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² Gregory Jackson, “Corporate Governance in Germany and Japan: Liberalization Pressures and Responses in the 1990s,” in Yamamura and Streeck (fh. 1).

³ Hopner, Martin, Wer Beherrscht die Unternehmen? (Frankfurt: Campus, 2003)Google Scholar.

⁴ Yamamura and Streeck (fn. 1), 42. For a good extended discussion of the problem of measuring institutional change, see Campbell, John, Institutional Change and Globalization (Princeton: Princeton University Press, 2004)Google Scholar.

⁵ North, Douglass, Institutions, Institutional Change, and Economic Performance (New York: Cambridge University Press, 1990)CrossRefGoogle Scholar; Aoki, Masahiko, Toward a Comparative Institutional Analysis (Cambridge: MIT Press, 2001)Google Scholar.

⁶ Helmke, Gretchen and Levitsky, Steven, “Informal Institutions and Comparative Politics: A Research Agenda, Perspectives on Politics 2 (December 2004)CrossRefGoogle Scholar; Amable (fn. 1).

⁷ This definition is similar to that provided by Avner Greif and David Laitin: “Central to endogenous institutional changes are therefore the dynamics of self-enforcing beliefs and the associated behavior. An institutional change is a change in beliefs, and it occurs when the associated behavior is no longer self-enforcing, leading individuals to act in a manner that does not reproduce the associated beliefs”; see Greif, and Laitin, , “A Theory of Endogenous Institutional Change,” American Political Science Review 98 (November 2004), 639CrossRefGoogle Scholar.

⁸ Yamamura and Streeck (fn. 1); Schmidt (fn. 1); Amable (fn. 1).

⁹ Peter Gourevitch and James Shinn, Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton: Princeton University Press, forthcoming); Marco Pagano and Paolo Volpin, “The Political Economy of Corporate Governance,” American Economic Review (forthcoming).

¹⁰ La Porta, Rafael, Lopez-de-Silanes, Florencio, Shleifer, Andrei, and Vishny, Robert, “Law and Finance,” Journal of Political Economy 106 (December 1998)CrossRefGoogle Scholar.

¹¹ Gourevitch and Shinn (fn. 9); Roe, Mark, Political Determinants of Corporate Governance: Political Context, Corporate Impact (New York: Oxford University Press, 2003)Google Scholar.

¹² Hall and Soskice (fn. 1), 13.

¹³ Gourevitch and Shinn (fn. 9); Roe (fn. 11); Pagano and Volpin (fn. 9); Rajan, Raghuram and Zingales, Luigi, “The Great Reversals: The Politics of Financial Development in the Twentieth Century,” Journal of Financial Economics 69 (July 2003)CrossRefGoogle Scholar.

¹⁴ Ziegler has similarly argued that formal changes in the German legal system have had limited effects on practices of corporate governance because of the uncertainty of business leaders; Ziegler, J. Nicholas, “Corporate Governance and the Politics of Property Rights in Germany,” Politics and Society 28 (June 2000)CrossRefGoogle Scholar; cf. Kogut, Bruce and Walker, Edward, “The Small World of Germany and the Durability of National Networks,” American Sociological Review 66 (June 2001)CrossRefGoogle Scholar.

¹⁵ North (fn. 5); Aoki (fn. 5).

¹⁶ Faccio, Mara and Lang, Larry, “The Ultimate Ownership of Western European Corporations,” Journal of Financial Economics 65 (September 2002)CrossRefGoogle Scholar.

¹⁷ The joint use by companies of mutual shareholdings as an obstacle to hostile takeover is analogous to a nonenforceable contract. Thus, the opportunity costs of liquidity forgone cannot be counterbalanced by the increased attractiveness of protection from hostile takeover, because the former cost is certain, whereas the latter is uncertain (as it depends on the assessments of other actors). On the liquidity costs of ownership concentration, there is a large literature in corporate finance. See Bolton, Patrick and von Thadden, Ernst-Ludwig, “Blocks, Liquidity, and Corporate Control,” Journal of Finance 53 (February 1998)CrossRefGoogle Scholar.

¹⁸ Campbell (fn. 4).

¹⁹ Aoki (fn. 5); Greif and Laitin (fn. 7).

²⁰ Thelen, Kathleen, How Institutions Evolve (New York: Cambridge University Press, 2004)CrossRefGoogle Scholar; Pierson, Paul, Politics in Time: History, Institutions, and Social Analysis (Princeton: Princeton University Press, 2004)CrossRefGoogle Scholar; Streeck, Wolfgang and Thelen, Kathleen, Beyond Continuity: Institutional Change in Advanced Political Economies (New York: Oxford University Press, 2005)Google Scholar.

²¹ North (fn. 5), 45. As pointed out by Helmke and Levitsky (fn. 6): “Informal rules have remained at the margins of the institutionalist turn in comparative politics. Indeed, much current literature assumes that actors' incentives and expectations are shaped primarily, if not exclusively, by formal rules” (p. 725).

²² Hall and Soskice (fn. 1); Yamamura and Streeck (fn. 1); Amable (fn. 1); Schmidt (fn. 1).

²³ Cf. Helmke and Levitsky (fn. 6).

²⁴ Gourevitch and Shinn (fn. 9); Pagano and Vblpin (fn. 9).

²⁵ Gourevitch, , “The Macropolitics of Microinstitutional Differences in the Analysis of Comparative Capitalism,” in Berger, Suzanne and Dore, Ronald, eds., National Diversity and Global Capitalism (Ithaca, N.Y.: Cornell University Press, 1996), 241Google Scholar.

²⁶ For a general exposition, see Knight, Jack, Institutions and Social Conflict (New York: Cambridge University Press, 1992)CrossRefGoogle Scholar; and for an application to change in capitalist institutions, see Amable (fn. 1).

²⁷ Roe (fn. 11), 50–61. Roe's argument challenges the conventional orthodoxy in law and economics—that of La Porta et al. (fn. 10)—which tries to link differences in the extent of minority shareholder protection to legal traditions, with civil law countries producing lower shareholder protections than common law countries.

²⁸ Höpner, , “European Corporate Governance Reform and the German Party Paradox,” Harvard University Center for European Studies Working Paper 03.1 (Cambridge, 2003)Google Scholar; Beyer, Jürgen and Höpner, Martin, “The Disintegration of Organised Capitalism: German Corporate Governance Reform in the 1990s,” West European Politics 26 (October 2003)CrossRefGoogle Scholar.

²⁹ Gourevitch and Shinn (fn. 9). Cf. Gourevitch, Peter and Hawes, Michael, “The Politics of Choice among National Production Systems,” L'Année de la Regulation 6 (2002)Google Scholar; for a similar argument based on electoral systems, see Pagano and Volpin (fn. 9).

³⁰ North (fn. 5), 86.

³¹ An exception is Luong, Pauline Jones and Weinthal, Erika, “Contra Coercion: Russian Tax Reform, Exogenous Shocks, and Negotiated Institutional Change,” American Political Science Review 98 (February 2004)CrossRefGoogle Scholar; they develop a rationalist framework for explaining the emergence of a new tax code in Russia as a case of institutional change. These actors are not figuring out the new context of the world together, as in the joint belief shift mechanism, but are instead simply signaling a changed willingness to cut deals with each other. The insufficiency of the formal legal mechanism in explaining institutional change is underlined by their observation that some types of interdependence make changing laws useless absent a change in common knowledge.

³² Aoki (fn. 5), 233–44; cf. Culpepper, Pepper D., Creating Cooperation: How States Develop Human Capital in Europe (Ithaca, N.Y.: Cornell University Press, 2003)Google Scholar.

³³ Lohmann, Susanne, “Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989–91,” World Politics 47 (October 1994)CrossRefGoogle Scholar.

³⁴ The joint belief shift mechanism explored in this article assumes an exogenous change in material conditions as the precursor to institutional change. This does not exclude the possibility that endogenous institutional change may happen through a similar causal mechanism, and in practice exogenous and endogenous sources of change often interact; Aoki (fn. 5). 35Sewell, William, “Historical Events as Transformations of Structures: Inventing Revolution at the Bastille,” Theory and Society 25 (1996)CrossRefGoogle Scholar. I am indebted to Michele Lamont for drawing my attention to the relevance of the work of William Sewell on transformative events. It has influenced my formulation of the causal role of events.

³⁶ Aoki (fn.5), 242.

³⁷ Schelling, Thomas, The Strategy of Conflict (Cambridge: Harvard University Press, 1960)Google Scholar.

³⁸ Aoki (fn. 5), 241.

³⁹ Cf. Lohmann (fn. 33). Lohmann emphasizes the informational content of different sorts of actors engaging in costly behavior. Unlike Lohmann, I argue that this action by a central actor does more than reveal information that leads other actors mechanically to revise their estimates of how other actors will behave; it also jars them into reconsidering their own models of causation about the functioning of existing institutions.

⁴⁰ Sewell (fn. 35).

⁴¹ Hall and Soskice (fn. 1).

⁴² Amable (fn. 1), for example, provides probably the most extensive, empirically grounded statistical analysis of the distinctions among modern capitalist institutions. His analysis of financial systems shows that discernible gradations exist between systems of largely market-driven finance (including the U.S. and the U.K.) and the ideal “intermediated” financial systems (including France, Germany, and Italy). He describes finance in such systems as characterized by “a supposedly active involvement of intermediaries in firms' monitoring and strategy making, diminishing uncertainty and allowing for the realization of long-term strategies by supplying 'patient' capital” (p. 253). Amable's work supports the claim that these three countries lie at the opposite extreme from the market-based system of the LMEs. Schmidt (fn. 1), in her threefold typology of capitalisms, also identifies ownership concentration and strategic shareholding as core to both the German and the French models, even though she emphasizes that the French system of shareholding owes more historically to state policy than does its German counterpart (pp. 119–25).

⁴³ Jenkinson, Tim and Ljungqvist, Alexander, “The Role of Hostile Stakes in German Corporate Governance,” Journal of Corporate Finance 7 (December 2001)CrossRefGoogle Scholar.

⁴⁴ Franks, Julian and Mayer, Colin, “Corporate Ownership and Control in the UK, Germany, and France,” in Chew, Donald, ed., Studies in International Corporate Finance and Governance Systems (New York: Oxford University Press, 1997), 283Google Scholar; Franks, Julian and Mayer, Colin, “Ownership and Control of German Corporations,” Review of Financial Studies 14 (Winter 2001)CrossRefGoogle Scholar; Barca, Fabrizio et al. , Assetti Proprietari e Mercato delle Imprese (Bologna: II Mulino, 1994), 2:184Google Scholar.

⁴⁵ In the two decades prior to 1990, stock market capitalization in these countries was almost stagnant: moving from 16 percent of GDP in 1970 in France to 26 percent in 1990; 16 percent in 1970 in Germany to 21 percent in 1990; and 5 percent in 1975 in Italy to 13 percent in 1990.

⁴⁶ Schmidt, Vivien, From State to Market? The Transformation of French Business and Government (New York: Cambridge University Press 1996)Google Scholar.

⁴⁷ Morin, Francois, “A Transformation in the French Model of Shareholding and Management,” Economy and Society 29 (February 2000)CrossRefGoogle Scholar; Schmidt (fn. 1), 123.

⁴⁸ Jackson (fn. 2), 274–75. It is frequently argued that the German banking system constitutes a fundamental element of patient capital for the large firms in Germany. This appears on available evidence to be false. While financial firms certainly have significant holdings in other corporations in Germany, recent studies suggest that, throughout the period of the 1990s, banks did not play a role in German corporate governance distinct from that of other large shareholders. See Edwards, Jeremy and Nibler, Marcus, “Corporate Governance: Banks Versus Ownership Concentration in Germany,” Economic Policy 30 (October 2000)Google Scholar; Jenkinson and Ljungqvist (fn. 43); Windolf, Paul, Corporate Networks in Europe and the United States (New York: Oxford University Press, 2002), 45CrossRefGoogle Scholar. Thus, pace Jackson (fn. 2) and Hopner (fn. 3), changing strategies by German banks do not constitute a serious threat to the stability of the system of cross-shareholding in Germany, as long as they do not trigger a broader change in behavior among nonfinancial companies and individuals.

⁴⁹ Melis, Andrea, “Corporate Governance in Italy,” Corporate Governance: An International Review 8 (October 2000)Google Scholar.

⁵⁰ Aganin, Alexander and Volpin, Paolo, “History of Corporate Ownership in Italy,” European Corporate Governance Institute Working Paper 17/2003 (Brussels, 2003)Google Scholar; Bianchi, Marcello, Bianco, Magda, and Enriques, Luca, “Pyramidal Groups and the Separation between Ownership and Control in Italy,” in Barca, Fabrizio and Becht, Marco, eds., The Control of Corporate Europe (New York: Oxford University Press, 2001)Google Scholar.

⁵¹ CONSOB, “Relazione per l'anno 2002 della Commissione Nazionale per le Societa e la Borsa” (Rome, 2003), 203Google Scholar; Richard Deeg, “Institutional Change and Path Dependency: The Transformation of German and Italian Finance,” in Streeck and Thelen (fn. 20).

⁵² Aganin and Volpin (fn. 50).

⁵³ CONSOB (fn. 51). Some journalists have pointed to the erosion of the position of Mediobanca, formerly at the center of Italian ownership networks, as a symbol of potential change in the Italian system; cf. Kapner, Fred, “Italy's Reformers,” Financial Times, April 7, 2003, 13Google Scholar. However, as Deeg has shown (fn, 51), Mediobanca never defected from the system of patient capital; its management was simply ousted. This managerial change had no effect on effective ownership concentration in Italy, as shown in Table 1.

⁵⁴ These data actually understate the difference in ownership concentration among large firms in France and in Germany, because Germany has many more large firms that are privately held instead of being publicly traded. Among global (non-American) privately held companies, fourteen of the largest thirty are German; only three of the largest thirty are French; “Largest Non-U.S. Foreign Companies,” Forbes, November 12, 2004Google Scholar.

⁵⁵ Hopner (fn. 3), 138.

⁵⁶ Wojcik, Dariusz, “Change in the German Model of Corporate Governance: Evidence from Blockholdings, 1997–2001,” Environment and Planning A 35 (2003), 1445CrossRefGoogle Scholar.

⁵⁷ Höpner, Martin and Krempel, Lothar, “The Politics of the German Company Network,” MPIfG Working Paper 03/9 (Cologne, 2003)Google Scholar; Wójcik (fn. 56), 1445.

⁵⁸ Amable (fn. 1), 259—61. German industrial companies appear to value controlling shareholding heavily, as their stakes are much larger than those held by banks: “The median size of blocks held by industrial firms is 70 percent, which is substantially larger than for both individuals and banks (18 and 15 percent, respectively). This finding suggests that firms, banks, and individuals have very different motives in holding voting blocks. Firms appear to value majority control, while individuals generally own only a minority block. We find further that industrial firms control the largest percentage (26%) of all officially listed shares.” See Becht, Marco and Boehmer, Ekkehart, “Voting Control in German Corporations,” International Review of Law and Economics 23 (March 2003), 13CrossRefGoogle Scholar.

⁵⁹ Unless otherwise noted, all data on changes in French share ownership come from the Lereps Database of the University of Toulouse.

⁶⁰ Goyer, Michel, “Corporate Governance, Employees, and the Focus on Core Competencies in France and Germany,” in Milhaupt, Curtis, ed., Global Market, Domestic Institutions: Corporate Law and Governance in a New Era of Cross-Border Deals (New York: Columbia University Press, 2003)Google Scholar. In 2001 foreign investors owned only 14 percent of equity in German listed companies and 6 percent of the equity in Italian listed companies. See Wojcik (fn. 56), 1443; CONSOB (fn. 51), 202. These data are not directly comparable to those on France, since they refer to listed companies generally and not merely to the largest companies.

⁶¹ Vincent, Gregory, “Beyond 'Crony Capitalism': Financial Change and Elite Coordination in France” (D. Phil, thesis, Oxford University, 2004)Google Scholar.

⁶² Goyer, Michel, “The Transformation of Corporate Governance in France and Germany: The Role of Workplace Institutions,” MPIfG Working Paper 02/10 (Cologne, 2002)Google Scholar.

⁶³ Ibid.; La Porta et al. (fn. 10).

⁶⁴ Among large company deals (those where the deal price was above $100 million), there were three successfully completed hostile takeovers in France between 2000 and 2004; two of those deals involved purchases by foreign (British and Canadian) companies. During the same time period , there was one large hostile takeover in Germany (by an Italian company) and none in Italy; SDC Platinum Database of Worldwide Mergers and Acquisitions, 2005, http://www.tfsd.com/pdfs/sdcplatinum_pg.pdf). Thanks to Mauro Guillen and William Schneper for suggesting this data source.

⁶⁵ Morin (fn. 47), 49.

⁶⁶ Gourevitch and Shinn (fn. 9).

⁶⁷ LaPorta et al. (fn. 10).

⁶⁸ In LaPorta et al.'s (fn. 10) initial rankings, the United States and the United Kingdom had the highest antidirector indices (5), while Belgium had the lowest (0).

⁶⁹ Pagano and Vblpin (fn. 9).

⁷⁰ There is no evidence of anything happening before 1995 that triggered the change in France. Indeed, the OECDs interpretation of France in 1994 was one of stable cross-shareholdings. See Deeg, Richard and Perez, Sofia, “International Capital Mobility and Domestic Institutions: Corporate Finance and Governance in Four European Cases,” Governance 13 (April 2000), 129CrossRefGoogle Scholar.

⁷¹ Morin, François, “Le Modèle Français de Détention du Capital: Analyse, Perspective et Comparaisons Internationales” (Paris: Ministere de l'Économie, des Finances et de l'lndustrie, 1998), 22Google Scholar; Vincent (fn. 61).

⁷² Schmidt (fn. 1), 382.

⁷³ Cf. Vincent (fn. 61).

⁷⁴ Ibid.

⁷⁵ Schmidt (fn. 1).

⁷⁶ Vincent (fn. 61). In gathering information about the breakdown of the noyaux dun following AXA's acquisition of UAP, I have benefited from several exchanges with Gregory Vincent, whose research on the process of breakdown provides the best empirical evidence I have seen about this episode.

⁷⁷ AXA/UAP's combined shareholdings in nonfinancial companies in its network were all relatively minor (below 5 percent of their outstanding shares). As such, selling those shares alone would not have destabilized the existing network, absent selling by other shareholders. AXA/UAP's shares of financial companies were more substantial, as it held blocks larger than 10 percent of the shares of both BNP and of Paribas. BNP merged with Paribas in 1999; cf. Vincent (fn. 61).

⁷⁸ Lordon, Frédéric, “La 'Création de Valeur' Comme Rhétorique et Comme Pratique,” L'Année de la Régulation 2000 4 (2000), 151Google Scholar.

⁷⁹ Vincent (fn. 61).

⁸⁰ Cf. Hopner, Martin and Jackson, Gregory, “An Emerging Market for Corporate Control? The Mannesmann Takeover and German Corporate Governance,” MPIfG Working Paper 01/4 (Cologne, 2001)Google Scholar.

⁸¹ Ibid., 25.

⁸² North (fn. 5).

⁸³ Helmke and Levitsky (fn. I

⁸⁴ LaPorta et al. (fn. 10); Pagano and Volpin (fn. 9).