4.1 Phenomenological style
Phenomenological research is a rather hands on couples with perspective kinds of research approach. This approach signifies having an actual presence in order to make an informed and reliable perspective of the researcher or the participant of research. Bases on the phenomena of the researcher the research findings will be generated and validated either qualitatively or quantitatively.
From the perspective of empirical research phenomenological research is draws much from a rather inductive research approach in that that inference is drawn from the data gathered first from the research subjects. Thus the style of research is more concerned with the actual finding and does not require any reference or triangulation for testing reliability as in itself it does not have a literature review to analyse what has been previously found about the research.
Its non reliance on literature review makes it's a more exploratory research however only to the extent that the researcher address unchartered research areas. The basis of this style is the paradigm of personal knowledge and the intuition of subjectivity and to the degree and importance of personal perspectives and interpretation. Therefore phenomenological style of research cuts through the debris of findings and gets to the point that has to be addressed in manner that effortless with having to rely on previous publications.
Thus the researcher intentionally leaves out already assumed knowledge or preceding assumptions, in order to make way for the phenomena as it appears, this is called "bracketing". This bracketing process is often misunderstood and misrepresented as being an effort to be objective and unbiased. In essence the phenomenological style does not have a prior inclination or bias based on afore information in other word there is no hypothesis to this style of research.
This style is based on a personal conviction and that the researcher and the perspectives of the researchers are therefore highlighted as the most important in the research bring the empirical aspect of the research to be the main focus of the research and thereby challenging normative and structural assumptions. As such an addition of interpretive perspective to the findings enables it to be used as the basis for practical relevance, informative purposes and highlight the need for making inference with conventional wisdom.
4.2 Positivism Style
Positivism in an epistemological research style that advocates the application of scientific research methods to the study of social phenomena. This research style unlike the phenomenological style premises with a hypothesis and makes use of both inductive and deductive research approaches to study phenomena and come up results.
This research style is more popular with academic research as it endeavours to line up with theory and make use of the already published data about the particular areas of study. Positivism in one approach inclines on the fact that for a research to be well researched it will have to be developed with a bias or a prior knowledge which can also be called the hypothesis. This basically gives the reader a gut feeling of what they are expecting to find from the research as related to the data gathered. If the approach be inductive then the research will begin by drawing conclusions from the gathered data and thereafter relate to the literature to test whether or not the findings are consistent with the theory.
If the approach is deductive then the researcher begins the research with a known theory and uses it to formulate a hypothesis. Using the data findings the researcher can make comparison and draw inferences, which can then be used to make conclusions. A positivism style of research is much rather like a much more organised and logical research in that it acknowledges the importance of past research done on the particular field and give the room for researcher to find flaws in the previous researches and make more detailed finding because of prior results.
Because a positivism research has a hypothesis, this give a researcher a bias and a much rather informed perspective as they have a clue of what has been found before in a similar research. This entails that its not more of a perspective based like the phenomenological approach, the research is not purely based on the researchers findings and the subjectivity to his knowledge.
The logical order of the presentation and the flow of the research in which the research questions have a high correlation to the hypothesis and there is a significantly convincing linkage between the research and the theory make this research somewhat more orderly and distinctively different from the phenomenological one. Thus positivism is a reality research style that is not from an individual's point of view but takes on board the congruent of other researchers, not perceptual but rather it's a fact finding exercise and the findings concise with what the literature entails.
4.3 Statement of Problem: Why Liquidity Risk and Profitability in the Zambian banking sector
What is happening in the Zambian banking sector? Is there enough liquidity? Is the economy robust enough to deliver a vibrant banking sector? Are the banks profitable enough? What about the regulatory frame work? Is its comprehensive enough to allow the best practice and equal play field competition? Thus the research is trying to ascertain what relationship there are in the banking sector performance and the profitability and liquidity ratios, also the research will be keen to find out what variable affect both the profitability and the liquidity of this Zambian banking sector.
From the data gathered and through the company annual report and the sectors incomes statements, there is vital evidence of the capability of the Zambian banking sector to make substantial profits and maintain above average liquidity. The general expectation for a banking sector to have its operations above the threshold of default is that the ratios should be in there appropriate. In this the researcher means, that if a banking sector has a low efficiency ratio the bank is obviously making more that it is actually spending through its various cost centres. This is key to the longevity of banks profits. The liquidity ratio must be relatively high in order that all the banks short term liabilities can be liquidated.
There is also an issue of defaults from the loan advances to the customers, this is a key ration that shows the banks ability to turn over their financial products, thus if this ration is high the default rate of the customer is high and as such not all the loans given out are repayable that increases the banks illiquidity. Thus the general rule of finance is that for each bank the non performing loan ratio should be low to make sure that the loans advanced are more likely to be repaid at the right time. As will be discussed further there I need that the variable that influence theses ration be in the right proportions.
The Zambian banking sector is still in its infancy as a financial system, as such there is need for research into the fundamental facet of an infant banking industry especially with the increase in the sophistication of the financial systems as there is a trend towards global financial operations. Need is hereby attributed to various regulatory frameworks and policy issues that need to be instituted in order to maintain a robust banking industry with sound financial knowhow and technical skill in the industry. As with every banking system Liquidity Risk and Profitability remain the two most sensitive issues that need to be addressed in further through research. More especially in young banking sectors such as the Zambian banking sector.
In the Light of the recent dry up in funding in the capital markets, the victim banks in mature financial markets wound up operations, this highlighted the imperative need to address the Risk that has been marginalised to be of Low Probability and Low Impact. This same Invisible risk has been not made headlines in the young banking sectors like that of the banking sectors in Zambia, thus to say if not carefully studied and come up with comprehensive policies that will mitigate such Liquidity strains the damage on young banking sectors will be major and to some extent irreversible. This Risk of Liquidity funding has thus inspired the researcher to find out how and to what extent should banks retain profits and reserve for a rain day in these infant financial systems.
As the sector thrives in these uncertain times there looms a danger that threatens the sustainability of this banking sector. If the banks are found to be unable to meet their obligations as they fall due, to lack of sufficient liquidity or through failed marketability of there liquid assets, this can lead to a bank run. In an unsophisticated banking sector where such occurrences are not common this can be permanent erosion of confidence in the banking system and this can easily spark a contagion risk.
Therefore how can this risk be mitigated? Considering the fact that liquidity funding is the very back born of the financial institutions especially banks, and confidence in the system is as important as the service they offer to the general public? It not be over emphasised that profits need be better managed and in order to keep the system functional in times of market stress.
As every financial system has regulation about stress testing scenarios, this research will test the ability for the Zambian banks to meet there obligation without selling off assets at high bid ask spreads or without desperately turning to providers of capital in the capital markets with high costs of capital. This should shed light into the need to have pools of finance that can be accessed at any times or as obligations mature or in times of market stress.
Thus there I need for this aspect of finance to be addressed in the Zambian financial sector in order that there can be leading authorities in this area. As has been as the global system keep integrating the Zambian financial sectors need to be totally stand alone system free from foreign influence in managing profits for Liquidity purposes.
4.3.1 Research approaches
The two most prominent words that feature in the world of research methodology are deductive and inductive research approaches ( Saunders et. al.2009. p.86) In principal these two are a reasoning approach to research, thus Deduction is the reasoning approach that begins with a self-evidence principal and draws from it a conclusion relating to a particular case (Rause 2005, p.92). In other words it's a research process that begins with a theory, hypothesis or concept usually drawn form the scholarly literature and proceeds to test its applicability or otherwise in a specific context would that be labelled deductive (Laureal 2003, p.100)
Induction is a reasoning process that begins with a specific case and draws from its a conclusion of a wider or more general relevance (Smithy 2004, p.77). In other words it's a research process that starting with empirical and proceeding to draw general applicable conclusions from it (theory, hypothesis or concept) that could be labelled inductive (Taylor et. al. 2006, p. 99). For instance in this case the researcher will draw data from already published or secondary sources and use that data to attempt to derive hypothesis of the factors that affect the theory that will be tested consistent with the findings of the data.
With these two approaches the researcher will pursue an inductive approach, in the light that the researcher will use gather data and use theories to link the data and in order to obtain the results that will enable produce a credible research project. Using the theories of liquidity and profitability the researcher will be able to deduce an answer to the research questions that will address the financial system that need be in the Zambian banking sector.
126.96.36.199 Quantitative verse Qualitative Research Methodology
Many writers on methodological issues find it helpful to make a sharp distinction between qualitative and quantitative research. The status of the distinction is ambiguous because it is simultaneously regarded by some writer as a fundamental contrast where as with some as no longer useful or by some as simply false (Smithy 2004, p 103). However there is little evidence to suggest that the use if the distinction between the two is abating or even considerable of evidence of its continued even growing currency. Lindolf & Taylor (2002, p. 82) Sugests qualitative-quantitative distinction will made acutely clear in the research as a means to make the standpoint of the researcher known with regard to epistemological concerns and for clarity about the researchers' sources and uses of information and because it represents a useful means for classifying different methods of business research plus it's a useful umbrella for a range of issues concerned with business research (Elliot 2005, p.54)
On the face of it, there seems to be little to the quantitative-qualitative distinction other than the fact that quantitative researchers employ measurement and qualitative do not. Saunders et. al (2007, p.103) suggest that it is certainly the case that there is a disposition among researcher along these lines, but many writers have suggested that the differences are deeper that the superficial issues of the presence or absence of quantification. For many researchers the distinction between qualitative and quantitative research differ with respect to there epistemological foundations and other aspects too ( Ruance 2005, p.89)
Regardless of the endless intellectual correctness of the legality and appropriateness of one approach compared to the other one the following are the difference between quantitative and qualitative research methods. Thus quantitative research can be construed as a research strategy that emphasizes quantification in the in the collection and analysis of data and that:
- Entails deductive approach to the relationship between theory and in research, which the accent is placed on the testing of theories;
- Has incorporated the practices and norms the natural scientific model.
- Embodies a view of social reality as an external objective reality.
By contrast qualitatitive research can be construed as research strategy that usually emphasises on words rather than quantifications in the collection and analysis of data and that:
- Predominantly emphasises on inductive approach to the relationship between theory and research in which the emphasis is placed on the generation of theories.
- Has rejected the practise and the norms of the natural scientific model and of positivism in particular in preference for an emphasis on the in which individuals there social world;'
- Embodies the view of social reality as a constantly shifting emerging property of individual creation.
188.8.131.52 Researcher Choice of Route
The researcher seeing the highlighted two methods will opt to go for qualitative research methodology because it is more appropriate as has been highlighted above. Essentially with a qualitative research the researcher works better in the case where there is only data from secondary sources to be analysed. Accounting ratios can be addressed or analysed in any other way other than using quantitative analysis thus this is the best and most suitable method of study or style of research.
4.4 Research Hypothesis
4.4.1 Statement of Hypothesis
The researcher is keen in find the relationship that exist between the various ratio that there are in the Zambian banking sector and to which ones are the most crucial and which ones are the more depend or other. With then it will made clear through correlation what affects the profitability of this sector. Theoretically the higher the higher the liquidity ratio the more likely the banks will maintain profitability and liquidity the low the efficiency and non performing ratios the lower better is the performance of the banks.
Thus the following is the hypothesis:
Banks operating with a higher capital ratio have a higher profitability
4.5 Outline of research Question
To test the hypothesis the researcher will highlight that there are important question underlying the problem to be addressed. The answers to these questions will act as relevant pointer and aid the findings of the research in such a way that the researcher can come up with reliable and valid conclusions. The following is the research question to test the hypothesis:
What factors determine profitability in the Zambian banking sector?
4.5 Method of analysis and for each research question
The following are going to be three main ways of analysing the finding of the research and will be used to test the hypothesis.
4.5.1 Literature Analysis
In the literature analysis the researcher will be seeking to find out the preceding theoretical and empirical finding to the research topic in an effort to have a guide and make sure there is not repetition of research rather that the research topic is carried forward or is advanced. As with respective definitions theory will look at the relevant models that will be used to compare with the findings where are empirical will be used to compare those findings that are comparable the actual real life findings.
Reviewing literature according to (Saunders et. al. 2009, p.57) critically provides a foundation on which a research is built on. The main essence for the literature review is that the researcher gains enough ground into the subject domain and have a good appreciation and insight of past research so that in order to know the trends that could have emerged an the patterns to look out for in there are any or consider examination of any flaws in the past research (Ketchen & Bergh 2006, p.88). Thus common sense suggests that for a researcher to have a great ground into what they endeavour to research will have to have preliminary reading into the subject domain before hand. This goes to any researcher that will under go a research project.
The precise reason for the reviewing of literature will very much depend on the approach of the researcher is looking at taking into the research. For some research project the researcher will use literature review to aid them to identify the theories and ideas that they will find useful in their quest to test their data. This is known as the deductive research approach in which the researcher develops a theoretical or conceptual framework which is subsequently tested using data (Teddlie &. Tashakorri 2009, p.122). For different research projects the researcher will embark on an exploratory data research and develop theories from that and subsequently relate to the literature. This is known as inductive research approach. Its must be pointed out that though a research does have properly set out research question and its own objectives, it is not to be influenced by any predetermined theories or conceptual frameworks (Kumar 2008, p.66)
It is thus not realistic to assume that a research project cannot be incepted with an approach where there are pre-emptive literature considerations. It is therefore impossible for the researcher to have a reviewed all the literature there is about a there subject area before collecting data. Having said this (Saunders et. al. 2007p.57) argues that literature review in essence is not done to provide a summary of all that has been written about the researcher area of research but to review the most relevant and significant research on the researchers topic. If the analysis is effective enough, the researcher can open up to new findings and theories will emerge that those that have had an earlier go at the research may never have thought about or discovered (Williams 2006, p.82). Note though that despite this the researcher will when writing up literature review will need to exemplify how the finding and the theories they have developed or are using relate to research that has gone before thereby demonstrating that the researcher is familiar with what is already known about there research area.
4.5.2 Ratio Analysis
Ratio Analysis is the evaluation of both the past and the future financial performance or and indication of the current performance of financial assets of an institution. Typically this entails the tabulation of the firms' financial statement and both the inflow and the out flow of funds in a business. It further entails the calculation of various ratios which in the case the researcher will be using in the analysis theses ration will include the following:
- Liquidity Ratio
- Capital Ratio
- Return on Equity
- Return on Capital
- Efficiency Ratio
- Net Interest Margin
- Non performing Loan ratio
Each of which will be further explained as to its relevance and significance. The reason for the usage of ration in the analysis I because it reveal the financial potential of a business in that we can determine the financial leverage and the liabilities to the business and with such estimate the business' ability to meet its obligation as they fall due. Several stakeholders' uses these ration too in there quest to determine that business' ability to pay its debts there credit worthiness in other words. These statements are revealing in that that they give the true position of the business and that they can be relied on to determine among many things the business financial position. In particular there will be a usage of the fund reserve analysis in this analysis the research will try to determine the way that the banks in Zambia reserve their profits and secure funding in relation with the balance sheet analysis for cash analysis.
Sources of Data
4.5.3 Secondary Verses Primary Sources of data
There are various sources of data that are available to a researcher, that can help the researcher gain a good understanding of and insight into previous research can be divided into primary, secondary and tertiary. Saunders et. al. 2007 64) argue that these sources of information do overlap in that it is possible to find that these information can be found in one place e.g, primary sources such as conference proceedings can be found in a published journal or book with primary research indices.
The variation in the literature sources represents the flow of information from their original sources. More often that not as information flows from its original sources tertiary sources it becomes les detailed and authoritative and becomes more accessible. It is for this reason that primary sources can be hard to tress that they are at times referred to as "grey literature" (Saunder et. al. 2009 p. 64). Thus it is vital to note that the degree to which information satisfies the research criteria is highly dependent on the type of research, thus projects may require primary and secondary where are some might require a combination of the two.
The internet is however introducing a paradigm shift in the classification of the data source types, providing a more accessible platform for information and thus both published and primary data (Ethbridge 2004, p.168). With the more freedom of information means that the there is little room for the traditional grey literature such as government publications and other considered sensitive information sources.
184.108.40.206 Primary Sources
Primary research sources are thus regarded as the first occurrence for a piece of work which includes such things are published sources as reports and central and local government papers, this also includes unpublished information that can be analysed to gather first hand information. As such because of the nature of this research it will not be very useful to delve deep into the revelation of primary research as it will not be forming a part of this research (Smokh & Lewin 2005, p.45)
The use for a particular information source will highly depend on the research question, the research objectives, the need for the data to answers the questions at hand and finally the amount of time at the disposal of the researcher (Ramenyi & Williams 1998, p.39). Thus for research projects the researcher may use their discretion to use only one sources as opposed to making a use of all them, on the contrary the researcher may use them all.
220.127.116.11 Secondary Sources
The numbers of secondary literature sources are ever more increasing with the rapid growth of the internet as a source of information (Saunders et. al .2009, p. 32).Secondary literature is information that has been reproduced and analyses by some already, that as has been discussed earlier make the information loose its authority as this data could have been manipulated to suit the needs of the earlier researcher (Ruance 2005, p.94). There are many different sources of secondary data such as journals, books news paper and professional publications.
Theses secondary sources too have there degree of relevance and suitability to the approach that the researcher has to their work. For instance books according to Saunders (et. al. 2007, p.68) they are argue that books are written for a specific audience in mind, some are aimed at an academic audience with a theoretical inclination where as are aimed at more professional audience with a more practical applicability approach. They are particularly important for as an introductory source to make clarification with research questions and objectives or the research methods that the researcher intends to use (Swanson 2005, p. 69).
Newspapers on the other hand are handier as they provide the insightful developments that are currently taking place as the industry evolves. But also what makes newspapers more forceful is that they have internet backing that will allow that ones can see previous editions so backdating to over 10 years. Where the academic journals are produces on a regular basis and with that they offer a good online based from where they are easily accessible. What makes them much more desirable is that they are accessed by academic professionals before they are published making their arguments more credible and reliable.
4.5.4 The researchers' route Empirical and Theory
The researcher will gather the data from the published accounts from the Zambian banks as the main sources of data. This means that all the data that the researcher will use is quantitative secondary data as there is going to be usage of numeracy in the calculations. The data will be collected from the banks annual report which is the income statements and balance sheets for the period 2005-2008. This should give the researcher enough data to make comparisons and conclusion.
The other research data will come from the other secondary research sources such as journals books and the internet, the internet information can be also classified as primary data but this is subjective to the discretion of the researcher. The theory will mainly be both hard copy and soft copy books and other sources such as the financial times news paper to try and understand the working of the more sophisticated banking system.