A Comparison Between One-Tier and Two-Tier Board Structures in France


  • The authors want to express their gratitude to Professor Frederick Choi (the editor) and two anonymous reviewers for their constructive comments and helpful suggestions. The usual disclaimer applies.


French companies operate in a unique environment characterized by the strong involvement of block shareholders such as families and banks. Furthermore, the French legal system allows firms to choose between a one-tier or a two-tier board structure. This study investigates whether this choice can affect the firm's operating and stock performance. Our regression results provide strong evidence that ownership and board structures are used together as corporate governance tools. In particular, the agency cost of debt is strongly affected by their interaction when institutional investors are also bank lenders. Our test results show that while family control has a negative impact on corporate governance, French institutional blockholders play a positive role as monitors of one-tier structures. In contrast, they are more likely to misuse the two-tier board system by promoting interlocked directorship, board opacity and their own interests as creditors. Our regression analysis reveals that foreign institutional investors do not have any impact on firm performance, regardless of board structure. Finally, we do not find any inverse relationship between board size and efficiency in France.