This thesis includes two chapters studying corporate finance of firms in East Asian countries.

The first chapter is a study of choices Japanese firms' made in regard their capital structure in a banking crisis. I examine Japan's experience following the burst of the property bubble in 1989 to identify how a shock to bank health affects firms' capital structure. Japanese banks' varying exposure to the real estate sector has allowed me to identify the effect of bank health on firm debt ratios. I find that while greater real estate exposure of the top lender affects the debt ratios of profitable firms negatively, the effect is the opposite for unprofitable firms. In the former case, banks mainly cut short-term lending but there is no significant effect on asset growth as firms mainly op...[ Read more ]

This thesis includes two chapters studying corporate finance of firms in East Asian countries.

The first chapter is a study of choices Japanese firms' made in regard their capital structure in a banking crisis. I examine Japan's experience following the burst of the property bubble in 1989 to identify how a shock to bank health affects firms' capital structure. Japanese banks' varying exposure to the real estate sector has allowed me to identify the effect of bank health on firm debt ratios. I find that while greater real estate exposure of the top lender affects the debt ratios of profitable firms negatively, the effect is the opposite for unprofitable firms. In the former case, banks mainly cut short-term lending but there is no significant effect on asset growth as firms mainly opt for equity financing. However, in the latter case, loans that firms cannot pay remain on the books (primarily as short-term debt), and decrease in asset growth drives the debt ratio. I also find strong evidence that the nature of banking relationships matter: firms that belong to a main bank system but have no previous history of bond issuance, firms that have more concentrated loans from one source (their top lender), and firms that borrow from fewer banks have access to more loans but are more affected by adverse bank health due to a lack of diversification.

The second chapter is a study of Chinese firms' corporate governance. Using data from over twelve thousands Chinese non-listed private firms, the essay examines the effects of corporate governance on labor welfare. I find evidence that strong governance structures are positively related to hourly wages, pension coverage, and many other labor welfare measures. The results suggest that managers are not allied with shareholders in treating employees, and shareholder control significantly improves labor outcomes. Further tests show that adverse labor outcomes are associated with managerial myopia and greater managerial discretion.