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Corporate governance and executive pay have been much studied in the past as separate topics. The present study examines both topics simultaneously and endeavours to draw from this unified view a synthesis that can throw light on future governance reforms. Most prior research has examined the relationship between various governance mechanisms and company performance but unambiguous links have proved difficult to establish empirically. The study investigates executive compensation qualitatively and quantitatively in the context of corporate governance. It first conducts a critical review of the literature to uncover potential reasons for the extant conflicting results and to gain an up-to-date understanding of the role and effects of pay. This provides a perspective for interpreting the results of the second part of the study: a detailed analysis of the relationship between the remuneration of FTSE 100 directors and company performance during 2004-2009. The exercise seeks to shed light on whether increased governance activity has influenced pay practices among UK’s largest companies. Despite far-reaching governance reforms, the study finds that executive pay is still largely determined by company size and there are no signs of the pay-performance relationship becoming stronger over time. It further reveals that CEO pay is less performance-related than other directors and provides evidence that total cash is the pay element most strongly associated to performance. Taken together, the findings suggest that the UK’s governance system might be fragmented and incoherent, and that the flexibility offered by the ‘comply or explain’ approach is not fully exploited. They also lend support to the contention that managerial power and multiple agency problems affect board independence and the effectiveness of governance mechanisms, including executive pay. It closes with some considerations to integrate any lessons learned into pointers for future reforms.

This thesis examines the impact of international capital flows on small open economies from a theoretical and empirical perspective. The �first chapter shows that where maturity mismatch is widespread, as in emerging markets, greater capital flow volatility negatively affects investment, output, and aggregate productivity. I build a model of a small open economy in which �financial frictions force �firms to engage in maturity mismatch, funding long-term projects with short-term debt. Greater uncertainty regarding the future availability of foreign borrowing causes �firms to cut long-term investment, depressing aggregate investment and generating an endogenous drop in aggregate productivity. The second chapter examines the relationship between capital flow volatility and economic performance using unique monthly frequency data set on international capital flows. I show that it is specifically the volatility of portfolio debt flows that negatively affects investment. Using �financial development as a proxy for the extent of maturity mismatch in the economy, I �find that the negative impact of debt flows is smaller where financial markets are more developed. Finally, I use industry-level data to show capital flow volatility depresses investment more in industries with longer average time-to-build. These �findings are consistent with a role for maturity mismatch in transmitting volatility shocks. The third chapter studies episodes of large capital in flows. These events are typically followed by an economic downturn and a reallocation of labor and capital into the nontradables sector. The extent of labor reallocation is significantly related to the depth and length of the post-episode downturn. We interpret our results using a model of a two sector economy, showing that capital in flows episodes generated by a fall in international interest rates or a rise in future productivity will push labor into the notradables sector. In flows caused by a productivity increase that has already occurred shift labor into tradables production. Allocation of labor therefore provides information on the underlying shock driving the capital inflows.

This dissertation presents a paired case study of the growth performance of Turkey and Egypt in the interwar period, in order to shed fresh light on the income per capita divergence that occurred between them. First, we look at the extent and determinants of agricultural growth by estimating the net agricultural output and decomposing the crop output into its components. It is shown that acreage expansion, population growth and improvement in yields led to rapid recovery in agricultural output in Turkey, whereas the increasingly intensive cultivation in Egypt was only able to offset the impact of land scarcity and the earlier deterioration in yields. We also fill a major empirical gap in the literature by estimating industrial output growth and argue that although the industrial take off started in both countries in the 1930s, the output growth in Turkey was much greater. Moreover, industrialisation was mainly driven by textiles in Egypt, whereas it was more balanced in Turkey. Finally, we explore the sources of industrial output growth by focusing on textiles. The empirical analysis based on a partial equilibrium model implies that the impact of tariff protection on domestic growth was significant in both countries, yet it was complemented by the favourable movement of relative prices and wages and, in the case of Turkey, the increase in domestic incomes in the second half of the 1930s. Overall, it is argued that the greater expansion of domestic demand in Turkey, which was particularly driven by agricultural growth, was not only responsible for the per capita divergence, but also combined with different degrees of tariff protection to lead to a notable variation between Turkey and Egypt’s industrial performance. Therefore, the dissertation has implications for the experience of agricultural economies after the Great Depression. It is argued that in the presence of passive monetary and fiscal policies, factor endowments, historical development paths and geography played a prominent role in determining the extent of recovery in the 1930s.

This thesis uses econometric methods to examine the effects of historical events and developments on aspects of economic and social development. Its objective is two-fold: The thesis examines causes and effects of different historical events using econometric methods and newly constructed and newly available data sets. By studying these historical events, broader theoretical questions are addressed that are relevant and have implications for today. The first chapter studies the economic effects of the Little Ice Age, a climatic period that brought markedly colder conditions to large parts of Europe. The theoretical interest of this study lies in the question whether gradual temperature changes affect economic growth in the long-run, despite people’s efforts to adapt. This question is highly relevant in the current debate on the economic effects of climate change. Results show that the effect of temperature varies across climate zones, that temperature affected economic growth through its effect on agricultural productivity and that cities that were especially dependent on agriculture were especially affected. The second chapter examines the role of adverse climatic conditions on political protest. In particular, it assesses the role of adverse climate on the eve of the French Revolution on peasant uprisings in 1789. Historians have argued that crop failure in 1788 and cold weather in the winter of 1788/89 led to peasant revolts in various parts of France. I construct a cross section data set with information on temperature in 1788 and 1789 and on the precise location of peasant revolts. Results show that adverse climatic conditions significantly affected peasant uprisings. The third chapter examines the role of different Catholic missionary orders in colonial Mexico on long term educational outcomes. I construct a data set of the location of 1000 historical mission stations. I use OLS and instrumental variables estimation to show that only Mendicant mission stations have affected educational attainment while all orders affected conversion.

The relationship between central banks and the financial sector has received renewed attention following the global financial crisis that started in 2007. This thesis represents an attempt to shed further light on this relationship by looking at the Bank of England’s relationship with the British financial sector in the 1970s - a decade that saw the return of financial volatility and crises. While the previous literature on this period has focused on explaining the causes and build-up to the increase in volatility and crises, the approach taken in this thesis is more analytical. This is done by looking at the role, implementation and effect of the Bank of England’s crisis management policies. To tackle these issues, I use quantitative methods, such as non-Normal option pricing models and time series econometrics, on the one hand and qualitative data looking at the institutions involved on the other. As such, the thesis benefits from a multitude of primary data sources, including the Bank of England Archives, the National Archives and the archives of the largest financial institutions of the time. The main conclusion of the thesis is that the Bank of England’s attempts to stabilize the financial system at times of turbulence were more costly than has previously been argued in the literature. As such, the Bank in all likelihood underpriced its assistance to the financial system. Channels of interconnectedness are also documented with no evidence found of increased interdependence during crises. Finally, a closer look at the Bank’s rescue operations during the crisis shows the extent to which its staff was unprepared to tackle the issues involved and had neglected issues of financial stability in the lead up to the crisis.

This thesis addresses several issues in credit risk modelling through an empirical investigation of the two main markets where this risk is traded, namely corporate bond market and CDS market. In the first part, we investigate the main determinants of credit spreads in US and UK corporate bond markets between 2003 and 2011. We explore the effect of various factors predicted by structural form models on corporate bond yield spreads. In addition, we extend our investigation to credit spreads in the corresponding corporate CDS markets. Our analysis sheds light on interdependency between corporate bond and equity markets, and on power of contingent-claim models in determining credit spreads of corporate debt. In our study, we employ a variety of econometric techniques such as pooled OLS, fixed and random panel approach, non-linear interaction effects and random sub-sampling. Our analysis shows that factors suggested by structural models explain almost half of changes of the corporate yield spread for relatively stable period of economy and more than half for the total period including the recession. The two main factors identified were equity volatility and investor confidence as measured by TED spread. The second part is dedicated to a comparison of credit risk pricing in bond and CDS markets. In particular, we focus on the anomaly of negative CDS-Bond Basis during the recent financial crisis. Based on a no-arbitrage argument, we identify the factors that can explain the persistence of negative basis. We employ pooled OLS, panel regressions and Fama-MacBeth regression in our empirical analysis. The analysis identifies funding cost, collateral quality, liquidity risk, counterparty risk and basis volatility as the key factors driving the basis. We investigate the dynamic relation between the factors and the basis over the period covering the financial crisis. In addition, we identify and discuss the difference in dynamics of the basis for financial vs non-financial sectors, and investment grade vs high yield rating categories. Overall, the aim of the thesis is to contribute to a limited but growing literature on empirical issues in credit risk modelling during the recent financial crisis.

This research makes a contribution to knowledge by testing Granovetter’s (1973) theory of the strength of weak ties in microfinance based on an empirical study in India. Specifically, it looks to test if the addition of weak bridging ties to the networks of microfinance clients who own businesses will improve their businesses and help to reduce their poverty. This research also investigates Burt’s theories on structural holes (1992), brokerage and closure(2005) and network spillover (2010) can assist with the building of weak bridging ties. Microfinance is the delivery of financial services to the poor which includes credit, savings, insurance and remittances. The original goal of microfinance is to do financially sustainable poverty reduction. The key issue for microfinance is that it has not achieved levels of poverty reduction envisioned when the modern microfinance started. One reason for this is that microfinance clients start businesses with low barriers to entry which makes them very susceptible to competition. Also, the poor tend to inhabit fragmented social networks with few ties outside it that would bring needed information on markets, finance, suppliers, customers and the competition that would help to improve their businesses. Network analysis provides, with theory of the strength of weak ties, an approach that will give poor people access to information need by them to improve their businesses. India is one of the largest microfinance markets in the world which also has a unique form of microfinance. In addition to individual lending and joint liability groups, India has self-help groups which are essentially microbanks owned and operated by its members. Sari sellers, who happen to be members of self- help groups, are good example of a low barrier to entry business. Using a variation of the method developed by Kahn and Antonucci (1980), sari sellers were asked to identify the people they were connected to for supplies, finance, market information and customers. These are placed on a target diagram indicating how close these are to the sari seller who is at the centre of the target. Lines connecting the alters who know each other are drawn. In addition, a network intervention was conducted in attempt to introduce weak bridging ties into the social networks of the sari sellers. A simple method of providing sari sellers in the treatment group a list of other sari sellers they could contact for help while those in the control group did not receive the list. Several interesting findings came out of this research. Analysis of the sari sellers’ ego networks shows that there is a reliance on strong ties which confirms Granovetter’s (1983) argument. The analysis of the ego networks also show the sari sellers do have access to structural holes but do not take advantage of these. When the ego networks are combined using their contacts with the microfinance institution’s staff, analysis shows that the resulting network has a parent-subsidiary structure which reflects the hierarchical nature of Indian society. Finally, the analysis also shows that this network is fragmentary and fragile. Weak bridging ties would make the full network less fragile and allow the sari sellers to take advantage of the structural holes they find. This is what the intervention is attempting to do. While the intervention did not go as planned, evidence was found to support the hypothesis that addition of weak bridging ties to the social networks of sari sellers improved their businesses. A group of 15 disparate sari sellers created weak bridging ties to take advantage of one of the sari seller’s contacts to buy saris in bulk. Another sari seller saw a significant increase in sales for Diwali 2011 because a new member of her social network created a weak bridging tie which introduced her to many new customers.

What are the main causes of bank failure? This thesis contributes to answering this question by focusing on the city of Chicago during the Great Depression, which experienced one of the country’s highest urban bank failure rates. Focusing on the long-term evolution of state banks’ balance sheets, it finds that what greatly mattered for their survival was the inherent liquidity of their pre-Depression portfolios. Indeed, all banks, including survivors, suffered tremendous deposit withdrawals. Yet those that ended up failing could be identified as weak ex ante. Such weaknesses were linked to the inherent liquidity of their portfolios: the higher their amount of long-term illiquid assets (in particular, mortgages) before the Depression started, the more likely they were to fail ex post. The first paper identifies mortgage holdings as the most important predictor of bank failure, and explains how their intrinsic lack of liquidity came to matter more than their low quality. The second paper zooms in on mortgage contracts themselves, and finds that debt dilution due to the “second mortgage system” led to a lower probability of repayment. Nevertheless, this second paper shows that increased default rates affected banks only insofar as foreclosure was a long drawn-out process that lasted more than eighteen months in Illinois – a great impediment to bank survival in case of a liquidity crisis. The third paper asks whether mortgage securitization would have solved the liquidity issue, and uncovers the extent of actual securitization taking place at the time in Chicago. However unbinding commitments and the lack of a regulated exchange created inefficiencies not unlike those of today. Together these results reassert banks’ responsibility in liquidity risk management. While credit risk continues to be an essential feature of banking, and has been recognized as such, renewed attention needs to be paid to the ways in which banks manage the inherent liquidity of their portfolios.

This thesis consists of four chapters positioned at the interface of economics and geography. They analyse spatial disparities in economic activity using applied microeconometric methods. Chapter I describes trends in wage inequality once differences in local costs of living are taken into account. I use spatial variation in house prices to construct a local consumer price index and show that prices rose faster for non-graduates than for graduates between 2001 and 2011. In a period when nominal wage inequality came to a halt real wage inequality kept rising. Chapter II builds up on this result and analyses the effect of real wage differentials on working hours. Looking at individuals that face different wages and house prices as they move across labour markets, I find that working hours are significantly higher in low real wage areas. The effect is due to labour supply adjustments of low skilled workers implying that affordability considerations are more important than additional leisure options due to a higher amenity level. Within a city amenities are important determinants of an individual’s location decision. Chapter III looks at the role of amenities for skill specific sorting in British cities. An amenity value is inferred from a hedonic regression and correlated with neighbourhood as well as individual characteristics. The results suggest that holding income constant graduates are willing to pay 0.2% more for amenities than individuals with a lower educational status. Chapter IV studies the effect of a public sector employment shock on private sector employment using the relocation of the German government from Bonn to Berlin as a natural experiment. The findings indicate that the relocation of jobs generates localized employment spill-over effects in the service sector. 100 additional public sector jobs generate 60 private sector jobs up to a 1km distance from the area receiving the relocation.