Recent Developments in the Financing Role of the Stock Market for French Corporations (download PDF 298 Kb)

Mary O'Sullivan

Abstract
During the last quarter of the 20th century, there was a major change in the scale and structure of financial systems in many national economies throughout the world. There were various dimensions to this process of transformation but one of its most striking characteristics was a dramatic upsurge in the importance of stock markets in different national economies. This paper presents an analysis of the evolution of the financing role of the stock market in one country, France, where the increase in its importance in the last 25 years of the 20th century has been dramatic. The results suggest that there is much to be gained from more detailed analyses of the role that the financial system plays in channelling funds to the economy, the channel that is believed by economists to be the most important one through which the financial system influences economic growth. Of particular importance is the fact that most of the funds raised on the stock market benefited the French State and large, established French companies and that they were used predominantly to facilitate the transfer of financial and ownership claims on existing assets. These two findings together suggest that we should be cautious in assuming that an increase in funds raised on the stock market leads to an increase in investment in an economy; it is more likely to lead to a reduction of the role of other financial institutions, such as banks, in supplying funds to the economy and to a restructuring of existing assets.

Key Words: Financial systems, corporate governance, stock market, French economy

JEL classification: D23, G34, G14