A note on how to discuss with AI to give you useful advice for formulating your initial proposal prototype: for Accounting and Finance students

A note on how to discuss with AI to give you useful advice for formulating your initial proposal prototype: for Accounting and Finance students (information from perplexity.ai): an illustrative example

My question 1: "Please produce a Finance and Accounting research theme, grounded on positivism, using these key words: dividend policy of listed companies in Hong Kong, Return of equity, companies' liquidity position."

The reply: "A positivist research theme in Finance and Accounting examines the dividend policy of listed companies in Hong Kong by testing measurable relationships between companies' liquidity position and return on equity (ROE). This approach relies on quantitative data from financial statements to verify hypotheses through statistical analysis, such as regression models.

Proposed Theme

The influence of liquidity position on the dividend policy and return on equity of Hong Kong listed companies.

This theme posits that higher liquidity (e.g., current ratio or quick ratio) enables firms to sustain generous dividend payouts, positively impacting ROE by signaling financial stability to investors.

​

Positivist Grounding

Positivism emphasizes objective, empirical testing of causal links using secondary data from HKEX-listed firms over 5-10 years. Hypotheses could include: H1 - Liquidity positively correlates with dividend yield; H2 - Dividend policy mediates liquidity's effect on ROE.

​

Key Variables

• Independent: Liquidity position (current ratio, cash ratio).

• Dependent: Dividend policy (payout ratio, yield); ROE (net income/shareholders' equity).

• Controls: Firm size, profitability, leverage.

Research Methods

Collect panel data from annual reports of Hang Seng Index constituents. Apply fixed-effects regression or panel GMM to test relationships, ensuring robustness with diagnostics like multicollinearity checks.

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Expected Contributions

Findings could guide Hong Kong investors on liquidity-driven dividend sustainability, informing policy amid volatile markets.

My question 2: "Please suggest 3 research questions based on proposed research theme, the three research questions should be in the form of a correlation statement, and all the three research questions should be consolidated into 1 multiple regression formula."

The reply: "Three research questions framed as correlation statements derive from the theme on how liquidity influences dividend policy and ROE among Hong Kong listed companies. These enable positivist hypothesis testing via quantitative analysis.

Research Questions

• RQ1: Is there a positive correlation between companies' liquidity position and dividend payout ratio in Hong Kong listed firms?

• RQ2: Is there a positive correlation between companies' liquidity position and return on equity (ROE) in Hong Kong listed firms?

• RQ3: Is there a positive correlation between dividend payout ratio and return on equity (ROE) in Hong Kong listed firms?

Consolidated Regression Model

Test these correlations simultaneously using multiple regression:

$RO{E}_{it}={\beta }_0+{\beta }_{1}LI{Q}_{it}+{\beta }_{2}DP{R}_{it}+{\beta }_{3}Control{s}_{it}+{ϵ}_{it}$

where 

$RO{E}_{it}$

 is return on equity, 

$LI{Q}_{it}$

 is liquidity position (e.g., current ratio), 

$DP{R}_{it}$

 is dividend payout ratio for firm 

$i$$t$$Control{s}_{it}$

 includes firm size and leverage, and 

${ϵ}_{it}$

 is the error term.[conversation_history]"

My question 3: "Could you provide some justifications on the decision of which variable is the dependent variable and which variables are the independent variables in your proposed multiple regression formula?"

The reply: "Return on equity (ROE) serves as the dependent variable in the proposed multiple regression model because the overarching research theme investigates how liquidity position and dividend policy jointly drive firm performance, with ROE as the primary outcome measure of profitability efficiency in Hong Kong listed companies. This aligns with positivist principles by positioning ROE as the testable effect influenced by observable financial antecedents.

Theoretical Justification

Liquidity position (LIQ) acts as an independent variable since ample liquidity (e.g., higher current ratio) provides firms with the financial flexibility to maintain dividend payouts without distress, theoretically enhancing investor confidence and ROE through efficient capital allocation. Dividend payout ratio (DPR) functions as another independent variable, reflecting a deliberate policy choice that signals stability; higher DPR often correlates with superior ROE by balancing reinvestment and shareholder returns, as established in dividend irrelevance theory extensions under real-world frictions [conversation_history].

​

Empirical Rationale

Prior studies on Hong Kong firms demonstrate liquidity as a precursor to dividend decisions, which in turn mediate performance metrics like ROE, justifying their independent roles to avoid endogeneity in panel regressions [conversation_history]. Controls (e.g., firm size, leverage) are included as independents to isolate these effects, ensuring model robustness per standard econometric practice in finance research.

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Model Implications

This specification tests mediated pathways (LIQ → DPR → ROE) within one equation, allowing beta coefficients to quantify direct and indirect impacts efficiently for the correlation-based research questions [conversation_history]."

My question 4: "Could you suggest a few finance theories to further justify your multiple regression formula, and also provide references on these finance theories you mentioned in Harvard reference format?"

The reply: "Several finance theories underpin the multiple regression formula 

$RO{E}_{it}={\beta }_0+{\beta }_{1}LI{Q}_{it}+{\beta }_{2}DP{R}_{it}+{\beta }_{3}Control{s}_{it}+{ϵ}_{it}$

$ROE$

${}_{it}{}_0{}_{1}LIQ{}_{it}{}_{2}DPR{}_{it}{}_{3}Controls{}_{it}{}_{it}$

, justifying ROE as the dependent variable influenced by liquidity (LIQ) and dividend payout ratio (DPR) as independents [conversation_history].

​

Signaling Theory

Firms with strong liquidity signal financial health through sustained dividends, boosting investor perceptions of future cash flows and elevating ROE. Higher DPR conveys managerial confidence, mediating liquidity's positive effect on ROE.

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Agency Theory

Generous dividends from liquid positions curb free cash flow misuse by managers, aligning interests with shareholders and enhancing ROE via disciplined capital use. Empirical evidence from Hong Kong firms supports dividends as a tool to mitigate agency costs tied to liquidity surpluses.

​

Residual Dividend Theory

After funding positive NPV projects, liquid firms distribute residuals as dividends without compromising operations, preserving or improving ROE through optimal retention.

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Harvard References

Li, S.-h. R. (1998) Dividend policy and stock returns: evidence from Hong Kong listed companies. MBA thesis. Hong Kong Polytechnic University. Available at: 

https://theses.lib.polyu.edu.hk/handle/200/1952

 (Accessed: 11 January 2026).

​

Machuga, S. and Wang, P. (n.d.) Dividend Policy in Hong Kong: An Empirical Analysis. Available at: 

https://core.ac.uk/download/pdf/48532425.pdf

 (Accessed: 11 January 2026)."

A collection of blog notes on using chatgpt for research purpose.