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The role of credit rating agencies has come under severe scrutiny following the recent financial crisis, due to their claim, ab initio, of assigning true creditworthiness in the form of rating notches to financial institutions and their instruments. The over reliance of the market, and in particular of traders, investors and regulators, on external credit ratings contribute to the laxity and the herd behaviour of many of these market participants. The credit rating agencies have become a central theme of academic research and in particular, in the investigation of the ratings they assign and the effects of their rating actions on the market. This thesis investigates three empirical issues in the field of bank credit rating in an international setting. First, it models the financial and non-financial determinants of bank credit ratings. Second, it examines the impact of news announcements concerning bank credit rating changes, that is, upgrades and downgrades, on the performance of bank stock. Lastly, the thesis examines the trends in bank credit rating over time by focusing on rating migration within the historical pattern of both ratings and rating changes. The thesis reveals that the assignment of credit ratings to international banks is driven heavily by the CAMELS. The inclusion of non-financial variables, such as the too-big-to-fail, adds to the explanatory power of the rating determinant models. In addition, the thesis reveals that there is asymmetry in the reaction of the market to rating actions. It finds significant positive market reactions to subsamples of bank upgrades. Downgrades generally elicit significant negative market reactions. Finally, the results provide evidence of downward momentum in the rating migration of banks over time. In addition, it reveals the importance of duration in a rating notch on the likelihood of a bank migrating to another state. Generally, the longer a rated bank stays in a particular rating notch, the lower its probability of transiting to another rating notch.

This doctoral thesis reports the results of three studies that address the implications of two bank characteristics - bank efficiency and bank earnings quality - for bank dividend policy and specified capital market outcomes. Chapter 1 introduces the thesis. The first study links the market reactions to dividend change announcements by banks to changes in bank efficiency score, our new measure of bank overinvestment problem, derived from a frontier analysis of bank input-output combinations. We find that improvement in bank overinvestment problem, defined as changes in bank efficiency, is significantly and positively associated with market reactions following dividend increases. However, consistent with the moderating role of bank regulation, we find no support for the role of changes in bank efficiency in market reactions to dividend decreases. The second study establishes a link between bank earnings quality and bank cost of equity capital. Using various earnings quality measures, the study finds that banks with better earnings quality experience lower cost of equity capital. Consistent with this primary finding, our results also support the idea that banks with higher earnings quality enjoy higher market valuation and higher price-earnings multiples compared to banks with lower earnings quality. Overall, our results suggest that markets can differentiate between “good” and “bad” earnings and seem to compensate banks with better earnings quality. The third study contributes to the literature by first developing a country-specific index of bank earnings quality. We further hypothesise that banks in countries characterised by high earnings quality pay more dividends than banks in countries with lower earnings quality. Our data give support to this hypothesis. Finally, using modified partial adjustment models that incorporate our index of earnings quality, we find that the dividend-earnings relation is stronger for banks operating in countries with high earnings quality than for banks operating in countries with low earnings quality.

The recent information technology development has vastly helped in accelerating and facilitating the banking services and operations in general. In spite of this accelerated development in the banking sector, the risk of invading electronic banking systems is evident. This is manifested in many harmful functions such as unauthorised money transfer, disclosure of client information, denial of online banking services as well as various threats linked with online banking at different lineages especially through authentication of the client online. This thesis utilizes cloud computing in the banking system from technological and economic perspectives, and the possible benefits that a cloud computing provider gives. The definitions and functions of enterprise architecture both for cloud computing and the financial sector are discussed, then the new architecture model that I developed by merging the cloud and e-banking architectures is thoroughly explained. This study presents a novel, unique tamper proof USB, sustained with an operating system dedicated to serve the bank’s clients. This device is realised by embedding the bank application in this tamper proof USB while creating an isolation layer in the client’s PC when the client plugs in this USB. The modified operating system platform is based on the puppy Linux operating system. It has the capability to multiplex physical resources at the granularity of an entire operating system while being able to provide isolation between different operating systems. This tamper proof device is supported by four authentication measures which are; unique tamper proof ID, User account, password and fingerprint with a client secure socket layer. Moreover, I designed two different channels, one with cloud for authentication and transferring an encrypted session key while the other channel is used for communication between the client and the bank after re-authentication accompanied by a one-time password and finger printer image authentication parameter plus session key. The simulation testbed is used to solve the fundamental flow of the mechanism in sufficient detail, using Network Miner to parse libpcap files to do a live packet capture of the network traffic between cloud provider and the client; using Foglight monitoring tools to utilise the simulated server. Netwalk tools are used to represent the percentage of IP usage and Kali Linux, wireshark for penetration testing.

This thesis is the first piece of legal academic research that takes a holistic approach to the bank corporate governance framework in the UK, with a critical analysis of each key component of the governance framework. Its research questions are twofold: what are the key problems of the UK bank governance framework and how to improve it? Although “black letter” law analysis is at the core of the methodological approach of this thesis, the analysis draws extensively upon the bank-governance-related findings of the literature of economics, finance, management, accounting and psychology. Moreover, modest use of historical and empirical analytical tools is attempted. This thesis comprises five chapters. Chapter One (the adapted principal-agent theory and bank governance, a historical account of UK bank corporate governance, and the FSA’s regulatory system in respect of bank corporate governance) and Chapter Two (an experimental empirical study on enforcement mechanisms in UK bank corporate governance) set the general backdrop, against which the UK framework for bank executive remuneration governance (Chapter Three) and the UK framework for bank risk governance (Chapter Four) are holistically discussed and critically analysed. Chapter Five makes the following conclusions: (1) This thesis, based on Professor Heremans’ work, redefines agency problems in banks with dispersed shareholders to comprise two-tier agency problems and the agency problems between the regulator and the regulated. This theoretical framework has been extensively used in the analysis of this thesis.(2) None of the distinct but interlinked governance mechanisms of the UK bank governance framework are a panacea and risk-free. Each governance mechanism is beset by its own obstacles and limits, hence no single governance mechanism can function effectively alone. The UK bank governance framework should fully recognise the limitations of each governance mechanism and eradicate any false sense of confidence. It would be inaccurate to describe them as substitutes for each other. (3) Agency problems affect the effectiveness of and the interaction between governance mechanisms. Equity governance mechanisms in the form of self-regulation cannot address debt governance problems and financial stability concerns alone without regulatory intervention. Further, some of the equity governance mechanisms may have a negative impact upon debt governance. The thesis thus concludes that various governance mechanisms must all work together efficiently and consistently if a UK bank’s governance matrix is to be robust and the objectives of a proper UK bank governance framework are to be met.(4) The effectiveness of the framework, in particular from the perspective of risk governance and executive remuneration governance, calls for a number of factors to be observed.(5) An inherent limitation of the UK bank governance framework is that it is not, and cannot be, designed to address possible black swan phenomena. The framework should be, and is, to a large extent, designed to effectively discourage and prevent bank boards and senior management from building exposures to or, continuing with, known ill-considered or inadequately controlled risk and to effectively encourage them to incorporate foreseeable systemic risk into their bank’s risk appetite/risk tolerance.

This research aims to present a library-based study of the current institutional sharia governance and main national supervision frameworks in selected Muslim countries, namely, the Kingdom of Bahrain, the United Arab Emirates (Dubai), the State of Kuwait, the Sultanate of Oman, and the Federation of Malaysia. Analysing and comparing diverse practices of important aspects of sharia governance and supervision, the study argues that the existence of a comprehensive framework for sharia assurance is essential at both institutional and national levels. It argues that the current institutional sharia governance and national sharia supervision, relying on internal tools, does not provide customers with sufficient compliance assurance of the financial institution and its activities with sharia. Instead, it potentially raises serious governance issues and operational concerns, mainly resulting from the shortage of sharia scholars, the scope of sharia-compliance supervision, the concept and use of external auditors, independence and conflicts of interest, the legal status of the SSB and its pronouncements, and the accountability of the SSB. Further, the thesis underlines and discusses the efficacy of a number of practical solutions at institutional, national and international levels. These represent internal and external measures for sharia governance and supervision, mainly the segregation of roles of sharia scholars, the emergence of sharia consultancies, a global professional body for sharia scholars, the establishment of an international sharia rating system, and the emerging trend of centralisation . In evaluation of the proposed solutions, the thesis notes and promotes the growing trend of centralisation of sharia governance and supervision at the national level, which is believed to help in minimizing the main concerns underlined. Nonetheless, it remains to be seen which emerging model of central sharia authority in the selected Muslim countries would prove to be more efficient in thi s regard .

Whenever corporate and financial failures and crises arise in the world, issues of corporate governance and risk management are always highlighted as major causes of the event. In order to substantiate such claims, it is first important to specify which factors, in either corporate governance or risk management, actually cause these failures. Furthermore, if such factors were identified, might these failures be avoided in the future? This line of questioning provides the rationale behind this research. This study thus aims to explore and examine corporate governance and risk management practices as well as the potential relationship between the two variables in the case of Islamic banks in various countries. In doing so, the research explores corporate governance and risk management practices by employing disclosure analysis through annual reports, by using content analysis, with the objective of identifying the state of Islamic corporate governance and risk management practices in Islamic banks. To achieve this, the study analyses 181 annual reports from 53 Islamic banks. In addition, the corporate governance and risk management practices of Islamic banks were also explored through perceptions analysis, based upon the responses obtained by questionnaire survey from Islamic bankers and financiers from 28 Islamic banks from 6 countries and locations. An attempt was also made to locate the correlation between corporate governance and risk management with both data sets as it is expected that good corporate governance practices should moderate risk exposure and establish a better risk management process. Thus, this study is predicated on the notion that if banks have good corporate governance practices, the risk management practices should then be efficient. By using qualitative and quantitative methods of data analysis, including correlation analysis, this study found that the relationship between corporate governance and risk management is not incredibly strong in the case of the Islamic banks involved in the period that this study covers. However, in examining the type of relationship, it was established that there was a positive relationship between the two. Thus, it can be said that with regards to bank failures, if corporate governance is the aforementioned trigger, it is also partly due to risk management – based on the fact that a positive relationship exists between the two. The findings of the study reveal two important results: corporate governance and risk management do not have a strong correlation between them. The findings show that most Islamic banks have very poor scores in Shari’ah compliance and Shari’ah governance. Poor scores are also revealed in other dimensions such as ethics, audit and board composition. However, in determining which aspect of corporate governance has the stronger propensity for creating problems, it is important to establish the actual dimension which affects corporate governance and risk management the most. This study reveals that Shari’ah-related dimension has the highest bearing on the overall corporate governance positions. Risk management, on the other hand, depends very highly on reporting and disclosure. A further aspect to consider is that not all dimensions positively affect corporate governance. For instance, the structure, committee and senior management has a negative impact on corporate governance. For risk management, all dimensions had positive impacts except for primary key areas, which are market and liquidity risk and operational risk.

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