Mezzanine Financing : A Comparison between the Finnish and International Financial Market Regulation

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https://helda.helsinki.fi/dhanken/handle/10227/233900
Title: Mezzanine Financing : A Comparison between the Finnish and International Financial Market Regulation
Author: Reunanen, Mika
Contributor: Hanken School of Economics, Department of Accounting and Commercial Law, Commercial Law
Belongs to series: Economics and Society - 327 - Ekonomi och samhälle - 327
ISSN: 0424-7256 (printed)
2242-699X (PDF)
ISBN: 978-952-232-381-1 (printed)
978-952-232-382-8 (PDF)
Abstract: The purpose of the research is to give understanding what is the company law background concerning the use of mezzanine financing, how mezzanine instruments are handled from accounting and taxation perspective and how they are used in the market today. On top of that is reviewed the size of mezzanine market in relevant countries. The main focus is in Finland and comparison is done to Sweden, Estonia, USA, UK and Germany. The differences of legal frameworks and markets in relation to the discussed financing form are analysed. The research objective has been to conclude what are some of the main differences of company regulation, accounting and taxation rules and local market conditions related to the topic in question. Additionally, is reviewed how mezzanine could be used in bank lending going forward in order to support functioning capital markets. In the review of legal background, the focus has been on company law solely. Reference to other legislation is made only if it is necessary to understand better the specific company law regulation in question. The analysis of applicable accounting rules has concentrated on the local GAAP and IFRS regulation. In the review of taxation rules is focused on thin capitalisation rules and deductibility of interest from the borrower´s view. When reviewing the local market conditions, the attention has been given to the size of the market in terms of amount of venture capital actors, volumes of venture capital investments, number of banks and volumes of bank loans. The research is based on academic and professional literature in company law and finance. The outcome of the research is that there are significant differences in the company law, accounting rules and taxation regulation between the observed countries. There are also significant differences in mezzanine markets between the observed countries due to variation of actors and their capacity to provide financing. This influences on the availability of the mezzanine financing in general. Additionally, it can be concluded that mezzanine is a potential bank lending form. Mezzanine financing could be used especially in situations where customer does not have collateral to offer and bank would be prepared to grant financing even with traditional debt instruments. Mezzanine instruments give also additional possibilities for a bank to price the lending to reflect better the risk of the financing transactions. However, mezzanine cannot be a tool which would allow banks to step to transactions or projects which would be riskier than those transactions or projects which are financed by banks today with traditional senior debt loan instruments. It is rather a tool which would provide to banks additional alternatives to price more accurately the risks they would take anyhow.
URI: https://helda.helsinki.fi/dhanken/handle/10227/233900
Date: 2019-05-08
Subject: mezzanine
finance
company
law
accounting
taxation
venture capital
bank
subordination
regulation


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