Capital Mobility, Varieties of Institutional Investors, and the Transforming Stability of Corporate Governance in France and Germany

Abstract

AbstractThe research question of this chapter on corporate governance in France and Germany is two-pronged: to account for their different patterns of evolution, and to assess the implications for their respective models of capitalism. The focus indicator of this chapter is the rise of hedge and mutual funds — two categories of short-term, impatient investors — in large French and German companies. The presence of these two types of institutional investors with their focus on shareholder value and the short-term trading strategies constitutes a novel and potentially radical developments in European corporate governance. The empirical data on the investment patterns of these two groups of investors reveals the greater attractiveness of French firms over their German counterparts. The argument presented in this chapter highlights the importance of firm-level institutional arrangements of workplace organization in accounting for this divergence in investment patterns. The high degree of power concentration of French firms provides for a better fit with the short-term horizons of hedge and mutual funds. Patterns of adjustment in French companies are unilaterally orchestrated, in sharp contrast to the negotiated nature of restructuring strategies in German firms. Key notions of the Varieties of Capitalism perspective — institutional interaction, institutional latency, and the distinction between institutional framework and the mode of coordination that follows from these institutions — illustrate the central role performed by firm-level institutional arrangements of workplace organization, and provide important theoretical insights to account for the divergence in the investment patterns of hedge and mutual funds.