The disciplinary role of the financial market could interact with a firm's choice of internal corporate governance. We prove that when the efficiency of the initial public offering (IPO) pricing improves, entrepreneurs choose stronger corporate governance structures as way of committing to extract fewer private benefits in exchange for higher prices. Using a difference-in-difference method that exploits the asymmetric impacts of the IPO pricing deregulation on the Chinese mainland and Hong Kong markets, we find that improving the efficiency of IPO pricing has a positive impact on a firm's corporate governance quality. This impact is more pronounced for firms with lower tangibility, for firms with higher market-to-book ratios, and for state-owned enterprises. Our findings demonstrate that the development of the financial market can promote economic development through improving corporate governance.

Building on the important study by Beck, Demirguc-Kunt, and Levine [2006. Bank supervision and corruption in lending. Journal of Monetary Economics 53, 2131-2163], we examine the effects of both borrower and lender competition as well as information sharing via credit bureaus/registries on corruption in bank lending. Using the unique World Bank data set (WBES) covering more than 4,000 firms across 56 countries with information on credit bureaus/registries, assembled by Djankov, McLiesh, and Shleifer [2007. Private credit in 129 countries. Journal of Financial Economics 84, 299–329], and bank regulation data collected by Barth, Caprio, and Levine [2006. Rethinking Bank Regulation: Till Angels Govern. Cambridge University Press, New York] to measure bank competition and information sharing, we find strong evidence that both banking competition and information sharing reduce lending corruption, and that information sharing also helps enhance the positive effect of competition in curtailing lending corruption. We also find that the ownership structure of firms and banks, legal environment, and firm competition all exert significant impacts on lending corruption.

Looking at a sample of nearly 2,400 banks in 69 countries, we find that stronger creditor rights tend to promote greater bank risk taking. Consistent with this finding, we also show that stronger creditor rights increase the likelihood of financial crisis. On the plus side, we find that stronger creditor rights are associated with higher growth. In contrast, we find that the benefits of information sharing among creditors appear to be universally positive. Greater information sharing leads to higher bank profitability, lower bank risk, a reduced likelihood of financial crisis, and higher economic growth.