DISSERTATION PROPOSAL: Financial Innovations in Emerging Markets 3000 words

 Financial Innovations in Emerging Markets

Proposal  

1. Title

Financial Innovations in Emerging Markets

2. Background

Much effort was devoted to analysing the causes of banking and financial sector troubles in emerging economies. Little attention, nevertheless, was given to analysing how to implement durable and effective financial innovation so as to minimise the probability of crises in emerging markets.

Innovation are often associated with banking and economic crises. It is difficult to deal with change that is exogenous to our traditional knowledge base and seems outside of our control. The case for this concern is explored in this thesis by discussing the financial crisis in emerging markets and interaction between financial innovation and successful banking on global level.

The have keen interest in the topic of ‘financial innovations’. I belong from a developing country with an emerging financial sector therefore I am eager to understand that what impact financial innovations has on emerging markets. This will help me better understand my countries financial situation and the ways to improve it.

3. Preliminary Review of Literature

The literature review is divided into five main parts.

Introduction

Key concepts/ Definitions

Process of financial Innovation

Benefits of financial innovation

Limitations of financial innovation

Introduction

 The past twenty years have seen revolutionary changes in the structure of the world’s financial markets and in our understanding of how to use them to provide new investment opportunities and ways to managing risk. Those financial Innovations came about in part because of a wide array of new security designs, in part because of important advances in the theory of finance. And it intensifies concerns by managers and regulators over the new activities and risks of financial institutes. Major financial crises associated with these new activities associated with defaults by emerging countries further strengthened this concern (Merton, 1995).

Though innovations are almost always healthy, they can place serious strains on the incumbents. Implementation of new financial innovations has required major changes in the institutional hierarchy in the infrastructure to support it and the knowledge base required to manage this part of the system is significantly different from the experience of many financial managers as well as regulators. Further, they heavy overlay of government regulation on the financial services sector has influenced the course of financial innovation and, in turn, been influenced by it. It is difficult to deal with change that is exogenous with respect to our traditional knowledge base and therefore seems outside of our control. The case of this concern is explored in the sections of follow by discussing the financial crises in emerging markets and interactions between financial innovation and financial regulation (Frame and White, 2002).

Key concepts/ Definitions

Innovation: term innovation from organizational perspective can be defined as:

“Innovation is generally understood as the successful introduction of a new thing or method. Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services” (Luecke and Katz, 2003:26).

Whereas Amabile et al (1996: 112) propose:

“We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second”.

Financial Innovation:  before defining financial innovation, one must understand what financial system is, according to (Merton, 1992:12) “the primary function of the financial system is to facilitate the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment”.  The operation of a financial system involves resource costs such as labour, materials, and capital employed by financial institutions. Viewed in this context, a “financial innovation represents something new that reduces costs, risks or provides an improved product/service/instrument that better satisfies participants demands” (Frame and White, 2002:3).

Process of financial Innovation

The theory of finance suggests that following approach (Levich, 1987) for understanding the recent wave of financial innovations. Agents in financial market are typically characterised as risk-averse utility maximisers. To optimise with respect to risk. The introduction of new products that might help the agents to reach their desired exposure to particular risks thus represents the financial innovation process (ibid).

To optimise with respect to expected returns, agents will take into account taxes and the transaction costs of managing their positions. Agents are attracted to financial products because they lower the costs of managing their positions. Agents are attracted to financial products because they lower the cost of establishing and maintaining a desired position, or because they assist investors to attain scale economies, which again lower the cost of financial services (Luecke and Katz, 2003).

Thus the process of financial innovation has two central aspects.

1. the creation of new financial instruments, techniques, and markets
2. unbundling of the separate characteristics and risks of individual instruments and their reassembly in different combinations (Cavanna, 1992).

A central feature of financial innovation is the unbundling of characteristics and either keeping them separate or combining them in different ways. In principle financial innovation could produce a range of instruments which encompassed all possible permutations of characteristics A simple example is given in Exhibit 1  (Cavanna, 1992: 20-22) which describes a financial intermediation matrix.

Exhibit 1: Financial intermediation matrix ( Source: Cavanna, 1992: 20-22)

Four characteristic of financial intermediation amongst many are identified: form (banks or capital market), maturity, pricing, and liquidity (whether there is a secondary market for the asset). This simple example illustrates three central features of financial innovation:

• It increases the range, number and varity of financial instruments.
• It combines characteristics in a more varied way and widens the combinations of characteristics.

The financial intermediation matrix in Exhibit 1 includes only four characteristics. The more important of the characteristics, in addition to the four already mentioned, are the following (Heertjess, 1988):

• Price risk, i.e. the extent to which the price of an assert or liability may change.
• Earning risk e.g. the difference between equities and loan contracts.
• Credit risk i.e. the risk of a storage of foreign currency in a country.
• Pricing formula.
• Size of the facility.
• Exchange rate risk.
• Discretion, i.e. the content to which the instrument allows the issuer to exercise discretion e.g. an options contract.
• Hedging facility i.e. the extent to which an instrument enables risks to be avoided (Cavanna, 1992).

The Importance of Financial Innovation

The centrality of finance in an economy and its importance for economic growth naturally raises the importance of financial innovation. Since finance is a facilitator of virtually all production activity and much consumption activity, improvements in the financial sector will have direct positive ramifications throughout an economy. Without financial innovation, the economics scenes offer nothing but an uninteresting, foreseeable reproduction of services and financial means of production (Silber, 2006).

Financial innovations are a permanent part of global financial system. We have had an extraordinary amount of innovation in the last two decades and this tendency is going to at least continue at the current pace and perhaps even accelerate (Metron, 1995). The reason for that belief is reduced costs and improving technology. Apart from it innovators also enjoy learning curve, having created new products it becomes a lot easier to innovate (Silber, 1975).

Growing confidence in the innovating institutions ‘skills comes from using those innovations in real-world practice on large scale for a considerable period of time. It is in that sense that cost reduction flows from moving down the learning curve (Metron, 1992). The total reduction in costs has effect of reducing the threshold of benefit needed to return the cost of new innovation thus spurring the innovation process (ibid).

Benefits of Financial Innovation

 The general terms the benefits that occur through innovation in financial systems are:

• The costs of financial intermediation can be reduced in two ways 1) Giving borrowers access to a wider range of markets and facilities, 2) Allowing different institutions to exploit their comparative advantages.
• New instruments facilitate arbitrage between markets in different countries and erode pricing anomalies. This may reduce market imperfections.
• Some instruments and techniques allow borrowers to exploit their comparative advantage in different markets which lowers the costs financing. Swaps are a good example.
• Several instruments (such as futures, options etc) widen the range of hedging possibilities and hence enable risks to be protected against.
• By increasing the range of financial instruments financial institutions offer a wider choice to meet the requirements of users more efficiently (Cavanna, 1992: 40-42).

Limitations of Financial Innovations

Despite all positive effects financial innovations still have some limitations:

• The hedging possibilities are more limited than is usually believe. In particular it is not possible to be insures against an expected change in interest rates.
• Disintermediation also has both good and bad consequences. Financial difficulties faced by the borrowers are instantly revealed. However, the behaviour of bond-or-equity holders in case of capital losses is not well known. More worrying perhaps is the possibility that speculative bubbles may appear. They consist of deviations of deviations of the market price from its ‘fundamental value’ which are self-generating. Financial innovation which acts in favour of one and not the other could hence be the cause of fully erratic movements in prices (Heertje, 1988).

4. Research Questions and Objectives

This research aims to answer following questions

1. What is financial innovation?
2. What is the difference between developed and developing markets financial innovation?
3. How financial innovation correlates with financial crisis cases in emerging market?
4. How financial innovation are promoted or constraint by the regulations in emerging markets?

The key objectives of this research are

1. Define financial innovation in a general sense
2. Analyse the differences in prudential regulation between developed countries and emerging markets.
3. Determine how financial innovation correlates with financial crisis cases in emerging market.
4. The main task is to determine further improvements that could be employed in emerging markets in area of financial innovation and specifically in banking sector.
5. Secondary objective is to consider the appropriateness of the frameworks utilised in developed countries for the use in emerging markets. This will take into consideration cultural differences arising in the process of innovation implementation on global level.
6. Research Plan

The aim of this section is to create a research plan for this thesis by understanding nature of study and by identifying suitable data collection methods and look into research limitations.

Nature of Study

Depending on nature and aim of study, research can be divided into two types (Hussey and Hussey, 1997).

Explanatory research:  This is about understanding a phenomenon, and explaining ‘what’ has happened (ibid).

Exploratory research: In this type, the researcher aims to explore a phenomenon on the basis of an evidence-based approach, stating what happens and why it happens. The research aims to generalise its analysis but only within the confines of the study. Exploratory research provides ‘how’ and ‘why’ answers on the basis of current event but also tries to predict the outcomes for similar events in the future (Hussey and Hussey, 1997).

Due to the lack of research in the area, I am adopting exploratory approach, aiming to explore a phenomenon and getting insight into it, by using various methodological tools.

Data Collection Methods

There are various research methods developed in social science.  The most commonly used are; cross sectional studies, experimental studies, longitudinal studies, surveys, ethnography, and case study. However in this research I shall be using case study method, which is identified as one of the most useful strategies for theory building research (Yin, 1994; Voss et al, 2002).

Case Study Research

Case study research can include both multiple and single case study.

Multiple case studies: it allows the researcher to identify and study patterns of commonality amongst cases and theories. Evidence produced from multiple case studies are more compelling and results are considered more vigorous. However it requires extensive resources and time (Yin, 1994).

Single case study: The key strength of using a single case study is that it provides greater opportunity for depth of evidence and data. It also allows studying several contexts within the same case.  In limited time this approach is most productive approach (Voss et al, 2002). The main disadvantage of pursuing a single case study is that generalising results may not be possible, and misjudgement of a single event can produce totally incorrect results.

However due to lack of literature on this topic instead of considering individual countries as cases, the thesis will consider  ‘emerging markets/countries’ as a single case. This widens the scope of the study but allows author manoeuvrability to gather enough data required for analysis. It will therefore draw on the experiences of in a number of emerging markets on the topic concerned.

Yin (1994) has identified six data collection methods for case study research including interviews, direct observations, physical artefacts, participant observation, documents and archival records.

However in this research I shall be using documents and archival records; which are most relevant to any case study research (Yin, 1994). These include; journal articles, books, news papers, administrative documents and formal studies etc.

Qualitative and Quantitative Methods

The two most dominated approaches of social science for conducting research are; Quantitative and Qualitative methods.

Quantitative methods: these are based on numerical data and calculations. The key strengths of this method is that it can provide wide coverage, is fast and commercial, the results have high validity, and are less dependent on researcher skills (Hussey and Hussey, 1997). The major criticism faced by this method is that it tends to be inflexible and artificial, not very helpful to generate the theories, and is not very helpful in understanding the whole process of research and is normally used following positivistic approach (ibid).

Qualitative methods: these are mostly subjective in nature and can be defined as

“array of interpretative techniques which seek to describe, decide, translate and come to terms with the meaning of more or less naturally occurring phenomena in the social world”(Hussey and Hussey, 1997;62).

The key strength of qualitative methods are that they are open ended, dynamic and flexible, they provide depth of understanding, and are a richer source of ideas (Yin, 1994). The major criticism of this technique is lack of reliability (ibid).

After evaluating the attributes of both methods it is evident that qualitative methods are most suitable for this research which is case study based. These are more flexible approach and enable researcher to understand the context in detail and in-depth. Therefore, the research will be more focused on qualitative methods but supported with some quantitative analysis where required (e.g. analysing the survey etc).

Primary and Secondary Data collection

The two ways of collecting the data are primary and secondary.

Primary data can be collected by doing survey, interviews, or and by conducting experiments etc. Collecting primary data provides unique original results to the researcher, however using this method is time consuming and expensive (Yin, 1994).

Secondary data is the data which already exists in documented sources. This includes data from published articles, reports etc. This is a cost effective and quick method, which can help researcher to identify the gaps in literature, and to get back ground information. The data used in this research is all from secondary resources.

Research Limitations

Due to time and budgetary allocation this research has certain limitations

Firstly it is only based on secondary resources and researcher is unable to collect any primary data. Another limitation is using single case study research is that; the results cannot be generalized but may be inferred.

6          Ethical Considerations

When conducting any research, researcher is expected to have highest ethical standards. In this research

• I shall follow University’s research guidelines.
• I shall make sure that during research I do not harm any participant either physically or
• I shall respect the participant privacy.
• I shall keep all my research records securely and will not share them with third party, unless approved by all participants.
• I shall obtain consent from all participants so that I can include them into research. I shall never misrepresent any data/information provided.
• To avoid plagiarism whenever I shall use work of others, I shall give them acknowledgement.

References

Amabile, T and Conti,  R and Coon, H and  Lazenby, J and Herron, M(1996) Assessing the Work Environment for Creativity, ACADEMY OF MANAGEMENT JOURNAL, Issue 22, No 1, Pages 223-234.

Cavanna, H(1992) Financial Innovation, Routledge, US.

Frame, W and White, L(2002) Empirical Studies of Financial Innovation: Lots of Talk, Little Action?, Federal Reserve Bank of Atlanta.

Heertje, A(1988) Innovation, Technology, and Finance, Basil Blackwell, UK.

Hussey, J. and Hussey, R. (1997) Business research, Macmillan, New York.

Levich, R(1987) Developing the ecu markets: perspectives on financial innovation, NBER Working Paper Series,  Cambridge, US

Luecke, R and Ralph, K(2003)Managing Creativity and Innovation. Boston, MA: Harvard Business School Press.

Merton, H (1995) Financial Innovation and the management and regulation of financial institutions, Cambridge, US: NBER Working Paper Series.

Merton, R(1992) Financial Innovation and Economic Performance, Journal of Applied Corporate Finance, Vol 4, Pages 12-22.

Silber, W (1975) Financial Innovation, Lexington Books, US.

Silber, W (2006) The process of financial innovation, American Economic Review, Pages 89-95.

Voss, C. Tsikriktsis, N. and Frohlich, M. (2002) Case Research in Operations Management, International journal of Operations and Production Management, Vol. 22, Issue 2, Pages: 195-219.

Yin, R. (1994) Case study research: design and methods, Sage Publications.

Financial Innovations in Emerging Markets

Proposal

1. Title

Financial Innovations in Emerging Markets

2. Background

Much effort was devoted to analysing the causes of banking and financial sector troubles in emerging economies. Little attention, nevertheless, was given to analysing how to implement durable and effective financial innovation so as to minimise the probability of crises in emerging markets.

Innovation are often associated with banking and economic crises. It is difficult to deal with change that is exogenous to our traditional knowledge base and seems outside of our control. The case for this concern is explored in this thesis by discussing the financial crisis in emerging markets and interaction between financial innovation and successful banking on global level.

The have keen interest in the topic of ‘financial innovations’. I belong from a developing country with an emerging financial sector therefore I am eager to understand that what impact financial innovations has on emerging markets. This will help me better understand my countries financial situation and the ways to improve it.

3. Preliminary Review of Literature

The literature review is divided into five main parts.

Introduction

Key concepts/ Definitions

Process of financial Innovation

Benefits of financial innovation

Limitations of financial innovation

Introduction

 The past twenty years have seen revolutionary changes in the structure of the world’s financial markets and in our understanding of how to use them to provide new investment opportunities and ways to managing risk. Those financial Innovations came about in part because of a wide array of new security designs, in part because of important advances in the theory of finance. And it intensifies concerns by managers and regulators over the new activities and risks of financial institutes. Major financial crises associated with these new activities associated with defaults by emerging countries further strengthened this concern (Merton, 1995).

Though innovations are almost always healthy, they can place serious strains on the incumbents. Implementation of new financial innovations has required major changes in the institutional hierarchy in the infrastructure to support it and the knowledge base required to manage this part of the system is significantly different from the experience of many financial managers as well as regulators. Further, they heavy overlay of government regulation on the financial services sector has influenced the course of financial innovation and, in turn, been influenced by it. It is difficult to deal with change that is exogenous with respect to our traditional knowledge base and therefore seems outside of our control. The case of this concern is explored in the sections of follow by discussing the financial crises in emerging markets and interactions between financial innovation and financial regulation (Frame and White, 2002).

Key concepts/ Definitions

Innovation: term innovation from organizational perspective can be defined as:

“Innovation is generally understood as the successful introduction of a new thing or method. Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services” (Luecke and Katz, 2003:26).

Whereas Amabile et al (1996: 112) propose:

“We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second”.

Financial Innovation:  before defining financial innovation, one must understand what financial system is, according to (Merton, 1992:12) “the primary function of the financial system is to facilitate the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment”.  The operation of a financial system involves resource costs such as labour, materials, and capital employed by financial institutions. Viewed in this context, a “financial innovation represents something new that reduces costs, risks or provides an improved product/service/instrument that better satisfies participants demands” (Frame and White, 2002:3).

Process of financial Innovation

The theory of finance suggests that following approach (Levich, 1987) for understanding the recent wave of financial innovations. Agents in financial market are typically characterised as risk-averse utility maximisers. To optimise with respect to risk. The introduction of new products that might help the agents to reach their desired exposure to particular risks thus represents the financial innovation process (ibid).

To optimise with respect to expected returns, agents will take into account taxes and the transaction costs of managing their positions. Agents are attracted to financial products because they lower the costs of managing their positions. Agents are attracted to financial products because they lower the cost of establishing and maintaining a desired position, or because they assist investors to attain scale economies, which again lower the cost of financial services (Luecke and Katz, 2003).

Thus the process of financial innovation has two central aspects.

1. the creation of new financial instruments, techniques, and markets
2. unbundling of the separate characteristics and risks of individual instruments and their reassembly in different combinations (Cavanna, 1992).

A central feature of financial innovation is the unbundling of characteristics and either keeping them separate or combining them in different ways. In principle financial innovation could produce a range of instruments which encompassed all possible permutations of characteristics A simple example is given in Exhibit 1  (Cavanna, 1992: 20-22) which describes a financial intermediation matrix.

Exhibit 1: Financial intermediation matrix ( Source: Cavanna, 1992: 20-22)

Four characteristic of financial intermediation amongst many are identified: form (banks or capital market), maturity, pricing, and liquidity (whether there is a secondary market for the asset). This simple example illustrates three central features of financial innovation:

• It increases the range, number and varity of financial instruments.
• It combines characteristics in a more varied way and widens the combinations of characteristics.

The financial intermediation matrix in Exhibit 1 includes only four characteristics. The more important of the characteristics, in addition to the four already mentioned, are the following (Heertjess, 1988):

• Price risk, i.e. the extent to which the price of an assert or liability may change.
• Earning risk e.g. the difference between equities and loan contracts.
• Credit risk i.e. the risk of a storage of foreign currency in a country.
• Pricing formula.
• Size of the facility.
• Exchange rate risk.
• Discretion, i.e. the content to which the instrument allows the issuer to exercise discretion e.g. an options contract.
• Hedging facility i.e. the extent to which an instrument enables risks to be avoided (Cavanna, 1992).

The Importance of Financial Innovation

The centrality of finance in an economy and its importance for economic growth naturally raises the importance of financial innovation. Since finance is a facilitator of virtually all production activity and much consumption activity, improvements in the financial sector will have direct positive ramifications throughout an economy. Without financial innovation, the economics scenes offer nothing but an uninteresting, foreseeable reproduction of services and financial means of production (Silber, 2006).

Financial innovations are a permanent part of global financial system. We have had an extraordinary amount of innovation in the last two decades and this tendency is going to at least continue at the current pace and perhaps even accelerate (Metron, 1995). The reason for that belief is reduced costs and improving technology. Apart from it innovators also enjoy learning curve, having created new products it becomes a lot easier to innovate (Silber, 1975).

Growing confidence in the innovating institutions ‘skills comes from using those innovations in real-world practice on large scale for a considerable period of time. It is in that sense that cost reduction flows from moving down the learning curve (Metron, 1992). The total reduction in costs has effect of reducing the threshold of benefit needed to return the cost of new innovation thus spurring the innovation process (ibid).

Benefits of Financial Innovation

 The general terms the benefits that occur through innovation in financial systems are:

• The costs of financial intermediation can be reduced in two ways 1) Giving borrowers access to a wider range of markets and facilities, 2) Allowing different institutions to exploit their comparative advantages.
• New instruments facilitate arbitrage between markets in different countries and erode pricing anomalies. This may reduce market imperfections.
• Some instruments and techniques allow borrowers to exploit their comparative advantage in different markets which lowers the costs financing. Swaps are a good example.
• Several instruments (such as futures, options etc) widen the range of hedging possibilities and hence enable risks to be protected against.
• By increasing the range of financial instruments financial institutions offer a wider choice to meet the requirements of users more efficiently (Cavanna, 1992: 40-42).

Limitations of Financial Innovations

Despite all positive effects financial innovations still have some limitations:

• The hedging possibilities are more limited than is usually believe. In particular it is not possible to be insures against an expected change in interest rates.
• Disintermediation also has both good and bad consequences. Financial difficulties faced by the borrowers are instantly revealed. However, the behaviour of bond-or-equity holders in case of capital losses is not well known. More worrying perhaps is the possibility that speculative bubbles may appear. They consist of deviations of deviations of the market price from its ‘fundamental value’ which are self-generating. Financial innovation which acts in favour of one and not the other could hence be the cause of fully erratic movements in prices (Heertje, 1988).

4. Research Questions and Objectives

This research aims to answer following questions

1. What is financial innovation?
2. What is the difference between developed and developing markets financial innovation?
3. How financial innovation correlates with financial crisis cases in emerging market?
4. How financial innovation are promoted or constraint by the regulations in emerging markets?

The key objectives of this research are

1. Define financial innovation in a general sense
2. Analyse the differences in prudential regulation between developed countries and emerging markets.
3. Determine how financial innovation correlates with financial crisis cases in emerging market.
4. The main task is to determine further improvements that could be employed in emerging markets in area of financial innovation and specifically in banking sector.
5. Secondary objective is to consider the appropriateness of the frameworks utilised in developed countries for the use in emerging markets. This will take into consideration cultural differences arising in the process of innovation implementation on global level.
6. Research Plan

The aim of this section is to create a research plan for this thesis by understanding nature of study and by identifying suitable data collection methods and look into research limitations.

Nature of Study

Depending on nature and aim of study, research can be divided into two types (Hussey and Hussey, 1997).

Explanatory research:  This is about understanding a phenomenon, and explaining ‘what’ has happened (ibid).

Exploratory research: In this type, the researcher aims to explore a phenomenon on the basis of an evidence-based approach, stating what happens and why it happens. The research aims to generalise its analysis but only within the confines of the study. Exploratory research provides ‘how’ and ‘why’ answers on the basis of current event but also tries to predict the outcomes for similar events in the future (Hussey and Hussey, 1997).

Due to the lack of research in the area, I am adopting exploratory approach, aiming to explore a phenomenon and getting insight into it, by using various methodological tools.

Data Collection Methods

There are various research methods developed in social science.  The most commonly used are; cross sectional studies, experimental studies, longitudinal studies, surveys, ethnography, and case study. However in this research I shall be using case study method, which is identified as one of the most useful strategies for theory building research (Yin, 1994; Voss et al, 2002).

Case Study Research

Case study research can include both multiple and single case study.

Multiple case studies: it allows the researcher to identify and study patterns of commonality amongst cases and theories. Evidence produced from multiple case studies are more compelling and results are considered more vigorous. However it requires extensive resources and time (Yin, 1994).

Single case study: The key strength of using a single case study is that it provides greater opportunity for depth of evidence and data. It also allows studying several contexts within the same case.  In limited time this approach is most productive approach (Voss et al, 2002). The main disadvantage of pursuing a single case study is that generalising results may not be possible, and misjudgement of a single event can produce totally incorrect results.

However due to lack of literature on this topic instead of considering individual countries as cases, the thesis will consider  ‘emerging markets/countries’ as a single case. This widens the scope of the study but allows author manoeuvrability to gather enough data required for analysis. It will therefore draw on the experiences of in a number of emerging markets on the topic concerned.

Yin (1994) has identified six data collection methods for case study research including interviews, direct observations, physical artefacts, participant observation, documents and archival records.

However in this research I shall be using documents and archival records; which are most relevant to any case study research (Yin, 1994). These include; journal articles, books, news papers, administrative documents and formal studies etc.

Qualitative and Quantitative Methods

The two most dominated approaches of social science for conducting research are; Quantitative and Qualitative methods.

Quantitative methods: these are based on numerical data and calculations. The key strengths of this method is that it can provide wide coverage, is fast and commercial, the results have high validity, and are less dependent on researcher skills (Hussey and Hussey, 1997). The major criticism faced by this method is that it tends to be inflexible and artificial, not very helpful to generate the theories, and is not very helpful in understanding the whole process of research and is normally used following positivistic approach (ibid).

Qualitative methods: these are mostly subjective in nature and can be defined as

“array of interpretative techniques which seek to describe, decide, translate and come to terms with the meaning of more or less naturally occurring phenomena in the social world”(Hussey and Hussey, 1997;62).

The key strength of qualitative methods are that they are open ended, dynamic and flexible, they provide depth of understanding, and are a richer source of ideas (Yin, 1994). The major criticism of this technique is lack of reliability (ibid).

After evaluating the attributes of both methods it is evident that qualitative methods are most suitable for this research which is case study based. These are more flexible approach and enable researcher to understand the context in detail and in-depth. Therefore, the research will be more focused on qualitative methods but supported with some quantitative analysis where required (e.g. analysing the survey etc).

Primary and Secondary Data collection

The two ways of collecting the data are primary and secondary.

Primary data can be collected by doing survey, interviews, or and by conducting experiments etc. Collecting primary data provides unique original results to the researcher, however using this method is time consuming and expensive (Yin, 1994).

Secondary data is the data which already exists in documented sources. This includes data from published articles, reports etc. This is a cost effective and quick method, which can help researcher to identify the gaps in literature, and to get back ground information. The data used in this research is all from secondary resources.

Research Limitations

Due to time and budgetary allocation this research has certain limitations

Firstly it is only based on secondary resources and researcher is unable to collect any primary data. Another limitation is using single case study research is that; the results cannot be generalized but may be inferred.

6          Ethical Considerations

When conducting any research, researcher is expected to have highest ethical standards. In this research

• I shall follow University’s research guidelines.
• I shall make sure that during research I do not harm any participant either physically or
• I shall respect the participant privacy.
• I shall keep all my research records securely and will not share them with third party, unless approved by all participants.
• I shall obtain consent from all participants so that I can include them into research. I shall never misrepresent any data/information provided.
• To avoid plagiarism whenever I shall use work of others, I shall give them acknowledgement.

References

Amabile, T and Conti,  R and Coon, H and  Lazenby, J and Herron, M(1996) Assessing the Work Environment for Creativity, ACADEMY OF MANAGEMENT JOURNAL, Issue 22, No 1, Pages 223-234.

Cavanna, H(1992) Financial Innovation, Routledge, US.

Frame, W and White, L(2002) Empirical Studies of Financial Innovation: Lots of Talk, Little Action?, Federal Reserve Bank of Atlanta.

Heertje, A(1988) Innovation, Technology, and Finance, Basil Blackwell, UK.

Hussey, J. and Hussey, R. (1997) Business research, Macmillan, New York.

Levich, R(1987) Developing the ecu markets: perspectives on financial innovation, NBER Working Paper Series,  Cambridge, US

Luecke, R and Ralph, K(2003)Managing Creativity and Innovation. Boston, MA: Harvard Business School Press.

Merton, H (1995) Financial Innovation and the management and regulation of financial institutions, Cambridge, US: NBER Working Paper Series.

Merton, R(1992) Financial Innovation and Economic Performance, Journal of Applied Corporate Finance, Vol 4, Pages 12-22.

Silber, W (1975) Financial Innovation, Lexington Books, US.

Silber, W (2006) The process of financial innovation, American Economic Review, Pages 89-95.

Voss, C. Tsikriktsis, N. and Frohlich, M. (2002) Case Research in Operations Management, International journal of Operations and Production Management, Vol. 22, Issue 2, Pages: 195-219.

Yin, R. (1994) Case study research: design and methods, Sage Publications.