This Ph.D. thesis contains 4 essays in mathematical finance with a focus on pricing Asian option (Chapter 4), pricing futures and futures option (Chapter 5 and Chapter 6) and time dependent volatility in futures option (Chapter 7). In Chapter 4, the applicability of the Albrecher et al.(2005)'s comonotonicity approach was investigated in the context of various benchmark models for equities and com- modities. Instead of classical Levy models as in Albrecher et al.(2005), the focus is the Heston stochastic volatility model, the constant elasticity of variance (CEV) model and the Schwartz (1997) two-factor model. It is shown that the method delivers rather tight upper bounds for the prices of Asian Options in these models and as a by-product delivers super-hedging strategies which can be easily implemented. In Chapter 5, two types of three-factor models were studied to give the value of com- modities futures contracts, which allow volatility to be stochastic. Both these two models have closed-form solutions for futures contracts price. However, it is shown that Model 2 is better than Model 1 theoretically and also performs very well empiri- cally. Moreover, Model 2 can easily be implemented in practice. In comparison to the Schwartz (1997) two-factor model, it is shown that Model 2 has its unique advantages; hence, it is also a good choice to price the value of commodity futures contracts. Fur- thermore, if these two models are used at the same time, a more accurate price for commodity futures contracts can be obtained in most situations. In Chapter 6, the applicability of the asymptotic approach developed in Fouque et al.(2000b) was investigated for pricing commodity futures options in a Schwartz (1997) multi-factor model, featuring both stochastic convenience yield and stochastic volatility. It is shown that the zero-order term in the expansion coincides with the Schwartz (1997) two-factor term, with averaged volatility, and an explicit expression for the first-order correction term is provided. With empirical data from the natural gas futures market, it is also demonstrated that a significantly better calibration can be achieved by using the correction term as compared to the standard Schwartz (1997) two-factor expression, at virtually no extra effort. In Chapter 7, a new pricing formula is derived for futures options in the Schwartz (1997) two-factor model with time dependent spot volatility. The pricing formula can also be used to find the result of the time dependent spot volatility with futures options prices in the market. Furthermore, the limitations of the method that is used to find the time dependent spot volatility will be explained, and it is also shown how to make sure of its accuracy.

Banks are often excluded in corporate finance research mainly because of the regulatory concerns. Compares to non-bank firms, banks are heavily regulated due to its special economic role of money and the uncertainty. Heavy regulation on banks could reduce the information asymmetry between the managers and investor by limiting the behaviour of banks at the time of the Seasoned Equity Offering (SEO), and by increasing the incentive for banks to avoid excessive risk-taking. Therefore, the market may be less likely to assume that bank issued securities signal information that the bank is overvalued compared to their non-bank counterparts. The objective of this thesis is therefore to examine commercial banks issued securities announcement effect. Three interrelated research questions are addressed in this thesis: 1) What is the difference in convertible bond announcement effect between banks and non-banks firm? 2) What is the difference in SEO announcement effect between banks and non-banks? 3) How do the stringency levels of bank regulation impact on the announcement effects of bank issued SEO? By using the U.S. convertible bond and SEO data from 1982 to 2012, I find that the bank issued a convertible bond and SEO announcement experience higher cumulative abnormal return than non-bank. This is consistent with the view that bank regulation reveals positive information about banks. Since banks are heavily regulated, the market is less likely to assume that the issuance of the convertible bond and SEO by banks signals information that is overvalued. These results are robust after controlling for a number of firm-, issue-, and market-specific characteristics. These results are robust by considering the different categories of non-bank industries by undertaking tests in relation to the differences in the CARS upon convertible bond/ SEO across industries, as well as the unbalanced sample between banks and non-banks by using the matched sample analysis. However, the relation between the stringency level of bank regulation and bank issued securities announcement effect may be nonlinear. As hypothesised, I find that bank regulation has an inverted U-shaped relation with the announcement effect of bank SEO by using the SEO data across 21 countries from 2001 to 2012. Under a less bank regulation environment, the market reacts more positively to the bank SEO announcement for an increase in the level of bank regulation. However, the bank SEO announcement effects become more negative if the bank regulation becomes too stringent. This inverted U-shaped relationship is robust after I use the exogenous cross-country, cross-year variation in the timing of the Basel II adoption as the instrument to assess the causal impact of bank regulation on SEO announcement effects. However, the stringency of regulation does not have a significant impact on the announcement effects of involuntary bank equity issuance.

This thesis examines firms' real decisions using a large panel of unquoted euro area firms over the period 2003-2011. To this end, this thesis is composed of five chapters in which three are the main empirical chapters. They assess the dimensions of firm behaviour across different specifications. Each of these chapters provide a detailed discussion on the contribution, theoretical and empirical background as well as the panel data techniques which are implemented. Chapter 1 describes the introduction and outline of the thesis. Chapter 2 presents an empirical analysis on the link between financial pressure and firms' employment level. In this set-up, it is explored the strength of financial pressure during the financial crisis. It is also tested whether this effect has a different impact for financially constrained and unconstrained firms in the periphery and non-periphery regions. The results of this chapter denote that financial pressure exerts a negative impact on firms' employment decisions and that this effect is stronger during the crisis for financially constrained firms in the periphery. Chapter 3 analyses the cash policies of private and public firms. Controlling for firm size and other standard variables in the literature of cash holdings, empirical findings suggest that private firms hold higher cash reserves than their public counterparts indicating a greater precautionary demand for cash by the former. The relative difference between these two type of firms decreases (increases) the higher (lower) is the the level of financial pressure. The findings are robust to various model specifications and over different sub-samples. Overall, this chapter shows the relevance of firms' size. Taken together, the findings of Chapter 3 are in line with the early literature on cash holdings and contradict the recent studies, which find that the precautionary motive to hold cash is less pronounced for private firms than for public ones. Chapter 4 undertakes an investigation on the relation between firms' stocks of inventories and trade credit (i.e. extended and taken) whilst controlling for the firms' size, the characteristics of the goods transacted, the recent financial crisis and the development of the banking system. The main findings provide evidence of a trade-off between trade credit extended and firms' stock of inventories. In other words, firms' prefer to extend credit in the form of stocks to their financially constrained customers to avoid holdings costly inventories and to increase their sales levels. The provision of trade credit by the firms also depends on the characteristics of the goods transacted. This impact is stronger during the crisis. Larger and liquid banking systems reduce the trade-off between the volume of stocks of inventories and the amount sold on credit. Trade credit taken is not affected by firms' stock of inventories. Chapter 5 presents the conclusions of the thesis. It provides the main contributions, implications and future research of each empirical chapter.

This thesis examines the emergence and rise of audit quality as an object of concern from the post-war period onwards, as manifested in the discourse of regulators, practitioners and academics primarily in the US and the UK. By drawing upon Burchell et al’s (1985) notions of the arena and the constellation, this thesis seeks to investigate the changing nature of the audit quality ‘problem’ and in so doing, reconceptualises the constellation as being dynamic in nature. It puts forward the notions of the emergent constellation, when an altogether new arena becomes formulated through the emergence of a new event or object and the reformation constellation, when an existing field of operations becomes further delineated or differentiated into more distinct arenas. Central to this dynamism is the notion of linkages, and the precise nature of the linking work entailed, which connect together disparate ideas and attach these to the audit quality discourse. Together, this thesis aims to contribute to our understanding of audit quality, the interrelationship between the three arenas of regulation, practice and academia, and of accounting change. Ultimately, this thesis will show that audit quality, a topic of profound and resilient interest, should be understood primarily, and merely, as a basis through which very particular sets of historically contingent concerns and practices are articulated, and that efforts to measure and improve audit quality are fraught with difficulties. Indeed, the attempts to do so play a role in shifting the conceptualisation of the audit quality problem and are consequently, and in this sense, susceptible to continual failure. An alternate interpretation of the importance and meaning of this rise of audit quality, beyond and irrespective of the large scale failures and crises, is an alignment with the trend of economization in society.

This thesis investigates the emergence of the long-term climate target to hold the increase in global average temperature below two degrees Celsius above pre-industrial levels. This ‘two degrees target’ is shown to be the product of efforts to embed climate science, ‘cost-effective’ GHG control, and national sovereignty in a long-term climate goal, and that it became a foundation for work to align the financial sector with the transition to a lowcarbon economy. This thesis investigates how this target envisages an apparently simple and manageable future for addressing climate change, and comes to orient the strategies of diverse and distributed actors towards a common vision. The empirical core of this thesis is a participant observation of a United Nations and Greenhouse Gas Protocol standard-setting project, which is supplemented by semi-structured interviews and documentary analysis. This thesis studies four interrelated instruments, the two degrees target, the carbon budget, investment roadmaps and an emergent carbon accounting standard. It focuses on the work involved in assembling and adjusting these instruments, attending to the efforts to produce coherent and stable linkages between ideas of climate governance and the local specifics of the financial sector. This thesis shows how a carbon-constrained future with financial sector implications was envisaged. It also traces how ideas stemming from the two degrees target shifted the development of finance-specific carbon accounting practices away from greenhouse gas data and towards metrics for managing risk and monitoring alignment with investment roadmaps. This thesis, as a whole, contributes to our understanding of carbon accounting as a practice that embeds diverse modes of climate governance and coordinates action across multiple entities. It shows the processes through which an apparently simple vision for addressing climate change began to orient diverse and distributed efforts towards financing the transition to a low-carbon economy.

In this thesis, we investigate a firm's investment timing decision and choice of market entry mode under uncertainty and irreversibility. We investigate how a host country can affect the firm's investment decisions through providing investment incentives. The real options approach to valuation is applied, and three main theoretical contributions are provided in this thesis. First, we derive the optimal form of subsidy package and find that the optimal subsidy package should always compensate the firm for giving up the investment opportunity and making the investment immediately. By making a trade-off between the host country's incremental welfare benefits and the costs of the subsidy package, we obtain the optimal timing to provide it. We also examine the effects of preemption risk on the timing of investment and the value of a subsidy package. Second, we consider the timing of investment and the choice of entry modes. We evaluate the investment projects and derive the investment thresholds when the firm can choose between a joint venture (JV) and a wholly-owned subsidiary (WOS). We find that when there is no subsidy offered, the firm prefers a WOS, while the host country prefers a JV. When there are subsidies offered by the host country, we find that both the firm and the host country prefer a WOS. A JV will be preferred only if it has some distinctive welfare benefits that are not associated with a WOS, for instance knowledge transfer benefits. Last, we introduce product market competition into the problems of investment timing and choice of entry mode. We find that competition will not alter the conclusions we have obtained. The optimal mode of entry is a WOS, unless a JV has some distinctive welfare benefits that cannot be provided by a WOS.

This thesis examines three essays in earnings management using UK-based data samples. The first essay implements a first test of the debt covenant hypothesis for the UK. The results indicate that firms close to violation or in technical default of their interest coverage (debt to EBITDA) covenants engage in higher levels of RAM relative to firms far from violation. Mandatory IFRS adoption does not change the use of RAM for firms close to violation or in technical default of their interest coverage covenants. However, it increases the propensity for employing RAM for firm close to default of their debt to EBITDA covenants. The second essay examines the effect of seasoned equity offerings (SEOs) on the debt covenant hypothesis. It finds that the use of RAM to avoid the possibility of interest coverage covenant violations decreases from the pre-issue period to the post-issue period. The results also show that the decrease in the use of RAM in the post SEO period to avoid the likelihood of breaching interest coverage covenant is more pervasive among SEO firms with low market to book ratios or high financial leverage. The third and final essay investigates revenue reclassification as an earnings management tool. More specifically, it examines whether firms use revenue reclassification by shifting other revenues to core revenues. The results establish that firms engage in revenue reclassification to inflate core revenues. They indicate that the period following mandatory IFRS adoption is associated with an increase in this practice as IRFS offers more latitude for revenue reclassification. Further tests reveal that revenue reclassification is more pervasive among firms with high incentives for earnings management such as those conducting seasoned equity offerings, those in financial distress, those with acquisitions financed by share for share exchange, and those reporting low core earnings or small increases in core earnings.

This thesis contains three studies in financial economics. The first study explores the relationship between CEO compensation, bank performance and risk taking in European banks using a panel data set of 63 banks in 15 countries during 1992 to 2010. The major finding is a positive relationship between performance and compensation, but also a negative relationship between short time incentive and risk. We argue that such relationship is not causative, and bonus may not induce risk taking. The second study examines the efficient market hypothesis and forward premium puzzle using high frequency daily data from 31 countries including both developed and emerging economies during 1990 to 2013. The study provides evidence covers 9 different time horizons of forward exchange rates. We show that the predictive power of forward rates decreases in longer time horizons in a way that similar to the term structure of interest rate. The third study investigates whether financial liberalization plays a role in explaining the current crisis. Our sample consists of 12 developed countries for the period 2000 to 2013. Our results support that financial liberalization contributes to crisis, and suggest that reregulation is needed after deregulation.

These essays consider various aspects of the access to finance to micro-entrepreneurs who remain outside the purview of the banking sector primarily due to lack of collateral. An innovative way to provide access to finance - microfinance - originated from Bangladesh and has since then spread to all over the world. Evidence points to micro-enterprises earning returns well above market interest rate. It is therefore puzzling that hardly any study has found a significant impact on various development indicators for households receiving a microcredit loan. This coupled with high indebtedness and defaults by borrowers resulting in the collapse of several microfinance organizations across the world has raised questions about the fundamentals of the microcredit model and led to a rethinking of microfinance at large. In line with this, we look at an alternative model of microcredit with zero interest rate and voluntary contributions being used by Akhuwat, a microfinance organization in Pakistan. Chapter 2 has details about this organization and chapter 3 about a telephone survey of the borrowers of the organization that was conducted to collect information in addition to that in the organization database. In chapter 4, the analysis of monthly data on voluntary contributions provide evidence that the organization is rewarding borrowers for their contributions by giving them repeat loans and that borrowers are strategically timing these voluntary contributions through their loan cycles to maximize impact. In the case of joint liability loans, borrowers in poorly performing groups make on average higher voluntary contributions, and voluntary contributions in a previous loan cycle correlate with borrower discipline in a subsequent loan cycle. Thus, voluntary contributions can signal borrower quality, and joint liability borrowers appear to be using them to signal their quality independently of their group. Microcredit loans were traditionally extended to groups of people who were held jointly liable for the payments of each other. However, there is no clear evidence that joint liability does lead to better borrower performance and recent years have seen a shift towards individual liability lending. In Chapter 5, utilizing the exogenous shift from individual to joint liability lending by a microfinance organization in Pakistan, we find evidence of significant improvement in borrower discipline. We also use the exogenous variation in number of months borrowers had till the expiry of their individual liability loans at the time of the shift to study the kind of groups they formed. Using this time that borrowers had as an instrument, we find that they are more likely to form groups with people they knew from before and met weekly. The time that borrower had to form group also correlated positively with borrower discipline. Chapter 6 investigates the impact on micro-entrepreneur households of unconditional transfers in a Randomized Control Trial setting. In a situation of no commitment, it looks at the second order effects on the household of an exogenous shock to the enterprise. Even with no repayment for principal or additional interest charge, there is no significant impact on the consumption and education expenditures of these households. We focus on the demographic and labour supply response and find that households of male and female owned enterprises adjust differently. Households of male run enterprises experienced a rise in fertility while those of women saw a decline in the number of other women working in the household and thereby in overall hours worked in the household. For male run enterprise households, there appears to be no substitution away from work towards leisure as the household feels richer. We did not find evidence that the rise in fertility is a pure income effect and so it appears to be associated with different choices made by the two genders when in charge of resources.

Cross-borrowing or the ability of microentrepreneurs to borrow from different lenders simultaneously is widely perceived to lead to repayment problems and a deterioration of well-being. However, there is sparse empirical evidence to support these perceptions. Based on information gathered in Peru during 2011 and 2012 and combining qualitative and quantitative research, this study aims to contribute to the in-depth understanding of cross-borrowing from the clients’ perspective and from its causes to its impact. The qualitative study is based on semi-structured interviews with 32 clients of EDYFICAR that cross-borrowed, as well as on further interviews with management and staff, which were analysed using the grounded theory approach (Corbin and Strauss 2008). In the quantitative study, data provided by Financiera EDYFICAR (one of the country’s largest MFIs) on 550 clients was collected. The data included information on the clients’ characteristics, their EDYFICAR loans since 2006, their punctuality in repaying these loans and their cross-borrowing situation. The data was analysed using different statistical methods, including tests to compare groups or correlation analysis. The study makes the following key contributions. First, it relates cross-borrowing to the microentrepreneurs’ overall financial situation. Cross-borrowing was found to increase the complexity in the borrowers’ financial portfolios, which intensifies challenges resulting from uncertainties and vulnerability to crises. Second, the study uncovers different pathways for the impact on the repayment performance and well-being. Cross-borrowing is neither a necessary nor a sufficient condition for repayment problems, but it leads to exceedingly high indebtedness-levels. When these levels are reached, small movements in income or expenditures can lead to a financial misbalance and a negative impact on the well-being. However, for those who manage cross-borrowing well, it can be an engine for growth or greater well-being. Third, the study suggests that the effective Peruvian credit bureaus play a key role in preventing a repayment crisis.