Department of Business and Management

Finance, Accounting and Banking

Our experts provide cutting-edge research in Finance, Accounting and Banking in collaboration with leading financial institutions within the City of London and overseas.

Finance research focuses on corporate governance in emerging markets, advanced financial econometrics, financial risk management and mathematical finance. We have expertise in market risk analysis, portfolio optimization and in industry-related mathematical research such as real option and decision analysis, multi-asset option pricing, new simulation methods, stochastic volatility and hedging.

Research in Financial Accounting has an international focus, particularly in the area of financial reporting practices, regulatory systems and global standardisation. It is applied to a range of private, public and non-profit organisations.

Sussex is also one of a few leading research Universities in the UK that focuses their resources on theoretical and empirical research in Banking. The research outputs serve as the launch-pad for facilitating knowledge transfer from academics to practitioners and vice versa. The core research areas include bank competition and efficiency, regulation, banking crises and bank restructuring.

Finance

Sussex has a broad research expertise in Finance research, with a particular emphasis on practical problems that are of particular relevance to the industry. Several models developed by the finance group are employed by the industry and our faculty frequently act as consultants for banks, asset managers, software companies, exchanges and other financial institutions.

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Corporate Governance and Corporate Finance

Corporate governance research links with either emerging markets finance or market efficiency and microstructure analysis. The former adopts a uniquely inter-disciplinary approach from the agency, stakeholder and transaction cost perspectives and the latter relies on quantitative analysis of high frequency stock market trading data to advance the understanding of corporate governance factors as private information risk factors, and to analyse their impact on price discovery. Research linking corporate governance to market microstructure also focuses mainly on emerging markets, where market trading platforms could support an efficient market but poor corporate governance quality slows down the price discovery process.

In corporate governance our research spans board remuneration and expropriation of private benefits of control, institutional and firm governance determinants of initial primary offering (IPO) listings and levels of IPO under-pricing. While much of the geographical focus of research has been on Africa and Asia the general context has been in cross-country comparative studies drawing from insights from across regions and the wider world. This has led to extensive collaborative relationships with stock exchanges worldwide.

Financial Markets and Instruments

Markets for exchange-traded products have been growing very rapidly during the last decade. Our research helps to understand their highly leveraged, derivative-like risks and the threats and opportunities they present to traders, investors and exchanges. We have a patented model for pricing active ETFs and, in collaboration with a large bank, we have performed one of the most extensive analysis of the VIX futures ETNs to date.

Other research focusses on modelling price and volatility dynamics (with novel applications of both Bayesian methods and wave functions) advances in high frequency data analysis based on panel methods, and characterisations of speculation using limited dependent variable models.

Mathematical and Quantitative Finance

Theoretical research in mathematical finance at Sussex focuses on multi-asset option pricing, a new method of simulation called Random orthogonal Matrix (ROM) simulation which is much faster than Monte Carlo, and ‘nice’ moments swaps which are much easier to price and hedge than ordinary variance, correlation and skewness swaps. It also encompasses financial applications of decision theory, for instance with flexible decision trees that can be designed to value any real option with very few restrictions on the option type, the underlying price process or the utility. applied research on real option analysis includes the value created through joint ventures, through the development of real estate and the valuation of environmental decision problems such as harvesting or switching energy resources in power generation.

Another novel aspect of Sussex’s mathematical finance research is multiple interest rate analysis (MIRA), i.e. the use and meaning of all solutions (interest rates) to the time value of money (TVM) equation. Applications of MIRA, include best practice and sound policy advice in various areas of finance and economics including retail and corporate finance, capital budgeting decisions, appraisal of long-dated public investment projects, capital valuation theory, and fixed income analytics (bond risk).

Statistical Finance and Financial Econometrics

We have expertise in a wide variety of econometric and statistical methods including Markov Chain Monte Carlo, Kalman filtering, general portfolio optimisation criteria and resolution methods, quantile regression and cointegration.

Developments in statistical finance and econometric theory include a new class of generalized beta-generated distributions (with risk model risk applications), analytic moments for the returns and variances generated by generic GARCH processes (with VaR applications), and the unification of stochastic volatility models for futures, options on futures, volatility futures and options on volatility futures (with asset pricing applications).

Accounting

Accounting research at Sussex is interdisciplinary and applies the theories and methods of financial economics and organisational behaviour to issues relating to performance and control in private public and non-profit organisations.

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Financial Accounting

Financial accounting research topics include financial reporting quality, accountability and performance measurement applied to a range of private, public and non-profit organisations. Management accounting research focusses on social and behavioural issues relating to change in accounting practices and in information systems, and in the implementation of new systems, techniques and practices.

Management Accounting

Management accounting has a strong orientation to case study research, social science and organisational theory. At the methodological level, we are primarily involved in critical and interpretive research, which aims to understand and explain management accounting and information systems as socially created phenomena. Consequently, we use various types of social theory in our work. Both institutional theory and actor network theory are particularly prominent at the present time.

Current work is concerned with issues relating to processes of organisational change and resistance to new systems implementation; the implementation of ERP systems, their impacts and the opportunities they provide for organisation change; concepts of world class manufacturing; the development of a cultural political economy of management accounting; connections between management control, culture and ethnicity; and management accounting in the context of economic development. There is considerable experience of field study research, much of it being undertaken within business organisations as well as in public sector and other not-for-profit organisations.

Banking

Banking epitomises a intensively competitive and rapidly changing industry. Sussex contributes at the front frond of research and analysis to a variety of issues of interest to this dynamic industry. Experts in the group publish in highly ranked journals, participate in international conferences and forums, whilst frequently consult research centers, financial institutions and government.

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Bank Performance, Diversification, Competition and Risk

Sussex provides scholars on a wide group of research themes in banking so as to enhance knowledge and understanding of the main underlying theoretical and applied concepts. In some detail, there exists a plethora of different methodologies in relation to bank performance, i.e. DEA, SFA, Directional Distance Function. Sussex provides experts in bank performance that contribute to the field with reference to issues such as risk, competition and diversification. Diversification could improve bank performance as different kind of services and international subsidiaries could make the most of economies of scope and scale but they simultaneously imply more risk. Along these lines, it is of interest to examine how competition is related to performance, competition and diversification as all are interrelated.

Financial Crises, Provisioning and Regulation

Recent financial turmoil highlighted in the most dramatic fashion the importance of sound bank regulation. We would develop theoretical and empirical models so as to examine the roots, consequences and remedies for the financial crises with the special emphasis on the bank regulation. Financial regulation seeks to ensure that financial institutions remain solvent by building up reserves. The regulatory system also provides deposit insurance and lender-of-last-resort facilities. Market discipline imposed by investors is seen as a complement to such regulation. However, bank balance sheets are opaque because the quality of loans and investment portfolios are difficult to assess. Along these lines provisioning is interesting and key to sound financial markets yet hard to assess. Loan-loss provisions are directly linked to a financial institution’s current loan portfolio. They can often be volatile and depend crucially on short-term fluctuations arising from changes in the solvency and creditworthiness of individual borrowers, more general macroeconomic conditions and managerial discretion.

Burdens and Drivers of Bank Acquirers

Banks have extensively been involved in M&A activity since that has been the way for expansion at both local and international level. The recent financial crisis has negatively affected the level of acquisitions worldwide. To that extent, it is of great interest to examine how after the period of financial crisis banks decide to buy other banks. Lately, there has been a survey carried out by Financial Times, which illustrates the board’s opinion regarding the burdens for entering in M&A deals. The most important to note was the regulation and taxation systems which pose extremely pressure and costs to the acquirer. Moreover, boards express a high preference for emerging markets indicating China one of top goals even though Chinese banks are considered to be very difficult for business negotiation of such kind. M&A activity transforms banks into multiproduct financial service conglomerates with offerings including retail banking, asset management, brokerage, insurance, investment banking, and wealth management. 

Government Intervention and Executive Compensation in Banking

The financial crisis exposed that in some cases CEO’s and board’s incentives contributed to the shareholders’ losses. Gaps in regulation could offer some explanations as gave to bank managers the opportunity to take risks, which would not have been taken if there were enough capital and liquidity restrictions. However, CEOs and members of the board also hold significant amount of shares. The structure of executive compensation could be the key as it is likely that it affects the behavior of senior managers when formulating bank strategy. Recent research tests whether there is link between compensation and bank behavior utilizing measures related to the value of executive share options, or some ratio of share options to total compensation. In addition, governments’ bank bailouts in recent years have reignited the debate on executive compensation and some actions have been put forward that go as far as to cap such compensations.