The Research Process and the Hypothesis Formulation

1. Introduction to Research

Research is present in every walk of life. The concept of research in different forms existed from time immemorial. It assumed significance after the formal education and organizations came into existence. It does not mean that the formal education and organizations gave birth to research. Certainly the process of research was used by different civilizations to know the past, understand the present and predict the future. We could define research as the process used to move from unorganized way of thinking and decision making to the organized way of thinking and decision making. Formally, research could be defined as the process and tools used in decision making that reduce the risk of wrong decisions. Research is a systematic inquiry into a phenomenon to provide information to the decision maker in any field. Research is undertaken in all the subjects of inquiry. While scientific research involves systematic and scientific experimentation which could be replicated and verified, the replication and verifiability may not be central to social, political, economic, commerce, commercial and business research. Business research involving commerce and management can be defined as the systematic inquiry into a phenomenon to provide information to the managerial process of decision making. A large part of the research in accounting today is empirical and has focused on different issues related to accounting concepts, principles, the treatment of specific items of income, expenses, assets and liabilities etc.

Research has helped the human kind in all walks of life. The importance of research grew as organizations, both ‘for profit’ and ‘not for profit’, grew in size and started to recognize that research can provide useful inputs into the decision making. Countries started to recognize the importance of research as the economies became more complex and many variables started to influence the outcome of a scheme/policy. Scientific research has been of immense help in understanding the most complex things in science and technology. Research in medical field has solved many a problems of the human and animal life. Without the basic research, human life would have been miserable today. It is because research which is abstract in nature was undertaken by scientists, we have been able to view the TV, travel from place to place, get electricity and light in all the houses, save the human and animal life from deadly diseases, launch the satellites into geostationary orbits and organise the working of business organisations and find out the results of the operations for each year. While the basic or pure research may not look at the immediate application of the research results in any field, the applied research usually looks for solving the current or immediate future problems. It is not uncommon for the researchers in the educational institutions to be at the receiving end whenever some problems crop up in a state/country. The policy makers immediately criticize that the researchers have not been able to solve their problems. Unfortunately what they do not realize is that the problem which arises may have to be adequately researched before the tentative solutions are found. These types of research are undertaken to address the current problems and find policy measures to solve the problems.

Every research involves systematic steps. Understanding of these steps is essential to know the best ways of doing research. This paper has the limited objective of discussing the research process and the hypothesis formulation. The paper is organised in five parts. Part 2 focuses on the research process, part 3 discusses the issues involved in hypothesis formulation and testing, part 4 discusses the definitions of variables used in the research and the last part presents the conclusions.

2. The Research Process

Research can be pure or basic research or applied research. Empiricism is assuming a lot of importance in the recent times. Most of the research in commerce, economics and management is empirical in nature. Therefore, many researchers use the data to either describe a phenomenon or prove or disprove a relationship. When a survey research involves collection of qualitative and quantitative data, researchers would first define the problem, then set the objectives and then go on to collect the data relevant for their work. Generally, the research process involve the following steps

2.1 Idea generation: A research idea may be generated by general/specific problem that is being faced currently, the problem that may be imagined by either the researcher or others. It could also emerge from a brain storming session, Delphi method, researcher’s reading, researcher’s/others’ imagination. The problems currently being encountered could be related to the economy, industry, company, society, a social organization, an administration division of the government, world level organisations etc. For example, India is facing the problem of higher than expected food inflation today. Therefore, the relevant idea could be what causes food inflation. We have seen the fall of multinational financial institutions during the financial crisis that originated in the US and spread to the entire world. The research idea may come from this crisis where the researcher may want to study the causes of the fall of the institutions of that magnitude.

2.2 Problem identification: Once the researcher generates research idea based from different sources, the researcher needs to identify the problem in concrete terms. An idea may be a hazy one, but that needs to be refined while identifying the problem. The problem identification will define the scope of the research and sets the boundary line for the research. If the problem is too broad and cannot be approached in a single research, then we may not arrive at any conclusions. Therefore, we need to identify the problem that the researcher wants to address in his/her work.

2.3 Problem definition: At this stage the researcher not only knows the problems that needs to be addressed but also defines it. The problem definition clearly identifies the phenomenon that needs to be investigated, the variables needed to define the problem, the relationship that needs to be established tentatively. The problem definition is done with the help of reading of the related materials and works.

2.4 Review of related concepts, theories and the literature: Once the research problem is tentatively defined, the researcher needs to review the related concepts, theories and the empirical and theoretical works that have already been carried out. This stage is crucial to understand whether or not to undertake the the proposed research work. If the review of related concepts, theories and literature reveals that the problem under investigation has already been sufficiently investigated and robust conclusions have been drawn, the problem need not be researched again. Alternatively, this stage may reveal that the researcher needs to modify the problem and redefine in the light of the evidences that are already available. The review also helps the researcher to understand the problems that have already been investigated, the methodology that are followed, the variables used and the phenomenon investigated and the conclusions that are drawn. A critical review of the literature would establish the methodological problems, the data collection problems and the need for refining and reinvestigating the problems. The literature review can be compared to the flow of a river. The river starts from some place in a small way, collects water from small streams and tributaries before becoming a big river and establishing its own identity and then flowing in some definite direction. The literature review would also reveal what are the different dimensions of the problem that is being investigated and what are the ways in which different researchers have defined and investigated the phenomenon. The review would also give an idea of different variables that are need to be studied, the type of relationship between different variables/attributes that are to be studied, and the tentative relationships that could be formulated as a possible explanation of the problem under investigation.

2.5 Formulation of hypotheses: The problem identification, definition and review of related literature would reveal the different dimensions of the problems, the variables used in the study, the methodologies followed and the conclusions drawn by various researchers. A critical review of the studies should also reveal the gaps in the problems, the problems of drawing conclusions using the limited data and the questionable methodologies used in the studies. It would also establish the new variables that need to be considered, the refinements or new methodologies to be used and the data collection tools to be applied while taking up the researcher’s current research problem. This should be the basis on which the researcher should formulate the hypotheses. Each of the hypotheses should have a basis and be supported by either the earlier established conclusions of different studies or established practices etc. The hypothesis formulation is crucial as the entire data collection work of the researcher hinges on this. Therefore, the researcher should exercise extreme care in formulating and stating the hypotheses.

2.6 Research Design including sampling Design: While research design encompasses the entire research work starting from research idea generation and ending with the drawing of conclusions, sampling design deals with the data and the data collection techniques that are employed by the researcher. Sampling design is the process of defining the population, sample, the sampling frame and the sampling techniques. This process helps make the data a representative one for the entire population. Since the entire population cannot be studied by the researcher for want of time and cost of investigation, he/she uses sample to draw conclusion about the entire population. Therefore, it is extremely important that the researcher uses the correct sampling techniques to make the sample representative of the population. The use of statistical techniques for analysis of the data assumes that the sample is a random one and is representative of the entire population. Therefore, if this condition is not satisfied, the entire conclusions will be wrong.

2.7 Data collection: The researcher uses the appropriate data collection instrument and administers it to the sampling units chosen in the above step. The data collection instrument should be carefully designed to minimize the sampling and non-sampling errors. Further, hallow effect should be taken care while finalizing the data collection instrument. The researcher may use pilot study to redraft and revise the data collection instrument. It has to be ensured that there are sufficient numbers of observations from the data collected to draw conclusions. Use of statistical techniques would also call for a minimum number of observations. If this is not ensured in data collection stage, the analysis of data poses problems.

2.8 Data checking and validation: If sufficient care is taken at the data collection stage, the problem of checking and validation of the data is easy. If the data collection is not done properly, a lot of inconsistencies may be encountered while reading the data. The first thing the researcher should do after collecting the data is to put the data to “eye ball test”(EBT). EBT involves observing the data carefully by the researcher for the possible errors, omissions, inaccuracies and inconsistencies. A careful observation of the data may reveal that there are certain problems with the data collected. Before, proceeding further, the researcher should correct mistakes in the data and clean it. The process of ensuring the accuracy of data leads to data validation. This stage would avoid the possible blunders the researcher would commit by using the wrong data and subjecting it to mountain of statistics. No sophisticated statistical tests can rectify the wrong conclusions arising out of the inaccurate data. Therefore, it is necessary that the researcher first cleanses the data before subjecting it to any statistical tools.

2.9 Data analysis: The cleaned data may be summarized and analysed subjecting it to statistical tools. The statistical tools may be broadly classified into two categories for the purpose of data analysis. The first category of the tools like measures of central tendency, dispersion, skewness and kurtosis may be used to summarise the mass data that would help the researcher to get a limited number of parameters that would describe the characteristics of the data that has been collected. The second category of the statistical tools like the measures of correlation, regression, the various statistical tests can be used for establishing and testing the relationship/hypotheses. These tools would help to know whether or not the research hypothesis can be accepted or rejected.

2.10 Interpretation: Most of the researchers stop by saying whether or not the hypotheses formulated are either accepted or rejected. Mere statements of acceptance or rejection of hypotheses is not the purpose of research. The interpretation of the results of the data analysis and knowing whether the hypotheses are accepted or rejected and then stating the results in terms of the original problem is what is intended in the interpretation stage. At this stage the researcher should also give possible interpretations for either acceptance or rejection of the hypotheses. This is also the stage at which the researcher should compare his/her results with those of the works studied in the literature review.

2.11 Conclusions: The researcher should draw the final conclusions of the research in terms of the original problem being investigated. The researcher should also highlight the problems of generalizations and the possible problems that could have been investigated as part of his/her research but could not be done for various reasons. This discussion would lead to the problems that other researcher could undertake. The researcher should also discuss the implications of the conclusions drawn. Merely stating the conclusion is not sufficient.

3. Hypothesis Formulation

Most of the research students in economics, commerce and management and in other fields would be using empirical research. While the empirical work in science involves experimentation in a laboratory; the entire economy, industry, companies, social organizations etc are the laboratories for students in economics, commerce and management and in other fields in social sciences. When we use the empirical research, the researchers are defining the problems in terms of the variables/attributes and their tentative relationships. Therefore, when the relationships between different variables/attributes are defined and formulated as a statement to explain a phenomenon, it should emerge from some source. That source could be the observation, literature, theory, an exploratory study undertaken specifically for this purpose, current problems being faced, the problems that are likely to be faced, the abstract formulation of the relationship that may or may not be relevant in the current context, the phenomenon that was investigated for a long time but conclusions could not be arrived at. Therefore, the sources of hypotheses could be the previous literature, the existing theory, law, an exploratory study, social/economic/demographic/scientific phenomenon etc. It is not necessary that every research study should have a hypothesis. However, when a hypothesis is formulated, it should be done in a scientific way. This is what is being discussed here. Before, proceeding further we need to define hypothesis.

3.1 What is a hypothesis?

A hypothesis is a tentative statement that establishes a possible relationship between the variables, which in turn, explains some phenomenon or relationship. It can be defined as ‘a statement about the population’. This statement could be stated in terms of the relationship between the variables/attributes, cause and effect relationship, a phenomenon that explains a problem etc. A hypothesis is a statement which may include a prediction. A fact cannot be a hypothesis. A hypothesis should not be confused with facts. For example, the population of India consists of male and female. It is a statement about the population of a country but it is not a hypothesis. It is a fact. The hypothesis should not be confused with the established theories. Theories are general explanations based on a large amount of data and established by repeated investigations. For example, the theory of evolution applies to all living things and is based on wide range of observations. However, there are many things about evolution that are not fully understood such as gaps in the fossil record. Many hypotheses have been proposed and tested on these issues. If we can take the example from economics, India is experiencing the food inflation as one of the problems now. What causes food inflation can be put in terms of different reasoning. Therefore, they are only tentative statements which need to be tested before they are accepted. These can be the hypotheses. ‘Demand induces supply’ is not normally a hypothesis. However, if one has the reason to believe that something other than demand induces supply, then it can be put in the form of hypothesis. A hypothesis should be capable of being investigated and proved or disproved. Established truths cannot become hypothesis even when they can be investigated. This is because after the investigation you will conclude the same established truth. Therefore, only when there is possibility of either accepting or rejecting the statement, it becomes the hypothesis.

3.2. How to formulate a hypothesis?

A hypothesis cannot emerge from vacuum. It has to have a strong basis. The source of the hypothesis could be the current problem, social and demographic phenomenon, economic problems, country’s problems, scientific problems etc. The hypothesis should have basis of either the previous literatures or strong prevailing notions that are challenged by people, policies, practices, law, social customs, scientific experiments, nature etc. The basis of research hypothesis is usually the critical review of previous literature. The critical review of the literature would reveal that there are problems about the conclusions drawn and therefore, there is a further need for investigation. This conclusion could give rise to the new hypothesis. Therefore, a researcher should formulate each hypothesis on the basis of the literature review he does and the discussion of the reviews.

3.3. Examples of what are not Hypotheses

The following cannot be the hypotheses.

Commercial Banks in India accept the deposits from the general public.
The purpose of Commercial Banks in India is to lend money to the general public and other organizations.
The customers of a company consist of male and female.
A large number of customers visit bus terminus every day.
Money supply influences the inflation.
The voters in India are the male and female.
The age of the voters in India is greater than or equal to 18 years.
The government of India derives revenue from the public sector undertakings.
Export oriented companies earn foreign exchange for India.
The industrial units located in Special Economic Zones (SEZs) are eligible for fiscal incentives.
China is the second largest economy in the world.
The financial crisis originated in the US and spread to other parts of the world.
WTO ensures the free trade in goods and services across the member countries.
India has initiated economic reforms.
The women in India like jewellery.

3.4. Examples of what are Hypotheses

The following can be the hypotheses.
The capital structure of a firm influences the value of the firm.
The value of dividend paying firm is more than that of firms not paying dividends.
There is a positive relationship between wages and production
Training methods influence the productivity of firms.
The products produced by the MNCs are superior to that of Indian companies.
The TV viewing improves the IQ of children.
The use of chemical fertilizers may adversely affect the fertility of the soil.
The capital structure of a firm influences the cost of capital
Accounting earnings influence the share prices.
Publicly available earnings information is absorbed by the stock market instantaneously.
There is no significant difference between the Indian Accounting Standards and International Accounting Standards.
Accountants involve in earnings manipulation when their pay packages are based on the accounting earnings.
Accountants chose those accounting principles that maximize their personal wealth as opposed to firm’s wealth.

The following example shows how to formulate a Hypothesis. We know that there are different theories that explain the capital structure of firm. Many variables could influence the capital structure of a firm. A definite answer to the capital structure puzzle is yet to be found. Therefore, researcher could examine the factors that influence the capital structure of a firm. A variable that is used to measure the firm’s ability to generate capital internally as examined by Kester (1986), Titman and Wessels (1988), Wald (1999) and Pandey et al (2000), among others, is earnings before interest and taxes (EBIT) scaled by total assets. Profitability is found to be negatively correlated with leverage. Mallikarjunappa and Goveas (2007) tested the factors influencing the capital structure of a firm and concluded that profitability do not have significant relationship with the debt ratio. However, a significant negative relationship between profitability and debt ratio supports the pecking order hypothesis that the firms with liquid assets and internal accruals would use less debt. Accordingly, we can hypothesize that firm with high profitability will use less debt capital in the capital structure. Therefore, we can hypothesize as follows.

Hypothesis: Profitability is inversely related to debt ratios.

3.5. How do we test the hypothesis?

The following steps are followed in hypothesis testing.

3.5.1. Formulation of hypotheses

3.5.2. Sampling design

3.5.3. Deciding sampling distributions

3.5.4. Setting the level of significance.

3.5.5. Deciding the acceptance and rejection region.

3.5.6. Data collection

3.5.7. Computation of the values of test statistic based on the appropriate sampling distribution and the data collected.

3.5.8. Deciding whether the computed value of test statistic falls in the acceptance or rejection region.

3.5.9. Deciding whether to accept or reject the hypothesis.

3.5.10. Drawing conclusions in terms of original problem.

3.5.11. Interpreting the implications of conclusions.

4. Operational definitions of variables used in the research

It is very important that we provide operational definitions of the variables used in the hypotheses. For example, if the hypothesis is: ‘morale and production are positively related’; it important that we define morale and the way it is measured. Similarly production should be defined and measurement should be specified. If the survey work is involved, the data collection instrument should contain questions related to the operational definitions provided by the researcher. This should be done before the data collection and not after the data collection. Most often researchers do not even know about this and will end up with problems after the data collection. Therefore, every variable/attribute in the hypotheses should be clearly defined. Further, measurements of these variables/attributes should also be specified and incorporated into the data collection instrument. It is always a good idea to use the pilot survey and put the data collected to the statistical tests to know and understand whether there are any problems with definitions and measurements. It should also be ensured that the variables are understood by all the respondents in the similar way. There should not be any ambiguity in the variable measurements. For example, if a respondent in the production department is asked about morale, he may understand morale in his own way and others may understand morale in their own way. Therefore, it is preferable to give the indicators of high or low morale so that the responses are correct and comparable. This task is easy in case of variable like production as we can define it in terms of number of units. Here also it is important to specify that production is measured in terms of number of units and even the units should be specified. However, it may not be so easy in case variables like morale. It is here that the researcher should search adequate literature and clearly define the variables and their measurements. Consider another hypothesis: education increases income of the people. This hypothsis specifies a positive relationship between the concepts “education” and “income.” This abstract statement of hypothesis cannot be tested without the operational definitions of the two variables or concepts. First, it must be operationalized or situated in the real world by rules of interpretation. To test this hypothesis, the abstract meaning of education and income must be derived or operationalized. The concepts should be capble of being understood uniformly and measured. Education could be defined and measured by years of schooling, professional eduction, general eduction, technical eduction, or highest degree completed etc. Income could be measured by hourly rate of pay, monthly income, yearly salary, etc. Similarly if the hypothesis to be tested is ‘accounting earnings influences the stock prices’, we need to define the two variables, accounting earnings and stock prices. Accounting earnings may have different meanings. These could be net profit, gross profit, profit before taxes, profit before taxes and interest, cash profit, operating profit, operating cash profit, profit before taxes, interest and depreciation, etc. Similarly stock prices may be the opening price, closing price, highest price, lowest price, unadjusted price, adjusted price etc. We need to clearly define these two and clarify that accounting earnings are measured as profit before taxes, interest and depreciation and stock prices are the closing adjusted prices. This makes the entire hypothesis clear and unambiguous. In the absence of operational definitions the researchers and the readers may form their own opinion about the variables and understand the conclusions drawn. To avoid differences in the understandings the variables and concepts need to be defined after the formulation of the hypotheses and before the data collection. Without the operational definitions of the variables/concepts, the researcher will end up with erroneous analysis, interpretation and conclusions. This can damage the foundations of a good research work.

5. Conclusion

Research is a long process. It involves commitment of time, cost and dedication. Many a time the researcher is prepared to spend time and money but do not have dedication. It is lack of dedication that leads to a lot of gaps in the research. Even the dedicated researchers may go wrong if they do not have proper direction. This paper is intended to show the process involved in the research and the hypothesis formulation. There are many other issues related to hypothesis formulation and testing. All these cannot be discussed in short paper like this. The interested readers should read a good book on research methodology. This paper is intended to clarify the issues related to research process and hypothesis formulation. The detailed discussion on the testing process and the concepts involved in this is beyond the scope of this paper. I hope that this paper will help the researchers to clearly understand the process of research and hypothesis formulation. I have examined many PhD and MPhil theses and found that the researchers have erred in this stage. Therefore, this short paper has been written to help the researchers to improve their skills in research. Obviously this cannot be a final say on the issue. Researchers can discover their own innovative ways of formulating the hypothesis. The research process can be improved by the collective wisdom of the researchers over a period of time. I do hope that the researchers will share this collective wisdom with the young researchers.

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1. Introduction to Research

2. The Research Process

3. Hypothesis Formulation

4. Operational definitions of variables used in the research

5. Conclusion

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