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Methodology
This chapter will describe the procedure used to conduct the empirical research. This includes how the data was collected, determination of the sample used and how the information will be interpreted. The chapter ends with a discussion on the reliability and validity of the chosen methods.
Research Method
Before the research can start, the researcher must determine the aim of the study. Does it aim at confirming/rejecting existing theories by applying them to new observations made, or does it aim at deriving new explanations and theories from existing observations? The different approaches are called the deductive and inductive method (Halpern, 2003).
In the deductive method, you begin with a hypothesis that you believe to be true and then make systematic observations to see if your hypothesis is correct (Halpern, 2003). It focus on pre-existing formulas or theories which then is applied to observations made in the real world and thereby tries to explain the world through the pre understood theories. These hypotheses can then be proven right or wrong by using empirical studies. (Holme & Sol-vang, 1991) The deductive method is sometimes described as « going from the general to the specific” (Halpern, 2003).
In the inductive method, you observe events and then devise a hypothesis about the events you observed (Halpern, 2003). It focuses on the observations made of the world and a spe-cific occurrence and tries to work out a formula explaining the observations. The specific observation is made into a generalization about the world (Losee, 2001). When one reason inductively, one generalize from experiences to create beliefs or expectations. The inductive method is sometimes described as « going from the specific to the general. » (Halpern, 2003).
In this thesis the authors are taking an inductive approach. This since empirical observa-tions will be gathered from a specific occurrence, i.e. the introduction of the new account-ing standards. Once this is done the authors will with the aid of the theoretical framework explain and analyze the findings in order to come to a general conclusion of how the new standards have influenced financial statements and acquisitions processes of listed Swedish companies. Hence, the inductive approach will be used for this thesis.
Quantitative and qualitative research approach
Business research is defined by Zikmund (2000, pg 5) as “the systematic and objective process of gathering, recording and analyzing data for aid in making business decisions”.
The philosophy of information gathering has concluded two different ways to gather and analyze research data and information. The two perspectives are named the qualitative and quantitative method. The two methods are, because they gather information differently, also used differently in research. Since the authors of this thesis will use both approaches, a more thoroughly discussion of the two will follow below.
The quantitative approach bases information gathering on an objective base, which means that the researcher should be positioned far away and observe the information and not be a part of it, in order to be as neutral as possible (Holme & Solvang, 1991). The purpose of quantitative research is to determine the quantity or the level of some phenomenon in the form of numbers (Zikmund, 2000). In order to be as neutral as possible, using a random sample from the whole population will be desirable, and from that state a conclusion which can be assumed true for the general population as well. This method will lead to a conclu-sion of a more general type. In this kind of approach statistics is often used in order to prove hypothesis about the population sample (Ejvegård, 1993).
Since the authors, through the first research question of this thesis, aim to get insights of the balance sheets and income statements of the companies a quantitative method will be applied for this special element. This method will be used because it includes numbers, which makes it possible to gather information more objectively and it allows the authors to state a conclusion which can be assumed true for the general population.
The focus of the qualitative approach is not on numbers but on words and observations; visual portrayals, narratives, meaningful characteristics, elucidation, interpretation and other expressive descriptions. Any source of information may be informally examined to clarify which qualities of characteristics that is associated with an object, phenomenon, situation and issue. The qualitative approach is dominantly used when the researcher wants to have a deeper understanding of a problem (Zikmund, 2000). The qualitative method is using in-formation where the source has had a great degree of freedom in outlining its own opinion. Gathering the information this way will give information about a certain and detailed prob-lem and is normally conducted during normal conversations, surveys or interviews. The data will also be very specific and apply only to that particular research question. (Holme & Solvang, 1991) Furthermore, in a qualitative study the researcher use a smaller sample to be able to make a conclusion of the research question (Saunders, Lewis & Thornhill, 2003).
In the second research question the authors are examining the companies view on the ac-counting change, which means that the source will have the possibility to outline its own opinion. The authors have therefore chosen the qualitative research method for this part in order to gather a deeper understanding of the problem and also because the data will be very specific and therefore it can probably only be applied to this particular research. The qualitative research will be conducted in the form of a survey.
Methodological triangulation
Triangulation refers to the use of more than one approach when it comes to investigation of a research question in order to improve confidence in the resulting findings. Since much of the research within all kinds of fields is founded on the use of a single research method and as such may suffer from limitations associated with that special method or from the specific application of it, triangulation will offer the prospect of improved confidence. (Bryman, 2003) Triangulation is a method used by qualitative researchers to check and es-tablish validity in their studies (Guion, 2002).
Methodological triangulation involves the use of multiple qualitative and/or quantitative methods. If the conclusions from each of the methods are similar, validity is established. Guion (2002) gives in a study the following example of a situation where a methodological triangulation might be useful: suppose you are a manager conducting a case study of one of your employees to document changes in his/her life as a result of participating in an on-the-job training program over a one- year period. You would not just use one method, but you would use interviewing, observation, document analysis, or any other appropriate method to assess the changes. If the findings from all the methods draw the same or simi-lar conclusions, then validity has been established in the research. However, this method may require more resources in order to evaluate the data and research using different methods. Likewise, it will be more time consuming when it comes to analyzing the data/information yielded by the different methods. Hence, the more validity wanted the more time consuming the research will be. (Guion, 2002)
Even if a triangular strategy not can be seen as a completely quick fix for certifying validity it will improve the validity (Marschaan-Piekkari & Welch, 2004).
By looking at the purpose of this thesis “How IFRS 3 affect the companies listed on the Stockholm Stock Exchange and its impact on the acquisition practices”; the authors can primarily conclude that a qualitative research method will best fulfill this purpose. However, in order to get a holistic view of the impact of the new accounting standards a quantitative research is also needed in order to identify the changes in the companies’ financial statements. Hence, the qualitative method will be used for the survey and the quantitative method will be used for the observation of the balance sheets and the income statements of the companies. This is the process of methodological triangulation and the researchers have chosen this method in order to improve the confidence of the thesis. The authors are also confident in that, by using the methodological triangulation method, greater insights can be made of the organ-izational effects of IFRS 3, IAS 36 & IAS 38.
Primary and Secondary data
In the field of methodological research, the collected data can be classified into two sepa-rate groups, primary-and secondary data. They differ in their closeness to the question be-ing researched. Primary data is collected specifically for the proposed research question, usually through interviews or questionnaires, while secondary data is already existing data that has been collected for other purposes. (Saunders, Lewis & Thornhill, 2003)
The advantage of using primary data is that the researcher can adjust the collected data based on the details of the research question. The main reasons to use secondary data are that it is cheaper and faster to collect than primary data (Saunders, Lewis & Thornhill, 2003). There are two types of secondary data, raw- and compiled data. Raw data is data where there has been little, if any, processing, while compiled data is data that have re-ceived some form of selection and processing (Kervin, 1999).
In this thesis the authors will be using both primary-and secondary data. For the first re-search question, the authors will look in companies annual reports and extract the figures needed to answer the question. This means that compiled secondary data is used, this since the numbers are collected and presented for other purposes than this thesis and further-more, that the numbers presented in the annual reports are selected and processed by the company before printed in the annual report. The authors will look at a wide range of numbers in the annual reports, both in the balance sheet and in the income statement this in order to identify the impact of the new accounting standards. Since this thesis does not take taxes into consideration, the operating profit5 will be used when examining the com-panies’ earnings in the income statement. Furthermore, since two of the companies are us-ing Euros (€) as their reporting currency, the authors have needed to re-calculate these en-tries into Swedish kronor (SEK). This was done by using the average monthly exchange Profits before deduction of interests payments and income taxes. Also called Earnings before interest and tax, EBIT. (Investorwords, 2006) rates from the Swedish tax authority (Skatteverket, 2006). The monthly rates where added together and then divided by twelve in order the get the year’s average exchange rate. This measure has been chosen since the authors believe that it will best capture the fairest ex-change rate during the year.
For the second research question primary data will be used. This since the authors will use surveys that will be answered by corporate managers and where the authors can design, formulate and present the specific questions in order to collect the information needed to complete the purpose of this thesis.
Surveys
As already mentioned in section 3.3 a survey will be used to conduct the qualitative re-search. A survey is according to Zikmund, (2000, pg 167) “a research technique in which infor-mation is gathered from a sample of people by use of a questionnaire; a method of data collection based on communication with a representative sample of individuals”. Hence, a survey can be seen as a method of primary data compilation based on communication with a representative sample of individuals.
Surveys can be conducted through mail, e-mail, telephone, internet or face-to-face inter-view. The dominant technique when it comes to accounting and finance research is mail surveys and e-mail surveys. (Smith, 2003)
Surveys require asking people, who are referred to as respondents, for information by using either verbal or written questioning. The type of information collected in surveys varies significantly from time to time, depending on the objectives of the survey. Normally, sur-vey studies attempt to give a description of what is happening or to learn the motives for a particular business activity. Hence, most survey research is descriptive research but they can also be designed to provide casual explanations or to explore ideas. Some of the typical survey objectives include to locate characteristics of a particular group, measure attitudes, and to describe behavioral patterns. (Zikmund, 2000)
The advantages of surveys are that they provide inexpensive, quick, efficient ways of as-sessing information about a population (Zikmund, 2000). Other advantages associated with this kind of technique are that it can reach a lot of respondents and that everyone receives the same questions. The disadvantages of surveys are the possible reduction of respondents and the respondents varying interpretations of the survey (Kylén, 1994)
The reasons for choosing a survey-based approach instead of an interview-based for exam-ple, are that it is possible to reach a broader range of respondents than otherwise and that every respondent will receive the same questions. Thus, in this thesis, with the help of a survey, it is possible to reach an additional proportion of companies that will get the chance to respond to the same questions and this can be done in a relatively short time.
Questions in a survey
In most surveys the first question is to identify the recipient of the survey. This is done in order to make sure that the individual responding to the survey possesses the characteris-tics wanted and therefore is eligible to so. (Brace, 2004) In this thesis the authors are look-ing for accounting managers or chief financial officers that have knowledge of the account-ing standards and are informed on the company’s acquisition process. This is done by ob-taining the relevant e-mail addresses from the company’s websites or by sending an e-mail ,to the investor relation department with a request of forwarding the survey to the wanted person.
Designing the Questions
A main rule when it comes to questionnaires is according to Brace (2004) to start with questions of a more general nature and then narrow it down to the specific, more detailed, questions. This since respondents might find it difficult to answer questions about details, and by starting with general questions the respondent can ease into the subject before reaching for specific details. It is of crucial importance that the questions in the survey have a clear link between them and that it flows naturally from one subject to another (Brace, 2004; Kýlen, 1994). Furthermore, Brace (2004) states that different types of questions are appropriate for different purposes. The survey writer should be thinking of how the ques-tions will be analyzed before writing them, this in order to design them appropriately.
Survey questions can be designed in many different ways. For example, they can be opened-or closed questions. An open question6 is one where the range of possible answers is not suggested in the question and where the respondent is free to formulate his/her own opinions and freely express his/her thoughts. The open questions have advantages in that they can retrieve much information and that each respondent is free to express his/her pre-cise opinion. However, there are also shortcomings to this method. The respondent may find it difficult to recognize and articulate their opinion in the specific matter. Closed ques-tions, on the other hand, are questions where there are a limited number of answers that the respondent can give. For example, a yes or no question is a typical closed question. (Brace, 2004; Kýlen, 1994)
Abbreviations
1 Introduction
1.1 Background
1.2 Problem Discussion
1.3 Purpose
1.4 Perspective
1.5 Delimitations
1.6 Definitions
1.7 Literature Study
1.8 Disposition
2 Theoretical Framework
2.1 Financial Statements
2.2 Acquisitions
2.3 Accounting for Acquisitions
2.4 Previous Studies on Accounting Standards impact on Acquisitions
3 Methodology
3.1 Research Method
3.2 Quantitative and qualitative research approach
3.3 Methodological triangulation
3.4 Primary and Secondary data
3.5 Surveys
3.6 Sampling design
3.7 Possible errors in surveys
3.8 Validity and Reliability
4 Empirical Findings and Analysis
4.1 IFRS 3, IAS 36 and IAS 38´s effects on the financial statements
4.2 Analysis of IFRS 3, IAS 36 & IAS 38’s effect on financial statements
4.3 The companies view on the affects of the new accounting standards
4.4 Analysis of IFRS 3, IAS 36 & IAS 38’s effect on companies acquisition process
5 Conclusion and Final Remarks
5.1 Conclusion
5.2 The authors reflections
5.3 Critique of the method used
5.4 Suggestions for further studies
References
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IFRS 3, Enlightening the world of Acquisitions A study of IFRS 3, IAS 36 & IAS 38’s impact on companies financial statements and their acquisition process.
