CHAPTER 3 RESEARCH METHODOLOGY

Transcription

1 23 CHAPTER 3 RESEARCH METHODOLOGY 3.1 Research Aim and Hypothesis In this research, the main aim of the author is to test the hypothesis of the research regarding the relationship between intangible assets and the profitability of the company. This research is conducted usingdescriptive Statistics, Kolmogorov Smirnov Test, and Spearman s Rank Correlation to analyze the correlation between variables Hypothesis Development In today s economy, economic value is not only valued by its tangible assets, it also includes the intangible assets (Johnson and Kaplan, 1987). The importance of intangible assets to company s value is readily acknowledged. However, until recently structuring and managing intangible assets role in a company is still a challenge due to the fact that it is difficult for economist to measure intangible assets in nominal value as they not often have exchange value (Hall, 2003). Therefore, intangible assets are difficult to understood and imitated by others (Rumelt, 1984; Nelson; 1991). The uncertain imitability is the basis of sustainable competitive advantage for a company, which makes it valuable (Lippman and Rumelt, 1982). According to Itami where he stated that intangible assets are the actual resources of competitive edge, which is constant over time (1987). This argument is also supported by Wernerfelt (1984), Barney (1996), and Peteraf (1993). Intangible assets play a crucial role in increasing financial performance 23

2 24 since it contributes valuables resources for firm s financial performance (Chareonsuk and Chansa, 2008). Belen Villalonga (2004) cited that intangible assets are positively correlated with firm s specific profits or losses. Based on prior research, the author a hypothesis: H 1 = Intangible asset is associated with firm s profitability 3.2 Time and Place of Research This research is conducted in Jakarta, Indonesia within the period of February to June The research is conducted in its natural environment and is obtaining data in five consecutive years of annual reports where the data is being collected in a snapshot at a time.

3 Research Process Figure 3.1 Research Process Flowchart Source: Sekaran (2003), Research Methods for Business: A Skill Building Approach, 4 th edition.

4 Research Design Figure 3.2 Research Design Scheme Problem Statement Purpose of the Study Descriptive & Hypothesis Testing Unit of Analysis Organizations Types of Investigation Correlations Sampling Design Random Sampling Extent of Researcher Interference Minimum (No Interference) Time Horizon Cross Sectional Study Setting Contrived Measurement and Measures Statistic Test Data Collection Method Retrieving (downloading) from Annual Reports and Sustainability Reports Data Analysis Hypothesis Testing Source: Sekaran (2003), Research Methods for Business: A Skill Building Approach 4 th Edition.

5 Purpose of the Study This research is considered as exploratory study since there is not much known or information in the past regarding the research issues therefore preliminary work needs to be done to gain familiarity with the phenomenon in the situation (Sekaran, 2003). This study is conducted with the purpose to explain the relationship between intangible assets, which is measured using Tobin s q, and Return On Equity (ROE) and Return On Assets (ROA) proxies for firm s profit. The primary purpose of this study is to assess whether Tobin s q as a proxy for intangible assets positively correlated with the Return On Equity and Return On Assets as the indicator of firm s profitability Type of Investigation This thesis can be considered as correlational type of study since it explains relationships among variables and thus hypothesis testing undertaken to prove whether or not the speculated relationship is valid Extent of Researcher Interference The extent of the researcher s interference will be considered as minimum since the author only collected relevant data to obtain research findings Study Setting This study is a non-contrived since it is performed in natural environment and proceeds with normal work. According to Sekaran (2003), correlational studies are always conducted in non-contrived setting.

6 Measurement and Measures In this research, the author will use Tobin s q measurement to quantify intangible assets and using Return on Equity (ROE) and Return On Assets (ROA) ratio to measure the firm s profitability Unit of Analysis This research is using organization s unit analysis since the data are obtained from the companies that are listed in LQ 45 Companies Time Horizon Since the data are gathered just once, this study is considered as cross sectional study where it represents a snapshot of one point in a time Sampling Design The population of sample is taken from LQ45. The author takes the whole population of LQ45 companies as the sample of this research. The companies listed in LQ45 are categorized as large market companies, which are expected to be outperforming in the market and have a good prospect of growth. Therefore this study is using the purposive sampling to the sample as the criteria of LQ 45. The author is using the non-probability sampling method for the sampling design.

7 Research Framework Variable 1 Variable 2 Intangible Assets Firm s Profitability Tobin s q ROE ROA Figure 3.4 Research Variables Variables This research aims to test the correlation of intangible assets and firm s profitability. In order to test the correlation, the author first has to quantify intangible assets and firm s profitability. For intangible assets, the author will use Tobin s q as a proxy for intangible assets (Hall, 1993; Hirschey, 1982; Megna and Klock, 1993; Lev, 2001; Villalonga, 2005) Tobin s q = value of companies according to their market capitalization replacement cost of the underlying corporate assets Following the prior researchers (Bris et al., 2008; Kaplan and Zingales, 1997; Gompers et al.,2003) we measured Tobin s q by calculating the

8 30 market value of the firm s asset as the value of the company, then divided it by its book value as the replacement cost. Tobin s Q = Market Value / Book Value Market Value = Market Value of Equity + Book Value of Firm s Liability Market Value of Equity = Shares Price x Shares Outstanding Book Value of Firm s Liability = Book Value of Assets Book Value of Equity The replacement cost of the underlying corporate assets will be the total assets of the firm. The second variable is the firm s profitability, measured by Return on Equity and Return on Assets: The author is using ROE to measure shareholder s profitability since ROE indicates how much profit a company generate with the money shareholders have invested. The formula to obtain ROE is as follows: Return On Equity = Net Income/Equity The author is using ROA to measure the company s profitability since ROA indicates how profitable is the company relative to its assets. It

9 31 indicates how efficient the management in using its assets to generate profit. Return on Assets = Net Income / Total Assets 3.6 Types of Data Used in Research The author used secondary data obtained from secondary resources. The author conducted the data used in this research from LQ 45 companies annual report to be used for analysis. The data are available and can be retrieved from the company s website and Indonesian Stock Exchange database accessible. The data are developed by library research in Bina Nusantara Joseph Wibowo Centre s library, company s website and Indonesia Stock Exchange database. 3.7 Data Analysis Method Statistical Method Descriptive Statistics Descriptive statistics are used to describe the basic features of the data in a study, where simple summaries about the sample and the measures are provided. Descriptive Statistics help to present the quantitative descriptions of a data set in a manageable form. Descriptive statistics are generally presented along with more formal analysis in purpose of giving the audience an overall sense of the data being analyzed (Soentoro 2009).

10 32 Kolmogorov-Smirnov test This study use Kolmogorov Smirnov test to test the probability distribution whether it is normally distributed or not. This statistic is non-parametric test that samples are standardizes and used to compare a sample with a standard normal distribution. Spearman s Rank Correlation Francis Galton invented correlation in 1888 (Bulmer, 2003). According to social research method, correlation is a single number described the degree of relationship between two variables. Beyond knowing the means, standard deviations of dependent and independent variables, we would like to know the relationship between variables, as we would like to see the nature of bivariate relationships of the variables used in the study (Sekaran and Bougie, 2009).The term correlation and association is often used interchangeably, this is not correct. Association happened when one variable provides information about the likely value of the other variable. When the association between the two variables are linear, correlation occur. If the association between two variables were not linear, people would describe it as a non-linear correlation. However the term non-linear correlation is technically incorrect. The correct description is non-linear association or just association (MEI, 2007)..In this study, the author will use Spearman correlation which is based on ranks and can be used for data quantified with ordinal scale. Spearman correlation is a non parametric since it does not require a normal distribution of population.

11 Data Interpretation The author will use Microsoft Excel and Statistical Package for the Social Sciences (SPSS) software for data interpretation and analysis.