This thesis analyses the dimensions and dynamics of clientship in the microfinance sector in Sri Lanka with a special focus on multiple clientship. It examines the extent of different dimensions of clientship and how they have changed between 2006/07 and 2009/10, based on an original framework developed in this thesis. It further explores the reasons for households to borrow and save with multiple financial institutions and the implications of multiple borrowing and multiple saving on households and on microfinance institutions (MFIs). The research is based on mixed methods and uses both primary and secondary data sources. The findings reveal that MFI clients are heterogeneous in terms of financial services utilised and the number and the types of financial institutions accessed by them. The majority of MFI clients are multiple clients and the level of multiple clientship has increased significantly between 2006/07 and 2009/10, with the majority of clients accessing a combination of MFIs and commercial financial institutions (CFIs) like commercial banks. The findings reveal that the microfinance sector and the formal financial sector, that are conventionally believed to serve distinct segments of the market, have converged over time, catering to the financial needs of a broad group of clients. The factors that have contributed to such a high level of financial access and increasing convergence between MFIs and CFIs in Sri Lanka are also examined in the thesis. The research finds that multiple borrowing among households is driven by both promotional and protectional needs, though for the majority of households, it is driven either entirely or at least partially, by promotional needs such as income-generation activities. By contrast, multiple saving among households is driven by a combination of reasons rather than a single reason. One of the key reasons for the widespread use of CFIs among MFI clients is to access pawning facilities. Such services are not available from most MFIs, and are largely used as a strategy to deal with emergency financial needs among lower income households. While the high level of financial services in Sri Lanka should be lauded, debt levels among households, particularly among multiple borrowers have increased and some of the key MFIs have experienced deteriorating portfolio quality and weak financial performance in recent years, bringing concerns to the microfinance sector of the country. The findings stress the need to monitor multiple borrowing and to strengthen the performance of MFIs, to enable them to better face the rising competition and multiple clientship in the sector, and to ensure sustainable access to financial services by all.

This thesis investigates the effect of income diversification on the performance of Islamic banks in Malaysia, Saudi Arabia, Kuwait, United Arab Emirates, Bahrain and Qatar where they operate alongside conventional banks in a dual banking system. Accounting data was drawn from 68 conventional and 42 Islamic banks from 1997 to 2009. The main focus was to see whether a greater reliance on non-financing income impacts on earnings quality and if so, how this may vary between Islamic and conventional banks. Commission and fee income, trading income and other non-financing income constitute non-financing income. For conventional banks, this is known as non-interest income, but in Islamic banking the payment and receipt of interest is prohibited so this ‘other income’ is referred to as non-financing income (that is, income unrelated to deposit-taking and loan granting). Islamic banks operate as universal banks and offer retail and wholesale financing plus investment banking services. Using various empirical approaches, we find that non-financing income positively influences banks’ risk-adjusted performance on a net overall impact basis, after taking into account, the consequential indirect impact arising from changes in income diversification (provided that the increase in non-financing income is carried out up until the optimal share of non-financing income of 0.5). Greater income diversification on its own, increases income volatility and this negatively impacts bank’s risk-adjusted performance, more so, when income diversification exceeds the optimal score of 0.5. Islamic banks are found to be more focused on deposit/loan financing and less diversified in terms of non-financing income activities compared to conventional banks. We find that Islamic banks appear to be less susceptible to earnings volatility given their lower diversified income source. Islamic banks have lower profitability (on average) on a risk-adjusted basis when compared to their conventional counterparts.

This thesis provides empirical evidence on the degree of banking sector competition in the Central and East European (CEE) countries and the impact of competition on banks’ risktaking and interest margins. The thesis uses data on around 300 banks from 17 CEE countries for the period 1999-2009, and employs a variety of estimation methodologies. The first objective of the thesis is to measure the degree of banking sector competition in CEE countries. Using the Panzar-Rosse approach, we found that the banking sectors of the CEE countries have been characterized by monopoly behaviour. By distinguishing between the non-EU and EU countries of the region, we found that banks operating in the non-EU countries faced a lower degree of competition compared to banks operating in the EU members of the region. The separate estimation for Kosovo indicated that the competitive behaviour of banks operating in this country was consistent with monopolistic competition. The second objective of the thesis is to estimate the impact of banking sector competition on the degree of banks’ risk-taking. Using country-level Panzar-Rosse H-statistic estimates as a measure of competition, for the overall sample, we found that competition enhances the quality of the loan portfolio, thus providing evidence against the mainstream view on the trade-off between competition and stability. However, for the non-EU countries of our sample the impact of competition on banks’ risk-taking appeared positive, which implies that more effective authorities are needed in these countries to oversee the banks’ behaviour when competitive pressures increase. The third objective of the thesis is to estimate the impact of banking sector competition on banks’ interest margins. The results suggest that competition had a negative impact on net interest margins. The impact of competition in reducing the net interest margins was stronger in the non-EU countries compared to the EU countries of the sample. Overall, the results suggest that the banking sectors of the CEE countries are characterized by low levels of competition, implying higher risk and larger interest margin.

This work consists of five separate essays that examine the banking industry from a number of viewpoints. In the first essay, I consider how the ratchet effect interacts with workers' ability to cooperate to determine effort provision in teams. I show how the dominant constraint varies with both the size of the team and the members' ability to monitor each other's effort. Small teams tend to have their effort provision constrained by the ratchet effect; large teams are instead constrained by the inability of the team members to demand effort from each other. In the second essay, I examine the phenomenon of large team transfers in professional service firms, especially investment banks. I argue that large team moves occur because employees benefit by working with the most talented coworkers. Above-average teams may move together to effectively exclude younger, less-talented workers. These team transfers are optimal when employees are remunerated with team-based bonuses, which may explain their significance in investment banking. In the third essay, I consider the securitization market. First, I provide an explanation for equilibrium credit ratings inflation that does not require investor irrationality. Second, I argue that moral hazard in securitization results in banks either selling the entirety of securitized products, or none at all. Finally, I consider a number of possible government interventions in the market and conclude that many proposed interventions are either ineffectual or counterproductive. In the fourth essay, we design an improved LIBOR reporting mechanism. This mechanism, which we name the "whistleblower mechanism," uses the revealed preference of other banks to determine the borrowing rate of a given bank. Truthful reporting is the sole equilibrium of the mechanism that we design; the mechanism is budget-balanced. In the fifth essay, we consider the analogy between systemic risk and pollution. We argue that an ex post tax cannot replicate capital regulation because of a 'polluter cannot pay' problem. Secondly, we show an equivalency result between ex ante taxation and capital regulation. We then show that unless the ex ante tax is levied in capital, however, it may perversely increase the amount of debt in the financial system. We argue for further capital regulation.

This thesis examines how bank market structure affects industry performance in developing countries. A high degree of bank concentration would be associated with tight constraints and high borrowing costs, while it has also been argued that, it would be easier for firms to access credit if the banking system is concentrated. Foreign banks are seen to promote financial development and spur economic growth; while critics suggest that a larger foreign bank presence in developing countries is associated with less credit to the private sector. Also, government ownership of banks is responsible lower economic and slow financial development, while others argue that government banks promote long-run growth. The implications of bank market structure on the real economy are examined using cross-country, cross-industry panel data from developing countries, along with a variety of econometric techniques, and standard measures of industry performance. The research aims to ascertain whether bank market structure in developing countries influences financing for firms differently as a result of industry-specific characteristics. It also examines if institutional characteristics helps in explaining industrial performance in the short-run. As a follow-up to one of the findings, the research examines if banks would prefer to fund innovative firms in a liberalized environment by exploring the impact of financial development on the export structure. The main empirical findings are as follows: first, it may not be possible to identify robust or consistent findings concerning the effects of good institutions; secondly, it might not necessarily be the case that financial development specifically benefits firms based on specific industry characteristics; and finally, the research finds that banking sector development reduces export sophistication and increases export concentration. This may suggest that banking sector development enforces specialization according to existing comparative advantage.

The past thirty years have seen rapid advances in the technological component of banking services and as a consequence new legal issues have come to the fore, especially with regard to Electronic Fund Transfers (EFTs) which are now used to transfer money around the world, and have made fund transactions between payers and payees easier, faster and more secure. The method involves risks for both banks and customers, due to the possibility of unauthorized payments risks, credit and insolvency problems, and confidentiality issues. Most contracts and obligations now depend on the new technology, although there is a variety of methods for dealing with the concomitant risks. EFTs share a number of similarities with paper-based funds transfers in regard to methods of regulation, and the careful observer can identify patterns and themes. Today, the business world depends heavily on EFT systems for its procedures; and government and academia have also taken a keen interest in EFTs. This thesis reviews and examines the existing legal position of liability of banks and customers for risks associated with EFT transactions: unauthorized EFT instruction and the problem of customer identity, credit risk and privacy, especially, the systems employed for safeguarding the customer’s transactions and data. The thesis also makes recommendations for change. The rules for the allocation of risk are based on the various mechanisms used to access the account. Also, due to the complexities of EFT, consumer protection becomes a paramount goal and is a subject of much concern, particularly when it comes to determining liability for losses. The UK government implemented the Payment Services Directive 2007 by adopting the Payment Services Regulations 2009, to regulate the system. However, such Regulations do not constitute a comprehensive regime that applies to all legal issues arising in the context of the EFT system. This study argues the necessity for a re-examination of existing laws and proposes a model for the future approach to the issues associated with EFT payment. Different approaches to EFT will be assessed, and the comparative and contrasting elements will be analysed in order to propose a comprehensive solution to the deficiencies in the current framework. Central to the problem is the absence of any uniform standard: individual banks offer differing contractual terms and conditions and different means of accessing accounts. Consequently it is time to formulate new and comprehensive rules for the allocation of liability of risks associated with EFT transactions.

This thesis provides international evidence relating to the impact of financial liberalisation on banking sector performance. Compared to a large number of studies linking financial liberalisation to economic growth and financial fragility, there is relatively little research at the international level linking financial liberalisation to banking sector efficiency and productivity. The research contributes to the literature by making a systematic, cross-country empirical investigation using domestic and international measures of financial liberalisation and evaluates their impact on bank efficiency and productivity by applying a combination of frontier estimation methods, dynamic panel data regressions and Granger causality techniques. The evidence is based on the use of bank-level accounting data and country-level economic data for a sample of 1536 commercial banks covering 88 countries over the period 2000 to 2009. Apart from using the global frontier for estimation of bank efficiency, empirical analysis is conducted across various levels including the use of separate income-group frontiers to determine the robustness of the findings. Using stochastic frontier analysis (SFA) for the estimation of banks’ cost and profit efficiency, the evidence shows that financial liberalisation contributes positively to profit efficiency while the effect on cost efficiency is generally mixed, depending on the measures of financial liberalisation used. Additionally, the results show that while cost efficiency remains, on average, stable during the estimation period (2000-2009), average profit efficiency fluctuates in the pre-crises period (2000-06) but declines sharply during the post crises period (2007-09). Furthermore, accounting explicitly for the influence of risk in banking, the evidence suggests that financial liberalisation, lower cost efficiency and higher profit efficiency of banks all increase the potential for default risk, while the latter also reduces both cost and profit efficiency, providing support for the bad management hypothesis. Additionally, upon accounting explicitly for the role of market power or competition in banking, the evidence suggests that both financial liberalisation and greater market power contribute to higher default risk of banks. On the other hand, greater competition in banking contributes to higher cost but lower profit efficiency of banks under financial liberalisation. The cross-country empirical investigation is also extended to analyse the impact of financial liberalisation on banks’ technical efficiency and productivity growth, using a two-step approach of combining data envelopment analysis (DEA) with panel data regressions. The evidence here suggests that financial liberalisation is robustly and negatively associated with (pure) technical efficiency. Furthermore, the effect on the total factor productivity (TFP) growth (using two-step DEA-type Malmquist method) is positive, although not always statistically significant. The robustness analysis conducted across the different income groups (higher, upper-middle, lower-middle and lower) confirms that the impact on cost, profit and technical efficiency of banks is more pronounced in the more developed (higher and upper-middle) countries than in the less developed countries. In particular, the impact of financial liberalisation is largely insignificant in the lower income countries. This finding generally reflects the greater pace of capital account liberalisation in the higher and upper-middle income countries, where the impact on both cost and profit efficiency is positive. Throughout the analysis, the estimation takes into account country-specific differences in the regulatory, market structure, financial development and macro-economic conditions and the evidence shows that these influences are also mostly significant and robust under financial liberalisation. Hence, the thesis concludes by arguing that financial liberalisation exerts an independent effect on the cost, profit and technical efficiency of banks, while the risks associated with financial liberalisation should be mitigated with better regulatory and institutional structures.

This study investigates what impact mergers and acquisitions have on bank efficiency by examining both pre-merger and post-merger performance. Specifically, the research looks at the effect of bank efficiency on shareholder wealth creation upon bank merger announcement. The study finds supportive evidence that the market takes into account the pre-merger bidder bank’s efficiency in adjusting the bank stock’s price at the time of announcement. This suggests that bank efficiency has a significant positive effect on shareholder wealth creation when a merger is announced. Furthermore, in reacting to the announcement, the market also perceives the prospects for future enhancement of bank efficiency as a result of the current event. Thus, post-merger bank efficiency is found to also contribute to shareholder value creation on merger announcement. In particular, the study finds evidence suggesting that post-merger profit efficiency, rather than cost efficiency, has a positive effect on cumulative abnormal returns. The study investigates 56 commercial bank mergers that took place in 22 European countries between 2001 and 2007. The event study methodology is used to determine shareholder wealth creation, employing the market model in estimating expected returns. Efficiency is estimated using the parametric stochastic frontier approach. Performance improvement in the combined firm is obtained by comparing post-merger efficiency with pre-merger efficiency, which is the sum of bidder and target efficiencies after weighting them based on their pre-merger total assets. To find out whether efficiency has an effect on shareholder value creation, regression analyses are performed involving cumulative abnormal returns, a few efficiency variables, and a number of control variables. The main finding of this study is that pre-merger bank efficiency contributes to short-term shareholder value creation upon merger announcement. Some evidence is also found that post-merger bank efficiency has a positive effect on shareholder value creation at announcement time which is associated more with profit efficiency than with cost efficiency. Also, as the study finds statistically significant positive cumulative abnormal returns, the results of this study are supportive of the view that, increasingly, European merger studies that examine post-2000 data find that bank mergers are value-creating even for the bidding firms. Evidence that pre-merger bank efficiency has a positive effect on cumulative abnormal returns, and that the market takes into account perceived future bank efficiency on merger announcement, underscores the importance of efficiency as a performance measure. If how the market reacts to a merger announcement reflects future efficiency performance, shareholders, policy makers, and other stakeholders may be able to take that as one of the factors on which they can base their decisions regarding the yet uncompleted merger. They can also use previous efficiency records for predicting short-term and long-term performance of prospective parties to a merger before announcement.

The thesis examines subordinated debt holder market discipline in UK credit institutions during the period 1995 to 2002. The topic is relevant as current research is questioning the role and effectiveness of rules-based bank regulatory oversight, and favouring, instead, incentive-compatible regulatory design and market discipline. In particular, the literature proposes using signals from subordinated debt holders to constrain bank risk-taking. In addition, this market oversight may provide information signals to regulatory agencies that are useful in improving bank regulatory design. The thesis researches two prominent issues related to subordinated debt holder market discipline and, therefore, contributes to the debate in introducing incentive-compatible polices in bank regulatory design. First, testing the risk sensitivity of UK credit institution subordinated debt spreads assesses whether investors are signalling bank risk in market prices. The UK evidence supports the theoretical literature in claiming that eliminating too-big-to-fail policies can encourage effective incentive-based mechanisms. Secondly, the research examines the appropriateness of introducing a mandatory subordinated debt policy in the UK. The empirical analysis raises a number of themes, many of which are in stark contrast to US and other European banks' subordinated debt characteristics. The conclusion is that the regular issuance of subordinated debt should be the overriding policy tool to signal and constrain bank risk-taking (i.e. direct discipline). Extending the policy to include indirect market discipline through a standardised mandatory subordinated debt requirement would impose substantial costs and should not be implemented.

This is a dissertation about the organisational structure of the World Bank, the professional practice of evaluation, and the meaning of the concept of aid effectiveness in practice. In international development, evaluation is a professional activity that determines and then reports on the impacts of aid projects and programmes to the clients of such efforts and to the public. 'Aid effectiveness' is a concept that refers to a standard of how aid projects and organisations should operate and the results, such as economic growth and poverty alleviation, which these efforts should deliver in order to work. The concept of 'aid effectiveness' has also been used in the debate about international development as a system and its reform. Given that aid policymakers and academic researchers often use the data contained in development organisations evaluations to determine the extent to which aid projects and programmes are 'effective', it is critical to analyse what these evaluations measure and what influences their ratings and judgments. Based on a case study of the World Bank, the analysis is primarily qualitative and draws on both interviews with evaluation professionals in the World Bank and content analyses of the logical framework, indicators, and language in the World Bank's evaluations at the project- and country-level. Building on the previous theoretical work in post-structuralism that considers how international development organisations 'produce' their work through certain terms and processes (Escobar, 1995; Crush, 1995), I assess how the professional practice of evaluation in the Bank 'produces' the results of aid at the project- and country-level, specifically in the evaluation reports that it makes publically available. The World Banks data and evaluation reports are a window through which to understand the impact of aid, and several factors that influence this 'window' are assessed, including the institutional role of evaluation, the professional practice of evaluation, and the required evaluation processes within the World Bank. The study has important implications for practitioners of international development, academic researchers, and evaluation professionals who endeavour to improve the aid system and often rely on the results of the World Bank's evaluations to inform their understanding of the impact of particular development efforts. By reshaping the discussion from one which considers if aid 'works' to one about the data and the process of making a judgment about the success of aid projects and programmes, I articulate what the role of evaluation is in practice and what the World Bank's resulting evaluative data do and do not reflect about the World Bank's work. The relationship between the 'scales' of aid is also analysed by comparing and contrasting the evaluation processes at the project-level and the country-level. I challenge the notion of a 'micro-macro paradox' (Mosley, 1986) between the successful results of the World Banks projects and the economic development in its client countries by articulating the actual meaning of this data in context, the unseen institutional forces that shape this data, and the difficulty of asserting a linear relationship between the results of projects and programmes on different scales of aid.