Institutional Investors in French and German Corporate Governance: The Transformation of Corporate Governance and the Stability of Coordination
This paper examines the transformation of the system of corporate governance of France and Germany from the mid-1990s to early 2007. I focus on the rise of foreign ownership as a key indicator of shifts in corporate governance. The empirical data presented in this paper for the investment portfolio of short-term institutional investors, hedge and mutual funds, shows a marked preference for the French market over that of Germany. I argue that the firm-level institutional arrangements of workplace organization constitute the most significant variable to account for this difference - the concentration of power in top executives in France fitting better with the preferences and investment strategies of these two categories of institutional investors. I do not want to suggest that the institutional characteristics of workplace organization constitute the only investment driver of hedge and mutual funds. I also analyze the shortcomings of three alternative co-varying explanations - degree of internationalization, ownership structure of companies, and background of corporate executives. I demonstrate how key notions of the Varieties of Capitalism theoretical perspective - institutional interaction, institutional latency, and the distinction between institutional framework and the mode of coordination that follows from these institutions - provide important theoretical insights to assess the implications of causal complexity phenomenon. In particular, this mid-range level theoretical perspective illuminates how necessary and/or sufficient conditions operate and vary across advanced capitalist economies.