The purpose of this research is to examine closely the impact of information technology on accounting and auditing , in particular, the computer technology on accounting and auditing in the Middle East with special emphasis on arabisation, transfer of technology and training. The use of computers and information technology is altering the way we do things. Middle East practitioners at present are experiencing a transition in contemplating the use of technology to improve their working methods. The traditional role of Arab accountants is changing. There is a great deal of demand for improved skills to cope with the increased use of technology by government agencies, private businesses and educational institutions. The improved economic conditions in the Middle East over the past decade have made it possible to acquire new technology, and at the same time made it necessary for accountants and auditors who do not have technical skills to upgrade their standards to deal with the revolution of information technology that is taking place in the West. The objective of the research is to deal with two distinct problems relating to computer technology. The first is that of existence of such technology in the Middle East. The second concerns the appropriate level of its introduction to the region. The specific objectives of this research are as follows: (a) to review the current status of computer technology worldwide and in the Middle East; (b) to outline the inadequacies of the current practice by businesses, governments, auditing firms and educational institutions; (c) to show how the region may benefit from the introduction of computer technology; and (d) to discuss the implications of such technology on the region as a whole and its impact on issues such as Arabisation, transfer of technology and training. To accomplish the desired objectives of the research, a research methodology was used and included a historical analysis and literature search and pilot study and analysis of the survey which included computer technology users, providers and consultants. The study focused on the key variables namely introducing the technology and its impact, computer hardware, computer software Arabisation and training and skills transfer.

The vast literature in finance examining the impact of takeovers on the share price of the bidder and target firms finds conclusive results for targets and inconclusive results for bidders. For both the UK and the US, previous studies show target firms to experience large positive abnormal returns at the time of the bid-announcement while bidder firm shareholders experience small abnormal gains as well as losses. Previous studies also show that approximately half the acquirers experience positive post-acquisition performance. There exists a serious gap in extant knowledge on what factors lead some acquirers to experience a positive post-acquisition performance while other acquirers experience a decline in their wealth. In this study we examine whether target firm managerial resistance to a takeover may be one factor which can affect the post-acquisition performance of acquirers. By segregating our sample of acquirers by the target firm management response to a takeover we are able to examine the post-acquisition performance of different acquirer types. This study attempts to fill the gaps in our knowledge regarding the relative performance of different acquirer types by addressing three research questions: i) what is the relative post-acquisition performance of different acquirer types? ii) what are the sources of long run post-acquisition value creation for each acquirer type? how effective are the agency monitoring mechanisms in determining the long run postacquisition performance for each acquirer type? In attempting to address the above questions we also examine a number of subsidiary issues that arise in the context of the relative post-acquisition performance of different acquirer types defined in terms of their financial profile. The subsidiary issues are: i) whether the acquirer firm size affects the long run post-acquisition performance? whether the acquirer's profile as a glamour or value stock, measured by the market to book value, affects the long run post-acquisition performance? whether the acquirer's profile as a glamour or value stock, measured by the price to earnings ratio, affects the long run post-acquisition performance? We use a sample of 547 acquirers, consisting of friendly, single hostile, multiple hostile and white knights, in takeovers completed between the period 1983 to 1995 to generate wealth gains. Wealth gains are measured in the form of abnormal returns and estimated by event study methodology using five different benchmark models (i.e. Fama and French Three Factor, market to book value, size, mean and market adjusted models). Then we use multiple regression analysis to test a range of hypothesis based on previous literature in finance with respect to our research questions. Our results show that single hostile acquirers outperform all other acquirer types in each of our three long run event windows. White knights tend to have a higher postacquisition performance than either multiple hostile and friendly acquirers. Friendly acquirers tend to have the worst post-acquisition performance compared to other acquirer types. We find differences in the impact of the sources of value creation and agency monitoring mechanisms on different acquirer types. Consistent with previous studies we find that shareholders of value acquirers (based on the PE ratio and market to book value) experience greater wealth gains than shareholders of glamour acquirers. We also find that shareholders of large acquirers tend to experience greater wealth gains than shareholders of smaller acquirers.

In this thesis, I analyse the influence of financial economic theory on financial reporting practice. This influence has manifested itself in the increasing use of economic methods introduced into practice by the publication and implementation of certain economics-based accounting standards. I provide three illustrative case studies in the areas of pensions, financial derivatives and contingent liabilities, focusing on projects by the FASB, IASC/B and the ASC/B. To explain the increase in the use of economic methods in financial reporting practice, and their pattern of emergence, I draw on the genealogical and political economy approaches. I supplement these methodologies with a theory of causality by developing a qualitative causal model. This model, which I call the Causal Constellation Model, aims to explain the success of projects to introduce economics-based standards in terms of five individually necessary and jointly sufficient conditions. These conditions relate to the economic environment, the conceptual aims of financial reporting, the legitimacy of economic methods, the absence of institutional opposition and the effectiveness of advocates on the boards of standard setting institutions. The primary sources of evidence for my research are documents published by standard setting institutions, academic research and a number of interviews with high-level individuals, many of whom were directly involved in the development of the standards in question. An unexpected finding is that interactions between different projects appear to generate sequences of change in financial reporting practice, spanning different areas of accounting and different regulatory jurisdictions. Thus, outcomes of earlier projects seem to create possibilities for later projects and shape their outcomes. In spite of the inevitable limitations of such case-study based, qualitative work, the model offers a plausible and apparently robust explanation of the overall pattern of influence of financial economics on the practice of financial reporting.

The thesis consists of three papers. Credit Rating and Competition (co-authored wth Pragyan Deb and Nelson Camanho) studies the behaviour of credit rating agencies in a competitive framework with the presence of conflicts of interest. We show that competition for market share through reputation is insufficient to discipline rating agencies in equilibrium. More importantly, our results suggest that, in most cases, competition will aggravate the lax behaviour of rating agencies, resulting in greater ratings inflation. This result has important policy implications since it suggests that enhanced competition in the ratings industry is likely to make the situation worse. Credit Default Swaps - Default Risk, Counter-party Risk and Systemic Risk examines the implications of CDS on systemic risk. I show that CDS can contribute to systemic risk in two ways: through counter-party risk and through sharing of default risks. A central clearing house, which can only reduce counter-party risk, is by no means a panacea. More importantly, excessive risk taken by one reckless institution may spread to the entire financial system via the CDS market. This could potentially explain the US government's decision to bail out AIG during the recent financial crisis. Policies requiring regulatory disclosure of CDS trades would be desirable. Investor Cash Flow and Mutual Fund Behaviour (co-authored with Zhigang Qiu) analyzes the trading incentives of mutual fund managers. In open-ended funds, investors are only willing to invest in the fund when the share price of the fund is expected to increase, i.e. the fund is expected to make profits in the future.We show that the fund manager may buy the asset even when he perceives the asset to be over-valued, given that his portfolio choices are disclosed to the investors and that he is paid a fixed fraction of the terminal value of the fund.

In this thesis, I study the effects of market power and financial constraints on arbitrage, liquidity provision, financial stability and welfare. In Chapter 1, I consider a dynamic model of imperfectly competitive arbitrage with time-varying supply. The model can explain the well-documented empirical features that (quasi)-identical assets can trade at significantly different prices; these price differences vanish slowly over time, resulting in apparently slow- moving capital; the price differences can invert over time; market depth is time-varying. I also show that entry does not necessarily correct these effects, although the mere threat of entry may improve liquidity. In Chapter 2, I introduce in the model the realistic feature that trading requires cap- ital and assume that arbitrageurs' positions must be fully collateralized, which rules out default. I compare liquidity provision, asset prices and welfare in the monopoly case to the perfect competition case studied by Gromb and Vayanos (2002). I show that relative to the competitive case, the monopoly is less efficient but also less capital-intensive, as rents captured over time allow her to build up capital. Consequently, when capital is scarce, financially-constrained competitive arbitrageurs may provide less liquidity at later stages than an unconstrained monopoly. In some cases, this increases aggregate welfare but with- out being Pareto-improving. I discuss implications for market-making via a specialist. In Chapter 3, I assume that some arbitrageurs have deeper pockets than others and allow for default. The capital-rich arbitrageurs (predators) either provide liquidity to other mar- ket participants (competitive hedgers) or engage in predatory trading against a financially- constrained peer (prey). In this strategy, predators depress the price of the asset to trigger a margin call on the prey's position and gain from her subsequent firesales. I show that the hedgers' reactions to the possibility of predation can make predatory trading cheaper, reducing the prey's staying power. In anticipation of the prey's firesales, hedgers may run on the asset, strengthening and to some extent substituting to the predators' price pressure. Further, their reaction leads to a reduction in the prey's price impact, which decreases her already limited ability to support the price and avoid a margin call. Predatory trading is likely to occur when hedgers are sufficiently risk-averse or the asset sufficiently risky.

Firms playa pivotal role in every economy. Therefore their financial standing should be of great concern to policy-makers, as this may directly affect the overall performance of the economy. Corporate finance literature however suggests that market imperfections resulting from conflicts of interest and informational asymmetries, between different economic agents, limit firms in their ability to finance investment projects. Yet, the extent to which firms are limited depends greatly on their size, ownership, exporting status, risk level and even location. In fact, many studies believe that unless by some policy directives pertaining to a particular country, foreign, exporting, large, less risky and firms in developed regions will under normal circumstances be less financially constrained than their counterparts, domestic, non-exporting, small, more risky and firms in undeveloped regions respectively. For domestic firms, some evidence exists that their financial constraints can be alleviated by the entrance of foreign firms. In this thesis, we try and incorporate as many of these determinants as possible bearing in mind data availability. As a result, in the first part of this study, we address the issue of financial constraints of foreign and domestic firms as well as crowding out effects of domestic firms in Ghana. To the best of our knowledge, no study has attempted to address this particular issue on Ghana. We then move a step higher in the second part of our study by considering this same topic in China but then looking at it using firms with different degrees of foreign ownership. Not only do we do this, but we also carry out regional analysis in this respect. All these are made possible by the quality of dataset that we use in our analyses. Again, to the best of our knowledge, no study has addressed this issue on China in this manner. In the last part of our study, we take a different tum altogether and examine mainly the sensitivities of both long-term debt and short-term debt to cash flow and collateral respectively for globally-engaged firms (foreign-owned and exporting firms) as well as firms in the coastal and non-coastal regions of China. We find very interesting results from these analyses. With regards to evidence on firm financial constraints in Ghana, we find that domestic firms are more financially constrained than foreign firms and that foreign firms' presence has no impact on domestic firms in Ghana. For the results on China, while we find no difference between the financial constraints of purely domestic firms and joint ventures, we find that wholly-foreign owned firms are less financially constrained than purely domestic firms. We however find that the presence of foreign firms help alleviate purely domestic firms from their financial constraints. For the regional analysis, estimates based on this suggest firms in the coastal region are less financially constrained than firms in the non-coastal region. Regarding the sensitivities of both short-term debt and long-term debt to cash flow and collateral, whilst we find that highly globally engaged firms have a higher sensitivity of long-term debt to cash flow than non-globally engaged firms, we find that globally engaged firms' short-term debt have a lower sensitivity to collateral than non-globally engaged firms. As for the regional analysis, our result show that both the short-term debt and long-term debts of firms in the coastal region have a higher sensitivity to collateral and cash flow respectively than the sensitivities of short-term debt and long-term debt to cash flow and collateral of firms in the non-coastal region.

The financial crisis prompted widespread interest in developing a better understanding of how market and regulatory driven capital targets affect bank behaviour. Such considerations are important to assessing the effects of shocks to banks' capital ratios on their supply of financial intermediation services to the real economy, whether those shocks originate in higher regulatory capital requirements, unexpected losses, or demands from investors or counterparties. In particular, my research is relevant to the effects of changes in capital requirements or the imposition of explicitly counter-cyclical capital requirements, as proposed by the Basel III agreement. In this thesis, I describe three related research chapters focusing on how banks' actual capital ratios and long-run capital ratio targets affect bank behaviour. The first chapter uses a unique, comprehensive database of regulatory capital requirements on all UK banks to examine their effects on capital, lending and balance sheet management behaviour in the pre-crisis period 1996-2007. We find that capital requirements that include firm-specific, time-varying add-ons set by supervisors affect banks‘ desired capital ratios and that resulting adjustments to capital and lending depend on the gap between actual and target ratios. We use these results to measure the effects of a capital regime that includes features similar to those embedded in the UK framework. Our results suggest that countercyclical capital requirements may be less effective in slowing credit activity when banks can readily satisfy them with lower-quality (lower-costing) capital elements versus higher-quality common equity. Finally, we apply a simple version of our model to a small sample of large banks in the crisis period 2007-2011 and find that balance sheet adjustments to achieve target tier 1 capital ratios focused on risk-weighted assets, and changes in tier 1 and total capital played a reduced role compared to the pre-crisis period. Given the size of the UK banking sector and the global nature of many of the largest institutions in the UK banking sector, the results have implications for the ongoing debate surrounding the design and calibration of international capital standards. The second chapter assesses the relation between bank capital ratios and lending rates for the 8 largest UK banks over the period 1998-2011. The methods differ from previous literature in that they employ a dynamic error correction specification and a unique regulatory database to disentangle long- and short-run effects. There is no long-run link in pre-crisis boom times, but a strongly negative association is revealed during the stressed conditions of 2007-11 when well-capitalised banks may have benefited from lower funding costs. Higher capital ratios also have positive short-run effects on lending rates which are sizeable during crisis times. These results imply that countercyclical variations in bank capital requirements, as envisaged by Basel III, need to be very substantial to offset the procyclical reduction in the supply of bank lending during a crisis. In the third chapter the focus moves to the United States to examine the effect of capital ratios on profitability spanning several economic cycles going back to the late 1970s. Theory suggests that this relationship is likely to be time-varying and heterogeneous across banks, depending on banks‘ actual capital ratios and how these relate to their optimal (i.e., profit-maximising) capital ratios. We employ a flexible empirical framework that allows substantial heterogeneity across banks and over time. We find that the relationship is negative for most banks in most years, but turns less negative or positive under distressed market conditions. Banks with surplus capital relative to their long-run targets have strong incentives to reduce capital ratios in all periods. Similar to the second research chapter, these results have the policy implication that counter-cyclical reductions in capital requirements during busts may not be effective since, in such conditions, banks have incentives to raise capital ratios.

The thesis provides a novel contribution to the literature of microstructural theory and discovery models. The main contributions are twofolds. First, we move from price to liquidity discovery and explicitly study the dynamic behavior of a direct measure of liquidity observed from the foreign exchange markets. We extend the framework presented by Hasbrouck (1991) and Dufour and Engle (2000) by allowing the coefficients of both liquidity and trade activity to be time dependent. We find that liquidity time is characterized by a strong stochastic component and that liquidity shocks tend to have temporary effects when transactional time is low or equivalently when trading volatility is high. We then analyze the contribution of liquidity to systemic risk and contagion and, in particular, assess the price impact of liquidity shocks. We extend the approach in Dumitru and Urga (2012) and present a co-jump testing procedure, robust to microstructural noise and spurious detection, and based on a number of combinations of univariate tests for jumps. The proposed test allows us to distinguish between transitory-permanent and endogenous-exogenous co-jumps and determine a causality effect between price and liquidity. In the empirical application, we find evidence of contemporaneous and permanent co-jumps but little signs of exogenous co-jumps between the price and the available liquidity of EUR/USD FX spot during the week from May 3 to May 7, 2010.

The following thesis contains four empirical chapters focusing on the contagion, interest rate, foreign exchange rate, and investment risk exposures of financial institutions, respectively. Chapter 1 provides an overarching view of the four empirical chapters and the main objective of the thesis. Chapter 2 examines the return and volatility spillovers among the financial sector portfolios across the global financial markets from an US investor’s perspective. The potential influence of the recent financial crisis on the return and risk interdependence among these sector portfolios has also been evaluated. Financial institutions with different characteristic and size have been examined separately as well as jointly. Chapter 3 and 4 investigate the interest rate and foreign exchange rate risk exposures of financial institutions, respectively. In chapter 3, we evaluate the impact of changes in term structure on the equity value of financial intermediaries across major economies. In chapter 4, the influences of both domestic and foreign currency fluctuations on the equity value of financial intermediaries are explored. Furthermore, we split the sample period into pre- and post-crisis period to investigate the potential impact of recent financial crisis on the interest rate and foreign exchange rate risk exposure of these financial intermediaries under examination. Chapter 5 focuses on the investment risk faced by financial institutions (mainly non-banking financial service firms, e.g. mutual funds, pension funds and hedge funds). We shed light on the economic value of correlation timing for dynamic asset allocation strategies. In order to further evaluate the influence of the rebalancing frequency on the economic value of the correlation timing, we assess the performance of the dynamic asset allocation strategy on both daily and monthly basis. Finally, chapter 6 provides the concluding remarks that summarize the thesis.

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