French Corporate Research Articles

Ownership Structure, Corporate Governance and Analyst Following: A Study of French Listed Firms

This study investigates the effects of some characteristics of the French corporate governance model - deemed to foster entrenchment and facilitate private benefits extraction - on the extent of analyst following. The results show that analysts are more likely to follow firms both with high discrepancy level between ownership and control and those controlled through pyramiding. These findings provide empirical support to the argument that minority shareholders value private information on firms with high expropriation likelihood, asking thence for more analyst services. Additional findings show that analysts are reticent to follow firms managed by controlling family members. This is, in part, explained by these firms' reliance on private communication channels rather than public disclosure, producing a poor informational environment.

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

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.

Stated Capital Rules in French Security Offerings

The corporate finance provisions of the French Commercial Code are grounded on the assumption that stated capital is an essential measure of corporate solvency. To ensure the integrity of stated capital as a reliable gauge for creditors, French corporate law narrowly restricts contributions of capital to French corporations, the issuance of new equity rights, and distributions by corporations to their shareholders. French corporate law also applies stricter capital maintenance rules than those mandated by European legislation. This article explores the stated capital rules of the French Commercial Code and the problems they pose for practitioners structuring corporate finance transactions. It critically appraises the theoretical basis for this corporate doctrine and suggests repealing certain rules to improve the efficiency of French capital markets.

Net Worth at Risk

The Study Group of the European Committee of Central Balance Sheet Data Offices (ECCB) examines in the third study of the group the newly developed concept of Net Worth at Risk (NWaR). This concept analyses the function of equity as a protective cushion against losses in a recession period. The equity levels of French, German, Italian and Spanish corporations in manufacturing are compared to a potential loss - called Net Worth at Risk which might affect a corporation with a small but specified degree of probability in a two-year recession as a worst-case scenario. The difference between NWaR figures and the equity levels give an indication on the number of companies with inadequate equity in a recession period. The results of this study suggests that NWaR can be of interest in explaining, at least partially, the capital structure of companies and can be used as one of several tools for studying the risk profile of specific sectors. The results obtained from the cross-country analysis have to be interpreted with caution as they are influenced by differences in the institutional framework in the four countries such as tax systems, the degree of legal protection of creditors, the banking systems in each country or the accounting regimes. The study covers the period 1987-2002. An examination of size effects as well as an analysis of selected sub-sectors of the manufacturing sector complete the study. About the ECCB and its Study Group The European Committee of Central Balance Sheet Data Offices (ECCB) brings together central banks, statistical offices and similar institutions within the European Union which maintain significant databases of financial statements of non-financial companies. The objective of the ECCB is to interchange viewpoints in order to improve the analytical methods of company accounting data in various fields, in particular for statistical and credit rating purposes. In co-operation with the European Commission the ECCB provides the BACH Database, which is publicly available and contains harmonised financial statements statistics of corporations. In addition the ECCB administers the European Sectoral Reference database. The research of the Study Group of the ECCB has been dedicated since its creation in 1993 on the subject of equity and financial structures of European corporations. The databases include small, medium-sized and large companies far beyond listed corporations.

Exchange rate exposure, foreign currency derivatives and the introduction of the euro: French evidence

We investigate the impact of the introduction of the Euro on exchange rate exposures for French corporations and examine the corporate use of foreign currency derivatives to hedge exchange rate exposure post-Euro. Our findings indicate that the introduction of the Euro is associated with both a reduction in the number of firms that have significant exchange rate exposure and the absolute size of exposure. Consistent with these reduced exposures, French firms use foreign currency derivatives less intensively. Furthermore, the use of foreign currency derivatives is found to be associated with lower exchange rate exposure but there is insufficient evidence that these instruments are more effective in the post-Euro environment.

The New French Preferred Shares: Moving towards a More Liberal Approach

The recent French June 24, 2004 Ordinance significantly reforms the regulation on securities issued by certain commercial companies (Societes anonymes or joint-stock companies, Societes en commandite par actions or partnerships limited by shares, Societes par actions simplifiees or simplified joint-stock companies). It establishes a new general type of security called action de preference or preferred share. This new type of security replaces the former different types of priority shares that could be established before with one single and more flexible regime. Besides, the Ordinance allows the suppression of voting rights in joint-stock companies, which French lawmakers had been reluctant to allow so far. By doing so, the French lawmakers offer more freedom and have reduced the importance of the equality among shareholders principle which was the usual keystone of French corporate law. Besides, once again, French corporate law get its inspiration from the United States. However, the French approach to preferred shares keeps some specificities, both good or bad, compared to its American model.

Corporate governance and labour management: an international comparison

Preface 1. Corporate Governance and Labour Management: An International Comparison 2. Corporate Governance and Employees in the United States 3. Markets and Relationships: Finance, Governance, and Labour in the United Kingdom 4. Corporate Governance and Employees in Germany: Changing Linkages, Complementarities, and Tensions 5. Corporate Governance in Germany: Ownership, Codetermination, and Firm Performance in a Stakeholder Economy 6. Corporate Governance and Labour Management in the Netherlands: Getting the Best of Both Worlds? 7. Labour in French Corporate Governance: The Missing Link 8. Corporate Governance and Employment Relations: Spain in the Context of Western Europe 9. Corporate Governance and Industrial Relations in Italy 10. Corporate Governance, Labour, and Employment Relations in Japan: The Future of the Stakeholder Model? 11. Towards a Comparative Perspective on Corporate Governance and Labour Management: Enterprise Coalitions and National Trajectories

R&D and Productivity in Corporate Groups: An Empirical Investigation Using a Panel of French Firms

Using a panel of more than 3,100 French corporate groups’ affiliates and parent companies, we estimate a production function model where we enable the productivity of a firm to depend on the knowledge produced by the R&D activities of the other companies in the group. We find indeed that a firm’s productivity may significantly be enhanced thanks to the R&D capital of the other affiliates. This enhancement can be estimated to be, for the corporate group as a whole, between 30% and 40% of the “usual” estimate of the direct impact of firms’ R&D expenses on their own productivity. However, this effect differs depending on whether the firm itself conducts some R&D or not. In case it does, the other affiliates’ R&D does not appear to impact significantly on its own performances: those depend only on its proper R&D activity. At the opposite, the other affiliates’ R&D has a very significant effect on the productivity of firms which do not conduct any R&D. These results emphasize the existence of group spillovers, which differ from the usual industry or geographical spillovers. In particular, they do not seem to require an “R&D based absorptive capacity” to pre-exist and they are clearly the result of an explicit strategy, defined at the group level. Finally, these results might lead to revise upwards our estimates of the private returns on R&D investments.

Preparing a Prosperous Future: Promoting Culture and Business Through Bilingual Education

This paper describes an ambitious educational program uniting the efforts of Swiss, German, and French business associations, corporations, government agencies, and regional school boards in the Upper Rhine Valley, where economy and culture transcend national borders. The objectives of the program are to promote bilingualism, to teach the young people what factors unite and what factors differentiate their communities, and to optimize conditions for prosperous economic development based on knowledge of geographic, historical, sociocultural, and socioeconomic data. The focus of this paper is the program's textbook, Leben am Oberrhein/ Vivre dans le Rhin Supérieur [Living in the Upper Rhine Valley],1 created especially for the communities of the Upper Rhine Valley and the center of the program. The program is multifaceted and innovative. This paper concentrates on Europe (where the program originated) as well as the United States of America (home to the author and the majority of Bilingual Research Journal readers) and its neighboring countries (essentially Canada and Mexico). Yet the program can serve as an inspiring model throughout the world for community leaders and educators wishing to promote bilingualism within communities formed by native speakers of a dominant language and groups of various heritage language speakers and cultures, or in neighboring communities with different backgrounds and mother tongues.

Corporate Governance Convergence Through Cross-Border Mergers: The Case of Aventis

In this paper we illustrate the role of cross-border mergers in the process of corporate governance convergence. We explore in detail the corporate governance provisions in Rhone-Poulenc, a French company, and Hoechst, a German firm, and the resulting structure after the two firms merged in 1999 to create Aventis, legally a French corporation. We show that, despite the nationality of the firm, the corporate governance structure of Aventis is a combination of the corporate governance systems of Hoechst and Rhone-Poulenc, where the newly merged firm adopted the most protective provisions of the two merging firms. In some cases this resulted in Aventis' borrowing from the corporate governance structure of Hoechst while in others Aventis replicated Rhone-Poulenc's structure. Most interesting is the situation where Aventis introduced improved provisions over both systems. The resulting corporate governance system in Aventis is significantly more protective than the default French legal system of investor protection.

Exchange Rate Exposure, Foreign Currency Derivatives and the Introduction of the Euro: French Evidence

In this paper, we investigative the impact of the introduction of the Euro on exchange rate exposures and the subsequent hedging practices of a sample of French corporations. Our findings indicate that the introduction of the Euro led to both a reduction in the number of firms that have significant exchange rate exposure and the absolute size of exposure. In response to these reduced exposures, French firms tend to use foreign currency derivatives less intensively although there has been no change in the number of firms that make use of the instruments. Furthermore, the use of foreign currency derivatives is found to be effective in managing exchange rate exposure but there is insufficient evidence that these instruments are more effective in post Euro periods.

The Changing Institutions of Governance in Corporate France: What Drives the Process?

Since the middle of the nineteen-eighties, the French system of corporate governance has undergone some major transformations. Originally, it was dominated by the State’s important weight in the structures constraining managerial discretion in some of France’s largest firms. But, the public administration has increasingly retired from its active role in corporate governance matters. This paper addresses the question of a theoretical explanation of the observed phenomenon of the dynamics of governance. The conceptual framework we propose is to a great extent based on the economic theory of institutional change. It strongly emphasizes the role of so-called ‘organizational entrepreneurs’, who lead the initiative aiming at a transformation of existing structures. In this context, a country’s shared mental pattern is, however, supposed to be a force enhancing path dependence. Theoretical propositions are deduced and applied to the case of the French corporate governance system. The analysis of the latter’s evolution yields some encouraging results, indicating that the proposed theory seems globally consistent with empirical facts.

Internationalization, capital structure, and cost of capital: evidence from French corporations

The paper examines the relationship between international diversification, financial structure, and their individual and interactive implications for the combined debt and equity cost of capital for a sample of French corporation. We report that the degree of international diversification positively associates with higher total and long-term debt ratios. Our evidence suggests a non-linear inverted U-shape relationship between the degree of international diversification and short term debt financing. We also find that internationally diversified firms support higher level of debt financing that directly results in reduction of overall cost of capital despite higher equity risk. More significantly, we find that even after controlling for the effects of the degree and composition of debt financing, equity risk, firm size, managerial agency costs, and asset structure, higher degree of international diversification results in lower overall—combined debt and equity—cost of capital.

La diffusion de la valeur actionnariale en France : une lecture néo-institutionnaliste

Cet article étudie la diffusion de la valeur actionnariale en France sur la période 1995-2000 à partir d’une grille d’analyse inspirée des approches néo-institutionnalistes. Pour un même échantillon d’entreprises, deux études sont réalisées. Une première étude analyse l’évolution de la communication financière des entreprises dans leurs rapports annuels. Une seconde étude, portant sur les pratiques déclarées en termes d’utilisation de la valeur actionnariale, conduit à mettre en évidence un phénomène de découplage caractéristique des processus d’institutionnalisation. La diffusion de la valeur actionnariale est mise en relation avec les changements intervenus dans l’environnement institutionnel des entreprises sur la période étudiée. Les portées des interprétations économiques et institutionnalistes de ce processus de diffusion sont ensuite discutées.

The Presbyopic Six: Exploring Marginalization of Protest and of Journalism in a Television-Online Advertising Campaign

This article is a textual analysis of a recent ad campaign for Varilux eyewear that features a fictional group of protesters known as "The Presbyopic Six." Varilux is a brand of eyeglass lenses marketed by Essilor, a French corporation. Viewers "follow" the protesters from their arrest for defacing a large-print book sign at a bookstore through booking, and through interviews with fictional journalist Lauren Lewis while incarcerated in a minimum-security prison. The ads suggest that new, more aggressive methods of protest have clearly passed the Presbyopic Six by. The campaign announces and celebrates their marginalization. The campaign also suggests that contemporary journalism is driven by the same kind of homogeneity. It could also be argued that a degree of evolution in protest and journalism is seen in these ads. Thus, the campaign may also be a veiled criticism of today's anonymous, aggressive protestors.

CEO Reciprocal Interlocks in French Corporations

In France the chairperson of the board is mostoften the firm's CEO. This position strengthensthe insiders' hold on the board of directors.Moreover, a large fraction of outside directorsis composed of CEOs of other firms. Thereciprocal interlocking of CEOs creates the possibility of mutual interdependence of CEOs.We investigate factors explaining reciprocalinterlocking directorates of CEOs in Frenchcorporations. Our results indicate that CEOs oflarger firms hold more reciprocal CEOinterlocks and when CEOs have more outsidedirectorships, CEOs hold more reciprocalrelationships. We also find a positiverelationship between the number of CEOsreciprocal interlocks and their firms'performance measured by ROA. We find evidencethat CEOs hold more reciprocal interlocks whena blockholder is present on the CEO's board.

Business Name Changes: The French Experience

Introduction The name is the main component of any organization's identity. Any decision of corporate name modification has financial, marketing, and strategic effects. Despite the growing number of corporate name changes in recent years, there has been no in-depth analysis on the subject. The objectives of this article are to evaluate the number and the growth of corporate name change, to critically examine the current typologies of corporate name changes, and to propose a valid classification of name change. In marketing research, a considerable amount of attention has been given to brand names. Researchers have focused on the naming process (Shipley, Hooley, and Wallace 1988; Kohli and LaBahn 1997), corporate or brand dominant systems (Murphy 1987; Olins 1989; Laforet and Saunders 1994), sound symbolism or special brand names (Klink 2000) [for example, alphanumeric brand names (Pavia and Costa 1993)] or cobranding (Hillyer and Tikoo 1995; Rao, Qu, and Ruekert 1999). However, research on corporate names has remained limited. For a long time, the choice of a name was a decision taken only when the firm was founded. No event called this initial choice into question. Now, beyond the large number of newsworthy examples (Verizon, WorldCom, TotalFinaElf, and Thales in France), there are more and more corporate name changes. All these high financial stake changes indicate the importance of corporate name. The objective of this paper is two fold. First, it will evaluate the number and the growth of French corporate name changes, especially for small-and medium-sized firms. Then, a survey will examine the current typologies of name changes and will propose a valid classification. Quantification of Corporate Name Changes The existing quantifications of corporate name changes underestimate the magnitude. According to Grossman, Portugal, and Aspach (in Argenti 1994), there were 1,041 corporate name changes in 1985; 1,864 in 1988; and 1,600 in 1989 in the U.S. Aaker (1994) estimates the number of changes at 2,000 in the U.S. Enterprise IG, a consulting firm, counted 3,893 changes of corporate name in the stock exchanges of 57 countries for the year 2000. More precisely there were 2,976 changes in the U.S.; 250 in the United Kingdom; 186 in Canada; 74 in Germany; 56 in France; and 35 in Japan. The underestimation is due to the difficulty in accounting for changes in the name of small firms. Cooperation with the French Patent Office (INPI) provides more precise data for France (Table 1). These data include the patronymic changes for persons that have been entered individually in the Trade Register. However, it is clear that company name changes are numerous and are growing rapidly In conclusion, the changes of French corporate names are a reality for small businesses. The reasons for name changes are numerous (Kapferer 1997; Delattre 1999); nevertheless, acquisitions and mergers are the perfect examples of events leading to a new name. The correlation between the corporate name changes and the takeover bids is strong (r = 0.71). The Bulletin Officiel des Annonces Civiles et Commerciales (BODACC) 1 provides some interesting characteristics on name changes. The study of name changes in June and July 2000 indicates the following: (1) 15.7 percent of corporate name changes are accompanied by a change of the legal status; (2) 18.6 percent of corporate name changes are accompanied by a modification of activities; (3) 23.8 percent of corporate name changes are accompanied by a modification of the capital structure (2); and (4) 48.3 percent of corporate name changes are accompanied by a change of management, administration, or shareholding. This confirms the importance of mergers, acquisitions, spinoffs, and others modifications of shareholding or management. All types of firms are affected by name changes. …

Persuasion and Resistance: The Use of Psychology by Anglo-American Corporate Governance Advocates in France

In the paper, I argue that in the 1990's Anglo-American corporate governance became the dominant model for large, public firms in the international business world. Corporate governance professionals relentlessly promoted and exported Anglo-American corporate governance throughout the developed and developing world. I contend that it is an appropriate time to examine critically the advocacy of Anglo-American corporate governance. An important part of the critical assessment is to explain the momentum of the dominant model: to understand why Anglo-American corporate governance appeared so persuasive and inevitable, and why other models were less compelling and pushed to the margins of the debate. I argue that corporate governance advocates used psychological factors both to create this momentum, and thus the one-sidedness of corporate governance debates, in many countries and to persuade policy-makers abroad to use Anglo-American corporate governance as a model to transform their governance systems. I base my argument upon a study of French corporate governance, which I selected because I had previously written about this governance system and had myself participated in governance advocacy in France in the 1990's. After briefly presenting the orientation of behavioral law and economics that inspired the study and the major psychological factors identified by psychological research I next present the study. In it, I examine public texts, French and non-French, influential in recent French corporate governance debates and either representative of or strongly influenced by Anglo-American corporate governance advocacy, to see how corporate governance advocates used psychological factors in them to make a psychologically persuasive case for the Anglo-American model. I then present the results of the study. I highlight, by both a table and a general description, the major differences between the French and non-French texts in the use of the psychological factors, and examine examples of the factors in each of the texts. I draw several conclusions from the study. The study implies that psychologically powerful advocacy altered the French governance debates by pushing finance and governance alternatives into the background and did not necessarily promote a corporate finance and governance solution that would be both acceptable in and appropriate for France. The study also suggests that there is a need for policy-makers to develop a more rational way of debating about corporate finance and governance, in light of this pervasive use of the psychological factors by governance advocates. After offering a few general guidelines on how to achieve this goal, I argue that, because its development will take time, culture and politics give policy-makers a mental framework that blunts the immediate effects of the psychological factors and that guarantees for them and others a space for debate on governance changes. I then briefly examine a recent French law dealing with corporate governance and contend that it shows both the success of Anglo-American corporate governance advocates (based on their use of the psychological factors) and the cultural and political resistance to them by French policy-makers.

Agency costs and audit quality: evidence from France

This paper examines the influence of agency conflicts on the demand for audit quality by French listed companies. The French environment is characterized by constraining regulations on independence and informational duties of statutory auditors, a weak contribution of financial markets in corporate financing as compared to Common Law countries, and correlatively a higher ownership concentration. Two agency costs hypotheses are tested: ownership diffusion as a proxy for shareholders managers conflicts, and leverage in high-Investment-Opportunity-Set companies, supposing an increased expropriation risk for debtholders. Audit quality is proxied with a triple distinction of auditors: Big Six, national Majors and Local audit firms. Empirical results do not support the ownership hypothesis and corroborate the debt-IOS one. This suggests that: (1) the Anglo-American principal-agent model has little explanatory power in the concentrated ownership framework of French corporate governance; (2) audit quality appears as a valuable monitoring device that may improve debtholders' protection, enhancing the reliability of accounting numbers when the risk of wealth transfers at the expense of debtholders is significant. Elsewhere, size, complexity and international operations of audited clients do not represent competition barriers between Big Six and national Majors, supporting a significant competition between both categories of audit firms on the market of listed companies.

Agency costs and audit quality: evidence from France

This paper examines the influence of agency conflicts on the demand for audit quality by French listed companies. The French environment is characterized by constraining regulations on independence and informational duties of statutory auditors, a weak contribution of financial markets in corporate financing as compared to Common Law countries, and correlatively a higher ownership concentration. Two agency costs hypotheses are tested: ownership diffusion as a proxy for shareholders managers conflicts, and leverage in high-Investment-Opportunity-Set companies, supposing an increased expropriation risk for debtholders. Audit quality is proxied with a triple distinction of auditors: Big Six, national Majors and Local audit firms. Empirical results do not support the ownership hypothesis and corroborate the debt-IOS one. This suggests that: (1) the Anglo-American principal-agent model has little explanatory power in the concentrated ownership framework of French corporate governance; (2) audit quality appears as a valuable monitoring device that may improve debtholders' protection, enhancing the reliability of accounting numbers when the risk of wealth transfers at the expense of debtholders is significant. Elsewhere, size, complexity and international operations of audited clients do not represent competition barriers between Big Six and national Majors, supporting a significant competition between both categories of audit firms on the market of listed companies.