Internal Capitalist Diversity in Europe: The Bifurcation of Firm Finance and Corporate Governance

Abstract

The paper tests a "bifurcation" hypothesis that in much of Europe a relatively small number of firms have moved into a new institutional context, or "rules of the game," that are largely common, international institutions and practices, while the large majority of firms continue to operate in a more slowly evolving set of domestic institutions or rules. Since firms operating in the newer, international "model" are typically large firms, firm size is used as a proxy. Empirically this paper focuses on the changing patterns of firm finance and corporate governance based on firm size. It finds preliminary evidence to support the bifurcation hypothesis, but also that national patterns of firm finance are still distinct. Bifurcation is theorized to have significant implications for the maintenance of coordination in coordinated market economies.

Keywords: SMEs, finance, corporate governance, Europe

JEL Classification: G30, O52, P16