A review of the research methodology of an academic article: Accounting and Finance 02

A review of the research methodology of an academic article: Accounting and Finance 02 [informed by chatpdf.com]

Article name: "Credit rating agencies’ assessments of related party transactions" Accounting Theory and Practice

My question 1: "What are the research objectives of the article?"

The reply: "The research objectives of the article are to examine the impact of Related Party Transactions (RPTs) on credit risk assessments by credit rating agencies (CRAs). Key objectives include:

1. Differentiation of RPT Types: To analyze how CRAs differentiate between financing RPTs and operating RPTs, and how these classifications influence credit ratings.

2. Assessment of Governance Impact: To investigate how the governance structures of firms affect CRA assessments of RPTs, predicting that firms with superior governance will engage in higher-quality RPTs and hence receive better ratings.

3. Evaluation of Financial Context: To explore how CRAs view material RPTs in the context of firms in financial distress and whether these transactions contribute to reducing perceived default risk.

4. Understanding RPT Influence on Credit Risk: To assess the overall effect of RPTs on credit ratings, particularly whether the presence of RPTs has a significant impact on the level of ratings assigned by CRAs, controlling for various firm characteristics , , ."

My question 2: "What are the research methods employed as reported in the article?"

The reply: "The article employs several research methods to analyze the impact of Related Party Transactions (RPTs) on credit risk assessments by credit rating agencies (CRAs). These methods include:

1. Data Collection: A comprehensive dataset is used, which includes firm-year observations from 2003 to 2022, resulting in an initial sample of 31,624 firm-year-CRA ratings. After applying specific selection criteria (e.g., removing missing RPT data and singleton observations), the final sample consists of 11,908 observations across 3,799 unique firms .

2. Fixed Effects Regression Model: The researchers apply a fixed effects regression model to analyze the association between credit ratings and the presence of various types of RPTs. This model is particularly useful for controlling for unobserved heterogeneity across firms , .

3. Hypothesis Testing: Specific hypotheses are developed regarding the relationships between CRAs' ratings and different types of RPTs. The study tests these hypotheses by exploring the effects of operating versus financing RPTs and considering the influence of governance structures as well as the context of financial distress , .

4. Disaggregation of RPT Types: The article disaggregates RPTs into categories such as financing (which includes debt-related and equity-related RPTs) and operating RPTs to assess how CRAs treat these categories differently in their credit assessments .

These methods collectively help to elucidate how CRAs incorporate RPT information into credit risk assessments and the implications for firm ratings under various circumstances , ."

My question 3: "What is the underlying research philosophy of the study as reported in the article?"

The reply: "The underlying research philosophy of the study reflects a positivist approach, which is characterized by the following elements:

1. Empirical Analysis: The study is grounded in empirical evidence, utilizing quantitative data to assess relationships between variables—specifically, the presence and types of Related Party Transactions (RPTs) and the credit ratings assigned by credit rating agencies (CRAs). This is indicative of a positivist approach, where the focus is on observable phenomena and measurable outcomes.

2. Hypothesis Testing: The researchers formulate specific hypotheses regarding the effects of RPTs on credit ratings and employ statistical methods (like fixed effects regression) to test these hypotheses. This aligns with a scientific approach typically associated with positivism, emphasizing the testing of theories through empirical data , .

3. Independence from Subjectivity: The study attempts to minimize researcher bias by relying on quantitative methods and statistical controls, aiming for objectivity in assessing the impacts of RPTs. This reflects the positivist philosophy's emphasis on objectivity and the belief that the social world can be studied with the same rigor as the natural sciences .

4. Generalization of Findings: By utilizing a comprehensive dataset across multiple firms and years, the study seeks to derive generalizable conclusions about the relationship between RPTs and credit risk assessments. This aligns with the positivist view that findings can contribute to broader theories and understanding in the field .

Overall, the study's reliance on quantitative data analysis, hypothesis testing, and a focus on objective measurements are indicative of a positivist research philosophy."

My question 4: "Did the study employ the mono method, multi method or mixed method as its overall research approach?"

The reply: "The study employed a mono method approach as its overall research methodology. Specifically, it focused on quantitative analysis using a single methodological framework—fixed effects regression analysis. The research primarily relies on statistical techniques to evaluate the relationship between Related Party Transactions (RPTs) and credit ratings, utilizing data from the Prowess database.

Key aspects indicating a mono method approach include:

1. Single Data Type: The research utilizes quantitative data exclusively, specifically firm-year-CRA ratings and related financial metrics, rather than incorporating qualitative data or alternative data sources  .

2. Focused Statistical Analysis: The study primarily employs fixed effects regression models to analyze the data, which allows for exploring the relationships between variables within the framework of a quantitative method, without integrating other qualitative research techniques or perspectives .

3. Hypothesis Testing through Quantitative Methods: The hypotheses formulated regarding the effects of RPTs on credit risk are tested through statistical measures, reinforcing the mono method approach attributed to the quantitative nature of the analysis  .

Hence, the study does not utilize multiple methods or a combination of qualitative and quantitative approaches, but rather sticks to a single quantitative methodology."

My question 5: "Were the research method design informed by any academic theories?"

The reply: "Yes, the research method design in the study was informed by several academic theories, particularly as it relates to the examination of Related Party Transactions (RPTs) and credit ratings. Some of the key theories referenced include:

1. Agency Theory: This theory is often used to explain the dynamics of RPTs, suggesting that such transactions can be used oppressively by management to extract private benefits, which could adversely affect shareholder value. The study incorporates this theory to analyze how RPTs might influence credit ratings and risk assessments by CRAs. It postulates that RPTs could be detrimental to stakeholders from an agency theory perspective .

2. Contracting Theory: Contrasting with agency theory, contracting theory posits that RPTs can provide benefits such as co-insurance effects and support among group firms, especially during financial distress. This perspective suggests that RPTs may mitigate credit risk and provide operational efficiencies, informing the hypotheses and research design of the study .

3. Coinsurance Theory: Specifically within the context of business groups, this theory suggests that affiliated firms can support one another and prop up performance during financial struggles. This concept influences the way the study examines the implications of RPTs in well-governed firms or those with group affiliations .

4. Corporate Governance: The study also integrates the dimensions of corporate governance into its analysis, with the understanding that better governance practices can influence the perceptions of RPTs and associated credit risks. This theory aligns with the expectation that firms with robust governance structures will be viewed more favorably by CRAs despite the existence of RPTs  .

By structuring the research around these theories, the study aims to explore the nuances of how RPTs are perceived by credit agencies, thereby grounding its empirical analysis in established academic frameworks."

My question 6: "Did the study employ the deductive, inductive or the abductive research approaches?"

The reply: "The study employed a deductive research approach. This is evident from several key characteristics of the research design:

1. Hypothesis Testing: The researchers formulated specific hypotheses based on existing theories (such as agency and contracting theories) regarding the relationship between Related Party Transactions (RPTs) and credit ratings. Deductive research typically starts with a theory or hypothesis and then designs the research to test these hypotheses using empirical data  .

2. Existing Literature: The study builds upon and examines prior literature that has established certain relationships between RPTs, corporate governance, and credit risk. By starting from a theoretical framework and attempting to validate or refute these theories with collected data, the study aligns with a deductive approach  .

3. Quantitative Analysis: The use of fixed effects regression models to analyze the data further supports a deductive approach, as it involves testing specific predictions derived from the established theories instead of developing new theories or concepts inductively  .

In summary, the study is rooted in deductive reasoning as it seeks to test hypotheses derived from existing theories rather than exploring new concepts or generating theories from the data (inductive) or finding the best explanation for a phenomenon with available data (abductive)."

My question 7: "Did the study employ the triangulation method?"

The reply: "The study does not explicitly mention the use of the triangulation method as a primary research strategy. However, it does incorporate multiple data sources and analytical frameworks which align with the broader concept of triangulation. Key aspects that suggest this include:

1. Multiple Proxies for Governance: The study uses various proxies to measure governance, such as the proportion of independent directors on the board, and the proportion of independent directors in the Audit Committee. This multi-faceted approach to assessing governance suggests an attempt to capture a more comprehensive understanding of the relationship between RPTs and credit ratings, which is a component of triangulation  .

2. Disaggregation of RPTs: The research differentiates between types of RPTs (financing versus operating) and assesses their impacts on credit ratings. By breaking down RPTs into categories, the study enhances its analytical depth, akin to a triangulation strategy where multiple perspectives are used to examine a phenomenon .

3. Combination of Theoretical Frameworks: The integration of various theoretical perspectives (agency theory, contracting theory, and coinsurance theory) can also reflect a triangulation thinking, confirming the findings from different angles  .

While these aspects suggest a comprehensive approach that aligns with the principles of triangulation—validating findings through multiple lenses and methods—there's no formal indication that triangulation was explicitly defined or employed as a methodological framework in the study. Thus, while the study demonstrates characteristics of triangulation, it does not clearly articulate its use of this method."

My question 8: "Does the research methodology design address the research objectives of the study?"

The reply: "Yes, the research methodology design effectively addresses the research objectives of the study. Here are the key points that demonstrate this alignment:

1. Empirical Analysis: The research aims to investigate whether Credit Rating Agencies (CRAs) incorporate Related Party Transactions (RPTs) when issuing credit ratings. The methodology employs quantitative analysis using fixed effects regression models, which allows the researchers to statistically assess the relationship between material RPTs and credit ratings over a significant sample period (2003-2022). This direct approach is suited to the study’s objective of understanding how RPTs influence credit ratings  .

2. Data Collection from Diverse Sources: The use of the Prowess database, which contains extensive accounting and credit rating data, supports the study’s objectives by providing reliable and comprehensive information for analysis. This is important for making informed assessments regarding RPTs and their impact on credit ratings  .

3. Disaggregation of RPT Types: The methodology includes the disaggregation of RPT measures into operating and financing transactions. This nuanced approach is critical for addressing the research objective of understanding how different types of RPTs may have varying implications for credit ratings, thereby providing a deeper insight into the overall effect of RPTs on firm performance .

4. Incorporation of Governance Proxies: By including measures of corporate governance (such as board independence and the nature of the firms' affiliations), the study explores how governance structures affect the relationship between RPTs and credit ratings. This aligns directly with the research objective of assessing the contextual factors that might influence the impact of RPTs on credit ratings  .

5. Testing Hypotheses: The research design is structured around specific hypotheses (e.g., regarding well-governed firms and the effects of RPTs on credit ratings), which are tested using the collected data. This direct aim to evaluate hypotheses based on theoretical frameworks ensures that the methodology is strategically targeted towards fulfilling the study's objectives  .

In summary, the chosen research methodology—including the quantitative analysis, diverse data sources, and a strategic examination of RPT types—effectively addresses the study's objectives centered on understanding the influence of RPTs on credit ratings and the role of governance."

My question 9: "What is the research method design quality of the study, in terms of the qualitative research method design quality criteria and quantitative research method design quality criteria?"

The reply: "The research method design quality of the study can be evaluated based on both qualitative and quantitative research method design quality criteria:

Qualitative Research Method Design Quality Criteria

1. Credibility:

• The study primarily uses quantitative methods; however, it does incorporate qualitative elements when discussing the implications of governance and RPT types. To improve credibility, qualitative insights from rating rationale examples (like those from CRISIL and ICRA) add depth to the analysis, which enhances understanding despite being primarily data-driven.

2. Transferability:

• While the quantitative findings are context-specific to Indian market dynamics, the methodology provides a framework that could potentially be transferred to other settings if similar data and contextual factors are considered. However, to strengthen this aspect, more explicit connections to other contexts would be beneficial.

3. Dependability:

• The methodological rigor is demonstrated through the use of a large sample size (11,908 firm-year-CRA observations) and a clear, systematic data collection method (Prowess database). However, qualitative richness could be enhanced with more detailed qualitative descriptions of the implications of RPTs.

4. Confirmability:

• The use of established quantitative techniques, such as fixed effect regression, allows for an objective examination of the data, and hence contributes to confirmability. However, further inclusion of qualitative insights into interpretation would improve this criterion.

Quantitative Research Method Design Quality Criteria

1. Validity:

• The study measures the constructs of interest (credit ratings, RPTs, and governance) using established proxies and a rational framework. The regression model designed to test the hypotheses directly aims at establishing relationships between the variables, thereby supporting construct validity .

2. Reliability:

• The reliability of the research method is supported through the use of a well-documented database and a large sample size, which reduces the potential impact of random error. The consistent data collection over the span of multiple years also adds to reliability  .

3. Generalizability:

• While the findings are relevant to the Indian context, the generalizability may be limited due to unique market factors. However, the sample's breadth (in terms of industry representation and time frame) supports some level of generalizability within similar contexts.

4. Analyzing Techniques:

• The statistical techniques employed, such as fixed effects OLS regression, are appropriate for the research questions and effectively capture the relationships between the variables. The study also conducts robustness checks to verify the stability of the results, enhancing methodological rigor  .

5. Sample Size:

• The sample size is substantial, bolstering confidence in the statistical analyses and findings. A larger sample enhances the power of the study’s results .

Conclusion

In summary, the study has a strong quantitative research design quality with sound statistical methods, valid measurement constructs, and a large sample size, which contributes to reliability and generalizability within related contexts. On the qualitative research side, while the study incorporates relevant qualitative elements, it could improve its depth through more emphasis on contextual interpretations. Overall, the research method design is robust, effectively addressing the study's objectives while adhering to quality criteria in both research paradigms."

Reference: a collection of blog notes on using chatgpt for research purpose.