Business Ethics and Corporate Governance, Second Edition

COMPETITION IN A CAPITAL MARKET

While the benefits of competition to consumers in the product market can be directly linked to and may reflect corporate governance practices, it may not be so direct in the case of capital market. Often, competition may undermine the development of long-term relation between companies and financial institutions. For example, the willingness of banks to provide rescue finance to firms in financial distress, returns hinge on the expectation that these investments will yield long-term benefits. Where there is competition in financial markets and firms are in financial distress, then the provision of rescue funding by banks may be discouraged. On the other hand, limitations on competition in financial markets may ...