Essays on finance, international finance and theory of firm

This thesis contains four chapters. Chapter 1 shows both theoretically and empirically that weak legal institutions and inferior corporate governance in emerging markets contribute to the likelihood and depth of financial crises through biasing the foreign capital flow toward debt, especially short-term debt, rather than equity and direct investment. A high leverage ratio would make financial panic more likely to occur and deepen the extent of crises. Chapter 2 gives both a theoretical and an empirical analysis on how a corrupt and interventionist government contributes to the prevalence of such corporate finance patterns as concentrated ownership, relative reliance on bank financing and bank ownership of firms. It also proposes a legal approach to international corporate finance in a broad sense. Based on the evolutionary process of foreign market entry toward multinational enterprise, Chapter 3 combines the property rights literature with the soft budget constraint theory to show that ownership has not only benefit in stimulating relationship-specific investments, but also cost in deterring termination of ailing business. Chapter 4 develops a behavioral finance theory that explains asset market underreaction and overreaction from the interaction and sequential entry of heterogeneous investors with different confidence in judging whether the corporate earnings news is permanent or transitory.