This paper presents some new evidence on the hypothesis that financial liberalization will lead to a convergence in the structure of financial systems and firms' capital structure towards market-based systems. The paper focuses on the interesting case of France, where major reforms have liberalized financial markets and the banking system and significantly widened the choice of markets and contracts for firms' financing. The paper does show that the reforms have been paralleled by a shift of firms' funding towards the pattern of market-based systems, but it also argues that this is only a partial picture. Mirroring past and recent theories of capital structure which have concentrated only on financial markets as the provider of funds, this would disregard the role of intermediaries and overlook the fact that French banks are still the core of the French financial economy. Copyright 1994 by Oxford University Press.
