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Law, Corporate Governance and Financial System: Econometric Analysis of French Case


  • Régis Blazy

    () (Luxembourg School of Finance, University of Luxembourg)

  • Afef Boughanmi

    () (Luxembourg School of Finance, University of Luxembourg)

  • Bruno Deffains

    () (BETA-REGLES, University of Nancy II)

  • Jean-Daniel Guigou

    () (Luxembourg School of Finance, University of Luxembourg)


The World Bank reports « Doing business » (2004, 2005 and 2006), referring to the main assumptions and findings of the « law and finance » theory, predict that the common law system provides better basis for financial development and economic growth than French origin civil law. This paper challenges the « law and finance » theory supported by La Porta, Lopez-de-Silanes, Shleifer and Vishny (LLSV). Thus, it undergoes an empirical investigation of the role of corporate governance in financial development and in shaping the financial structure of firms. We focus on French corporate governance reforms in order to examine whether these reforms are consistent with a reorganization of the French financial system during the period 1980-2004. This research aims to evaluate the proposition that there is a strong and stable relationship between legal origin, investor protection and financial system. LLSV affirm, in addition, that the causality is from law to finance. Our analysis considers the dynamic aspect of corporate governance. The key question the study addresses is how over-time changes in corporate governance rules and financial system in France affected financial development. This empirical study suggests that indicators of investor protection may be independent from legal origin. In addition, our investigation focuses on other stakeholders (employees and bondholders) and points out that the stakeholder’s point of view appears to be more relevant, than the shareholder approach, to understand the corporate governance mechanisms. Our econometric investigation is rather new as the law and finance literature has not always focused on the elaboration of corporate governance indicators suitable for the French legislation. Also, our thesis undergoes a multiple criteria analysis of corporate governance reforms, which is a method not yet used in the growing literature generated by the legal corporate governance approach. Indeed, we weight the dummy variables according to the importance of stakeholder rights included in the constructions of the indicators. This methodology shows that the causality is especially from finance to law. This paper yields results that mitigate the main LLSV’s predictions and emphasize the merits of the stakeholder approach.

Suggested Citation

  • Régis Blazy & Afef Boughanmi & Bruno Deffains & Jean-Daniel Guigou, 2008. "Law, Corporate Governance and Financial System: Econometric Analysis of French Case," LSF Research Working Paper Series 08-05, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:08-05

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    References listed on IDEAS

    1. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. repec:hrv:faseco:30728046 is not listed on IDEAS
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    More about this item


    corporate governance; investor protection; financial development;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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