Corporate governance and financial development: a study of the French case

This paper belongs to the growing body of the “Law and finance” literature based on time-series study. It carries out an empirical investigation of the role of corporate governance in financial development. We focus on French corporate governance reforms in order to examine whether these reforms are consistent with the reorganization of the French financial system, which took place during the period 1977–2004. This research aims at evaluating one proposition of the legal origin claims based on the idea that there is a strong and stable relationship between legal origin, investor protection and financial system. A key question the study addresses is how corporate governance rules and the French financial development have changed over time. Our study suggests that indicators related to investors’ rights (shareholders, employees, and bondholders) have been increasing over time, despite the specific legal origin of the French system. On the contrary the creditors’ rights have followed a less clear trend. Our econometric investigation is fairly new as the Law and finance literature has not until now provided corporate governance indicators suitable for French legislation. From that perspective, our work undergoes a multiple criteria analysis of corporate governance reforms. Following this approach, we suggest that the causality links between changes in the French legal environment and financial growth in France are more bidirectional than unidirectional.