it is difficult for anyone outside the investing company to estimate possible returns. hence any funding must be made internally for the most part. this is what we have been witnessing for a few years now : self - financing has covered 90 per cent of this kind of investment, 20 points more compared with 2012. the increase in own funds has been accompanied by a fall in bank debt, whose share of firms ’ total liabilities fell from 24 per cent in 2012 to 19 per cent in 2017. in newly - fledged firms, a venture capitalist can be of great help by contributing to the firm ’ s capital with money available to fund an innovative idea, but also with specialist know - how. 14 in italy, the venture capital industry is, however, quite small on an international scale and it is not easy, even for the most promising innovative firms, to find specialized financiers to participate in their capital. the most consolidated firms can issue and place new capital to fund investment in technology and innovation. in theory this offers some significant advantages : compared with bank debt, equity requires no collateral, reduces moral hazard issues, and allows the investor to share in the profits if the innovative project is a success. the empirical literature shows that in many countries - and in particular in the united states - these advantages are recognized and risk capital often plays a more important role than debt financing for innovation. 15 nevertheless, italian firms are relatively capital - poor on average : in 2017 financial leverage was about 40 per cent, which is higher than in france, germany and spain. see bronzini, r., caramellino, g., and magri, s., ‘ venture capitalists at work : what are the effects on the firms they finance? ’, banca d ’ italia, temi di discussione ( working papers ), 1131, 2017. see magri, s., ‘ does issuing equities help r & d activity? evidence from unlisted italian high - tech manufacturing firms ’, banca d ’ italia, temi di discussione ( working papers ), 978, 2014. another path for financing innovation involves issuing bonds. 16 this is the path that large italian firms have been pursuing more decisively in the last few years. compared with other european countries, like germany, whose financial system is dominated by bank credit, the share of corporate bonds in firms ’ total financial debt is greater, at just over 13 per cent against 12 per cent in germany and the euro

foreign investment in the italian financial market. inward investment in italian bonds and shares amounted to 61. 5 trillion lire in 1995 ; in 1996, owing mainly to the increased liquidity of the international market, the inflow of funds rose to 125 trillion lire. it remained at about that level in 1997 and then rose to 165 trillion lire last year. funds were attracted from abroad by the steady improvement in inflation and the consequent expectation of lower interest rates. these factors were consolidated and reinforced in 1998, inter alia by italy ’ s imminent adoption of the single currency. italian portfolio investment abroad has increased more rapidly. portfolio investment outflows were substantially less than inflows in both 1995 and 1996. with the reduction in official and market interest rates, investment abroad increased ; owing to the less favourable outlook for profits, inward investment tended to slow down. in 1997 there was still a net inflow of 7 trillion lire, but in 1998 there was a net outflow of 18 trillion lire. the proportion of foreign securities in italians ’ investment portfolios is still smaller than in other countries. the process of diversification is bound to continue. the volume of listed shares in the italian market is comparatively small. the alignment of italian interest rates with those prevailing abroad is beneficial for its effects on the real economy but tends to reduce the attractiveness of the national financial market for italian and foreign investors alike. the presence of a large number of foreign intermediaries in italy is highly positive considering the benefits they bring for italian saving and their role in modernising the market. accordingly, we have taken a favourable view of the entry of foreign intermediaries and the additional intensification of competition within italy. however, in the absence of profitable domestic investment opportunities, the export of saving is also facilitated. the relative weakness from which the italian banking system still suffers in terms of size and range of business is a handicap. in the context of the single currency the abundance of saving, which for many decades was one of the great strengths of the italian economy, loses part of its value as a comparative advantage in fostering growth. the new situation created by greater openness to cross - border financial flows calls in the first place for a strengthening of the efficiency and competitiveness of the banking system. – 7 – the response must be prompt and adequate in order to grasp the opportunities for growth and to finance profitable projects in italy. we have encouraged the privatisation of the banking system and the formation