Monthly Archives: February 2010

Walden Finance PhD Self Pre-Assessment

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In Commonwealth countries, there are commonly two types of degrees: a three-year “Pass” degree and a four-year “Honours” degree.  There are no Associates degrees and college credits are not readily transferable to university programs.  The major differentiator between a Pass and Honours degree is the requirement of formal research and preparation of an “Honours Thesis.”  Having completed a four-year Bachelor of Science, Honours, in Biology and Biotechnology (B.Sc.H.) degree, I completed two other formal research papers in addition to the requisite thesis.  As such, I feel that I have a solid grounding in scientific research and writing.  [CWB1] At the undergraduate honours level, however, the research design is not as rigorous as at the graduate or doctoral level.  While I had the benefit of a experienced thesis supervisor to guide me in the design process, at that point in my academic development, however, I was highly focused on how best to absorb the foundational knowledge required to complete the thesis and did not benefit as much as I would now from the research design process.  I did, however, spend an entire semester preparing the proposal itself as a research course credit.

Since then, I have matured both in terms of theoretical background as well as in how I decompose, parameterize, and solve problems.  I am much more able to distil a real-world issue into its theoretical components and isolate the crux of the issue to be researched.  I am also much better at understanding the relationships between the components of a problem and thus better at identifying the most effective ways to test and critically analyze individual components of research problems.[CWB2]

While there is a great diversity amongst MBA programs in terms of research emphasis, I attended a traditional brick-and-mortar AACSB program at McMaster University outside Toronto.  While the MBA program at my Alma Mater (Carleton University, Ottawa) comprised coursework, praxis, and research thesis, it was not an AACSB school; the emphasis of most MBAs is on professional development rather than theoretical or academic, however, and my uncle, a tenured professor of accounting and finance at an AACSB school continues to stress the importance of AACSB accreditation, my decision to attend Walden University notwithstanding.  That said, my presentation style since undergraduate had become more flashy and less formal.  During and after my MBA, I reported directly to a finance vice president at Canada’s then-second-largest bank, making my writing still less formal, favouring impact over substance.  Presentations to project leadership and executives often demanded ex post analyses to support their “pet projects” rather than formulate optimal ones.  [CWB3] Ever since a young age, I was placed in a segregated gifted program which nurtured a strong sense that I was destined for academia.  When I decided to complete my MBA, I felt that I was at once challenging myself in a new, more practical direction, but also that I was compromising on my dreams of making a significant positive contribution to humankind’s knowledge base as a whole and instead would devote my intellectual efforts to developing private enterprise, the results of which research would be hoarded as trade secret, or patented at best.

The dissertation rubric provides a rigorous yet flexible framework for the formal academic product demanded of doctoral students.  It does outline in detail the degree of detail stipulated while at the same time leaving enough latitude to develop and express scientific developments at the doctoral level.  I am confident that combined with the feedback of my mentor, Dr. Javier Fadul, an experienced researcher who has the advantage of having completed the Walden doctoral program, himself, I will quickly re-acclimate to more formal structured research methods of inquiry and presentation.

In terms of research methodology, I believe I am more comfortable with quantitative methods of inquiry.  From previous research in the pure sciences, I am accustomed to surveying the previous literature and identifying a potential area for development or critically analyzing previous findings to test in a new way, developing a quantitative methodology to test new hypotheses, and presenting these new conclusions in a compelling manner.  I do feel, however, that because of my background in the pure sciences, I am biased toward predominantly quantitative methods and will maintain a heightened awareness of this during my research design so as not to default to a suboptimal methodology.

While I understand that doctoral level research is of a much more rigorous and structured nature than any previous research I have completed, I am eager to develop new skills and perfect ones I already have in Walden’s doctoral program.

[CWB1]Excellent!

[CWB2]Very thoughtful

[CWB3]Yes, you will need to get used to formal, academic writing. The best way to do that is to read scholarly articles in your discipline. It will give you a sense of the style and expectations.

Portfolio Theory and CAPM

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Conventional wisdom amongst investors recommends maintaining a diversified portfolio.  The reasoning behind this, however, is not so common knowledge.  One theory put forth by Harry Markowitz, Modern Portfolio Theory, asserts that asset returns represent normally-distributed random variables, each with their own variances, and quantifiable risk being represented by standard deviation (Markowitz, 1999).  While variants of Modern Portfolio Theory are still in use in the financial industry, and its main theorists had won the Nobel Prize for its creation, it has recently been the subject of increased criticism, citing its dependence on rational investor behaviour and market efficiency (The Economist, 2009).  Building on Markowitz’s earlier work, Sharpe (1964) proposed the Capital Asset Pricing Model (CAPM) for pricing risky securities.[cwb1]

Before Markowitz formalized his portfolio theory in 1952 (Markowitz, 1999), investors had already held the belief that diversification of portfolios could reduce risk while preserving an adequate level of returns.  Portfolio theory assumes that investors are risk-averse; that is, given two securities with identical returns, investors will prefer the security with the lower risk (Markowitz, 1999).  What Markowitz (1952) contributed, however, was a formalization to diversification.  Prior to Portfolio Theory, informed investors understood that it was in their best interests to maintain a diverse set of securities in a given portfolio.  Markowitz (1952) demonstrated that correlation between securities can be quantified and as long as securities are not perfectly positively correlated, their combination in a portfolio will result in reduced overall portfolio risk.  Further, he explained that the variance of the overall portfolio is a function of the variances and covariances of the individual securities comprising the portfolio (Markowitz, 1999).  His landmark 1952 paper showed how a subset of the possible portfolio compositions, the efficient frontier, represented the lowest level of risk for a given level of return.

Building on the quantified risk concept described by Markowitz (1952), Sharpe described a pricing theory for risky securities comprising two components: a risk-free rate of return equal to the return of a security with no default risk (such as a US Treasury bill) and systematic risk (“beta”) coefficient of risk responsiveness relative to market risk premium (Sharpe, 1964).  The result of this relationship is encapsulated graphically in the Security Market Line.  While Markowitz (1999) pointed out that even Shakespeare included wisdom about portfolio diversification in The Merchant of Venice, it was not until Markowitz (1952) and Sharpe (1964) that widely accepted quantitative models of the relationships between risk, return, and asset pricing gained acceptance.

Although Portfolio Theory and the Capital Asset Pricing Model are key theories in finance, contemporaries of Markowitz (1952) and Sharpe (1964) have identified a number of opportunities for these theories to be developed further.  It is possible, for example, that returns may not be best represented by a normally-distributed random variable in all cases.  There are also special groups in the population that behave contrariwise to the typical “rational investor” either for psychological or, in some cases, even religious reasons: Islam is the fastest-growing religion in the US (Dar & Presley, 1999).  Islamic law forbids earning interest [cwb2] on debt but allows—even encourages—investors to earn a return for taking on risk in their investments (Chiu, Newberger, & Paulson, 2005).  Consequently, there are legitimate explanations for rational investors to make decisions that under previous assumptions would be classified as nonrational.  Very interesting

Game theory is another revolutionary development of the 20th century that at one time was hoped to elucidate investor behaviour.  Due to the complexities of large systems, particularly involving human behaviour, it too has proved to be somewhat underwhelming in terms of predictive ability.  I have long believed that such studies of economics are excellent tools to identify themes and understand behaviours, but that human behaviour is too complex for these models to propose appropriate interventions.  While blood levels of a certain nutrient may show a deficiency is causing a certain symptomology, supplementation of this nutrient may not have the desired effect because of complex interactions that were not readily apparent from observations.  I believe this is so with economics and financial markets as well.  Even if individual causal interactions could be identified from existing models, they might still not be applicable in situ.  Thus, I believe that the concepts Markowitz (1952) and Sharpe (1964) put forth in their theories, such as quantification of risk and interactions of risky assets, are important for future research; yet, research must still be done to find parsimonious models with predictive power, as well as interventions that can be practically applied to real-world investment decisions.

Excellent – very thoughtful discussion. Provide additional information about how the theories are relevant to your proposed study topic. Correct apa format
References[cwb3]

Chiu, S., Newberger, R., & Paulson, A. (2005). Islamic Finance in the United States. Society. September/October, 2005. 64-8.

Dar, H. A., & Presley, J. R. (1999). Islamic Finance: A western perspective. Int. J. Islamic Fin Svcs 1(1): 1-9. Retrieved from http://www.iiibf.org/journal.html

The Economist. (2009). 392(8640): 68-69. EBSCOhost Accession Number 43283844. Retrieved from http://ezp.waldenulibrary.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=43283844&site=ehost-live&scope=site

Markowitz, H. M. (1952). Portfolio selection. Journal of Finance.  7(1):77-91.

Markowitz, H. M. (1999). The early history of portfolio theory: 1600-1960, Financial Analysts Journal, Vol. 55, No. 4

Sharpe, W.F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk.  Journal of Finance.  19(3): 425-44.

[cwb1]Very good

[cwb2]Provide more transition to lead up to this. If important, expand

[cwb3]Correct apa format

Islamic Finance: Engineering Shariah-compliant debt instruments

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Gunn (2008) provided the inspiration for further study into Islamic financing by point out the relative paucity of studies pertaining to Islamic finance.  Gunn (2008) point out that to an extent more so than western religions, Islam demands that its law be integrated into every aspect of a Muslim’s life—spiritual, commercial, professional, legal.  While the majority of firms being traded in the international financial markets comprise capital structures that have integrated interest-bearing debt, Islamic law forbids Muslims from receiving or paying interest; thus, it is extremely difficult for a devout Muslim to operate within modern financial markets.  Gunn (2008) examined the capital structures of both Islamic-compliant and –noncompliant firms in developing countries to determine if Islamic religion had any impact on capital structures of firms operating within traditionally Islamic countries.  There is opportunity to extend the work of Gunn (2008) by examining debt instruments that are used by Islamic financial institutions, offered to Islamic investors, and Islamic mortgages—not traditional components of many of the capital structures she examined.

While Chiu, Newberger, and Paulson (2005) pointed out that no precise numbers exist for the number of Muslims (which I define as an adherent, to any degree, of Islam) nor for the degrees of compliance they have for Islamic law, that Islam is the fastest-growing religion in America (Dar & Presley, 1999), I think, makes it compelling enough a reason to re-explore its impact on fundamental financial theories developed in its absence, such as Portfolio Theory (Markowitz, 1952).  Markowitz (1952) assumes, for example, rational behaviour by investors in quantifying risk. Rational behaviours constrained by Islamic law might be considered nonrational behaviour otherwise.   One gap in the literature identified Chiu, Newberger, and Paulson (2005) was estimating demand for Islamic financing in the US.  Abdul-Rahman & Tug (1999) had made an estimate of market demand for Lariba (Islamic-compliant) mortgages in the US by beginning with an estimate of 1.5 million Muslim households in the US, 50% of which can afford to buy and maintain a home.  They then assumed that 20% of these households live according to Islamic law in general, only 5% to 10% of which they considered “Lariba-Puritan,” or compliant enough to be attracted to Lariba financing.  The final demand of Islamic mortgages they estimated at between 7,500 to 15,000 households for a primary market size of just over $750 million.  While they acknowledge this number to be a “drop in the bucket” compared to total mortgages, they acknowledge that if awareness could be raised such that the legal climate could be changed, the market could be much larger.  Further, it is likely that debt instruments made available to Islamic firms in a commercial setting would represent a market much larger than the limited mortgage estimate Abdul-Rahman & Tug (1999) estimated.

Gunn (2008) found that there was no significant relationship between whether investors were Muslim or not and debt-equity ratios. Yet, it is not clear whether the debt was provided by a Muslim or foreign investor. One possible applied research project would be to determine whether alternative instruments that would fit within North American (SEC, Ontario Securities Commission, etc.) regulations as well as Islamic law would open up additional investment opportunities for Muslims or Muslim-operated firms. It is also possible to investigate whether amending regulation would increase compliance amongst semi-compliant Muslims. While it is possible that Islamic law could be reinterpreted in conjunction with regulatory amendments, one characteristic of Islam is that “what is not expressly forbidden, is allowed,” and thus I believe there is less room to reinterpret Islamic law regarding debt than there is in amending regulation to be more cognizant of religious factors.

Hassoune (2002) measured Islamic bank performance, measured by their Return on Equity (ROE), and found that the profit- and loss-sharing principle behind Islamic financial law makes profitability less volatile over business cycles.  They also found that market imperfections, such as large amounts of non-remunerated deposits, considerably decrease their cost of funding relative to their traditional counterparts.  They conceded, however, that in terms of liquidity—a very topical concern—Islamic financial institutions could be at a disadvantage.

Obaidullah (2001) examined overall market efficiency, not only financial institution performance, and found that Islamic ethics led to a general enhancement of market efficiency, rather than the decrease in efficiency found by Hassoune (2002).  He attributes his finding, admittedly at odds with other studies, to “mistaken notions of efficiency” (Obaidullah,  2002).  Hassoune (2002), however, employed a sound quantitative analysis using defensible metrics and calculations, while Obaidullah relied primarily on a dialectical presentation.  Perhaps an investigation of the points illustrated by Obaidullah (2001) using a quantitative survey approach would yield some insights that would help reconcile Obaidullah (2001) with Hassoune (2002).

Problem Statement

There is a problem amongst Islamic firms competing in Western markets. Despite provisions in the Charter of Rights and Freedoms of Canada that prevents discrimination based on religious bases, systemic factors cause investors to discriminate against Shariah-compliant firms. Islamic law forbids paying or receiving interest on loans. Interest-bearing debt has traditionally comprised an important portion of a firm’s strategic capital structure. The problem has negatively impacted Muslim investors and business-owners because potential investors routinely consider metrics such as debt-equity ratio in their investment decisions. In her doctoral dissertation, Gunn (2008), ascertained that firms in Islamic countries have traditionally compromised by incorporating debt instruments in their capital structures at the cost of being fully Shariah-compliant. In order to In order to try to mitigate the systemic discrimination against Shariah-compliant firms, it is necessary to know more about the performance of compliant versus noncompliant firms. A study that tests whether Western Islamic Shariah-compliant financing instruments are equal in financial performance to traditional debt instruments, and whether informed investors are as accepting of these instruments as traditional debt instruments will provide future direction about whether a solution to systemic discrimination against Islamic businesses could best be remedied by financial engineering or changes to the regulatory environment.

Purpose Statement

Gunn (2008) established that firms in Islamic countries Islamic law notwithstanding, traditionally still incorporate interest-bearing debt into their capital structures; in order to be Shariah-compliant, however, a corporation should not include these instruments.

I therefore propose a summative comparative analysis of matched firms that are fully Shariah-compliant with those firms in Islamic countries that do incorporate debt financing into their capital structures to establish appropriate metrics applicable in their respective economies and whether compliance with Shariah law has a detrimental impact on capital structure. One way I see the research problem in this case is as the case of vegetarianism: “Is adherence to a vegetarian diet [given a typical diet of a given culture] detrimental to an individual’s health?” While nobody would claim that it is not possible to obtain necessary nutrients from a completely vegetarian diet, it is likely that without special dietary considerations, individuals would be lacking in certain amino acids and nutrients not commonly produced by most plants. I would like to investigate whether adherence to Shariah law places companies at a competitive disadvantage relative to their less-compliant counterparts.  The results of this study could lead to future research questions such as whether novel financing instruments that incorporate the notions of shared risk and proportional reward but are not strictly equity-based could be structured to finance firms in Islamic countries in a Shariah-compliant manner.  The purpose of the summative study will be to compare the financial performance of matched Shariah-compliant and noncompliant firms in Islamic countries.

Research Questions

One of the wise pieces of sage advice given during the recent Walden Dallas doctoral residency was that a single doctoral level project should not attempt to both establish a set of metrics as well as use them in application. That said, the initial research questions should include “Are Shariah-compliant financial debt instruments equal in performance to traditional debt instruments?” “Are Islamic investors as likely to incorporate Shariah-compliant debt instruments that do not perform as well as noncompliant ones but are Shariah-compliant into their firms’ capital structures?”  The first research question would be best translated to a hypothesis for a two-tailed type of statistical test; the null hypothesis would be that extant Shariah-compliant debt instruments are equal in performance to traditional interest-bearing instruments; the alternate hypothesis would be that they are not equal in performance.  The second question could be assessed by a survey design using a stratified sample of different segments of investors, asking the likelihood of the various investors, using a Likert scale, of choosing Shariah-compliant instruments and investments given the choice.  The third question would also best be served using a survey design assessing the likelihood of senior and financial managers of firms, also using Likert scales, whether they would choose Shariah-compliant investments and debt instruments given the choice, either as they currently exist, or if new instruments were engineered or the legislative climate changed.

References

Abdul-Rahman, Y. K., & Tug, A. S. (1999).  Towards a Lariba (Islamic) mortgage financing in the United States providing an alternative to traditional mortgages.  International Journal of Islamic Financial Services.  1(2): 1-6. Retrieved from http://www.iiibf.org/journals/journal1/art3.pdf

Chiu, S., Newberger, R., & Paulson, A. (2005). Islamic Finance in the United States. Society. September/October, 2005. 64-8.

Gunn, T. A. (2008). A comparative analysis of the Islamic religion on corporate capital structures of firms in emerging countries. (Doctoral dissertation). Retrieved from http://proquest.umi.com.ezp.waldenulibrary.org/pqdweb?RQT=302&COPT=REJTPUcyODcrNTRjYiszYjBmJklOVD0wJlZFUj0y&clientId=70192&cfc=1 UMI Number: 3305577

Hassoune, A. (2002).  Profitability of Islamic banks.  International Journal of Islamic Financial Services.  4(2): 1-13.  Retrieved from http://www.iiibf.org/journals/journal14/vol4no2art2.pdf

Obaidullah, M. (2001).  Ethics and efficiency in Islamic stock markets.  International Journal of Islamic Financial Services. 3(2): 1-10. Retrieved from http://www.iiibf.org/journals/journal10/obaidvol3no2.pdf

Epistemological Shift: Quantitative/Qualitative to Exploratory/Confirmatory

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Because of my background in the natural sciences, I continue to have a bias toward quantitative research, although I am becoming increasingly aware of the importance and roles of qualitative research, particularly in complex systems such as social sciences. I do, however, maintain that as a general rule, many mixed method designs are the result of lack of focus and appropriate scope–as Dr. Winsten-Bartlett alluded previously to the “kitchen sink” approach. That said, I think a key to mixed methods becoming less maligned is increased appropriate use of it; and part of that might be a shift in epistemological perceptions from quantitative versus qualitative to, as Onwuegbuzie & Leech (2005) promote, to exploratory and confirmatory methods. While it may be largely a semantic shift, I believe it is an appropriate one, so that the purists can look at the approach through a new, less dogmatic, lens.

Onwuegbuzie, A., & Leech, N. (2005). On Becoming a Pragmatic Researcher: The Importance of Combining Quantitative and Qualitative Research Methodologies. International Journal of Social Research Methodology, 8(5), 375-387. doi: 10.1080/13645570500402447.

Holistic Analysis

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(For a case study I completed with a Holistic Approach in mind, please see http://robincheung.info/samples/bbc.pdf).

The historian proposed that the way to understand
ethical problems is to look historically at how they evolved and how they developed; the international lawyer suggested that the way to do it is to see
how in fact people actually act in different situations and make their arrangements; the Jesuit priest was always referring to “the fragmentation of
knowledge”; and I, as a scientist, proposed that we should isolate the problem in a way analogous to Galileo’s techniques for experiments; and so on.
“So, in my opin ion,” I said, “we had no dialogue at all. Instead, we had nothing but chaos!”  — Richard Feynman in Surely You’re Joking, Mr. Feynman

Having first completed a Bachelor of Science in Biology and Biotechnology and later a Master of Business Administration, I have observed that traditional educational systems unwittingly perpetuate–worse, encourage–a subject-centric approach to problem-solving and analysis.  Most university courses, as they are currently offered, exist largely in a vacuum.  A marketing course will only require application of marketing methodologies such as Segment-Target-Position.  A managerial accounting course will award full marks to a student for a business case that appropriately uses the analyses taught in managerial accounting.    Worse, the courses will stipulate different content requirements for business cases.

But real-world problems do not follow course codes.

Granted, the limited time and expertise available to each course places a practical limitation on what topics are discussed during the course; however, business case studies are intended to train students with real-world situations.  Consequently, students should address these issues as if they were in the real world.  That means business case reports should employ the course material at least in a context that considers its impact on other functional areas of the business.

Consequently, new graduates begin jobs with a dysfunctional set of analytical tools.   Consider a business objective that clearly spans multiple functional areas such as turning an obsolete product line into a new profit centre.

One student who majored in operations manrsatioagement might believe the solution lies in increasing production efficiency, lowering transportation costs, and improving process control.

The accounting student might decide the key is to optimize profit margins based on relevant cost analysis.

It will be clear to the marketing student that continuous innovation and new product development is the way to access new sources of revenue and that the existing customer base can be better tapped by more focused segmentation and positioning.

Even a multidisciplinary team will often “divide and conquer” a business problem, each attacking a separate piece of the objective.  The resulting solution, although complete, does not benefit from synergies that can result from an integrative approach where the problem is parameterized by a holistic, top-down approach.

Islamic Law and Capital Structure

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One of my favourite Canadian television shows, recently picked up by an American network (although it will be reworked in an American setting before airing) is Little Mosque on the Prairie (http://www.cbc.ca/littlemosque). Mainstream media have emphasized how ignorant of Islam the general population is; from law enforcement who profile Sikhs with turbans as Muslims to a general misunderstanding of the principles of Islam by the general population, recent events of the few extremists are tarnishing the reputations of the many peaceful Muslims living in the West. Just as Numb3rs makes available more esoteric advanced mathematical concepts to the masses in a digestible way, Little Mosque on the Prairie does so with Islam. Showing some of the characteristic beliefs and practices in humorous everyday situations, the general public learns the truth about some practices uncommon in the west along with their rationales, and fear of the unknown becomes informed respect.

Even so, after four seasons on the air, Little Mosque on the Prairie is still much more liberal than traditional financial academics have been. There has, to date, been little formal academic study of Islamic Finance in a Western setting (Gunn, 2008). Perhaps the most striking characteristic of Islamic Finance is that interest-bearing debt is forbidden (Gunn, 2008). There are also restrictions from the regulatory side: “National Bank Act of 1864 prohibits banks from the purchase, holding of legal title, or possession of real estate to secure any debts to it for a period exceeding five years” which could prohibit many Islamic personal finance products (Chiu, Newberger, and Paulson, 2005). Chiu, Newberger, & Paulson (2005) go on to explain, however, that “particular versions of Ijcua and Mumbaha transactions can be considered exceptions to tbe National Bank Act rule if they meet the standards for functional equivalence to conventional asset financing.”

That presents several socially-related research questions in a Western context: What are optimal capital structures for firms conforming to Islamic Law; and How can financial services companies accommodate a segment comprising the largest-growing religion in the US (Dar & Presley, 1999).

Some possible keywords pertaining to this study include “Islamic Finance,” “Shariah Law AND Capital Structure,” “debt financing AND Islam,” and “Islamic AND financial institutions.”

In order to determine financial services products targeted for this market segment, the scope of the study would include publicly-traded North American and Middle Eastern financial services companies. For the purposes of studying the capital structures of compliant Islamic firms in a North American environment, publicly-traded firms from the Middle East as well as matched firms in North America would be compared.

Chiu, S., Newberger, R., & Paulson, A. (2005). Islamic Finance in the United States. Society. September/October, 2005. 64-8.

Dar, H. A., & Presley, J. R. (1999). Islamic Finance: A western perspective. Int. J. Islamic Fin Svcs 1(1): 1-9. Retrieved from http://www.iiibf.org/journal.html

Gunn, T. A. (2008). A comparative analysis of the Islamic religion on corporate capital structures of firms in emerging countries. (Doctoral dissertation). Retrieved fromhttp://proquest.umi.com.ezp.waldenulibrary.org/pqdweb?RQT=302&COPT=REJTPUcyODcrNTRjYiszYjBmJklOVD0wJlZFUj0y&clientId=70192&cfc=1 UMI Number: 3305577

Theories: A little knowledge is a dangerous thing

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I think in the pure sciences the more we know, as I wrote before, the more we think we are infallible. But time still continues to prove us wrong, and what we had taken as gospel, continues to evolve. The theory of the atom, as proposed by democritus, was challenged when Rutherford proposed his “raisin bun” model of the atom, with positive and negative charges spread out over its volume randomly. The Geiger-Marsden experiment showed that the atom must have a very small positive nucleus with most of its volume being empty space, as shown by directing alpha particles at a gold foil, and observing that a small number of particles were reflected directly back at the source, with a vast majority of alpha particles passing straight through the foil. Bohr later refined his model to show electrons orbiting a nucleus. And now we have come to understand that even this Bohr model is not a true representation of reality–we now understand that electrons do not exist as true “particles” orbiting a nucleus, but rather as probability clouds around the nucleus, even with “nodes” of zero probability, and probabilities above zero on either side of the node–the electron must somehow spontaneously cease existing on one side of the nucleus and reappear on the otherside, passing through an area with zero probability. I am sure that in a few more decades, we will further not only refine, but refute some ideas that we have taken for granted as truth.

It does really seem, therefore, that it is really impossible to prove that a given theory absolutely *is* reality; it is possible to disprove that a theory is true in a given case (and therefore not true for all cases), but that only leaves an infinite set of other possibilities with varying degrees of probabilities.

The challenges to using Qualitative Research Designs

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In contrast to quantitative research, qualitative research uses a more adaptable framework that suits inquiry into systems that are much more complex than quantitative research can anticipate. Quantitative research has traditionally been popular in the pure and applied sciences since its top-down approach of establishing hypotheses and directed methods to test these hypotheses are obvious ways to control for bias and avoid noise from control variables. Instead of predetermining set hypotheses and methods to test them, it attempts to identify themes from specific instances. In some qualitative research, such as grounded theory, even whole theories can be derived through inductive reasoning from the specific to the more general.

Due to the direct interaction of researchers with participants, qualitative research can introduce new sources of bias and threats to validity that could be controlled in quantitative research. In cases where the researcher has direct connection to the subjects, such as in “backyard research” (Creswell, 2009), there may be inherent conflicts of interest and power between the researcher and subjects. In some cases, researchers may even be participants, themselves. A recent Hollywood movie, “The Killing Room,” took this concept to an absurdity and demonstrated how researchers could participate directly in their research along with subjects when the head researcher, Dr. Phillips, catalyzed a reaction from test subjects by shooting one of the subjects and observed the reactions of the other subjects. Nevertheless, the film underscored the tremendous complexities in systems involving humans and that new sources of bias and threats to validity notwithstanding, qualitative research is often useful in such complex systems to identify themes that would not necessarily be spontaneously proposed by researchers.

Marketing is one discipline that leverages both quantitative and qualitative research for a common goal. Focus groups, interviews, and open-ended survey questions are often combined with quantitative surveys, questions scored on a Likert scale, and purchase histories to identify themes in customer preferences. While in the more quantitative business disciplines, such as operations, accounting, and finance would prefer more quantitative research and the more human, “soft” disciplines such as human resources and organizational behaviour have adopted qualitative approaches readily, I believe that the strengths of qualitative research in abstracting generalizations and themes from the specific outweigh the drawbacks of lack of control and rigid frameworks in complex systems involving human behaviour.

Marketing seems to be an appropriate application of qualitative and quantitative approaches; partitioning and segmentation of customers can be most readily addressed with quantitative approaches such as analytics and cluster analysis on quantitative surveys, while product development and trends can be identified from open-ended interviews and focus groups through qualitative research.

Reference:
Creswell, J. (2009). Research design: Qualitative, quantitative, and mixed methods approaches (3rd ed). Thousand Oaks, CA: Sage Publications.