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Financial regulations, risk management and value creation in financial institutions: evidence from Europe and USA


par Agborya-Echi Agbor-Ndakaw
University of Sussex - Master of Science 2010
  

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2.13 Conclusion

The review of the existing literature has revealed that the whole notion on financial regulations, risk management, value creation, risk, return and investment decision-making is so complex. This is therefore viewed differently by the different schools (classical and behavioural) of finance. According to the classical school of thought, risk is purely objective. The investment decision-making process is dependent on the risk and return trade-off and this is also largely dependent on the investor's attitude towards risk which might be risk-averse (hate risk), risk-neutral (risk tolerant) or risk-seeking (risk lovers). This either accounts for the existence of a positive relationship between risk and return, or a negative relationship or a curvilinear relationship. The review equally reveals that the process of decision-making is as well dependent on some socio-psychological illusions collectively referred to as the heuristic factors and the prospect theory. However, there is no existing research reveal by the review of the existing literature that has tested the extent to which a blend of the classical and behavioural finance theories can influence the investment decision-making process.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

All in all, a research is looked at as an art of investigation in search of pertinent information regarding a specific topic, hence making it possible for a researcher to take into account all available information at his disposal. It is therefore the art of investigating into the truth. It is a systematic approach to finding answers to certain (research) questions. This therefore implies that a good a research needs to be logical, systematic and replicable. It is being suggested that a good business research should require some sound reasoning, (Cooper and Schindler, 2008). According to Bryman and Bell, 2003, a good research should have a systematic approach with concepts being generated and defined, with ideas within a particular study content communicated. This chapter centres on discussing and providing justification for the methodology used as well as also exploiting some of the already existing flaws.

3.2 Research Philosophy

The research philosophy is considered the main aspect influencing the way in which a researcher views the world and undertakes his research strategy (Saunders et al 2007). There exist two schools of thought within the content of research in social sciences regarding the research philosophy-the positivism school implying that the researcher is working within an observable social reality. This best suits researchers carrying on research that has to do with the implementation of scientific methods used in testing social problems, researchers dealing with qualitative and quantitative information and statistical data (Smith et al 2008). According to Smith et al, 2008, the point of focus of every research should centre on the identification of casual explanations.

The positivism school looked at the existence of the socio-psychological factors which might influence the investment decision-making process alongside financial regulations, risk management and value creation as well as the extent to which all these influence the investment decision-making process.

The other school of thought talks about studying through gaining an insight through the discovery of meaning by way of improving people's understanding as a whole. This school of thought is known as the interpretivism. According to Husserl, 1965, the interpretivists belief that the world can not be objectively determined but rather socially constructed. According to the interpretivists, the promotion of values of qualitative data in the pursuit of knowledge is what matters most. It is with this uniqueness plus its assumption of the fact that by placing people within their social content, that made Hussey & Hussey, 1997 to conclude that there is a greater opportunity in understanding what conception people have regarding their own activities. As such, the interpretivists try in providing a platform for a better understanding on how investors make sense out of the world around them. Note that this research will be a blend of both schools of thought.

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