In this thesis the various arguments that have been put forward for the determinants of a company's capital structure are examined critically. However, none of these succeeds convincingly in reflecting actual practice. Furthermore, it is argued that the common practice of concentrating on Earnings Per Share (EPS) as a key indicator of a company's performance also impacts on the capital issue choice, and that there is functional fixation on EPS, particularly short-term EPS. Therefore the effect on a company's EPS of a particular method of finance turns out to be an important influence on a company's financing decisions. A questionnaire sent to finance directors of companies elicits their views on their perceptions of the important influences on the choice of financing, and the responses are analysed using multivariate techniques. The results are encouraging as far as the present research question is concerned. An innovative approach of reconstructing company's financial statements to investigate the impact on various financial data if an alternative financing method had been chosen provides further evidence of a fixation on EPS. Limited dependent variable analysis is carried out to determine the variables which appear to influence the debtequity choice. A by-product of the research question is an analysis of 'elasticity' measures of gearing, i. e. degrees of financial and operating leverage; and the usefulness and consistency of the bases of measurement used for these. This thesis seeks to determine the extent to which financial choice is explained by, or at least consistent with, the maximisation of Earnings Per Share. In so doing, it seeks to provide a vital link between finance research and related financial accounting issues.

Most scholars have concluded that actively managed equity mutual funds as a whole underperform their passively managed counterparts, linked to some benchmarks. In other words, active equity fund managers on average do not have enough significant stock-picking abilities to add value for investors. However, earlier investigations may be flawed through failure to give adequate consideration to liquidity. Hence, this research pays much attention to liquidity effects on mutual fund performance and argues that it is a preference for holding highly liquid stocks which results in the perceived underperformance. First, we find no significant liquidity premium at fund level, no matter the holding period returns or risk-adjusted performance. This indicates that all or almost all active equity fund managers in effect pay considerable attention to liquidity. We also examine the effects of liquidity on fund performance among actively managed equity funds. In contrast with earlier research, we find that actively managed equity funds in the aggregate perform close to the passive strategy. That means, on average, active equity fund managers do at least have talent sufficient to generate returns to cover costs that their funds impose on investors. This we attribute to the liquidity requirement of mutual funds. Moreover, using bootstrap simulation, we discover that many more mutual funds can be classified as skilled funds rather than lucky funds, once a liquidity factor has been included. Thus, our research provides a new insight into mutual fund performance, and highlights liquidity as an important and non-negligible determinant in the evaluation of mutual fund performance.

This thesis empirically assesses exchange rate volatility given the choice of exchange rate regimes and the responses of current account components (trade balance and net investment income flows) to exchange rate fluctuations across countries. Chapter 1 presents the general motivations of this thesis, followed by the research aims and methodology. The structure of thesis is then outlined. Chapter 2 investigates exchange rate volatility given the choice of exchange rate regimes. By assessing a large currency-pair sample over 1999M1-2006M12, bilateral exchange rate volatility increases with the degree of the flexibility of the exchange rate regime combinations. Currency network effects (i.e. pegs sharing the same anchor would benefit lower exchange rate volatility) are significant, with the structural variables also being controlled. Relative to the both-free-floating pairs, the marginal volatility-stabilising effects are identical across the anchors (networks) and hence the network effect increases with the network size. Managed floats are shown to track the US dollar, which consequently increases the effective size of the USD network relative to the others. Structural factors, such as larger cycle asymmetry, lower bilateral trade openness, larger economy size and per capita land resources, are associated with greater bilateral exchange rate volatility. Inflation conditions significantly undermine the network effects. Moreover, the volatility-stabilising effects increases with the peg network size under the arithmetic multilateral exchange rate volatility measure but not under the trade-weighted measure, indicating the competing rationales for the choice of anchors (networks). Chapter 3 assesses the trade balance adjustments in response to exchange rate fluctuations across countries. By estimating fixed-effects regressions covering 96 countries from 1993 to 2006, trade balance exhibits significant responses for the contemporaneous and the subsequent one year, particularly for the Industrial and Emerging Market groups. The J-curve dynamics become more evident after exports and imports are examined separately. There are clear asymmetric patterns between the Industrial and developing economies. The latter group tends to have larger and more instant adjustments both on trade balance and between tradable and nontradable sectors than the former. Moreover, the Industrial economies on average show symmetric long-run and short-run responses to depreciations and appreciations. However, the Emerging Market economies’ trade balance tend to respond faster to depreciations than to appreciations. Relative to the moderate degree of fluctuations, large exchange rate changes for developing economies are associated with the inverse dynamics of the normal cases. Other factor variables, such as the terms of trade and domestic income variables exhibit explanatory power as expected in the literature. By taking fixed-effects regressions over a similar sample to Chapter 3, Chapter 4 examines the changes of net investment incomes in response to exchange rate fluctuations across countries with different foreign currency lending positions. Given the initial net capital outflow, depreciations (appreciations) are associated with net investment income improvements (deteriorations) for the Industrial economies, most of which have positive positions of foreign currency exposure (FXE), i.e. foreign currency assets exceed liabilities. An inverse case applies for the developing economies of which most possess negative positions of FXE. Given the changes of exchange rate, the degree of this valuation effect increases with the imbalance position of FXE particularly among the Industrial and Emerging Market economies. Further investigations show that this is mainly driven by the adjustments of foreign currency components in the two groups’ external balance sheets. For the other developing economies, there are insignificant valuation effects conditioning on the FXE positions that are mainly driven by the overall net foreign borrowing positions. The initial captial outflow proxied by the lagged current account position tends to have insignificant effects on the net investment income flows across the countries. Combing the trade balance dynamics and the valuation effects, the overall current account adjustments are mainly driven by the trade balance across the economies. Given similar long-run quantitative effects of exchange rate fluctuations between the Industrial and Emerging Market economies, the latter group exhibits faster and larger short-run trade balance and current account responses than the former. The valuation effects are insignificant in the overall current account adjustments. Nevertheless, the valuation effects tend to counteract the trade balance adjustments for the Emerging Market economies given an exchange rate change, while those two channels work in the same direction for the Industrial economies. These asymmetries further indicate the importance of country’s external portfolio dynamics. Chapter 5 summarises the main findings, followed by the discussions about implications and possible future research.

Following privatisations in the 1980's, the UK financial industry embarked on a series of demutualisations, which developed into a global trend in the late 1990's. This structural shift has generated numerous debates in academic circles concerning various managerial issues of mutual versus stock owned companies. Informed by agency theory, this thesis contributes to this debate by exploring the link between ultimate organisational form and the behaviour of companies in the UK unit trust industry. The UK unit trust fund industry provides an excellent environment to explore this line of research because ultimate organisational form varies, and because the intra-industry variations are far smaller than those of other industries in term of regulations, income structure, and the use of information technology. For the purpose of analysis, the thesis compares unit trust management companies belonging to mutual and stock owned groups along three dimensions: (i) risk-taking and (ii) efficiency at the corporate level, and (iii) quality of their products, e. g. risk and fee adjusted performance of unit trusts that the companies offer. To this end, a number of quantitative analyses are undertaken, including Tobit regression and Data Envelopment Analysis (DEA), using data from a sample of 130 unit trust management companies for the financial year 1999-2000. The results support the agency theory hypothesis, revealing that at the corporate level, stock owned companies show higher managerial efficiency than the mutual counterparts whilst undertaking higher risk activities than the comparable mutual companies. Nonetheless, at the product level, no difference is found by ultimate ownership type with regard to risk-fee-adjusted performance of unit trusts. The latter indicates that competitive product markets remove the performance distinctions between mutuals and proprietary companies. Overall, these findings suggest that mutual organisations exhibit weaker cost control in conducting unit trust business via their affiliated companies.

The focus of the thesis is on the role of exchange rates in price setting and consequentially nominal price stickiness. A data set was constructed of individual product lines that were imported to the UK, together with competitive product lines. The empirical results showed that the impact of competitive products is significant and for one of the five products selected the pass through of exchange rates into prices was insignificantly different from zero, one passed a proportion of the exchange rate changes into price adjustments and three adjusted prices in such a way as to reinforce the exchange rate changes. A multi period pricing model was postulated, drawing on the work of Ball and Mankiw (1994) but extending it to allow exchange rates shocks to impact a firm's costs in both its home country and its export market. This model shows when temporary shocks will not be passed through and provides a rationale why permanent shocks might also not be passed through. Two further empirical studies were carried on a wider range of products. The first was conducted on imports from major trading partners of the UK. The results were based on aggregated data but showed a very similar picture to the initial product line study. The second study focused on UK exports to the same group of countries using similar products ranges to the import study. The results again showed a similar picture and further for a majority of individual countries, where there was a significant level of pass through, the sign of the exchange rate pass through changed dependent upon whether the country was importing or exporting. Indicating that a country's responsiveness to exchange rate shocks is an important determinant of firm's pricing decisions. Finally these studies provide further evidence that nominal price stickiness is evident in the UK economy.

This dissertation explores the relationship and the determinants of FDI, trade and migration in three empirical studies. The first study estimate the Knowledge Capital model (KK) to explore the determinants and types of FDI in a small developing country, Pakistan. The results indicate that the model fits the data at aggregate and manufacturing sector reasonably well as signs on most of the explanatory variables related to the vertical and horizontal FDI are in line with the predictions of the model. However, there is strong evidence of vertical FDI as the endowment difference variable is positive and significant in most of the specifications suggesting that large countries invest to have factor cost advantage in Pakistan. We also modify the model by using dummy variables for the reform and period of instability. The results provide evidence that liberalization of trade and investment has positive effects on the inflows of both types of FDI and that political and economic instabilities negatively affect FDI inflows. The second essay explores the role of Pakistani migrants in facilitating FDI inflows by reducing informal barriers of trade and investment. In an augmented gravity model based on the new trade theory of the multinational we find significant positive impacts of migrants on FDI inflows in Pakistan both at the aggregate and sectoral levels. We also find that Pakistani immigrants in distant countries are more effective in reducing transaction costs. Among the Commonwealth countries, Pakistani immigrants in the UK have a significant positive impact on FDI inflows in Pakistan. Finally, this study finds that immigrants are effective in promoting FDI from both developed and developing countries, the effects being larger for immigrants in the former. In the third study we estimate the determinants of migration from Pakistan. The unique feature of this research is that we study migration in both OECD and non-OECD countries which is particularly relevant in the case of Pakistan as large number of migrants go to the Middle East countries. Using a modified gravity model, we explain the emigration rate from Pakistan by the income, population density, dependency rate and tertiary rate of education in the host countries. The findings of this study suggest that income in the host country is an important determinant of migration from Pakistan and that high population density and an increase in the rate of tertiary education in the host country discourage migration. The main objective of this study is to look at the impact of previous migrant stock on potential emigration rate from Pakistan. The positive and significant coefficients on lagged migration stock for both OECD and the Middle East countries support the view of the network theory that family and friends who have migrated previously help in migration of potential migrants by providing information and reducing logistics and other costs of migration.

The thesis examines the effect of exchange rate variability on firms' export decisions, using data for UK manufacturing firms. We separately investigate the relationship between the changes of level of exchange rate and exports and that between exchange rate uncertainty and exports. Our results show that export extensive margin is not significantly related to changes in the level of exchange rates, whereas exchange rates have a significant and negative impact on the export intensity. Since industry heterogeneity is important in the effect of exchange rate level changes, we further explore possible explanations. In particular, we test whether external orientation and market structure play a role in the effect. Our results provide significant evidence for the role of external orientation and market structure. We also find significant evidence for the hysteresis effect of exchange rate uncertainty on exports, using new measures of uncertainty. In both cases, the behaviour of multinationals is investigated. We find that multinationals are less likely to be negatively affected by both changes of level of exchange rate and exchange rate uncertainty than indigenous firms. It contributes to the micro econometric literature in several aspects. Our evidence for industry heterogeneity from UK firm level data is new. Our explanations for industry heterogeneity by testing two hypotheses are the first attempt to investigate the factors driving different effects across industries. New measures of exchange rate uncertainty and related new method are used to test the hypothesis of hysteresis effects of uncertainty on trade. The use of micro data and new measures enable us to overcome the econometric difficulties and problems in previous studies. We also investigate whether multinationals' export behaviour is different from that of indigenous firms in response to exchange rate fluctuations. As far as we know, the multinationals' ability to deal with currency risk has never been examined before. The thesis provides new evidence for the multinationals' advantage of internalising currency risk over indigenous firms under exchange rate movements.

Firms are the engines of growth in any economy. It is therefore important to study how they finance themselves, as this may have a direct impact on the overall growth rate of the economy. A firm can choose whether to finance its activities with equity, debt, or both. An optimal capital structure is that mix of internal and external finance (debt and/or equity) that optimizes the value of a firm. Therefore, the question of how to finance or equivalently from where to borrow becomes a crucial decision. In each chapter of this study, we study the financing decisions of a different set of firms faced with financial constraints. The two countries we focus on are the UK and China. Our study examines two types of firms in the UK. We first study listed firms and examine how financial constraints affect their leverage decisions. Next, we focus on the financing decisions of small and medium-sized enterprises (SMEs), as these firms are more likely to suffer from financial constraints. To examine financial constraints, we use both conventionally used indicators of financial constraints and new indicators. Our study on China is mainly based on listed manufacturing Chinese firms. China is currently the largest developing and transition economy in the world. It is interesting to study the financing behaviour of manufacturing firms in China as manufacturing is believed to be the main engine behind the Chinese growth miracle. We account for factors specific to the Chinese case to determine if the leverage decisions of Chinese firms are similar to those of firms in other parts of the world. We also examine the cash holding decisions of Chinese firms as these firms seem to be highly financially conservative. Our results indicate that firms tend to follow a financial hierarchy in their financing patters and that the preferred source of external finance of most firms, whether in the UK or China, remains leverage. However firms tend to reduce their leverage when they experience an increase in their internal funds, which points towards a financially conservative behaviour. This needs to be accounted for in policy decisions that are mainly formulated on the supply side.

This thesis opens up the black box of ‘markets’ by scrutinising the process of market formation and examining its complexities in the context of Shanghai’s development as an international financial centre. The financial markets in Shanghai are framed, understood and acted upon differently by the Chinese local and central governments, regulatory institutions, local and foreign financial institutions and transnational interests. The construction of a financial centre in Shanghai is thus not only an outcome of its own historical context and development trajectory but also intrinsically bound up with the interests and decisions of other agencies acting across spatial scales and negotiated amidst conflicts of interests and power struggles. Based on empirical research that includes field observations of financial markets development in Shanghai, archival research and personal interviews conducted with local and foreign financial institutions, and Chinese government and regulatory officials in Shanghai (with some conducted in London), this study focuses on the banking sector, the securities market and strategies of foreign banks as they negotiate between the local regulatory environment and market conditions and the wider context of their global operations and strategies. I examine the relationship between state institutions and global finance capital in Shanghai and tease out how these different ‘framings’ of markets are played out in Shanghai. In doing so, I critically engage with the concept of ‘markets’ and ‘from-plan-to-market’ economy to expose its multiple identities and conceptualisations and the contested nature of the ‘marketisation’ process. I also analyse the factors contributing to Shanghai’s success, identify future challenges and highlight the complementary roles played by Shanghai as a ‘business and commercial centre’, Beijing as a ‘political centre’ and Hong Kong as an ‘offshore financial centre’.

The UK credit card market has attracted significant interest since the late 1990s, partly because of the strong growth it has enjoyed and also because of the aggressive behaviour of a number of new entrants. The credit card market consists of two very different businesses: card issuance - the "consumer-end", which provides credit cards and bears the credit risk of the customer and merchant acquiring, and the "backroom business", which recruits outlets to accept credit cards and undertakes the processing of transactions. The two businesses are distinct and in the UK only a small number of firms operate within each segment. This thesis concentrates on issues connect to the card issuance business. Credit card issuers bundle a wide range of characteristics into their product offering. Whilst this allows issuers to differentiate their product and better satisfy consumers who have heterogeneous preferences, the Office of Fair Trading has suggested that the bundling of characteristics makes informed choice problematic because consumers do not know the price of specific credit card characteristics. A hedonic pricing model with a two-level nested error component structure is estimated. It is found that individuals who hold either a student or an initial credit card are charged a risk premium by issuers. In addition, consumers must pay higher prices to hold credit cards with certain characteristics such as introductory balance transfer offers, an annual fee, a longer than average interest free period, particular loyalty schemes, or donate money to charities. The research undertaken differentiates itself from the existing literature by testing for heterogeneities in the interest rate transmission mechanism by examining how retail credit card rates in the UK respond to changes in the Bank of England's base rate. Error-correction models are estimated to analyze long-run pass-through; long-run mark-up and the short-run spend of adjustment. A number of theoretical arguments have been put forward to explain why retail rate responses might be sluggish. These include tacit collusion between financial institutions, sunk/menu costs and dynamic price discrimination which relies on consumer inertia. Retail credit card rates are indeed found to be sticky and overshooting is commonplace. However, the adjustment process was found to vary considerably between depending upon card issuer and card type. Asymmetries in interest rates have attracted considerable attention in the financial literature, thus the interest rate transmission mechanism is investigated further by examining sign asymmetry. No evidence of asymmetric pricing was found, which suggests that credit card issuers respond to base rate increases and decreases at the same speed. The competitive price setting behaviour of UK credit card issuers is empirically analysed. A discrete choice framework is used to look for evidence of price leadership, or whether some banks systematically react to movements in input costs more quickly than other banks. No evidence is found to suggest that one issuer dominates the market and acts as a price leader or that different issuers are responsible for leading price movements in different directions. There is no general pattern of price (i.e. interest rate) leadership amongst leading issuers in the UK, however, the empirical findings do however suggest that issuers do interact with each other and that some leader follower behaviour is observed at the portfolio level. Naturally, the work undertaken suggests some policy implications for regulators, consumer bodies and government agencies. Given that approximately 70 percent of all active accounts incur interest charges every month, consumers need to be provided with clear information and to be educated further in the benefits of shopping around. It is clear that the money transmission mechanism does not impact on credit card interest rates as well as it could do. Regulatory efforts are therefore required to help reduce interest rates in the light of a decrease in the base rate, thus helping credit card revolvers to decrease their debt burden.