We study the behaviour of banking intermediaries focusing on the joint relationships among risk management, fragility and the market structure. Theoretically, we use the industrial organisation approach to analyse the relationships between banking behaviour and risk management goals and between banking behaviour and regulation effects. We develop and calibrate models to study the monopolistic competition effects on banking stability and to study the effects of asset and liability uncertainty on banking decisions. We extend such analyses to study the effects caused by portfolio restrictions and deposit interest-rate regulations on banking behaviour. Empirically, we characterise the financial and banking stylised facts associated to stable and unstable banking systems. Furthermore, we assess among competing theories and policy views regarding the relationships between banking stability and management practices, and between fragility and banking market structure. The empirical study relies on OLS regressions and random effects logit models for panel data. The dataset includes data for a sample of 47 countries during the period 1990-1997. Theoretically, we show that the optimal risk management asset allocation for banking firms depends on the banking market structure. We also show that the maximisation of long-term profits and the minimisation of financial distress are complementary and compatible management objectives. Furthermore, our findings suggest that the achievement of banking and regulatory goals may depend on the degree of competition in the banking market. Moreover, they also suggest that interest-rate instruments may be better than asset portfolio restrictions as regulatory devices. Empirically, our findings suggest that financial development is associated with market-based financial systems and non-competitive banking systems. We also provide evidence that banking competition enhances fragility. Furthermore, the analyses reject the bank-based policy view regarding the relationship between financial system and banking stability. Hence, the use of derivatives and cross-sectional risk sharing techniques might encourage stability.

This thesis examines the relevance of the western capital structure theories – the static trade-off theory and the pecking order model - in providing plausible explanation of Malaysian corporate financing decisions from 1991 to 2000. To achieve this objective, the empirical analyses have been divided into three parts: (1) the first analysis examines the determinants of capital structure based on the Malaysian proposed factors and the theory-related attributes. (2) The second part tests the static trade-off theory (via target-adjustment model) and the pecking order model, separately and jointly, in seeking the applicability of the theory descriptions. (3) The final analysis evaluates the performance of the developed models when judged on explanatory power. The empirical analyses of the thesis adapt Shyam-Sunder and Myers' (1999) model specifications and the subsequent criticisms by Chirinko and Singha (2000), with several revisions and adjustments to fit our enquiry. Descriptive exploration on the data finds six distinct financing patterns, which range from 'no-leverage' financing to 'all-leverage' financing. When these patterns are descriptively linked to the theoretical predictions, it seems that both the static trade-off and the pecking order models do have some relevance in providing overall description of Malaysian firms' financing behaviour. These preliminary inferences are empirically tested using a panel data framework. The results suggest strong association between industry and firms' financing decisions, even if there are possibilities that some results may not show the significant relation. For other capital structure determinants, the findings support the general claim that most leverage-related factors identified in the developed economy also apply to other countries as well, despite institutional differences. The findings also indicate that the descriptions of both models are relevant in explaining firms' financing decisions. In addition, the findings embrace the semi-strong assumption of the pecking order model, and the negative relation between past profitability and changes in debt level. To test the power of the developed models, the model specifications are fitted to several hypothetical financing series. The fitted tests conclude that the stronger performance of the pecking order model than in the target-adjustment model, as claimed by Shyam-Sunder and Myers (1999), is a limited view. The results show that the pecking order model has generated a false fit (cc) when it incorrectly fits the target-adjustment series just as well as its own pecking order series. On the other hand, the tests have demonstrated the power of the target-adjustment model. The procedure in generating the series, the underlying assumption of the pecking order model, the subjective proxies for leverage predictors and the different background of the sample may be the plausible contributing factors to these findings. Based on descriptive exploration and panel data study, this thesis concludes that the descriptions of both the static trade-off theory and the pecking order model are consistent with Malaysian firms' financing decisions. However, the answer to which model can better describe firms' financing behaviour remains inconclusive.

It is argued that the banking crisis in Chile had its origin in the deterioration of key macroeconomic variables and that financial liberalisation played a secondary role. Proponents contend that no financial system can be expected to withstand a fall in output of nearly 15% in 1982 and they draw parallels here with the banking crisis of the 1930’s in the US. On the other side, it is argued that the ability of the financial system to withstand any macroeconomic shock have been shaped by the financial liberalisation which took place in the years before the collapse of the macroeconomy. Conduct derived from ownership concentration and “related portfolios”, sharp deregulation on interest rates, belief in an implicit bail-out provision, and the ineffective and inadequate prudential regulation led to pervasive banking structure and a pattern of behaviour marked by moral hazard. As a result, banks exhibited excessive risk taking with a deterioration of banks’ financial position. Only the prompt rescue by the Central Bank of leading financial institutions averted a massive loss of confidence and a bank run. This thesis examines the evolution of the Chilean financial system during the period of economic reforms and banking failures. Three specific questions are examined and evaluated empirically: How important was the adverse macroeconomic environment relative to the banking conduct and management which exhibited considerable moral hazard and adverse selection type of behavior in the banking failures in Chile? Secondly, in what ways might a more favourable general economic conditions and/or a more effective prudential regulation have helped to reduce the likelihood of bank failures? Finally, might some of the bank failures been anticipated years before the crisis by an early warning system? In order to answer these questions this thesis develops a logit model for cross-section and panel data with information from banks' balance sheets to estimate the probability of bank failure/problem for the period between 1979 and 1983.

Re-investment is vital to the business angel "industry" because re-investing angels endorse a greater number of entrepreneurs and invest more funds than non-reinvesting angels. In this exploratory empirical analysis, the appraisal qualities of business angels are examined relative to their impact on producing successful investments as well as their impact upon re-investment. The three appraisal qualities investigated are business angels' motivations, their deal generation behaviours and the cognitive heuristics of overconfidence and representativeness. The analysis is based on the information model of the existence of the formal venture capital industry. A typology of business angels is introduced based on 1) their intentions to re-invest and 2) their exit status at re-investment. Business angels who have re-invested are classified as habitual angels. A novel data set reveals information about angels' first to fourth investments that allows for comparability between novice and habitual angels' first investments. The data set is randomly sampled from a known population of newly incorporated firms on the east coast of Canada producing a more representative sample than other business angel studies. Six in-depth case studies add to the findings. The findings indicate that financial motivations, intermediated deal generation and under-confidence are associated with financially successful informal venture capital investments. However, compared to novice angels, the representative sample of habitual angels eschew financial motivations and intermediation, and are characterised by overconfidence at the level of their first investment. Habitual angels demonstrate some qualities that indicate they learn with subsequent investments. Implications for policy makers, business angels and entrepreneurs are included.

This study aims to analyse the behaviour of the real exchange rate, to identify the degree of misalignment of the real exchange rate and to investigate its effect on the trade performance in Turkey. Initially the alternative definitions and measurement of the real exchange rate are reviewed. The real exchange rate is defined in terms of relative prices of tradable to nontradable goods. The approaches to modelling the equilibrium real exchange rate are classified as the Purchasing Power Parity models and the relative prices models. Following the latter approach, a structural model is established and then estimated empirically by two alternative cointegration techniques: The Engle and Granger method and the Johansen method. The two methods produce similar results; the real wealth of the private sector, real government expenditures on nontradable goods, external terms of trade and openness of the economy (or alternatively import tariff rate) are identified as the main determinants (fundamentals) of the Turkish equilibrium real exchange rate. Subsequently, an error correction model is estimated to investigate the short-run effects of these factors. The second aim of this study is to measure the degree of misalignment, which is defined as persistent departures of the actual real exchange rate from its equilibrium value. Using the estimates of the cointegration analysis, an equilibrium real exchange rate series is calculated for the sustainable values of the fundamentals, which are approximated by the permanent components of the series, obtained by the Beveridge-Nelson decomposition technique. Then, this is compared with the actual rates in order to construct a misalignment series. The graphical analysis indicates that the misalignment is mainly caused by the policy-induced changes in the actual rates. Finally, the impact of misalignment on the Turkish trade balance is analysed empirically. The results indicate that the trade balance is responsive to the misalignment of the real exchange rate as well as the cyclical government demand for tradable goods. However, the impact of the real wealth is not significant.

Financial intermediation has been associated with several risks. We study sunspot panics, information-based bank runs, contagion, uncertainty about consumption time preference, twin crises and a number of policies attempting to resolve these issues. We offer a basic model where sunspot panics and information-based bank runs co-exist. This framework can be used to evaluate a number of policies. We examine closely the policy of suspension of deposit convertibility and observe a trade-off regarding its implementation. Although suspension eliminates sunspot panics, it presents important drawbacks in an environment vulnerable to information-based bank runs, thus generating a dilemma for policy makers. It removes the advantage of discretionary liquidation of long-term technologies when portfolio returns are expected to be extremely low, and eliminates the signalling property of suspension that continuation of investment is beneficial, which can mitigate the spread of contagion. We offer an alternative solution, with discretionary rules accounting for every possible state of the economy. Studying uncertainty about consumption time preference, we demonstrate that partial suspension is welfare improving on the outcome of full suspension. Nevertheless, in the absence of limitations preventing the formation or the efficient operation of an inter-bank market, borrowing and lending among intermediaries will be the optimal solution. In demonstrating this, we make sure we respect the sequential service constraint that necessitates redemption obligations to be honoured in a first-come first-served basis. Opening up the economy, by the addition of a foreign exchange market and by assuming a fixed exchange rate regime, we study the possibility of twin crises. We abstract from foreign capital as the source of instability and focus on the role of domestic depositors. Speculative opportunities in the currency markets can result in banking crises, while banking crises can lead to betting against the exchange rate regime. Suspension of convertibility can limit funds for speculation, but at the expense of depositors' welfare, thus raising a dilemma for policy makers.

This thesis is concerned with an examination of consumer purchases of life insurance. The problem is tackled in three main areas: first a theoretical examination of consumption, saving and bequest, based on the Yaari 'life-cycle' model of lifetime consumption. Secondly an analysis is developed to split new premium income into its two components: new savings and payments for protection against the financial effects of premature death. This analysis is then applied to the UK new business ordinary non-group renewable premium in order to derive figures for aggregate expenditure on savings-based and protection-based life insurance for the years 1946 to 1968. Thirdly, econometric techniques are applied to the aggregate data to explain the demand for both new and in force life insurance business: a study of the former is based on a single Demand and Supply model for new business (using the Two Stage Least Squares method); the analysis of contracts in force is undertaken by examining their Surrender Rates. The major concern of this thesis is to differentiate between the savings and protection elements of life insurance. The results in later chapters show that the demand for these elements is determined by different explanatory factors although some variables (notably permanent income) strongly influence both elements. Notably, Demand (in the form of premium expenditure) is not affected by market price in either the savings-based or the protection-based case (although the same cannot be said for supply). Attention is given to the role of inflationary expectations in the purchase of life insurance. Though the period under study was one of comparatively mild inflation, expectations are found to have a negative effect both on Demand and Supply and Surrender Rates: interesting conclusions can thus be drawn about the structure of long-term inflationary expectations.

This thesis is a collection of four essays with main focus on testing for a unit root under structural change, and on the behaviour of power-enhancing unit root tests that have recently emerged as a solution to the well-known power deficiency of traditional such tests. New tests and variants of commonly applied ones are introduced in response to the need for reliable statistical techniques in modelling economic series over time. The first essay explores the possibility that a time series may change structure from trend-stationarity to difference-stationarity, or vice versa as has been recognised by economists for several years. Taking difference-stationarity as the null hypothesis, tests are developed for this possibility, where neither the location nor direction of any possible change under the alternative hypothesis need be specified. Application of these tests to series on consumer price inflation in the G7 countries reveals evidence of a change from trend-stationarity to difference-stationarity in the majority of these countries. In the second essay we apply two elaboration principles of standard unit root tests in the more flexible setting of testing for a unit root against the alternative of stationarity around a smooth transition in linear trend. In comparison to the standard case, the modified tests within this context generate only moderate additional power, a phenomenon which appears to be related to the elaborate nature of the trend function under the alternative. An empirical application of the modified smooth transition tests to common macroeconomic time series in the US economy leads to stronger evidence in favour of the smooth transition alternative than do the unmodified tests. In the third essay we show that more powerful variants of commonly applied unit root tests to panel data, seeking mean or trend reversion, are readily available. Moreover, power gains persist when the modifications are applied to bootstrap procedures that may be employed when cross-correlation of a rather general sort among individual panel members is suspected. That such an approach can strongly influence inference is demonstrated through an application to a panel of real exchange rates against the US dollar. The final essay explores the behaviour of the power-enhancing unit root test most widely applied in the empirical literature. The principle issue is that such a test can have very low power for certain parameter configurations and sample sizes relative to conventional unit root tests. A theoretical attempt is made to identify these unsatisfactory cases relying on local to unity asymptotics, through investigation of the relative efficiencies in the case of an unknown mean. Extensive Monte Carlo results highlight the shortcomings of such a test under higher order autoregressive processes and indicate preference for its existing rivals.

This is an analysis of the investment behaviour of Turkish firms at the aggregate and sectoral levels. Despite the growing literature of empirical private investment studies, a theory-based approach to modelling investment is rare both for developing countries in general and for Turkey in particular. One of the most commonly used modelling strategies is to adapt the main elements of the neoclassical accelerator model subject to additional structural modifications for a developing country. However, many of these studies are eclectic in the sense that they are not based on any specification of the microeconomic optimisation problem of firms. The central purpose of the thesis is to develop econometrically estimateable investment functions based on a sound microeconomic framework. This study theoretically examines both the investment behaviour of firms and the role of financial decisions in investment behaviour in earlier chapters. Subsequent empirical chapters are built upon the main findings of the theoretical chapters, and accommodate three empirical models, all of which originate from an explicit optimisation problem of a representative firm. The first empirical model is derived from the cost minimisation of the firm subject to a given level of demand in the output market and two alternative production technology assumptions (namely putty-putty and putty-clay assumptions). The second model recognises the presence of adjustment costs of the capital stock, and develops an error-correction representation of an investment model from an quadratic cost function minimisation. These first two models analyse the roles of the neoclassical determinants of investment (the accelerator and the relative cost of capital) and credit constraints resulting from imperfections in capital markets in Turkey. However, the inclusion of the financial variable is less sound in these two models. The significance of capital market imperfections in the forms of a rising cost schedule of borrowing and quantitative constraints is the subjects of the third model. A dynamic model is developed through a maximisation of the intertemporal discounted cash flow of a representative firm subject to capital market imperfections, borrowing constraints and capital adjustment costs. An Euler equation for the rate of capital accumulation is derived by re-arranging the first-order condition for capital, which is influenced by the binding borrowing constraint through an unobservable shadow price. These three models are applied to annual aggregate and sectoral data from Turkey. The empirical findings of this thesis suggest that fiscal and monetary policies influence investment behaviour both via the relative cost of capital and via credit availability to the private sector in Turkey. In particular, the empirical results imply that a high interest rate policy in an imperfect capital market imposing extra cost on the market rate through the risk premium may have discouraging effects on investment decisions either through its impact on the user cost of capital or through the risk premium component of cost of borrowing as in the third model. However, high interest rate policies may also affect credit availability as postulated in the McKinnon-Shaw hypothesis.

This research attempts to increase the academic understanding as well as the managerial practices of the financial services marketing positioning in the crossnational field. In order to achieve this objective the research developed a conceptual framework of the small business' bank selection criteria and tested it on the small business banks' customers in two culturally different countries (Egypt and UK). This proposed framework was developed based on deduction, derived from the literature on positioning, branding and selection criteria, and induction, derived from two waves of exploratory pilot interviews in both countries. The research is divided into three main parts. The first part introduces the literature review, where the issues of positioning, branding and bank selection criteria were emphasised, ending with developing the proposed framework for small business' bank selection criteria. The second part deals with the empirical study, where the research design was explained and justified, the research hypotheses were developed, a multiface comparison between Egypt and the UK was presented, and finally the methodology adapted in this research was explained. This depends on the "mixed methods approach, dominant-less dominant design", i.e. depending on the qualitative methodology (in-depth interviews) in developing the "derived Etics view" as well as the research hypotheses, while the main part of the research is depending on quantitative methodology (sample survey based on structured questionnaire in both countries). The third part presents the data analysis in three chapters, while the first one deals with the descriptive and methodological issues, the second and third present the findings and the hypotheses testing results. The main results of this research emphasis that the bank selection decision could be better understood by the suggested conceptual framework. There are a lot of interfaces between the segmentation, positioning, branding, service quality, interactions, pre- and post purchase criteria, and a lot of integrated work is needed in order to gain a competitive advantage. Finally in general similar marketing positioning strategies could be adopted in the two studied countries on the banks' small business customers, as similar clusters of small business customers were identified. The adopted positioning strategy needs some minor adaptations in each country in order to get the desired objectives and work more effectively.