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Central to this thesis is the examination of cross border knowledge transfer mechanisms in multinational banks from emerging and advanced economies. Applying the Knowledge Based View, the Network theory, and Springboard perspective, this study advocates that exploiting and optimising knowledge synergies between subsidiaries located in different countries through knowledge transfer mechanisms is what is facilitating knowledge transfer for both multinational banks from emerging and advanced economies. By identifying and operationalizing knowledge transfer mechanisms in multinational banks, the research proves that emerging economy multinational firms do benefit from cross border knowledge mobility, and that knowledge transfer mechanisms exist in services multinational enterprises. Secondments and Communities of Practice have been identified as knowledge transfer mechanisms for an emerging economy multinational bank, while Global Job Postings and The Commercial Banking Corporate School have been identified as knowledge transfer mechanisms for an advanced economy multinational bank. The work suggest that the Network theory applies more to advanced economy multinational banks; that they do benefit more from their multinational network than emerging economy multinational banks.

The banking sector is an important component of the financial system in China; its effective functioning plays a vital role in the country's economic growth. Since 1978, the Chinese banking sector has undergone several rounds of reforms, the purpose of which is to improve bank performance, increase competition and create a more stable environment in the Chinese banking industry. Empirical literature has investigated Chinese bank performance from different perspectives, such as bank profitability or efficiency; few studies also focus on the examination of the competitive conditions of the Chinese banking sector. The main contribution of this thesis is to provide a comprehensive analysis of the issues in the Chinese banking sector which covers the topics of bank profitability, bank technical efficiency, bank productivity, risk and competition. In particular, the thesis emphasises the linkages between them. The data period covers the period from 2003-2009. This period is characterized by significant banking reforms initiated by the Chinese government, especially the establishment of the China Banking Regulatory Commission (CBRC) in 2003 which has had a profound impact on bank performance, competitive conditions and risk management of Chinese banks. The types of banks considered in the current study include all the state-owned banks, the joint-stock commercial banks and 84 city commercial banks, which are the three largest banking groups in terms of total assets over the period examined. As its title indicates, the main focus of this thesis lies in the analysis of performance and competitive conditions in the Chinese banking industry. The main objectives of the thesis can be summarised as follows: The study investigates the determinants of bank profitability; in particular, the study emphasises the effects of inflation, GDP growth rate and stock market volatility on bank profitability. Following the estimation of bank profitability, the study estimates the competitive conditions of the Chinese banking sector. Finally, technical efficiency and productivity growth, which are regarded as two other important performance indicators, are examined for Chinese banks over the period 2003-2009. Due to the issue of large volumes of non-performing loans in the Chinese banking industry, together with the financial crisis which happened in Asia in 2007, the Chinese government and the banking regulatory authority attach importance to the risk-taking behaviour of Chinese banks. Therefore, the study aims to investigate the risk condition of Chinese banks. In particular, the inter-relationships between risk and bank competition, and risk and bank performance are examined. To be more specific, the study 1) examines the effect of competition on banks' risk taking behaviour; 2) assesses the inter-relationships between bank risk, competition and profitability; 3) investigates the inter-relationships between bank risk and technical efficiency; and 4) evaluates the relationships between risk, capitalization and efficiency. Since the last round of banking reform after China joined the WTO encouraged Chinese banks to be listed on the stock exchange, the share performance is paid great attention by bank managers; thus, this thesis tests the impacts of share return and risk on efficiency and productivity. The inter- relationships between bank competition and bank performance are also investigated. In particular, this study 1) evaluates the impacts of efficiency and concentration on bank competition; 2) investigates the impacts of competition and profitability on technical efficiency; 3) test the impacts of competition and efficiency on bank profitability; 4) assesses the impacts of technical efficiency and risk on bank competition. The empirical findings suggest that inflation has a significant and positive impact on Chinese bank profitability in terms of Return on Assets (ROA) and Net Interest Margin (NIM). Furthermore, Chinese banks have lower profitability in relation to ROA and NIM during periods of economic boom (higher GDP growth). In addition, the results suggest that higher levels of stock market volatility can translate into higher profitability of Chinese banks in terms of Return on Equity (ROE) and Excess Return on Equity (EROE). Finally, we report that Chinese bank profitability (ROA and NIM) is significantly and positively affected by overhead cost, banking sector development, stock market development, while it is negatively affected by taxation. We find that Chinese banks with higher labour productivity have lower profitability in terms of Economic Value Added (EVA). Our results suggest that, over the examined period 2003 2009, the Chinese banking sector is in a state of monopolistic competition as examined by Panzar-Rosse's H statistic. When using the Lerner index as the competition indicator, the findings suggest that joint-stock commercial banks have the highest level of competition over the period examined. With regards to the efficiency of Chinese banks, the findings suggest that state-owned commercial banks have the highest technical efficiency, followed by joint-stock commercial banks with the city commercial banks being the least technically efficient. The results indicate further that scale efficiency contributes more than pure technical efficiency to the overall efficiency of Chinese banks and that Chinese banks are faced with a misallocation of inputs and outputs in banking operations. The productivity of three types of Chinese commercial banks (state-owned, joint-stock and city commercial banks) is quite stable over the period examined; these three types of banks show productivity growth in 2005 and 2009. The empirical results show that, in a more highly concentrated market competition (measured by the Panzar-Rosse H statistic) is lower. We further find that in a more highly competitive environment (measured by the Lerner index), bank profitability is still lower. We do not find any robust relationships between risk and profitability, or risk and competition. Although we do not find any significant impacts of competition and efficiency on bank profitability, our results suggest that Chinese banks with lower levels of liquidity and more diversified activities have higher technical efficiency. Furthermore, it is found that in a more developed but less competitive banking sector, Chinese banks are more technically efficient. Chinese banks with higher share returns have more stable efficiency, while the stability of efficiency and productivity in the Chinese banking sector is affected significantly by bank size, capitalization, banking sector development, inflation and GDP growth rate. In terms of the relationships between risk, capital and efficiency, the results suggest that the levels of capitalization are significantly and positively related to technical and pure technical efficiencies of Chinese banks, while Chinese banks with higher technical and pure technical efficiencies have higher levels of capitalization. We do not find any robust relationships between risk and technical efficiency in the Chinese banking sector; in addition, there is no clear evidence for the impacts of competition and technical efficiency on bank profitability in China. Finally, we report that there is a negative impact of technical efficiency on bank competition. In other words, Chinese banks with higher technical efficiency have greater market power. In conclusion, this study provides a comprehensive analysis of several empirical issues in the Chinese banking sector including bank profitability, technical efficiency, bank productivity, competitive and risk conditions and potential linkages among them over the period 2003-2009.

This dissertation contrasts the development of the regulatory structure of the American and German banking systems until the mid-20th century. It explains why the countries' regulatory structures diverged into diametrically opposite directions, even though both countries had federal political systems and regularly observed the developments in the other country. Furthermore, after the Second World War, the American military government was even able to mold the German banking system into an idealized version of the American one. The thesis also provides an explanation why this assimilation attempt ultimately failed, and why there was a strong institutional persistency between Nazi Germany and West Germany instead. The original contributions to knowledge are the following: (1) This thesis offers a novel perspective on the evolution of the structure of American banking regulation by interpreting it as being largely driven by constitutional conflict (2) it shows that prior to the Banking Crisis of 1931 there was no intention to introduce a comprehensive regulatory structure for the banking sector in Germany (3) It provides a reassessment of the origins of the German Credit Act of 1961 as a non-deterministic process (4) It interprets German banking regulation after the Second World War as a failed Institutional Assimilation, which provides evidence that the decentralized regulatory arrangement of the American banking system was held in place by strong states' rights. In the absence of strong states' rights such a system would not persist and, indeed, in Germany it did not (5) It re-interprets German post-war economic history as being driven by the need of the German federal government to re-establish supremacy over economic matters. This assigns a new important role for Ludwig Erhard in German post-war competition history, as being an enabler of liberalization rather than being a liberalizing force himself.

Recent literature promotes commitment products as a new remedy for overcoming self-control problems and savings constraints. This thesis argues that the effects of commitment may be very heterogeneous, and highlights the mechanisms under which commitment may reduce welfare, rather than increase it. It also examines a new type of commitment contract: A formal commitment savings account with fixed regular instalments, introduced in a developing-country context. Chapter 1 proposes that the popularity of costly or inflexible savings mechanisms as well as of high-interest consumption loans may represent a demand for commitment to fixed instalments. Using a newly collected dataset from Bangladesh, it shows that the introduction of a regular-instalment commitment savings product was associated with a large increase in average savings contributions. The theoretical framework in Chapter 2 highlights the potential heterogeneity behind such positive average effects: Commitment improves welfare when agents have full knowledge of their preferences, including biases and inconsistencies. If agents are imperfectly informed about their preferences, they may choose ill-suited commitment contracts. I formally show that commitment contracts can reduce welfare if the commitment is not strong enough to discipline the agent, resulting in costly default. I further show that such insufficient commitment contracts are likely to be selected by time-inconsistent agents with ‘partially sophisticated’ preferences: Agents who are neither completely unaware nor fully aware of their time-inconsistency, but anywhere in between those two extremes. Chapter 3 describes a randomised experiment in the Philippines: I designed and introduced a regular-instalment commitment savings product, intended to improve on pure withdrawal-restriction products by mimicking the fixed-instalment nature of loan repayment contracts. Individuals from a general low-income pop ulation were randomly offered to take up the product, and were asked to choose the stakes of the contract (in the form of a default penalty) themselves. The result is that a majority appears to choose a harmful contract: While the intent-to-treat effect on bank savings for individuals assigned to the treatment group is four times that of a withdrawal-restriction product (offered as a control treatment), 55 percent of clients default on their savings contract. The explanation most strongly supported by the data is that the chosen stakes were too low (the commitment was too weak) to overcome clients’ self-control problems. Moreover, both take-up and default are negatively predicted by measures of sophisticated hyperbolic discounting, suggesting that those who are fully aware of their bias realise the commitment is too weak for them, and avoid the product. The study suggests that research on new commitment products should carefully consider the risk of adverse welfare effects, particularly for naïve and partially sophisticated hyperbolic discounters.

Given the growing importance of securitisation to financial stability, it is surprising that empirical studies on the role of the US structured finance market in the recent crisis have been relatively sparse. To fill this gap, this thesis studies the US structured finance market (tracked by the ABX indices) and addresses various important research questions specific to the recent 2007 to 2009 financial crisis. First, I contribute to the contagion literature by extending Longstaff’s (2010) investigation to an international market perspective. Evidence of contagion from the ABX indices to the G5 international equity and government bond markets via the funding illiquidity and credit risk channels during the subprime crisis is documented. Second, I formulate a multifactor model with crisis interaction effects and document significant increases in the ABX AAA factor loadings during the subprime crisis, which is consistent with contagion. My cross-sectional pricing tests show that the ABX AAA factor significantly explains the cross-section of expected returns during the subprime crisis; that is, the impact of contagion on the US equity market was reasonably systematic. I compute a simple statistic that gauges the degree of the stocks’ exposure to the ABX innovations in each month and find that the exposure spiked in February, July and October 2007 and in February, July and November 2008. Third, I investigate whether the US bank holding companies’ fundamental characteristics determine bank equity risks during the recent crisis. I depart from prior studies and consider bank equity risks relating to the banks’ exposure to the ABX innovations, the asset-backed money market and the market wide default risk in a variance decomposition. My study establishes the link between the banks’ fundamental and equity risks, and shows that banks’ regulatory capital requirement is an effective means to limit banks’ exposure to systemic risks in relation to funding illiquidity. Lastly, I document compelling evidence of quarterly bank stock return predictability based on variables relating to banks’ profitability, loan asset credit quality, capital adequacy and equity risks over the 2006 to 2011 period. By studying the turnover ratios and order flows, I show that bank stocks with weaker fundamentals and smaller size were traded more intensely in the following quarter while the higher trading activity was dominated by selling pressure. The evidence lends support to my ‘fire sale’ or ‘flight-to-safety’ hypothesis and reveals that the banks’ fundamental variables and size were the major criteria used by investors in formulating their ‘flight’ decisions during the recent crisis.

The aim of the thesis is to investigate three banking issues related to competition, which are switching costs, collusion, and the competitive conditions in the Hong Kong banking sector during the period 1997 to 2012. For this purpose, a database consisting of an unbalanced panel of annual observations for 18 licensed banks incorporated in Hong Kong is used. This thesis comprises three empirical essays as follows: The first essay uses a structural model presented by Kim et al. (2003), which explores the significance and the magnitude of switching costs in Hong Kong’s bank loan market. Overall, I find that switching costs are significant in the Hong Kong bank loan market. The average point estimate of switching costs based on the entire sample is 0.1947. The results suggest that the existence of switching costs raises the price-cost margin by 52 basis points. Furthermore, the results also suggest that the estimated switching costs during the bad times are slightly higher than that in good times. On average, 2.54% of the customer’s added value is attributed to the lock-in effect generated by switching costs. The second essay measures the degree of collusion and the nature of the competitive conditions in the Hong Kong bank loan market using the conjectural variation approach. I jointly estimate a system of a log demand function, a pricing equation, and a trans-log cost system, and use the conjectural variation parameter to identify the degree of collusion. The estimated conjectural variation parameter is insignificant, which suggests that banks in Hong Kong operate in a competitive fashion in the loan market and the behaviour of the banks is consistent with a Nash-Bertrand equilibrium in price, with no significant evidence of collusion on pricing. The third essay investigates the degree of competition in the Hong Kong banking sector using the Panzar-Rosse approach. The novelty of this essay is to solve the problem of the system’s residuals correlation in the Panzar-Rosse model by jointly estimating equations using the SUR approach. My results suggest that the Hong Kong bank market can be characterized as monopolistic competition and the level of competition of interest market is higher than competition level of the non-interest market.

Bootstrap DEA is a valuable tool for gauging the sensitivity of DEA scores towards sampling variations, hence allowing for statistical inference. However, it is associated with generous assumptions while evidence on its performance is limited. This thesis begins with the evaluation of the performance of bootstrap DEA in small samples through a variety of Monte Carlo simulations. The results indicate cases under which bootstrap DEA may underperform and it shown how the violation of the fundamental assumption of equal bootstrap and DEA biases may affect confidence intervals and cause the evidenced underperformance. An alternative approach, which utilises the Pearson system random number generator, seems to perform well towards this respect. In particular, coverage probabilities converge to the nominal ones for samples as small as 120 observations and the bootstrap biases are very close to the DEA ones. In the presence of technological heterogeneity, though, poor performance is observed in all cases, which is not surprising as even the applicability of simple DEA is questionable. Using an illustrative example from the deregulation of the Greek banking sector during late 80s, potential differences arising from the various approaches are discussed. In particular, the theoretical explorations are extended to the case of the Global Malmquist productivity index, which is used to examine the productivity change of Greek banks during (de)regulation. Some differences are observed on the magnitudes of the estimated quantities of interest and on the probability masses at the tails of the relevant bootstrap distributions. Qualitatively, though, the overall conclusions are very similar; the provision of commercial freedoms enhanced the productivity of commercial banks whereas the imposition of prudential controls had the opposite effect. This result is of topical interest as the European Supervisory Mechanism, which recently assumed duties, will closely supervise “significant institutions” which includes the 4 biggest Greek banks and their banking subsidiaries.

This thesis proposes theoretical models to study bank risk-taking and financial stability. Three issues are explored: (1) the moral-hazard incentive for securitisation, (2) the socially optimal banking structure for the economy, and (3) the relationship between bank competition and financial stability, based on bank funding structures and fire-sale risks. Chapter 2 proposes a model to study how bank securitisation affects the value of bank equity, and hence what leads a bank to securitise its assets. The proposed model shows that moral hazard (which is induced by the deposit insurance scheme), can be one essential motive for the securitisation of deposit-taking commercial banks. This chapter also discusses some factors that can restrain the moral-hazard and risk-taking behaviour in bank securitisation. Chapter 3 investigates the social value of different banking structures. The proposed model finds that total separation is not the optimal banking structure for an economy, because it forbids the liquidity transfer between subsidiary banks, which is socially valuable. The comparison between ring-fencing and universal banking is more complicated; Chapter 3 shows that whether ring-fencing or universal banking is the best banking structure for an economy depends on the returns to the different subsidiary banking sectors. Chapter 4 studies how asset fire-sales risks and bank funding structures can affect the relationship between bank competition and financial stability. The proposed model finds that the funding-structure risks of the banks can create an incentive for excess risk-taking in a multi-bank economy. Moreover, the model shows that the excessive risk taking increases with the number of banks in the economy. This result is similar in spirit to the Cournot equilibrium in standard microeconomic theory.

Islamic banking, a niche financial sector that has captured the imagination of the financial elite and ordinary consumers alike, is unique in its regulation through the shariah. Primarily, it presents an added-value derived from its prohibition of riba (interest) in favour of profit from trade (al Bay) or leasing (ijarah). This thesis aims to explain Malaysia’s success in promoting Islamic banking products to a critical mass of consumers. More specifically, it seeks to explain the development and growth ineveryday Islamic banking practices amongst the Malay community in Kuala Lumpur. The thesis is based on a sociological framework that does not aim to explain the development and growth of Islamic banking in terms that are principally about religion. I argue that the development of Islamic banking in Malaysia is the result of a top-down strategy driven by the economic and political interests of Malaysia’s ruling elites. Following the crisis of trust in the political-economic model of development deployed up to the crisis of 1997-1998, Islam’s vast repertoire of ideas, language and symbols are a powerful and dexterous foundation of a strategy that simultaneously problematises ‘conventional’ banking and offers an alternative course through Islamic banking. Nevertheless, Islamic banking practices are not given and cannot be taken-for-granted. Thus, in seeking to understand why increasingly consumers trust Islamic banking’s promise of economic advantage with the added value of religious compliance, the study seeks to interpret Islamic banking practices from the perspective of the ‘ordinary’ consumer. Everyday Islamic banking practices are viewed in this thesis, as embedded within broader, historically determined, closely intertwined, social, economic, cultural and political circumstances. This study views the aforementioned circumstances that consumers find themselves in, on the one hand, and the banking practices they participate in, on the other, as interacting elements of a socially determinate whole. Trust, I suggest, is the common thread underpinning the everyday banking practices within the interacting elements of a socially determinate whole. Three ideal types that emerged from the data, the virtuoso, pragmatist and sceptic, are a used as a heuristic device to characterise the various interests driving trust in Islamic banking, and illustrate the heterogeneity of Islamic banking practices. More specifically, based on an analysis of the consumers’ account of their Islamic banking practices, the choice of Islamic over ‘conventional’ banking is based on two important factors. First, for those who perceive and are attracted to the added value of Islamic banking, trust in the shariah regulation and expertise, as underwritten by the state, is the first condition to their choice. Trust lubricates their choice by reducing complexity, mitigating risk and bridging the gap between knowledge and faith. Second, the personalised trust that characterises thick social ties bolsters confidence in Islamic banking. In rating Islamic banking as the most socially acceptable choice, family and peers are signalling confidence in the value and values of Islamic banking and are unwitting allies of the state and banks. Last, the study notes that shariah regulation has contradictory corollary effects: it is both functional and dysfunctional. Whilst it functions in enabling the growth of Islamic banking, it also contributes to social fragmentation within Malaysian society.