[First Last Name]
[Date Month Year]
A Proposal Review
1. Research Question
The proposal question – How has the credit crisis had an effect on the capital structure of Dutch SMEs? – is essentially quantitative in construct but the elements appear to indicate a confused tendency towards quantitative investigation. There are other things to improve on.
First, for quantitative studies, which this study is, the words “what” or “why” are most appropriate to begin the research question (RQ) if the research design intends to find a cause-and-effect relationship (“what”) or the reason for such relationship (“why”) (Creswell 130). Moreover, directional verbs (e.g., effect, affect, impact, influence, etc.) are also appropriate (Creswell 130-131). It is, however, unclear whether the research wants to determine an effect (recommended RQ: What is the effect of the credit crisis on the capital structure of Dutch SMEs?) or understand the reason of that effect (recommended RQ: How did the credit crisis affect the capital structure of Dutch SMEs?).
Second is its current location in the thesis proposal. RQ needs to be grounded to the theoretical framework and past literature. Thus, in its current location in the proposal, the RQ is logically off because it cannot build on the past literature and the theoretical framework if these two sections follow RQ in the format. Although educational institutions have their own unique format in preparing a thesis proposal, formats with the RQ appearing ahead of the Literature Review and the Theoretical Framework is logically disorganized. Thus, it is recommended that the primary RQ, if there are sub-questions, should be clearly stated and located at final sentence or so of the Introduction section of the thesis proposal (Farrugia, Petrisor, Farrokhyar, & Bhandari 279).
Third, it is recommended that the RQ should be narrowed down to its most relevant key components or subject sub-unit (Springett and Campbell 28; Creswell 130). The concept of “capital structure” is a very broad one. Patrik Bauer (4) identified eight determinants (i.e., size, tangibility, profitability, volatility, growth opportunities, tax, non-debt tax shields, and industry classification) that are specific but broad enough to explore. Taking on all of these determinants may overwhelm the researcher and statistical analysis may prove daunting unless some narrowing down into a few manageable numbers is conducted. It is recommended that the student select two to three of the most relevant, and theoretically most important, determinants of capital structure that will be affected by the credit crisis (e.g. profitability, non-debt tax shields, and growth opportunities). The Bauer report can help in narrowing down the choices.
Fourth, depending on the formatting requirement of the institution that will review or receive the research report, the RQ generally has to be stated in a sentence. As long as it is focused, direct, objective, and precise, there is no need for any justification in the RQ section (Springett and Campbell 26; Creswell 130) unless the section is renamed Introduction instead of Research Question and the section expanded to include relevant study background. That justification is appropriate in the Introduction section if required or specified in the required thesis proposal format. Thus, except for a modified version of the last sentence in the Research Question section, it is recommended that the rest of the statements there should be removed.
The primary purpose of the literature review section is to establish an overall framework, situating the current study’s place in the available literature on the subject (Mertens 90). It builds a rationale for the RQ. Unlike qualitative studies, which are constructivist, quantitative research is postpositivist, which examines past literature in order to build a theoretical framework adequate to develop a primary hypothesis that is testable statistically (93). Nonetheless, the most common focus in literature reviews is research outcomes that help the researcher achieve the abovementioned reason (Randolph 2). The aim is to synthesize these outcome data and analyze for emergent issues or hypotheses (Mertens 112). Thus, the literature review framework should be flexible to achieve such aim.
The Related Literature and Contribution section of the proposal have major areas to amend. First is sectional focus (Rajan and Zingales n. p.). The title of the section alone illustrates the lack of focus in the proposal in general. Adding Contribution in the review of Literature is inappropriate because this review centers on critically going over the current and past literature to uncover researchable themes not on justifying the paper’s contribution to the body of literature. The Literature Review section should be stand alone for its specific purpose. If defining the contribution is required, it is normally separated from the Literature, integrated into the Introduction, which contains the background or rationale of the study, or given a separate short section to express the contributory value of the study, from the specific format required by the reviewing institution. Integration of the contribution statement is recommended to include the statement with the Introduction section.
Second, the conceptual logic in the Literature is unfocused and disjointed when it should be otherwise (Randolph 2). It reviews capital structure theories that had no significant bearing in the investigation between credit crisis and the capital structure, violating the primary relevance criterion in choosing literature to review (Letts, et al. 1). To approach the existing literature for this proposal, the student needs to review literature about the specific “credit crises” first. If the student referred to the credit crunch in 2007, literature search start with Paul Mizen’s 2008 report for the Federal Reserve Bank of St. Louis (531ff) or Claessens and Kose’s 2013 worker paper for the International Monetary Fund (1ff). Bureau van Dijk may also provide these data. Then the review of sources for the determinants of capital structure follows. Since the student still has to decide on which two or three determinants to pursue for this study, partial recommendations can only be made. The following studies may be used as the starting point: size (Krasauskaite and Hirth 1ff), tangibility (Cekrezi 135ff), profitability (Carvalho, Serrasqueiro and Nunes 417ff), volatility (Rafiq, Iqbal and Atiq 139ff), growth opportunities (Hongyan 777ff), and similar studies with tax, non-debt tax shields, and industry classification. Studies about Dutch capital structure should be preferred but not necessary should finding them is difficult and extremely time-consuming.
Third, the Literature also mentioned about the “effects of firm characteristics” on capital structure (Rajan and Zingales n. p.), which is not the main idea in the RQ and confuses readers over the true RQ, which is about the “effects” of the credit crisis on capital structure, not the effects of the firm characteristics on capital structure or of the credit crisis on the firm characteristics. If the mention of “firm characteristics” is necessary in the development of the themes, it is recommended that the distinction between this statement and RQ should be expounded further to be well understood.
Statements about methodology have inappropriately appeared under the Literature Review in the fourth sentence of the sixth paragraph. Important flaws are noticeable. First, there are missing parts in this section, such as the statement of Research Objectives (General and Specific). The statement of Hypotheses can be found but it has no Primary Hypothesis, which directly relates with the RQ and General Objectives. The Hypothesis sub-section, as a recommendation, may be introduced using the opening statement: “The primary hypothesis of the study is: There will be a (positive/negative) relationship between the credit crisis of 2007 to the capital structure of Dutch SMEs.” Then, this broad hypothesis can be broken into secondary hypotheses based on the chosen determinants’ operational variable (e.g. return of equity for profitability determinant). It can be written as: “The return of equity declined from before to after the debt crisis.” This operational variable will be the one measured and tested in the study.
Second, the dependent variables mentioned in the hypotheses are too broad and non-operational. For instance, there are many measures for the determinant “profitability.” It can be “return of equity”, “return of assets”, or “operating margin.” So to test for hypothesis 3, the study will have to test all measures of profitability if the dependent variable is not operational or too broad. It is recommended that the student should review the different measures of the selected determinants and choose what measure to use in the study.
Third, reliance to a single dependent variable (total debt ratio) was not adequately argued or justified. Are all determinants of capital structure mentioned in the hypotheses commonly measured by this variable? The terms “total debt ratios”, “short term debt ratio”, and “long term debt ratio” are also generic and failed to identify which specific ratios are being referred to: all of them, only one ratio, or a combination of two ratios. It is recommended that the most conservative ratio be used as measures for each determinant selected.
Fourth is the use statistical test. The proposal plans to conduct a regression analysis to test the hypotheses. Regression analysis is designed to determine the nature of the linear relationship usually between many variables simultaneously to combat spurious relationship and create a “best fit” trend line (Weiers 567; Stockwell 4). In addition, it is used to predict the behavior of the dependent variable when independent variables change, allowing insight into the individual contribution of each independent variable in the change in the dependent variable (Tompkins 36-37). Regression analysis may be used to test the corrected hypotheses together.
Hypothesis means that something asserted about is not yet proven (Bains 665). Since the purpose of the study is to prove it, evidential argument should be clear, logical and convincing. Yet, each step should be simple and fundamental in the logical progression. Most of the essential recommendations to correct the hypotheses have been mentioned in the first three discussion points in section 3 (Data/Methodology) because hypotheses are technically part of the Methodology section and not distinct from it. This section in the proposal should be merged with the Methodology section.
Most institutions have their unique format for thesis proposal. The student should follow that format. If no format is available, the main chapters (not sections) may include the Introduction, Literature Review, Theoretical Framework, and Methodology. The Methodology chapter contains the objectives, hypotheses, data collection procedures, statistics, etc.
6. Works Cited
Bauer, P. “Determinants of Capital Structure: Empirical Evidence from the Czech Republic.”
Czech Journal of Economics and Finance 2004, 54(1): 2-21. PDF file.
Carvalho, P.G., Z. Serrasqueiro, and P.M. Nunes. “Probability Determinants of Fitness SMEs:
Empirical Evidence form Portugal Using Panel Data.” Amfiteatru Economic Jun. 2013, 15(34): 417-430. PDF file.
Cekrezi, A. “Impact of Firm Specific Factors on Capital Structure Decision: An Empirical Study
of Albanian Firms.” European Journal of Sustainable Development 2013, 2(4): 135-148.
Claessens, S. and M.A. Kose. “Financial Crises: Explanations, Types, and Implications.” IMF
Working Paper Jan. 2013, 1-66. PDF file.
Creswell, J.W. Research Design: Qualitative, Quantitative, and Mixed Methods. Thousand Oaks,
CA: Sage Publications. Print.
Farrugia, P., B.A. Petrisor, F. Farrokhyar, and M. Bhandari. “Research Questions, Hypotheses,
and Objectives. Canadian Journal of Surgery Aug. 2010, 53(4): 278-281. PDF file.
Hongyan, Y. “The Determinants of Capital Structure of the SMEs: An Empirical Study of
Chinese Listed Manufacturing Companies.” Seiof Blue Mountain 2009, 777-781. PDF file.
Krasauskaite, E. and S. Hirth. “Capital Structure of SMEs: Does Firm Size Matter?” [Master
Thesis] Oct. 2011, 1-88. PDF file.
Letts, L., S. Wilkins, M. Law, et al. “Qualitative Studies (Version 2.0).” Guidelines for Critical
Review Form 2007, 1-12. PDF file.
Mertens, D.M. Research Evaluation in Education and Psychology. 4th ed. Thousand Oaks, CA:
Sage Publications, 2015. Print.
Mizen, P. “The Credit Crunch of 2007-2008: A Discussion of the Background, Market
Reactions, and Policy Responses.” Review Sep.-Oct. 2008, 90(5): 531-567. PDF file.
Rafiq, M., A. Iqbal, and M. Atiq. “The Determinants of Capital Structure of the Chemical
Industry in Pakistan.” The Labore Journal of Economics 2008, 13(1): 139-158. PDF file.
Rajan, R.G. and L. Zingales. “What Do We Know about Capital Structure? Some Evidence from
International Data.” The Journal of Finance 1995, 50(5): 1421-1460. PDF file.
Randolph, J.J. “A Guide to Writing the Dissertation Literature Review.” Practical Assessment,
Research & Evaluation June 2009, 14(13): 1-13. PDF file.
Springett, K. and J. Campbell. “An Introductory Guide to Putting Research into Practice: 2.
Defining the Research Question.” Podiatry Now November 2006: 26-28. PDF file.
Stockwell, I. “Introduction to Correlation and Regression Analysis.” SAS Global Forum 2008,
364: 1-8. PDF file.
Tompkins, C.A. “Using and Interpreting Linear Regression and Correlation Analyses: Some
Cautions and Considerations.” Clinical Aphasiology 1992, 21(1): 35-46. PDF file.
Weiers, R.M. Introduction to Business Statistics. 7th ed. Pasig City, Philippines: Cengage
Learning Asia Pte Ltd, 2014. Print.