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With $49 trillion of assets under management and thousands of funds in the market, the mutual fund industry around the world has been one of the biggest and most important financial intermediaries. Whether fund-families offer high-quality products to their investors affects the wealth, and in particular the after-retirement wealth, of millions of households. Protecting investors' interests requires weeding out worse performing funds. In the light of this, this thesis aims to investigate market clearing mechanisms, i.e. mutual fund exit decisions in the U.S. and the U.K markets. There is no reason to assume that fund-families' exit decisions are time invariant. This thesis argues that while fund-families had sufficient motivations to close down or re-organise the worse performing funds during non-financial-crisis times, this may not be so during the 2008 financial crisis. The distortion of the market clearing mechanisms during the financial crisis existed in both the U.S. and in the U.K. market. The thesis finds some evidence that funds' exit decisions were affected by directors' own remuneration and career concerns and that this was more visible during the financial crisis than during the other times. Industry structure can affect the strength of market forces to exit low-quality products. As the asset allocation of US funds is not closely monitored or highly regulated, fund managers are free to 'game' their investment objectives, which makes it hard to separate the whole U.S. market to create meaningful and distinguished sectors suitable for industry structure analysis. Fortunately, the U.K. mutual fund industry is suitable for such a study. In the UK, the asset allocation of a fund is closely monitored by the Investment Association (IA) to make sure that funds make investments according to their official investment objectives. This makes the actual asset allocation of a fund reflect well the fund's official (declared) investment objectives. Thus, it is more meaningful to separate the UK market into different sectors according to funds' declared investment objectives in comparison with the US market. The empirical analysis for each sector in the U.K. market indicates that the market clearing mechanisms were only effective in competitive sectors. The thesis contributes to the literature on the determinants of mutual fund exits by arguing that the role of poor performance in determining a fund's fate weakened during the financial crisis. It deepens the understanding of the role of fund boards in protecting shareholders' interests in different times. It fills the gap in the U.K. mutual fund research by comprehensively investigating, for the first time, the determinants of fund exits over time. Finally, the thesis adds to the organisation studies literature by confirming the importance of industry structure (competitiveness) in exiting poorly performing funds out of the market.

The UK is the second country in the world that has the most significant number of Defined-Benefit (DB) schemes whose aggregate funding positions have been in a decline since the 2000s. To reduce the deficit in the schemes, companies are required to make deficit repair contributions (DRCs). This thesis focuses on DRCs as one of the deficit funding approaches and the role of Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) inside debt (DB pension) holdings in the deficit funding of DB pension schemes in the UK. DB pensions are generally unsecured and unfunded liabilities of the company. This means that managers with DB pension holdings are exposed to risk similar to that faced by outside debtholders of the company. As such, agency theory (Edmans and Liu, 2012; Jensen and Meckling, 1976) suggests that DB pension holdings negatively impact manager risk-appetite. To the extent that the manager risks losing accrued DB pensions when there is a deficit in the pension scheme (inside debt becomes unsecured when there is a deficit and the manager would stand in line with other debtholders if the company bankrupts), it is expected that DB pension holdings will incentivise managers to reduce the pension risk in order to increase the security of their pension provisions. Building on this argument, this thesis examines whether CEO and CFO inside debt holdings are associated with a higher probability of making DRCs. Investigating the determinants of the DRCs alone may raise a question of whether these DRCs were effective at reducing the deficit in the pension schemes. The anecdotal evidence suggests that making DRCs does not always lead to higher funding levels . Therefore, given the objective of DRCs (DRCs are expected to reduce the deficit in the scheme), this thesis also examines whether CEO and CFO inside debt holdings are associated with the higher funding levels of DB pension schemes. Examining the funding levels of DB pension schemes, this thesis empirically documents a positive association between CEO DB pension holdings and the funding levels of DB pension schemes. Examining the funding policy of deficit (DRCs), the thesis also documents that CEO DB pension holdings are associated with the higher probability of making DRCs. Additional analyses suggest that the effects of DB pension holdings are more pronounced when the CEO is closer to retirement. However, examining the role of CFO inside debt holdings, the analyses fail to find any statistically significant relationship between CFO DB pension holdings and the funding levels of DB pension schemes and between CFO DB pension holdings and the probability of making DRCs. Overall, the obtained results highlight the importance of CEO DB pension holdings in investigating the financial health of DB pension schemes. The thesis also addresses the question of whether companies with high debt in the capital structure affect the contribution policy of DB schemes. Capital markets theory (Cooper and Ross, 2002) suggests that capital markets imperfections may induce a company to make lower pension contributions to the scheme (making lower pension contributions is considered as borrowing from the scheme members). Existing studies examining the relationship between debt and the funding policy of DB schemes provide contrasting results without there being provided reasons why companies more likely to underfund or overfund their pension schemes. This thesis argues that the pension regulation must be considered when examining the relationship between the capital structure and the contribution policy of DB pension schemes because the regulation must be regarded as an important motivator or, instead, demotivator for companies to use pensions as a source of funding. Given that UK pension regulation is less restrictive, which may incentivise companies to use pensions as a source of funding, this study tests whether UK companies reduce pension contributions when they are financially restricted. Consistent with this prediction, empirical analyses document that companies reduce pension contributions when they are financially constrained. This thesis makes several contributions. First, this thesis contributes to the literature on corporate DB pension schemes. In particular, it provides empirically established evidence on the determinants of the health of DB schemes by examining whether funding levels and the funding policy of deficit are related to CEO and CFO DB pension holdings. Second, this thesis also contributes to the literature on the usefulness of inside debt holdings at reducing the risk inducing effects. Third, this study contributes to the literature by documenting that the effects of DB pension holdings become more pronounced when the CEO approaches closer to retirement suggesting that the importance of pensions increases in the age of the CEO. Fourth, this thesis contributes to the literature by examining the relationship between debt in the corporate structure and pension contributions. It is worth noting that this thesis is the first that examines different types of pension contributions – regular pension contributions and DRCs. These contributions differ significantly in their stated objectives, and thus it is important to understand the impact of debt on both - regular pension contributions and DRCs. Overall, this thesis contributes to a better understanding of the factors that influence the funding positions and the funding policy of deficit of DB schemes. UK-based literature on DB pension funds is limited, which can be partly attributed to the lack of a comprehensive (readily available) database on DB pension characteristics. To this end, a unique feature of the thesis is the use of a hand-collected dataset from the companies annual reports, which enables to understand the corporate DB pension schemes in the UK. The limited empirical evidence on corporate DB schemes in the UK makes this thesis’s findings particularly valuable to the pension regulators, policymakers and the boards who can improve the management of DB schemes and prevent the schemes from being underfunded.

In the last three decades, many stock markets around the world have consolidated their trade platforms or signed agreements to facilitate cross-country investments. The objectives of this study are to investigate the effect of stock market consolidation on (i) the stock market integration (MI) (ii) diversification benefit (DB) and (iii) equity home bias (HB) controlling for numerous economic and stock market characteristics. We distinguish two stages of market consolidation into (i) an announcement stage and (ii) an implementation stage. The samples include 22 stock markets under six stock market consolidation groups during the year 2000-2016. We use Ordinary Least Square (OLS) panel regression as a tool to examine this effect. First, the stock market consolidation successfully increases the MI both in the announce and implement stage. The effect of the announcement is larger than of the implementation. We also found that financial crisis, exchange rate risk, stock market performance, real convergence and monetary policy convergence are also important factors that impact MI. Second, the stock market consolidation decreases the US investors diversification benefit among the consolidation groups that include US stock markets. On the other hand, the US DB still exist among the consolidation groups that exclude US markets. We also found that financial crisis, exchange rate risk, stock market performance, real convergence and monetary policy convergence are also important factors that affect DB. Finally, the stock market consolidation does not have a significant effect on US investors equity home bias towards the consolidation groups that include US markets. In addition, the stock market consolidation even increases US home bias toward the consolidation groups that exclude US markets. We also found that governance, indirect cost of investment, direct cost of investment, incentive of investment, financial crisis, and size are also important factors that impact HB.

The use of forward-looking information from option prices attracted a lot of attention after the 2008 financial crisis, which highlighting the difficulty of using historical data to predict extreme events. Although a considerable number of papers investigate extraction of forward-information from cross-sectional option prices, Figlewski (2008) argues that it is still an open question and none of the techniques is clearly superior. This thesis focuses on getting information from option prices and investigates two broad topics: applying machine learning in extracting state price density and recovering natural probability from option prices. The estimation of state price density (often described as risk-neutral density in the option pricing litera- ture) is of considerable importance since it contains valuable information about investors' expectations and risk preferences. However, this is a non-trivial task due to data limitation and complex arbitrage-free constraints. In this thesis, I develop a more efficient linear programming support vector machine (L1-SVM) estimator for state price density which incorporates no-arbitrage restrictions and bid-ask spread. This method does not depend on a particular approximation function and framework and is, therefore, universally applicable. In a parallel empirical study, I apply the method to options on the S&P 500, showing it to be comparatively accurate and smooth. In addition, since the existing literature has no consensus about what information is recovered from The Recovery Theorem, I empirically examine this recovery problem in a continuous diffusion setting. Using the market data of S&P 500 index option and synthetic data generated by Ornstein-Uhlenbeck (OU) process, I show that the recovered probability is not the real-world probability. Finally, to further explain why The Recovery Theorem fails and show the existence of associated martingale component, I demonstrate a example bivariate recovery.

The probability density distribution of stock returns is crucial in financial modelling and the estimation of financial risk measures. Numerous papers have been devoted to finding the best-fit distributional specifications of stock returns but no consensus has been reached in answering the question of whether there is a unique distributional family that fits all markets and market conditions. Similarly, numerous papers have been devoted to modelling tail risk but no consensus has been reached with regard to which methods provide the most accurate and reliable estimates. This research brings these two strands of the literature together by investigating how distributional specifications differ between the bull and bear markets, and between the developed and the emerging stock exchanges. It also contributes to our understanding of how the knowledge of distributional specifications informs the discussion on the best method of the VaR and ES estimation. In its empirical part, this research investigates the probability density distributions of daily equity returns for 19 developed stock exchanges and 19 emerging stock exchanges. It considers the period of 01 January 2000 to 31 December 2016 and then separately for the bull and bear sub-periods. The results show that there are considerable differences in the probability density distributions for the developed and the emerging stock exchanges. Moreover, the probability density distributions of stock market returns change as the markets switch between the bull and the bear market regimes. These changes in the probability density distribution specifications impact on the values of VaR and ES. This research sheds light on the shortcomings of commonly used VaR and ES estimation methods such as Historical Simulation and Extreme Value Theory.

Although a large body of literature has proposed various models to identify an impending financial crisis by studying systemic risk and contagion, scarce previous research has considered the possibility that banks can protect themselves during a financial crisis and therefore affect the propagation of losses through financial linkages, such as the interbank market. Drawing upon a subset of U.S. bank accounting ratios from 1992Q4 to 2011Q4, the thesis investigates banks' preemptive actions by analysing significant structural shifts in response to crises at the aggregated bank level. We've found Bank size does matter in context of applicability of banking accounting ratios serve as early warning signals. The results show that certain indicators such as 'leverage' and 'coverage' ratios are appropriate indicators for the detection of banking system vulnerabilities all banks. And nonperforming loans ratio (NPLs) additionally serves as an indicator for the timing of a crisis. The thesis also finds that whereas capital levels were closely monitored, heavy reliance of banks on wholesale funding is often overlooked. Banks accumulate liquidity to protect themselves from liquidity shocks and therefore contribute to (or mitigate) the onset of a crisis. Therefore, the impact of bank size and interbank lending on bank risk-taking are carefully examined; and a nonlinear (U-shaped) relationship is found. It adds empirical weights to the 'too big to fail' phenomenon. In addition to this, preemptive actions of large banks are found in the interbank market during the financial crisis. In other words, interbank lending is associated with substantially lower risk taking by borrowing banks in financial crisis, which are consistent with monitoring by lending banks. Finally, the thesis considers banks' liquidity creation during the interbank lending crunch. The author finds those same factors leading to precautionary liquidity hoarding also contributed to a decline in interbank lending: banks with net interbank borrowing positions rationed lending due to self-insurance motives and they offered higher rates to attract external funding; net lenders hoarded liquidity due to heightened counterparty risk. The author also proposes two on-balance proxies for liquidity risk: (i) the unrealized security loss ratio and (ii) the loan loss allowance ratio. Banks choose to build up liquidity in anticipation of future expected losses from holding assets. On the policy frontier, besides credit and securities lending programs targeted at the interbank market, the author proposes interbank lending subsidization.

The objective of this study is to provide a more comprehensive understanding of executive compensation plans in China. On one hand, it examines the determinants of compensation practices by supplementing the classical principal-agent theory with tournament theory and managerial power theory. On the other hand, it tests whether the adoption of equity-based compensation delivers better company performance for Chinese listed companies. Using compensation data from Chinese listed companies between 2006 and 2011, it is found that compensation level is strongly aligned with accounting-based performance. In particular, compensation and performance are more aligned at the higher hierarchical level. In addition, the level of compensation significantly rises with hierarchical level. It is also found that companies with the presence of the remuneration committee tend to use performance-based compensation. However, compensation and performance are less aligned when the size of the remuneration committee is smaller, and when the proportion of insiders on the remuneration committee is higher. Finally, it is found that company accounting-based performance is improved one year after adopting equity-based compensation. This study offers the following practical implications for policy makers and other practitioners. First of all, the board of directors and its remuneration committee should take account of market-based performance, as well as equity-based compensation, when designing compensation contracts for executives. In addition, policy makers may follow developed countries in implementing legal compulsion for constructing a remuneration committee through enacting laws. Finally, a clear and strong legal support for the appropriate composition and size of the remuneration committee is needed, in order to prevent the decision-making processes of this committee from being influenced by managerial power.

A firm’s participation in cartel depends upon the potential problems that may arise due to price fixing and the incentives provided to the management. The top levels of management such as the board of directors and the CEO are responsible for deciding if the firm will participate in the cartel and manage the corporate governance activities of collusive price fixing agreements. This study aims to identify which characteristics of the participating firms’ boards of directors and CEOs are associated with cartel formation. It analyses the empirical investigation of cartel participation of firms, taking into account corporate governance characteristics as such as board of directors’ characteristics, ownership structure, CEO characteristics, and CEO compensation scheme. The study is focused on UK cartel firms which has the highest representation in the sample. A total number of 150 cartel firms in 52 cases from all around the world between the years 1990 to 2008 are involved in this study, of which 114 are UK firms. Therefore, this study is dominated by UK firms. The challenge of this study is that the personal attributes of CEOs and boards can make a significant contribution to the risk profile of a cartel being formed. This indeed would be to ‘diagnose’ organisational culture in a quite radical direction. The study suggests and finds that some corporate governance attributes are associated with cartel formation. The results reveal consistency with prior researches, that cartel firms have different corporate governance relative to a control sample in the three years prior to cartel formation. Specifically, the study concludes that UK-based cartel firms characterised by having larger board size compared to non-cartel firms; lower percentage of independent directors (non-executive); higher average of board remuneration; less likely that cartel is formed by family-owned and controlled firm (large shareholders); having older CEOs represented on the board; having CEO who served a less number of years as a director; less likely to have a female CEO represented; more likely to have CEOs who’s combined CEO-chairman position; and a higher average of CEOs bonuses and compensation packages.

The pension fund industry affects an enormous proportion of the world population and consists of more than $20 trillion of assets globally. Hence the performance of pension funds has major effects. This thesis investigates the performance of personal pension funds in the UK, one of the leading pension industries in the world. It identifies two important factors that are largely overlooked in the related literature: fund’s age and management outsourcing. Based on the ‘career concerns’ argument by Holmström (1999), it tests whether fund performance is age dependent, and in particular, whether funds perform better when they are young than when they ‘mature’. Moreover, one of the major features of the pension fund industry has been the enormous growth in management outsourcing. This thesis addresses this issue and tests whether there are differences in the performance between outsourced and internally managed funds, and investigates potential determinants of the decision to outsource. It argues that a ‘fashion to outsource’ may be partially responsible for the trend. Given that a CAPM-APT based analysis is not appropriate for the data at hand, the thesis employs three alternative performance measures, two of which utilise fund-specific benchmarks. The results show that risk-adjusted returns are statistically insignificantly different from zero but funds significantly outperform their benchmarks. Performance is found to change with fund’s age but this relationship is more complex than a simple ‘career-concern’ argument would predict. Risk-adjusted returns of the internally managed and the outsourced funds are both indifferent from zero but the outsourced funds are better at outperforming their benchmarks. Lastly, there is some evidence of a ‘fashion to outsource’. This research is novel in several ways. It provides the first detailed investigation of the performance of the UK personal pension funds. It is the first to address the question of potential factors (other than managerial characteristics) that may explain fund performance. It discusses the rise of outsourcing in the industry and analyses differences/similarities between performance of the outsourced and the internal funds. Finally, it is the first to investigate whether the rapid increase in outsourcing is due to ‘fashion’.