The relationship between corporate liquidity and the number of business divisions for firms in kenya
The relationship between corporate liquidity and the number of business divisions for firms in kenya
This section presents a background of the research. It introduces the concepts of corpotare liquidity and diversification and gives an insight into the link that exists between these concepts. It also presents the problem statement relating to the study, objectives of the study, research questions and the purpose of the study.
Recently, there has been an enormous increase in cash holdings among business organizations. In the US, for instance, nonutility and nonfinancial firms reported average cash holding of $1.7 trillion in 2006, representing a ratio of cash to assets of 9.2 percent. Additionally, Bates et al, (as cited in Duchin, 2010) noted that the ratio of cash to assets among listed industrial corporations was 23 percent in 2006, an enormous increase from a record of 10.5 percent in 1980. As Duchin (2010) explains, this trend that has sparked great interest among scholars and the media. However, there has been an equally impressive pattern related to this, but which has received little attention: Stand-alone firms are holding much more of their assets in terms of cash compared diversified firms. According to Duchin (2010), the average cash holdings by stand-alone between 1990 and 2006 was 20.9 percent compared to an average of 11.9 percent held by diversified firms during the same period. This implies that there is a clear link between diversification and corporate liquidity which has an impact on the levels of cash holdings by corporate organizations. In order to clearly understand this issue, it is prudent to briefly examine the concepts of corporate liquidity and diversification or business divisions.
Corporate liquidity refers to the degree to which a corporation’s assets or security can be sold or bought in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. It measures how much cash a company has and how easily it is able to pay its debt. According to Dittmar et al (2003), liquidity may be defined as the ratio of cash and cash equivalent to net assets, where net assets are computed as assets less cash and equivalent. There are two unique theories based upon liquidity namely, trade-off theory and the financing hierarchy theory. The trade-off theory states that firm’s trade off the costs and benefits of corporate liquidity to derive optimal liquidity holdings. The classical version of the hypothesis goes back to Kraus and Lichtenberger who considered a balance between the dead weight costs of bankruptcy and the tax saving benefits of debt. The financing hierarchy theory states that there is no optimal amount of cash, based on arguments similar to the pecking order theory of capital structure. This theory explains the fact that when a company becomes profitable, their debt will decrease as their cash will increase, therefore they will not need as much help with financing from the outside company (Bhat, 2009).
The difference between these two theories is that trade- off theory uses a more optimistic approach and predicts a positive relationship between investment and cash levels, whereas the hierarchy view takes a more pessimistic approach, predicting a negative sign. Despite the differences, these theories indicate that financial manager in any corporate organization has a difficult role in managing the liquidity of a firm because it requires one to keep the firm from reaching a state of deficient liquidity. When a firm has liquidity insufficiency they are unable to control their debt and financial obligations. This is by no means a good sign for a firm and may in turn force them to sell their investments and could possibly lead to bankruptcy. Therefore liquidity needs to be effectively managed in order for a firm to remain profitable and avoid liquidity risk (Duchin, 2010).
This is a strategy that involves increase of products, services, location, customers and market to a corporation so as to reduce risk. According to Chena (as cited in Duchin, 2010), the level of diversification is usually positively related to firm size and negatively related to outside equity ownership. Thus, large firms are usually more diversified compared to smaller firms. According to Ansoff (1965) diversification emphasizes the entry of firms into new markets with new products. His emphasis is in the diversification act rather than the state of diversity .Still more recent attempts of defining diversification have focused on the multinational nature of the diversification phenomenon. Diversification has various benefits to corporate organizations. Benefits arise from the creation of internal capital markets, higher debt capacity and economies of scale. In addition, diversification has been found to affect corporate liquidity within corporate organizations, as explained in the following part.
According to Rajan et al (2000), the key theme in high productivity in developing worlds is the potential cost of mismanagement of internal cash flows which are not always allocated to high growth divisions. In theory, diversified firms hold less cash because diversification reduces ex-ante probability of financing shortages that might lead to under investments. More specifically greater diversification in investment opportunities and cash flows pushes firms to hold less cash. According to Duchin (2010), corporate organizations hold cash partly for precautionary purposes, as explained in the Keynesian theory. According to this theory, firms hold cash to protect themselves against adverse cash flow shocks that might force them to forgo valuable investment opportunities due to costly external financing. Leaders in any corporate organization try to make informed investment decisions from reliable information pertaining to how investment opportunities affect cash holdings.
Duchin (2010) conducted a study to determine the link between corporate liquidity and diversification among firms in the US. During the study, he classified the firms into two categories; standalone firms and multi divisional firms. Diversification was measured directly by the number of different business segments or industries that the firm reported. The findings of this study indicated that diversified firms have imperfect correlation between investment opportunities and their cash flows hence hold low level of cash for precautionary purpose. The study found that multidivisional firms hold approximately half as much cash as that which is held by standalone firms and this difference can be attributed to diversification in investment opportunity and cash flow. The study further shown that diversification is mainly correlated with lower cash holdings in financially constrained firms.
Diversification also insulates corporate organizations from costs and rationing from external markets. According to Duchin (2010), diversification across various divisions within a firm leads to increased cash flow across divisions. When transfers across divisions are abundant, a corporate organization holds less cash. In addition, Duchin (2010) found that increased transfers across business divisions leads to efficiency as cash is usually transferred to the divisions with good investment opportunities. Duchin (23010) further noted that the link between diversification and corporate liquidity is stronger in corporate organizational that are well governed. In these organizations, reduced cash holdings due to diversification leads to efficiency and saves costs associated with cash holding. The impact of diversification on corporate liquidity is also evident during acquisitions. According to Duchin (2010) if there is low correlation between investment opportunities of the target and the acquirer, the latter will record reduced level of liquidity over time.
However, Duchin (2010) noted that firms have responded to this effect by investing in opportunities that have cross correlation to divisions within firms. This response has been steered by the need to hedge against the risks associated with new investment opportunities. Consequently, corporate organizations are able to increase their levels of cash holding over time. Duchin (2010) explains that this trend is evidenced by the increasing percentage of same-industry acquisitions and mergers. In other words, as diversification reduces in terms of cash flow and investment opportunities, precautionary demand for cash increases and hence, the level of cash holding increases.
In this empirical investigation, diversified firms are expected to hold less cash. This is mostly due to the fact that cash is distributed among many investment opportunities across the various divisions. It is expected that low correlation among business divisions in a firm corresponds to low levels of cash holding. This occurs mainly due to the fact that diversification leads to reduced precautionary demand for cash. On the other hand, firms with fewer divisions are expected to hold more cash.
Several studies have been conducted in various parts of the world aimed at determining the relationship between corporations’ levels of cash holding and business divisions. In all the studies, it has been confirmed that diversification decreases the level of exposure of firms to cash flow volatility and liquidity risk. Consequently, high degree of diversification has been found to correspond to low levels of cash holdings by firms. On the other hand, low degree of diversification has been found to correspond to high levels of cash holdings by firms. There are numerous studies focusing on the cash management issues, especially the optimal levels of cash holdings by firms in Kenya. However, studies focusing on the link between cash holding and business divisions are rare, even though the level of cash holdings by Kenyan firms has been found to rise over time (Yego, 2008). Therefore, this study is aimed at bridging this gap through investigating the relationship between cash holdings and business divisions by corporate organizations in Kenya.
The main objective of this study is to establish the link between cash holdings and diversification in corporate organizations in Kenya.
The specific objectives of this study are:
- To determine whether there is a difference in the averages of the cash holdings by less and more diversified firms in Kenya.
- To asses the trend in cash holding for less and more diversified firms over the last 10 years
- To determine the impact of diversification on the levels of cash holding by less and more diversified firms in Kenya
- To determine the link between cash holding and industrial volatility by both less and more diversified firms in Kenya
- To determine the link between cash holding and the correlation between/among investment opportunities across business divisions in Kenyan firms
- What is the trend in level of cash holding by Kenyan firms for the last 10 years?
- What are the differences in average levels of cash holding by less and more diversified firms in Kenya?
- What are the factors that affect the average levels of cash holding by less and more diversified firms in Kenya?
The main purpose of this study is to establish the relationship or the link that exists between cash holding and diversification among Kenyan firms. Researchers and academicians have expressed the need for corporate management to gain understanding of issues related to the interaction between corporate liquidity and corporate diversification. Information on the link between firm’s cash holding and diversification is particularly useful for managers who want to set the stage for enjoying coinsurance associated with diversification which leads to reduced exposure to risk associated with reduced cash holding. Therefore, this study will provide valuable information for firms targeting corporate liquidity diversification particularly in Kenyan firms. Additionally, the study plays a crucial role, in theory and practice, as it endeavors to be part of the contribution to the precautionary saving theory by Keynes (1936). To some extent, this study is aimed at determining the extent to which diversification is related to cash flows within firm. Further, the study will help to establish whether availability of investment opportunities in Kenya has an impact on cash holdings of corporate organizations in Kenya.
This section provides an overview of previous studies that have focused on the relationship between cash holding and diversification by corporate organizations. Various studies pertaining to the average levels of cash holding by less and more diversified firms and the causes of differences in cash holding by firms are examined. The conceptual and theoretical frameworks are also presented.
According to the Agency theory, diversification may be motivated by the pursuit of managerial self-interests at the expense of the company’s stakeholders (Chen, 2010). Managers in some cases may seek to diversify a firm to increase their compensation (Jensen, 1986). This happens when managers involve cross-subsidization through allocating too much to divisions with high investment opportunities and vice versa, ensure their positions within a firm are more solid and secure, or have a reduced risk in their instatement portfolio. However, looking at a firm form a resource based angle, a diversified firm is one of the best and more efficient way of organizing economic activities within a business (Chen, 2010). Consequently, market diversification leads to a market power in the global market (Villalonga, 2000). Often, the internal capital market of a company might be more efficient in allocating capital compared to the external capital market; the top management of a diversified firm has better understanding of the available investment opportunities compared to the external investors (Williamson, 1975).
Currently, research is gradually shifting attention from cash holding, which is the culture of saving cash from being spent in the current cash flows, with a view of spending the cash into the future predicated investment or to cushion against cash constraints. For example, a firm with cash problems today will tend to save cash with a view of funding future investment opportunities (Campello, Almedia, Weisback, 2004). However, such a decision may make a company to lose on profitable ventures today, which may prove costly and a loss to the company in the future. Moreover, Pereira, Khurana & Martin (2006) in a research on liquidity markets revealed that the sensitivity of a company’s cash flows will decrease as financial development increases. Therefore, as a company develops and expands its capital base to increases cash flows, such a company will have less need to hold high liquidity with a view of spending it into the future. This implies diversification may be a security measure for companies to avoid high liquidities in times of cash constraints. Moreover a study by Sibilkov & Denis (2010) expounded that in companies with hedging needs, high levels of investments have a high relation to a greater tendency of holding cash, with constrained companies having a higher association between value and investment compared to unconstrained firms.
Duchin (2010) argues that while cash holding in many companies is currently increasing for both public and private firms, the growing trend has revealed interesting dynamics in the corporate world. As Duchin explains, in the increasing tendency of cash holding among companies, the amount of cash holding by standalone firms has been found to be more than double that of diversified firms. For example, between 1990 and 2006 in the US, diversified firms were on record as having 11.9% corporate liquidity compared to 20.9% liquidity in standalone firms. This difference leads to a clear difference in financial policies between standalone firms, and the diversified firms. Therefore, as Dutchin concludes, diversified firms have better chances of smooth investment opportunities, and the accrued cash flows driven by lack of correlation between their divisions and the division’s outcomes and opportunities. Tong (2009) explained that the trend of cash holding is much lower in diversified firms compared to a single segment firm. Such low levels of cash holding are both in cases of financially constrained and unconstrained firms. This culture according to Tong has a direct effect on a firm’s value. However, Campa & Kedia (2002) had a contrary argument that firm’s diversification discount is affected by endogenous problems, in that most firms performing poorly in the market will choose to diversify.
Tong (2009) explains that most of the diversification decisions above are related to agency problems. Managers are in most cases free to hold cash with less monitoring and use such cash discretionary. However, there are many tendencies of too much liquid cash being turned into private benefits at much lower costs by such managers. Though focusing more on capital expenditures, research has been able to focus on problems associated with diversification (Rajan et al, 2000), in examining potential problems that are more related to firm diversification, and ways in which cash holding is a potential means through which firm diversification would have a negative effect on a company’s value. Therefore, some of the agency costs that are related to diversification include increased agency costs, development of an inefficient internal capital market, increasing agency problems resulting from increasing cash holding. However despite the invested interests in managers, research has shown that firm diversification has an effect increasing the value of cash holding in financially constrained firms, largely due to an efficient internal capital market; more resources are allocated and utilized in divisions with better investment opportunities and returns (Stein, 1997). Firm diversification has also been found to reduce corporate liquidity through agency problems. This is mainly because; diversification of a firm may be related to building of an empire and cross subsidization functions (Jensen, 1986).
The relation between cash holding and internal capital markets (ICM) offer a more detailed analysis on liquidity and diversification. Diversification may insulate firms from costs of external capital markets and rationing from the working of ICM (Chun, 2010). This implies cross divisional diversification in any investment opportunity is directly related to transfer of resources across several divisions. Therefore, firms will tend to hold much less resources when transfers are numerous. In other words, having less corporate liquidity may be attributed to efficient cross divisional transfers to those divisions with sound and better investment opportunities (Chun, 2010). This is against the argument by Rajan , Zingales & Servaes (2000) who explained that diversified investment opportunities would most likely lead to improper fund allocation across a firm’s divisions, which means that having less corporate liquidity as a result of diversified opportunities may be attributed to increased cash flows to the better performing divisions. Moreover, the risk aversion theory states that diversification will lead to lower cash flow volatility in affirm, as well as the volatility of related profit streams (Xie & Wang, 2012).
As Xie and Wang explain, such diversification will lead a firm to reduce significantly its financial risks. However, as earlier explained, diversification as a number of studies has shown may increase financial risks in a firm (Subramaniam et al., 2011), which relates to agency problems discussed above as Tong (2008) elaborates. Therefore, as Xie and Wang argue, the decision on whether to diversify will have a positive impact on the company’s cash holdings. Diversification would thus work not only to gain more profits for a firm, but will also increase the operational risk of such a firm. Moreover, the extent of diversification directly affects cash holding positively. This implies a company with a greater degree of diversification increases its investment opportunities. In order to choose the investment opportunities, companies are more likely to hold cash (Xie & Wnag, 2012). Therefore, the effect of diversification and cash liquidity in company will depend on whether the company should indeed diversify, and the degree to which such a firm has to diversify.
Moreover the individual segments in diversified firms may have imperfectly correlated investment opportunities, which further support the role that internal capital market plays in such a case (Khanna & Tice, 2001). Firms may hold cash targeting growth opportunities, and with an aim of correcting under investment problems arising from financial related predicated risks which occurs in imperfect markets (Haushalter et al, 2007). Therefore, the imperfect correlation discussed above means that any diversified firm would require much less cash liquidity in meeting their investment demands any time in their investments. The availability of cash flow from one segment as capital for another segment would also reduce the need to have external capital, and reduces the benefits of holding cash in such cases (Subramaniam et al, 2011). Diversified firms are in most cases at a better place to sell their assets compared to non-diversified firms. Assets may be considered as a potential source of finance.
A firm that can easily convert its assets into cash in short time and at a low cost would stand a better chance than one that cannot. Therefore, considering the size and amount of assets owned by diversified firms, they are more likely to raise funds through sale of such assets compared to non-diversified firms. This reduces the need for cash holding within diversified firms. In such cases, diversified firms would at any time have lower levels of liquidity compared to single segment firms (Subramaniam et al, 2011). However, there are major risks involved in diversified firms. Many firms may face agency problems from segment managers willing to fiercely compete for a firm’s resources (Rajan et al, 2000). This implies that those segments with more influence in a company may stand to win more resources, leading to overinvestment in these segments, which implies more dead weight costs (Milgrom & Roberts, 1990).Therefore, the marginal costs for holding liquid assets and cash in diversified companies, which leads to these agency costs, are much higher compared to those of focused firms. Consequently, diversified companies would be expected to hold less cash and liquidity as a mitigating measure to avoid such agency costs.
In diversified related to agency problems, empire building due to increased corporate liquidity may cause managers to spend the cash available excessively on projects that may not be profitable (Jensen, 1986), leading to negative market reactions, especially when engaged in diversification activities not related to the core business, and cross subsidization which include moving of corporate resources from divisions performing excellently, to poorly performing divisions (Rajan et al., 2000). Such a move amounts to inefficient subsidization in some diversified firms, and a perfect way in which managers take advantage of the liquidity within a firm to derive private benefits much easily. Therefore, agency problems in many firms will reduce the amount of corporate liquidity in diversified firms, as shareholders develop increasing anticipation towards the inefficient use of cash, making firm diversification to reduce corporate responsibility through agency problems. Moreover, Ochanda (2011) in a study on cash holding in companies listed under Nairobi stock exchange Market revealed that preservation of capital was among the most important factors considered when selecting the most marketable security to invest despite the size of the firm. This is related to cash holding in that the investment opportunities available in any decision within a diversified firm may be perfectly correlated with cash holding, which implies that the internal capital market in such firms plays a major role (Tang, Yue & Zhou, 2010).
Diversified companies are at a much better position to hold minimal cash due to the coinsurance affect that happens across investment opportunities in various divisions in such a company (Chun, 2010). Therefore, the key determents of cash holding include cash flow and the cross directional correlations in different investments and the degree of correlation between available business opportunities and cash flow in a particular business division (Churn, 2010). This theory implies that if a diversified firm has less liquidity due to lower demand for cash, such a behavior should be in most cases stronger for any firm that is constrained financially. This argument follows the assumption that a firm would not finance all its activities and investments form external funds. Moreover as Churn (2010) argues that the benefits of having a diversified investment and coinsurance leading to lower cash holdings assumes presence of incentives aligned to an efficient internal capital market. This implies that such cash balances as exhibited in diversified firms should be supplemented by improved governance and cross divisional transfers that are more efficient towards the more effective and productive divisions of such a company. The above argument leads to the question whether the internal markets of a firm are efficient.
The firm’s internal capital markets in a diversified company allows a firm to fund profitable and efficient projects that may not be funded by external capital markets due to increase of agency costs, and information asymmetries (Shin & Stulz, 1998). It would be expected that a segment of any diversified firm would be able to invest despite its cash flows when having various investment opportunities, and with sufficient reserves to do so.
A credit constrained firm will ensure the cash flow of a segment will only have an impact on its investments through its effects in the company’s cash flow. Hence, many researchers from this have argued that a diversified firm with efficient internal capital market would lead to creation of value to the shareholders (Shin & Stulz, 1998). However, there are a number of research studies indicating that diversification may not necessarily be successful. Morck, Shleifer & Vishny (1990) explain that particularly in the 1980s, diversified acquisitions lead to a decrease in shareholders wealth. However, the internal capital market would not normalize the results created by cash flow reduction equally across all segments in a diversified business. This is mainly because; other segments will be more susceptible to its cash flows than on the overall cash flow of the firm (Shin & Stulz, 1998). On the contrary, as Shin & Stulz elaborate any segment will be affected equally by a shortfall of cash flows in the other segments despite the value of the investment opportunities available.
This conclusion contradicts the different internal capital market above, implying internal capital markets may not be as efficient as they would be considered to be. On the other hand, Gong (2012) argues that the diversity in investment opportunities among the divisions of a diversified firm is responsible for driving the internal capital market efficiency. Thus firms that have diversified into many divisions would most likely have a more efficient internal capital market compared to firms with fewer divisions. In other words, more diversified firms tend to be better performers compared to those with single segments, when other variables that may affect the value of a firm are controlled. As firms add more divisions, the diversity in their investments tend to reduce, playing firms with the biggest reduction in diversity value after diversification will subsequently have the greatest increase in their excess value (Gong 2012). Therefore, a negative relation exists between the number of divisions in a firm, and the diversity of investment opportunities in such firms. This is related to cash holding in that the investment opportunities available in any division within a diversified firm may be imperfectly correlated, which implies the internal capital market in such firms plays a major role (Tang, Yue & Zhou, 2010).
Wanja (2011) argues that though many studies on cash holding and diversification have been carried out in developed markets, very few studies if any have focused on the determinants of working capital management particularly in Kenya. Wanja (2011) in a survey of 205 SMEs and their financial statement found that companies with greater cash flow volatility had a high liquidity or cash holding trend compared to those with low volatility, which was meant to facilitate smooth operations in such firms. Wanja in the study found that companies with higher leverage tended to hold little cash, which was in accordance with the pecking order and other cash flow theories. The pecking order theory states that when the investments of a firm exceed their intended earnings, little cash holding and high debt levels occur and have to be solved to ensure a smooth performance in such firms (Goyal, Recic, Lehn, 2002). As Tong (2007) suggested, agency problems are manifested in many SMEs as managers tried to avoid rising steal funding in the company, by keeping the invest information secret (Wanja, 2011).
Clearly, there is a gap between the real effects of diversity and money holding, with studies arguing on the effectiveness and ineffectiveness of diversity. Moreover, there are very few studies if any that have been done on diversity and cash holding particularly in developing markets such as Kenya. Therefore, there is a need for a study on the same to investigate if similar dynamics as evaluated in the above literature would have an effect on such firms, as well as sealing the gap on the real effects of diversity and cash holding.
This study is mainly based on the precautionary saving theory developed by Keynes (1936). This theory makes consideration of a firm operating in an imperfect market whereby it is exposed to investment opportunities that arrive randomly. According to Keynes (1936), such a firm may not be in a position to raise sufficient cash to fund both current and future investments opportunities. The firm may transfer a portion of the funds into the future as cash holding. This will be costly to the firm since it will have to forego valuable investments opportunities today. However, the firm will have an added advantage in that it will be able to fund future investment opportunities and hence, hedge against frictions in operations in the future. Thus, firms that operate in more volatile industries tend to hold more cash, as a fraction of total assets, for precautionary purpose. Apart from this, the level of corporate cash holding is influenced by correlation between/among investment opportunities across business divisions. As Duchin (2010) noted, firms with low level of cross-divisional correlation have low level of correlation in investment opportunities and thus, they are able to hold less cash since multiple investment opportunities may not occur simultaneously in all divisions. This is also related to the fact that such a firm is not likely to be exposed to adverse cash flow shocks in all business divisions at the same time. This implies that more diversified firms are better positioned to hold less cash compared to less diversified firms. The following conceptual framework is based on the precautionary saving theory:
|Level of cash holding|
|Degree of Diversification
|Degree of cross-divisional correlation
|Degree of correlation in investment opportunities|
This research framework shows the relationship between various variables in this study. The dependent variable in this case is the level of cash holding while independent variables are industrial volatility, degree of diversification and degree of correlation in investment opportunities relation. The degrees of cross-divisional correlation is a moderator variable. The degree of diversification variable has a link with the other two independent variables. The degree of diversification will be equal to the number of business divisions reported. A likert-type will be used to gather information on the other three variables.
Methodology simply refers to the manner in which we approach and execute functions or activities. In doing research, it can be described as a way and manner in which a study is conducted and includes all the methods used to carry out research within the social and natural sciences (Creswell, 2003). It encompasses the entire process of doing research which involves planning, collecting data, disseminating the findings and drawing conclusions. This chapter explains the methodology that was used by the researcher for the purpose of this study. The selected methodology is based on assessment of the optimal strategy for responding to the research questions of this study.
In this study, the researcher has adopted an exploratory research design. As Creswell (2003) explains, this type of research design is important when a researcher aims at discovering what is happening, looking for new insight, asking questions, and accessing an observable fact in a new way. As mentioned earlier, standalone and diversified firms in Kenya have reported non-proportional increase in the levels of cash holding over time. This study will therefore help the researcher to gain useful insight into the causes of the non-proportional increase and hence, establish the link that exists between corporate liquidity and diversification in corporate organizations in Kenya.
This research will be focused on non-financial firms that are listed in the NSE. Currently, there are 53 firms listed in NSE and they form the population for the purpose of this study.
3.4 Sampling Frame
The researcher does not have capacity to collect primary data from all listed firms in the NSE. Therefore, the he will collect data from 47 firms located in Kenya, which shall be selected from the total population using simple random method. This sample was determined using Slovin’s formula. The number of firms currently listed in NSE is 53. The sample was calculated as follows:
n = N__
Where: n = sample size
N = population size
E = margin of error
Allowing a margin of error of 5%, the sample size was computed as follows:
n= 53/ (1+53*0.052)
=46.8 = 47
3.5 Data Collection
This study will use both secondary and primary data. Secondary data will be collected through exploration of available annual reports of selected firms. Primary data will be collected using questionnaires which will be taken to directors or financial managers of the selected firms. Only one survey questionnaire will be sent to each of the firms. The researcher will use open-ended and open-ended questions to obtain extensive information from the respondents. The researcher found the use of questionnaires to be the best data collection method since it would allow him to collect large volume of information in a short time and on a limited budget. The questionnaire will be made short in order to encourage participation. The structure of the survey questionnaire to be used in data collection is presented in the appendix.
Validity of data collection instruments implies a judgement on whether the components of a study reflect the variable, theory or concept of study (Sekaran, 2006). To ensure high level of content validity, the researcher conducted extensive research on the subject matter and ensured that the different the instruments accurately measure the intended traits as per the objectives of the study. The researcher also engaged peers and incorporated the opinions of supervisor in order to ensure that high level of validity of the instruments is attained.
Reliability of a data collection instrument reflects its constituency and stability within a given context (Sekaran, 2006). The test-retest coefficient method was used to test the reliability of data collection instruments used in this study.
This research will rely on conceptualization and empirical phases respectively. During the first phase, relevant literature to the topic of study shall be reviewed and the tools of data collection, particularly questionnaires, developed. During the second phase, data will be collected from the selected participants and then analysed according to content validity and in regard to the set goal of the study. During the process of collection of primary data, traditional ethical issues of access, acceptance, privacy, and confidentiality shall be addressed. The questionnaires will be sent via mail to the respondents. A letter will accompany the each questionnaire explaining the purpose of the research. The researcher estimates that the process of collection of primary data will take four days.
For the purpose of this study, the researcher has examined the applicability of both quantitative and qualitative approaches. As Trochim (2001) pointed out, qualitative method is based on content analysis and the results are presented in non-numerical format. This method helps the researcher in gaining an in-depth insight into the study topic. On the other hand, quantitative method involves collecting and analyzing numerical or statistical data rather than views and perceptions. This study will use both numerical and non-numerical data and hence, the researcher opted to use both quantitative and qualitative methods of data collection and analysis. Content analysis will be applied on qualitative data while numerical data will be analysed statistically. The researcher will use descriptive statistics namely averages, proportions and percentages to analyse numerical data and present the results.
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