The IPO market is characterised by a high level of information asymmetry; thus, self-interested managers have strong incentives to overstate earnings during the IPO to inflate stock prices. Prior literature has provided evidence of earnings manipulation by managers around IPOs. If managers opportunitically manipulate earnings in the IPO year, the reported earnings will not be sustainable, and the IPO firms will exhibit negative abnormal stock returns in subsequent periods due to investors' downward adjustment of their evaluation of the firm value. Another common phenomenon of the IPO markets is the underperformance of IPO firms in the post-issue periods, with nearly a third of issuers either failing or being acquired within five years of going public. Therefore, in this thesis, I aim to examine potential factors contributing to restraining the level of earnings management undertaken by IPO firms and improving the post-issue long-term performance. Specifically, I investigate the impact of credit ratings and CEOs' work experience on earnings management and post-issue performance of newly listed firms. I uncover strong evidence that newly listed firms going public with a credit rating are less likely to engage in income-enhancing earnings management through both accruals and real operating activities manipulation. Moreover, while unrated IPO firms manipulate earnings to mislead investors, rated issuers tend to employ accounting discretion for informative purposes. I also study the association between CEOs' financial experience and earnings management around IPOs and find that IPO firms with financial expert CEOs are less likely to manage earnings through accruals. Furthermore, financial expert CEOs tend to be informative in financial reporting to allow investors to properly gauge the fair value of the firm. In addition, I investigate the influence of CEOs' specialist managerial experience on the probability of failure and survivability of IPO firms. My findings suggest that specialist CEOs enhance the ability of IPO firms to remain viable for a longer period of time. My research not only contributes to a wide range of literature on IPOs, credit ratings, earnings management and managerial attributes but also provides several practical implications for regulators in monitoring IPO firms' financial reporting, for investors in making investment decisions, and for firms in considering relevant work experience for CEO appointment.

This thesis attempts to investigate the cross-sectional predictive power of return asymmetry, skewness and tail risk. It mainly consists of three empirical chapters on the relation between predictive patterns of the return distribution and expected stock returns. In the first empirical chapter, I adopt a measure of asymmetry, originally proposed by Patil et al. (2012), which can be employed to characterise the shape of the entire distribution of asset returns instead of skewness. Empirical evidence on the relation between asset returns and the skewness of the return distribution is mixed. As skewness is primarily influenced by the tail behaviour of the return distribution, it is possible for two distributions with identical skewness to have quite different asymmetry. I will examine the relationship between this new measure and stock returns. My empirical analysis indicates that stocks with high return asymmetry exhibit low expected returns. The negative relation between return asymmetry and expected returns persists after I control for size, book-to-market, momentum, short-term return reversals, liquidity, idiosyncratic volatility and various skewness factors. My results are consistent with the findings from theoretical models such as those of Brunnermeier et al. (2007) and Barberis and Huang (2008). In the second empirical chapter, I examine the default risk and financial crisis explanations for the market skewness risk effect and find that the effect is stronger among stocks with large size, high growth, and low default risk. This suggests that the positive skewness preference theory only holds for safe stocks. Moreover, the effect of market skewness risk on stock returns interacts with default risk significantly. Market skewness risk has explanatory power for stock returns only during the periods of good economic conditions. Additionally, the market skewness risk effect is not persistent. After the financial crisis of 2007-2008, the strong effect disappears. In the last empirical chapter, I know that investors sometimes underweight the tail event. I then try to figure out this situation by examining the default risk and financial crisis explanations for the tail risk effect. I find that market size, book-to-market ratio, and default risk have large impact on the tail risk effect. Moreover, tail risk only has explanatory power for stock returns during the periods of good economic conditions. The results suggest that when investors hold stocks with small size, low growth, and high default risk, the tail risk tends to be ignored. The tail risk effect is not persistent. The significant tail risk effect also disappear after the financial crisis of 2007-2008.

This thesis is one of the first studies to empirically examine the nature and source of financial distress, and the valuation effect of distressed companies' restructuring announcements, in an emerging market context. By describing and comparing the Chinese bankruptcy code with those of seven other countries, I find that the government's political interests and intervention, aggravated by the country's weak enforcement mechanism, result in the formal procedures rarely being used in practice. Consequently, the threat of bankruptcy is weakened and creditor protection is limited. These issues are confirmed by my empirical analysis. My empirical studies are separated into two distinct themes: China as a whole compared with what is documented in the literature; and within China state owned enterprises (SOE) versus non-SOE. Firstly, I analyse operating and financial performance and operating efficiency for 100 firms that became distressed between 1999 and 2003. I find that during the first year of distress, the main source of distress is economic, not financial. In addition, for a significant minority of firms, financial factor plays a greater role in causing cash flow shortfall prior to the onset of distress. For this reason, I believe that due to the lack of timely restructuring mechanism, financial distress leads to economic distress. My SOE versus non-SOE results suggest that "soft budget constraints" are widespread among SOEs. However, such lending bias towards SOEs does not save these SOEs from being distressed. The deliberate channeling of funds to inefficient uses results in the distortion of capital allocation. Secondly, I investigate the valuation effect of restructuring announcements made by 100 firms. Comparing to the literature, I find that asset restructuring including mergers and acquisitions (M&A) and asset sales are more frequently employed. It is the most popular strategy in my sample. In the light of difficulties in officially liquidating economically unviable firms in the Chinese context, mergers and asset sales are perhaps a market selfcorrection mechanism to ensure asset mobility, which is essential for the effective operation of an enterprise economy. Consistent with the general M&A literature, M&A creates value for the target firm shareholders. In addition, asset sales are not perceived positively by the market. A potential explanation is that the lack of bankruptcy threat in China minimises the potential benefit of avoiding bankruptcy costs which shareholders otherwise have to bear. In my SOE versus non-SOE study, M&A with payment strategy is effective only for the non-SOE firms. On the contrary, the government's attempt to revamp SOE performance by transferring the controlling ownership, either with or without payment, is not seen as effective by the market. My results also suggest that debt governance is not at work among SOEs and this affects the effectiveness of debt related restructuring. The fundamental conclusion is that government ownership has an adverse impact on the distress-resolution process as it distorts resource allocation, management incentives and investment decisions. An effective bankruptcy regime should be more independent from politically motivated government intervention.

Forecasting is central to economic and financial decision-making. Government institutions and agents in the private sector often base their decisions on forecasts of financial and economic variables. Forecasting has therefore been a primary concern for practitioners and financial econometricians alike, and the relevant literature has witnessed a renaissance in recent years. This thesis contributes to this literature by investigating three topical issues related to financial and economic forecasting. The first chapter finds its rationale in the large literature suggesting that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate. However, there is some evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities. This chapter proposes a term-structure forecasting model of exchange rates based on a regime-switching vector equilibrium correction model which is novel in this context. Our model significantly outperforms both a random walk and, to a lesser extent, a linear term-structure vector equilibrium correction model for four major dollar exchange rates across a range of horizons. The second chapter proposes a vector equilibrium correction model of stock returns that exploits the information in the futures market, while also allowing for regime-switching behavior and international spillovers across stock market indices. Using data for three major stock market indices since 1989, we find that: (i) in sample, the model outperforms several alternative models on the basis of standard statistical criteria; (ii) in out-of-sample forecasting, the model does not produce significant gains in terms of point forecasts relative to more parsimonious alternative specifications, but it does so both in terms of market timing ability and in density forecasting performance. The importance of these gains is illustrated with a simple application to a risk management problem. The third chapter re-examines a major puzzle in international finance that is the inability of exchange rate models based on monetary fundamentals to produce better out-of-sample forecasts of the nominal exchange rate than a naive random walk. While prior research has generally evaluated exchange rate forecasts using conventional statistical measures of forecast accuracy, this chapter investigates whether there is any economic value to the predictive power of monetary fundamentals for the exchange rate. We estimate, using a framework that allows for parameter uncertainty, the economic and utility gains to an investor who manages her portfolio based on exchange rate forecasts from a monetary fundamentals model. In contrast to much previous research, we find that the economic value of the exchange rate forecasts implied by monetary fundamentals can be substantially greater than the economic value of forecasts obtained using a random walk across a range of horizons. In sum this thesis adds to the relevant literature on forecasting financial variables by providing insights and evidence to researchers and indicating potential avenues for futures research.

The purpose of this thesis is to study the pricing and credit risk of corporate debt using structural and reduced-form approaches. We discuss the theoretical aspects of three important topics in pricing risky debt: (i) the impact of stochastic interest rates, and hence the interaction between market risk and credit risk; (ii) the impact of diversifiable and non-diversifiable jump risks on pricing and default mechanisms, and (iii) a reduced-form model with a firm’s fundamental variables. To investigate the relationships between market risk and credit risk, we develop a flexible binomial framework for valuing credit-sensitive instruments by generalizing the valuation model of Geske [1977]. We price a defaultable coupon bond when interest rates and a firm’s asset value are stochastic. Our results confirm our belief that firms with low credit quality should have more market risk than firms with high credit quality. We discuss the implications of the results for capital adequacy. In addition to providing conceptual insights into the default behaviour, the flexibility of our method allows for efficient pricing of other credit-sensitive instruments. To improve the short-end properties of credit spreads, we model a firm’s asset value as a jump-diffusion process. We show several significant implications of the jump process for the term structure of credit spreads. We also discuss the effects of the disversifiability of jumps on corporate debt pricing. We prove that without considering systematic jump risk, theoretical models tend to underestimate credit spreads. Another contribution of this thesis is the incorporation of taxes into our model to show that taxes do have significant effects on levels of credit spread. Interestingly, the model implies that a decrease in the federal tax rate may precipitate an earlier default of low-grade bonds. Finally, we investigate a reduced-form model of corporate debt, by taking into account stochastic interest rates, a firm’s equity values, and hazard rates of default. Through a moving average of a log-transformation of equity prices, we introduce structural characteristics of the firm into the model. This is an innovation.

This thesis examines firms' real decisions using a large panel of unquoted euro area firms over the period 2003-2011. To this end, this thesis is composed of five chapters in which three are the main empirical chapters. They assess the dimensions of firm behaviour across different specifications. Each of these chapters provide a detailed discussion on the contribution, theoretical and empirical background as well as the panel data techniques which are implemented. Chapter 1 describes the introduction and outline of the thesis. Chapter 2 presents an empirical analysis on the link between financial pressure and firms' employment level. In this set-up, it is explored the strength of financial pressure during the financial crisis. It is also tested whether this effect has a different impact for financially constrained and unconstrained firms in the periphery and non-periphery regions. The results of this chapter denote that financial pressure exerts a negative impact on firms' employment decisions and that this effect is stronger during the crisis for financially constrained firms in the periphery. Chapter 3 analyses the cash policies of private and public firms. Controlling for firm size and other standard variables in the literature of cash holdings, empirical findings suggest that private firms hold higher cash reserves than their public counterparts indicating a greater precautionary demand for cash by the former. The relative difference between these two type of firms decreases (increases) the higher (lower) is the the level of financial pressure. The findings are robust to various model specifications and over different sub-samples. Overall, this chapter shows the relevance of firms' size. Taken together, the findings of Chapter 3 are in line with the early literature on cash holdings and contradict the recent studies, which find that the precautionary motive to hold cash is less pronounced for private firms than for public ones. Chapter 4 undertakes an investigation on the relation between firms' stocks of inventories and trade credit (i.e. extended and taken) whilst controlling for the firms' size, the characteristics of the goods transacted, the recent financial crisis and the development of the banking system. The main findings provide evidence of a trade-off between trade credit extended and firms' stock of inventories. In other words, firms' prefer to extend credit in the form of stocks to their financially constrained customers to avoid holdings costly inventories and to increase their sales levels. The provision of trade credit by the firms also depends on the characteristics of the goods transacted. This impact is stronger during the crisis. Larger and liquid banking systems reduce the trade-off between the volume of stocks of inventories and the amount sold on credit. Trade credit taken is not affected by firms' stock of inventories. Chapter 5 presents the conclusions of the thesis. It provides the main contributions, implications and future research of each empirical chapter.

This thesis examines three essays in earnings management using UK-based data samples. The first essay implements a first test of the debt covenant hypothesis for the UK. The results indicate that firms close to violation or in technical default of their interest coverage (debt to EBITDA) covenants engage in higher levels of RAM relative to firms far from violation. Mandatory IFRS adoption does not change the use of RAM for firms close to violation or in technical default of their interest coverage covenants. However, it increases the propensity for employing RAM for firm close to default of their debt to EBITDA covenants. The second essay examines the effect of seasoned equity offerings (SEOs) on the debt covenant hypothesis. It finds that the use of RAM to avoid the possibility of interest coverage covenant violations decreases from the pre-issue period to the post-issue period. The results also show that the decrease in the use of RAM in the post SEO period to avoid the likelihood of breaching interest coverage covenant is more pervasive among SEO firms with low market to book ratios or high financial leverage. The third and final essay investigates revenue reclassification as an earnings management tool. More specifically, it examines whether firms use revenue reclassification by shifting other revenues to core revenues. The results establish that firms engage in revenue reclassification to inflate core revenues. They indicate that the period following mandatory IFRS adoption is associated with an increase in this practice as IRFS offers more latitude for revenue reclassification. Further tests reveal that revenue reclassification is more pervasive among firms with high incentives for earnings management such as those conducting seasoned equity offerings, those in financial distress, those with acquisitions financed by share for share exchange, and those reporting low core earnings or small increases in core earnings.

Cross-borrowing or the ability of microentrepreneurs to borrow from different lenders simultaneously is widely perceived to lead to repayment problems and a deterioration of well-being. However, there is sparse empirical evidence to support these perceptions. Based on information gathered in Peru during 2011 and 2012 and combining qualitative and quantitative research, this study aims to contribute to the in-depth understanding of cross-borrowing from the clients’ perspective and from its causes to its impact. The qualitative study is based on semi-structured interviews with 32 clients of EDYFICAR that cross-borrowed, as well as on further interviews with management and staff, which were analysed using the grounded theory approach (Corbin and Strauss 2008). In the quantitative study, data provided by Financiera EDYFICAR (one of the country’s largest MFIs) on 550 clients was collected. The data included information on the clients’ characteristics, their EDYFICAR loans since 2006, their punctuality in repaying these loans and their cross-borrowing situation. The data was analysed using different statistical methods, including tests to compare groups or correlation analysis. The study makes the following key contributions. First, it relates cross-borrowing to the microentrepreneurs’ overall financial situation. Cross-borrowing was found to increase the complexity in the borrowers’ financial portfolios, which intensifies challenges resulting from uncertainties and vulnerability to crises. Second, the study uncovers different pathways for the impact on the repayment performance and well-being. Cross-borrowing is neither a necessary nor a sufficient condition for repayment problems, but it leads to exceedingly high indebtedness-levels. When these levels are reached, small movements in income or expenditures can lead to a financial misbalance and a negative impact on the well-being. However, for those who manage cross-borrowing well, it can be an engine for growth or greater well-being. Third, the study suggests that the effective Peruvian credit bureaus play a key role in preventing a repayment crisis.

This thesis contributes to the literature on corporate cash holdings. The aim of the thesis is to shed light on the precautionary and agency motives of Indian firms’ cash holdings in their transition to integrating with the world economy. Three elements of India’s capital market transitioning phase are empirically investigated with respect to firms’ cash holdings and related financial policies. The first chapter of the thesis is concerned with the increasing presence of foreign institutional investors in Indian capital markets. It investigates whether and how foreign institutional ownership restricts the ability of corporate insiders to derive private benefits from firms’ cash holdings. This work contributes to the literature which studies corporate governance advancements in emerging markets. The second chapter of the thesis examines Indian firms’ sources of funds conducive to cash holdings. It investigates to what extent firms issue outside finance in order to save proceeds as cash. This work contributes to the literature which studies firms’ liquidity management under uncertain financing conditions. The final chapter of the thesis examines India’s capital market institutions. It investigates whether and how deepening domestic capital markets can relieve firm-level financial constraints. This work contributes to the literature which studies firm investment and growth in the context of developing market institutions. Collectively, these chapters examine the evolution of firm-level outcomes, including cash holdings, investment and firm values in the context of an emerging economy undergoing significant changes in its institutional architecture.

The quality and quantity of information disclosed by companies in their annual reports in a particular country depends heavily on the country’s level of economic development, the development of the accounting profession, the legislation in force, and the existence of a sophisticated financial market. In this vein, following the recent changes and reforms of both the Libyan economy and the legislation around financial reporting, government legislation and laws have played a major role in shaping the current financial reporting practices in Libya. This thesis aims to empirically examine the quality as well as the quantity of the information disclosed in the annual reports of Libyan companies. In particular, by using an integrated research design framework, the study seeks to: (i) assess the perceptions of the preparers and users of Libyan Corporate Annual Reports (CARs) regarding the use and usefulness of the information disclosed; and (ii) investigate the comprehensiveness of disclosure among Libyan listed and non-listed firms, and examine the association between a number of corporate governance mechanisms, the ownership structure, and corporate specific characteristics and the corporate disclosure behavior of Libyan listed and non-listed firms. This study consists of two stages. The first stage uses a questionnaire survey as a research instrument. The second stage uses a content analysis of real secondary data collected from companies’ annual reports and analyzed using various regression models. The findings of the questionnaire survey suggest that both preparers and users consider CARs to be the most important source of corporate information for their decision-making process. Furthermore, the delay in publishing CARs and the lack of unified accounting and reporting standards were viewed as the prime factors restricting their use in Libya. Generally speaking, the respondents considered the information disclosed in the annual reports of Libyan firms as adequate. With regard to the factors affecting corporate reporting practices in Libya, as expected, the Libyan Commercial Code (LCC) and Income Tax Law (ITL) were viewed by the vast majority of respondents as the prime factors affecting corporate reporting practices in Libya. In addition, a lack of reporting standards and accepted accounting principles, in line with the lack of knowledge of external users’ needs were perceived as the prime obstacles restricting the extent of disclosure. The findings also indicated that there were statistically significant differences in perceptions among the user groups, and between users and preparers regarding the use and usefulness of CARs in Libya. With regard to the findings of the content analysis of the annual reports of Libyan listed and non-listed companies, the results suggest that, firstly, board size, the frequency of board meetings and the presence of an audit committee have an impact on the level of corporate disclosure. On the other hand, the findings indicate that duality in the position of the CEO and board composition are not related to the extent of disclosure. Secondly, regarding ownership structure variables, no evidence was found that director ownership, foreign ownership, government ownership and institutional ownership were significant in explaining the extent of disclosure. Finally, the results from the content analysis are robust, controlling for a number of potential endogeneity and non-linearity issues.