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The research investigates the effect of overconfidence, engagement, and teamwork on project entrapment. The fundamental factors in the research include project entrapment (decision to continue or abandon a failing project), managerial overconfidence, engagement and team's coordination and conflicts. Little research has been conducted to analyse the combined effect of overconfidence and engagement on project entrapment, and there is lack of research on team's decision on project entrapment specifically. Therefore, my research adds to the literature by developing a game-theoretical model of an individual manager and a model of a team to analyse their project investment decisions. By solving from backward induction, I discover that the manager's choice on continuing or abandoning the project depends on the different level of overconfidence and engagement. The model also reveals ambiguous effects of overconfidence on firm's value. A lower level of overconfidence can destroy firm's value while higher level of overconfidence increases firm's value. I extend the model to a team's decision, in which I find a team with one overconfident manager and a rational manager may have conflicting decisions and souring relationship depending on the manager's level of overconfidence. I further implemented two real-effort experiments, one for an individual's decision and the other for a team's decision, to test the propositions in the theoretical models. The experiments demonstrate the analysis of effect of overconfidence, engagement, and teamwork in the model. The experiments also provide pilot support and bring a potential direction for future research. The significance of this research is that it provides both theoretical and empirical evidence on the effect of overconfidence, engagement on individual manager's decision and team's decision. I close the analyse by discussing future research directions and the possibility of applying my research in practice.

A peculiarity of the US banking system is that it spans from a few large and systemically important banks to many, small community banks. Changes in the US banking sector during 1990s have diminished the number of community banks. During the banking crises of late 1980s to early 1990s and the Global Financial Crisis, over 2,500 community banks ceased operations. However, community banks still account for 92 percent of the total number of banks, suggesting that they are a fundamental part of the US banking system. A striking feature that differentiates community banks is that they are considered to be "relationship bankers". They are small in terms of their asset size and operate within limited geographic scope. They engage mostly in traditional loan making and deposit taking activities and their ownership structure is concentrated. In this thesis, we investigate how the uniqueness of the community banking business model translates in differences in the risk profile, efficiency and market power of community versus non-community banks. First, we compare insolvency, credit and liquidity risk of community banks to their non-community counterparts using an array of bank-specific, macroeconomic and market structure variables. We uncover strong evidence that community banks have lower insolvency and credit risk but higher liquidity risk. Furthermore, the community bank risk profile shows important similarities and differences in the sensitivities to an extensive array of financial indicators. Second, we compare the two bank types on the basis of cost efficiency and we further decompose efficiency into a persistent and a residual component; the former capturing market structure and regulatory changes, the latter reflecting managerial performance. We find evidence of higher efficiency for community banks and the decomposition reveals that community banks benefit from superior managerial capabilities and from developments at the regulatory front. The third study analyses the relationships between capitalisation, stability and efficiency in the US banking and introduces for the first time the effect of competition on that nexus. By including business model dynamics in the above nexus, we investigate how the relationship approach adopted by community banks fares against its competitors. Empirical evidence from this study confirm our results from the two previous studies on stability and efficiency and bring to light novel findings for higher market power for community banks. Our findings have important implications for regulators in tailoring the supervisory practices to the unique characteristics and different nature of challenges that each bank group faces.

This thesis employs a behavioural finance and emotional finance approach to analyzing the effect of investor biases and emotions on trading behaviour and performance. Furthermore, it incorporates a network approach to consideration of herding and emotional contagion across financial markets. The research is undertaken to advance both academic understanding and, in the spirit of the Engineering Doctorate (EngD), practical investment product development for the sponsoring organization (CheckRisk, see https://check-risk.com). This thesis reviews the relevant literature in behavioural finance, emotional finance and neuro-finance, and delves into the nature of networks, and of risk, risk-management and decision-making under various states of emotion and uncertainty. Building upon this literature review, our main experimental contributions to the field concern the development of a market risk-profiling system, based around behavioural questionnaires and a novel neuro-finance trading game. We tested our trading game on students, which provided a 'proof of concept' for the product. Next, we discuss how CheckRisk could market this risk-profiling product towards real-world traders and independent financial advisers (IFAs). Our research initially focuses on biases and emotions of individual traders, and then moves on from the 'micro' (individual traders) to the wider 'macro' (market-wide effects of emotional contagion across investors) areas of interest, particularly herding behaviours in financial markets. To explore these cascading phenomena, we employed network analysis and agent-based modelling. We suggest that this approach provides a basis for future academic and practitioner research, combining biases at the individual level (from the market risk-profiling system) with market-wide emotional contagion.

Innovation is a driving force for firm's improved financial, organisational and competitive performance. Thus, firms are increasingly interested in better understanding the environments in which they operate, enablers that enhance and challenges that hamper their innovative activities. As firms search for innovative ideas, entrepreneurs are faced with decisions related to access to finance, embedding in 'network of collaborating actors', while at the same time navigating challenges and utilising available enablers to enhance firm's innovative capabilities. In this thesis we explore these themes and investigate three concepts: 1) entrepreneur's choices to diversify firm's funding base; 2) firm's decisions to collaborate along its supply chain and 3) manager's awareness of enablers and challenges to innovation. The core of this thesis is built on three papers which each explores one of these concepts using unique survey data from Small and Medium Enterprises in Poland and Czech Republic. We adopt multivariate analysis and draw implications from managerial and policy perspective. From the findings, we build a link to finance supply and demand literature and add a novel factor (diversified funding base) to the literature on influences of innovation. We observe curvilinear relationship as firm over-diversifies its funding base and we assess its impact on innovation. In the second paper, we connect our study to supply chain literature and explore firm's decisions to embed into upstream or downstream associations. Our findings confirm dynamic relationships in supply chain relationships and we discuss impacts of over-engagement in certain associations. Finally, we recognise that entrepreneurial choices are influenced by manager's awareness of certain enablers and challenges to innovation. We investigate these in our final paper and discuss certain managerial and policy recommendations. The results of this study add to the literature on sources of innovation and include additional measures in which innovation can be enhanced or optimised.

Previous literature has acknowledged that ageing is associated with declines in cognitive ability and deliberative processes and predicted that older adults could more likely exhibit decision biases. Hence, older adults could find increasingly challenging the delineation of their financial plan and make inappropriate choices when faced with financial decisions. Accordingly, it seems relevant to investigate the processes that underlie decision-making and can counteract the misleading tendencies that drive people's behaviour. This project focuses particularly on the relevance of having awareness concerning the way individuals decide and explores how age-related variance in metacognitive abilities impacts upon financial decision-making. This thesis introduces a novel experimental method to investigate metacognition in decision-making tasks and reports the results of a series of empirical studies assessing the age-related effects that metacognition has on financial choice behaviour and risk preferences at the individual level and on strategic interactions at the social level, so as to explore metacognitive processing in simulated real-world decision scenarios. Considering that metacognition can be broken down into subprocesses, this project also aims to ascertain which particular processes are affected by age and which may act as buffers against cognitive decline. This goal is achieved by exploring both self-reported measures on the functioning of these subprocesses and data gathered with the electroencephalography (EEG), directly measuring the neural markers of metacognitive processes. Taken together, the results suggest that metacognition has a crucial role in decision-making. More precisely, the main findings explain under which conditions high metacognitive skills act as moderators of other psychological variables that influence choice behaviour and when social non-cooperative interactions benefit, in terms of wellbeing, from the presence of social metacognitive competences.

Customer revenge is a response to perceived wrongdoing that is almost always accompanied by intense emotional states. When harm is experienced with a strong sense of unfairness, such as after severe service failures and failed service recoveries, customers are left to cope with a serious stress. One major theme that emerges from research in negative affect is that individuals who feel bad will spontaneously try to remedy or repair their emotions. The argument advancedin this thesis is that customer revenge is employed in the service of emotion regulation. It is argued that individuals have internalized beliefs about the cathartic properties of revenge and engage in such behaviour with the intent to feel better. In the case of revenge, the avenger seeks to eliminate the painful emotions and to restore the disturbed psychological balance. Revengeful acts provide individuals with a cathartic release because they externalize negativeemotions that build up inside the self and influence the psyche. Hence, this thesis suggests that when customers are personally harmed and hurt by the firm, the goal of emotion regulation may be activated and become the prime driver of customer revenge. Over five studies, the eleven hypotheses derived from the theoretical model proposed were tested. The studies employed a scenario-based experimental design while the sample consisted of UK university students. This thesis investigates first, the mediating role of certain discrete emotions in translating perceived unfairness into customer revenge. It then, examines the mainassumption of the thesis, i.e. whether customer revenge is driven by emotion regulation goals. Finally, it tests boundary conditions under which emotion regulation goals guide customer revenge: the role of goal conflict in both single and sequential revengeful behaviours. Findings from the studies demonstrate that: 1) the moral emotions of anger and contempt arise from perceptions of unfairness and in turn, influence customer revenge both directly and indirectly through the mechanism of forgiveness; 2) customer revenge is employed in the service of emotion regulation; 3) accessibility of conflicting goals influence customer revenge in opposite directions such that accessibility of emotion regulation goals results in a higherlikelihood of customer direct revenge, but no higher likelihood of indirect revenge, than the accessibility of impulse control goals; 4) when an initial customer action towards the goal of emotion regulation is interpreted as goal progress, individuals subsequently are less motivated to engage in customer revenge than when the same action is interpreted as goal commitment. These findings have important theoretical and practical implications.

This focuses on corporate dividend policy. The first empirical chapter analyses the information content of dividend announcements and factors that drive dividend changes in Oman, as a unique environment, for the period 2000-2011. Our work complements, and contrasts with, an existing study (Al-Yahyaee et al., 2011), which demonstrates a positive correlation between dividends and stock prices in Oman, in support of the signalling theory. Employing multiple methods from earlier studies, we demonstrate that there is some relationship between dividends and future profitability. However, after controlling for the nonlinearity in the profitability process, we find no evidence for the signalling theory of dividends. Furthermore, our analysis affirms the importance of past and current profitability in influencing the magnitude and the propensity to change (increase or decrease) dividends in Omani firms. Moreover, the results provide no evidence of the life cycle theory as an important factor that influences dividend changes in the emerging market of Oman. The second chapter examines the relationship between managerial overconfidence, dividends and firm value by developing theoretical models that examine the conditions under which managerial overconfidence, dividends and firm value may be positive or negative. Furthermore, the models incorporate moral hazard, in terms of managerial effort shirking, and the potential for the manager to choose negative NPV projects, due to private benefits. Our models demonstrate that overconfidence can lead to higher dividends (when the manager is overconfident about his current ability) or lower dividends (when the manager is overconfident about his future ability). Furthermore, our results demonstrate that managerial bounded rationality could impact this relation. The final chapter empirically examines the effect of managerial overconfidence on UK firms’ payout policy for the period 2000 to 2012. The analysis incorporates, in addition to common firm-specific factors, a wide range of corporate governance factors and managerial characteristics that have been documented to affect the relationship between overconfidence and payout policy. Our results are robust to several estimation considerations. The findings show that the influence of overconfident CEOs on the amount of and the propensity to pay dividends is significant within the UK context. Specifically, we detect that there is a reduction in dividend payments in firms managed by overconfident managers compared to the non-overconfident counterparts. Moreover, we affirm that cash flows, firm size and profitability are positively correlated, while leverage, firm growth and investment are negatively correlated with the amount of and propensity to pay dividends. Interestingly, we demonstrate that firms with the potential for undervaluation reduce dividend payments. Some of the corporate governance factors are shown to motivate firms to pay more dividends, while these factors seem to have no influence on the propensity to pay dividends. The results also show that in general higher overconfidence leads to more share repurchases but lower total payouts. Overall, managerial overconfidence should be considered as an important factor influencing payout policy in addition to other known factors.

Existing research demonstrates that corporate financing decisions influence the cash-flow rights and control rights of the securities issued by companies differently and that the same corporate capital structures and/or ownership patterns have diverse effects and aims across countries, especially when emerging countries are analysed. The 1research purpose of this investigation is to understand how corporate financing decisions are affected by ownership structure in emerging countries. For this purpose, two game-theoretic models are developed and an empirical test is carried out. The first theoretical model analyses a number of key factors inducing a separation of ownership and control in emerging countries. This model argues that large private benefits of control, extreme risk, low investor protection, inefficient capital markets, and governments sympathetic to incumbent management at the expense of outside investors are factors contributing to create a separation of ownership and control in emerging markets. The second model examines the positive side of network creation through the analysis of the interaction of empathy and economic gains. This model identifies important factors promoting the formation of business groups in emerging countries. The empirical study is a two-fold analysis. Firstly, it tests the effects of well-known determinants of capital structure on debt; secondly, the effects of ownership and control in the financial policies of emerging countries are analysed. To do so, corporate financial data and firm-level data of Mexican publicly traded companies for was gathered. As expected, asset tangibility, company size, profitability and market to book ratio proved to be important firm-specific capital structure determinants, similar to the case of developed countries. Business risk and effective tax rate are key firm-specific capital structure determinants, as emerging markets research has identified. The two factors proposed by this researcher, viz. consolidation and liquidity are significant in the determination of capital structure of the Mexican publicly traded companies. Further, almost two thirds of Mexican publicly traded companies are family controlled. When families are large shareholders, they favour debt financing; whereas when families are the majority controlling shareholder they prefer issue shares, the latter supports the risk management argument proposed by Hagelin et al. (2006) and Céspedes et al. (2010).

Since the dividend irrelevance theory of Miller and Modigliani (1961), academics and practitioners still have little understanding of the managerial incentives underpinning dividend policy. Black (1976) observed, “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together.” This thesis aims to shed additional light on the dividend puzzle. Accordingly, two theoretical models have been developed to help explain why firms pay dividends or repurchase their own shares. The models consider the case in which the managers of a high-quality firm (firm H) and a low-quality firm (firm L) choose to use corporate cash flows to pay dividends, repurchase shares, or invest in a real project from which they can earn private benefits. I focus on the case in which firm H has a positive NPV project whereas firm L has a negative NPV project. In the second model, built on Fairchild and Zhang’s (2005) work, in which the managerial payout decisions depend on the relative magnitudes of dividend and repurchase catering premia, I demonstrate that a myopic manager of firm H may pass up a positive NPV project in order to cater to investor demand for dividends or share repurchases (an adverse selection problem). In addition, I show that the agency cost of free cash flow can be mitigated if the dividend-catering premium is sufficiently high. That is, firm L’s manager will have a strong incentive to return excess cash to shareholders rather than invest it in a negative NPV project. In the first model, developed in spirit of Isagawa (2000), I show that paying dividends is a dominated strategy for firm H, regardless of the managerial weight parameter. If the manager is myopic, firm L will choose to repurchase shares at the detriment of existing shareholders. If the manager is farsighted, on the other hand, firm L will choose to pay dividends. I also consider the case in which investors are irrational in that they do not update their beliefs upon observing one firm repurchasing shares while the other firm paying dividends. The model shows that, in inefficient market, firm L will not mimic given that firm H repurchases shares since it cannot obtain any benefit from doing so. In the second model, built on Fairchild and Zhang’s (2005) work, in which the managerial payout decisions depend on the relative magnitudes of dividend and repurchase catering premia, I demonstrate that a myopic manager of firm H may pass up a positive NPV project in order to cater to investor demand for dividends or share repurchases (an adverse selection problem). In addition, I show that the agency cost of free cash flow can be mitigated if the dividend-catering premium is sufficiently high. That is, firm L’s manager will have a strong incentive to return excess cash to shareholders rather than invest it in a negative NPV project. Then, I investigate dividend changes in Thailand over the period 2002-2005. To test the signalling and free cash flow hypotheses, I first analyse profitability changes around dividend changes and benchmark them with control firms, and examine the relation between dividend changes and the past and future profitability. Consistent with Benartzi et al.’s (1997) evidence in the U.S., dividend changes in Thailand do not signal future profitability but rather the past performance. Then, I examine the determinants of dividend changes and firm’s decision to change dividends. I also investigate the short-run and long-run stock price performance of dividend-changing firms, and the relation between announcement returns and hypothesised independent variables. Finally, I examine firms’ investment behaviour following dividend changes. The results do not support the view that dividend changes signal future profitability. Overall, the findings are broadly consistent with the free cash flow hypothesis rather than the signalling hypothesis. Additionally, I provide preliminary evidence on open-market share repurchases (OMRs) in Thailand over the period December 2001 to January 2007. I find that stock prices react positively to OMR announcements and continue to increase in the longer term, suggesting that stock market underreacts to the signal conveyed by the managers of repurchasing firms. Comparing the actual repurchase cost with the costs of benchmark portfolios, I find that the actual repurchase cost is the lowest. This finding suggests that the managers of repurchasing firms have substantial ability to time the market.

Financial and industrial economists are increasingly recognising the interaction between capital structure and firms' strategies in the product market. A debate exists regarding the nature of the relationship between firms' product market power and financial leverage. Particularly, researchers have asked whether the relationship is positive, negative or non-linear. This thesis contributes to this research agenda by developing game-theoretic models, and conducting empirical tests. Specifically, the thesis examines the effects of market power on a firm's use of long-term debt.

This research investigated the potential effects of managerial overconfidence and regret aversion in a corporate capital investment context. Three fundamental decision problems are analysed: Project selection (accepting or rejecting a proposed investment), managerial effort, and project evaluation (continuing or abandoning a failing investment). Very little previous research has looked at the role of psychological biases in corporate finance decisions, and the joint analysis of the two studied biases within one model is also a fairly novel contribution. Solving by backward induction a theoretically derived model integrating these decisions as well as overconfidence and regret aversion, I outline the conditions under which a biased manager will make choices that are inefficient from a shareholder value perspective; however, the model also reveals that, in combination, the two psychological phenomena may off-set such that the optimal outcome can be obtained. I further demonstrate how my theoretical propositions can be supplemented with empirical data by means of a survey and two different experiments. The survey of UK managers with capital investment responsibility exposes the pervasiveness of overconfidence and regret aversion within the sample group. In addition, indications for potential associations between these biases and certain capital investment decision choices are found. To my knowledge, no such empirical study exists so far. To explore potential causal relationships between overconfidence and effort, overconfidence and project selection, as well as regret aversion and project evaluation choices, two experiments were designed and conducted. The experimental data provides tentative support for the model and indicates the potential value of largerscale future research. I close by discussing the implications of my results for corporate governance and suggesting avenues for future work in this area.