Understanding Key Statements Of Research Problems Commerce Essay

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Financial management is important to a company, because it decide how a company use their funds. Fund is the most important thing that to run business and it is the main factor that affect a companys health; funds are needed to start, maintain and expand a business. So that, we can see many corporation issue shares, bonds or other financial instruments to collect raise their funds for future investment. However, these financial instruments are a double side edge; because it can also hurt a company. Somehow, some of the entreprenuers who are taking the financial risk does not has sufficient financial knowledge to manage their fund and use the financial insturment wisely, especially the entreprenuers in small and medium industry. So, through sharing and learning within a company, financial intelligence might be improve and increase the effectiveness of financial management of a company.

In Mr. Shukor class (lecture, August 03, 2010), he said that "Profit is a return to those who are willing to undertake risk". Financial risks are include market risk, credit risk, liquidity risk, operational risk, investment risk, and the others. So, a company or an individual who has better understand to these risk might has better profit in the future. However, to understand these risks is not easy, so learning will be the most important step to improve the understanding of risks.

From this research, we are able to understand and identify the responses of financial education and governance mechanism that drive employees learning and sharing financial knowledge within company to raise firm's financial intelligence. The experiences in financial crisis had showed the needs of understanding and abilities in financial management to improve company performance. Therefore, people with low understanding of financial produsts and services should aware that their understanding is not sufficients in this high competition environment. So, work place might be one of the best place to improve their understanding on financial needs, products and services that can benefits company and themselves.

However, according to Donald (2005), there are some traits may affect the effectiveness of financial education programs, which is behavior and willingness of study. Schermerhorn, Hunt, and Osborn (2008, pg. 396) had defined that "control is the set of mechanisms used to keep action or output within predetermined limits". So, control is important in improve the effectiveness of financial education programs; and governance mechanisms likes job design, organization culture, codes of ethics, and rewards systems are the mechanisms that use to control the financial intelligence programs. As what Karen, et al. had says in year 2006, to improve firm's financial intelligence, we have to figure out a strategy first. According to Wim, Steven and Erik (2004), coporate governance is a system that can provide strategic plans to direct and control a business. So, knowledge governance might be the most suitable governance system to improve firm's financial intelligence.

1.3 Research Gap

The previous studies on knowledge governance had shown that researchers had only done on factors likes governance sturcture and governance mechanism affecting the knowledge governance;or how knowledge governance become a useful governance system in future to help a company gain competitive advantage. The importance of the influence of knowledge governance in affecting employees in knowledge sharing and learning has led to many researchers done on this subject matter in different areas. However, no research has yet been done specifically on the financial education to see how it affects employees' financial understanding in their work place.

1.4 Research questions

How the governance mechanism (job design, organization culture, code of ethics, reward systems) affect the effectiveness of financial intelligence programs?

How the relationship between governance mechanism and level of financial intelligence in a company?

How the affect of knowledge governance on improve financial intelligence?

1.5 Research Objectives

The purpose of this research "Knowledge Governance: Raise the Firm's Financial Intelligence" is to find out the influences factors of governance mechanism to the employees. The researcher would like to know how some factors like personal behavior, organization culture, motivation and working environment affects employees' views on learning and sharing; and how it determine their financial intelligence level.

Improve the effectiveness of financial intelligence programs through the gorvernance mechanism.

Different people has different think of way to learn and share. It is because people has different culture, so they will have different view. Besides, a study environment will also affect the effectiveness of study, people will lose focus when they feel boring in the study program. So, I believe that guide and motivate are needed in these learning programs. People need to guide to do the right thing; and to be motivate to improve their effeciency in work.

Improve firm's financial intelligence through the Knowledge Governance.

To be succeed in certain task, we must need a successful system first. Knowledge Governance is a governance system that control and manage knowledge winthin a company to improve company's competitive advantage;so it will be the system that we needed to guide and control the process of financial intelligence programs.

1.6 Significance of Research

The study of this research will clearly explain how the knowledge governance affect firm's financial intelligence. The need of this study is to improve people's understanding about the importance of financial management. The major areas of contributions from this research is the private sectors. The results from this research will allow a company improve their financial performance through improve their employees' financial intelligence. By influence learning and sharing behavior, we can successfully applying high effectiveness of financial education. Besides that, better financial performance may allow a company make more valuable investment to increase their competitive advantage to capture more market share.

Secondly, this research can benefit the individual who involve in the financial intelligence programs. According to some previous research and news, we can see that the level of financial literacy in our country is still low. It means people in Malaysia do not manage their money wisely. Gao (2009) had says that, financial literacy is the ability to manage money. Trough the financial intelligence program, people might know the importance of money management. In addition, Karen et al. (2006) says the financial literacy is needed to be a part of organization cultule. So, the financial intellegence program may also increase level of financial literacy in our country indirectly.

Moreover, after increase firm's financial intelligence, individuals or firms will have better skill to manage their financial risk. So, they will save more or make more investment to increase their profit to avoid the harm from economy crisis in the future. Increase in savings and investing will bring positive grow in economy growth. When economy having a positive growth, the unemployment rate will decrease; spending power will also increase. It will be a good trend in national development. So, this research might benefit the public sector also, because a "healthy economy" can attract more foreign investor invest in our country. Besides, production level of private sector increase and export goods to other country can bring more income to the government.

As a result, improve financial intelligence is an important research, because the portential areas of contributions from this research is wide.

1.7 Scope of study

In view of the topic of this research, we have to identify and understanding the the enhancing in financial knowledge transfer program that drive firm's financial intelligence. This research will be conducted at Small and Medium Enterprises (SMEs) in Melaka. Perhaps, this might allow us to narrow down our area of study by just focusing on SMEs in Melaka to understanding their response on governance mechanism and financial education towards employees' financial intelligence. We assume that these companies can provide us the exactly information that we needed in conducting this research. By viewing this report, the SME might found it useful and apply the knowledge in building better financial management as well as for the purpose to obtain more market share.

1.8 Definition of Terms



Knowledge Governance

"Knowledge governance considers how deployment of governance mechanisms influences knowledge processes: sharing, retaining, and creating knowledge"

Anna Grandori (as cited in Nicolai & Joseph, 2010)

Financial Intelligence

"everyone in a company does better when they understand how financial success is measured and how they have impact on the company's performance"

Karen, Joe, and John (2010)

Financial Education

"process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, … to improve their financial well-being"

SourceOECD: Finance and Investment (2005, Pg, 13)

Job Design

"the process of defining job tasks bad the work arrangement to accomplishthem"

Schermerhorn, Hunt, and Osborn (2008, Pg.130)

Organizational Culture

"system of shared actions, values, and beliefs that develops within organization and guide the behavior of its members"

Schermerhorn, Hunt, and Osborn (2008 ,Pg.364)

Reward System

"Procedures, rules, and standards associated with allocation of benefits and compensation to employees"

From: http://www.businessdictionary.com/definition/reward-system.html

Business Ethics

"Standard of conduct or moral judgement that apply in persons engaged in commerce"

Lawrence (2009, Pg. 17)

1.9 Organisation of the Research

The next chapter is literature reniews. This chapter will justify the theoritical model and highlight the discussion from previous studies that related to this study. Besides, the dependent and independent variables will further discuss in this chapter to get a clearer view for this research.

Chapter 3 will describes ths methodology of this research. After the discussion of variables in chapter 2, the hypothesis will br develop in tis chapter to formulating a testable statement. Besides, the research object and technique will be decide in this chapter.

After the data has been collected, the data will be analyze in chapter 4. SPSS will be the program that use to analyze the collected data; and some analysis methods will be use to test the hypothesis.

Lastly, in chapter 5 will discuss the result in the hypothesis test first. Next will be the discussion for the managerial implication and research objective. After that, the limitation of this study will be list out and some suggestions will be given for future studies.

1.10 Conclusion

In this chapter is about the initial steps for this research. The board area of problems and the current issues has been discussed in this chapter. Besides, it also come out the question that to be answer in the final of this research. Moreover, the significant of this study has clearly explain the portential areas of contribution in this research. As a conclusion, the out come of this research might benefit the readers and become an important information for future studies.

Chapter 2

2.0 Introduction

In this chapter, the proven and justify of the previous studies that related to current study will be listed. As there is many factors are related to the variables about this topic. The discussions and explaination of the previous study which link to the knowledge governance nad factors influence the financial intellegence will be done and support the current research.

2.1 Model of Knowledge Sharing Between Individuals in Organizations

Since knowledge governance is focus on knowledge sharing, creating, and retaining. So, the Model of Knowledge Sharing between Individuals in Organizations had been chosen as the model of study for this research.

The Model of Knowledge Sharing between Individuals in Organizations states out the four factors that influence on knowledge sharing in an organization. Each factor has been indentified that are significant; however, each factor are do not isolate in the impact of knowledge sharing.

The Model of Knowledge Sharing between Individuals in Organizations theory is develop through the review that states out the knowledge sharing; and it explained the influence of nature of knowledge, the motivation to share, the opportunities to share, and the culture of the work environment which is the four factors that are interconnected (Minu, 2003). Figure 2.1 will shows the interconnection of the four factors in knowledge sharing between individuals in organizations.

Figure 2.1 A Model of Knowledge Sharing Between Individuals in Organizations




Nature of Knowledge



Opportunity to Share

Motivation to Share




2.2 Financial Intelligence

According to Karen et al. (2010) financial intelligence can be explained as the capability of using financial knowledge that had gain by the people in a company. For the entrepreneur, the improvement in financial intelligence can benefit them in understanding the strengths and weakness of the company, and have better awareness to the opportunities and treats in future investment. For the employees, they will have a better knows to the financial performance in their company .

The financial knowledge is include the ability to read the financial report such as income statement, balance sheet, cash flow statement, and ratios. Other than that, the knowledge in calculate inventory, depreciation, and other metrics is also a part of financial knowledge that has to learn by the individual. Next, know how to use the knowledge to measure, manage and optimize cash flow will be the personal financial intelligence (Karen et al., 2010).

2.3 Financial Education

As the changes in financial markets and economic policy, the financial knowledge had become more important. According to Gao (2009), the financial information is not easy to understand. With the increase of competition in global market, the company is need to make sure that they can expand or improve their business in the future. However, the financial document and information are require certain knowledge to understand, so the financial education is needed.

Besides, Lawrence (2009) had also discussed the reason to study managerial finance. He states that the understanding in the activities of the financial manager may improve the chances of success in choosen business career. It is because other departments in organiation are needed budget to meet their goal, so if they have better understand in financial decision making process, then will have better chance to get the recources they need.

Financial education may improve the consumers or investers' understanding the concept of financial instrument. Besides, through financial education, people can improve their awareness in financial risk and manage their money wisely. Financial education program may benefit any people that involve in it (SourceOECD: Finance and Investment, 2005). Financial education program can be held in different way to provide the education which is the formal education and informal education. Formal education is to attend financial class or join the trainig program; and informal education is through sharing financial information or listen advise from other.

In formal education, people may learn the ability and skills to understand financial management through teaching tools like Instructor's Manual, Test Bank, PowerPoint Lecture Presentation, and Instructor's Resource CD-ROM (Lawrence, 2009). On the other hand, through sharing the financial informations which are include historical data and facts to increase their awareness in finance. Besides, the changes of finance sector are highly depends on the macro and micro economic and government policies, so advise about the financial issues and financial products are needed to improve the ability of using the information and skills (SourceOECD: Finance and Investment, 2005).

2.4 Code of Ethics

Previously, the result in business scandal likes Enron debacle, Apple, Boeing, Tyco and etc had showed the business ethics is increasingly important. The financial activities against the standard of moral judment are included accounting fraud, insider trading, and others (Lawrence, 2009). These cases had increase the distrust of business among the people which include employee, investor, customer, and supplier. Besides, Ferrell, Fraedrich and Ferrell (2008) had discussed the evolve of business ethics in five different stage, and the financial management had become one of the major ethics dilemmas in twenty-first century.

Recently, more organizations had realize the benefits and importance of developing business ethics. Ferrell et al. (2008, pg. 18) had stated that "Among the rewarsd for being more ethical and socially responsible in business are increased efficiency in daily opreations, greater employee commitment, increased investor willings to entrust funds, improved customer trust and satisfaction, and better financial performance". Figure 2.2 shows the relationship between business ethics and organizational performance which provided by Ferrell et al. (2008).

Figure 2.2 The Role of Organizational Ethics in Performance

Employee Commitment and Trust

Investor Loyalty and Trust

Ethical Culture


Customer Satisfaction and Trust

Since many cases had shows that the company has lose trust from their stakeholders after the agency problem [1] had disclose; so nowadays, many companies will set the code of ethics to guide their employees. Besides, some companies will require their employees to join the ethics classes and training programs. Through the seminars and training, employees' commitment and trust might be increased and bring more benefits to company and avoid the agency problem.

Besides that, one of the factor that influence the motivation to share knowledge is trust between individuals (Minu, 2003). In other words, business ethics can enhance the trust of employees to the company, so at the same time it can also enhance the knowledge sharing activities.

2.5 Reward Systems

Reward systems will be another factors that influence the motivation to sharing knowledge. According to Minu (2003), people will not likely to share their knowledge to others without any benefits. However, reward systems is design to reward the people who willing to share and leaen. So, reward systems may fulfill their needs in knowledge sharing and motivate them to share their knowledge.

According to report done by Gee and Kim (2005) shows that the extrinsic rewards like incentives may be not a good motivator in knowledge sharing. However, Schermerhorn et al. (2008) had stated that "effort, performance, reward is center stage in integrated model of motivation. In other words, making rewards decision through measure their performance correctly is important; otherwise, the rewards systems will fail. The integrated model of motivation had shows that the extrinsic rewards will not bring motivation directly to the individual; they must satisfied by the rewards first, then only motivated.

Figure 2.3 An integrated model of individual motivation on work

Amount & schedule of contingent extrinsic rewards

Individual attributes

Work effort

Equity comparison

Net amount of value instrinsic rewards


Level difficulty



Organizational support

As the performance measurement is important , Schermerhorn et al. (2008) had states the circle of performance measurement process to evaluate their performance and then give the rewards accordingly.

Figure 2.4 Performance Measurement Process

Lastly, as long as the rewards can satisfied the employees, the rewards systems might still a usefull governance mechanism in control the firm's knowledge sharing.

2.6 Job Design

A successful job design can creating good performance impact. The basic goal for job design is to achieve a job fit for the person who able to do it. When the good fit exists, the person will motivated by the job and has good performance on it. Since the equation for job-design approaches is"

Person + Job Fit = Motivation and Performance (Schermerhorn et al., 2008).

However, individual differences and job characteristics must be consider in the job enrich process. The job characteristics model that done Richard Hackman and Greg Oldham (1976) had illustrated the importance of the five core job characteristics to job design; the higher score for each characteristic, the more to be enrich (as cited in Schermerhorn et al., 2008).

Figure 2.5 Job Characteristics Model




High intrinsic work motivation

High-quality work performance

High satisfaction with the job

Low absenteeism and turnover




Experienced meaningfulness of the work

Experienced responsibility for outcome for job

Knowledge of actual results of the job




Skill Variety

Task Identity

Task Signficance




Growth-need strength

Knowledge and skill

"Context: satisfaction

2.7 Organizational Culture

As cited in Minu (2003), "organizational culture is increasingly being recognized as a major barrier to effective knowledge creation, sharing, and use" (De Long & Fahey, 2000; Leonard-Barton, 1995; Pan & Scarbrough, 1999).

2.8 Justification for Literature Review

Figure 2.6 represents the factors identified from the literature that influence of governance mechanisms and financial education between individuals in organizations towards the financial intelligence.

Figure 2.6 Factors that influence financial intelligence in an organization




Opportunity to Share

Individual Knowledge

in Organization

Code of Ethics,

Financial Knowledge

Reward Systems, Financial Education

Job Design

Motivation to Share

Organizational Culture



2.9 Conclusion

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Gao. (2010). Consumer Finance: Factors Affecting the Financial Literacy of

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Mariussen, Å. & Asheim, B.T. (2003). New Forms of Knowledge Governance:

Basic outline of a social system approach to innovation policy. Paper presented at the DRUID Summer Conference 2003, June 1214.

Donald J. Johnston. (2005). Importance of Financial Literacy in the Global Economy.

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