Chapter 1 shows how blockholder disclosure thresholds regulate market transparency and, in turn, hedge fund activism. We characterize how disclosure thresholds structure the complex interactions between (a) initial investors in a firm who value the value-enhancing disciplining effects of activism on management, but incur costs trading with activists who know their own value-enhancing potential; (b) activists value who value higher thresholds when establishing equity stakes, but incur costs if high thresholds reduce real investment or discourage managerial misbehavior; and (c) firm managers who weigh private benefits of value-reducing actions against potential punishment if activists intervene. When managerial behavior is sufficiently unresponsive to threats of activism, initial investors and society value tighter disclosure thresholds than activists whenever the costs of activism tend to be low, making the probability of activism insensitive to the level of activist trading profits. In contrast, activists value tighter thresholds when managerial behavior is responsive to potential activism. In Chapter 2 we model a novel coordination problem between the shareholders of a company receiving a takeover over. The willingness of a Board to defend itself from a takeover bid is reduced the greater the proportion of shareholders who sell-out early. Sophisticated shareholders therefore face a coordination problem; and their actions generate a novel feedback loop between the volume of shareholder sales and takeover outcomes. We use global games to derive and analyse the unique threshold- equilibrium. We show that rules which strengthen Boards' discretion to make takeover judgments, or which weaken new shareholders' voting power, encourage shareholders to sell early; and that incentives to politically pressure Boards are greatest in jurisdictions with the greatest respect for shareholder rights. Chapter 3 recognizes that firms’ debt capacity affects their ability to compete in the product market, and the competitiveness of firms in the product market determines their ability to secure debt. I model the endogenous relation between product market competition and financial constraints by characterizing a trade credit transaction where a competitive retailer has incentives to not honour the debt extended by its supplier. With linear input prices, credit rationing arises endogenously in equilibrium if competitive pressure is strong enough. I show that a financially constrained retailer faces a lower price, and it can make higher profits due to its own financial constraints. With non-linear prices, the retailer might never be constrained, even though contractual frictions affect market outcomes.

This thesis consists of three essays on how corporations and banks incentivize their CEOs and bankers to make optimal decisions under different settings. The first two essays are empirical with a focus on CEOs and corporate governance of firms that are targeted by activist hedge funds. The third essay builds a principal{agent model for a bank and its bankers in an asymmetric information setting. The first essay is co{authored with Jana Fidrmuc. We document the effect of hedge fund activism on the corporate governance of target firms via the specificc channel of CEO compensation. We find that target CEOs receive higher stock and total compensation, as compared to their peers, prior to an activist's entry. The entry of hedge fund activists results in a decline in target CEO pay to levels prevalent at matched rms. This decrease is not because target CEOs were extracting rents before activism. We show that the entry of hedge fund activists also results in a decline in the pay{for{performance sensitivity of CEO stock awards and total pay at target rms. These findings indicate that incentive compensation and monitoring by activist hedge funds act as substitutes in motivating CEOs to improve firms value. In the second essay, I analyze the role of a firm’s internal CEO-specificc corporate governance mechanisms in in influencing the decision of activist hedge funds to target that company. I find that activist hedge funds prefer to select firms that have good CEO governance mechanisms in place, prior to being targeted. My results show that prior to activists' entry, target firms CEOs receive more equity{based incentives rather than cash{based pay. Target firms do not have near{retirement CEOs who are more di cult to discipline. Activism target firms have fairly independent boards, which is at a level similar to peer rms. CEO pay at target firms before activism is also sensitive to firm performance. The third essay investigates the remuneration required by bankers to truthfully reveal the risk pro le of their asset classes, under information asymmetry, when bankers are more informed than a bank. In an adverse selection canonical model with two discrete banker types, High risk and Low risk, I find that the bank can achieve a positive separation of banker types without leaving any information rent for the banker. When moral hazard is present, and the banker has a choice to exert e ort to shift the distribution of returns, the bank leaves an information rent for the High risk banker.

The aim of this thesis was to investigate the role of television news media in maintaining cultural hegemony in the United States. The financial crisis of 2008 and 2009 was used as a window into this process. For this investigation, a qualitative frame analysis was conducted on samples of television news coverage from major moments during the financial crisis and the resulting economic recession. Additionally, peer group discussions were conducted as a window into how people who fit the social and cultural imaginary of “Middle America,” an important part of the historic bloc which forms the contemporary United States cultural hegemony, discussed the financial crisis and recession in a social context. The results found five major explanatory frames which dominated coverage of the financial crisis; strategygame frame, survivor stories, bootstraps frame, opportunity in disaster, and populism. Taken in aggregate, these frames directed attention away from the actions of the economic elite and onto either the actions of politicians or the responsibilities of non-elite individuals. Moreover, these frames deprived the information environment of information which might otherwise facilitate an understanding of the financial crisis as resulting from the actions and practices of the business elite or the economic structure. Participants in the peer group discussions seemed to echo much of the picture provided by television media, demonstrating in particular a pervasive belief in a dysfunctional American government. Overall, participants struggled to demonstrate a fundamental understanding of the financial crisis, and this hindered their ability to form and express counter-ideologies. This was in spite of pervasive, emotional expression of betrayal, dissatisfaction and economic vulnerability. Overall, it is concluded that television news media functions as a hegemonic apparatus due to its practices producing frames and narratives which obscure the role of the capitalist classes even in the event of an economic crisis.

This thesis consists of three essays examining different aspects relevant to the banking sectors of developing economies. The first two essays focus on Emerging Europe a region with one of the highest foreign bank presence in the world - to study the impact of foreign bank ownership and bank organizational structure on the cost of financial intermediation and terms of loan contracts. The last essay focuses on Kenya which is home to M-Pesa the mobile-phone based money trans-fer and financing service initially launched in Kenya in 2007 and subsequently in other emerging countries such as Albania, Romania, India, Egypt and several other African countries - to examine its impact on the performance and outreach of commercial banks. The first essay investigates the impact of foreign bank entry, home and host country conditions on net interest margins (NIMs), using a newly collected panel dataset with ownership information for 265 banks operating in nine Southeast European countries over the period 1995 2011. As the banking sector of many emerging markets and in particular the European transition economies have been dominated by foreign banks understanding the impact of such reforms on host country banking sectors is important for designing supportive policies. We do not find evidence of foreign bank entry having a beneficial effect for host countries in terms of reducing the cost of financial intermediation in the long run, as foreign banks change their behaviour over time. We show that foreign banks have initially lower NIMs compared to domestic banks, however this effect weakens the larger the foreign presence and the more established foreign banks become. We find that home country regulation and supervision have an effect on bank behaviour, with foreign banks coming from countries with stricter regulation having higher NIMs in host countries. The second essay studies the impact of institutions on bank organizational hierarchy. Studying the internal organizational structure of banks is important as it determines the type of information acquired and used in lending decisions and consequently the type of borrowers banks lend to. This is important not only for bank's loan portfolio composition and their financial soundness but also for borrower's ability to access funds on favourable terms and the overall financial system stability and economic development. Using a unique bank-level survey dataset covering 32 countries and 611 banks, we introduce a new and direct measure of organizational hierarchy and exploit the distinctive feature of multi-national banks which face different institutional environments in the countries they operate. We find that the same parent bank is more likely to grant decision-making authority to its foreign affiliates operating in countries with stronger institutions compared to those operating in weaker institutional environments. Combining the bank- with firm-level data we further find that a strong institutional environment which favours a decentralized organizational structure leads to better lending terms to SMEs decentralized banks grant loans with longer maturities, lower interest rates and are less likely to require collateral compared to their centralized counterparts. These findings further our understanding of bank organizational structure as a channel through which law affects lending. In the last essay we use the advent of the mobile money innovation in Kenya in 2007 as an interesting laboratory to investigate the impact of a financial innovation on the performance and outreach of commercial banks. Providing more insights about this link is important as it helps inform the debate among policy-makers and regulators on the impact of a non-traditional source of competition on the service provision of formal financial institutions. Given that financial inclusion is a major problem in developing countries, detailed micro-level evidence on this issue is important for promoting household welfare. Combining the 2006, 2009 and 2013 FinAccess household surveys with bank financial statement and branch penetration data at the county level we find that banks more exposed to the competitive pressure induced by the mobile money innovation improved their performance and expanded their outreach towards households traditionally excluded by formal financial institutions. Additional results further show that households report less supply side barriers to financial access in counties more exposed to the advent of the mobile money innovation. These results highlight the importance of increasing the contestability of banking markets in order to promote financial inclusion and a more competitive banking sector.

This thesis is divided into three chapters, each dealing with a different aspect of market incompleteness and its consequences on quadratic hedging strategies and hedging errors. The first chapter studies the effects of market incompleteness due to discrete time trading. We derive the asymptotics (in trading frequency) of the quadratic hedging error of a digital option and obtain a correction to the classical granularity formula, showing that for discontinuous payoffs, the second order term driven by the Cash Gamma remains highly significant. We also show that the discrete-time quadratic hedging strategy generates the same asymptotic error as a continuous-time Black-Scholes delta-hedging strategy used on a discrete set of times. The second chapter studies the effects of market incompleteness due to jumps in cases when the discretization error from Chapter 1 is predictable. We compute the hedging error under an exponential L´evy model for a general ’L´evy contract’ that encompasses log contracts, variance swaps and higher order moment swaps. We compare two utility-based pricing approaches for incomplete markets: quadratic hedging (corresponding to quadratic utility) and exponential utility. We show that for small jumps, numerically difficult exponential utility results are well-estimated via closedform quadratic hedging formulas. We use our results on hedging errors to obtain 'good-deal bounds' for variance and skewness swaps. The third chapter studies the effects of market incompleteness due to uncertainty in the exact specification of the data generating process. We conduct quadratic hedging under a regime-switching L´evy model, which switches between a finite set of distributions based on the value of a (hidden) state variable. We solve the quadratic hedging problem in two steps. First we compute a stochastic differential equation for the filtered estimate of the hidden state. We then use it to solve the quadratic hedging problem with this additional observable variable via classic techniques. We provide Fourier Transform formulas for the mean-value process and hedging strategy, and a recursive scheme for the hedging error.

Japan is one of the largest importers of different types of energy commodities in the world due to the lack of domestic energy resources. Tokyo Commodity Exchange (TOCOM) plays an important role for participants in the energy markets in Japan, since it is one of the main commodity exchanges for energy futures. However, majority of studies on energy futures focus on NYMEX and ICE prices and there seems to be no systematic studies on TOCOM energy futures. Hence, we consider investigating the dynamics and the behaviour of TOCOM energy futures and its market microstructure. We study three most liquid energy futures contracts in TOCOM, namely gasoline, kerosene and crude oil, over six consecutive months with the aim to address three main questions. First, we analyse the dynamics of energy futures contracts by modelling the realised volatility with consideration of high- and low-volatility regimes. The in-sample results support that volatility of TOCOM energy futures is regime-dependent, while the results of out-of-sample are mixed. Next, we set up a framework to analyse the behaviour of TOCOM energy futures contracts by investigating the relation between trading volume and price volatility under different market conditions defined by the shape/slope of forward curve. Both contemporaneous and lead-lag relation between trading volume and volatility are found significantly positive, while the latter is weaker. The asymmetric effect of market conditions is different from commodities due to the use of underlying commodities. Kerosene futures participants are more sensitive when market is in contango while crude oil futures participants are more sensitive in backwardation. Finally, we study the market microstructure of TOCOM by analysing the determinants of bid-ask spread components, and examine the asymmetric impact of sell-initiated and negative-return trading volume on bid-ask spread. It is evident that trading volume and volatility are two important determinants of BAS, and sell-initiated transactions seem to happen with higher BAS. The findings of this thesis provide useful implications for risk management and trading strategy by offering dynamics of volatility and insights of market microstructure.

This thesis comprises three essays on Mergers and Acquisitions. In the first chapter I use an international sample of M&A deals to test the implications of the clientele theory of dividends in the context of post-acquisition dividend policy. I contribute to the literature by controlling for the effect of the target’s shareholder characteristics and the gap between target and bidder pre-acquisition dividend policies on post-M&A dividend policy. In line with the clientele theory of dividends, this chapter demonstrates that, in all stock payment deals, post-acquisition dividends per share increase with the pre-acquisition percentage difference between target and acquirer DPS and with the size of the dividend clientele from the target company which becomes part of the bidder’s shareholder base. The second chapter tests how informed investors with local expertise can affect cross-border deal success using a comprehensive dataset of corporate acquirers’ share registers. We present evidence which confirms the hypothesis that acquirers in cross-border corporate transactions are more likely to be successful if the acquirer’s investors have a higher level of expertise in the target region, and that this effect is strongest when the maturity for corporate transactions of the target country is low. The third chapter contributes to the literature by investigating the wealth effects of horizontal acquisitions on the upstream and downstream participants in the product-market chain when the target company is in financial distress. This chapter posits that the financial health of the target is particularly relevant when considering the buyer power of the merging firms. Specifically, I hypothesise that industry-related acquisitions are more likely to increase the buyer power of the merging companies when the target is financially distressed due to the debtor-oriented insolvency rules in the US which allow bankrupt companies to renegotiate supplier contracts. The results of the study support this a priori expectation.

This Thesis contributes to the study of the links between expectations, fundamentals, and asset returns using the rich empirical setup offered by commodity markets. The three Chapters, constituting this work, analyse empirically how expectations are formed and what are the implications of departures from perfect rational expectations on returns predictability. Monte- Carlo experiments are also used to rationalise and to give an economic interpretation to the empirical findings. In the First chapter, we show that survey-based expectations of returns are strongly correlated with past price variations, but not with fundamentals and can be largely explained by time-series momentum and value factors. Furthermore, we find that expectations have positive, but not significant correlation with future realised returns, which implies little predictive power. Using a Monte-Carlo experiment, we show that both results can also be generated by rational individuals provided the existence of extrapolative momentum traders and little predictability of fundamentals. Finally, our analysis also suggests that survey-based expectations can have a crucial role to understand better the dynamics of trading flows and the drivers of the option implied volatility risk premium. In the second Chapter, we investigate the dynamics of the ex-ante risk premia for different commodities and maturities through the lens of a model of rational learning in which expected future spot prices are revised in line with past prediction errors and changes in aggregate economic growth. The main results show that time-varying risk premia are predominantly driven by market activity and financial risks. More generally, we provide evidence of heterogeneity in the dynamics of factor loadings, both across commodities and time horizons. Finally, we show that the model-implied expectations are consistent with the cross-sectional average of Bloomberg professional analysts’ forecasts. In the third Chapter, we exploit the peculiarities of commodity markets to show that fundamental news about global growth is reflected into prices, but not instantaneously. News on economic activity can be filtered in real-time from commodity prices, but such news takes several months before being fully incorporated into prices, leading to returns predictability. Coherently with the theories of overreaction and underreaction to news, we show using simulated data that the results obtained can be explained by the existence of latecomers, who process information with a delay, and momentum traders.

This thesis includes three essays investigating different aspects of financial intermediation. Chapter 1 examines the impact of banks’ collective liquidity mismatch policies on the stability of the financial sector. Using a novel identification strategy exploiting the presence of partially overlapping peer groups, I show that the liquidity created by individual banks is driven by the liquidity transformation activity of their peers. These correlated liquidity mismatch decisions are asymmetric and concentrated on the asset-side component of liquidity creation. Importantly, this strategic behavior increases both the default risk of individual institutions and overall systemic risk. From a macroprudential perspective, the results highlight the importance of explicitly regulating systemic liquidity risk. Chapter 2 analyzes the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major Portuguese bank and subsequent resolution. Using a matched firm-bank dataset on credit exposures and interest rates, we show that while banks more exposed to the bail-in significantly reduced credit supply at the intensive margin, affected firms compensated the tightening of overall credit with other sources of funding. Nevertheless, SMEs were subject to a binding contraction of funds available through credit lines and reduced investment and employment. These dampening effects are explained by the pre-shock internal liquidity position of smaller firms. Finally, Chapter 3 examines the impact of a nationwide banking expansion program on access to finance as well as first-time borrowers’ transition from microfinance institutions to the formal banking sector using microdata on the universe of loans to individuals from a developing country. We show that the program increased the likelihood of obtaining credit, particularly in areas with lower financial and economic development. The overall effect is driven by the newly set-up microfinance institutions (U-SACCOs), which grant loans to unbanked individuals and allow them to build credit history. Loan size increases and loan terms improve as the bank-borrower relationship matures, but these effects are weaker for U-SACCOs than for banks. Consistent with this evidence, a significant share of first-time borrowers switch to commercial banks, which cream-skim less risky borrowers from U-SACCOs after the program implementation and grant them cheaper, larger, and longer-term loans. These borrowers are not riskier and only initially receive smaller loans than similar individuals already in the formal banking sector. These results suggest that the microfinance sector, together with a credit reference bureau, plays an essential role in mitigating information frictions in credit markets.

This thesis contributes to the emerging literature that investigates the drivers of liquidity commonality in equity markets. Our main contribution is three- fold. First, we propose a new method to estimate liquidity commonality in equity markets to explore both supply-side (funding liquidity of intermediaries) and demand-side (trading behaviour of investors) determinants of its dynamics. The empirical analysis uses weekly data on 1909 stocks from the US, Japan, the UK and Euro zone countries, from January 2000 to January 2017. Second, we propose high-frequency quoting (HFQ), an activity carried out by high-frequency traders (HFT), as a new supply-side explanation of high-frequency liquidity commonality. Using the upgrade of the London Stock Exchange (LSE) trading system as an exogenous shock, we find that an increase in HFQ leads to an increase in liquidity commonality. Furthermore, we analyse the intraday patterns in high-frequency liquidity provision in relation to other microstructure variables, using tick-by-tick data for the FTSE100 stocks listed on the LSE, from September 2010 to July 2011. Finally, motivated by the crucial role of factor models in our research, we propose a two-level factor model with time-varying loadings that captures financial, global and regional risk in stock returns. We use it to investigate the dynamics of systematic risk in a large portfolio of firms from 54 countries, from January 2006 to January 2016.