In 2008, the US stock market was worth $3 trillion more than the combined European stock market; in 2023, the gap was $34 trillion. This column argues that the valuation gap is not driven by differences in GDP, number of listed firms, sectoral composition, or the presence of a few superstar firms, but by European firms’ inability to scale. European firms remain tethered to their home market. Small European firms face a much larger cost of capital and cannot substitute debt with access to equity financing, including venture capital. Therefore, even if they have profitable growth opportunities, European firms cannot grow as their US counterparts.



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