BRIDGING CAPITAL GAPS TO PROMOTE INNOVATION IN FRANCE

With the withdrawal of state ascendancy over the financial sector, the national system of financing has taken a new turn in France. This paper deals with the capacity of this new system to promote innovation and argues that the capacity of French banks to finance innovation is now limited. In this context the supply of equity to firms is a critical factor. For small firms, however, there was a critical shortage in equity supply right up to the mid-1990s. Since then new policies and institutional reforms have been launched to cope with French financial gaps and to financially promote innovation. Amongst these institutional innovations the paper mentions the Nouveau Marché; the Development Bank for SMEs; and the impetus given the venture capital industry by earmarking a proportion of funds from the privatization of France Telecom to support innovative small enterprises.