International Capital Mobility and Domestic Institutions:Corporate Finance and Governance in Four European Cases

Abstract

This article considers the impact of international capital mobility on the character of corporate finance and corporate governance in four European countries (Germany, France, Spain, and Italy). We take issue with the widespread view that the growth of international financial markets and the lifting of capital controls will in themselves produce convergence in national systems of corporate finance and governance. Although we find evidence of convergence in specific aspects of financial regulation (e.g., the abandonment of selective credit regulation and the dismantling of barriers to universal banking), these regulatory changes have not produced any clear convergence toward either the Anglo-Saxon model of corporate finance and governance predicted in much of the literature or the alternative German bank-based model. The reasons for this, we suggest, have much to do with the way in which the politics of financial reform are likely to differ from those postulated in market-driven models of regulatory change and the fact that countries are susceptible to international pressures in different ways.This article considers the impact of financial integration on the character of corporate finance and corporate governance in four European countries (Germany, France, Spain, and Italy). Contrary to the widespread view that the growth of international financial markets and the lifting of capital controls will produce convergence in national systems of corporate finance and governance, we find that increased cross-border capital mobility since the mid-1980s has not led to such an outcome. Although we find evidence of convergence in specific aspects of financial regulation (e.g., the abandonment of selective credit regulation and the dismantling of barriers to universal banking), these regulatory changes have not produced any clear movement toward equity-centered systems of corporate finance or toward an "outsider" model of corporate governance. Corporate governance in all four countries continues to grant a dominant role to bank-mediated forms of finance and to corporate control by "insiders." Indeed, in those cases where old patterns of "insider" control have been disrupted by changes in financial regulation (as in the case of privatizations), new mechanisms to prevent an

Convergence in European Corporate Governance: the audit committee concept

“…However, the findings do suggest that for the audit committee concept, the position differs from the broad overview of Deeg and Perez (2000) that there is no clear convergence toward either the Anglo-Saxon model of corporate governance or the continental system in Germany, an international level but suggested the European Union must define its own European corporate governance approach, tailored to its own cultural and business traditions. It also opined that "A common approach should be adopted at European Union level with regard to a few essential rules and adequate co-ordination of corporate governance codes should be ensured" including the formation of audit committees (p.15).…”

“…A number of researchers have examined this question (see for example Rhodes and van Apeldoom, 1998;Deeg and Perez, 2000;or Cernat, 2004) Deeg and Perez (2000) contend that the politics of financial reform are likely to differ from those postulated in market-driven models of regulatory change, and observe that countries are susceptible to international pressures in different ways.…”

Credit Risk Determinants in the Vulnerable Economies of Europe: Evidence from the Spanish Banking System

“…In 1977, financial deregulation initiated along with other measures that intended to free the monetary authority from interference with other branches of the state (Deeg and Perez, 2000). However, it took more than a decade after the 1977 reforms for the modernization of the Spanish stock market to entice foreign banks into the Spanish credit market.…”

European Integration and the Clash of Capitalisms: Political Cleavages over Takeover Liberalization

“…Our analysis focused on an attempt to radically change national varieties of corporate governance. In a process of path-dependent transition, the corporate governance systems of all continental European countries are already moving towards Anglo-American practices (Lannoo, 1999;Deeg and Perez, 2000;Groenewegen, 2000;Melis, 2000;Bieling and Steinhilber, 2002;Beyer and Ho¨pner, 2003;Ho¨pner, 2003;O'Sullivan, 2003;Rose and Mejer, 2003). This is true both for developments at the company level in the direction of stronger shareholder value orientation and for reforms initiated by national legislators to strengthen shareholder protection and dismantle legal barriers to hostile bids.…”