Many recent books and articles have aimed to account for the recent financial crisis. They have exposed the facts, identified the causes, and assigned responsibility. They have proposed solutions to prevent a similar crisis to happen in the future. The debate is still ongoing, revealing a process of History in the making. My dissertation builds on this debate, but it does not contribute to it. I do not try to understand who is responsible for this crisis. I instead try to grasp how responsibility for this crisis was constructed. I explore the production of - and response to - a discourse of accusation. To study accusation discourses, I conducted a media analysis of three main national newspapers: The New York Times, The Wall Street Journal, and USA Today. I show how a blame game dominated by Democrats participated in the crystallization on Wall Street’s responsibility. To study responses to accusation discourses, I conducted thirty-three interviews in three Wall Street banks from Fall 2008 to Summer 2010. I show that bankers became increasingly defensive over time, while never accepting any personal responsibility for the crisis. Similarly, they reject the label of the “greedy banker.” Overall I argue that the complexity of modern social arrangement loosens the intrinsic connection between responsibility and accountability.

Thesis (MDF)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: In light of the 2007/2008 global financial crisis, as well as pre- and post-crisis banking reform, this research investigated changes in competitive behaviour among banks in Sub-Saharan Africa, thus adding new insights to the current debate. The main findings from the empirical test were as expected and suggested conditions of monopolistic competition. In order to validate sufficient conditions for observing competition, an empirical test conducted to measure a state of general market equilibrium, had the expected outcome. Specifically, the research methodology applied the Panzar-Rosse model, a non-structural approach in the manner of the New Empirical Industrial Organisation. In the first instance, the model derived a continuous measure of a static H-statistic with a value of 0.57, using 481 bank-year observations from an unbalanced panel of 83 banks from six countries over the period 2008–2013. The H-statistic measured the degree of competition by explaining how changes in market power or unit factor input prices of funds, labour and capital expenditure influenced the pricing output of banks. A computed E-statistic, which was statistically equivalent to zero, validated the significance of the H-statistic, as the result implied that, in equilibrium, market power of a bank does not influence its returns. Overall, the findings were consistent with the pricing and strategy theories, such as contestable markets theory, which indicates that pricing power is associated with neither industry structure nor concentration, but instead with changes in input prices. In addition, the findings were consistent with relevant prior studies, which concluded that banking systems in parts of Europe, Asia, Latin America and Sub-Saharan Africa were monopolistic, and that banking reform influenced market discipline.

The world was caught unprepared for the recent crisis that has gripped the globe. The engineering manufacturing sector is reported to have been one of the hardest hit and has been haemorrhaging jobs since the global economic crisis first reached South African shores. This study aimed first, to establish the presence of a global crisis and second, to determine whether this crisis is of an economic or financial nature. Objectives of the study included determining whether the engineering manufacturing sector has been impacted on by the crisis and whether the affects of this have been of a detrimental nature. This was done primarily to assess the extent to which strategies in the engineering manufacturing sector in KwaZulu-Natal have been affected and needed to be specifically adapted in order for SMEs to survive and grow beyond the current economic circumstances. Data was collected through the use of questionnaires, a typically quantitative research technique, as well as through the compilation of literature reviews. Questionnaires were circulated amongst thirty organisations within the identified sector in KwaZulu-Natal, of which twenty-two were completed and returned for analysis. Primary data was analysed in conjunction with the literature reviews. Typical responses confirmed the existence of a crisis and indicated that strategies had to be specifically adapted as a result. However, strategic alterations were often ill informed. This issue could be address through the application of the outlined models to optimise strategy. The use of these models would better enable respondents to make informed decisions when formulating their strategies and thereby assist the organisation in achieving a sustainable competitive advantage. / Thesis (M.Com.)-University of KwaZulu-Natal, Pietermaritzburg, 2012.

This paper applies a cross-sectional regression analysis of 83 countries over the period 2009-11 in order to examine the role played by the exchange-rate regime in explaining how countries fared in terms of economic growth recovery following the recent financial crisis. After controlling for income categorization, regime classification, using alternative regime definitions, and accounting for various other determinants, the paper finds a significant relationship between the regime choice and the recovery performance, where those countries with more flexible arrangements fared better. These results were conditional on the regime classification scheme and the income level, implying an asymmetric effect of the regime during the recovery period between high and low income countries. The paper also finds that proxies for initial conditions as well as trade and financial channels were highly significant determinants of the growth performance during the recovery period.

Magister Commercii - MCom / Since the discovery of herding behaviour in financial markets in the 1990s, it has become an area of interest for many investors, practitioners and scholars. Herding behaviour occurs when investors and market participants trade in the same direction during the same time period, as a result of the influence of other investors. Studies on herding behaviour have been undertaken in both the developed and developing economies and majority of these studies have confirmed the existence of herding behaviour in the stock markets. Despite its tremendous growth, the South African financial markets are not immune to such market anomaly. Herding behaviour on the JSE was first investigated in 2002 focusing in the unit trust industry on the South African stock market. Motivated by this, this study assessed the presence of herding behaviour using the Johannesburg Securities Exchange tradable sector indices. Four indices were employed, namely Financials, Industrials and Resources and were benchmarked against the JSE All Share Index for the period from January 2007 to December 2017. The industrials index ((FINI15) constitutes of 25 largest industrial stocks by market capitalization, the financials index (FINI15) comprises of 15 largest financial stocks by market capitalization, the resources index (RESI10) which represents 10 largest resources stocks by market capitalization and lastly the FTSE/JSE All Share Index defined as a market capitalization-weighted index which is made up of 150 JSE listed companies and is the largest index in terms of size and overall value JSE. The FTSE/JSE All Share Index was used as a benchmark for investors to check how volatile an investment is. The South African economy experienced the effects of the 2008 global financial crisis from 01 July 2007 to 31 August 2009. This study split the examination period into three categories namely before the global financial crises which was the period starting from 1 January 2007 to 30 June 2007, then the period during the global financial crisis which was from 1 July 2007 to 31 August 2009 and lastly the period after the global financial crises which was from 1 September 2009 to 31 December 2017. Apart from the diversity of the indices, the length of the examination period also had a significant influence towards the magnitude of herding behaviour on the JSE.

This paper provides an empirical analysis of the stock price behaviour of firms listed on the Johannesburg Securities Exchange (JSE) around corporate events relating to final cash dividend change announcements over the period 2004 to 2009. Declared for the financial year-end, final cash dividend announcements either represent an increase, a reduction or no change relative to the previous year’s announcement. In this paper we analyse the stock price behaviour of firms that announced dividend reductions before and during the Global Financial Crisis of 2007 (GFC 2007). The pre-crisis analysis focuses on dividend reduction effects on share price during normal economic times and crisis analysis focuses on effects during economic downturn. We refer to the pre and during crises effects as firm-specific and systemic effects respectively. Studies about the general effect of dividend announcements on shareholder value are well documented; however our study is motivated by the fact that there has not been an abundance of forthcoming research in South Africa pertaining to how share prices have reacted to dividend reductions before and during the GFC 2007. We employ an event study methodology in the context of this emerging market to assess the share price behaviour to dividend reductions. Integral to an event study methodology in the corporate context, is the analysis of abnormal performance around the event date. Abnormal performance is measured by employing three widely used quantitative approaches namely, the market-adjusted, market model and the buy-and-hold abnormal return approaches. Based on daily closing share price information collected from iNet Bridge database, abnormal performance is calculated from 2004 to 2009 while controlling for the contemporaneous effect of earnings announcements (earnings data collected from Bloomberg database) occurring within 10 trading days of dividend announcement. The analysis shows that the market reaction is not statistically significant on the announcement day and that more negative returns occur during the pre-crisis period. Volatility of abnormal returns is higher during the pre-crisis period. The research does not support the Irrelevance Theory but seems to support the signalling hypothesis.

This thesis contributes via the concept of efficiency in four distinct fields of the fi nancial economics and banking literature: technological heterogeneity, liquidity creation, profitability, and stability of banks. In Chapter 1 we motivate the analysis by presenting the main developments that have been taking place in the banking sector as far as these four elds are concerned and highlight their importance to the appropriate functioning of the nancial system and of the economy overall. In Chapter 2 we address the issue that conventional surveys on bank efficiency draw conclusions based on the assumption that all banks in a sample use the same production technology. However, efficiency estimates can be severely distorted if the existence of unobserved differences in technological regimes is not taken into consideration. We estimate the unobserved heterogeneity in banking technologies using a latent class stochastic frontier model. In order to arrive at a policy implication that is valid across time and markets, we present two applications of the model using separately data from the UK and Greek banking sector over the periods 1987-2011 and 1993-2011 respectively. To increase the precision of our inferences, we adopt two distinct empirical methodologies: a panel data method and a pooled cross-section modelling strategy. Our results reveal that bank-heterogeneity in both banking sectors can be controlled for two technological regimes. We find a trade-o¤ between the level of sophistication within a fi nancial system and its level of aggregate efficiency. Consistency among the results is established under both methodologies. Further, we propose a methodology with regard to M&As activity of UK and Greek banks within a latent class context. We examine numerous potential M&A scenarios among banks that belong to different technological regimes, and we test whether there is a transition of the new banks to a more efficient technological class resulting from this M&A activity. We find strong evidence that new financial institutions can be better equipped to withstand potential adverse economic conditions. Finally, we cast doubt on what the true motivation for M&A activity is and we extract important policy inferences in terms of social welfare. In Chapter 3 we introduce the "Cost Efficiency - Liquidity Creation Hypothesis" (CELCH) according to which a rise in a bank s cost efficiency level increases its level of liquidity creation. By employing a novel stress test scenario under a PVAR methodology, we test the CELCH and the direction of causality among liquidity creation and cost efficiency variables in the UK and Greek banking sector. Moreover using new measures of liquidity creation (Berger and Bouwman, 2009) we address the question of whether potential M&As can enhance liquidity creation and create additional credit channels in the economy. We evaluate and compare the robustness of potential consolidation scenarios by employing half - life measures (Chortareas and Kapetanios 2013). We show a positive impact of cost efficiency on liquidity creation in line with CELCH. The empirical evidence further suggests that potential consolidation activity can enhance the ow of credit in the economy. Bank shocks seem to be the most persistent on both liquidity creation and cost efficiency and the UK banking system is found to withstand more effectively adverse economic conditions. Finally, we cast doubts on the strategy followed by policy authorities regarding the recent wave of M&As in the Greek banking sector. In Chapter 4, we attempt to shed light on the trade-o¤ between fi nancial stability and efficiency. We highlight that current tests of banking efficiency do not take into account whether banks managers are taking too much or too little risk relative to the value maximising amount. We assume that moving from an intermediary bank type balance sheet to an investment bank type not only changes the risk-return combination of the balance sheet but also increases the banks degree of instability, that is the probability of insolvency when adverse effects occur. To this extent, we propose a new efficiency measure which incorporates all the aforementioned ambiguous points. An empirical investigation of US commercial banks between 2003-2012 suggests that our proposed risk-adjusted index has superior explanatory power with respect to banks profi tability and gives better predictions compared to conventional banking efficiency measures. This holds after various robustness checks. Chapter 5 summarizes the main findings of all three distinct studies and concludes by highlighting the importance and the contributing points of the thesis in the banking and financial economics literature.

This dissertation investigates the capacity of states to limit regulatory circumvention in financial markets. The recent financial crisis has confirmed the widespread abuse of regulatory frameworks by the banks to their advantage, testing the limit of the permitted. The loophole behaviour of financial market actors, exploiting the rigidity of rules is unstoppable, given the impossibility to specify all possible events in rules. This essential fact of financial market regulation in itself is not the topic of this dissertation. The question instead is, given these conditions, how can state agencies limit this behaviour? By investigating the evolving regulatory treatment of a segment of the shadow banking sector driven by regulatory arbitrage in four different countries, this dissertation seeks to establish a comparative answer. In the investigated case of off-balance sheet financing, regulatory arbitrage occurred at the overlap of banking regulation and accounting regulation, a strategic location chosen to escape regulation. Asset-Backed Commercial Paper conduits, the financial innovation studied were structured at the margins of existing accounting regulation to avoid on-balance sheet status. They were also structured to be at the margins of banking regulation, in order to avoid regulatory costs. As they were structured just outside the margins of global banking accords, they were forcing regulators to take a national regulatory stance in the regulation of a global market. These constructs were "stitched on the edge" of existing regulation, always seeking to exploit weaknesses of regulation and of the gatekeepers seeking to enforce it. Auditors didn't have a weapon against new constructs as the rules were missing and national regulators had difficulties dealing with these new constructs because they were not regulated globally. The "cutting edge" of financial innovation in this case referred to the edges of regulation. How did state regulator react to this game of the tortoise and the hare? How can we explain the relatively successful regulation of this sector in two countries (Spain and France) and its failure in Germany and the Netherlands? The fourth chapter investigates the dialogue between audited and auditors regarding off-balance sheet decisions and ask how the auditors' voice in this realm could be strengthened in order to limit regulatory circumvention. Strengthening the negotiation power of the auditor through principles based accounting standards is identified as an important tool to contain regulatory arbitrage in the dialogue between banks and their auditors. The fifth chapter asks why we see the introduction of such accounting rules and their use for banking regulation in France and Spain, whereas they are either not introduced at all or not used for banking regulation in the two other cases. It is shown that the engagement of the banking regulator is a decisive intervening variable in the process. It is pointed out that the reconfiguration of national accounting standards setting networks amidst the transnational pressures emanating from an international standard setting body had a strong impact on the differential capability of banking regulators to influence this process. In the sixth chapter, the monitoring and enforcement of auditing decisions in the different countries are investigated, showing that principles based standards without strong regulatory monitoring and intervention was prone to failure. It is shown that the absence or engagement of banking regulators in these processes made a difference as to how prudently banking conglomerates demarcated their balance sheets and represented the risks they were taking. The seventh chapter finally situates the national evolution of regulatory treatments in the (lagging) international response to regulatory arbitrage in the field of securitization. It makes the point that deficiencies in the regulation of the sector were known internationally almost a decade before new international regulation was enforced and shows that in the interim period concerns over national competitiveness often inhibited the stringent regulation of this global market on a national level. The findings of the study reveal the necessary legal capacities and technical capabilities regulators need to hold to spot regulatory circumventions at the margins and at the overlap of regulations. They point to a holistic approach to regulation, which does not only include the application of rules to certain data material but also the control of the construction of that data material itself. It also brings to the fore the tensions between the national and the global level of regulation located at the edges between the two. In these interstices, we can find permitted/ approved regulatory arbitrage as national regulators choose to protect the competitiveness of their banks in a global market, rather than imposing a prudent view nationally.

This dissertation consists of three separate essays which address questions in the field of banking. The first two essays are motivated by the Great Recession, and study key aspects of the experience of commercial banks during this period. One is the impact of liquidity risk on credit supply, and the second is the effect of portfolio choices on the probability of bank failure. The third essay shifts the focus from commercial banks to M & A transactions, and studies the impact of a key provision in merger agreements on the initial offer premium and target firm value. In the first essay, titled "Liquidity Risk and the Credit Crunch of 2007-2009", I document the connection between liquidity risk and the credit crunch experienced during the financial crisis of 2007-2009. Using extensive micro-level data on mortgage loan applications, I construct a measure of the supply of credit that is free from demand-side bias. I then use this measure of credit supply to estimate the effect of cross-sectional differences in unused lines of credit and core-deposit funding on the supply of mortgage credit moving through the crisis. I find that lenders with higher liquidity risk contracted their supply of mortgage credit more. The channel of contraction was significantly stronger for larger lenders, which had the largest exposure to liquidity risk. The first phase of the contraction was due to liquidity risk arising from high exposure to lines of credit and was immediately followed by further tightening due to the collapse of the markets for wholesale funding. I estimate that the total contraction of mortgage lending due to liquidity stresses experienced by lenders during 2007-2009 was $41.5 billion - $61.9 billion, or 5.2%-7.8% of total mortgage originations during that period. In the second essay, titled "Commercial Bank Failures During The Great Recession: The Real (Estate) Story" I identify the channels through which shocks to the real estate sector contributed to the wave of commercial bank failures during the Great Recession. I focus on the banks' loan, marketable securities and credit line portfolios, and consider how choices which shifted the composition of each portfolio towards real estate products impacted the probability of bank failure. I find that augmenting a baseline model of failure with variables that capture the composition of these three portfolios improves the fit of the model by approximately 70% for small banks and 230% for large banks. I find no evidence that banks which held more of their loans in traditional closed-end mortgages suffered a higher probability of failure. Rather, it was investments in loans for multifamily properties and other non-household real estate loans, as well as off-balance sheet exposures to credit lines issued to non-household real estate borrowers, that are robustly identified as precursors of bank failure for both small and large banks. Exposure to open-end residential real estate loans contributed to the failure rates of small banks only. Exposure to private-label MBS is strongly associated with a higher probability of failure for large banks, but not for small ones. On the other hand, high holdings of agency MBS are associated with a higher probability of failure only for smaller banks, but this result is less robust. The third essay, titled "No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy 'Go Shop' Options" is joint work with Charles W. Calomiris and Donna M. Hitscherich. In this essay, we study the decisions by targets in private equity and MBO transactions whether to actively "shop" their initial acquisition agreements prior to the shareholders' approval of those contracts. Specifically, targets can insert a "go-shop" clause into their contracts, which permits them to use the agreement to solicit offers from other would-be acquirors during the "go-shop" window, during which the termination fee paid by the target is temporarily lowered. We consider the "go-shop" decision from the theoretical perspective of value maximization under asymmetric information, and also consider conflicts of interest on the parts of management, bankers, and attorneys that might affect the decision. Empirically, we find that the decision to retain the option to shop an offer is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms' legal advisory team and procedures. These can be interpreted as reflecting a combination of informational characteristics, litigation risk, and attorney conflicts of interest. We employ legal advisor characteristics as instruments when analyzing the effects of go-shop decisions on target acquisition premia and value. We find, as predicted in our theoretical framework, that go-shops are not a free option; they result in lower initial acquisition premia, ceteris paribus. Our theoretical framework has an ambiguous prediction about the effects of go-shop choice on target firm valuation. Consistent with theory, we find no significant effect on abnormal returns from choosing a "go-shop" option.

This thesis analyses the impacts of global financial crisis 2007 - 2009 on capital markets and investment banking industry. The aim of this work is to find the most important causes of the financial crisis, their relations and sequence as well as the role of investment banking industry in this crisis. First chapter gives a theoretical framework and overview of investment banking and institutional models. Second chapter then analyses the key causes of financial crisis. Third chapter analyses impacts of the crisis on selected capital markets and individual investment banks.