The research reported in this doctoral thesis aims to contribute to the corporate finance literature, in the context of emerging markets, by focusing on two main issues: the response of stock market microstructure to institutional and policy reforms; and corporate investment decisions under uncertainty by firms listed on emerging stock markets. The thesis is structured into six chapters, comprising an introduction, four stand-alone research papers, and a conclusion. The first paper undertakes a critical review of the literature on key stock market microstructure issues; a number of promising research ideas (PRIs) are identified. The second paper takes up one of the PRIs by investigating the response of market microstructure to the revitalization of the Nairobi Stock Exchange (NSE). The econometric results suggest that the revitalization of the NSE generated microstructure improvements in terms of increased liquidity, low volatility and efficiency gains. In the third paper, the empirical analysis is extended to other emerging stock markets in Africa. The results suggest that the main revitalization reforms, which have enhanced the market microstructure of African stock exchanges, include a tight regulatory system, reforms of the trading system, and a high degree of market openness. The fourth paper empirically examines the relationship between investment and uncertainty for a panel of firms listed on the NSE. The findings are broadly consistent with the theory, and suggest that uncertainty arising from the NSE constrains firms' investment behavior. The main conclusions of the thesis are summarized in chapter 6, including some PRIs.

The new Basel regulatory initiatives and a burgeoning risk management literature signify the rise of enterprise risk management (ERM) in the financial services sector. However, very little is known of the roles that risk management plays in organizations and how it obtains organizational significance. This study, utilising case study material from seventy-five in-depth interviews with senior managers at two large banking groups, is a first step in exploring ERM in action. Apart from the field material, the study draws on the normative- practitioner literature of risk management, as well as on a long strand of organisationally grounded studies of management control. ERM appears to be an assembly of four risk management ideal types (Risk Silo Management, Integrated Risk Management, Risk and Value Management, Strategic Risk Management), all of which aspire to be 'enterprise-wide', and together constituting the 'risk management mix' in a given organisation. Three distinct types of risk managers emerged in both organisations, displaying characteristic aspirations and alliances (risk silo specialists, risk capital specialists, senior risk officers). The case study analysis compared and contrasted the observed two ERM assemblies, and emphasised the alternative patterns of organizational significance displayed by the risk management functions. Under the first model (value-based ERM) risk management was integral to the formal planning and performance measurement process, while remained neutral in the discussions of discretionary strategic decisions. Under the second model (strategic ERM) risk management was incidental to formal planning and control, however, senior risk officers exercised agenda-setting power to influence the discussion of key strategic uncertainties. The study explains the observations in terms of firm-specific factors and institutional pressures. The politics of risk control and the presence of different calculative cultures in the organisations were tampered by contemporary corporate governance imperatives, such as the shareholder-value drive and the risk-based internal control imperative.

I investigate the role of internal discipliners in the form of optimal equity ownership for the purpose of committing the management to the pursuit of shareholder value in the presence of separation between ownership and control. By rooting the conflicts of interests between managers and shareholders upon the control of internal funds, a simple model allows to analyse the link between profit uncertainty, growth options and decisional powers. I derive implications for the optimal degree of equity concentration, the effect of firm fundamentals on the allocation of income and control rights, and the pay for luck phenomenon. First, optimal equity ownership is positively related to the short-term performance of the firm and negatively related to both its growth options and riskiness. Second, optimal equity ownership is negatively related to the probability of the firm being financially constrained, in the sense that the level of desired investment exceeds internally available resources. Furthermore, I also show that straight debt alone does not implement the second best, in absence of a large shareholder. Finally, I show that, in presence of financial constraints, pay for luck is associated in equilibrium to a lower optimal degree of ownership concentration. In other words, pay for luck and looser governance, as implemented by the internal discipliner of equity concentration, emerge as the equilibrium result of a constrained incentive problem.

In this dissertation, we set out to examine empirically the impact of commercial Peer to Peer (P2P) lending on the finance of small business ventures. Since, this is the first study that looks at the funding of small business ventures by commercial P2P lending website; we have collected and created a new and unique data set taken from Prosper.com, one of the dominating P2P lending websites; which formed the basis of our analysis. These data offer a unique opportunity to test theory - looking at information asymmetry problems and the mechanisms adopted to deal with them within a new context. The thesis comprises of three empirical chapters; we follow entrepreneurial finance literature in raising some of the key questions concerned mainly with: credit extension, the cost of credit and modeling default. We use robust analysis methods specifically: Probit, Tobit and 2-stage Heckman models to check for factors that drive credit allocation, factors driving the cost of credit and determinants driving default for small business loans. General insights from our first empirical study shows that P2P lending depicts a new small business venture loan market, where previously underserved early stage entrepreneurs and those looking for small amounts are able to access unsecured credit through the relaxation of collateral. Although collateral is not required, we find that the supply of loans tends to flow to the least risky entrepreneurs; those who are homeowners, with high credit ratings. In our findings, we also demonstrate that firm level characteristics have little impact on loan supply while reducing information asymmetries through giving volunteering information improves access to loans. In general, our findings are both interesting and important as they suggest that P2P lending is a low risk form of debt finance. In this sense, lenders act like traditional debt financiers. However, the way in which they appraise funding opportunities characterise typical decision making of equity investors such as Business Angels and VC, who tend to focus more on people, rather than the business itself. Findings from the second empirical study suggest that at an average lending of between 18 percent and 20 percent; P2P lending is a very expensive form of debt finance. Banks typically refuse to extend credit given such high interest rates as this tends to alter the borrower pool such that only the riskiest of borrowers have projects that generate returns that are high enough to be able to re-pay these interest rates. In effect, the bank supply curve is backward bending above 10 percent on conventional terms of lending. Consequently, if we were to characterise P2P lending we would effectively conclude that it is typically a high cost finance with required returns expected to be likely in the levels of Business Angels and VC equity investments. Finally, In terms of lender return and default, we find that the expected return to lenders is 3.26 percent, which is above the opportunity cost of capital in the US. Therefore, P2P lending is profitable from the investor point of view, albeit in a narrow sense. In general, the results suggest that average lenders on P2P platforms are amateurs, who actually have a higher risk tolerance. For these lenders, the risk of losing a small proportion (as little as $25) per investment in the overall portfolio of loans is offset by the potential gain from high interest rates charged for loans. Interestingly, our results show that return from the top 5 percent of lenders average at 6.1 percent per annum. Given the fact that P2P lending is generally a young market, and the fact that majority of lenders attracted to P2P lending are relatively uninformed amateurs in making investment decisions, the results suggest that if the amateur lenders do indeed learn, it then becomes plausible that in time the returns in this market may generally converge to be better (and gravitate towards the 6.1 percent achieved by top 5 percent). However, if the P2P lending platforms continue to attract a pool of amateur lenders, the average returns of 3.26 percent may render the market somewhat unsustainable in the long run. Overall, our findings are novel, namely that P2P lending depicts a new venture loan market where previously underserved early stage ventures and those looking for small amounts are able to access credit; with the relaxation of typical collateral requirements. The big lesson however about P2P lending as a form of small business finance is that it really comes down to personal features rather than business features. Put another way, our findings suggests that the decision to extend credit and the pricing of loans in this context may possibly be relatively idiosyncratic - depending more on personal reputation of the small business owner than on the observed characteristics of the firm.

This dissertation focuses on the analysis of industrial market structure and related topics in industrial economics. It comprises three self-contained essays on dynamic aspects of industry structure, collusion, and the limits of monopolisation. The first essay, which is contained in chapter 2, analyses a dynamic game of investment in R&D or advertising, where current investments change future market conditions. It investigates whether underinvestment can be supported in equilibrium by the threat of escalation in investment outlays. When there are no spillovers, or there is full patent protection, underinvestment equilibria are shown to exist even though, by deviating, a firm can get a persistent strategic advantage. When there are strong spillovers and weak patent protection, underinvestment equilibria fail to exist. This implies that weaker patent protection can actually lead to more investment in equilibrium. Furthermore, potential entry is introduced into the model so as to address issues of market structure. It is shown that underinvestment equilibria can be stable with respect to further entry, independently of market size and entry costs. Finally, the ''nonfragmentation" result of static stage games (Shaked and Sutton 1987) is proved to hold in this dynamic game. That is, fragmented outcomes can not be supported in any equilibrium, no matter how large the market, and despite the existence of underinvestment equilibria. The starting point of the essay in chapter 3 is the traditional view in the IO literature, according to which there is a negative relationship between cartel stability and the level of excess capacity in an industry. Recent supergame-theoretic contributions appear to show that this view is ill-founded. Focussing on the issue of enforcement of cartel rules (''incentive constraints"), however, this literature completely ignores firms' ''participation constraints". Reverting the focus of attention, the paper restores the traditional view: large cartels will not be sustainable in periods of high excess capacity (low demand). In contrast to the supergame-theoretic literature, it predicts a negative relationship between excess capacity and the collusive price. The aim of the final essay, contained in chapter 4, is to provide empirically testable predictions regarding the relationship between market size and concentration. In a model of endogenous horizontal mergers, it is shown that concentrated outcomes can not be supported in a free entry equilibrium in large exogenous sunk cost industries. In contrast, very concentrated outcomes may be sustained in endogenous sunk cost industries, no matter how large the market, and even in the absence of mergers. It is shown that these predictions do not depend on any details of the extensive form of the game, even allowing for side payments between firms and endogenous product choice. The results complement those of Sutton (1991) on the stability of fragmented outcomes.

Growth literature presents evidence that resource abundant economies comparatively grow less than other economies, giving rise to the ‘Resource Curse Hypothesis’. Many researchers have developed several theories to explain the ‘Resource Curse’ but there are very few explicit considerations of ‘Debt Overhang’ in these explanations. This study concentrates on the ‘Debt Overhang –Resource Curse’ link given the significant relationships between debt sustainability and other resource spending. It also implicitly seeks to test key competing theories. The key contribution is the evaluation of the ‘Resource Curse’ and ‘Debt Overhang’ phenomena simultaneously using mixed methods analysis. This thesis consist of three complementary empirical studies organised in chapters under the ‘Debt Overhang-Resource Curse’ theme: A Panel Data Analysis of Debt Overhang, Natural Resources and Growth in 153 countries from 1970 to 2011; A Time Series Analysis of Sierra Leone’s Debt Overhang, Natural Resource and Growth Experience from 1970 to 2011 and A Perceptions and Documentary Analysis of Debt Overhang, Natural Resources and Growth in Sierra Leone. In Chapter Three, the ‘Debt Overhang –Resource Curse’ hypothesis was tested by estimating a system of simultaneous equations using the Generalised Method of Moments Three - Staged Least Squares estimator for the whole panel and carefully defined subsets. The results confirmed the ‘Debt Overhang –Resource Curse’ hypothesis in the case of least developed countries, mineral rich countries and petroleum rich countries although it failed to excel when the whole panel was examined. The ‘Debt Overhang –Resource Curse’ hypothesis was also confirmed in Chapter Four, when a Structural Vector Autoregressive Model was estimated for Sierra Leone : a resource rich, heavily indebted poor country at the bottom of the Human Development Index, has recently received large economic growth projections. The results for Sierra Leone were further confirmed using cointegration and Granger causality tests. The investigation continued with a perceptions and documentary analysis in Chapter Five. It investigated whether perceptions of Sierra Leoneans provide support for the Debt Overhang –Resource Curse hypothesis by estimating a structural equation model using Partial Least Squares, utilising data collected during a survey of mining communities. The results of the estimations were triangulated with findings from interviews, observations and documentary analysis. This analysis provided support for the hypothesis as well as some complementary theories within the Resource Curse debate. This simultaneous assessment of the impact of both debt overhang and natural resources on growth went beyond quantitative investigations to provide proof of the link shared by these elements. It also made a rationale for a ‘case-by-case’ analysis of economic growth and development phenomena, resulting in policy recommendations with a greater degree of alignment.

Earnings forecasts are an important input for equity valuation and asset allocation decision. Nevertheless, there are many contradictory findings about the most accurate model as well as the best proxy for the market expectation of future earnings in the literature. Hence, with the aim of providing solutions to these problems, this thesis comprises four main studies of different issues related to forecasting earnings.

One of the main aims of the dissertation is to utilize different theories in the field of business strategy, integrate them with recent literature, and propose a more detailed explanation on how multinational companies (MNCs) formulate and implement low cost strategy in emerging markets. The study was done in three major service industries: air transport, mobile-telecommunication and retail, in Albania and the FYR Macedonia market. The research project focused on qualitative research in six different companies, as the main research objective was to gain a deeper understanding of how, and why, companies implement cost cutting policies or low cost strategy in the service sector. The extensive change of consumer behaviour towards low cost goods and services has increased the competition for customers, resulting in extensive price wars. This high pressure on prices could force companies to reconsider their strategies and business management techniques. Therefore, we need a detailed analysis to see what the business consequences are for MNCs that follow cost policies and a low cost strategy in the service sector, especially in emerging markets such as in South East Europe. In order to see how such aspects increase the business performance of MNCs, this study will elaborate on External – Internal – Implementation factors to understand the business consequences better. The researcher will see how the cost policies and low cost strategies increase the performance of MNCs in the service sector. By evaluating the size of similar companies, similar market structures, that are in main service industries, the researcher will analyse the key success factor for implementing low cost strategy. Finally, managers can give us further insight into low cost policies by looking at the uniqueness of each variable factor from the external - internal - managerial perspective. This will create the basics to recognize the most applicable and practical method that they can use during the strategy implementation process.

Even without the pressures of a financial crisis, the Chief Risk Officer (CRO) in UK banks occupied a potentially conflicted role during 2007 - 9. The Boards of banks had created the CRO role with responsibility for managing commercial risk but also for producing public risk reports within a system of enforced self-regulation. Under this system, the regulator seeks to overcome control asymmetries by harnessing the governance resources of regulated organizations. Theoretical perspectives of regulation in action, informal groups in organizations, and individual risk perception, indicated that CROs’ dilemmas merited further study. Banks’ selective risk reporting practices were under-represented, with scholarly knowledge seemingly limited by difficulties of access and trust. This research overcomes these limitations, gaining access to a closed group to conduct qualitative depth interviews with bank senior managers including 35 CROs (one-third of known incumbents in 2007). Ideas of enforced self-regulation were found not to account fully for banks’ risk reporting practices. The regulator was little-respected, mistrusted, and had limited influence over bankers’ behaviour. Within a bank the CRO, though formally identified with risk governance, was informally pressed by powerful sales-side groups to report optimistically. Seeking senior management support to resist this pressure, many CROs instead found their Board prioritising sales activity over risk governance. Though employed as compliance managers, many CROs reinterpreted their role as a commercial support function, becoming coping agents for banks’ creative risk reporting. Enforced self-regulation does not restrain organizations whose reward systems reinforce asymmetries of control, whose economic power exceeds that of governments attempting to regulate them, and whose sales culture aggressively dictates organizational norms. New approaches are suggested to recognise and prevent conduct which increases financial market fragility. This thesis provides wider lessons for the relationships between organizational behaviour, individual cognition and regulatory power beyond the world of banking.

This thesis analyses real options in competitive settings. We develop four real option models for competitive settings and one model for a monopolist's decision to invest. In the first model, the profits per unit and the number of units follow two different stochastic paths. In the second model, the profits and the investment cost pursue different paths. In the third model a monopolistic investor has the option to invest in a market where the number of units sold follows a stochastic birth and death process. The fourth and the fifth model are, similarly to the first two models, developed for competitive settings. In the fourth model the profits follow a stochastic process and there is a random time delay between the moment that the second firm enters the market (invests) and the moment that the firm starts its sales. In the fifth model there is also a time delay between the moment of entry and the moment of the first sales, but two stochastic factors are considered: the profits and the investment cost. For the competition models we analyse dissimilar games considering that the roles of the players are endogenous and also exogenous to the models, assuming that the first mover has a competitive advantage over the second mover. Closed form solutions are obtained for the value functions of the first and second mover and for their trigger functions, and numerical solutions are given for the trigger of the first mover in pre-emption settings. A numerical solution is presented for the monopolist's decision to invest. The introduction of third generation mobile technology in Portugal is analysed as an application of the competition models.