Diversity of Institutional Investors and Foreign Blockholdings in France: The Evolution of an Institutionally Hybrid Economy

Abstract

Research Question/Issue: What are some of the key factors that facilitate/constrain the acquisition of concentrated equity stakes (>5 per cent) by Anglo-American institutional investors in French companies? Research Findings/Insights: This study presents three central empirical findings. First, different categories of institutional investors exhibit substantial diversity in fund allocation: long-term oriented institutional investors are more likely to target well-governed companies already paying high dividends and with lower discretionary spending; short-term oriented institutional investors are more likely to target undervalued companies whose stock prices do not yet reflect their potential value. Second, the relationship between the acquisition of blockholdings and the ownership concentration of targeted French companies is negative and statistically significant but subject to a qualification note. The high average ownership concentration (in absolute terms) of targeted firms suggests that institutional investors have not been deterred from entering into the French market despite lower degrees of legal protection associated with self-dealing by the controlling shareholder. Third, firms governed by CEOs that graduated from elite schools are less likely to be targeted by Anglo-American institutional investors; but there is no relationship between the prior high civil service background of CEOs and the investment allocation of institutional investors. Theoretical/Academic Implications: This study provides two important implications. First, the strategy of international investment allocation of UK/US-based funds has been encouraged by the institutional hybrid character of the French economy. The French variety of capitalism has long been characterized by the absence of many firm-level codetermination institutional arrangements that have reduced the managerial scope for unilateral action in coordinated market economies. Moreover, two recent developments - the withdrawal of the French state from many areas of economic activities combined with the introduction of several institutional arrangements of corporate governance associated with the Anglo-American outsider model - entail that the institutionally hybrid character of the French economy provides greater institutional proximity for UK/US-based institutional investors. Second, the opportunities provided by the occurrence of these two recent developments have not been equally exploited by foreign institutional investors. Short-term funds have been more successful in the introduction of strategic change in French companies. Practitioner/Policy Implications: The empirical findings presented in the article provide insights to enable policy-makers to better understand how institutional investors deal with institutional diversity between national systems of corporate, thus enhancing their ability to implement more effective regulations in influencing movements of capital.