Acting out institutional change: understanding the recent transformation of the French financial system

Abstract

For the purposes of understanding the causes and implications of the growth of financial markets around the world, I focus on a crucial aspect of the dramatic transformation of French capitalism over the last quarter of a century: the shift from a government-based financial system to a market-based one. I examine the causes and implications of the increasing role of financial markets in French capitalism on the basis of an analysis of the actors who issued securities on the country's financial markets. I show that the government's role as an issuer, and the deficits that drove its need for external funds, largely account for the development of these markets in the 1980s and early 1990s. In contrast, the dramatic growth of these markets from the late 1990s was primarily attributable to their use by French enterprises in pursuit of strategies of external growth, especially cross-border mergers and acquisitions. On the basis of my analysis, I challenge the argument that French corporate capitalism is now subject to the dictates of the financial markets but I also highlight the limits of the state's capacity to systematically shape the future of the French corporate economy. Instead, I argue that the existing French system can be better understood as one of managerial control in which senior corporate executives exercise considerable discretion in shaping the future of the companies they run.