Essays in banking and international corporate governance

The first essay presents a model of spatial competition where small, single-market banks compete with large multi-market banks (LMBs). It shows that a greater presence of LMBs in relatively concentrated markets tends to promote competition for retail loan services. There is however a mixed consequence for consumer welfare. Since LMBs have significant funding advantages relative to smaller banks, the greater presence of LMBs harms competition in retail deposit markets, especially in markets with relatively low concentration. The model provides a logical explanation for recent empirical evidence documenting the competitive effects of LMBs, and our empirical findings are supportive of the theory.; In the second essay, I find a significant nonlinear relation between firm value and the fraction of common stocks owned by foreigners in Japan. Firm value rises until foreign ownership reaches around 40%, then falls back. To get around the simultaneity problems, I use 2SLS method, and then use yearly change in firm value and foreign ownership instead of level variables in the analysis and find similar results. It appears that most effects of the increase in firm value is due to the increase in foreign ownership by non-keiretsu (independent) firms at substantial levels of foreign ownership. It appears that, in Japan, foreign institutional investors in independent firms are good monitors, and foreign industrial firms increase their stakes after firms showing poor operating performance.; In the third essay, we find that cash ratios for chaebol (business group) firms are lower than for non-chaebol firms for the 1991--2000 period. We do however find that there is a shift in the degree of bank power over the last decade. After the financial crisis in 1997, the interest differential charged to chaebol firms is significantly higher than the earlier period, suggesting extraction of rents against chaebol client firms by main banks. We also provide the dark side of internal capital markets as a competing explanation where independent firms with a more focused line of business are more responsive in investment to good investment opportunities, while this is not the case for diversified chaebol firms.