It is well known that prudence plays an important role in the process of decision making under uncertainties. However, how prudence affects a bank's decision on extending fixed rate or variable rate loan has not yet been fully examined. In this dissertation, I use definition of second-order expectation dependence to further identify conditions for the risk prudent (imprudent) bank under state-dependent framework to refrain from extending fixed rate loans. Furthermore, using a set of actual data, I apply a recent developed inference procedure for testing positive expectation dependence to demonstrate the significance of my work in empirical applications. In the end, a non-parametric calibration is conducted and the result is highly consistent with the prevalence of banks that have preference for adjustable rate mortgage in U.S. 30-year prime mortgage market.

Since 2000, China has required publicly listed firms to issue management earnings forecasts when they expect extreme changes in earnings or are likely to become loss-making. This study examines managers’ forecast decisions under this unique regulatory environment. I find an increase over time in the proportion of firms issuing voluntary earnings forecasts when they do not expect extreme changes in their earnings or losses. I also find an improvement in the quality—in terms of the precision, accuracy and bias—of both mandatory and voluntary forecasts over time. Further detailed analysis shows that the introduction of the regulation on management earnings forecasts is one of the underlying forces driving firms’ decisions to provide voluntary earnings forecasts. Specifically, I find that a firm is more likely to issue a voluntary forecast if the firm was required by regulation to issue an earnings forecast in the previous year. Peer pressure also explains firms’ decisions to issue voluntary forecasts. I then investigate the reasons underlying the improvement in the quality of management earnings forecasts. I find that learning effects and peer pressure are the driving forces behind the improvement. Specifically, I find that the forecasts issued by more experienced firms are more specific, accurate and conservative. Furthermore, the quality of a firm’s forecast is positively related to the quality of its peer firms. Overall, my results show that requiring some listed firms to issue management earnings forecasts in China might have built up a momentum that has promoted the issuance of voluntary forecasts and improved the quality of forecasts over time.

The coexistence of tradable and non-tradable shares in Chinese firms has caused severe agency problems and has been the subject of much criticism. In 2005, the Chinese Securities Regulatory Commission launched a reform to eliminate the dual-class share structure and convert non-tradable shares into tradable shares. My thesis examines how the Split Share Structure Reform in China affects the level of information asymmetry of listed firms. The regression results show that the firm-level information asymmetry, measured by the probability of informed trading (PIN), is positively associated to the firm’s proportion of non-tradable shares before the reform, and the PIN decreases significantly after the reform. This is so because the reform reduces the agency costs of firms and increases stock market liquidity. I further document that the reform’s effects on PIN are more pronounced for the firms whose non-tradable shares are more likely to be traded after the reform, the firms that experience a significant enhancement in blockholders’ threat to exit and non-SOEs. The liquidity shock induced by the reform also increases the intensities of informed trading and uninformed trading in the market and the magnitudes of the influences are larger for the latter than the former. My thesis sheds light on the consequences of the reform of firm ownership structure in China and shows that reducing information asymmetry is a channel through which the reform helps improve firm performance. The results of my study provide policy implications for future reforms in developing financial markets.

Credit Default Swaps (CDSs) play an important role in the financial markets. The introduction of CDSs has impacts on the bond market, and the financial characteristics and creditworthiness of the underlying reference entities. When financing is not frictionless, the investment policies of firms are related to their financial conditions. However, whether or how the introduction of CDS will directly affect the investment policy of the firm has not been examined empirically in the literature. To shed light on this issue, my study investigates the relation between credit default swaps trading and corporate investment policy for the listed firms in the United States using the data of CDS reference entities from 2002 to 2014. I find that the introduction of CDSs is negatively related to the investment decisions of reference entities. Furthermore, the relation is more significant when the reference entities have financial constraints and depend more on external credit supply. Overall, when a listed firm becomes a CDS reference entity, the probability of its underinvestment will increase. The study contributes not only to the growing literature on the relationship between CDS introduction and the reference firm, but also to the literature on corporate investment policy making.

Based on a valuable testing venue in China where listed companies are required to disclose corporate site visit records of financial analyst to the public, this study examines whether analysts will learn from visiting analysts' forecasts that contain superior private information. I find that visiting forecasts tend to attract more analysts to issue forecasts in their aftermath than the prior forecasts issued by the same analysts but without conducting corporate site visit (non-visiting forecasts). The following effect is weaker when the visiting forecasts are more informative. In addition, other analysts’ forecasts following the visiting forecasts tend to move closer to the visiting forecasts than the forecasts following the non-visiting forecasts, with the effects being stronger for more informative visiting forecasts. Furthermore, followers experience a greater improvement in their forecast accuracy than the non-followers. This effect is also stronger when the visiting forecasts are more informative. Last but not the least, I find a decline in analyst forecast dispersion, an increase in common information, and an improvement in forecast accuracy in the period subsequent to the issuance of visiting analysts’ forecasts but no such effect for non-visiting forecasts. Collectively, the results suggest that analysts have incentive to learn from the forecasts that contain superior information and such learning activities tend to improve the information environment of the visiting firms.

Based on China’s stock market, this study investigates how firms’ geographic distance from a financial center affects the sensitivity of stock prices to investor sentiment. I find that firms located closer to a financial center are more affected by investor sentiment than firms located far from a financial center. This distance effect holds for different geographic cutting boundaries and after excluding firms located in financial centers. Besides, using China’s High Speed Railway (HSR) as an exogenous shock, I find that HSR connection significantly decreases the effect of geographic distance on the sentiment-driven stock price relationship. In addition, firms with shorter travel times to financial centers are more affected by investor sentiment than firms with longer travel times. Moreover, firms located in provinces with a high stock market participation rate are more affected by investor sentiment than other firms. And Analysts increase the frequency of favorable recommendations for firms that are located closer to financial centers when investor sentiment is high. Furthermore, firms located closer to a financial center do not have higher institutional ownership than other firms. Last but not least, firms located in more economically developed provinces are not more affected by investor sentiment than firms located in less developed provinces. Overall, my findings highlight the importance of geographic distance in explaining the effects of investor sentiment on stock prices.

Are institutional investors informed to the political promotion events? This paper examines the informed trading of institutional investors in the context of political promotion. Institutional investors have superior information environment compared to retail investors. It can establish private information channel with firm management, financial analysts, regulatory bodies and other types of institutions. Since contemporary economic activities are more or less influenced by politics, promotion of important officials can bring favorable local economic development opportunities to companies. If institutional investors are informed to the political promotion events, they are supposed to react in advance of the occurrence of promotion events. We test this proposition in the setting of China where political power is believed to be strong. In our research, we treat the promotion of Chinese provincial politicians as a private signal to institutional investors to examine their trading pattern. Through a difference-in-difference approach, we find that institutional investors accelerate their purchase of shares of the firms exposed to the promotion events before the promotion activities actually happens and increase their shareholding in listed firms after the promotion events. The institutional investors earn a higher cumulative stock return by adjusting their portfolio to the promotion events. We also find this difference in institutional shareholding primarily occurs to firms with low state-own share percentage.

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This paper examines the nature and significance of market betas on the Johannesburg Stock Exchange (JSE). The identity of market betas is determined by means of Principal Component Analysis (PCA) performed on the returns of the FTSE/JSE Africa Index Series. A scree test shows two factors necessary for inclusion in the appropriate Arbitrage Pricing Theory (APT) model. Based on the promax rotated factor loadings, it is argued that the Financials (J580) and Basic Materials (J510) indices ought be used as the appropriate observable index proxies for the first and second factors respectively. Regarding the estimation of beta, this paper makes the case for the use of Reduced Major Axis (RMA) regression over the traditional Ordinary Least Squares (OLS) approach. A number of characteristics are assessed when arriving at this conclusion. Importantly, it is shown that the traditional OLS regression method chronically underestimates the magnitude of the beta parameter whereas RMA regression does not. In addition, it is shown that, while OLS beta values are more stable in absolute terms than RMA beta values, the RMA values are more stable when adjusted for their magnitude. This paper does not make use of a thin trading filter to narrow the sample of stocks for empirical evaluation. Instead, an examination is made of the significance of beta values at the point at which they are estimated. This is accomplished by means of a rolling window of regressions. It is shown that, while most stocks do exhibit betas which are consistently significant over their listing period, many stocks do not. Some stock returns result in almost no significant beta values while some others exhibit beta values which are significant for only a portion of their listing period. It is shown that a median beta p-value value of 5% is an appropriate 'significance filter' for limiting the sample of stocks to only those significant for the majority of their listing period. Using only these stocks, an empirical evaluation of beta is conducted using portfolios sorted on both OLS and RMA beta values. It is found that neither beta measure explains the cross-section of returns in the case of resource stocks. However, in the case of non-resource stocks the results show a clear divergence between the methods. In the case of OLS sorted portfolios, the results show a negative relationship between beta and returns. This surprising and counterintuitive result has also been arrived at by other researchers and is the opposite of what the APT would predict. However, in the case of RMA sorted portfolios, this pattern reverses itself, showing a positive relationship between beta and returns. For some holding periods, this is shown to be significant, providing evidence in support of the APT. As a result it is demonstrated that OLS regression not only underestimates the magnitude of beta, but that it distorts the results of empirical tests. On this basis it is argued that RMA regression ought replace OLS regression as the preferred method of beta estimation for the JSE.

Includes bibliographical references (leaves 116-125). / This research was conducted to establish whether venture capital could reliably serve as a source of finance for SMEs given that there is a problem of access to finance in Namibia. This is important because SMEs in Namibia are generally in dire need of finance. Evidence therefore shows that venture capital as a source of finance serves as an ideal type of instrument for the development of SMEs internationally. The study assessed the importance of venture capital financing in the context of the SMEs in Namibia, specifically focusing on addressing the problem of lack of much needed capital and skills to the SME sector. The second objective was to assess whether venture capital financing can be effectively utilised to enhance managerial skills within SMEs in Namibia.