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It is an important decision on defining the optimal capital structure of any organisation. This decision is not only the need of maximizing returns but also the impact of this decision on organisation's abilities to deal with its competitors. There are many methods for organisation to raise its required funds. The most basic instruments are stocks or bonds. The mix of the different securities is known as its capital structure. This combine can be defined as a union of debt and equity used to finance the organisation. The capital structure aim is the ideal of mixing the debt, preferred stock and common equity of which the organisation plans to finance its investments.
3.2 Sources and acquisition of data
The data used in this analysis is gathered from the organisation stock exchange of Thailand which is a Thai's central stock exchange market. The data from this organisation is reliable and accessible as it is widely accepted in its reliability.
The organisation of stock exchange of Thailand offers real time online information through its website over the internet. This can be found by browsing through its web address, http://www.set.or.th. The gathered information from this includes the prices and statistic of all indexes in the Thai's stock market, details and descriptions of all companies in the Thai's stock market, annual summary of all companies in the Thai's stock market and market summary.
The data and information can also be gathered by requesting from the organisation stock exchange of Thailand individually. This can be done by contacting in person or by calling directly.
3.3 Method of data analysis
After collecting all required data and information, the data is then critically evaluated, compared and contrasted with the themes those have been discussed in the literature review. The data analysis is a process of gathering, modeling, and transforming data into useful information, suggesting conclusions, and supporting decision making. The data analysis has multiple facets and approaches, encompassing diverse techniques.
The objective of this chapter is emphasis on the research design, hypothesis and the data collection. To provide the perspective of research process and describes the theoretical framework employed which was applied for this study and the qualitative and quantitative research methods applied and achieve the aims that set by the researcher.
It is obvious that research aim is identification of an appropriate capital structure in Thai stock market. Improve understanding of a capital structure in Thai stock market by study of an industrial sector by the used of WACC.
The research studies about optimal capital structure in Thai stock market by study of industrial sector in which the objectives of the study are to explore the optimal capital structures in Thai stock market in industrial sector based on WACC, identification of appropriate capital structure in Thai stock market, Identify alternative tools and methods which could be jointly used with financial structures, by industrial sector for assessing their performance and utilizing best practices, attempt to form a prescriptive model that can be adopted to implement of capital structures.
This chapter becomes to one of the most important chapter because a wrong method may cause missing of main objective. However, there some of the most important characteristics following: The process of investigation or enquiry, seeking to increase knowledge and methodical approach.
The beginning of research methodology discuss on research approach of carrying out research by introduced research onion as a way of describing the issues underlying choice of data collection method. Examples of hypothesis testing are included. The approach to data collection based on secondary data (published data). The chapter concludes with a discussion of the limitations of the study, more generally.
3.4 Research Design
Research design can define as the way of doing a careful study of a subject by the exploration. The exploration phase is the study of phenomenon is explored in both a theoretical point of view and a practical point of view. The overall research design for this study included the research philosophy, the research approach. (Saunders et al. 2003) define the so called research process onion, consisting of five different layers
3.5 Research Philosophy
Research Philosophy is a careful study of a subject in particular set or system of beliefs resulting from the search for knowledge about life and the universe, especially in order to discover new facts or information about that subject. Sauders & Lewis (2003) said "Your research philosophy depends on the way that you think about the development of knowledge." There basically two main philosophies of carrying out research are positivistic and phenomenological.
The positivist approach to research is based on research methods which are often used in science. The research that adopts the philosophical stance of the nature scientist. Researcher will be preferred working with an observable social reality and that the end product of such research can be law like generalization similar to those produced by the physical and natural scientist. (Sauders & Lewis, 2003)
According to Curwin & Slater (2002) "The positivistic approach comes from the scientific tradition and is essentially deductive. Ideas are base on reason and logic." The objective approach is to evaluate, measure any phenomenon and provide an explanation for its occurrence. In addition, positivism gives priority to the phenomenon that is readily observable. This is based on the fact data used in this approach is observed and there is no room for interpretation. It also assumes that the researcher is an integral part of the research and not directly affected by the phenomenon under study (Saunders et al, 1998)
The phenomenology is the branch of philosophy that deals with what you see, what you hear and what you feel. In contrast to what may actually be real or true about the world. In words of Curwin & Slater (2002) describe the phenomenological as "The phenomenological approach is based on the way people experience and understanding the world. It is more concerned with an understanding, in depth, of the social process." While McGee (2000) determine phenomenological approaches are particularly concerned with understanding behaviour from participants on objective frames of reference.
The researcher choose the various methods to describe, translate, explain and interpret events that methods may be involved in the phenomenological approach include case studies, action research. According to this research, the positivist approach to research is adopted because it concerns the testing or enquiry to the theory of capital structure. Main objective of this research work investigate the optimal capital structure exists in the industrial sector in Thai stock market.
3.6 Research approach
3.6.1 Qualitative and Quantitative Research
Qualitative and Quantitative Research both are the way to decide how researcher would like to collected the data. Qualitative is connected with how good research is, by collecting, analyzing, interpreting data and observing what people do and say. Qualitative research refers to the meanings, concepts, definitions, characteristics, and descriptions of things. Quantitative research is objective and seeks explanatory laws. There are numerous differences between qualitative and quantitative research measurement. In words of Callingham M. (2004) describe the different between qualitative and quantitative data as "quantitative data is more sound and objective and therefore more for the 'serious work', while qualitative data is some way soft and subjective." In additional, Malhotra N. (2002) overview as "quantitative research seeks to quantify the data. It seeks conclusive evidence, which is based on large, representative samples and typically applies some form of statistical analysis. In contrast to qualitative research, the findings of quantitative research can be treated as conclusive and used to recommend a final course of action." Basically, differentiate of characteristics between qualitative and quantitative research referred as following: Quantitative research is objective and testing of theory; qualitative research is subjective and develop the theory. Quantitative research is a measureable of data; qualitative research is interpretive of data. Quantitative researches perhaps prove a hypothesis; qualitative research usually develop research question. However, elements of these characteristics can be used together in mixed methods studies.
The research work will use quantitative methods to answer the research question and follow the aims and objectives. The use of simply calculation accounting techniques will be adopted to test the theory of optimal capital structure and prove the hypothesis.
There is optimal capital structure when the weighted average cost of capital is at the minimum point or the value of the firm is maximized when the WACC minimized. These factors imply by increasing debt. All in all, these are the way of increasing shareholders wealth.
Myers and Mujluf (1984) review the pecking order hypothesis that "more profitable firms use internally generated funds first when funding is required". That means after used of internal funds external funding is required debt is preferred to be equity. That makes negative relation between profitability and gearing. While, debt increases the weighted average cost of capital decreases. That improved profitability. The answer is positive impact on profitability. All in all, this means there is also a negative relation between the weighted average cost of capital and gearing.
3.8 Data collection method
Data collection means gathering information and data on a given indicator of achievement or evaluation. Collection methods include the review of records, surveys, interviews, or content analysis. There are many methods to gather information, and variety of information sources. The most important issue related evidence to answer the questions. According to this research, data collection method that used to answer the question is the use of knowledge tests method means to collect information about what a person already knows or has learned. In this research the data collection based on published data. Saunders & Lewis (2002) said that "secondary data include both raw data and published summaries. Most organizations collect and store a variety of data to support their operations. Broadsheet daily newspapers contain a wealth of data including reports about takeover bids and companies' share prices. Consumer research organizations collect data that are used subsequently by different client." A major advantage to using published data is saving time and money (Ghauri and Grohaugh, 2002). Collecting primary data by the use of questionnaire and interviews may be time consuming and cannot use for a large volume of data to be analyzed. In addition, the use of published data is also high quality for example financial information will have a prior approval by auditors before its publication. It is clearly evident from the ongoing discussion that "the collection and analysis of secondary data help to define the marketing research problem and develop an approach. In addition, before collecting primary data, the researcher should locate and analyze relevant secondary data" Malhotra & Birks (2003).
In this research work used historical financial data for the calculation of ratio such as debt and equity ratio. In financial analysis, historical financial data is very important and relevant. However, there are some limitations of secondary data. The data may have and the problems that could arise if these limitations are ignored. The information and data from the published source may not be accurate. The source of the data must always be checked. The data may be old and out of date.
Sources and acquisition of data, the data used in this analysis is gathered from the Stock Exchange of Thailand (SET) which is a Thai's central stock exchange market, the internet, journals and textbooks. The data from this organisation is reliable and accessible as it is widely accepted in its reliability. The organisation of stock exchange of Thailand offers real time online information through its website over the internet. This can be found by browsing through its web address, http://www.set.or.th and www.setsmart.com . The gathered information from this includes the prices and statistic of all indexes in the Thai's stock market, details and descriptions of all companies in the Thai's stock market, annual summary of all companies in the Thai's stock market and all historical financial data.
SETSMART is the internet based application developed by the Stock Exchange of Thailand as a choice for the retail investors to access Thai listed company information at the same channel as the professional investors. SETMART is utilized in this research work as the existing database of financial historical data.
The research uses ten companies on industrial sector in Thailand stock market. The selected companies were based on financial information for five years were taken into account. The highlights were based on profit and loss, cash flow, and financial ratio. The advantages of using Microsoft Excel in this research were adopted based on the fact that data is up to data, easy to use and flexible. The relevant variable require for calculation include companies beta, risk free rate, risk premium, interest rate were adopted, also short term and long term debt and equity capital for leverage ratio. While, profitability ratio requires return on capital employed (ROCE), return on equity (ROE), earning before tax and interest (EBIT) and return on total assets (RTA). Later on the computer program so called SPSS had been introduced to help in further analysis. SPSS is a computer program that provides tools for statistical analysis, data management and presentation. SPSS can perform a wide variety of statistical techniques, such as the T -test, analysis of variance, factor analysis and multivariate regression.
The regression analysis is study of relationships between dependent and independent variable. The objective of regression analysis is to determine the values of parameters for a function that cause the function to best fit a set of data observation that you provide. The used of multiple regressions is utilized in this research work which is flexible and helping of a pool of data.
3.9 Method of Data Analysis
The data analysis is a process of gathering, modeling, and transforming data into useful information, suggesting conclusions, and supporting decision making. The data analysis has multiple facets and approaches, encompassing diverse techniques. The secondary data is utilized in this research work. Thus, secondary data analysis is applies. The secondary analysis makes the researcher to think about the theoretical aims of the study rather than the practical and methodological problems of collecting new data. Secondary data analysis may examined as "any further analysis of an existing data set which interpretations, conclusions or knowledge additional to, or difference from, those present in the first reports on the inquiry as a whole and its main results" (Hakim C., 2000). It is clearly evident from the ongoing discussion that "secondary data is a part of the actual data collection which mentions references in a report to aid justification and comparison" (Brunt, 1997). However, secondary data can be analyzed in various ways depending on the nature of the project. The data analysis will first comes up with descriptive statistic analyze, that is descriptive statistics describe something.
According to this research, analysis of the existing data is utilized and it is an important decision on defining the optimal capital structure of any organisation on industrial sector. This decision is not only the need of maximizing returns but also the impact of this decision on organisation's abilities to deal with its competitors. There are many methods for organisation to raise its required funds by analysis of secondary data. The mix of the different securities is known as its capital structure. This combine can be defined as a union of debt and equity used to finance the organisation. The capital structure aim is the ideal of mixing the debt, preferred stock and common equity of which the organisation plans to finance its investments. One of the most important methods is utilized and useful to analysis optimal capital structure is Weight Average Cost of Capital (WACC).
After collecting all required data and information, the data is then critically evaluated, compared and contrasted with the themes those have been discussed in the literature review.