Modelling the dependence structure of financial variables is of paramount importance for a wide range of financial applications. Financial variables exhibit various forms of dependence and tail dependence whereas the magnitude of dependence is not constant over time but rather time-varying and can also be affected by exogenous factors. The present thesis investigates the effects of multivariate dependence on a broad range of financial applications. In particular, the first empirical part of the thesis investigates the implications of dependence and tail dependence for the accurate risk modelling of financial portfolios. The joint behaviour of the returns of the financial portfolios is modelled employing extreme value theory methods for the univariate distributions and pair-copula constructions for describing the joint dependence. The results indicate that risk estimates, derived within this framework, can be successfully forecasted at extreme quantiles. The second empirical part deals with the estimation of systemic risk in the European banking sector based on the CoVaR methodology. In this part, a new methodology, based on copula functions, is proposed and extended to different CoVaR definitions and systemic risk measures. The proposed approach also recognises the time-varying dependence of financial variables by allowing the dependence parameters to be functions of lagged information. The results highlight the importance of taking into account accurate specifications for the marginal distributions and the dependence structure when modelling systemic risk. The empirical results also show that systemic risk in the European banking sector can be explained by several macroeconomic and financial variables as well as factors directly related to institution-specific characteristics. Finally, the third empirical part focuses on the modelling of the interdependence structure of European sovereign yield curves as functions of market-wide and country-specific liquidity and credit quality measures. The empirical results highlight the significance of both liquidity and credit measures in explaining the dynamics and covariation of European yields and reveal important contagion and spillover effects among European economies. Overall, the empirical findings of this thesis outline the importance of taking into account the behaviour and the distribution characteristics of the financial variables that are modelled; failure to do so may lead to incorrect inference and erroneous implications.

This thesis consists of three essays in financial economics. Specifically, it focuses on financial market reactions to intangible information like employee satisfaction and tangible information like corporate earnings news. It examines the effects of factors including institutional contexts and quality of information environment on how financial markets incorporate those information. The second chapter examines the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the "Best Companies to Work For" in 14 countries. We show that employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K., but not in countries with low labor market flexibility, such as Germany. These results are consistent with high employee satisfaction being a valuable tool for recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and ring. In contrast, in regulated labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The results have implications for differential profitability of socially responsible investing (SRI) strategies around the world. In particular, they emphasize the importance of taking institutional features into account when forming such strategies. In the third chapter, we investigate the effect of ambiguity on return-earnings relation. Positive firm-level earnings news is informative about a firm’s future cash flows, thereby increases its contemporaneous stock price. However, this positive relation does not translate into aggregate level. On the contrary, positive aggregate earnings surprises lead to negative contemporaneous market returns. This puzzling finding could be explained by the diversification of firm-specific earnings surprises together with either high predictability of returns or high predictability of aggregate earnings changes. Motivated by the differential implications of the two explanations, this study constructs a theoretical model generating predictions in favour of the return-predictability explanation and provides empirical evidence supporting all the hypotheses. By interacting Knightian uncertainty with the return-earnings relation on both firm- and aggregate-level, the study shows that individual response coefficient increases with firm-level ambiguity. Firm-level ambiguity increases the aggregate earnings response coefficient. This increase is more pronounced when the degree of market-level ambiguity is high. The results conclude that the negative aggregate return-earnings relation results from the diversification effect as well as an amplifying effect of macroeconomic ambiguity on discount rate news and market- wide cash ow news. In the fourth chapter, I examine the stylized fact that market reacts much more strongly to bad news than to good news. I show that the asymmetric reaction is due to the findings that investors are more surprised by bad earnings news. This stronger surprise can be explained by the interacting effects of two key elements in investors' decision making process: ambiguity and difference of opinion. Ambiguity reduces investors' reaction to good news while increases their reaction to bad news. Difference of opinion similarly reduces reaction to good news, but it has no discernible effect on bad news response. Combining both generates a "yes" tick shape for the earnings response coefficient. This asymmetry after controlling the amount of news explains away all the negative returns generated by leaked quarterly earnings news. To rationalize the findings, I build a simple model to capture the dynamics of the earnings-return relation. Multiple-prior ambiguity and difference of opinion regarding the center of priors range are incorporated and evaluated in a maxmin framework.

This doctoral thesis consists of three essays on the nature and evolution of informational efficiency in an emerging market context. Each essay uses firm and aggregate level data from an emerging market, namely the Trinidad and Tobago Stock Exchange (TISE). The first essay explores the state of informational efficiency in an emerging market setting and how this efficiency evolves over time. It addresses a key issue in the emerging markets informational efficiency literature: informational efficiency is not a static feature of markets but evolves over time with changes in market features and the investor behaviour. The analysis initially applies a battery of econometric tests of the random walk (variance ratio and signed-rank tests) to the full sample returns of aggregate and stock level data from the TISE, to determine whether the market is informational efficient. The findings show that the market is informationally inefficient at the aggregate level, which is accounted for by the severe lack of efficiency in the bulk of stocks traded on the exchange. This result could imply that by and large, stock prices in an emerging market setting may not be accurate signals for resource allocation. The next part of the analysis considers whether this state of informational efficiency varies over time, by applying the more robust signed-rank test in a rolling sub-sample framework to the stock and aggregate level data. The analysis shows that over time, there are transient periods of informational efficiency, which alternate with periods of inefficiency at the aggregate market level. This pattern of time-varying efficiency is largely mirrored by the Banking stocks of the TISE. Such results could mean that informational efficiency in an emerging market setting may improve in some periods but worsen in others. This does not conform to the classical Efficient Markets Hypothesis, which claims that markets should show a clear trend toward higher states of efficiency over time. The second essay analyses the effects of several market microstructures and financial reforms on time-varying informational efficiency in an emerging market setting. It uses data from the TISE, which is measured at the firm level for the microstructure variables. This allows for the analysis to extract the precise effects of microstructures on efficiency, which may otherwise be hidden by aggregate level data. The analysis is done within a panel regression framework. We find that improvements in the microstructure variables, including liquidity, volatility, automation and the number of shareholders enhance informational efficiency over time. However, the financial reforms, including financial liberalisation and regulation, do not alter efficiency in this analysis. We further find that the liquidity and total shareholders of the banking firms have a greater impact on efficiency, in relation to the other listed firms. Taken together, the results could imply that market microstructures playa more important role in causing informational efficiency in an emerging market setting to evolve over time. The third essay explores price predictability from a lead-lag cross autocorrelation perspective. In particular, it considers whether the degree of institutional investment across firms induces lead-lag cross-autocorrelation among stocks. The analysis is conducted by applying returns data at the firm level from the TISE in a Vector Autoregressive (VAR) framework. It is found that the institutionally favoured stocks (HI) "lead" the institutionally unfavoured stocks (LO), as the returns of HI predict the returns of LO better than vice versa. Moreover, HI stocks are also found to lead the TISE market portfolio. These patterns of predictability arise because the stock prices of high institutionally owned firms adjust faster to market-wide information, which implies that these prices are more informationally efficient. It is also found that the extent to which HI leads LO increases with the liquidity of the institutionally favoured stocks and the illiquidity of stocks that are not favoured by institutions. Collectively, the results of this essay provide evidence of the positive role played by institutional investors in the price adjustment process: stocks with a high degree of institutional ownership have a faster speed of adjustment, making them more informationally efficient.

The Chinese government has implemented a series of financial liberalisation policies in stock market after China’s accession into the WTO in 2001. However, it remains somewhat unclear whether and to what extent China’s financial liberalisation has influenced its stock market in the post-WTO accession period. This thesis examines this issue from the perspectives of international market integration and market interdependence. This thesis mainly includes three empirical studies: 1) gauging the degree of market integration by the weak-form measure, 2) measuring the degree of market interdependence by the multi-factor R-squared measure, as well as 3) examining the relationship between these two elements by the MWALD causality test and cointegration analysis. The first empirical study finds that China’s financial liberalisation might have largely decreased the stock market segmentation between China and the world in the period from July 2003 to June 2007, but this process has been interrupted by the global financial crisis in 2008. Meanwhile, only some of China’s financial liberalisation policies might be regarded as effective, such as the QFII programme, the first round of exchange rate reform and the QDII programme. The second empirical study regards that the stock market interdependence between China and the world has experienced three stages. These stages are: 1) the stationary stage from July 2001 to June 2003; 2) the increasing and steady stage from July 2003 to June 2006, which might be thanks to China’s financial liberalisation; as well as 3) an inverted U-shaped stage from July 2006 to December 2009, which might be attributed to China’s economy overheating in 2007 and to its economic stimulus plan in 2008. This third empirical study finds that there has been a unidirectional causal relationship from market integration to market interdependence, and a cointegration relationship between them. Market integration and market interdependence are found to be highly connected but different issues. Market integration is one, but not the only, determinant of market interdependence.

Waqf and its management in Malaysia have been very much neglected by the relevant authorities for a relatively long period of time. In Malaysia, waqf is managed by State Islamic Religious Councils (SIRCs), which is the sole trustees for waqf resources. The emergence of Islamic economics and the pressing demands for greater countability and better performance in the public sector organisations provided an impetus for the waqf revival in Malaysia. Thus this study empirically investigated the accounting, accountability and effectiveness of the waqf management in Malaysia. A questionnaire survey examining the current practices of the principal management activities including strategic planning, budgeting and budgetary control, performance measurement and financial reporting was distributed to thirteen SIRCs and two semi-autonomous baytulmal institutions, one in Sabah and the other in Sarawak. Furthermore, a series of semi-structured interviews was conducted on the senior and operational officers of SIRCs/baytulmal institutions, the Department of Awqaf, Zakah and Hajj (JAWHAR), the Malaysia Waqf Foundation (MWF) and the National Audit Department (NAD). Essentially, the study revealed a number of noticeable findings with regard to the principal management activities in SIRCs/baytulmal institutions. Firstly, budgeting in SIRCs/baytulmal institutions appeared to function mainly as planning and control tools. The strict approach to budgetary control in these organisations was to ensure the adherence of spending to the budgets while the efficiency and effectiveness of resource consumption were less emphasised. Delegation of authority and responsibility to operational managers was restricted to budgetary control. Secondly, there were evidences of conspicuous discrepancies in the financial reporting practice. This may have been attributed by the absence of specific accounting framework for Islamic assets and funds held by SIRCs/baytulmal institutions. The financial reporting practice in these organisations had less focused on the stewardship/accountability dimension expected of the public sector and non-profit organisations. Thirdly, performance measurement in SIRCs/baytulmal institutions appeared to be focusing on enhancing the administrative capacity of the organisations. Fourthly, the existence of strategic planning in SIRCs/baytulmal institutions was very limited and mainly conditioned on external requirements. Finally, the study also revealed the presence of inherent challenges in the waqf management in SIRCs/baytulmal institutions, namely, financial inadequacy, shortages of manpower, and limited administrative capacity. The present practice of the principal management activities and the inherent challenges had a profound impact on the extent of accountability and effectiveness of the waqf management in Malaysia.

The current study examined several issues regarding auditor independence from the perspective of an emerging market such as Malaysia. A spate of ‘mini-Enrons’ in 2007 and 2008 has raised questions of investor confidence in the financial system specifically the national stock market. These scandals involving listed companies have highlighted concerns of regulators and other interested parties relating to threats to auditor independence. Factors affecting the ability of auditors to remain independent include long audit tenure, financial dependence on a single audit client, non-audit services provided to audit clients, ex-auditor employment with an audit client and the existence of audit committees. It is therefore timely to examine the importance of auditor independence in the provision of reliable and credible financial information. The current study uses a questionnaire survey to examine users’ (bank loan officers and professional investors) perceptions of the impact of the various factors on auditor independence. The results of the study revealed that Malaysian users of financial statements have serious concerns about the threats to auditor independence. The results also reveal that audit committees are perceived as the main safeguard for auditor independence. In general, both groups of respondents agreed that the current regulations for auditors, as set down by the Malaysian Institute of Accountants’ By-Laws, were sufficient to safeguard auditor independence. However, there are mechanisms that the financial statement users believed should be implemented that could provide greater protection for their investment. For example, the loan officers in this study seemed to prefer mandatory audit firm rotation to partner rotation. Further investigation indicated that differences existed in perceptions across the examined demographic and background variables. The results of the study also suggest that Malaysian loan officers and professional investors still have faith in the auditing profession and this is reflected in their belief that audited financial statements are important for them to make lending and investing decisions.

Political priorities are represented through accounting, which makes it fundamental to governing Whitehall and Town Hall relationships (Wildavsky 1964, 1975; Hopwood 1984; Hood 1995, 2010). Public sector research showed accounting has been colonising through coercive institutional processes that can lead to dysfunctional performance (Broadbent and Laughlin 1997). In contrast private sector accounting literature suggested both coercive and enabling bureaucracies (Adler and Borys 1996) can be formalised as management control systems (Ahrens and Chapman 2004) to balance efficiency and flexibility for better performance (Brown and Eisenhardt 1997). The research question looks to explain how coercive and enabling control can work in a specific Town Hall waste management service, and organisation changes occur between them to manage Whitehall strategic ambitions. A nested research design methodology was employed to undertake a historical study of archaeologies and genealogies of accounting for policies and strategies (Hopwood 1987; Foucault 1972, 1977), which were linked to a case study of sites and practices (Schatzki 2000, 2001, 2002, 2005; Ahrens and Chapman 2005, 2007). Methods included archival research, interviews and observation, with data triangulated to support claims. It was found that phases of archaeologies were layered representing policies, strategies and practices, but with related genealogies of change. The genealogies illustrate coercive control could be enabling in the public sector, but with changing contexts this can shift from being empowering to constraining and even dysfunctional to performance. In addition, coercive control could be enabling through system design, system features and implementation context, but changes to the strategic context rather than just the structural context have to occur for enabling control to take on more ensuring notions. Furthermore, the use of system features (Ahrens and Chapman 2004) and processes (Wouters and Wilderom (2008)) are important for coercive procedures to be enabling, but so were practices and the situated functionality of accounting for establishing order, setting and developing current and future agendas, and accomplishing priorities.

There is wide agreement that the Internet has had a significant impact on the retail banking sector. However, no consensus has formed as to whether the Internet can provide retail banks with competitive advantage and if so, whether this competitive advantage is sustainable. This research project examines the provision of Internet usage in the UK retail banking sector. The goals of this study are threefold: 1) to explore the notion of "competitive advantage" in retail banking, 2) to understand why managers of retail banks invest in the Internet and what they consider are the advantages of Internet banking and 3) to ascertain why some managers of retail banks are more convinced of the benefits of the Internet as a generator of competitive advantage than others and whether this relates to the characteristics of their bank and/or its Internet strategies. A model of the use of the Internet in retail banking was developed. An analysis framework, based on the competitive advantage that the use of the Internet may produce, was also built up. In addition, a combination of qualitative and quantitative methodologies was utilised. Interviews were formulated and undertaken in order to extend the findings in the extant literature, and to further confirm and refine the theoretical framework of this study. Then utilising the results of the interviews, a survey was conducted and 151 senior managers responded. The responding mangers came from both small and large retail banks and, in addition, from building societies. They held a variety of different positions within their organisations. The thesis produced a number of significant findings. The concept of `competitive advantage' was defined in the UK retail banking sector. Key factors that provide retail banks with competitive advantage were identified; namely; "differentiation", "cost leadership" and "product uniqueness". These resembled Porter's generic strategies, however, the results rejected his concept of the "stuck-in-the-middle" competitive situation. He had indicated that an integrated strategy using more than one form of competitive advantage is likely to fail to achieve advantage. The results indicate that combined strategies are not only possible, but are likely to be the most successful overall Internet strategy for retail banking firms to pursue. The research concluded that the size and type of retail bank has direct impact on Internet strategy. Managers' perceptions of competitive advantage provided by the Internet is affected, both by the characteristics of their firms, and also by the Internet strategies that their banks employed. Internet strategies are confirmed to be mediation variables and have a good fit with the resource based view. This indicates that resource and core competences are crucial to the decision about which Internet strategies to employ to achieve maximum competitive advantage. The research therefore found that, in the Internet arena, the market-based view and the resource based perspective of competitive advantage may be seen as complementary as they are concerned with different domains (i. e. external and internal respectively). However when considering the issue of sustainability, a hypercompetitive view is more appropriate. It suggests that constantly being flexible, innovative and quickly responding to the changing environment are the foundations required for firms to achieve sustainable competitive advantage. Further, a number of issues were identified to be important for the future of Internet banking.

This thesis has twofold objectives. The first is to develop a framework based on the existing theory and method of Data Envelopment Analysis (DEA) for measuring performance of financial firms that have the dual goals of profit maximisation and Corporate Social Responsibilities (CSRs). The second is to examine the impact of banking regulatory reforms including bank ownership, specialisation, and capitalisation types on the average efficiency and frontier differences of banking subgroups. The objectives are achieved using the standard DEA, the metafrontier analysis and the global frontier differences (GFD). DEA can handle multidimensional inputs and outputs without specifying specific functional forms. CSR is conceptually justified and modelled as an additional output into the banking intermediation approach. Two DEA models, one with CSR and another without CSR are measured and compared. Parametric and nonparametric tests and regressions are utilised to support, empirically, the relevance of CSR in bank performance evaluation. Do foreign banks outperform private-domestic and state banks? Should banks diversify their products or focus in narrow range of products and services? Are listed banks more efficient than non-listed banks? The second part of the thesis contributes to the extant literature by answering these questions using the metafrontier analysis and the GFD to provide new evidence on the effect that the entry of foreign and private-domestic banks, universal banking and listing of banks on the stock market, have on bank performance. Banks are segmented into groups based on their bank-specific attributes and their average efficiencies and bestpractice differences compared. Relevant policy recommendations are drawn from the analysis for both the banking regulator and bank management. The final methodological contribution extends the GFD by defining a further decomposition of the global frontier shift, into components that indicate whether an observation is situated in a more or less favourable location in the production possibility set. Consequently, a four-factor “Newly-decomposed Malmquist productivity change index” is proposed. The index and its decompositions have potentially interesting policy implications, which are illustrated using the empirical data on Ghanaian banks. The index is in the spirit of the standard Malmquist index but the intuition is that some components can be used to draw conclusions about productivity changes for a whole population of firms whilst others determine whether individual firms are in favourable locations and/or moving towards locations that are more favourable over time. More importantly, arguably, a listed, universal or foreign bank can be located in a favourable position and move towards location that is more favourable by virtue of its bank-specific attributes or by contributing more towards CSR. These factors are explored and policy measures prescribed in the final contribution of the thesis.

This thesis consists of five chapters. The first chapter previews the analysis of the following three chapters. In the second chapter, my co-author and I provide new empirical evidence that the distribution of liquidity has a strong in-sample and out of- sample predictive power on intraday market volatility. To this end, we introduce a novel way of summarizing the relative depth provision in the whole limit order book. Our measure, global depth, considers the entire quoted depth and assigns weights decreasing with distance from the best quotes. We document that global depth outperforms alternative predictors of volatility, such as the bid-ask spread, standard depth variables, and measures of trading activity, in explaining the variations in market volatility. The third chapter, forthcoming in the Journal of Banking and Finance, investigates the effects of competition and signaling in a pure order driven market and examines the trading patterns of agents when walking through the book is not allowed. My co-author and I show that the variables capturing the cost of a large market order are not informative for an impatient trader under this market mechanism. We also document that the competition effect is not present only at the top of the book but persistent beyond the best quotes. Moreover, we show that institutional investors’ order submission strategies are characterized by only a few pieces of the limit order book information. The fourth chapter analyses the relationship between the firms’ disclosure decisions and the market expected value of default probabilities. I use option prices to estimate the option implied probability of default, whereas the level of disclosure is measured by a self-constructed voluntary disclosure index for the largest 85 U.S. bank holding companies. I provide evidence that the enhanced disclosure is followed by reduced market implied default probabilities in the subsequent year. This evidence suggests that by mitigating the information asymmetries between the bank management and their depositors and regulators, disclosure affects investors’ assessments of the riskiness of a bank. Finally, Chapter 5 sums up and points out directions for further work.