1.6 Summary of Methodology
The research methods to be used will be the secondary and
tertiary methods. This will entail the reading of textbooks and financial
websites and journals. With the information collected from these methods, the
researcher will be able to know the extent to which the notion of financial
regulations, risk management and value creation influence investment decisions
in financial institutions and whether there exists other factors that influence
these investment decision-making process and how these factors act up with
financial regulation, risks management and value creation as far as investment
decision-making is concern in financial institutions.
1.7 Summary of Chapters
This research will be made up of five chapters with chapter
one being based on providing
justifications for the study and bringing out
the general idea about the entire research, stating
the objectives and the hypotheses of the study ,as well as
the rationale of the study and its implications though from different
Chapter two brings out the theoretical as well as the
empirical literature on financial regulations, risk management and value
creation and the role they play in investment decision-making. In this chapter,
all the key terms will be defined as well as looking into the relationship
existing between the key terms. The last part of this chapter is dedicated to
the investment decision-making process and how behavioural factors as well as
some financial assets influence the investment decision-making process within
the financial sector.
For the purpose of our research, chapter three will be based
on providing arguments on the methods used in carrying out the research as well
bringing out the short comings of the methodology.
Chapter four will be responsible for the analysis and discussion
of the findings.
Chapter five will be dedicated to the conclusion and proposition
of a frame work (recommendations) which can be of help for future research
1.8 Summary of Chapter One
The back bone of this chapter is the provision of a general
background and a justification for the research. This chapter contains the
research questions, hypotheses, aims and objectives of the study. It has as
well as provided a summary of the methodology to be used through out the
This chapter centres around the existing literature on
aspects relating to financial regulations, risk management and value creation
with regards to investment decision. There exist different scholars with
different theories and arguments in relation to this study. This chapter aims
at examining secondary as well as tertiary data collected from textbooks,
journals, magazines and internet websites/sources.
2.2 Definition and Meaning of Risk
It is evident that everything done in our normal day to day
activity involves some aspect of risk-taking. This is to say from getting out
of bed to going to sleep, driving a car to merely crossing a road or making an
investment decision, all centre on an aspect of risk-taking. Fortunately, the
whole idea on risk is very interesting because while some risks might be out of
control others are not.
Many schools of thought claim that the word risk is thought
to have originated from either the Arabic word `risq? or the Latin
word `riscum?, with `risq? signifying something given by God
from which a profit can be drawn thus having either a fortuitous or favourable
outcome (Merna and Al-Thani, 2008).
Economists claim that the Latin word `riscum? refers
to barrier challenges presented to a soldier. Although it has a fortuitous
connotation, it is more likely linked to unfavourable events. This word was
first ever used in English around the mid-seventeen century with it featuring
in insurance transactions in the eighteen century although it has also been
both French and Greek with both resulting to positive and
negative connotation. Amazingly, throughout the years, the common usage of the
word in English has changed though statistics has proven that every aspect of
our daily life involves some degree of risk-taking. Hence as a result of this,
in today modern day English, there is literally no generally accepted
definition for the term risk.
There is a wide range of descriptions that have developed
over time as different schools of thought and authors including Slovic (1964),
Payne (1973) and Webber (1988) came up with different meanings and
descriptions. It has been revealed that just within the field of accounting and
behavioural finance, there exist more than 150 unique accounting, financial and
investment measurement still under investigation and these have up to date
remain as potential risk indicators, (Ricciardi, 2004).
Owing to the above mentioned points, it is clear that the
definition of risk can be looked at from different perspectives with every
particular discipline coming up with its own definition and meaning of risk.
According to Lane and Quack (1999), risk can be defined as
follows:«...a state in which the number of possible future events
exceeds the number of actually occurring events and some measure of probability
are unknown can be attached to them. Risk is thus seen to differ from
uncertainty where the probabilities are unknown. Such a definition is beholden
to mathematically inspired decision theory and the rational actor?
model, and does not sufficiently consider the complexity of risk in
Owing to the point that the definition of risk is being
looked at from different perspectives, Brehmer, (1987) brought to light the
fact that the different definitions of risk differ significantly regarding the
specific activity, situation and circumstances. This opinion was further
supported by Rohrmann and Renn, 2000 where it was explained that with regards
to disciplines such as engineering, physics and toxicology, a definition of
risk may be based on
the probability as well as the physical measurements of the
negative outcomes. In the social sciences, risk is looked differently again
with attention being paid to the qualitative aspects of risk which are seen as
crucial facets of the concept.
Reading from Kaplan and Garrick (1981) risk is looked upon as
a combination of Uncertainty and Damage. As if that is not
enough, Frank Knight (1921) tries to provide a meaning to the word risk
explaining the notion of risk differentiating it from uncertainty.«...
Uncertainty must be taken in a sense radically distinct from the familiar
notion of Risk, from which it has never been properly separated. The term
«risk,» as loosely used in everyday speech and in economic
discussion, really covers two things which, functionally at least, in their
causal relations to the phenomena of economic organisation, are categorically
different... The essential fact is that «risk» means in some cases a
quantity susceptible of measurement, while at the other times it is something
distinctly not of this character; and there are far-reaching and crucial
differences in the bearings of the phenomenon depending on which of the two is
really present and operating.... It will appear that a measurable uncertainty,
or «risk» proper, as we shall use the term, is so far different from
an unmeasurable one that it is not in effect an uncertainty at all. We ...
accordingly restrict the term «uncertainty» to cases of the
non-quantitative type». (Damodaran, 2008).
According to Knight (1921) risk/certainty can be separated
with reference to two different points of view (a) knowing the future outcome
and (b) knowing the probability that a future outcome will occur is known.
Looking at the various definitions of risk, it can be concluded that the
definition and meaning of risk can be summarised as the potential recognition
of an undesirable consequence that is to happen to anybody. Therefore there
exists a relationship between danger and opportunity whereby
there is a need to strike a balance as to when to expect higher returns/rewards
which comes with the opportunity as well as the risk involved that has to be
born as a consequence of the danger. No doubt, Haslem (2003) attempts in
defining/explaining risk from the financial point of view by
introducing the notion of return to the definition of risk by stating
that:«Risk is the other side of return. Returns comprise of two
elements, the periodic payment of interest or dividends (yield) and change in
asset values over a period of time (capital gains/losses).»
Judging from all the definitions of risk mentioned above, it
is evident that risk is not very simple especially as it is being looked up to
by different schools of thought. This then boils to that fact risk itself is
subjective and will be very difficult in attempting to manage it.