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Maintaining high economic growth rate is arguable the central challenge for China’s macroeconomic policy in the coming decade. The development of innovation, especially in business sectors, is critical for China to meet that challenge. Therefore, it is important to understand the innovation activities in Chinese enterprises. However, due to high adjustment costs and the high uncertainty of innovation activities, innovative firms generally suffer more from asymmetric information than their counterparts who do not engage in innovation activities, which cause lending bias and herding behavior in the market. In addition, because of “political pecking order” in China, firm with different ownership (state-owned, foreign-owned, private-owned, and collective-owned) will behave differently and their ownership level will also directly and indirectly affect firms’ innovation activities. This thesis, using the firm-level data from the NBS (National Bureau of Statistics of China) over the period 2000−2007, investigates the effects of financial constraints, herding behavior, and various ownerships on firms’ innovation activities form both macroeconomics and microeconomics perspectives. Specifically, the first empirical chapter of this thesis investigates the extent to which financing constraints affect the innovation activities. Based on a variety of specifications and estimation methods, we document that Chinese firms’ innovation activities are constrained by the availability of internal finance. Specifically, private firms suffer the most, followed by foreign firms, while state-owned and collective enterprises are the least constrained. Moreover, the availability of internal finance represents a particularly binding constraint on the innovation activities of small firms, located in the coastal provinces, with low political affiliation, and fewer state shares, as well as for sole proprietorship firms. Next, Chapter Four investigates the extent to which Chinese firms display herding behavior in their innovation activities, and then assess the impact of this behavior on corporate productivity. Based on a variety of different specifications, we find strong evidence in favor of herding in Chinese firms’ innovation activities. In particular, private, small firms, with no political affiliation are more likely to herd. We also find that innovation herding has a negative effect on productivity. The final empirical chapter of this thesis investigates the extent to which state and foreign ownership affect firms’ innovation activities. We firstly find a significant positive effect of joint ventures on innovation activity. Moreover, our results display an inverse U-shaped relationship between state ownership and product innovation. Foreign-affiliated firms, especially foreign-affiliated joint-venture firms, are more likely to innovate than domestic firms, but their innovation propensity and intensity both diminish as foreign ownership increases. We also report strong evidence that, conditional on absorptive capacity, the relationship between foreign ownership and product innovation becomes positive for foreign-affiliated joint-venture firms.

This thesis consists of four self-standing papers (chapter 2 through chapter 5) together with an introduction (chapter 1) and a conclusion (chapter 6). Chapter 2 examines the data on UK inventory investment. Excess volatility is a minor feature. The cyclical movements of inventory investment - examined using tabulations and graphical techniques - are much more prominent, apply to all categories of inventories, and data encompass the observed excess volatility. A frequency domain analysis (using a simple but novel technique) confirms this finding. The cyclical movements in the frequency domain correspond to slow speed of adjustment in the time domain. These results suggest that the explanation of excess volatility is a degenerate research programme and should be abandoned in favour of a return to explaining the cyclical movements of inventory investment Chapter 3 considers the mis-specification testing of the linear quadratic production smoothing model of inventories previously estimated by Blanchard (1983). Estimation results, under instrumental variable estimation, depend on the normalisation of the estimated first order condition. The model is encompassed by, but does not encompass, the alternative stock-adjustment model of Lovell (1961). The West (1986) variance inequality is shown to be equivalent to the setting of some lower bound on residual variance. Chapter 4 analyses a dynamic model with bankruptcy, under simplifying exogeneity assumptions about financial contracts. When there are constraints on the availability of both debt and equity, then inventory holdings depend on net assets during periods of financial pressure. This implies a link between inventory investment and profitability for firms under financial pressure. Estimation using a panel of UK company accounts provides striking confirmation of this relationship. Aggregation over the panel indicates that the effects of profits explains a large part of the movements in aggregate UK inventory investment. Chapter 5 provides a detailed analysis of the determinants of the cost of capital for inventory investment paying particular attention to the effects of UK stock relief legislation. The IFS tax model is used to calculate aggregate and sectoral measures of the cost of capital. The tax position of individual companies does not greatly affect the aggregate cost of capital. Stock relief legislation lowers the aggregate cost of capital, by more in the 4th and 1st quarters than in the 2nd and 3rd quarters of each year.

This work seeks to demonstrate why current strategies aimed at limiting the exploitation of minority shareholders by majority shareholders in private companies are insufficient and argues in favour of the introduction of an agency theory-based control mechanism in the form of a sell-out right, under certain circumstances to be assessed in court. This stems from the observation that certain corporate governance failures are inherent in the very nature of the private company, which is dominated by an individual and/or a family or by a company acting as controlling shareholder when the private company is a subsidiary of a group of companies. Because of the divisive nature of the majority principle, ownership is separated from control in private companies, whether the company is majority owner-managed or managed by professional managers. Thus, much like public companies, private firms dominated by one single shareholder or by a group of shareholders are prone to agency costs resulting from adverse selection and moral hazard. We address throughout this work the specific agency problems arising in companies in which power is divided along a line separating controlling shareholders from non-controlling shareholders. Such agency problems are exacerbated in private companies because no market exists for the shares such that minority shareholders may be trapped in an irremediably adverse situation. We argue that a sell-out right is the best remedy to such agency costs.

In this thesis, we investigate the impact of firms’ financial conditions on three key corporate activities: fixed capital investment, cash holdings, and acquisition behavior. Our study provides an important extension to the related literature in the Chinese context by employing a 14-year panel of Chinese listed firms during the period 1998-2011. In chapter 2, we investigate the sensitivity of abnormal investment to free cash flow. First, we find that firms with free cash flow below (above) their optimal level tend to under- (over-) invest, which can be attributed to financial constraints (agency costs). We also find that significant heterogeneity in the sensitivities appear among firms with different financial conditions, ownership structure. Whether or not firms engage in exporting or Mergers & Acquisitions also affects the sensitivities. Additional analyses show that the 2005 exogenous split share reform reduced the agency problems faced by state controlled firms, particularly those controlled by local governments. In chapter 3, we focus the behavior of corporate cash holdings. We find evidence supportive of a cost-benefit trade-off model of cash holdings, suggesting that Chinese firms tend to actively manage their cash balances towards a target level. Reported evidence also shows that consistent with the presence of adjustment costs, there exists considerable heterogeneity in adjustment speeds of cash holdings across firms. Furthermore, we show that cash-rich, acquiring, and state-owned firms are characterized by a lower value of additional cash. At the same time, financially constrained firms have a higher marginal value of cash, suggesting that more difficulties in accessing capital markets encourages firms to make better use of additional cash. In chapter 4, we investigate the extent to which corporate liquidity affects Chinese listed firms’ acquisition decisions, method of payment choices, and consequent performance following mergers. In line with the free-cash-flow motive of acquisitions, we find that cash-rich firms are more likely to attempt acquisitions. Furthermore, the agency costs effect of acquisitions is greater for firms who are subject to tunneling. Finally, we provide empirical evidence to support the fact that financially constrained firms with higher growth prospects tend not to use cash payments in acquisitions. We attribute this finding to the higher opportunity cost of cash faced by firms who face more difficulties in accessing capital markets. This finding is consistent with the under-performance of cash acquisitions in both the short and long-term.

This thesis focuses on whether the decisions of firms’ external financing activities are influenced by ownership structure, market timing, or public media in the UK context. Chapter 2 examines the effect of ownership on firm capital structure by using a universal sample of UK firms over the period 1998–2009. The empirical results show that the relation between managerial share ownership (MSO) and leverage level is non-monotonic. This study further investigates the effect of ownership on firm financial issuance activities. The finding suggests that firms with higher MSO are more likely to choose equity issues instead of bonds, supporting the theory that managers have more incentive to avoid the bankruptcy risk associated with a bond issue. Further, this study finds a hot (cold) stock market valuation strengthens (weakens) this positive effect of higher MSO on the likelihood of equity issue. Chapter 3 analyzes the role of ownership characteristics in a firm’s choice of seasoned equity offering (SEO) methods, offer price discount, and market reactions to SEO announcements. This chapter examines UK firms’ choices of seasoned equity issue methods, particularly the differences between rights offers (ROs), placings (PLs), open offers (OOs), and combinations of placing and open offer (PLOOs). This study finds that ownership-concentrated firms prefer rights or open offers to placings, supporting the argument that large shareholders favour right-preserving issues as the SEO method to maintain benefits of control. Consistent with the managerial entrenchment hypothesis, the results indicate that firms with high managerial ownership are more likely to choose placing as the SEO method. This study also suggests that firms with lower institutional ownership are more likely to conduct placing to improve monitoring. Chapter 4 investigates the role of the news media in SEOs in the UK market. The results show that issuers with positive (negative) media news are likely to price SEO shares higher (lower) and have higher (lower) announcement returns. This finding supports the argument that the media has impact on stock price through affecting investor expectations. Moreover, this study finds that issuers with greater pre-SEO media coverage are likely to have a more negative market response to the announcement, which strongly supports Merton’s investor recognition model.

The field of research related to management accounting change is in need of more investigation, especially regarding the introduction and implementation of accounting systems in both the private and public sectors. Also, there are different factors that influence the introduction and implementation of those systems by facilitating or impeding such change. This research attempts to respond to the call from the literature that there is a need for further investigation in order to enhance the understanding of why such organisations become subject to management accounting change and how organisations respond to this accounting change, especially in the public sector. Moreover, this research focuses on exploring the critical factors that are located in the three institutional levels mentioned in the Dillard model (2004): the economic and political level, organisational field level and organisational level. In addition, the research investigates the relationships between these levels, including relationships between the factors, by means of a case study that focuses on Abu Dhabi Police who witnessed the national strategic change, including accounting change, led by the Abu Dhabi Government in 2007. This research uses a qualitative methodology and implements both interview and document analysis methods in order to enrich the level of understanding of the accounting change in the Abu Dhabi Police organisation. The findings present evidence regarding the critical factors at each level and the effects of those factors on the accounting change in a public sector organisation. The economic and political level comprised power, structure, leadership, culture, change agency, resources and accounting systems. Also, the critical factor explored at organisational field level was partnership culture. Moreover, at organisational level there were ten critical factors considered for investigation in the present study: power, structure, leadership, communication, accounting systems, training, internal policy, resources, politics and culture. In addition, the research explains the nature of the relationship and the types of influences between Abu Dhabi Executive Council and Abu Dhabi Police. On the basis of these results, the in-depth understanding of these factors and their impact offers a contribution to the successful introduction and implementation of management accounting systems in the public sector, especially in the Middle East and the United Arab Emirates.

The thesis focuses on the firm's business performance in China, along with the growth of Foreign Direct Investment (FDI) inflows and the reforms of the institutions. This research employs New Institutional Economics (NIEs) as a theoretical basis, seeking to identify the mechanism of interaction between FDI, ownership change, and the institutions in China. The economic reforms, which started in the 1980s and continued thereafter, not only led to an unprecedented level of FDI inflow into China and increased the role of the private sector and ownership in the country, but also had more serious implications in that the formal and informal institutions of the Chinese economy remains largely under the control of the Chinese Communist Party. This study considers ownership change as an appropriate connection between FDI inflows, the improvement of business performance, and the institutions in the context of both formal and informal institutions in China. This paper aims to provide supporting evidence for the institutional approaches to the study of business performance in a transition environment. The author chooses the World Business Environment Survey (WBES) as the data source to explore the relations between the institutions and the business performances of enterprises in China, measured by sales and investment. In this thesis, the author uses a number of statistical tools, including descriptive analysis, Levene’s test, Error Bar, Logistic regression, and categorical regression. The results show that the influences of the institutional constraints reported by the hypotheses vary in different occasions according to the firms studied, and these significant relations between the institutions and the business performance cannot be kept consistent and continuous. The influences of institutions on the business performance are complicated in China, measured by sales and investment. The complexity consists of the relation and interaction among the formal and informal institutional factors, of the relations between the institutional factors and the firms’ inherent nature, and of the relations between the institutional factors and the firms’ business performance in China.

This thesis is the outcome of theory development research into an identified gap in knowledge about systemic risk of the global financial system. It takes a systems-theoretic approach, incorporating a simulation-constructivist orientation towards the meaning of theory and theory development, within a realist constructivism epistemology for knowledge generation about complex social phenomena. The specific purpose of which is to describe systemic risk of failure, and explain how it occurs in the global financial system, in order to diagnose and understand circumstances in which it arises, and offer insights into how that risk may be mitigated. An outline theory is developed, introducing a new operational definition of systemic risk of failure in which notions from evolutionary economics, finance and complexity science are combined with a general interpretation of entropy, to explain how catastrophic phenomena arise in that system. When a conceptual model incorporating the Icelandic financial system failure over the years 2003 – 2008 is constructed from this theory, and the results of simulation experiments using a verified computational representation of the model are validated with empirical data from that event, and corroborated by theoretical triangulation, a null-hypothesis about the theory is refuted. Furthermore, results show that interplay between a lack of diversity in system participation strategies and shared exposure to potential losses may be a key operational mechanism of catastrophic tensions arising in the supply and demand of financial services. These findings suggest new policy guidance for pre-emptive intervention calls for improved operational transparency from system participants, and prompt access to data about their operational behaviour, in order to prevent positive feedback inducing a failure of the system to operate within required parameters. The theory is then revised to reflect new insights exposed by simulation, and finally submitted as a new theory capable of unifying existing knowledge in this problem domain.

Auditing provides an important role supporting the function of financial markets where information asymmetry exists between shareholders and management. The audit market for the largest publicly listed UK companies, those within the FTSE 350, has however come under scrutiny following a number of financial scandals and, driven both by quality and competition concerns as the largest audit firms, the “Big 4” are dominant. Auditor tenure and long periods without competitive tenders have been recurrent concerns and yet how companies select their auditors is under researched. This study examines the influences on the complex decision process underlying auditor selection in FTSE 350 companies during an important period, namely that between the acquisition of Arthur Andersen by Deloitte in August 2002 and the introduction of the September 2012 UK Corporate Governance Code by the Financial Reporting Council. Based on a social constructionist philosophical perspective and adopting a grounded approach, the study covers 60 auditor selection decisions (over half of those identified in the research period) and includes in depth interviews over a period of two years with those who had recently been involved in a FTSE 350 auditor selection process; both from the buy-side and the sales-side. A conceptual model is developed which illustrates five factor groups that this research identified as influencing auditor selection in typically comprehensive proposal processes. These were: Relationships at the start of the proposal process, Service design, Capabilities and competences of the bidding firms, Behavioural influences during the proposal process and Final decision making. It also identifies interrelationships between these factor groups. These results are important because they inform theory and practice at a time when auditor change is becoming a statutory requirement. The study also has implications for other complex purchases of intangible services, particularly other professional services, and potentially for complex decision situations more generally.