Most Appropriate Methods for My Research Question

At my last journal I formulate my research question as “What is the influence of firm’s reputation in it financial structure and its market value?”  This kind of research involves the relationship of a quantitative independent variable (firm’s reputation) with dependent quantitative variables (firm’s financial structure and firm’s market value). Many inexperience researchers may think that this is a very difficult task to do, but econometrics has the solution for this.

First of all you must think of the kind of data that have to be collected. As the research question implies that the firm’s reputation is a new variable to be tested for financial structure and market value, most of the data is quantitative and is reported in firms’ financial statements.

In order to formulate a complete model to test the new variable, we have to take on accont that the Superintendencia del Mercado de Valores, in Peru, publishes every three months the financial statements of approximately 600 hundred firms which operate in Bolsa de Valores de Lima, the kind of data that is need is:

• Adjusted debt and adjusted investment in order to calculate the firms’ financial structure (FINSTRU).
• The firms’ equity market value (MARVAL).
• The firms’ EBITDA and interest in order to estimate the interest coverage ratio (INTCOV).
• The firms’ debt cost (KD).
• The firm’s equity cost, survey from the return of equity (KE-RoE) and return of capital (KE-RoC) indicators.
• The liquidity of the firm (FIRLIQ), estimated by the ratio cash and equivalents over firms’ market value.
• For firms’ reputation (FIRREP) I will use a binary variable that takes the value of 1 when the firm is incorporate at the Good Corporate Government Index (IBGC) by Bolsa de Valores de Lima; which changes every year.
• As the IBGC index is reported since 2010, I will use a balanced panel data.

Knowing the kind of data to be collected, for deduction, quantitative methods must be used to test the hypothesis that firm’s reputation is a new variable to be considered as a determinant of firm’s financial structure and firm’s market value. As a second face, I have identified the models to be tested in terms of the following equations:

As one can deduct, ordinary least squares (OLS) is the main method to be applied in order to estimate the parameters of every model, and parameters’ statistical test will be run in order to reject or accept the hypothesis. The null hypothesis is that every parameter of FIRREP is zero.