WEEK 7 Assignment
DUE 4/10 FRAMEWORK
RESEARCH DESIGNS AND METHODS
Revisit the articles you have found for both of your remaining projects and
focus on their design and methods. Review them, noting differences and
similarities as well as feasibility.
You will need to refer to this information in order to complete both of the
remaining projects, which are due in Weeks 8 and 10, respectively.
For this Assignment, you will for your two remaining projects state:
The theme, topic, and issues
Rationale
Justification
Purpose
Research question
Nature of the study
Data collection
RESOURCES
Be sure to review the Learning Resources before completing this activity.
Click the weekly resources link to access the resources.
WEEKLY RESOURCES
NOTE
Include proper APA citations and peer-reviewed references.
Week 7: Research Designs and Methods
Hints for Week 7 Discussion
Example (extract)
Theme: Special Topics in Corporate Finance
Topic: Mergers and Acquisitions (M&As)
Issues: Sources of synergies in M&As; Distribution of synergies in M&As
I reviewed the article “The Shareholder Value Effects of Using Value-Based
Performance Measures: Evidence From Acquisitions and Divestments”
(Knauer,
Silge, & Sommer, 2018) for my discussion post. The focus of this article is on
the
impact of value based (VB) performance measures on value creation in
mergers
and acquisitions (M&As). The authors started with the overarching research
question of whether adoption of VB performance measures positively affects
shareholders value. In their review of the literature, the authors concluded
that
research evidence about the impact of VB performance measures on
shareholders’ value is both limited and inconclusive mainly because it is
difficult
to isolate the effect of VB performance measures from other confounding
variables over the long-run. To address this shortcoming in prior research,
the
authors suggested to “adopt an event-study methodology to investigate
whether
using VB performance measures positively affects shareholders’ valuation of
the
firm…” (p. 44), and the event that they consider for this investigation is
M&As.
This research was quantitative with event-study as the design. The authors
developed their hypothesis by arguing that since in an M&A the price is the
most
determinant of value creation, and since the use of VB performance
measures
sets a ceiling to the purchase price from the shareholder’s perspective,
M&As by
firms that follow VB performance measures are more likely to create value
for
their shareholders. This idea directed them to develop two hypotheses. The
first
hypothesis was stated as “ H1. Market reactions to announcements of
acquisitions will be positively associated with the acquiring firms’ use of VB
measures compared with non-use” (p. 46). The authors didn’t craft their
second
hypothesis. Reading their data analysis section, I gathered that if they would
have stated their second hypothesis, it would have had the same verbiage as
the
first hypothesis with the difference that instead of the term acquisitions, they
would have used the term divestments. Another issue with their hypothesis
statement was that they didn’t state it in the conventional null and alternate
hypotheses.
To test their hypotheses, the authors examined acquisitions and divestments
of
German HDAX companies that are announced and completed in the 2003–
2012
period. HDAX is a stock market index that consists of the 30 largest German
blue-chip stocks. When both the acquirer and seller are listed on HDAX, they
consider the transaction as both acquisition and divestment. The sample size
originally came to be 561 M&A transactions during the sample time period.
After
eliminating the companies that did not meet the authors’ conditions, the
final
same size examined was a total of 235 transactions consisting of 128
acquisitions and 107 divestments.
Data analysis was performed by following the MacKinlay (1997) approach.
The
authors calculated cumulative abnormal return (CAR) surrounding the event
date, and then developed a multiple regression model with CAR as the
dependent variable and VB, as well as 15 other relevant factors, as the
independent variables. The findings were that (a) in the case of acquisitions,
the
CAR was significantly higher for acquirers adopting VB performance
measures
as compared to the ones not adopting VB performance measures, and (b) in
the
case of divestments, there was no difference in the CAR of the two groups.
This study contributes to the literature as it provides a better understanding
of
why some M&As create value for the shareholders by including the VB
performance measures as one of the relevant factors. The findings may also
help
the shareholders of acquiring companies with their decisions on approving a
proposed M&A.
One major shortcoming of this study is that all the independent variables in
the
multiple regression model are related to nonsystematic risks. There is no
variable
in the model to account for relevant systematic risk factors. This is especially
important as the time period of the study includes the year 2008, referred to
as
the year of financial markets meltdown and global economic collapse. To
substantiate this research, further research that includes systematic risk
factors
needs to be done.
References
Knauer, T., Silge, L., & Sommer, F. (2018). The shareholder value effects of
using value-based performance measures: Evidence from acquisitions and
divestments. Management Accounting Research, 41, 43–61.
doi:10.1016/[Link].2018.02.001
Permalink to article in Walden Library:
[Link]
[Link]
?direct=true&db=bth&AN=132719125&site=eds-live&scope=site
MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of
Economic Literature, 35(1), 13–39.
Note:
• Clicking on the link above will not work. Please copy the entire link and
paste it
into the location bar of your browser to access the resource in the Walden
Library.
Criteria for “superior” initial post:
þ Student accurately includes the complete references and links from two
articles
and provides a thorough and detailed analysis of the design and methods in
each
article, including the value of each article to his/her inquiry.
þ Student consistently follows APA writing style and basic rules of formal
English
grammar and written essay style. Student communicates in a cohesive,
logical
style. There are no spelling or grammar errors.
þ Student demonstrates full adherence to APA style with respect to source
attribution, references, heading and subheading logic, table of contents and
lists
of charts, etc. There are no APA errors. Citations and references support
position.
Hints for Week 7 Assignment
Example (extract)
Based on what I would like to study for my research proposal, I will explore:
Theme: Financial Decision Making in Corporations
Topic: Capital Structure
Issues: Debt versus equity financing and the weighted average cost of
capital;
The cost of financial distress and optimal capital structure
Rationale and Problem
The theoretical foundation of corporate capital structure and its impact on
the
firm’s cost of capital and value originates to the seminal works of Modigliani
and
Miller (1958 and 1963). Since the publication of these seminal works,
scholars
have been critically verifying the underlying assumptions of the Modigliani
and
Miller (M&M) capital structure theory and have proposed other
complementary or
contrasting theories of capital structure, such as trade-off theory, pecking
order
theory, agency theory, and market timing theory (Kumar, Colombage, & Rao,
2017). Irrespective of what theory the companies follow to determine their
capital
structure, what is important from the companies’ shareholders perspective is
the
impact of capital structure on rate of return of their stocks. My proposed
research
study is to investigate whether capital structure impacts rates of return of
the
company’s stock when controlled for size, industry affiliation (nonsystematic
factors), and overall stock market rate of return (systematic factor).
Research Question
To what extent does corporate capital structure impact rates of return on a
company’s stock?
Nature of the Study
In this research study, I will examine the relationship between a company’s
stock
rate of return and its capital structure when controlling for industry
affiliation,
firm’s size, and overall market rate of return. The research method will be
quantitative as examining correlations between measurable variables
requires
this type of approach (Frankfort-Nachmias & Nachmias, 2008). The design
will
be cross-sectional, collecting ex-post facto data. The design is appropriate
for
this research study because there will be no manipulation of the independent
variables by the researcher (Singleton & Straits, 2005).
The dependent variable in this study is the company’s stock rate of return,
and
the independent variables are debt-to-equity ratio, industry affiliation, firm’s
size,
and overall market rate of return. Debt-to-equity ratio represents the
company’s
capital structure, overall market rate of return represents all systematic risk
factors, industry affiliation is included because different industries are
affected
differently by leverage, and finally, size is included as the moderating
independent variable to investigate if companies at different market
capitalization
levels are differently affected by leverage.
Data on company’s financials will be collected from the Securities and
Exchange
Commission’s website and data on stock prices will be collected from the
Yahoo
Finance website. Data will be analyzed using a multiple regression
methodology
in which the product of debt-to-equity and size will also be included as an
additional independent variable to examine the moderating effect of size on
the
relationship between debt-to-equity ratio and the company’s stock rate of
return.
References
Frankfort-Nachmias, C., & Nachmias, D. (2008). Research methods in the
social
sciences (7th ed.). New York, NY: Worth.
Kumar, S., Colombage, S., & Rao, P. (2017). Research on capital structure
determinants: A review and future directions. International Journal of
Managerial
Finance, 13(2), 106–132. doi:10.1108/IJMF-09-2014-0135
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance
and
the theory of investment. American Economic Review, 48(3), 261–297.
doi:10.2307/1809766
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of
capital: A correction. American Economic Review, 53(3), 433–443.
Singleton, R. A., & Straits, B. C. (2005). Approaches to social research. New
York, NY: Oxford University Press.
Criteria for “superior” Assignment:
þ Student develops a thorough and detailed focus of the project for both
Projects 2
and 3 of the following components: theme, topic, and issues; rationale;
justification; and the purpose, and the research question of the study. There
are
no errors.
þ Student develops a thorough and detailed Nature of the Study section for
both
Projects 2 and 3. There are no errors.
þ Student develops a thorough and detailed Data Collection Method section
for
both Projects 2 and 3, including the potential population. There are no errors.
þ Student consistently follows APA writing style and basic rules of formal
English
grammar and written essay style. Student communicates in a cohesive,
logical
style. There are no spelling or grammar errors.
þ Student demonstrates full adherence to APA style with respect to source
attribution, references, heading and subheading logic, table of contents and
lists
of charts, etc. There are no APA errors.