statistics used in the report 97 ANNEX 2 Methodology for the analysis of crosscountry differences: Weighting scheme and institutional indicators 120 ANNEX 3 SMES in the euro area: Sectoral and country landscapes 122 ANNEX 4 Methodology for the analysis of the financing of SMES: Variance decomposition and weighting scheme 127 ANNEX 5 Overview of european and national surveys on investment/ business constraints