This thesis examines different factors that affect risk and return of equities of Chinese firms engaging in international trades through three studies. The first study investigates the sensitivity of exchange rate fluctuations to firm returns through exchange rate exposure. We improve methodologies employing in existing studies by constructing a firm-specific exchange rate index based on destination-specific export and import values. The empirical results show that our improvement can detect more percentage of firms showing significant exchange rate exposure than conventional approaches and that higher proportion of Chinese firms are exposed to exchange rate when the exchange rate regime is changed from fixed to managed float. The second study decomposes risk premium of Chinese exporting firms by their export destinations to assess if return from exporting to each country is well rewarded for the risk taken, that is, having a positive risk premium. Risk premium of firms is assumed to be influenced by risk premium from a domestic market, risk premium contributions from current export destination countries and from potential export destination countries. Our methodology of risk premium decomposition takes into account the time-varying nature of risk factors of exports. The empirical results reveal that trading in a domestic market provides positive risk premium while current and potential exports can provide positive or negative risk premia depending on destination countries. The last study explores volatility spillovers to Chinese stocks over trade, exchange rate and stock market liberalization events in China. We investigate volatility spillovers from the major stock markets in the US, the UK and Japan to Chinese stocks. Besides, we also breakdown Chinese stocks by portfolios of exporting, domestic manufacturing and domestic services firms to investigate both volatility spillovers from foreign stock markets and volatility spillovers across portfolios. The stock return volatility of one variable is decomposed into its own volatility and volatility spillovers from others. The empirical results show that the nature and extent of volatility spillovers to Chinese stocks vary across economic liberalization episodes. Moreover, the main contributor of volatility spillovers from foreign markets is the US stock market. Nonetheless, in all events, the major source of volatility for Chinese stocks is mainly from shocks in Chinese market rather than shocks in international stock markets.

This thesis contributes to the literature on corporate cash holdings. The aim of the thesis is to shed light on the precautionary and agency motives of Indian firms’ cash holdings in their transition to integrating with the world economy. Three elements of India’s capital market transitioning phase are empirically investigated with respect to firms’ cash holdings and related financial policies. The first chapter of the thesis is concerned with the increasing presence of foreign institutional investors in Indian capital markets. It investigates whether and how foreign institutional ownership restricts the ability of corporate insiders to derive private benefits from firms’ cash holdings. This work contributes to the literature which studies corporate governance advancements in emerging markets. The second chapter of the thesis examines Indian firms’ sources of funds conducive to cash holdings. It investigates to what extent firms issue outside finance in order to save proceeds as cash. This work contributes to the literature which studies firms’ liquidity management under uncertain financing conditions. The final chapter of the thesis examines India’s capital market institutions. It investigates whether and how deepening domestic capital markets can relieve firm-level financial constraints. This work contributes to the literature which studies firm investment and growth in the context of developing market institutions. Collectively, these chapters examine the evolution of firm-level outcomes, including cash holdings, investment and firm values in the context of an emerging economy undergoing significant changes in its institutional architecture.

This Thesis is a both timely and warranted examination of ‘risk management behaviour’ in Greek banking inter-linking cost efficiencies with loan loss provisioning practices during 2005 to 2012. Firstly, utilising Stochastic Frontier Analysis, we construct numerous cost efficiency frontiers and examine the evolution of cost efficiency in the banking system. Secondly, we investigate the risk management behaviour and the dominant loan loss provisioning practises in the domestic banking sector. These include capital management, efficiency hypotheses and the cyclicality of loan loss provisioning. Finally, we investigate the evolution of non-performing loans and if they are Granger caused by bad management or cost skimping within our construct of risk management behaviour. During 2005 to 2012 the ‘four core’ banks record strong performances and operate at higher levels of cost efficiency than their domestic competitors. This gap was reduced after the 2008 and 2010 financial crises, thus indicating an adverse impact due to the Private Sector Involvement. Overall, despite the so called bond haircut, the Greek banking system still recorded a strong performance where many banks operated close to the optimal efficiency levels, despite the ongoing deepening economic recession. In addition risk bank management behaviour presents loan loss provisioning practices that are counter cyclical to the Greek business cycle. These results suggest that banks have engaged in capital adjustment via their loan loss provisioning resources. In addition, we present evidence to support that low cost efficient banks reported higher levels of loan loss provisioning indicating difficulties in raising additional external capital. Finally, with respect to the development of non-performing loans we present evidence of cost skimping and little support concerning moral hazard in Greek bank risk management behaviour.

This dissertation aims to design and implement a tailored performance management framework for Chinese commercial banks in order to deal with some of the bank problems. Chinese commercial banks are experiencing rapid development from both internal management and external environments. With increasingly fierce competition, more strict risk management requirements and ongoing reform of process-oriented bank, many issues emerged regarding to the banks management and operations. Performance management is believed to be an effective tool to deal with some of the bank problems. However, the current performance management frameworks used in Chinese commercial banks are mostly designed for general organizations. There is lack of a systematic performance management framework specially designed for Chinese commercial banks considering features of banking operations and their current situations. Thus in this study, the main features of Chinese commercial banks are firstly discussed, which include risk management and external supervisory institutions. Then a performance management review is carried out including key definitions and current developments of performance management theories as well as some performance management methods. The commonly applied six steps performance management framework is adopted in this research since it is consistent with the research purpose. After that, the current performance management studies and practices in Chinese commercial banks are reviewed and discussed. Meanwhile, recent studies show that suitable performance management models are closely related to organizational structure. Therefore a review of organizational structure theories, especially the Minzberg's configuration theory, is carried out. The configuration theory suggests applying different management approaches for different parts of an organization, which assists to identify different structures in Chinese commercial banks and then design proper performance management activities. Based on the above review, a performance management framework for Chinese commercial bank is developed. This framework initially follows the six steps framework and integrates the bank features in management and operations into the performance management activities. The configuration theory is also applied in this framework in order to identify performance management targets as well as design proper performance management approaches. The main contingency factors related to this framework are discussed, especially the factor of stable organizational structure, since a rapid changing organizational structure requires further adjustments of the framework. This framework is applied in a case study which is carried out in a Chinese commercial bank located in Henan province. A performance management system is designed and implemented according to the framework based on the banks current situation. Feedback is collected after the implementation, and generally is positive. The framework is then adjusted by introducing performance tree method in order to deal with rapidly changing organizational structure. Compared with other methods, Performance tree method does not rely on the current organizational structure (e.g. Department structure) to carry out the strategy decomposition and deployment. It is also powerful in looking for innovative improvements in operations. The adjusted framework is applied in another case study carried out in a commercial bank located in Zhejiang province. This bank is experiencing rapid change in both management and operations due to process-oriented banking reform. Traditional performance management approach is found failed to deal with their current situation. A performance management system is designed for this bank based on the adjusted framework. Moreover, we also assist to develop a digital mission monitoring system to track and carry out their daily performance management activities. The feedback is positive after the implementation, and the bank is praised for good progress in building of process-oriented bank. The main contribution of this dissertation is the design and implementation of the tailored performance management framework for Chinese commercial banks, especially the adjustments in framework by introducing the performance tree method. It enriches theories and practices of performance management system in a rapid changing organizational structure. Further studies are suggested to look for more applications of performance tree method in different type of organizations.

The study compares the efficiency of Islamic and conventional banks, during the period 2006-2012, by employing a non-parametric approach- the Data Envelopment Analysis (DEA). In order to minimise the bias resulting from the inherent dependency in the first stage of the DEA, the DEA outcomes were replaced with the bootstrapped estimators and replicated them 500 times. Accordingly, confidence intervals are constructed for efficiency measures, which subsequently, improved further the accuracy of the findings and provided more reliable arguments for policy implications. The study applies a two-stage Data Envelopment Analysis. The first stage of the DEA compares banks based on their Overall Technical Efficiency (OTE) and its components (Pure Technical Efficiency (PTE) and Scale Efficiency (SE)). Although proven to be more resilient during the financial crisis (Farooq and Zaheer, 2015), the research found that Islamic banks to be normally on a par with their conventional counterparts in terms of PTE and that they were significantly higher in terms of OTE and SE . In addition, according to the study’s results, both Islamic and conventional banks suffered from managerial underperformance rather than a failure in operating at optimal production levels. In other words, Islamic and conventional banks were managerially inefficient in controlling their operating costs and utilising their resources. The second stage of the DEA, which accounts for the country- and bank- specific factors, confirms the findings that there was no significant difference in PTE between Islamic and conventional banks. Moreover, the findings imply that Islamic banks have no significance on pooled PTE and show no significant difference in PTE when compared to conventional banks during the entire period of the study including the financial crisis (2007-2009). In the light of the study’s empirical findings, Islamic banks should explore the benefits of moving to more diversified investments and tools in order to make use of their liquidity. Moreover, Islamic banks have to employ more solid risk management techniques in order to limit the number of risks, including credit risk, market risk, liquidity risk and operational risk, which may arise in the shari’ah banking industry. The research is extended to study the PTE determinants of four regions, namely, MENA, East Asia and Pacific, South Asia, and Europe and Central Asia. The outcomes show that PTE had a different significance for each region’s determinants related mainly to the levels of the indicators of governance, namely, Voice Accountability (VACC) and Regulation Quality (REGQ). The findings suggested that the more developed and democratic countries were favourable to banks having more operations that are efficient. In addition, these countries’ excessive regulation and supervision (i.e. limited financial freedom), encouraged financial institutions to create unclear new instruments and misjudge the risks. These resulted in the banks being less efficient. The study found, also, that there were different determinants for Islamic and conventional banks operating in Muslim and non-Muslim countries.

Ever since a stochastic process for valuing futures contracts was first introduced by Black in 1976, a large number of people have been drawn to this developing domain of quantitative finance. To be more specific, at the end of the last century, Schwartz built a factor model system, step by step, with different co-workers. Following that, crude oil has been experiencing an unprecedented boom since the beginning of this century. This commodity and its related financial products play an unprecedentedly important role in the financial markets and in our day-to-day life. In this thesis, the standards for WTI futures contracts and their options will be introduced after the introduction. Then, the original Schwartz (1997) model system, including the One-Factor model, the Two-Factor model and the Three-Factor model, is discussed in the following section. The thesis focuses next on augmenting the original Two-Factor model. For example, the Two-Factor model will be run based on different estimation methods and will be combined with an options pricing model. Lastly, the stochastic process of the volatility of the spot price of WTI crude oil will be inserted into the original Two-Factor model and the Three-Factor model, which means that new Three-Factor and Four-Factor models will be proposed in this thesis.

My thesis consists of three papers on empirical asset pricing. The first two papers explore the ways through which mutual fund companies impact the market. The last one explores a strategic behavior of firms toward investors. In my first paper, I examine the price impact of portfolio balancing by professional investment managers. I find that asset managers tend to rebalance their portfolios seasonally, adjusting around the earnings announcement periods of the underlying, and in turn causing fluctuations in the cross section of assets beyond those documented in the literature. The asset management industry trades more with outside market participants during the earnings season than the rest of the quarter. Consequently, these trades have price impact and generate a seasonal variation in Momentum returns across the cross section of equities. The second paper explores the intermediation of profits by asset managers to investors. Asset managers distribute capital gains and dividends at fixed dates even though the accrual of gains and dividends occur throughout the year. I exploit this staggered nature of capital distribution in asset intermediation to study the influence of institutional money management on asset prices. These results indicate that institutional structures contribute to the daily variation of stock market returns and that manager preference has significant impact over the co-movement of his managed assets. My third paper is joint work with Dong Lou and Lauren Cohen. We explore a mechanism through which investors take correlated shortcuts, and present strong evidence that firm managers undertake actions in response to these shortcuts. Specifically, we exploit a regulatory provision governing firm classification into industries, wherein a firm’s primary industry is determined by the segment with the highest sales. We find that investors overly rely on this classification: Firms just above the industry classification cutoff have significantly higher betas with respect to that industry.

This thesis provides an account of the ontological, methodological and epistemological foundations of theoretical finance. I argue that these are linked: financial theory is not just a positive enquiry into the nature of the world, but also a means to engineer it. A core feature of its methodology is a modelling approach that conceives of risk as being identical with the volatility of financial market returns. I argue that this can be justified from the perspective of finance as a positive science, because it successfully points to some real features by using idealisations and simplifications. However, I argue that this feature makes theoretical finance inadequate for the task of designing institutions in certain specific ways. I argue that the epistemic demands we make of models in the service of finance theory are different to the demands we should make of models that are used as blueprints for institutions. A failure to appreciate this difference contributed to the financial crisis and our failure to anticipate it. Finance theory has various effects on the financial system so is causally caught up in social ontology, a notion known as “performativity”. I argue that financial theory and its models affect the workings of the financial system in three ways: they provide positive accounts of the financial system that individuals can learn from, they provide normative calculative devices to determine optimal decisions, and finally they provides blueprints for the design of financial institutions. We have in the past assumed that models that succeed in supporting financial theories because of their coherence and validation by data will also be successful blueprints. However, good tests of blueprints should be inductive and assess for unexpected properties, quite unlike how we test theory models. It follows that we have insufficient reason to assume good theory models are good blueprints.

This thesis studies how financial market outcomes are affected by the reputational concerns of fund managers. The first chapter presents a model in which a fund manager trades in an environment with uncertain market liquidity. The fund manager trades off expected profits in the initial period and learning relating to the investment strategy in the successive period. Surprisingly, the indirect incentives do not cause the manager to focus on short-term returns to impress investors but result in a behaviour that may be described as inefficient "long termism". The model may help explain empirical puzzles such as the limits of arbitrage, the convex flow-performance relationship and the excessive trading of fund managers. The second chapter focuses on the asset pricing implications of fund flows motivated by past performance. By investing in an out-performing asset, fund managers can improve their reputations and therefore experience inflows of money into their funds. In my model, the value of a fund manager’s reputation is state dependent. In the case of an inefficient asset management market, I show that asset prices are increasing in their beta. Furthermore, the asset price depends on asset supply in my model. The third chapter analyses the size of the active management sector in a model where fund managers have reputational concerns. I show that the size of the active management sector depends on the skill of the fund managers in the sector in a non-monotone manner. The asset choices of fund managers are influenced by reputational concerns, and the information revelation of the skill of the individual fund managers depends on market outcomes. The model predicts that the amount of money invested in the active management sector may shrink sharply following rare events.

The 2008 global financial crisis has been estimated to have resulted in losses of $4.3 trillion dollars to global banking institutions (Castells et al. 2012). The crisis placed the spotlight on banking culture (Moore 2012, 2013; Peston; 2013; Smith 2012; Salz 2013 Spicer et al. 2014; Deloitte 2013; CIPD 2013;) with claims that the causes of the crisis transpired from the ‘very heart of its [banking industry’s] culture’ (FT.com 2014). In the aftermath banks have attempted to introduce cultural change programs to encourage the right behaviours and conduct in an attempt to reduce wrongdoing and misbehaviour. This thesis critically explores mainstream perspectives of organisational culture (Peter and Waterman 1982; Deal and Kennedy 1982) in the context of the banking industry. Mainstream perspectives on culture were encapsulated by the idea that culture can be shaped and modified by management to produce a ‘strong culture’, which would in turn increase commitment, productivity and profitability (Wiener 1988; Parker 2000; Kilmann 1985; Du Gay 1996). Thirty years on since cultural engineering’s initial introduction, practitioners and industry ‘experts’ continue to buy into the virtues of strong culture management, portraying it as a panacea to the banking industry’s problems (PwC 2016; Salz 2013; CIPD 2013). Therefore, this thesis aims to revisit the topic of organisational culture in order to look at how the banking industry has approached culture management post-crisis. This thesis will draw on Foucault’s work on power, discipline and discourse (1977; 1978; 1980) to provide a framework that allows for an exploration into the complexity and ambiguity of culture, arguing that organisational culture is mutually constructed through contesting power relations and the interactions of organisational members. In order to interpret and analyse the empirical data, this thesis developed the concept of performance discourse. This thesis argues that performance discourse influences conduct and behaviour at a taken for granted routine level. It is predicated on competition, financialization of the individual, internalising responsibility and the intensification of work and elitism. Performance discourse goes beyond the dualism that views culture as either a thing or as a metaphor discussed in previous studies. In so doing, it helps us to make sense of why the idea that culture is still a ‘thing’ and a tool for managerial manipulation still dominates industry perceptions, fuelling the continuing, widespread belief that culture is installed top-down.