Essays on international financial markets, firms' capital structure and exporting decisions

International finance studies the dynamics in the areas such as international portfolio diversification, foreign investments, global financial systems, exchange rates, etc. This thesis brings together a set of chapters that summarises and synthesises varied areas of international finance maintaining a balance between the micro- and macro-level studies. This thesis is composed of three main empirical chapters contributing to varied aspects of international finance, mainly the areas of international portfolio diversification and home bias puzzle; development of bond markets and access to external finance; exchange rate uncertainties, output volatility and exports. Chapter 1 provides an outline and introduction of the thesis. Chapter 2 provides an extensive literature review on home-bias puzzle, explains the evolution and existence of home-bias puzzle, and gives various institutional and behavioural-based explanations which are considered as the main reasons for the existence of this puzzle. It discusses the advantages of international portfolio diversification and also the disadvantages of under-diversification in international portfolios. It gives a detailed empirical literature on the home bias puzzle and the relation between education and portfolio diversification. Further, this chapter empirically analyses a panel of 38 countries over a period of 2001-2010 to study the impact of different levels of education on home bias and international portfolio diversification. The results highlight that education is crucial in reducing equity home bias. After dividing the countries on the basis of their stock market capitalisation the results show that less developed countries with more university graduates have lower equity home bias. Finally, the results show that the benefits of education are larger during the recent financial crisis for the less financially developed economies. Chapter 3 provides a detailed analysis of the trends in Asian financial markets since the 1990s. It provides the main objectives of the Asian bond market policy initiatives. It also gives a detailed empirical literature of external finance, bond market development across the world and external finance-investment spending nexus. This chapter empirically analyses the impact of policy initiatives co-ordinated by Asian national governments on firms' access to external finance by using a unique firm-level database of eight Asian countries- Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand over the period of 1996-2012. Using difference-in-differences approach and controlling for firm-level and macroeconomic factors the results show a significant impact of policy on firms' access to external finance. After splitting firms into constrained and unconstrained, using several criteria, the results document that unconstrained firms benefited significantly in obtaining external finance as compared to their constrained counterparts. Finally, the results show that the increase in access to external finance, after the policy initiative, helped firms to raise their investment spending, especially for unconstrained firms. Chapter 4 focuses on how exporting decision of firms are affected by volatility at the macro and micro levels, using a rich dataset of UK manufacturing firms for the period of 1990-2009. The results show that both types of volatility have an adverse impact on firms’ real export sales. After taking into account firm-level heterogeneity, the results show that the negative impact of exchange rate and firm volatility on exports is higher for constrained firms as compared to unconstrained firms. Further, this chapter considers the European Exchange Rate Mechanism (ERM) crisis of early 1990s and the global financial crisis of 2008. The results indicate that during the ERM crisis constrained firms face a significant adverse impact of exchange rate volatility on exports, while the impact of firm-level volatility is mostly insignificant. On the contrary, during the global financial crisis, constrained firms face a significant negative impact of firm-level volatility on exports and an insignificant impact of exchange rate volatility on exports. Finally, Chapter 5 provides the conclusion of the thesis highlighting the contributions, implications and future research avenues of each empirical chapter.