Institutional Change in Contemporary Capitalism: Coordinated Financial Systems since 1990

What happens when the unstoppable force of liberalization collides with the immovable object of national financial institutions in the advanced industrial democracies? To answer this question and evaluate alternative mechanisms to explain institutional change, this article examines the cases of the three large European economies with concentrated share ownership—France, Germany, and Italy. In the formal legal mechanism, interest coalitions adopt new laws, leading actors to deviate from formerly stable patterns of behavior in shareholding. In the joint belief shift mechanism, collective actors use a triggering event to jointly reevaluate their views of how the world works and thus how their interests can best be pursued. Using the metric of patient capital, this article shows that institutional change took place in France but not in Germany or Italy, despite the fact that Germany and Italy experienced significant regulatory change in the area of corporate governance while France did not. This evidence fits joint belief shift and is inconsistent with the formal legal mechanism. It is likely that the importance of the two mechanisms of institutional change depends on the degree of strategic interdependence among institutional actors: where it is high, the joint belief shift mechanism is likely to precipitate change; and where it is low, the formal legal mechanism is likely to precipitate change.