This dissertation describes three studies on the linkages between changes in financial markets and firm-level performance in the real economy. The first chapter studies the impact of foreign bank deregulation on domestic firms' credit access and real outcomes in China, using an extensive firm-level data set from the manufacturing census. Following the deregulation policies implemented by the government in 2001, foreign banks were allowed to enter the Chinese banking market gradually, in different years in different cities. As a result, from 2001 to 2006 firms in different cities had differential access to foreign bank credit. Empirical results suggest that after foreign bank entry, private-owned firms which were previously more credit-constrained obtained more bank loans, increased investment and increased sales significantly more than state-owned firms, which were previously less constrained. The findings provide evidence that policy-driven positive foreign credit supply shocks could reduce domestic firms' financing constraints, especially for private-owned enterprises. In addition, I investigate the hypothesis that foreign bank entry intensified competition in the domestic banking sector, using a newly constructed regional bank competition index. Results confirm that increases in bank competition brought by foreign bank entry improved credit access for private-owned firms relative to state-owned firms.

The second chapter studies determinants and impacts of foreign currency borrowing by firms in emerging Europe. Most of the existing studies on currency mismatch focus on large corporations, and this study complements literature by using firm-level survey data mainly covering small non-listed firms. The third chapter presents evidence on zombie firms and stimulating policies in China. We apply the framework from the seminal study of zombie firms in Japan to a broader manufacturing census sample in China between 1998 and 2013. We show that the number and the magnitude of undesirable zombie firms increased sharply after an enormous monetary expansion right after the 2008 financial crisis.