The worst economic and financial crisis since the Great Depression in the 1930s, the Great Recession, followed by the Sovereign Debt Crisis (ESDC) in Euro area countries have revived interest in fiscal policy, and particularly in various topics related to its interactions with monetary policy in a monetary union. Despite a recent surge in theoretical and empirical work in this area, there are still many important questions that have not been explored and this thesis aims to fill this gap. This thesis consists of three essays. Chapter one and chapter two focus on particular sets of questions that partially address newly emerging problems in the wake of the ESDC. Their common link is the existence of the Euro area and problems of national fiscal policies in this monetary union. Chapter three analyses effects of a government intervention in the form of an unexpected public sector salary increase. The main focus of chapter one is on fiscal (debt) sustainability and the so-called fiscal fatigue hypothesis (`debt legacy'). For that purpose I firstly estimate a fiscal policy rule for Euro area countries, and test its robustness with various economic, financial and institutional determinants. Subsequently, the fiscal fatigue hypothesis is examined by estimating a non-linear specification of the same fiscal policy rule as suggested in the literature. In addition, I propose a simple linear debt rule for identifying the risk of fiscal fatigue. In chapter two I analyse the fiscal policy behaviour of `old' Euro area countries (EA-12) and three stand-alone EU countries (EU-3), given institutional constraints imposed on fiscal policy in the wake of the European integration process. To capture the changing nature of fiscal behaviour, I estimate a Bayesian time-varying parameter fiscal rule. Since fiscal harmonization is an important consequence of fiscal constraint, I also try to capture that effect by looking at the dispersion of country-specific Euro area fiscal behaviour and compare it with countries facing less strict fiscal constraints (EU-3). The last chapter aims to shed some light on a government intervention (a quasi-natural experiment) represented by an unexpected increase of public employees' salary. Given the type of intervention, I can construct a `natural' treated and a control group (private employees) and link them with data from a household budget survey. To compare their consumption behaviour, I estimate a regression model controlling for relevant economic and socio-demographic characteristics.

The thesis comprises three essays on model uncertainty and corporate financial policies. Particularly, it studies how model uncertainty affects firm’s choice in financing method in distinct market conditions, as well as the evolution of corporate risk management policy under resolving uncertainty in firm’s profitability and the ability to hedge with derivatives. Chapter 2 is the first attempt to reconcile prospect theory and contract theory in explaining observed financing decisions. In a world of ambitious and aggressive economic agents, even original equilibria break down in the presence of asymmetric information. When the aggressiveness in the market prevails, multi-pooling-equilibria could exist, which might explain why academics cannot find the optimal leverage. In the meanwhile, debt issuance will be lower, which sheds light on the distinct liquidity provision patterns between bull and bear markets. Firms with lottery-like investment opportunity will get external financing more easily than that with safe projects because both market participants - entrepreneur and financier – will perceive the project to be more valuable than would otherwise be suggested by the classical expected utility theory. While current corporate risk management theories predict that young firms should hedge more than the established ones, the claim is not supported by empirical observations, which also present mixed evidence on whether hedging creates value. Chapter 3 attempts to address this puzzle by including model uncertainty as part of risk management process. We develop a dynamic model in which agents learn about a firm’s hedgeability, gauged by the correlation between its operating cash flow and underlying asset of hedging instruments, while weighing the costs and benefits of different risk management tools. The model predicts that resolving model uncertainty accelerates the process of building up hedging positions, but this is not necessarily accompanied with firm value creation. We conclude that dynamic information acquisition is an important determinant of corporate risk management. In Chapter 4, we develop a dynamic model of corporate risk management in which agents learn about a firm’s profitability and balance the costs and benefits of risk management. We depict how the resolution of this particular model uncertainty intertwines with corporate risk management policy. The model predicts that both cash balance and hedging level increase in profitability prospects. We conclude that unraveling profitability drives distinct dynamics in corporate cash management and hedging policy, as a result of trade-off between risk-managing consideration and default option value-maximization. This also yields insights into the puzzles of why young firms use less hedging than mature firms and why there is mixed empirical evidence on the value creation role of corporate risk management.

This PhD Dissertation, structured by essays, aims to contribute to the field of emotions and behavioural ethics by spanning across disciplinary boundaries and methodological approaches. The ‘General Introduction’ provides a background as well as an overview of the contributions of this PhD Dissertation. The first essay provides the first systematic review on emotions and ethical decision-making, based on 38 empirical studies published between 2008 and 2017. At a methodological level, it reflects on the research methods that have been deployed so far to validate the study of the role of emotions on ethical decision-making. At a content level, it outlines the impact, in terms of outcomes, of different categories of emotions on ethical decision-making, through developing a 2x2 matrix of categories and outcomes. It concludes by recommending future thematic research avenues at both a methodological and content-level. The second essay provides the first exploratory study of implicit ethical behaviour and integral emotion responses in the asset management industry, through critical incident interviews with 38 elite fund managers in top-tier and boutique asset management companies in the UK. The latent thematic analysis of the interviews, guided by an essentialist paradigm, contributes to a contextualised elaboration of theory by developing a framework linking dimensions of ethical behaviour (i.e., authenticity and responsibility) with emotion responses (i.e., control and motivation). It contributes to the literature on ethical theories/value orientation, emotion regulation and appraisal theories by highlighting congruencies and incongruencies with existing research. The third essay provides a group-level psychosocial analysis of ethical risk on both a conscious and unconscious tier. Furthermore, it identifies how emotional contagion and RegTech (i.e., regulatory technology) efficiency affect ethical risk. It develops a mid-range model of ethical risk, alongside a typology of ethical behaviour and risk, and discusses theoretical and managerial implications.

This thesis examines resistances to debt in the aftermath of the global financial crisis in the United Kingdom (UK) and the United States (US) in order to develop a novel account of democratic subjectivity for International Political Economy (IPE) based on Stanley Cavell’s ordinary language philosophy. The global financial crisis has transformed debt into a topic of heated public debate, giving rise to new social movements as well as individual political resistances. However, IPE scholars have yet to substantively conceptualise this new democratic politics of debt, despite considerable research on the problems of debt-based models of economic citizenship. I trace this blind spot to the pictures of agency animating the field, before developing a novel conceptual account of democratic subjectivity in finance based on an original application of Stanley Cavell’s ordinary language philosophy in IPE. I then use this account to show how ordinary democratic subjects are opposing debt-based economic citizenship in the UK and the US. To this end, I offer a comparative examination of three prominent tactics of debt resistance: avoiding debt, auditing debt, and refusing debt. I explore the first tactic, avoiding debt, by analysing popular debt-free living manuals and autobiographies. I study the second tactic, auditing debt, through participant observation with a London-based activist group called Debt Resistance UK. I examine the third tactic, refusing debt, based on interviews with Strike Debt, a US movement that has used peer-to-peer debt cancellation to incite debt refusal. My central argument is that although contemporary debt resistances are marked by conventional cultural-economic imaginaries, such as financial capability, transparency, and liability, debt’s ‘ordinary democrats’ are reconstructing debt relations as a site of democratic selfhood and community in finance. In an era marked by an increasingly top-down, managerial politics of finance, I conclude, people’s resistances to debt represent important practices of civic freedom that improve the prospects for democratic financial governance.

This thesis studies the collaborative activities of two of the most prominent international organisations of the contemporary era, the International Monetary Fund (IMF) and the World Bank. Drawing on ninety-five interviews with organisational officials and other policy actors, as well as an analysis of key documents, I argue that competing normative expectations, especially from their membership, induce the Bretton Woods institutions to collaborate where necessary and remain distinctive as much as possible. However, regular collaboration tends to make organisations more similar to each other. The IMF and the World Bank resolve this challenge to their procedural legitimacy by employing symbolic actions as signals of distinctiveness while continuing inter-organisational collaboration. Symbolic reforms (and, sometimes, less costly alternatives) allow them to claim policy niches for the purpose of organisational differentiation. I develop this argument in case studies of IMF- World Bank collaboration in three areas: (1) crisis lending, (2) financial sector surveillance and (3) concessional lending and debt relief. Through the analysis of the collaborative activities between two influential international organisations, the research in this thesis contributes novel insights into the cultural underpinnings of the Bretton Woods institutions. The analysis extends constructivist accounts of international organisations by suggesting that contemporary notions of their agency are rooted in shared norms about what these organisations should do or should not do.

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The first essay considers a model in which an entrepreneur develops a technology and seeks to sell a stake of her asset for diversification purposes. In our model, output depends on both the quality of the asset and the non-contractible effort made by investors. In this case, signalling the asset type and motivating the investors are two conflicting objects. Our model shows that by applying a mechanism with endogenous commitment, entrepreneurs can achieve the second best allocation. Moreover, when the proportion of high type entrepreneurs is high, our model predicts that low-quality entrepreneurs will sell all of their shares above the fair price (overpricing) whereas the high-quality entrepreneurs may retain a fraction of their shares and sell their share below the fair price (underpricing). The second essay illustrates a model in which an entrepreneur intends to securitize her risky asset to invest in a new project. In contrast to the settings of pecking order theory, outside investors are able to acquire the type information of the asset by making an effort. This new assumption allows the entrepreneurs to signal their types by motivating the investors’ information searching behaviour. Moreover, our model also endogenizes the existence of intermediaries in the issuing process. We conclude that if intermediaries are allowed to offer a menu of contracts to the entrepreneurs, a second best allocation can be sustained as an equilibrium. The third essay considers a general model in which agents with different production technologies insure each other by entering a futures contract. However, unobservable risk exposure and strategic default of counterparty may prevent agents from fully hedging their risk. In this paper, we compare the market efficiency using two different trading mechanisms—OTC market and centralised clearinghouse. Our model shows that without any aggregate uncertainty, both mechanisms can achieve the second best allocation. Nevertheless, when aggregate uncertainty is introduced into the market, a centralised clearinghouse may dominate the OTC market by including more market participants and diversifying the risk more widely. Additionally, our model predicts that when aggregate uncertainty is extremely high, the central clearinghouse may have the incentive to provide extra liquidity to certain types of market participants for risk control purposes.

In the first essay (Chapter 2), we develop an efficient payoff function approximation approach to estimating lower and upper bounds for pricing American arithmetic average options with a large number of underlying assets. This method is particularly efficient for asset prices modeled by jump-diffusion processes with deterministic volatilities because the geometric mean is always a one-dimensional Markov process regardless of the number of underlying assets and thus is free from the curse of dimensionality. Another appealing feature of our method is that it provides an extremely efficient way to obtain tight upper bounds with no nested simulation involved as opposed to some existing duality approaches. Various numerical examples with up to 50 underlying stocks suggest that our algorithm is able to produce computationally efficient results. Chapter 3 solves portfolio choice problem in multi-dimensional jump-diffusion models designed to capture empirical features of stock prices and financial contagion effect. To obtain closed-form solution, we develop a novel general decomposition technique with which we reduce the problem into two relative simple ones: Portfolio choice in a pure-diffusion market and in a jump-diffusion market with less dimension. The latter can be reduced further to be a bunch of portfolio choice problems in one-dimensional jump-diffusion markets. By virtue of the decomposition, we obtain a semi-closed form solution for the primary optimal portfolio choice problem. Our solution provides new insights into the structure of an optimal portfolio when jumps are present in asset prices and/or their variance-covariance. In Chapter 4, we develop a estimation procedure based on Markov Chain Monte Carlo methods and aim to provide systematic ways to estimating general multivariate stochastic volatility models. In particular, this estimation technique is proved to be efficient for multivariate jump-diffusion process such as the model developed in Chapter 3 with various simulation studies. As a result, it contributes to the asset pricing literature by providing an efficient estimation technique for asset pricing models.

Product Portfolio Management is a complex strategy development process with mechanisms for evaluating market dynamics and competition; however none provide the managerial insight into competitive response required to stay one step ahead in the market. This research uses Game Theory as a tool to tackle and give perspective to a case study in the UK Motor Insurance Industry. The case study focuses on Endsleigh and Zurich Insurance products presented on aggregator websites. To enable efficient modelling the players and portfolios were reduced through competitive strategic grouping and strategy analysis. Player utilities were generated through a customer survey and manipulation of known Product Portfolio utility optimisation functions. Finally, the model was analysed to find the Nash Equilibrium using a non-linear optimisation model written with parallel quadratic programming based on a quasi-Newton technique. The Game Theory model of this highly competitive market provided valuable feedback into the market dynamics and competitive responses to product strategy decisions. When presented to the case companies it was expressed that the model provided market insights that would allow the company to preempt the market, reducing rework in product development and strategic decisions, and create a competitive advantage. Furthermore, when presented to the government regulatory body, they expressed interest in the model for the purpose of developing better regulations to control market dynamics in support of maximising market potential while protecting customer interests. Overall, the Game Theory model proved useful as a tool for evaluating the case study given the insights it provided, above and beyond alternate Product Portfolio analysis tools, into market dynamic, competitive response and customer behaviour.

Since the 1970s, Anglo-Saxon financial hegemony has enhanced international capital mobility, promoting financial disintermediation in many countries. This thesis explores why disintermediation in Japan has stalled since the mid-2000s despite its financial deregulation during the 1980s and 1990s by examining an ideational conflict within Japanese elites between the market liberalisation and anti-free market camps, particularly between the American and Japanese credit rating agencies and between the two industrial associations. I adopt a neo-Gramscian approach in tandem with sociological, psychological and philosophical concepts and emphasise the concept of ‘systemic support’ as a solution to the research puzzle. Although the original, narrow definition of systemic support is government and bank support for financially strained financial institutions and companies, its broadened definition incorporates dominant elites’ support and protection of subordinates in exchange for obedience. Since the late-1990s, many scholars have focused on the possible convergence of Japanese capitalism to Anglo-Saxon capitalism and paid insufficient attention to the persistence of social norms. In contrast, I argue that Japanese society’s anti-liberal, anti-free market norms centred on systemic support are a form of counter-hegemony, and this has resisted Anglo-Saxon financial hegemony and disintermediation and prevented capitalist dominance from severing social ties (e.g., management-labour cooperation). Japanese style stakeholder capitalism is based on a management-labour alliance against capitalists and interlocking business relationships, supported by the confederation of anti-free market elites including bureaucrats, corporate executives (who share similar characteristics to bureaucrats), and conservative politicians. Under the Hashimoto (1996-8) and Koizumi (2001-6) administrations, market liberals advocating shareholder capitalism gained influence, and systemic support weakened temporarily. However, since 2006, both anti-free market elites and subordinates (regular workers and small business owners) conflicting with the market-friendly, short-term profit seeking mental framework of Anglo-Saxon capitalism, have driven an anti-neoliberal backlash. Consequently, systemic support has resurged, but this has generated growing contradictions in Japan.