Essays on current issues affecting banks and pensions

Olukuru, John Loitubulu (2013) Essays on current issues affecting banks and pensions. PhD thesis, University of Glasgow.

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Abstract

The 2008 financial crisis had a significant impact on financial institutions. Banks have been in the limelight when some of them were liquidated and pensions funds have not been immune to the effects of the financial crisis. In the wake of the financial crisis, governments, regulators and political commentators have pointed an accusing finger at the securitization market - even in the absence of a detailed statistical and economic analysis. The eight years leading up to 2008 saw a rapid growth in the use of securitization by UK banks. We aim to identify the reasons that contributed to this rapid growth. The time period (2000 to 2010) covered by our study is noteworthy as it covers the pre-financial crisis credit boom, the peak of the financial crisis and its aftermath. We also investigate how the banks have gone about their fund-raising in support of their investment without signalling the value of the bank to the investors. This involves critical financing decisions about their main financing sources: Debt and equity issuance. We attempt to establish which decision banks have taken in the recent years. We do this by analysing financial data of banks in the US for the period 2001 to 2011. We examine how banks choose between the financing instruments available at a given time and in different financial contexts. This provides evidence regarding the difference between financing options available for investment opportunities that banks have at a given time. Thus, we show that internal finance is preferred to external finance, and that the theory regarding the impact of asymmetric information holds for banks on financing decisions as modelled by Myers and Majluf (1984). The steep drop in financial markets in 2008 coupled with the ongoing economic recession has also posed immediate challenges for pensions funds. We therefore consider how safe the pension funds are in the current period of high stock market volatility. We use the case of the Dutch pension funds since it is ranked to be the best managed pension funds in the world. The pension risk for the firms together with the market risk will give an idea of the impact of market volatility on pension asset allocation. It is expected that most firms who allocated a large percentage of their assets to equity were negatively affected by the stock market crash. Hence, pension funds are safe investing elsewhere other than in equities despite the high returns.

Item Type: Thesis (PhD)
Qualification Level: Doctoral
Keywords: Securitization, capital structure, pensions
Subjects: H Social Sciences > HG Finance
Colleges/Schools: College of Social Sciences > Adam Smith Business School
Funder's Name: UNSPECIFIED
Supervisor's Name: Cerrato, Prof. Mario
Date of Award: 2013
Depositing User: John L Olukuru
Unique ID: glathesis:2013-4635
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 08 Nov 2013 11:13
Last Modified: 09 Jan 2014 14:57
URI: http://theses.gla.ac.uk/id/eprint/4635

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