# Research Methods in AcFn Chapter 2

Chapter II : Research Problem
“The Heart of the Research Process”

(Leedy & Ormrod, 2015)
“Problem well-defined is half solved"
Compiled by Andualem (2023/24GC/2016EC)

Contents/Chapter outline
1. What is a Research Problem

 Definition, Sources, Writing guidelines
2. Hypothesis Formulation
 Definition, Sources, Types, Characteristics of good hypothesis
3. Hypothesis Testing
 Steps (Specification, Test statistics, Significance level, etc.)

I. Research Problem – Meaning & Formulation
 Importance of formulating a Research Problem
 This is probably the most difficult, and yet the most important, part of your research
project. Without being clear about what you are going to research it is difficult to plan
how you are going to research it.
 It is like the identification of a destination before undertaking a journey.
 The formulation of a problem is like the ‘input’ to a study, and the ‘output’.
 Once you have done this you will need to turn the idea into research questions and
research objectives and to write the research proposal for your project.

 Importance of formulating a Research Problem…
 The first step in the research process is to find an idea for a research study, i.e.
formulating and clarifying the research topic is the starting point of your research
project (the foundation or the heart of every research process).
 It is the fundamental element of research and the axis around which the entire research
endeavor revolves.
 Captures the essence of the research in a “nutshell”.

 Research problem is:
 any difficulty, which a researcher experiences in the context of either a theoretical or
practical situation and wants to obtain a solution for the same.
 a difference between the current state of conditions and a more preferable set of
conditions (any situation where a gap exists between an actual and a desired ideal state).
 is a research/knowledge gap = state of ‘to do’ = state of ‘to be’ – state of ‘as is’
 one which requires a researcher to find out the best (optimal) solution for the given
problem (or to find out by which course of action the objective can be attained optimally
in the context of a given environment).
 any question that you want answered and any assumption or assertion that you want to
challenge or investigate (scientific or non-scientific knowledge)

 Research problem is:…

 an unresolved issue (e.g. controversy or conflict) or simply a gap in knowledge
within a chosen subject or within a broad topic area (e.g. accounting, finance).
 a question or issue that derives the research and requires a response in the form of a
structured scientific inquiry.
 anything that a person finds unsatisfactory or unsettling, a difficulty of some sort, a
state of affairs that needs to be changed, anything that is not working as well as it
might.
 involve areas of concern to researchers, conditions they want to improve, difficulties
they want to eliminate, questions for which they seek answers.
 Research problem is…
 Research topic vs. Research problem
 The Topic
 is a brief description of the proposed area
of study.
 is the broad subject matter being
addressed in a study (the general area of
research interest).
 The Research Problem
 is the particular problem or issue that is
the focus of the research.
 is a research topic that is small enough to
be investigated.

 A problem statement is relevant if it is meaningful from a managerial perspective, an
academic perspective, or both.
 From a managerial perspective, research is relevant if it relates to
a) a problem that currently exists in an organizational setting or
b) an area that a manager believes needs to be improved in the organization.
 From an academic perspective, research is relevant if (inadequate, incomplete,
incommensurate) :
a) nothing is known about a topic,
b) much is known about the topic, but the knowledge is scattered and not integrated,
c) much research on the topic is available, but the results are (partly) contradictory, or
d) established relationships do not hold in certain situations (lack of generalizability).

 Steps in formulating a research topic
 Identifying a research topic typically involves two steps:
1. Selecting a general topic area – the general topic area is simply the starting point
that eventually will evolve into a very specific research question.
• You need to find an interest in a broad subject area (problem area).
2. Reviewing (reading through) the literature in that general area to find a specific
research questions. This process will enable to:
• narrow the idea to a plausible topic,
• question the topic from several points of view,
• define a rationale for your research project,
• become familiar with the current state of knowledge and
• determine what questions are still unanswered.

 Steps in formulating a research problem
 If you do not know what specific research topic, idea, questions or issue you want to research (which is not
uncommon among students), first go through the following steps:
Step 1 – Identify a broad field or subject area of interest to you.

Step 2 – Dissect the broad area into subareas.
Step 3 – Select what is of most interest to you.
Step 4 – Raise research questions.
Step 5 – Formulate research objectives.
Step 6 – Assess your research objectives.
Step 7 – Double-check.

Example 1

 Example 2
 If you are interested in financial reporting, you could review the idea by asking yourself the following
questions:
 What is financial reporting?
 Do I mean internal or external financial reporting?
 Which organizations produce financial reports?
 Is there a particular aspect of financial reporting I am interested in?
 Am I interested in the regulation of financial reporting, voluntary disclosure, communication aspects, etc.?
 Once you have begun to focus your ideas about financial reporting, you could turn your attention to such questions
as:
 What is reported? When is it reported? To whom is it reported? What is the purpose of reporting? Are there any
ethical issues?

 Steps in formulating a research problem…
 In business research problem-definition process involves several interrelated steps:
Step 1 – Understand the business situation—identify key symptoms

Step 2 – Identify key problem(s) from symptoms
Step 3 – Write managerial decision statement and corresponding research objectives
Step 4 – Determine the unit of analysis (i.e. source of data: individuals, households, organizations,
geographical areas, or objects such as products, advertisements)
Step 5 – Determine the relevant variables
Step 6 – Write research questions and/or research hypotheses.

 Management vs research problem
 management problem
 a problem/an opportunity management is facing
 examples : high % of uncollectibles, low quality financial information, etc
 focuses on symptoms
 action oriented
 research problem
 question indicating gap in scope/certainty of our information/knowledge
 decision problem translated into research terms
 points to
o problematic phenomenon e.g. why high % of uncollectibles?
o puzzling event e.g. why people go for high priced items or imported products?
o problematic theory e.g. are western theories of management applicable world wide?
o current idea challenged by a new one e.g. role of intrinsic & extrinsic motivating factors or role of land, capital and
knowledge in achieving organizational success
 focuses on causes
 information oriented
14
1. Analysis of business situation
 explore business situation to
 understand business situation
 familiarize with decision-making environment
 understand background of the business problem
o remember background of a study (chapter-1)
 techniques – observation/interview/document review
2. Identify business problem
 examples
 financial statements are not issued on time/incomplete/erroneous
 percentage of uncollectible accounts is growing
 sales volume is declining
 management is not using auditor’s reports
 setting price for a newly introduced product
15
3. Write managerial decision statement
 key question(s) that mgt wishes to answer
 affected by extent of knowledge about a business problem
why is our sales volume/percentage of uncollectible decreasing/increasing?
 how can we improve quality of our financial information?
 how can we increase/decrease sales volume/percentage of uncollectibles?
 what price should we charge for our newly introduced product?
 reason for undertaking research
4. State research question
 translate business problem/decision statement into research terms
 ask information needed to resolve decision statement/business problem
 e.g. research questions for setting price for a new product may include
 what are our costs of production and marketing?
 what are our pricing objectives?
 what price does similar types of products sell for?
 what is the perceived value of our product in the marketplace?
 are there any norms or conventional pricing practices in the marketplace?
16
5. Write research objectives (purpose)
 goals to be achieved by undertaking a research
 reasons for undertaking a research
 potential results to aid decisions making
 means to measure quality/value of research
 features of good statement of objectives
 stated in action/specific/unambiguous terms
 approaches
 rephrasing decision statement – becomes general research objective
 rephrasing research questions – becomes specific objectives
 example
 decision statement: what price should we charge for our newly introduced product?
 general research objective: to determine price of a newly introduced product
 research question: what are our costs of production and marketing?
 specific objective: to determine costs of production and marketing
17
 significance of a study – relevance
 practical – resolve managerial problem
 theoretical – contribute to knowledge
 academic – serve as basis for further studies
6. Determine unit of analysis
 case/subject of a study about which data will be collected and analyzed
 could be
 individuals (e.g. auditor, customer, etc)
 body of individuals (e.g. committee, team, household, parents, etc)
 organizational entities (e.g. companies, branches, etc)
 objects (e.g. product, etc)
 events (e.g. meeting, strike, decision making, etc)
 relationships (e.g. mgt-employees, company-investors , seller-buyers, etc)
 data collection and analysis may happen at different levels
 e.g. income data may be collected at individual level and analyzed at household level
 what is the unit of analysis for the price setting problem mentioned earlier?
18
7. Determine and define relevant variables
a) concepts vs constructs
 names (term/symbol/word) given to identify objects/events and their characteristics/attributes
e.g. company, asset, inflation, auditor, customer, profit, attitude, etc
 abstractions of reality
 building blocks of theory
 importance
representation of reality
ease communication/common understanding/measurement/analysis/reporting
 concepts vs constructs
 concepts=more concrete/directly observable e.g. sales, assets, etc
o provide additional examples of concepts in accounting and finance???
 constructs=more abstract/indirectly observable e.g. quality of financial information, commitment to quality,
etc
o provide additional examples of constructs in accounting and finance???
19
 conceptual vs operational definitions
 provide clear/concise definitions of concepts/constructs (why???)
 conceptual – definition in abstract/theoretical terms
o e.g. personal income – compensation for professional services provided
 operational – definition in specific/concrete/measurable terms
o e.g. personal income – type (e.g. cash/in kind), time period, after/before tax, source (e.g. permanent
employment/overtime), etc
b) theory vs model
 theory
 set of concepts/constructs/assumptions/relationships (elements of theory) that explains/predicts
phenomena (what/how/why)
 e.g. agency theory explains the need for external auditing (it includes such concepts as information
asymmetry, self-interest, trust and external audit)
 identify other theories in accounting/finance/auditing/taxation???
 why theory?
o provides framework to understand social phenomena and interpret research findings
o narrows range facts to study
o suggests which research methodology to apply
20
 model
 theory-based diagrammatic/mathematical representation of phenomena using
analogy/symbols/terms
c) variables
 measurable/observable attributes/characteristics/properties of unit of analysis
 usually vary/change in value (magnitude/strength/direction) from case to case
 are types of concepts/constructs
 types of variables
 discrete vs continuous variables
o discrete/categorical – assume only limited number of distinct values e.g. rank, sex, religion, marital status,
etc
o dichotomous – assume only two values e.g. male/female, present/absent, etc
o continuous – assume any value including fraction e.g. income, age, weight, etc
 independent vs dependent
o independent /stimulus/antecedent/predictor/treatment – variable that causes something to happen (called
dependent variable)
o dependent/effect/outcome/response/criterion – variable that occur due to a cause (called independent
variable)
o extraneous – all independent variables affecting a dependent variable but not cover in a study
21

 Example 3 - Research problems
Research topic Research problem
 Whether accounting practices should be regulated by the government or by
Accounting regulations
the accounting profession
Corporate governance  How corporate governance can be extended to employee communications
Financial accounting in the NHS  The use of financial accounting by doctors in general practice
 The most effective ways for communicating financial information to
stakeholders
 The impact of IFRS/IPSAS adoption on the quality of accounting information
Financial reporting
(change in earnings management)
 The impact of IFRS adoption on efficiency of investments/business
performance (change in cost of capital)
Environmental issues in accounting ethics  The criteria by which shareholders measure ‘green’ companies
 The influence of running of a TV advertising campaign designed to boost the
Advertising and share prices
image of a company on its share price
 The effect of the growth of Internet banking had upon the uses customers
The use of internet banking
make of branch facilities
 Example 4 - Research problem
 Example 5 (Specificity/ Preciseness)
Research topic Finance

Research problem Access to finance for small firms
Research question How do small firms meet their needs for finance (in a particular
industry, geographical location, time period, etc.)?
General Should the current financial reporting system be changed?

research problem
Specific How effective is the current financial reporting system?
research problem
 The process of generating your research ideas is not complete until you have been able to
explicitly state what you would like to research without mumbling. Consequently, your
research ideas should be SMART (Wilson, 2010).
 S - Specific: Are my research ideas clearly stated?
 M - Measurable: Can my research ideas measure what I have proposed to evaluate?
 A - Achievable: Are my research ideas achievable?
 R - Relevant: What is my contribution to knowledge?
 T - Timed: Can I conduct my research ideas within the time allotted by the university?

 Characteristics of a good research topic

 Capability: is it feasible?
 Do you have, or can you develop within the project time frame, the necessary research skills
to undertake the topic?
 Is the research topic achievable within the available time?
 Will the project still be current when you finish your project?
 Is the research topic achievable within the financial resources that are likely to be available?
 Are you reasonably certain of being able to gain access to data you are likely to require for
this topic?

 Appropriateness: is it worthwhile (fit for purpose)?
 Does the topic fit the specifications and meet the standards set by the examining institution?
 Does your research topic contain issues that have a clear link to theory?
 Are you able to state your research question(s) and objectives clearly?
 Will your proposed research be able to provide fresh insights into this topic?
 Are the findings for this research topic likely to be symmetrical: that is, of similar value
whatever the outcome?
 Fulfilment
 Does the research topic really interest and motivate you?
 Will the research topic help towards the achievement of your future aspirations or career goals?

I. Research Problem – Sources & Definition
 Where do research topics come from?
 There is no set formula for the identification of a topic of research.
 In principle a topic ( or ideas for a research topic) must spring from the researcher’s mind
like a plant springs from its own seed, i.e. it should be generated by the researcher (use your
rational and creative thinking).
 The best way to identify a topic is to draw up a shortlist of possible topics that have
emerged from your reading or from your own experience that look potentially interesting.
 A general area of interest or aspect of a subject matter (accounting, finance, industry, social
sector, etc.) may have to be identified at first.

 Sources - Common techniques of generating and refining research topics/idea
A. Generated by the researcher
 Own professional experience is the most important source of a research problem.
 Choose a topic in which if possible, already have some academic knowledge.
 For instance, some researchers are directly engaged in program implementation and come up
with a topic based on what they see is happening.
 Attending conferences, seminars, and listening to professional speakers, etc. are all helpful in
identifying research problems.

 Sources (Where do research topics come from?)…
B. Examining the literature (books, journal articles, etc.)
 Examining the theoretical or empirical literature in your specific field.
 Published articles are excellent sources of ideas. They help to…
• Explore findings discovered in previous research.
• Identify suggestions an author gives for further research at the end of an article.
• Extend an existing explanation or theory to a new topic or setting.
• Challenge findings or attempt to refute a relationship.

 Where do research topics come from…
C. Provided by a client
 Requests For Proposals (RFPs) are published by government agencies, NGOs and some
companies. Such that they describe
• the problem that needs to be addressed,
• the contexts in which it operates,
• the approach they would like you to take, and
• the amount they would be willing to pay for such research - they are virtually handing the
researcher an idea.
 But, if the topic is something in which you are not interested you will have to weigh the
advantage against the disadvantage of a potential lack of personal motivation.

 Where do research topics come from …
D. Technological and Social Changes

 New developments bring forth new development challenges for research.
E. Looking at Past Project Titles
 Scanning your university’s list of past project titles for anything that captures your imagination
F. Scanning the Media
 Keeping up to date with items in the news can be a rich source of ideas.
 The stories which occur everyday in the newspapers
G. Discussion and Brainstorming
 Colleagues, friends, practitioners and university tutors are all good sources of possible project
ideas.

 Where do research topics come from? …
H. Analogy
 is a means of designing a study in one subject by importing ideas and procedures from another
area where there are similarities.
I. Morphological analysis
 is a technique for generating research topics whereby the subject is analysed into its key attributes and a
‘mix and match’ approach is adopted.
J. A mind map
 is an informal diagram of a person’s idea of the key elements of a subject that shows
connections and relationships.
K. A relevance tree
 is a diagram that can be used as a device for generating research topics and develops clusters of
ideas from a fairly broad starting concept.

 Morphological analysis
e.g. The result of your analysis might
indicate a descriptive research project
that uses a survey for its methodology
and focuses on a body of individuals as
its unit of analysis; for example
professional associations of accountants
or lawyers.
Types of Accounting : -
Financial Accounting Elements Organizations (Reporting entity)
Recording & Reporting (recognition, de recognition,

Cash Service
measurement, presentation, disclosure)
Internal control Inventories Merchandising
Receivables Manufacturing
Investments Construction
PPE NGOs
Income Joint ventures
Expense Real estate

Example: Relevance tree for the topic: Corporate financial disclosure practices
37
 Topic: Accounting standards in financial reporting

 Research problem: Effect of the new IFRS/IPSAS reporting system on company’s –
transparency/accountability/efficiency
 Research question: How has the new IFRS/IPSAS reporting system contributed to
transparency/accountability/efficiency in commercial entities/NGOs?
 What is the nature of IFRS/IPSAS? (descriptive)
 What effect has it had on the quality of financial reporting (pre-post study)?
(analytical)
 What effect has it had on the efficiency of company’s operation? (analytical)
38
 Where do research topics come from? …

 In sum
 The most fundamental rule of good research is to investigate questions that
sincerely interest you ( i.e. research which a researcher honestly enjoys even if
he/she encounters problems frustrating or discouraging).
 Subject which is overdone, should be avoided by the average researcher since it will
be difficult to throw any new light in such cases for the average researcher.
 So, choose a worthwhile issue which is: new, catchy, focused, non-obvious
conclusion, you can get the data, doable.

 Statement of the Problem/ Problem Statement
 Problem statement is a clear, precise, and succinct/concise statement about

 an area of concern or issue to be investigated/researched,
 a condition to be improved upon,
 a difficulty to be eliminated, or
 a troubling question that exists in scholarly literature, in theory, or within existing
practice.
 Problem statement offers a focus and direction to the research.

 Statement of the Problem…

 Defining a problem clearly:
• involves the task of laying down the boundaries within which a researcher shall
study the problem.
• is more important than its solution and will help to find answers to questions like:
 What data are to be collected?
 What characteristics of data are relevant and need to be studied?
 What relations are to be explored?
 What techniques are to be used for the purpose?

 Statement of the Problem…
 The problem statement may focus on:
 Identifying a Gap: A research gap is an area where no or little research has been carried
out.
 Raising a question: The research problem is defined by asking a question to which the
answer is unknown, and which you will explore in your research.
 Continuing a previously developed line of enquiry: Building on work already done, but
taking it further (by using a new sample, extending the area studied, taking more factors
into consideration, taking fewer factors into consideration, etc.). or
 Counter-claiming: here a conflicting claim, theory or method is put forward.

 Statement of the Problem…
 In the problem definition (i.e. problem statement) you are required to describe or include:
 a clear statement that the problem exists,
 evidence that supports the existence of the problem,
 evidence of an existing trend that has led to the problem,
 definitions of major concepts and terms,
 brief theoretical basis and underlying assumptions,
 specific and workable questions,
 a clear description of the setting,
 probable causes related to the problem, and
 a specific and feasible statement.


 Example 6 - Business problem translated into problem statement
CAA Airlines carries out charter and regular flights to medium‐haul destinations – such as the Mediterranean,
North Africa and the Red Sea – and to long‐haul destinations such as the Caribbean. Today, CAA ’ s fleet
consists of three (new) Boeing 737‐800s and four (outdated) Boeing 767‐300s. Because the Boeing 767s
are rather outdated they need more maintenance than the average airplane. Despite an intensive
maintenance program, these planes have a lot of technical problems. Consequently, the long ‐haul fleet of
CAA has needed to deal with a lot of delays recently. New long‐haul planes have been ordered, but these
planes will not be delivered before 2016. This means that more delays will inevitably occur. This may
translate into much frustration among airline passengers, to switching behavior, and to negative
word‐of‐ mouth communication. These feelings and behaviors of consumers may eventually have
negative effects on the performance and the profitability of the firm.
Prior research has claimed that service waits can be controlled by two techniques: operations management and
management of perceptions. For CAA Airlines it is very difficult to obtain “zero defects” (no delays). Hence,
this project will focus on managing the perceptions of the wait experience: because CAA Airlines cannot
control the actual amount of delays and the duration, the company must focus on managing the customers
’ perception of the waiting experience.

 Example 6 …
The purpose of this study is twofold:

1. to identify the factors that influence the passengers ’ waiting experience and
2. to investigate the possible impact of waiting on customer satisfaction and service evaluations.
Therefore, this project focuses on the following research questions:
1. What are the factors that affect the perceived waiting experience of airline passengers and to what
extent do these factors affect the perception of waiting times?
2. What are the affective consequences of waiting and how does affect mediate the relationship between
waiting and service evaluations?
3. How do situational variables (such as filled time) influence customer reactions to the waiting
experience?
Drawing from prior research in the areas of waiting, service evaluations, and mood theory, hypotheses are
generated regarding the relationships among a delay, the waiting experience, affect, and service
evaluations. The hypothesized relationships are tested in a field setting involving delayed CAA airline
passengers.
 Example 7
 PS: The role of accounting systems in meeting accountability obligations in the Ethiopian
public sector
Carnegie and West (2005, p. 916) recognized the role of accounting in accountability and state,
“changes in public sector accounting have been claimed to be motivated by a need to promote
enhanced accountability within the sector”. However, recently the audit findings reported by
the office of the auditor general (OFAG) in Ethiopia has shown that significant financial
mismanagement has become persistent and prevalent in many of the public sector entities
despite the government has introduced a series of various public sector reforms to foster the
quality of service delivery with utmost accountability. Why is this so? The aim of this research
is to answer the following questions:
1. What are the mechanisms of accountability in the public sector?
2. What is the role of accounting system in meeting accountability obligations?
 Example 8
 PS: The usefulness (value relevance) of corporate annual reports (CAR) for investment decisions
Accounting information plays a paramount role for the realization of the objectives for which investments are being made. This
fact is clearly mentioned by Beyer et al (2010) as accounting information plays two important roles in market-based
economies. First, it allows capital providers (shareholders and creditors) to evaluate the return potential of investment
opportunities (the ex-ante or valuation role of accounting information). Second, accounting information allows capital
providers to monitor the use of their capital once committed (the ex-post or stewardship role of accounting information). The
axioms of utility theory, developed by Von Neumann and Morgenstern, argue that investors are (1) completely rational, (2)
able to deal with complex choices, (3) risk-averse and (4) wealth-maximizing. Utility theory further assumes that investors
maximize expected utility-measured in terms of anticipated returns and variances from these expectations. That is, each
investor selects the portfolio that maximizes expected return while minimizing risk.
Thus by making use of accounting information investors can assess the relative return and risks associated with investment
opportunities in order to channel economic resources more effectively. In line with these arguments as to the benefits
accounting information, this research attempts to answer the following important questions:
1. Do investors use CAR information when making in making investment decisions?
2. Which CAR information is most important for investment decisions?
3. Is the audit report useful when making investment decisions?
4. What sources of information other than CAR are used in making investment decisions?
Example 9
 PS: The availability and uses of financial statements in small businesses in Ethiopia
Ignorance of preparation and use of financial statements within small businesses is common in
Ethiopia. Most SMEs do not prepare financial reports, and those who do, they normally have two
sets of financial reports, one for taxation and another for loan request (where applicable) thus not
for general use (…). Failure to prepare and use financial statements leads small business firm into
poor management. The situation results to inability to plan, financing, performance analysis,
investment decision and risk management. Eventually, they can not understand market value of
their firms as they lack operation records including debtors, creditors and level of inventory.
Because of this, investors refrain from injecting their investment capital to SMEs.
1. What factors influence the preparation and use of the financial statements by SMEs?
2. What is the extent of the profit differential between SMEs with and without financial statements?

 Importance of research in accounting and finance
 Better decision-making
 Accurate financial reporting
 Fraud detection and prevention
 Cost reduction
 Risk management
 Regulatory compliance
 Investor relations
 Innovation (e.g. improved financial products, services, and practices)
 Improved financial performance
 Professional development
 Environmental protection (e.g. global warming)
 Etc.
 Need for research in accounting and finance
 Advancing knowledge
 Identifying challenges
 Informing policy decisions
 Improving practice
 Driving innovation
 Enhancing financial stability
 Promoting economic growth
 Supporting sustainable development
 Etc.

 Branches of accounting and finance
 Financial Accounting
 Management Accounting
 Tax Accounting
 Auditing
 Cost Accounting
 Financial Management
 Investment Management
 Financial Markets
 International Finance
 Etc.

 Areas of research in accounting and finance
 Financial Accounting – Financial accounting research focuses on financial reporting, corporate
governance, financial statement analysis, environmental accounting, human resource (employee)
accounting, corporate social responsibility (CSR) and the impact of accounting standards on financial
reporting.
 Managerial Accounting – Cost management, performance measurement, and organizational
decision-making processes are all explored in managerial accounting research.
 Auditing – Auditing research investigates auditors' roles in financial reporting, audit quality, and the
impact of regulatory changes on auditing practices.
 Corporate Finance – Corporate finance the research can be done in the topics like capital structure,
investment decision-making, corporate governance, and financial risk management.
 Investments – Investment research focuses on asset pricing, portfolio management, and behavioral
finance.
 Areas of research in accounting and finance…
 Financial Markets – Financial market research investigates issues such as market efficiency,
market microstructure, and the impact of financial regulation on market behavior.
 International Finance – International finance research looks at things like exchange rate
behavior, cross-border investment, and the impact of global financial crises on international
markets.
 Sustainability Accounting and Finance – the role of financial markets in promoting sustainable
development, the impact of climate change on financial markets, and the adoption of sustainable
investment practices are all topics of study in sustainability accounting and finance research.
Overall, accounting and finance research covers a broad range of topics and is critical in shaping our
understanding of the financial sector and its impact on society.

II. Hypothesis – Meaning, Formulation, Testing
 Definition of Hypothesis (Research Hypotheses)
 is an ‘informed guess’ about the social world that, if true, would explain the
phenomenon being researched.

 an unproven proposition (that is empirically testable), logical supposition, a reasonable
guess, an educated conjecture that provides a tentative explanation for a certain fact or
phenomenon under investigation.
 a theoretically or empirically based prediction.
 it provides a logical framework that guides a researcher while designing a research
study and collecting data.

 Definition of Hypothesis (Research Hypotheses)…
 The word Hypothesis is composition of two words, “Hypo” and “Thesis”. Hypo means
“under or below” and thesis means “a reasoned theory or a rational viewpoint”.
 Characteristics of a hypothesis
 It is a tentative proposition.
 Its validity is unknown.
 In most cases, it specifies a relationship between two or more variables.

 The functions of a hypothesis
 It provides a study with focus (i.e. it tells you what specific aspects of a research
problem to investigate).
 It enhances objectivity in a study.
 It provides an anticipation of what will be found out.
 It is a link between theory and the investigation.
 It provides a logical framework that guides a researcher while designing a research
study and collecting data.

 The characteristics of a hypothesis (useable)

 A hypothesis should be simple, specific and conceptually clear (unambiguous). This
involves two things
• the concept should be clearly defined
• the hypothesis should be commonly accepted ones. i.e. the hypothesis should be
stated in simple terms
• assure that research is practicable and significance.
 A hypothesis should be capable of verification (testable).
 A hypothesis should be related to the existing body of knowledge.
 A hypothesis should be operationalisable (measurable).

 Types of hypothesis
a) Null hypothesis (Statistical hypothesis) –Ho
 hypothesis of no difference or equality
 a proposition that states a definitive, exact relationship between two variables
 expressed as no (significant) relationship between two variables or no (significant)
difference between two groups
 a statement about the value of a population parameter.
 an assumption to be challenged
b) Alternative hypotheses (Research hypothesis) –Ha/H1
 the logical opposite of the null hypothesis
 statement expressing a relationship between two variables or indicating differences
between groups that is accepted if the sample data provide sufficient evidence that the
null hypothesis is false.
 predicted outcome of the study
 directional vs non-directional
 Sources of hypothesis (Construction/Formulation)
 Hypothesis originates in the science itself or in the scientist.
• Analogies (comparisons or analogies between social and natural systems).
 Hypothesis may rest also on the findings of other studies (e.g. exploratory).
 A hypothesis may stem from a body of theory.
 To conclude the ideal source of fruitful and relevant hypothesis is a fusion of past
experience and imagination of the researcher.

 Hypothesis testing
 is the branch of inferential statistics concerned with how well sample data support a
null hypothesis and when the null hypothesis can be rejected in favor of the
alternative hypothesis.
 is the process of comparing observed data with the results we would expect from
chance alone.
 is the process of testing a predicted relationship or hypothesis by making
observations and then comparing the observed facts with the hypothesis or predicted
relationship.
 a procedure based on sample evidence and probability theory to determine whether
the hypothesis is a reasonable statement.
 is using statistics to test the utility or validity of theories.
 Hypothesis testing
 The logic of hypothesis testing asks:
 What is the probability (error level /significance level /type I error/p-value level)
that we could observe what we did in the sample if the null hypothesis is true in the
population? If what we observe would be very unlikely if (or given) the null
hypothesis were true, then the null hypothesis is probability not true and we reject
it.
 The term significant, in the statistical sense in which we have been using it, is
close to its etymological meaning—namely, “giving a signal” that certain dynamics
are operating within the data and merit attention.

 Statistical estimation
 estimating population parameters using sample statistics
 population parameters vs sample statistics
 point estimate (one value)
 interval estimates
o minimum & maximum)
64
 Hypothesis testing - Errors in testing a hypothesis
 Incorrect conclusions about the validity of a hypothesis may be drawn if:
• the study design selected is faulty;
• the sampling procedure adopted is faulty;
• the method of data collection is inaccurate;
• the analysis is wrong;
• the statistical procedures applied are inappropriate; or
• the conclusions drawn are incorrect.
 Hence, in drawing conclusions about a hypothesis, two types of error can occur:
• Rejection of a null hypothesis when it is true. This is known as a Type I error.
• Acceptance of a null hypothesis when it is false. This is known as a Type II error.


 define rejection area/s
 upper tailed test: rejection area falls above +z, +t or χ2 value
 lower tailed test: rejection area falls below –z or –t value
 two tailed test: rejection area falls between –z or –t value and +z or +t
 determine observed z, t or χ2 value from sample data
N.B. As the sample size gets larger, the z

value increases therefore we will more
likely to reject the null hypothesis; less
likely to fail to reject the null hypothesis,
thus the power of the test increases.
67
 As the sample size gets larger, the z value increases therefore we will more
likely to reject the null hypothesis; less likely to fail to reject the null
hypothesis, thus the power of the test increases.

II. Hypothesis – Meaning, Formulation, Testing [ACFN 3111]
Example/Assignment III (Group & Hand in)

Based on information collected through its PR, the executive management of the Ethiopian Privatization and
Public Enterprises Agency came to know that majority of its privatized companies are not as successful as
expected. The management wants to introduce a project that could provide different supports to the privatized
companies to enhance their profitability and sustainability. The project requires about one million Birr for its
implementation which has to be approved by the Board of Directors (BoD) of the Agency. The project was
brought before the BoD but the BoD questioned the relevance of the project stating that the number of failing
privatized enterprises does not exceed 20% which is tolerable. The BoD urged for further research on the issue
to determine seriousness of the problem and to decide whether to go ahead with the project. To this end, a
research team of 5 members was established. The team surveyed 50 randomly selected companies which were
privatized in 2000. According to the survey, 30% of the surveyed enterprises are operating either at large loss or
at slightly below breakeven point.
Required:
a)State the null and alternative hypotheses.
b)State the appropriate test statistics and reason for its selection.
c)Test the null hypothesis at 1% level of significance and advise the BoD.

a) State the null and alternative hypotheses.
H0: π=<20% [or The percentage of failing privatized enterprises is less than 20%].
H1: π >20% [or The percentage of failing privatized enterprises is greater than 20%].
b) State the appropriate test statistics and reason for its selection.
Z-test because sample size > 30 which is 50 & the problem is testing hypothesized population π.
o Test the null hypothesis at 1% level of significance and advise the BoD.
 Determine z-value (critical value)
At 1%, the z-value is +2.575 (upper tailed test) implying that the H0 will be rejected if the observed z-
value is greater than +2.575. p = is the sample proportion
 Determine observed z-value π =is the population proportion
n = is the sample size
σp = is the standard error of the proportion,
computed by
 Make decision – accept H0 because the observed z-value falls within the rejection area and state that the problem
of failing privatized enterprise is not serious.
 Advice – for the problem of failing privatized enterprises is not serious, the BOD is advised not to approve the
project.

Example/Assignment IV (Group & Hand in)
The Ethiopian Revenues and Customs Authority (ERCA) wants to assess the relationship between quality of
financial statements of large enterprises operating in Ethiopia and incidences of non-compliance with tax
laws. The type of audit opinions that external auditors provide on the financial statements of these
enterprises is considered to be proxy indicator of quality of the financial statements. On the other hand, the
number of tax non-compliance incidences registered in the name of the companies in ERCA is taken as
measure of the seriousness of tax non-compliance. If relationship is found, ERCA will commission another
study to determine the nature of the relationship (positive or negative) between quality of financial
statements and incidences of non-compliance with tax laws. The following table summarizes data obtained
from a review of ERCA records of randomly selected large enterprises operating in Ethiopia over the last 5
years.
Required:
Level of non-compliance
Types of audit a)State the null and alternative hypotheses.
Critical Medium Low
opinions
b)State the appropriate test statistics and reason for its selection.
Unqualified 66 69 25
Qualified 31 35 14 c)Test the null hypothesis and provide the decision.
Disclaimer 15 20 13
Adverse 8 16 8
End of Ch02 – Next Ch03

# Research Methods in AcFn Chapter 2

Uploaded by

Copyright:

Available Formats

# Research Methods in AcFn Chapter 2

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

# Research Methods in AcFn Chapter 2

Uploaded by

Copyright:

Available Formats

Chapter II : Research Problem

“The Heart of the Research Process”

“Problem well-defined is half solved"

Compiled by Andualem (2023/24GC/2016EC)

1. What is a Research Problem

Compiled by Andualem (2023/24GC/2016EC)

 Importance of formulating a Research Problem

how you are going to research it.

 It is like the identification of a destination before undertaking a journey.

Compiled by Andualem (2023/24GC/2016EC)

 Importance of formulating a Research Problem…

project (the foundation or the heart of every research process).

 Captures the essence of the research in a “nutshell”.

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

 Research problem is:…

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Step 1 – Identify a broad field or subject area of interest to you.

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Step 1 – Understand the business situation—identify key symptoms

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

 Example 5 (Specificity/ Preciseness)

Research topic Finance

General Should the current financial reporting system be changed?

 M - Measurable: Can my research ideas measure what I have proposed to evaluate?

 A - Achievable: Are my research ideas achievable?

 R - Relevant: What is my contribution to knowledge?

Compiled by Andualem (2023/24GC/2016EC)

 Characteristics of a good research topic

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

 Sources - Common techniques of generating and refining research topics/idea

A. Generated by the researcher

 Own professional experience is the most important source of a research problem.

 Choose a topic in which if possible, already have some academic knowledge.

with a topic based on what they see is happening.

identifying research problems.

Compiled by Andualem (2023/24GC/2016EC)

 Sources (Where do research topics come from?)…

B. Examining the literature (books, journal articles, etc.)

 Examining the theoretical or empirical literature in your specific field.

 Published articles are excellent sources of ideas. They help to…

• Explore findings discovered in previous research.

• Extend an existing explanation or theory to a new topic or setting.

• Challenge findings or attempt to refute a relationship.

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

D. Technological and Social Changes

Compiled by Andualem (2023/24GC/2016EC)

Compiled by Andualem (2023/24GC/2016EC)

Financial Accounting Elements Organizations (Reporting entity)

Recording & Reporting (recognition, de recognition,

Internal control Inventories Merchandising

Income Joint ventures