Role of Dopamine in Parkinson’s disease – Annotated Bibliography

1.1        Article 1

The article “Dopamine agonists: their role in the treatment of Parkinson’s disease” presented by Brooks (2000) identifies Parkinson as a chronic disease. This article gives the idea that this disease has complex nature during the process treatments. Therefore, different methods have been identified by UK for managing Parkinson’s disease. Drug therapy is one of them. However, it is unknown that which method is suitable.

Brooks’ major goal of researching in this area is to identify that technique, which is beneficial in the treatment of Parkinson disease. For this purpose, he used a well-known technique consists of dopamine agonists. It is a compound works for the activation of receptors, which helps in the identification of the problem. Use of this technique is due to the increasing significant of these activity-based treatments in different regions.

This research is investigated under the information gathered from previous studies. Therefore, it is qualitative in nature. Brooks’ work reflects the fact that dopamine agonists are the activities, which are helping patients of Parkinson in coming into the normal phase. This activity gives a way of improving receptors’ activation by making changes in their genes’ transcription. Scope of this investigation of Brook is significant because of the selection of the finest activity that is considered effective in the modern era. However, first hand information could be used, which reduces the chances of ambiguity (Kim, 2002).

1.2        Article 2

Shohamy and his followers (2005) presented an article named “The role of dopamine in cognitive sequence learning: evidence from Parkinson’s disease.”  Their belief is that dopamine is not a single activity. With the passage of time, it is being changed, which is beneficial for learning of patients suffering from mental disorders.

This article is based on a perception that due to the advancement in dopamine in the form of nigro-striatal dopamine, sequences of stimuli are also being changed, which are related to the learning process. Therefore, it is essential to know that whether Parkinson disease affects learning process. In addition, how nigro-striatal dopamine reduces its impacts.

In this article, a test is conducted by using “chaining” task, and technology is used for noticing systematic sequences with the help of (L-dopa) medication. Resultantly, it is found that Parkinson disease does not affect the patients using (L-dopa) medication consists of nigro-striatal dopamine activity. Their learning process is relatively effective as compared to others. Conversely, according to Asanuma (2003) this study is criticised due to the use of L-dopa, which is not suitable every time in the case of Parkinson.

1.3        Article 3

The article “Dopamine Receptors and Parkinson’s Disease”, is the most important study conducted by Hisahara & Shimohama (2011). According to them PD is called progressive extrapyramidal motor health problem. They observed different cases of Parkinson disease and got the idea to know the treatment that might be helpful for the survival of patients.

This research claims that DA deficiency in PD occurrence, which shows dopaminergic neuronal degeneration in substantial nigra. Therefore, it is compulsory to know PD’s association with L-dopa. In addition, reflection of side effects of this activity in the PD’s attenuation is also significant.

Hisahara & Shimohama used an experiment by using L-dopa and patients suffering from Parkinson diseases.  They tried to find the complete L-dopa therapy step-by-step. In addition, stimulation is also used in this method, which gives effectiveness.

Overall, results of the study indicate that DA receptors are beneficial in the treatment of PD. There is a closed association between both of them, as lack of DA receptors in the therapeutic strategy increases the chances of severs stage of PD. However, it is not always true, as there are numerous cases, which are resolved without its use (Cools, 2001).

1.4        Article 4

Work of Ghanemi (2013) is known as the “Schizophrenia and Parkinson’s disease: Selected therapeutic advances beyond the dopaminergic etiologies.” He has observed previously that Schizophrenia and Parkinson’s disease are associated with each other. However, understanding in this area is limited.

The researcher said that dopaminergic system must be observed seriously for simplified explanation of the advancement in the therapies that are essential for both of the disorders. Furthermore, he presents in his article that what are relevant information about description of diseases and implications of treatments.

This study is a qualitative investigation, where Ghanemi used previous researches for gathering information about both diseases and their association in terms of treatments. On the other hand, those studies have also been used in this article, which are not reliable in accordance with the results.

Consequently, this article identifies that both the disorders consists of neurotransmitters and enzymes. Similarly, symptoms if these are also similar. Therefore, therapeutic advances beyond dopaminergic etiologies are possibly used in the treatments. However, this does not give the idea of using dopamine therapeutically (Mattay, 2002).

1.5        Article 5

In the article “The journey: Parkinson’s disease” presented by Mary and Lizzie (2004) identifies that journey of Parkinson disease starts, when it is diagnosed.  After that, different steps are considered important such as treatments adopted for the diseases.

Mary and Lizzie’ main goal in this article is to show that how Parkinson disease might be diagnosed and what kinds of different treatments are adopted in this disease. At the same time, major research question in this article deals with the journey of PD and effective role of dopamine in this kind of problematic state.

In this research, both qualitative and quantitative results have been used. Reason behind this kind of methodological tool is to provide theories based on effective facts and figures. In addition, this also covers the lacks of different sides of the study that might change the results with lack of reliability.

Findings of the article give a profound understanding about role of dopamine and effective therapeutic strategies’ use in the journey of Parkinson disease.  It has been identified that this is influential treatment activity. At the same time, it also reduces the chances of reoccurring of PD.  However, sometimes, reoccurrence takes place, which identifies lack of implementation of dopamine. Therefore, the findings of the articles have some criticism as well (Lotharius & Brundin, 2002).

1.6       Article 6

At frequency 15-30 Hz, neuron pairs and field potentials present in subthalamic nucleus of Parkinson patients oscillate at high frequencies. The research aims to examine HFOs and their consequent modulation by dopaminergic medication and voluntary locomotion. 15 patients were examined during while implantation of deep mind stimulating electrodes with the help of micro-electrode for STN neuron recording and employing macro-electrode recording in case of local field potential (Cho, (2002)).

Voluntary movement reduced in 6 out of 9 patients examined with 9 out of 14 patients watched for local field potentials. Due to dopaminergic medicine, the effect of synchronized HFOs present in STN neuron pairs reduced, lessened the synchrony of HFO in tremor cells pair in conjunction with decrease in limb tremor and firing pace, and lastly, reduced local field potential HFOs present in STN. Overall, the results are conclusive of the fact that synchronization of HFO in STN decreases voluntary movements and dopaminergic medicine (Cho, (2002)).

In case of neuronal oscillatory synchronization, a mechanism for basal ganglia is hypothesized. As is the hypothesis, STN neuron firing can be facilitated at a frequency of 15-30 Hz. The case is particularly strong in case of deficiency dopamine since STN neurons fire at an increased rate. The resulting synchronization gives way to parkinsonian pathophysiology (Cho, (2002)).

1.7       Article 7

The clinical decrease in Parkinson’s disease occurs due to deterioration of dopmanigergic neurons. The aim is to evaluate with pure precision, the risks and benefits associated with monoamine oxidase for early Parkinson’s stage. The sources of data include Medline, Cochrane Library, Embase, and Web of Science from 1966-2003, as well as all medical journals, periodicals and random conducted trials. The existing data about Parkinson’s disease was collected from 17 trials with the help of employment of meta-analytic tools (Ives, 2004).

There was a key distinction amongst control patients and MAOBIs in case of mortality.

On the other hand, random MAOBIs patients scored better overall in case of daily routine activities and motor scores on rating scale for Parkinson comparing patients taking placebo. More so, they also required levodopa for expand motor fluctuations. Furthermore, there were no concrete evidence regarding withdrawal and side-effects experienced by patients (Ives, 2004).

In conclusion, MAOBIs decrease disability, cuts down consumption of levdopa and motor fluctuation occurrence with least/ negligible side-effects. There is still cloudy suspicions due to less quantity of trials conducted in this regard in conjunction with anti-Parkinson drugs. MAOBIs still may have certain risks and supposed benefits. Apart from that, large-scale comparative trials need to be undertaken for qualitative assessment (Ives, 2004).

1.8       Article 8

Parkinson’s disease in essence is a disorder in progressive state, affecting only 1%-2% of the adult population past 60 years. The prime symptoms of Parkinson’s disease are muscle rigidity, resting tremors and low frequency of movements (Gao, (2003)).

In actuality, Parkinson is primarily a neurodegenerative disorder occurring in human brain due to deficiency in dopamine caused due to systematic demise of dopaminergic neurons. The symptoms of Parkinson’s disease are tremors, lack of movement, muscle rigidity and instable posture (Gao, (2003)).

Selegiline is a type of irreversible and selective proparglyamine type B MAO-B (monoamine oxidase). The drug is tasked with decreasing dopamine metabolism, used effectively for treating Parkinson’s disease. Due to its major neuro-toxic metabolites, the therapeutic effects are often compromised. For circumventing this effect, rasagiline (a MAO-B inhibitor) was created. Ironically enough, the neuro-protective effect of proparglyamines in various neural models is inconsistent with MAO-B inhibition (Gao, (2003)).

According to recent researches, MAO-B, dehydrogenase and glyceraldehyde-3- phosphate dehydrogenase (GAPDH) and some uncertain proteins play a pivotal role in recovery of damaged neurons. An apt description of this mechanism responsible for neuroprotective effects due to MAO-B inhibitors will assist in preventive therapeutic measures. Since the case of demise of dopaminergic neurons is uncertain, the consequent drugs to reverse the effects are still non-existent (Gao, (2003)).

1.9       Article 9

Pesticides have been increasingly associated as a leading cause of Parkinson’s disease. Pesticide is an ecological toxin creating its pathogens. Exposure to rotenone, a routine herbicide has been concluded to cause Parkinson’s disease in mice. More so, dopaminergic neuro-denegration caused by rotenone herbicide is known to cause activated microglia and mitochondrial complex I. As per previous researches, apocynin, diphenylene iodonium (NADPH oxidase inhibitors) proposed in favor of an NADPH oxidase superoxide capable of refereeing microglia-afflicted neuro-toxicity. On the other hand, due to low particularity of such inhibiting agents, the precise source of rotenone induced by superoxide needs to be further clarification (Betarbet, (2000)).

On the other hand, in case of neuron rich culture, the intensity of neurotoxicity of rotenone wasn’t found to be dissimilar. More so, adding microglia from gp-91 rats into neuron rich culture heightened the deterioration of dopamingeric neurons cased by rotenone.

More so, apocynin tunes down neurotoxicity of rotenone only under the action of microglia from gp-91 rats. As a result, the intense neurotoxicity of rotenone was caused due to emission of NADPH oxidase based superoxide due to stimulated microglia. The research concluded that NADPH oxidase was the necessary agent to mitigate in an ongoing PD treatment (Betarbet, (2000)).

1.10    Article 10

In case of open clinical trials, transplanting human’s developing dopamine neurons into Parkinson’s afflicted individuals has proven useful in curing them. On the other hand, extensive testing in this regard is necessary to validate the reliability of this surgery for the long-run. Other than that, they are still deemed as sham surgical experiments.

In an experiment, 40 patients were assigned to be transplanted with developing human embryonic dopamine neurons amongst various test subjects ranging from age 33-75 years old. The patients were balanced according to groups of sex, disease’s duration and age. The patients were studied in different hospital facilities assigned to evaluators for proper analysis. Safety precautions were taken beforehand to circumvent any casualty (Freed, (2001)).

The test subjects were followed for a period of one year. The human skull was penetrated with holes but the dura was untouched. The severity of the resulting disease took a drastic turn with worsened symptoms and healthy improvement signs. The change was observed globally with patients’ disease showing strange trends (Freed, (2001)).

As this thin research indicates, developing human embryonic transplants into Parkinson prone individuals are capable of survival. More so, this experiment has remained beneficial in case of younger individuals as opposed to elder population subjects (Freed, (2001))

Etihad Airways – Report on Business Opportunity

Executive Summary

This report has focused upon the business opportunity recognition that is related with the world’s famous airline Etihad Airways. This report has tried to identify and explore the hidden business opportunities in which Etihad Airways can really make a difference in true sense. There have been different kinds of attributes and factors discussed that can make the business opportunity for Etihad Airways worthwhile and result oriented. The exploration and analysis of opportunity recognition theories are also provided so that opportunity recognition can be effectively monitored and assessed in an appropriate manner. This report has also provided facts and information that can be found effective for Etihad Airways in making decisions regarding the use and application of business opportunity scenario for Etihad Airways in the future.

Introduction

This assignment is all about the business opportunity recognition. Concerning the evaluation of this, the selected organization is Etihad Airways. As far as the Etihad Airways is concerned, this organization was established in the year 2003, in recent times, this organization has been considered as one of the emerging airline in the domain of profitable and business oriented aviation (Plunkett, 2008). Their main focus and goal lies in the representation of hospitality culture that belongs to Arab norms and practices. The management is also committed to bring change and influence the traditional hospitality of airlines by the help of providing new and innovative services to its customers (Etihad Airways, 2015). This organization has a strong partnership with the other airlines in the form of equity partners and this is quite effective in a sense that it provides their customers opportunity to travel all around the world at different locations along with greater piece of mind (Etihad Airways, 2015). This assignment will discuss and talk about the business opportunity pattern and probability that can be used by Etihad Airways. Several theories and assumptions will also be provided in the analysis of Etihad Airways so that business opportunity for this organization can be effectively identified and analyzed.

Theories of Opportunity Recognition

As far as the theories of opportunity recognition are concerned, there is need of identifying and exploring what opportunity recognition is all about. This concept or notion has been widely used and applied in entrepreneurial context (Lumpkin & Benyamin, 2005).  Opportunity recognition can be explained as the process in which there is much more focus and importance given to cognitive process. This cognitive process is a way through which persons and individuals come to this fact that they have found an opportunity. This should be considered as the first stride towards the process of opportunity recognition and at the same time, these sorts of opportunities need to be developed by the persons (Arenius & Clercq., 2005).

In this concern, there could be different kinds of propositions provided that suggests the importance and significance of opportunity recognition.  The opportunities in reality come from the difficult (Baron, 2006) and complex pattern of changing conditions. These changing conditions can be considered in the form of economical, technological, social, political and demographic as well. Opportunity recognition is actually dependent upon different aspects such as the cognitive structures that are actually possessed and held by the individuals. These structures are actually the outcomes of the life experiences that were received by those persons (Baron, 2006).

There is need of understanding the model of pattern recognition that describes opportunities as complex and discernible patterns.  This fact should be taken into consideration that if opportunities are being created through the help of technology, politics, social and demographic attributes. Then this becomes obvious that complex patterns of stimuli are also involved in the process therefore it results in the pattern recognition scenario (Baron, 2006).

The opportunity recognition along with its identification and development can be considered through the help of following figure.

 

Figure 1: Opportunity Recognition along with its development and identification (Ardichvili et al., 2003)

Discussion and Analysis
Through help of this figure entrepreneurial alertness along with social network aspect can be correlated to Etihad Airways. Entrepreneurial aspect can be seen in this process as Etihad Airways saw  opportunity and n y introduced  service A380 that shows re was a gap in  market and this service was not provided before by any or airline in this concern (Etihad Airways, 2015). Social network scenario has been very much maintained and sustained by Etihad Airways as they have strong association with or airlines of world as y have different destination where connecting flights are being operated to provide services to customers in a convenient manner (SINGH et al., 1999).

Business opportunity aspect of Etihad Airways should be considered too. Etihad Airways is providing valuable products and services to customers who belong to Far East nations (McKechnie et al., 2008).

Far East nation customers prefer to travel from Etihad Airways because Etihad Airways offer separate meals and cuisines to Far East customers. This can be seen in figure of opportunity recognition (SINGH et al., 1999).

Etihad is still striving for its customers in order to provide more services with practices and theory of real and true hospitality (Taneja, 2012). This initiative is being done through help of different and distinct customers who are working as employees for Etihad Airways from different parts of world. Social networking can be developed as different employees are working in Etihad Airways and they can interact with customer having same culture, language, and nationality. This association can be seen in figure of opportunity recognition (SINGH et al., 1999). Service magnitude is improving that shows how quickly y are responding to needs and demands of customers (Nataraja & Al-Aali., 2011).

Etihad Airways has launched Thai language website that will be helpful in building effective relationships with Thai customer. Customers will avail or get products or services in a desired manner. This initiative can be effectively considered in light of creating and fulfilling business opportunity in an efficient way (Alwahaishi et al., 2010). Etihad Airways has focused upon different countries that belong to Far East nations. There is huge business opportunity available that needs to be catered and fulfilled. Management has made certain changes in order to enhance and improve level of customer service by help of decreasing level of cost (Chang, 2014). This is significant when it comes to analyzing  business opportunity scenario as in recent past  organization has  stressed upon  importance of in flights and aircraft development as they want to serve their customer with great ease and best possible manner (Thompson, 2001).

Figure of opportunity recognition can be related to above scenario. Thai language website will be helpful in developing relationships with customers in form of enhancing social networking. This is related to prior knowledge about customer in which Etihad Airways identified problems and issues of Thai customers as they feel difficulty in understanding and communicating in English language (SINGH et al., 1999).

Important Attributes of Achievement

As far as products and services of Etihad Airways are concerned, this can be considered as effective and efficient way of understanding and comprehending business opportunity perspective in a detailed manner (Al-Ali & Ahmad., 2014). When it comes to critically analyzing products and services, this thing becomes more obvious and clear that re have been different aspects that are related to this phenomenon or process (Al-Ali & Ahmad., 2014). These aspects can be evaluated in form of aircraft development, ground product development and in flight development. Etihad Airways have been able enough to launch and start a new kind of service that is about Japanese in flight service procedure that includes Japanese conventional dined and eating notion (Al-Ali & Ahmad., 2014).

In this way, this fact can be assumed that Etihad Airways have been planning in proactive manner to explore prospective business opportunities by help of introducing new and innovative services. This is an interesting aspect to discuss here that re have been different sorts of innumerable services that are being provided by Etihad Airways that allowing m to think regarding  business opportunities in a desired manner. Free access to internet and file sharing along with printing feature or services are included. All sorts of smart and small package of services make Etihad Airways able to take competitive advantage with rest of market competitors in an appropriate way (Al-Ali & Ahmad., 2014).

While analyzing  important facts and attributes that are related to  business opportunity domain, this fact must be taken into consideration that Etihad Airways has expanded its operations and relationships with  or airlines in  form of making agreements and contracts in order to strengthen their global presence (Bamber, 2013). This initiative has brought so much effectiveness and efficiency when it comes to focusing and analysing business opportunities. Etihad Airways has established partnerships with  Australia‘s virgin group of airlines that has helped both airlines to have a cooperation with each or in  form of cost, schedules of flights and at  same time or aspects have  been focused in this partnership (Taneja, 2014). This aspect of joining venture with Australia virgin group can be seen in  form of core processes which is  highlighted in  figure of opportunity recognition that suggests y have studied  industry thoroughly through  help of prior knowledge (SINGH et al., 1999) (SINGH et al., 1999).

This form of partnership and relationship has earned Etihad Airways remarkable success in terms of growing business in the world. This point, as organization is able to earn 1 million dollar revenue on daily basis can support this aspect. However, in or code share agreements where company is making huge profit in form of 1 billion American dollars in other parts of world (Taneja, 2012).

Entrepreneurial alertness can be correlated with success in a manner that they have identified opportunity first and then based on prior knowledge of customers and industry. Etihad Airways is able to make huge profits and they have expanded target market as well (SINGH et al., 1999).

Significant Contributions

There is need of understanding the fact that is related to the profit earning and wealth maximization of Etihad Airways. This aspect of profit earning has been achieved through the help and support of finance department in a way that they are helping in the form of performing critical risk analysis in terms of exploring new and hidden business opportunities (Graham et al., 2010). The other aspects of financial services along with the management of other financial scenarios are also significant and playing their role in the success of Etihad Airways as a global and multinational airline (Graham et al., 2010).

Other aspects need to be considered in a detailed manner as the cost factor has been successfully reduced and managed by Etihad Airways. This initiate became possible through the help of introducing and launching new dinning service that is known as Etihad Dinning Service that is specifically focusing on providing meals and foodstuff to night flight passengers in a desired manner (Stephens Balakrishnan, 2011). In this way, the excess cost of taking meal and other foodstuff in the aircraft will be reduced to significant level. At the same time, the Etihad Airways was able enough to launch another new product in the name of New Meal Planning System. This has influenced and changed the whole scenario of providing foodstuff and other related items to certain level (Grimme, 2011).

This fact has been observed that this product has also improved and enhanced the scenario of business opportunity as they are able now to decrease the extra charges or expense that are related to the foodstuff (Cole, 2013). This has also resulted in the decrease of the confusion regarding the inefficiency and lack of foodstuff provided to the customers. There is another aspect that needs consideration and focus and that is about the reduction and decrease of high fuel expense in the form of lowering and decreasing the fuel cost to significant level or extent. Their pilots have been instructed by the management that they should adopt and apply the tactic of high altitude flying that is helpful in lowering and decreasing the atmospheric pressure to considerable extent. Therefore, it is expected that less fuel will be burnt and consumed during the flight in this way (Alex & Terry, 2012).

Key Contributions

Etihad Airways has been playing its tactics quite well and in a right direction in fact, y have enhanced and improved flight operation procedure so that more and more customers can avail services of Etihad Airways in a desired way. They have focused countries such as China, Thailand and Japan as well. This is because there is lot of potential left in catering business opportunity scenario in se countries. There are chances and probabilities that numbers of passengers and customers will increase from these countries (Edwards et al., 2006). This scenario can be related to figure of business opportunity recognition, as Etihad Airways is creative and optimistic (O’Connell, 2011). They are continuously trying to explore and introduce new products and services as they are focusing on prior knowledge of customers and entrepreneurial alertness is prevailing in organization as they are focusing to develop joint ventures in Japan, china and Thailand as well (O’Connell, 2011).

Conclusion

After analyzing and performing critical analysis of different facts and information that were related to business opportunity perspective. Theories of entrepreneurial alertness and opportunity recognition have been demonstrated in this assignment. Opportunity recognition is related to cognitive process to considerable extent. This is helpful for people in identifying and exploring opportunities efficiently. Entrepreneurial alertness or is crucial in achieving success for organization in future. It was identified that entrepreneurial alertness is entrepreneurs ability to spot opportunities which or may not see.

Research Methodology – What Conflicting Issues Could Arise From The Current Marketing Strategy That Zara Adopts?

3.1           Introduction

In this chapter of the research, a detailed research methodology and methods adopted in the current research are examined and justified using the relevant literature. The chapter attempts to present the details of the research process. In confirming the views of Cooper & Schindler, (2003), the current methodological framework is also developed in consistency with the research aim and research questions. All the methods and process selected in this chapter collectively and individually tend to explore the role of cultural factors influencing the marketing as well as organisational strategy in the light of ‘Fast Fashion’ retailing context using the case of Zara.

3.2           Research Methodology

3.2.1      Research Paradigm – Epistemological Stance

Research paradigm was the core element in the research methodology of the current research. Research paradigm refers to the philosophical stance chosen by a specific researcher in his study to explain the under investigation phenomenon or subject mater. There were mainly two set of assumptions governing the research paradigms. These include ontology and epistemology. Ontology referred to the logic based concepts dependent on the relationships between the different society’s parts like social structures and standards. In contrary, epistemology referred to the logic based on the similarities, sources nature and point of restrictions.

Past studies in the literature examined above have used positivism paradigm for explaining their research problem and for finding out the answer of the research questions. Due to qualitative nature of the marketing and business management studies, most of the researchers in this field look for the subjective exploration of the problem. The study of “Fast Fashion” retailing context and impact of cultural factors is incomplete without substantiating the findings in light of the existing theories and sources about the marketing strategy and the organizational strategy. Positivism was chosen in this study for exploring the social fact (consumers’ culture and cultural factors associated with Zara brand). Choice of positivism well-justified the issue and elaborated the under investigation issue through the inclusion of the personal perceptions, thoughts and feelings of the Zara consumers. Consumers are directly connected with the brands. Marketing research cannot achieve its purpose without considering the consumers’ perceptions. Therefore, in this current study, positivism research paradigm was used for assessing how the customers of Zara perceive and think about its current marketing strategy and resulting conflicting issues affecting Zara’s marketing and organizational strategies.

3.2.2      Research Design

In pursuing the opinion of researchers Saunders et al., (2009), the current study selected a consistent research design with the positivism paradigm. Among the three available research designs such as explanatory, exploratory and descriptive research design, descriptive design was selected. The chosen design matched the key purpose of this study to provide an accurate description of the basic phenomenon i.e. role of cultural factors on the organizational and marketing strategies of the business. Feasibility of the descriptive approach can also be examined from its effectiveness in adopted behavioral approach and frame of mind of the Zara’s customers during the answering of questions. There is a range of data available on the Zara in secondary research and it was expected that Zara customers are up-to-date about the ongoing changes and latest business trends. Therefore, the descriptive research helped in obtaining the abundance of evident information provided regarding the conflicting issue scenarios. In other words, it was aimed to view that how the research participants perceived the advantages and disadvantages of the current research. In contrary, other alternatives available i.e. explanatory and exploratory designs were not chosen because they tend to cover only a focused area rather than in-depth investigation. If selected, exploratory design had resulted in the investigation of a new phenomenon not investigated before. The research on Zara was not a new area and needed to brought down all the detailed relevant details at one platform. In addition, if selected explanatory design ha resulted in only explanation of relationship between the cultural factors and Zara’s strategy.

3.2.3      Research Approach – Qualitative

Due to descriptive purpose of the study to explain a business issue in detail, the current study chose qualitative approach in order to conduct the study for the analysis of all the connected cultural factors and business variables such as marketing and organizational strategies of Zara. In conformation with the views of Singh, (2007), the current study also looked into qualitative approach for the presentation of in-depth results and detailed outcomes. In contrary, the use of other existing research approach i.e. quantitative approach was not feasible due to its numerical attributes. The approach appeared to be suitable for those studies in which the aim of the researcher is to use the different statistical facts and numbers for understanding some connection or flow of ideas associated with a research issue. Present study on the impact of cultural factors on organizational and marketing strategy of Zara did not need any quantitative perspective rather the key elements on which the results focus were literature review and the interviews from the research participants. The use of qualitative research approach has been a long practice in the field of marketing. It can be examined that the methods of data collection and data analysis under this approach also assisted in capturing new information and ideas during the process of conducting interviews (Singh, 2007).

3.2.4      Research Participants

The effectiveness of a study is associated with the selection of the appropriate research participants capable of adding new knowledge and responding to the existing issues.  For the purpose of current study, strong emphasis was placed on the population and sampling of participants. The population of the research was consumers of Zara in different international markets in Spain, Portugal, Italy and Germany. The reason behind selecting wide-ranging customers from the different countries was to achieve the key aim of identifying and defining the cultural differences among the customers in different countries. Out of thousands of customers in each of the chosen market, sample size of 25 customers was withdrawn collectively from such a large population.

3.2.5      Site of Research

Due to the inclusion of wide-ranging customers in the research, it was not easy to access each of the international markets physically. Therefore, internet was used as an alternative to the research site. Using the social media page of Zara on Facebook, 25 customers from the identified markets were chosen randomly. Social media was recognized as useful, timesaving and cost-effective way to approach a large sample size together.

3.2.6      Role of the Researcher

Researcher’s role was highly crucial in this descriptive study because the purpose of the research was to extract the data and information about the conflicting issues arising out from the current marketing strategy of Zara and the role of cultural factors on it. As per views of Fink, (2000), in a qualitative research, role of researcher extends beyond the normal part he or she has to make in the quantitative studies. The duties of the researcher in the Zara-based study can be examined from the research process highlighted by (Kvale, 1996). To gather data from the primary research participants through the interviews, researcher needed thematising, designing, interviewing, transcribing, analyzing, verifying and reporting. Besides it, the researcher was also responsible for maintaining the reliability and validity in the research findings by eliminating the influence of bias. In conducting interviews from the global customers through electronic platform, researcher was not able to capture the changes in their moods, temperaments and observable behaviours. However, this gap was bridged by phrasing and developing questions that can bring detailed insights for what the consumers thinks of Zara’s current marketing strategy.

3.2.7      Description of Research Instrument

To gather qualitative research data from the Zara’s consumers, a semi-structured instrument was used. The interview questionnaire was comprised of two sections. Section A defining demographic details of the consumers including their name, gender, age, occupation, ethnicity, and nationality. In section B, 10 study -related questionnaire were developed. The typology of the questions include in this section can be traced from the theoretical framework and critical review of the empirical studies discussed in chapter two. It was important to ask customers about their shopping experience with Zara to determine the knowledge level and brand awareness of the Fashion retailers’ product. Later, they were asked how they find well the loyalty programs, retailing site, absence of advertising, short-lead times and focus on western apparels in the marketing strategy of Zara.

After planning the structural dimension of the primary investigation through the methodology, next section of the chapter attempts to highlight which data collection and data analysis methods were employed and how the data was gathered and analyzed.

3.3            Research Methods

Research methods refer to the techniques or strategies adopted by the researcher in order to collect data from the primary or secondary research sources.

3.3.1       Data Gathering Techniques

3.3.1.1                  Research Strategy for Data Collection

Semi-structured interviews were selected as the research strategy for collecting data form the Zara’s consumer in four selected international markets. Semi-structured interview was realized as effective research strategy because this was favouring the researcher’s purpose of in-depth investigation as well as participants’ information sharing ability. Most of the consumers prefer structured set of responses from which they have to select their specific choice. On the other side, some consumers prefer open-ended questions and do not like to be limited in expression and communication. Semi-structured interview used in current study attempted to satisfy both type of customers. Furthermore, with the help of a semi-structured interview, researcher was able to control bias on both sides. Choice of close-ended interview questionnaire might have resulted in exercise of researcher’s bias while selection of open-ended interview questionnaire might have led to the bias from the participants’ side.

3.3.1.2                  Data Collection Process

Qualitative research interviews with semi-structured questionnaire designed the data collection process in a way that both the interviewer and interviewee were able to diverge (Qu & Dumay, 2011) for pursuing their responses for different cultural and strategy related questions. The data collection process to gather information from the consumers residing in Spain, Portugal, Italy and Germany was purely online. Twenty-five consumers from the Facebook page were selected and personally contacted. Three of those consumers did not respond to message and therefore other three were randomly selected. It was confirmed from them that they should be a customer of Zara to qualify for the research. Subsequently, all the selected consumers were sent semi-structured interview questionnaire through mail. They were asked to return the filled instrument within one week. The entire data collection process was completed in 15 to 20 days. All the responses were then copied in MS Word to bring the information on one page and initiate the data analysis process.

Besides primary data from the Zara’s customers, the current study also collected secondary data for the literature review. The study used scholarly books, academic journal articles, other periodicals and existing researches examining the role of cultural factors on the fast fashion industry’s marketing and organizational strategies.

3.3.2      Data Analysis Techniques

Data analysis of the qualitative data needs extreme caution in coding according to the research objectives (Bailey, 2008). Therefore, the data analysis process for the semi-structured was also difficult and complex for the current research. The data analysis process for the two different sections of the semi-structured questionnaire was conducted using two different methods. The responses of demographic section A were analyzed using the descriptive statistic analysis techniques. Frequencies for the responses were calculated and presented in the form of charts and diagrams. Additionally, data of the open-ended questions in the interview was coded according to themes and analyzed using the frequently appearing codes in the consumers’ text collectively. The process of data transcribing, coding and frequency analysis of emerging themes was carried out in Ms Excel. The analysis of data was question-based followed by a subsequent discussion of the findings based on research objectives.

3.4           Ethical Considerations

For increasing credibility of the research and academic vigour of the research findings, the study considered range of ethical considerations. These included informed consent, voluntary participation, confidentiality and privacy, referencing and citations and reliability and validity of the research (King & Horrocks, 2010).  Due to the involvement of the primary research participant in the study, privacy of their personal information like name, email address and contact info was highly essential to protect them from any physical or emotional harm. Therefore, the private and personal details of the consumers were kept confidential and will be formally discarded within the six months after the successful completion of the research. On the other hand, consumers approached through the Zara’s Facebook page were first described about the purpose and process of the current study and were asked to give their informed consent in writing to ensure that they voluntarily participated in the interview process an were not forced to do so.

Furthermore, to ensure that research is free from academic plagiarism, complete in-text citation and final referencing were done. For every text collected from the studies of others, credit was given to the original authors through detailed referencing. Similarly, reliability and validity of the research instrument was also measured using the appropriate measures. Reliability as a measure referred to ascertaining the consistency between the issues. It was ascertained that the research instrument used is consistent with the aim and objectives of the research so that in case another researcher in future attempt to replicate the research methodology, similar findings are gathered. Additionally, validity as a measure to ensure latest and up-to-date findings and sources was used to gather detail investigation of the case.

3.5           Conclusion

The findings of this chapter can be summarised by stating that all the chosen research methodology and methods components are well justified through their consistency with the research aim and objectives as well as the existing marketing and management studies. The flow of decision regarding the data collection and data analysis process was designed in such a way that it makes the findings simple, flexible and easy to comprehend. In the next chapter of the study, results and findings of the primary investigation are presented.

Literature Review – What Conflicting Issues Could Arise From The Current Marketing Strategy That Zara Adopts?

2.1           Introduction

The chapter presents literature related with the marketing and organisational strategies and their relationship with the cultural factors as described in general business management theories as well as reported specifically in context of fashion retailing segment. For the comprehensive and better understanding of the issue, the chapter is divided into two distinct parts containing theoretical framework guiding the current research and the critical review of the findings in existing studies. These theoretical and practical world findings would help in identifying the research gap needed to be covered through the investigation carried out for Zara. In the end, conceptual framework is also added to show how the flow of information is intended within the primary research investigation.

2.2           Theoretical Framework

Current research juxtaposes itself with the two key business management theories i.e. market strategy and organisational strategy. Besides, role of cultural factors as highlighted in different theories are also one of the crucial part of the current research.

2.2.1      Marketing strategy

Nijssen & Frambach, (2001) define marketing strategy as functional strategy that is used “to bridge the gaps between business strategy’s decisions for creating customer value and filling in the marketing mix to realise it at the customer’s end (p.15)”. It can be critically analysed from this theoretical definition that due to its functional nature, marketing strategy is identified as highly essential for the accomplishment of the business objectives and overall strategy. In this definition, author have effectively highlighted on the elements of “business strategy’s decisions” such as segmentation, targeting and positioning. Thus, the strategy helps the business organisation in keeping up with the trends and merging market opportunities (Nijssen & Frambach, 2001).

It is worthy to note down that if marketing strategy is a functional strategy then what the term strategy means. According to the Porter, (2000), strategy is defined as the connector between the internal and external business environment of a firm that issued by the business in its decision-making process and for the transfer of long-term vision into the routine tactics for affecting the long-term plan.

Marketing theory is a broadly defined area and this is the reason why authors and researchers in different literature has conceptualised this concept in different way. Hawkins & Mothersbaugh., (2009) define marketing strategy theory as a philosophy constructed by the business organisation for ascertaining that the changing wants, needs and demands of the customers are satisfied accordingly. Besides conceptualisation of the definition of the marketing strategy, theory has also defined its key aspects and elements. All these aspects are necessary for pursuing the in-depth internal analysis for acknowledging physical and intellectual resources. Theory defines following as the salient feature of marketing strategy including long-term implications, corporate inputs, diverse roles of different products and markets, marketing at organisational level and the association of marketing with the finance function of the business (Mongay, 2006; Matamalas & Ramos, 2009; Jagersma, 2006; Shaw, 2012; El‐Ansary, 2006; Paswan et al., 2011).

2.2.2      Organisational Strategy

The second theory investigated in the current research is organisational strategy. Skøien, (2014) defines organisational strategy as a business strategy or corporate strategy aligned with along-term goal or focus.  This preferred goal can be anything or related to any business function such as production, selling, marketing, finance, administration, that company want to achieve in the set period. The organisational strategy is based on the three key constituents i.e. communications, intentions and realisation. All the three elements help in constructing the appropriate content for the organisational strategy. From the theoretical perspective of the organisational strategy, it can be analysed that there are different types of organisational strategy. The analysis of these strategies types can further help in understanding which mode is chosen by the company Zara in planning its marketing strategy and what conflicts company is facing in pursuing that strategy type. The five key models of organisational strategy are shared, hidden, false, learning and realised (Steensen, 2014). It can further be analysed that organisational strategy theory elaborates on the fact that what set of activities is planned by a business organisation for the performance of its stated goals, mission and objectives (Peng & Litteljohn, 2001; Gupta, 2011; Vithessonthi & Thoumrungroje, 2011).

In connecting the marketing strategy and organisational strategy as two key perspectives of the theoretical framework in this study, it can be analysed that both are related with each other, as organisational strategy is the parent strategy of the marketing strategy. Marketing strategy is a sub-level in the organisational strategy. The third theoretical perspective chosen in the current research study is related with the cultural factors or dimensions.

2.2.3      Cultural Factor

Several business management and marketing theories have heavily focused on the role of cultural factors within the accomplishment of the organisational strategy (Pantano, 2011; Teimourpour & Hanzaee, 2011; Jiang & Wei, 2012). Some of the prominent theories include Hofstede cultural dimensions and PESTLE analysis (Cravens & Piercy, 2008; Hofstede, 1980). PESTLE analysis model with its ‘S-Social’ dimension can help in analysing how the changes in the social and cultural environment of the business can bring a major shift within the business practices. These theoretical models clarify how the businesses unresponsive to changing customers’ needs have to face sever consequences. Theory identifies cultural factors as one of the most influential business strategies that can be used by the business firms to enhance consumer behaviour. Theoretical researchers define culture, as “Culture is the complex of beliefs of human societies, their roles, their behaviour, their values, traditions, customs and traditions. Culture is an extremely important concept to understand consumer behaviour and that needs to be examined. Culture is the sum of a shared purpose among members of society, customs, norms and traditions” (Yakup et al., 2011, p.109). The theoretical definition of the culture helps in understanding the how the cultural factors are dispersed around different sectors of the society. It shows the connectivity between the individuals’ desire and determination for a specific thing or product. The significance of cultural factors can be helpful for the businesses to understand changing consumer trends in the society and prevailing culture in that society. It is important to understand that cultural factors are directly related with the external environment of the business. Theoretical perspective within the academic literature has classified factors that form culture within an organisation. These include influence of the geographical regions, religions, ethnicities, social classes and lifestyle of an individual. It can be further be examined that cultural theories also include educational levels and communication styles of the member living in a specific society as the important cultural factors affecting their behaviours towards a specific product or service (Yakup et al., 2011; Kirca & G. Tomas M. Hult, 2009; Leisen et al., 2002).

Thus, the theoretical framework of the current research focused mainly on three dimensions i.e. marketing strategy, organisational strategy and cultural factors justifies the need for current research. The information will help in the next section in collecting relevant information about the Zara’s marketing strategy and the conflicts associated with it. In the next section of the chapter, critical review of the existing literature is carried out to show how authors have investigated the impact of cultural factors within the fashion retailing industry of the globe.

2.3           Critical Review of Existing Literature

2.3.1      Cultural Factors in Fashion Retailing

Range of academic studies is available in the existing literatures in which past authors have discussed the existence and influence of cultural factors on the fashion retailing industry (Perry, 2012; Mashkoor, 2011; Chang & Jai, 2015; McKelvey & Munslow, 2009; Clark, 2014). In one of such research, Acra & Fischer, (2008) investigated the effects of culture on retail customer-service expectations and the expansion of the European fashion brands. Authors reported that fashion or clothing retailers often look forward towards the physical and psychological dimensions of the culture appealing the target market and consumers and modify their store-environment, products and retailers location. The study found that leading international retailers consider four core attributes of the culture including the layout, architecture, symbols, and colour, advertising and sales personnel. All these factors in fashion retail store should be according to the needs of the customers. It can be critically analysed that the focus of research was from the internal environment perspective and that was the reason why authors used Hofstede cultural dimension as a theoretical perspective in the study. In the current research, external environment is the central point (Jackson & Shaw, 2008).

The findings from the research of Azevedo et al., (2008) effectively identified this external business focus. The authors examined the consumer buying behaviour in fashion retailing through the empirical evidences collected from the Portuguese population. Authors found that fashion industry mainly considered four types of cultural factors in order to place impact on the buying behaviours of their consumers. These include nationality groups, religious groups, racial groups, and geographical groups. The results depicted that Portuguese consumers going for shopping clothing due to their cultural influence looks for publicity platforms used by the company for marketing, economical situation of the company, sales promotion benefits and the price of product. It can be depicted from the findings of the research that past literature there is a strong connection between the cultural differences in different genders residing in the same culture.

Additionally, Öberg, (2010) has also substantiated the importance of consumer culture and its different factors within the global fashion industry. Currently due to the ease of accessibility to the fashion retailers, the market has turn out as fragmented and judicious making the situation more challenging for the retailers like Zara and H&M. The results analysed how the declining female culture clothing in Sweden has affected the business operations and its reputation of an independent clothing retailer, Fever. The study should found the negative impact of the non-friendly cultural factors such as shop location, shop environment, shop image, and communication aspects on the decrease in female consumers.

Subsequent to the identification of the range of the cultural factors associated with the fashion retailing, the next section will help in identifying how previous authors have viewed the effects of these identified cultural factors on the marketing and organisational strategies in the fashion retailing industry.

2.3.2      Effects of Cultural Factors on Marketing and Organisational Strategy in Fashion Retailing

Gockeln, (2014) in one of the recent studies has tended to analyse the fashion industry analysis from the perspective of the business model dynamics. The author analysed that range of macro environmental factors specifically culture has sever impacts on the organisational strategy and marketing strategy. The societies promoting fast fashion culture require from the company to consider these aspects in designing and marketing their fashion clothes. Among the list of dynamic cultural factors, authors reported some key aspects having impact on the strategy formation for fashion retailers. Author reported “Increasing health concerns Aging population-  Increasing environmental consciousness-  Emergence of temporary fashion fads-  Demand for convenient shopping experience-  Increasing concern about labour conditions-  People are more career-seeking and have less time to purchase-  Demand of the latest fashion trends” (Gockeln, 2014, p.8). The authors in this research reported that international retailers in the clothing industry are required to consider different factors within the business strategy. Other literature of Schroder, (2014) has also substantiated the influence of cultural factors in fashion retail on the overall organizational strategy, business strategy, revenue strategy, economic strategy and business process modelling (Schröder, 2014). Rajagopal, (2011) in his study has further added that marketing strategy in the fashion brand industry needs to be consumer centric where as consumers needs and expectations are culturally and socially-focused. Consumers make trends in the industry. Authors reported this as the sole reason behind the converging practices of the global marketing strategies according to the traditional and modern culture. These companies use cultural drivers as societal icons in the formulation of their organizational objectives and long-term vision in a specific society. Calantone, (2006); Hawkins & Mothersbaugh., (2009) further added to the discussion by stating that cultural factors have strong impacts on the marketing strategy influencing the marketing mix of the product, distribution, promotion and price. Thus, the findings discussed in past studies have confirmed the impact of cultural factors on objectives, mission, vision, marketing mix, and marketing strategies of the business. The next section discusses the advantages and disadvantages of focusing on the cultural factors for the business organization. These findings are important for the current study in order to identify the conflicting issues arising out of a non-friendly cultural marketing strategy.

2.3.3      Advantages of the Cultural Friendly Marketing and Organisational Strategies

According to Rajagopal, (2011), culture offers competitive advantage to management and marketers of business originations. Author believes that global fashion retailers use the cultural factors in order to developing the purchase intentions among the fashion apparel customers. Additionally, Crassous & Gassmann, (2011) also added that fashion brands consider culture in order to innovate themselves and their brands through the inclusion of cohesive cultural elements. Vrontis & Vronti, (2004) added in the discussion and stated that cultural friendly marketing and organizational strategies are beneficial because these are tailored to suit local market needs, which ultimately lead to the maximization of flexibility and responsiveness.

2.3.4      Disadvantages of the Cultural Friendly Marketing and Organisational Strategies

In contrary, the past authors have highlighted on the disadvantages of being cultural friendly at some instances in numerous empirical studies. In one of such study by Cobb, (2013), author investigated the social construction of the fashion industry and influences on buying behaviour. According to him, the social construction of fashion industry results in the lack of fashion designers or marketers control on the consumer behaviour. In other words, the consumer decides about the marketing and organisational strategy of business and not the strategy that shape behaviours for fashion and clothing customers. Other disadvantages can be viewed as the risk of celebrity endorsement and ethical issues. Culturally focused strategy can lead to discrimination among consumers of different culture leading ultimately towards the ethical dilemmas in the society in which the organisation operates. Cobb, (2013); Azevedo et al., (2008); Hines & Bruce, (2007) also confirmed use of cultural friendly material or word of mouth (marketing content) can also bring ethical confrontations for the businesses. Use of inappropriate material can also result in heavy social criticism. It can be analysed that the by applying the theory of cultural factors discussed in theoretical framework of the research, the study can identify a strong connection between the being cultural friendly nature of organisational and marketing strategies of the business and discrimination exercised by business based on region, demographics, religion and ethnicity.

Subsequent to the examination of the general advantages and disadvantages of being cultural friendly, the next section presents existing studies on marketing strategies of Zara.

2.4           Marketing Strategies of Zara

Along with the description of the current marketing strategy of Zara in the introduction chapter of the current research, it is very important to gather the secondary opinion of the past researchers discussing the marketing strategies of Zara. This will help in examining the conflicting issues arising out of the changes company has currently made current strategy different from its past strategies aversely affecting the business (Dahlen et al., 2010; Iglesias, 2009; Cavusgil et al., 2009). Hines & Bruce, (2007) within their strategy have reported that Zara’s marketing strategies are dependent on location of the retail establishment rather than advertising for attracting customers. Lopez & Fan., (2009) also confirmed the low portion of organisational finance allocated to the promotion of the brands. This helps in analysing the absence of Zara on both the television and the poster advertisements. Kang, (2007) has emphasised o another vital marketing area and stated that Zara has been using the market orientation strategy for the development of the brand awareness. Authors highlighted, “Zara ís drawing power focuses on creating artificial scarcity of its products and fast response to fashion trends. The company produces fewer quantities for a certain design. They manufacture instead clothes of different designs, the latter average 12,000 pieces annually. Products’ lead time is the shortest in the industry which averages only to 15 days (Kang, 2007, p.16)”. The uniqueness of marketing strategy and organisational strategies of Zara with a focus on short-term outcomes further enhances the importance of including cultural factors and changing cultural pattern. The short-term focus has helped the company in forcing their customers to keep on changing the new items constantly because these products are sooner off shelf.

Thus, based on the examination of the relevant theoretical framework and the exiting empirical studies, it can be analysed that there is a relationship between the cultural factors and marketing and organisational strategies within the fashion retail industry. The researches confirmed the influence of nationality, demographics, geography and religion as dominant cultural characteristics that a retailer needs to focus in formation of its business strategy. It was also found that those fashion retailers who are cultural friendly and recognise these factors within their corporate-level (organisational strategy) and functional level (marketing strategy) can avail advantages of customer attraction, developing purchase intentions, focusing innovation and others. In contrary, it was also found that those fashion retailers that do not look into the cultural factors in devising their marketing and organisational strategy might confront with loss of customers, social criticism, financial loss and legal implications too. Therefore, these findings can be used to bridge the research gap associated with the specific marketing strategy of Zara. The next section presents a conceptual framework for the primary investigation.

2.5           Conceptual Framework

It can be referred from the figure that the primary investigation on the Zara’s case will attempt to gather the relevant information according to a specific flow. By using the designed research instrument, the study will first attempt to identify the conflicting issues associated with current marketing strategy Zara related with ‘white is the new black’ T-shirt controversy. After the identification of these conflicting issues, the primary instrument would be used to collect how the participants view advantages and disadvantages of the adopted current strategy for Zara. Lastly, the research participants would also be asked about the suggestions for the improvement needed at organisational and marketing level at Zara.

2.6           Conclusion

The chapter’s findings can be summarised by confirming the relationship between the cultural factors (external environmental factors) prevailing within the fashion retail industry on the marketing and organisational strategies. The literature has confirmed the significance of cultural dimensions of environment in affecting the high-level organisational strategy and functional level marketing strategy. It was found that for a fashion retailer, marketing strategy contribute vitally in enhancing the business of firm in a society, however this market strategy may lead to unsuccessful outcomes when formulated without taking into account the cultural factors. The next section of the research presents research methodology and methods.

What Conflicting Issues Could Arise From The Current Marketing Strategy That Zara Adopts?

Abstract

Research Context: Zara, leading Spanish Fast Fashion retailer is currently facing severe protest and criticisms from the consumers due to its marketing strategy of promoting white and suppressing black consumers. Recent ‘white is the new black’ T-shirt has raised severe conflicting issues due to its cultural friendly approach.

Aim of Research: The aim of the research was to explore what conflicting issues have risen due to the role of cultural factors influencing the marketing as well as organisational strategy in the light of ‘Fast Fashion’ retailing context. Case analysis of Zara was chosen as a research subject.

Methodology Chosen: Qualitative research methodology was chosen to use semi-structured interview questionnaire distributed to 25 consumers of fast-fashion Spanish retailer Zara belonging to the four different countries. These included Spain, Germany, Italy and Portugal.

Results and Findings: The research found discrimination, ethical concerns related with inappropriate marketing material, content, and racial profiling as conflicting issues arising out from the current marketing strategy of Zara. Zara appears to be inclined towards western culture and white people based on their age, female consumption culture, and American and European ethnicities. Competitive advantages for Zara in acting as cultural friendly with the global consumers include low cost of production, low market prices, increased brand awareness, speedy innovation and quick responsiveness. In contrary, competitive disadvantages, which were found to be influencing Zara’s strategies, were lack of communication channels, misunderstood marketing content, and increased challenges of resource availability and deployment.

Research Conclusions: The results confirm that cultural factors of fast-fashion retailer can affect its marketing and organisational strategies both in positive as well as in negative ways.

Chapter One: Introduction

1.1  Introduction

The chapter of the research introduces the subject matter of the current research in front of the research audience.  The chapter presents a detailed overview on the need for conducting the research investigation on the chosen topic in context of the Fashion Retailing. The analysis of the relevant literature and the background study collectively corroborate the significance and scope of the current research. It explains the formation of research aim and objectives, research motivation, research scope and layout of the dissertation chapters developed justified through the clear definition of the research problem considered in the study.

1.2  Relevant Literature

The increased influence of the cultural dimension in the business marketing strategy is the key theoretical area that has directed the flow of current study. Marketing and organisational strategies are highly debated issues within the business management literature. The topic chosen in the current research therefore forms a strong academic area. Cultural differences and variations have strong impacts on the development as well as deployment of the marketing strategy within a business organisation. These cultural factors have tendency to bring a shift in the consumers’ expectations. In academic literature, the evidence of numerous cultural factors such as heritage and appeal, facilities and services, unique sites, traditions have been confirmed on the organisational and marketing strategies within the retailing sector (Hibbert, 2015).

On the other hand, theorists like Porter, (2000); Kotler & Keller, (2011) have also confirmed that the strategy within a business organisation including retailing varies with the passage of time. The changing nature of the business strategy requires businesses to play strong consideration on the fundamental patterns, objectives and resource deployment because changes, adjustments and reformations are also the essential elements of the business organisation. The relevance of the relationship between the cultural factors and their role in the marketing and organisational strategies of a business justified the effectiveness of the current research.

1.2.1      Overview of Zara – Background Context

Before moving on to the examination of the research problem guiding the current study, the chapter introduces the organisation under investigation and its history. This information will act out as a foundation for understanding the study.

Zara, the leading Spanish clothing and fashion brands retailers is the central subject of investigation. The Inditex Group originally formed Zara in the year 1974. The company is headquartered in the Arteixo, Spain. The international fashion retailer is currently operating almost in every region of the globe with its 4350 stores. The unique attribute of the Zara’s business strategy is its adoption of the market trend faster in comparison to its competitors. The company has been practicing this strategy since its initiation. This is one of the secrets behind why Zara appears as a powerful brand name among the group of leading global fashion retailers. Experiments on new designs are mainly based on its strategy of “instant fashion”, up to certain extent representing the cultural aspects of the society in which the company operates (Lopez & Fan., 2009).

1.2.2      Current Market Strategy of Zara

From the market observation and study, the critical elements of the current market strategy of Zara came into light. Zara is presently considering setting up loyalty programs for development of strong relationships between its brand and customers. The strategy aims to increase the target market of Zara. Additionally, the strong focus on the logistic system also makes up a strong element for the current strategy for Zara. Similarly, Zara is focusing on the western apparels with shorter lead times to attract large portion of global customers. Similarly, the fourth aspect of the Zara strategy is aligned with the selection of appropriate sites best suiting the retailing rather than spending money on advertising. These four key elements of current market strategy are raising issues for the business in context of cultural issues.

  1.3           Research Problem

Despite the company is recognised as cultural friendly but at present the business is facing severe criticism for its culturally focused strategy among the customers and society’ stakeholders on social media at large. The issue relates with the ‘white is the new black’ T-shirt. People are blaming Zara by stating that company is getting racially offensive. The high level of disappoint Zara is facing at present from its customers has brought Zara under fire for selling such T-shirts (Peppers, 2014). The case has driven the need for the Zara’s business management to reconsider their organisational and marketing strategy in order to weigh the advantage and disadvantages of including cultural factors within the organisational and marketing strategy. Therefore, current study attempts to investigate the conflicting issues that may result from the current marketing strategy adopted by Zara under the context of cultural factors. It tends to evaluate the pros and cons of cultural factors affecting marketing strategies of this leading fashion brand retailer.

1.4           Research Aim

The fundamental and central aim of the research is to explore the role of cultural factors influencing the marketing as well as organisational strategy in the light of ‘Fast Fashion’ retailing context. In the current research, it is aimed to focus on the case study of one of the leading fashion retailer organization, with a purpose of investigating the impact of cultural factors on fashion retailing market.

1.5   Research Objectives

For achieving the stated aim of the research, set of following research objectives are developed that would be achieved throughout the flow of the secondary and primary data findings in the current research.

1. To identify the cultural factors that influences both marketing and organisational strategy and measure its impact on the organisation.
2. To implement the understanding attained by the first objective on the Fast fashion retail context with the help of case analysis of the Zara fashion retail chain.
3. To explain the possible competitive advantages that might be governed by the cultural factor that influences the marketing and organisational strategy observed from the case analysis.
4. To explain the possible competitive disadvantages that might be governed by the cultural factor that influences the marketing and organisational strategy observed from the case analysis.

1.6           Research Motivation

Zara is one of the leading retailers with large historical base. Therefore, lot of theoretical as well as practical information can easily be obtained about the organisational and marketing strategies of Zara. This was the key factor motivating the current research with focus on Zara’s case study.  Furthermore, the personal employment experience with the clothing apparel retailer also motivated to select well-known retailer in the similar industry. Throughout the employment, lot of information about the organisation’s business model as well as its varying structures of operations was collected. Additionally, my enthusiasm towards fashion industry also motivated to select Zara as a fashion-retailing organisation in my project.

1.7   Research Scope

The current study scope is limited to the investigation on the cultural factors of the organisational and marketing strategies. It does not look into the non-cultural aspects of the strategy. The scope of the thesis is focused on fashion retailing and therefore, all the discussion that would be carried out in this study would be made in context of retailing.

1.8           Overview of Dissertation Chapters 

For the easier understanding of the readers, the dissertation is divided into five chapters and each chapter sub-divide itself into sub-chapters. Chapter 1 Introduction is already elaborated. Subsequently, Chapter 2 Literature Review will aim to define the theoretical framework and empirical research findings in context of fashion retailing and marketing strategies used in this industry and the cultural factors affecting the marketing and organizational strategies. The literature will also contain a section on Zara’s marketing strategies. All the findings of the past studies would be used in this chapter for the development of conceptual research framework to carry out primary investigation. After this, based on the identified gaps is the existing theory and literature, Chapter 3 Research Methodology and Methods will be developed that would contain detailed justification for the chosen research paradigm and approach, research participants and site of research, role of the researcher, description of research instrument, data gathering and data analysis techniques. A distinct section in this chapter would include how the current research considers compliance of the ethical considerations. In the Chapter 4, data presentation and analysis for the primary data findings gathered using the designed research instrument are included that shows evaluation of research findings. The chapter will also present detailed discussion of the primary and secondary research findings based on the research objectives. In the last Chapter 5, summary of key findings and recommendations for the further research will be given.

Chapter 7 – The Effects of Dividends on the UK Common Stock Price of 30 Listed Companies

Chapter 7: Research Conclusions

This research examines the association between the dividends and stock prices of the 30 UK based companies listed in London Stock Exchange (FTSE 100) from 2007 to 2014.  This has been done through critically analysing the previous researches and applying statistic test along with the hypotheses test, regression analysis, T-test, correlation and covariance test.  These multiple techniques have been widely contributing in the effectiveness of the conclusion.  The research includes both empirical and statistical evidence for better understanding on the association between dividend and companies stock prices.

By reviewing past articles it has been concluded that by changing the dividend policies companies in UK would be capable of affecting their stock prices and reputations in front of the investors and other major business partners. It has also noticed from the overall findings of the previous researches that stock prices respond to the market fluctuations and dividend declaration abruptly because soon after the period passing the dividends’ announcements, these values drop back to the original prices.

Moreover, from the critical discussion based on the theories used (Signalling Theory and Miller & Modigliani Theory) it has found that it is not significant to determine the relation between the stock price and dividend only also it is important to judge the long-term signalling effects of the dividend policies in the stock prices of the UK listed corporations.  The reason behind this is to get clear image of the relationship between them.  The Miller and Modigliani Theory is also playing vital role in the result obtained.

It is found from the findings that the impact of the dividend on the stock prices is insignificant in respect to the Miler and Modigliani Theory.  In contrast, at some places author indicates that there exist a positive significant association in between the variables.  Hence, from the data and literature of the past researches, mixed observations have viewed in relation to the association.  However, from the deep research it has found that these differences possibly occur due to the differences in markets, sample size, regions, and the methodology used by the researchers.  Conclusively, it can be said that stock price and dividends have varied relationships in different markets. From the actual returns analsis (CAMP model) it can be examined that all the 30 companies provided mixed effects (positive as well as negative) as showing impact of a market news say dividend here on the stock prices within the period of 20 years.

It is found from the empirical findings there is high deviation in the amounts of dividends offered by the UK listed corporations in different sectors.  Most of the companies have moved from a higher dividend paid to their shareholders earlier in 1994 at a lower rate of dividend in 2014.  The reason found behind this are the market changes and challenges affecting upon the business profitability of the companies.  Moreover, it is cleared that companies with higher returns have set higher payout ratios. With the increase in time, the amount of dividends keep on increasing for the shareholders. On the other hand, stock prices of the UK companies also revealed high deviation in the past 20 years i.e. increase in one period while decrease in another period.

It shows that most of the share prices of  UK companiesin the Sample have increased significantly over the period of 20 years with enormous growth in the business returns.  Additionally, from the empirical analysis, it has found that the companies mainly in the pharmaceutical and financial service sectors are unable to maintain a positive relationship between the stock prices and dividends.  Selling price goes up with the increase in the dividend. There has found no significant clue regarding the positive influence of dividends on the share price of the companies in the short-term.  Therefore, the regression analysis has performed further to show whether dividends have placed significant impact in increasing the selling price of the UK listed companies or not.  Based on the regression output values a very small likelihood has found in support of  “dividends of the UK companies affect the selling price of the firms in the short-term”. Moreover, confirming that dividend does not place positive impacts on the share price by increasing the selling price of share in response only in short term.  However, it can be viewed that there is a possibility that changing one or two companies in the sample may change the concluded statement.

It has found from the empirical analysis that, there is somehow present a positive and significant relationship between the share prices and dividends of the UK-based companies.  In reference to the long-term signalling effects of interim and final dividend for shareholders’ wealth and growth of the company there is found no significant relationship between the stock prices of the companies and their dividends in the UK.  Thus, the research findings rejects the presence of the long-term signalling effects of interim as well as final dividends for shareholders’ wealth and growth of the company.

In further analysis, it has been examined that half of the dividend values are negative for the 30 stocks that have been considered in the research.  The reason behind this negative effect on the UK listed companies returns ready to be paid to the shareholders can be attributed to the financial crisis period in between the period of 20 years. Moreover, it has been depicted that most of the companies during 2009 have not declared the dividends for their shareholders. Additionally found that, the fluctuations in the stock prices of the companies during 2009 might have given substantial rise in its prices. The factos stemming out from the financial crisis 2009 including political instability, financial stress, low market consumption, lender and borrower issues and others.

Although the empirical analysis has rejected the positive association between the stock prices of the firms and dividends as well as signalling price effect of the dividends.  At this stage, it is important to test whether there is any correlation between these variables.  Therefore, this research has used the T-test for correlating the variables (independent and dependent).  The result is showing a significant correlation between the dependent and independent variables.  In other words, it can be concluded that stock prices of the UK listed companies are moderately correlated to the dividends in the short-run.  The reason might be the fact that short-run does not consider the broad micro and macro-economic indicators.  However, this is merely true for the sample ranging from period 2008 to 2014.  In the sample ranging between the period 1994 and 2014, an insignificant correlation between the variables has been found.

It clearly indicates that in long term, dividends are unable to signal the rise or fall in the stock prices of the firm.  The reason can be attributed to the presence of numerous other factors that affect the share price of the company other than dividends such as financial crisis, economic policies, regulatory impacts, organisational changes, and other factors.  Conclusively, it can be said that in long-term perspective, there is no correlation between the stock prices and dividends.

Based on the research findings, it is recommended that the government of the UK should support the institutions in enhancing the quality and accessibility of the secondary bank data to enable research in the UK.  Moreover, the findings also highlight the importance of the dividend policy and payment in terms of market stock prices.  It is also recommended to the companies in the UK that never ignore the effect of the dividend payout and changes.  Moreover, it is recommended to the firms that they should attempt to formulate the dividend policy frameworks that will enhance the wealth of shareholders.

Further recommendations highlight five key areas, which comes under the weaknesses of the companies while making decisions about the dividend policy.  These five areas involve taxes, incomplete contracts (lack of considering all the commonly observable information), asymmetric information, transaction costs, and constrains in the form of corruption, slow payment schemes, and lack of legal protection.

It is noteworthy that there are some external or natural forces like economic & financial crisis that often occurs globally likewise during period 2009-2011 that significantly affect the market position negatively.  After the financial crisis of 2009-2011 it has seen, markets have gradually attempt to maintain the previous records and show upward trend. Most of the fluctuations in the stock prices of the companies are usually due to the external factors and forces that ultimately create difficulty in finding the only impact of the dividend policy on the stock prices. Selection of the model and technique that suitably explains the results related to the similar subject matter is considered as a formidable challenge for the financial experts and those researchers who are interested in this field of research.

Moreover, suitable approaches are important in order to determine the purely financial nature of the stock prices and the dividends as well as for testing general theories/hypotheses, and taking financial decisions.  It is expected that further work on this subject would provide additional insights.  For future researches, it is recommended that researchers should include all the major groups those affected most by the dividend policy such as shareholders, management, and bondholders in order to research the relation between the dividend and stock prices.  It is highlighted that there is need to conduct more researches, which put extensive consideration on all the diverse situations and factors.

Chapter 6 – The Effects of Dividends on the UK Common Stock Price of 30 Listed Companies

Chapter 6: Discussion

6.1           Introduction

In the chapter of study, the key results of the stock prices and dividend yields data test given in the previous chapter of the study are analysed below in a critical manner. The chapter is aimed to show the implications of results found in the context of under investigation issue. The chapterprovides evidence of achieving the research objectives in a successful manner. It critically analyses the methodology chosen and findings gathered using the adopted methodology. The effectiveness of the current study findings is further influenced by correlating it with the theories and relationship between the stock prices and dividends discussed in the past studies. Furthermore, it would also conclude on the acceptability or rejection of the research hypotheses based on the data sets of the UK listed firms.

6.2           Discussion Based on Research Objectives

 

Objective # 1: To measure the impact of the dividends on the UK based companies stock prices

The first research objective of the study was to assess the impact of the dividends on the UK based companies stock prices. For the purpose, both interim and final dividends figures were chosen. The results of correlation matrix, regression analysis and t-test showed a negative impact of dividends of UK based companies in size different sectors on the stock prices of these firms. The findings of current research do not confirm the results ofpast studies byDhillon & Johnson, (1994;) Yoon & Starks,( 1995;)Ariff et al., (2000; ) and Boyd & Jagannathan, (1994)whichshowed a positive association between dividend yield and share prices. On the other hand, the results of this study were consistent with the research findings of the Ali & Chowdhury., (2010),Shahbaz et al., (2007) and  Khan, (2012). These authors have also reported insignificant or negative relationship between the dividends and stock prices.The main crucial aspect that cannot be undermined in analysing the research findings is associated with the research period and methodology chosen by these researchers within their studies. Thesestudies showthat a positive association existed during the period 1994 – 2000 while the researches confirming the negative association between the research variables were carried out in the recent earlier period of five to eight years. During this period, European market and western markets were hit by the intense financial and economic crisis. The underlying factors associated with the financial crisis may explain the negative and insignificant associations betweenthe research variables. With the passage of time, the influence of insider trading has increased in the international and domestic European markets like the other regions (Ali & Chowdhury., 2010). Insider trading prevents companies from portraying real picture of their dividends and stock prices in front of the stockholders. Internal employees and managers transfer the information about the company to external parties to interest, leadingto intentional increase or decrease in price and prevent stakeholders from the benefits. Ali & Chowdhury, (2010) in their study has critically highlighted the impacts of insider trading as a vital market factor impacting the association between the research variables. According to them, the companies prior to the announcement of their dividends adjust the information causing asymmetry of information leading the shareholders about the right information. Speculations and manipulations with the financial data related with the stock prices of the companies as a result there is no significant and positive movement of stock price after the announcement of the firms’ dividends. The UK market sectors, specifically financial market and banks corporations are very vital part of the chosen samples. This is so because their business moves with the involvement of the depositors and lenders. These external agents are mostly aware of the information of banks. The price sensitivity of the shares of these companies is therefore higher than the other manufacturing or service related sectors, where there is no direct link of business customers.

The examination of the regression coefficients in the study confirmsnon-statistically important values due to their distance from 1 for both the periods i.e. 8% and 2%.In contrast, past studies showing consistent findings (Dasilas& Leventis, 2011)have also shown R²= 24%, 13% and 7% respectively. Similarly, lower r-square in the current study  is consistent with the value of R² in Hanlon and Slemrod (2009). This study like the findingshere, also identified weak relationship between the research variables in terms of strengths of linear relationship. Thus, it can be concluded that there is no impact of the dividends on the share prices of UK listed companies.

Objective # 2: To examine the finance market reaction to the stock dividend policy of 30 UK companies from 2007 to 2014

The second research objective was to identify the finance market reaction to the stock dividend policy in the short period for eight years. For the six sectors analysed in the current study, financial service sector companies showed high significance and strong market reactions with the change in the stock dividend policies of the companies (p. value = .0001) with 97% R-Square. The overall market reactions in the financial market might be due to the information symmetry and regulatory pressures after the financial crisis 2008-2009. (Ali & Chowdhury, 2010)have also investigated the financial sector i.e. commercial banking sector. UK finance market in the short run has experienced neutral and regulated tax environment effects after the detection of the fraudulent market activities and bankruptcies of the banks. In contrast, other sectors such as retailers, pharmaceutical, mining, travel and leisure and banking sectors showed opposite insignificant behaviours.

The significant p value for the finance sector companies only tend at first to react in response to the dividend announcement and later reply to avail the dividend benefits pursuing the overall market response. From the examination of the adjusted closing prices at the dividend announcement dates, it can be examined that although the prices of the stocks shoot upward after dividend announcements but for many of the companiesin the set of 30 companies, the prices of stocks was found fluctuating between the interim and final dividends dates. Some of the companies showed upward trend in the adjusted closing prices between these two dividend periods, while some revealed a downward trend. It is worthwhile to examine thattaxation system and tax rates charged on the companies in UKcontribute vitally in shaping the market reactions. The UK corporations can attribute the differences in these market reactions of the different sectors’ companies to the type of dividend issues. Cash dividends of the firm might have positive effects on the business while the non-cash dividends in the form of extra shareholders’ equity can tend to lower the interest of the shareholders but interesting for the market participants.

The results of the regression analysis and t-test for the explanatory variables confirm that market reactions of the UK listed companies are inconsistent with the MM dividend irrelevance theory. The presence of insignificant relationship between the dividend and stock prices showed that there is a relationship between the two explanatory variables but  too significant unimportant to draw any conclusion.

By applying the Miller & Modigliani, (1961), the sense of modern finance and market reactions can be examined within the FTSE listed UK companies. The numbers of investors are very large in the UK sectors and this may be the reason why the prices of the stocks are not significantly influenced by the changes in the corporations working in different sectors. MM theory in contrary has pointedthat there is no association between the two variables due to perfect market assumption.

The current study’s results further confirm that UK investors might be prudent in seeking more wealth but no systematic preference for cash dividends.Such reaction might be due to the higher tax rates on the cash dividends because dividends on common stock are also chargeable to the tax similar to the capital gain.Such taxation cost prevents shareholders to avoid from cash benefits. However, the consistency with the dividend irrelevance theory further do not confirm that UK listed companies are operating in perfect market rather other factors such as reliance on external sources for financing. When acompany issues dividends and does not retain the profits to invest in the internal needs to meet the claim of its stakeholders on the cash flows generated, such rise of debt in the capital structure despite of dividends issues tends to decrease the stock price of the corporations (Salih, 2010).

Objective # 3: To discover the existence or non-existence of the long- term signalling effect of stock dividend

Subsequent to the examination of the short-term effects, the dissertation was also aimed todiscover the existence or non-existence of signalling effect of stock dividend. The results of the UK listed firms in six sectors for 20 years period (1994-2014) showed that stock dividends did not have signalling effects. In other words, dividends of the companies do not tend to drive the market to increase the stock prices. Rise and fall in the stock prices is evident for the UK companies in the past 20 years. There are some companies, (for examples, Sainsbury in retail sector and Barclays in banking industry which have increased their stock prices in one period and have reduced it significantly later in the subsequent period.It confirms that stock dividend aloneis not considered as the factor for signalling the share prices of the companies. Only the companies in the financial service sector  companies such as London Stock Exchange, 3i GRP, Aberdeen Assets Management and other two follow the growth trends similar for the stock price as well as stock dividends. In contrast, signalling theory in the literature reviewed has shown thatdividends contains the set of important information for the investors that results in change in the business stock price for the future period of time (Miller & Modigliani, 1961; Deeptee & Roshan, 2009).According to this theory, the stock price of the firms reflect howthe stock dividends of the firms alert the investors about the investment value and the growth potentials.The insignificant signalling effects of dividends cannot be undermined in rejecting the signalling theory; however, such effects are not significant (Vieira & Raposo, 2007).The findings are confirmatory with the research findings of the Bini et al., (2010). UK listed companies like the corporations in Bini et al., (2010) research also specify that profitable companies of the UK might control their dividends and share prices in order to divert the investment into the other sources. To preserve the agency relationship, sometimes doctored ratios and figures are used by the business management of the companies for hiding the actual performance like the strategy adopted by the companies during financial crisis. The current results are consistent with the (Eriksson et al., 2012; Miller & Modigliani, 1961). It can be examined that UK listed companies issue their dividends based on the random factors management. Thesefactors contribute together in increasing or decreasing the value.

The T-Test results of the average dividends and average stock prices for the period of 1994-2014 reveal that the relationship between the stock price and dividends is very minimal and insignificant i.e. 8% Pearson correlation. The hypothesis predicting the signalling effects of the dividends on share prices in the long term is therefore rejected.The market participants in the UK stock market are dependent on the business management in order to obtain information about the internal and external business performances of the firms.

Objective # 4: To evaluate the relationship between Dividend Policy & Stock Price of 30 UK based companies listed in London Stock Exchange (FTSE 100) from 2007 to 2014

The findings of the 30 UK based companies listed in London Stock Exchange (FTSE 100) showed that there is an insignificant relationship between the two research variables.

The negative co-variances for most of the companies reveals that the degree to which returns are offered to the shareholders by the different sectors to their shareholders are not moving in tandem. A negative covariance means dividend returns move inverselywithin the different sectors where some goes for a constant increase in th amount of dividend offered while other go for the decrease or mixed responses in terms of dividends.

The stock prices of the listed companies only change with the dividends announcement for a short period i.e. for some days and returns to the original prices without a permanent or significant increase in the prices.These results confirm the same reason as were highlighted in the study of the author (Salih, 2010). According to him, UK listed companies rejects the validity of the irrelevance theory because despite insignificant but the results have shows appositive association between the dividend policy and market value of a company. It can further be examined that such relationship is driven by the association between earnings, investment policy and market value. Dividends issued without an investment policy lead the stock prices to stay fluctuating with the increased curiosity among the industry participants. From the analysis of different sectors, it can further be stated that firms listed in the UK exchange, overall, do not adopt a residual dividends policy. They declare their cash dividends regularly to the shareholders in order to convey the information about the growth and development to their shareholders and potential investors regularly. The companies have recognised the importance of the shareholders’ dividends as significant. Therefore, as already discussed previously current study showed consistent relationship between the explanatory variables as has been recognised in the recent past studies (Ali & Chowdhury, 2010; Dainelli et al., 2010; Eriksson et al., 2012; Hashemijoo et al., 2012).

Objective # 5: To provide evidence about the effects of the dividend policy on stock prices in the UK

Objective # 6: To demonstrate the dividend policy followed by the UK based companies

These last tworesearch objectives wereachieved through the examination of the trends in the UK dividend policies of the UK companies. Current study findings are inconsistent with whichup to certain extent while confirmatory in other aspects with the Salih, (2010)concerning the dividends policies and its nature on the UK listed companies.The author of the study showed that UK firms pursue the cash-based dividend policy without any focus on the residual dividend while our study has shown effects of residual dividend policy. The results of this study has shown that differences in the relationship between stock prices and dividends in different sectors, which indicates that there is an impact of the company’s activity and nature of business on their polices and decisions. However, the shares dividend policy cannot increase the market value of the company. The reason offered by Salih, (2010) could also be applied on the current study findings. It can be reported that due to the transfer of funds from the equity or retained earnings accounts incase of dividends, the investors consider it as loss of value generated for the future investments. It means that dividends do not hold position offered by the UK market investors to any outside cash flow generated by the companies in the UK. Despite the fact that UK firms did not adopt a residual policy for dividends rather, cash dividends are recognised as the main source of allocating the portion of shareholders in the profits.

In addition, the dividend policy has strong influence on the market value and share prices of the firms in the financial sector while there is no effect of the dividend policy on the market values of the other sectors such as retailers, pharmaceutical, banks, mining and travel and leisure companies. From the analysis of past trends, it can also be reported that almost 100% of the UK companies regardless of their sector type believe that cash dividend is an important type of dividend and therefore management of the different companies have called for the cash dividends as important part of the dividends policy. However, the companiesoverall do not tend to show that there are significant effects of the signalling theory or dividend relevance within the financing decisions of the business organisations.The structure of capital is mainly based on the debt while equity portion is less in financing the total assets of the business. Management of UK firms has been maintaining their capital structure over years and this is the reason behind not saving the retained earnings for the future investment. The managementrelies on external sources and gives importance to the cashdividends;however, dividends cannot significantly signal the growth and performance of the business in front of the stakeholders.Cost of financing from external sources is also one of the important factors in reducing the stock prices and not increasing it with the rise in dividends. Thus, it can be concluded that the dividend policies of the UK companies are not related with the realperformance of the business.The implications of the current research findings based on the CAR and correlation analysis have further confirmed that current study’s results of the past researches in substantiating the relationship between the stock prices and the stock dividends within the UK industries.

6.3           Conclusion

The overall discussion in the chapter analysed using the frame of the past studies’ findings provided a set of key findings that can be applied in the short-run as well as long-run on the listed companies of UK. The six research objectives of the study indicates a linked analysis of the entire situation associated with the stock dividends and share prices of the six different sectors in the United Kingdom. The discussionof the data analysis further highlights a range of important conclusion and the most vital conclusion is that overall UK listed companies do not tend to show the significant relationship between the cash dividends and stock prices. The findings reject importance of signalling theory and MM theory and therefore the dividend policies of the UK companiesare mainly based on the different and asymmetry of information. The key summary of the research are given in the last chapter seven of the study.

 

Chapter 1 – The Effects of Dividends on the UK Common Stock Price of 30 Listed Companies

Abstract

Research Aim: The main purpose of this research is to evaluate the impact of the dividend on the stock prices of the listed organisations in the UK.

Research Problem: The UK listed companies have been facing sever issues in determining the type of dividend policy that has affected the shareholders’ wealth significantly. The conflicting results in the past studies about the relationship between the stock dividends and stock prices further complex the issue for the investors to analyse the case of UK organisations in-depth. In past research focusing on the listed corporation’s market reactions in global countries and regions, some authors found negative relationship while some found positive relationship between the two selected research variables. It was therefore necessary to assess the relationship between the two explanatory variables in short-term and long-term signalling effects of dividends.

Methodology Chosen: Descriptive statistics, Covariance, CAR analysis, correlation and T-test were conducted on the sample of 30 UK listed companies in the six different sectors i.e. Retailers, Travel and Leisure, Pharmaceuticals, Financial Service, Banks and Mining sector.

Results and Findings: Descriptive statistics showed high variation in the average values of both the stock dividends and the share prices. Regression analysis showed insignificant relationship between the two explanatory variables stock price and dividends i.e. stock prices of the companies do not increases with the dividends for the overall UK listed companies in the short period (2007-2014). Financial crisis and dividend policies of UK companies were identified as the key reasons behind such market reactions. There was no long-term signalling effect found for the dividends over period of 20 years (1994-2014).Among the six sectors, only financial service sector, however, showed significant results confirming the positive impacts of stock dividends on share prices.

Conclusion: There is no effect of dividends on the stock prices of the UK listed companies.

Chapter 1: Introduction

1.1           Background

The impact of the stock dividend and its related policy are very critical for the investors, lenders, managers, and stakeholders.  The stock dividend factor is valuable for the investors because it is not only a source of income/revenue, but also an instrument to evaluate the organisation’s performance and status (Baker, 2009).  According to investors, the dividend is helpful source in order to judge the organisation, whether it is cash generative or not. Selecting an appropriate and feasible stock dividend policy is a significant attempt for organisations because the tendency to invest in the future project mainly relies on the quantity of stock dividend payment that they pay to their stakeholders (Liljeblom and Pasternack, 2006).

Sellin(2001) indicates that if an organisation pays a large amount of stock dividends to the stakeholders then fewer funds will available in the future.  From the investors’ point of view, the dividend is also considered as significant source.  The investors are also concerned about the stock dividend amount that an organisation declares. In view of the investors, if an organisation has been paying high of dividends, then in future there will be less available to the organisation for servicing and satisfaction of their demands.

The value of dividend is also significant for the shareholders because this supports them in reducing the agency cost. The shareholdersaim to maximise their profit in terms of the stock dividend or capital gain. On the other side, the investors have been facing pressure because of the varying nature of the dividend policy of organisations, and these policies significantly influence the decision-making power of the investors based on market retruns. Additionally, the organisation’s managers have been experiencing the difficulty in making the effective dividend policies, which provides long-term growth also the policy is favourable for all (investors, lenders,stakeholders and shareholders). In order to design stable and effective policy, the organisational management requires considering the important factors such as managerial and behavioural environment, organisations willingness, and profitability ratios (Fenn and Liang, 2001).

The managerial and behavioural environment in the UK has been significantly affecting the decision-making ability of management regarding the dividend policy and the impact of stock dividend on the organisation’s stock price.  Dividend paying organisations are normally considered as large organisations, as well as more profitable concerning the liquidity ratio, and research & developments. There is a need to conduct research to analyse the impact of stock dividend on stock prices of the UK based organisations.  For this purpose, different journal articles have been reviewed as well as different theories related to the stock dividend have been empirically tested and their impact on the organisation’s stock prices has been observed (Lang and Shackelford, 2000).

There are several concepts and theoretical frameworks available in the field of economics and finance and those present the opinions about the stock dividend and its related policy, such as Miller and Modigliani (1961) and Gordon (1993).  Gordon (1993) advocates that the dividend policy is relevant while Miller and Modigliani (1961) demonstrates that the policy is irrelevant. The dispute concerning “whether the dividend policy is relevant or not” remains unresolved.  The challenge facing presently by firms is to understand which theoretical concept should apply for decision-making about their dividends (Nissim and Ziv, 2001). Key matter of concerns for the firms is the long-term signalling effect of their dividends on their share prices. Signalling theory defines the positive effect of the dividend on the increase in share price in the long-term i.e. may be in 10 to 20 years process (Miller & Modigliani, 1961) therefore dividend matters are of great importance to be analysed in this rsearch.

1.2           Research Purpose

The main purpose of this research is to evaluate the impact of the dividend on the organisations in the UK.  In doing so, the research will attempt to discover whether the stock dividends increase or decrease the share price. This research will endeavour to explore the reaction of the financial markets to the stock dividend policy of the UK based organisations.  Further, this research will examine whether the long term signalling effect of stock dividends exists or not. The research will also focus on the description of the long term signalling effect. In firms, dividends panels are used ro devise the dividend policy and matters. Therefore, for them it is highly necessary to look after the key matter of long term signalling effect theory. The effect shows the rise or fall in share price of the stocks in the long term with the increase or decrease in dividends (Deeptee & Roshan, 2009). The research will answer the question as to whether stock dividend policyis relevant and whether the stock price respond to increases in the dividends, decreasesthe dividends, or constant level. Thus, the study will add to the literature of existing theories related to the dividends and is relevant to UK times in determining if and how dividend policies are beneficial.

1.3           Research Problem

The UK based organisations facethe challengeof determining in appropriate dividend policy, optimise shareholder’s wealth.  Limited research has been conducted to investigate the impact of the dividend policy on the stock price. There are conflicts in the research of Amihud and Murgia (1997); Fenn and Liang (2001); Ali and Chowdhury (2010) and Salih (2010), who examined the relationship between dividend and the stock prices.  These above-mentioned researches (Fenn & Liang, 2001; Amihud & Murgia., 1997; Hashemijoo et al., 2012) have concluded that dividends and stock prices are significantly correlated with each other, on the other hand, some of the researches (Ali & Chowdhury., 2010; Vieira & Raposo, 2007) have also revealed that there is no significant relation between the dividend and stock prices. This subject matter remains one of the controversial problems in corporate finance.  Therefore, there is a need to revalidate the previous findings to find and determine whether the dividend and stock prices of the organisations are strongly correlated or not (Morck and Yu, 2000).

1.4           Research Significance

The research study is based on the quantitative research method rather than qualitative method.  In this perspective, this study will provide the most appropriate ways for the organisation to implement the dividend policy ensuring the long-term growth and maximising the shareholders wealth  (Bell and Jenkinson, 2001).  This quantitative approach is more reliable and feasible for finding the relation between the dividend and stock prices and can easily establish the cause and effect in highly controlled situations. Moreover, it can help in testing the hypotheses/research questions perfectly as compared to the qualitative method.

Further, this research will play a significant role in evaluating the impact of the dividend on the organisations established in the UK.  In addition, this research will provide the answers in response to the following questions,

• Whether the stock dividends actually increase or decrease the share price?
• Whether the long term signalling effect of stock dividend exists or not?
• Are stock dividends relevant?
• Will the firm’s stock price change if the organisation increases the dividends, decrease the dividends, or maintain that level and in which direction?

Additionally, it is considered that this research study will eradicate the gap of research limitations through offering effective strategies to improve the effective implementation of dividend policy and enhancing the growth of the organization.  Consequently, this research study will serve as a useful tool to enable in recognizing the effectiveness of dividend policy in increasing the performance for the UK based organisations.

1.5           Research Contribution

The research produces quantitative data of 20 years (1994-2014), which is suitable for providing the present and future understanding and guide of the UK economic growth and performance to academicians, and experts in corporate finance field.  The research has contributed strong learning, which is archived in this work about policy and framework related to the stock dividend for economic improvement. The outcomes have a bearing on policy suggestions for the UK based organisations, which would be beneficial in modifying the policies of dividend payment.  These suggestions have the goal that can achieve most extreme change and achieve the planned objectives.  Subsequently, the UK organisations and their associates can apply the findings while making the decision about dividend policy.

1.6           Research Questions

The following below are the research questions of the conducted research:

1. How did the financial market react to the stock dividend policy of 30 United Kingdom listed companies from 2007 to 2014?
2. Do dividends information to the Market (announced dividend value) signals share price in UK?
3. Does the sell prices go up or down in response to changes in dividend policy?
4. Whether the long- term signalling effect of stock dividend exists or not for companies’ share prices for a period of 20 years? 

Chapter 4 – The Effects of Dividends on the UK Common Stock Price of 30 Listed Companies

Chapter 4 – Research Methodology and Data

4.1  Introduction

In this chapter of the study, a comprehensive research methodology ispresented in order to help the researcher of current study in achieving its stated aim and research objectives as mentioned in the earlier chapters.To provide a coherent view of research methodology, the chapter is divided into four sub-sections including research design, research process, research type and research method. In the first sub-section, justification is provided for appropriate design chosen in comparison to the alternative methods. The subsequent section offers the insight about the selected research process helpful for the production of new knowledge. The third section highlights on the data collection method in order to define the type of current research. The last section emphasize on the approach chosen in data collection and data analysis for the specialized research topic i.e. to examine the market reaction to the stock dividend policy of 30 UK companies from 2007 to 2014. Additionally, themethodology would further help in finding out the existence or non-existence of the long- term signalling effect of stock dividend.

4.2  Research Design

4.2.1      Research Questions

The research questions of a study are the foundational element of the research design. It clarifies the direction to follow in this research. The current study has developed a pair of two key research questions to be answered throughout in the subsequent research chapters. Based on the research questions formulated in the earlier section of research design and signalling theory discussed in the literature review, research hypotheses are developed in this section.According to signalling theory, a stock dividend paid to the shareholders reflects the company’s investment value and growth prospective in the short term only. Therefore, any company paying its stock dividend is expected to have improved and good performance as well as forecasted short-term growth trends in the next period (Asquith & Mullins, 2003). Therefore, the market will make a positive response only in temporarily. Based on these findings, it can be expected that;

Research Question # 1: How did the financial market react to the stock dividend policy of 30 United Kingdom listed companies from 2007 to 2014?

H0: Financial market reacted positively to the stock dividend policy of 30 United Kingdom listed companies from 2007 to 2014

H1: financial market reacted negatively to the stock dividend policy of 30 United Kingdom listed companies from 2007 to 2014

In order to answer this research question, following sub-questions were developed.

• Do the dividends provide a signal to the market that affects share price?
• H0: Dividends do provide a signal to the market that affects share price
• H1: Ddividends do not provide a signal to the market that affects share price
• How does the share price respond to dividend information
• H0: The share price respond to dividend information positively
• H1: The share price respond to dividend information negtaively

 

Research Question # 2: Whether the long- term signalling effect of stock dividend exists or not for companies’ shares prices for a period of 20 years?

H0: The long- term signalling effect of stock dividend exists for companies’ shares prices for a period of 20 years

H1: The long- term signalling effect of stock dividend do not exist for companies’ shares prices for a period of 20 years

4.2.2      Research Epistemology

After identifying the research questions and research hypotheses needed to be investigated throughout in the study, the design requiresfollowing a specific set of established philosophical beliefs. For a good research work, the primarycomponent of the research methodology is its epistemological stance. This chosen stance guidesthe research design or strategy suitable for the research aim and objectives. To establish the philosophy of current research, the study critically analyzed the choices available. The selection of appropriate research philosophy was important to be justified in the research design in context of the “significance, generalizability, applicability, consistency, reproducibility, precision, verification/validation and neutrality”.Between the two available research methodologies such as positivist and constructivist, positivist philosophical stance was chosen due to quantitative nature of the research (Bozkurt & Sousa-Poza, 2005). The realistic and absolute knowledge claims were made regarding the impact of dividend on the share prices in the end. The investigation was conducted with an assumption that market quantitatively measures the dividend (independent variable in the current study) by relating it with a single apprehensible reality that dividend policy can enhance shareholders’ wealth.  The contrary, constructivist philosophy was avoided because of its qualitative and subjective nature. In using this alternative stance, the current study would not be able to test hypothesis developed based on the existing set of truths related with the market reactions. These rules of financial market never change with the changes in the perception of research participants.

4.2.3      Research Strategy

It is important for a strategy to be compatible with the philosophical stance chosen by the researcher. To pursue objective analysis of the data associated with the share price and dividends of UK companies, the longitudinal observational design was chosen as the research strategy.The strategy allowsrepeated examination of the same research variables for a period. The chosen strategy was helpful in gathering the repeated observation of thedividend and share price over a long period. As alternatives to the longitudinal design, cohort design, cross-sectional design andcase study design were also available.The suitability of the cohort design was found suitable for the purpose of that study, where a study group is investigated over a periodthrough trials or monitored survey. In this finance research, no trail or follow-up survey was needed (Vogt et al., 2012). Additionally, in this current study, there was no involvement of the primary research participant nor was the type of study was medical. On the other hand, cross-sectional design is recognised as suitable for investigations where the time dimension does not contribute in results (Salkind, 2010). Since in the current study, time dimensions were most important for seeking out the answers of both the research questions i.e. about market reaction to stock dividend policy as well as about the long-term signalling effects of the stock dividend, the current study could not employ this method.  Because the design of the current study was not interventional but observational, longitudinal strategy was identified as suitable in revealing financial data from market up to 20 years.

4.3  Research Process

The selected research design further helped in the choosing the appropriate research process.Research process is an illustration of the fact that how the chosen research is capable of producing a new knowledge for the potential research audience (Oliver, 2010). For the current financial market research, there were three alternatives available including exploratory research, constructive research and empirical research (Jha, 2014).

The current research has pursued the exploratory research process. By using this process, the study attempted to structure available theoretical knowledge about the market reactions and trends in identifying the problem faced by the different industries in the list of UK listed companies. The research has focused on exploring the market reaction to the stock dividend policy of listed companies and to identify that whether the long term signalling effects of stock dividends do exist or not.The research process is aligned to find out the exact relationship between the dividend matters and long-term cumulative abnormal returns of stock. This process was found feasible due to the initiation of research with a modeltheory of signalling that later helped in the development of the working research hypotheses to be tested using the new set of data.

Selection of the two other alternative processes, it wouldmake the data collection and data analysis complex.Use of constructive process under the other processes might have only offered solutions to the problem without exploring a new dimension. The current research is new because it has identified new problem by concentrating on different sectors in UK listed companies. The chosen process helped in exploring first the concept behind market reaction andthe importance of the dividend announcement data in order to capture real differences in order to make the strong base for investigation of central guiding aim and questions.

4.4  Research Type

Since guided by the research design and process, the research type chosen for the current research would be purely secondary data based. Under this type of study, data is already presentedand what a specific researcher needs is to collect the existing data, summarise it and collate to assist in the research (Saunders et al., 2015). The current research is mainly an ex post facto research. It is based on the assumption that long term signalling effects of dividend policy does not exists.

Due to longitudinal strategy, the study attempted to gather observation of the financial data related with research variables from the secondary sources of the companies. These financial data are already present and research does not have to make any effort in data development (Hair et al., 2015). His only role was data collection. Therefore, primary research type was not found suitable for the current research.The secondary data of the chosen listed UK companies was gathered from the London Stock Exchange. The secondary information collected was related with dividends and share prices of companies.

4.5  Research Method

4.5.1      Quantitative Research

Since the research design chosen guided the study towards positivist stance and development of working hypotheses, aquantitative approach was chosen to collect and analyse data for this financial study. In using the quantitative research approach and methods, thestudy would be able to focus onsystematic empirical investigation of quantitative properties and phenomena associated with the dividend policies and market reactions and their associations in aninternational environment. The study employedrange of quantitative techniques. The current study does not involve subjective construction of the research problem.  The focus is on an already existing theory for testing new problem of long term signaling effects. Therefore, here, the examination of the quantitative trends in market reactions is most important that the qualitative aspects of human behaviors (example shareholder). The subsequent sub-sections further elaborate the quantitative methods chosen in the current research.

4.5.1.1  Population and Sampling

Population and sampling form most crucial parts of the quantitative methods.Population can be defined as the whole group of data, people or organization sharing similar characteristics (Wetcher-Hendricks, 2014).A ‘Sample’refer to the part of population, which is drawn by the researcher with an assumption that the findings concluded based on sample will be reflective of the whole population. For the purpose of current study, all the companies in the list of London Stock Exchange (FTSE 100) in different sectors composed the population.

The sample size of listed companies chosen was 30 out of hundreds of UL listed companies. The key data for the sample companies was the dividend values. To collect this data, sample was divided into the set of six (6) sectors based on different categories (industrywise). The selected sector categories included retailers, travel and leisure, pharmaceutical, financial service industry, banks and mining industries The sample of 30 companies’data was subsequently broken into six sectors in order to gather data for each of them over past 8 years until 2014.

To collect information about the companies’ stocks, same sample of 30 companies were used. The sample was used to collect the adjusted monthly closing prices and the other useful and relevant data from the dividend matters.

4.5.1.2  Data Collection

Following in the past researches (Salkind, 2010; Saunders et al., 2015), the data collection process was made easier by splitting the research variables under investigation into dependent and independent variable categories. For the current research, dependent variables were share prices of the companies’ stock at the end of specific closing periods (2007-2014). The adjusted closing prices of the stock for each of the companies turnedout as effective indicator for the dependent variable. Therefore, two hundred and forty (30 × 8 = 240) values for adjusted closing prices of the stock were collected.

The value of dividend paid to their shareholders was the independent variable. It is worthy to examine that in current study hypotheses are developed for interim as well as final dividends to present a more coherent analysis of long term signaling effectover 20 years (1994-2014). Therefore, to avoid any confusion, study has focused on the dividend announcement data to gather the price for both type of dividend. This value was necessary to investigate that what happens to the share price at the dividend announcement date. Expectations are similar for the short term as defined within the theory of signaling effect. There are higher chances that prices of the share will increase at the dividend announcement data while after expiry of that date, the share prices of stocks fall. Therefore, the key focus was to reveal long-term effects. This is so because the prices of dividends announcement day  revertsto its average after 30 or more days have passed to the date of dividend announcement.

Therefore, for 20 years, twelve hundred (30 ×20 = 600 values for interim dividends and 30× 20 = 600 values for final dividends) values for dividends were collected.

The data for calculating the cumulative abnormal returns (CAR) was based on the use of the Historical Monthly share price as Adjusted closing price for 30 companies for 20 years period (1994-2014). The stock prices were collected from Yahoo finance-historical prices.

4.5.1.3  Data Analysis

After the complete data sets were collected, the next step was data analysis. The importance of data analysis cannot be undermined aswithout a good data analysis, it is impossible for the researcher to draw effective conclusions even from aproductive data sets (Treiman, 2009).

The chosen statistical analysis technique for the current research was CAR (Cumulative abnormal return) regression analysis. The technique would help in examining the summation of all the abnormal returns during the given event period. It is worthy to note down that for the purpose of assessing the dependent and independent variable in the current study only one day during the entire event period is taken into account i.e. the day dividend is announced. The calculation of all the days during for the 8 years or 20 years period could help in obtaining CAR. The formula for CAR is given below in equation below.

Abnormal return

Abnormal Returns (AR) is the difference between actual returns for each stock after subtracting the expected benefits. The model as the following:

Where the formula for Actual Returns is

And the formual for expected return was

This formula was chosen for calculating and analysing CAR because of its frequent used in the studies analysed in the literature (Shahbaz et al., 2007). The formula was also helpful in accommodating elements of Capital Assests Pricing Model i.e. returns in determining CAR. Expected Returns were substracted from the actual return to get abnormal return. Cumulative abnormal return can be used to observe the overall impact of events on stock prices. The data about the abnormal returns for 30 companies would then be compared with the data collected for another variable of dividends.

First of all data sets for the period of 20 years ranging from 1994 to 2014 were collected for the adjusted closing prices and interim and final dividends for the 30 companies in six UK sectors.

In the subsequent step, covariance of dividends of all the companies was calculated.

Weights of all the companies’ dividends were calculated using their Average Returns and Variances. The Portfolio Standard Deviation has helped in constructing the Market line showing the impact of dividend price on the stock prices and helped in measuring against the capital market line.

It was expected that the technique would help in observing the overall impact of events on stock prices.Regression analysis was chosen because of its effectiveness in identifying or predicting the impact of independent variable (dividends) on dependent variable (share prices).Besides, correlation analysis and independent sample T test were also selected. Correlation analysis is realized as suitable test in past studies when the researchers attempted to measure strength of association between two variables.

Additionally, T-Test was claulated using the Data Analysis tool to show whether the two variables (stock price and dividends) are statistically different from each other or not. It further helped in assessing the variability in terms of short, medium or long-term basis.

The criteria set for the analysis of relationship are given below.

Null Hypothesis

Alternative Hypothesis

Significance value alpha a =.05, if P ≥ a = reject null hypothesis and accept alternative hypothesis and if P <  a = acceptnull hypothesis and reject alternative hypothesis. The value of correlation always lie between -1 and 1shows. A positive sign with value near 1 indicate strong positive relationship between variables while a negative sign with value near -1 indicates strong negative relationship. A value near 0 indicates weak relationship.

Excel and SPSS (Statistical Package for the Social Sciences) was used in the current study to analyze the results of regression, correlation and independent sample T test for the companies in different sectors based in the Market camp such as large market camp and small market camp. For each of the market camps, the analysis initially state which companies of the 30 in the sample belong to large market camp and which one belong to the small market camp. For each camp, the analysis considerswith reason does the dividend matter for the share price. Moreover, for each camp, results are further broken into different categories. The Financial Times use this method to classify the companies,  this is the reason behind choosing it in the current study.

4.6  Research Ethics

In order to increase the credibility of this quantitative secondary databased research, the study has taken account of range of ethical considerations in the current study. These included anonymity, reliability, validity, and referencing and citations rules. Due to absence of primary data in the study and no involvement of primary research participants,the study has not used Checklist for Ethics Review provided by Faculty of Business in Accounting and Finance Department in the guide.In using the financial information of the 30 listed companies in London Stock Exchange, the name of the companies is kept confidential. Coding was identified as suitable strategy to avoid the anonymity problem. The names of companies are coded using first three letters of their name.

Additionally, forobservational longitudinal strategy if is necessary to confirm the reliability and validity of the data sources used to gather data about research variables.Reliability refers a measure to test consistency of the data sources or research instrument in producing similar results when replicated by another researchers pursuing same methodology (Saunders et al., 2015). Likewise, validity is defined as a measure to test whether the data sources used in the study is up-to-date and latest and are not outdated (Wetcher-Hendricks, 2014). In selecting London Stock Exchange as a data source, the study automatically tests the reliability and validity due to its international recognition.

4.7  Chapter’s Summary

The chosen quantitative nature of research is working in alignment with the positivist epistemological stance to test the assumptions extracted from signalling effect theory on the data of listed UK companies to explore new dimensions of long term signalling effects of dividend matters on share price. The research has chosen longitudinal observational design to collect data. Exploratory process of study further made the selection of data collection and analysis methods easier. It can be analysed that CAR regression, correlation and independent sample T Test were chosen for the analysis to analyse the data based on market camp that provided a sufficient base for testing research hypothesis. In the next chapter, the collected data sets are analysed with critical evaluation.

Chapter 2 & 3 – The Effects of Dividends on the UK Common Stock Price of 30 Listed Companies

Chapter 2: Research Aims and Objectives

The following below are the objectives of the research:

Objective # 1: To measure the impact of the dividends on the UK based companies stock prices.

This research objective is most vital for this research, as measuring the impact will provide the information about the strength and importance of the dividend and its related policy.  This is a widely researched subject matter in the field of corporate finance and investment.  However, until present no research could provide an evidence of whether the dividend policy affects the stock prices of UK industries or not. Therefore, by measuring the impact through evaluating a large amount of data (20 years) using a quantitative approach, the researcher will be able to discover the impact of dividend policy on the stock prices.

Objective # 2: To examine the finance market reaction to the stock dividend policy of 30 UK companies from 2007 to 2014.

The market reaction to dividend policy is interlinked with the effect of the dividend on the stock prices of the market, which is one of the most controversial issues in the field of finance and investment.  This market returns study of the dividend should consider both the tax effects, and information issues.  Moreover, in order to find the tax effects and information issues, it must examine the market reactions towards the announcements of dividend policy change.

Objective # 3: To discover the existence or non-existence of the long- term signalling effect of stock dividend

The dividend decision may provide signalling effect that organisations will consider in formulating their policy. Previous researches (Salih, 2010); (Amihud and Murgia., 1997) suggest that dividend signalling does exist when organisations either increase or decrease the amount of dividend payment.  However, there is very little evidence present on the existence of the long-term signalling effect of stock dividend.  Therefore, this research is going to discover the existence or non-existence of the long-term signalling effect of stock dividend.

Objective # 4: To evaluate the relationship between Dividend Policy & Stock Price of 30 UK based companies listed in London Stock Exchange (FTSE 100) from 2007 to 2014.

Many previous researches (Ali & Chowdhury., 2010; Amihud & Murgia., 1997; Dasilas & Leventis, 2011) those evaluated the association between the dividend policy and stock price but their findings are not consistent. Some of the researches indicate that there is a negative relation in both variables (Ali & Chowdhury., 2010), while other studies indicate no consensus between these variables. This research includes large data for determining the relationship between the dividend policy and stock prices of companies. This research takes into consideration around 30 UK based organisations from different sectors and the data is ranging from 1994 to 2014 (20 years).

Objective # 5: To provide evidence about the effects of the dividend policy on stock prices in the UK

Objective # 6: To review the dividend policy followed by the UK based companies

The research objectives # 5 and 6 provide the in-depth information and understanding regarding the existence or non-existence of the long- term signalling effect of stock dividends on the UK common stock price of companies and the financial market reaction to the stock dividend policy.

The next chapter of the study presents a critical literature review of the current research in order to draw a suitable framework for the primary investigation.

Chapter 3: Literature Review

3.1           Introduction

In this chapter of the research, the critical analysis of the past studies is given to view the already studied relationship between the dividends and stock prices of the firms. Most of the authors in their studies have widely recognised the role of dividend in influencing the stock prices of the companies. It is highly controversial in debates that by changing the dividend policies, firms are capable of affecting their stock prices and market reputations in front of the stakeholders. The review of these past findings could help in clarifying the understanding about the tax and information aspects related with firms’ dividends. The information can then be applied on the primary sample of the current investigation to analyse the impacts of dividends on the UK stock prices from 2007 to 2014. Furthermore, past studies findings help in understanding the long-term significance of signalling effects of the dividend matters on the fluctuations in the stock prices of the UK firms.Prior to moving towards the review of such relationships discussed in past studies, it is recognised as highly necessary to develop a strong theoretical framework discussing critically all the relevant theories related with the under discussion subject matter and thereview of the basic definitions, classifications, importance and models of dividend and stock prices. An overview of the tax system of United Kingdom is also included in the chapter in order to develop a strong secondary study framework for the primary investigation in the study.

3.2           Theoretical Framework

3.2.1      Dividends

Dividend is recognised asone of the vital part of the financial aspects appearing in the balance sheet of the companies. Literature has widely defined it as a part of retained earnings ready to be distributed to the shareholders of the firm. Hashemijoo et al., (2012)argued that dividend policy matters are related with the firms’ capital structuring decisions. The concludethat companies decide about the payment of dividends based on their value of stock price in the market. According to Miller & Rock., (1985), the decision about the dividend matters is solely the responsibility of the board of directors of the firms. They state that the increase and decrease in the dividend policies made by the business management is taken as a prospective indicator of the companies’ performance in front of the market analysts and investors. They regard the value of dividends in influencing the flow of business stock prices.

As far as the ways using which the business management determines the dividends, numerous authors have studied and discussed different ways (Asquith & Mullins, 2003; Guay & Harford, 2000; Miller & Rock., 1985). Most of the studies discussed the dividends’ measurement through the classification of the different types of dividends. They classify it mainly into preferred dividends and common dividends. Guay & Harford, (2000) definepreferred dividends as the one which is determined through a fixed rate while the common dividend is defined as the one determined by the variable rate. This variable rate is dependent on the latest revenue figures of the business corporations.

Additionally, Goulder, (1995)highlights on the use of cash and non-cash based payment forms used by the companies to pay their dividends. Goulder, (1995)adds that those firms who do not want to offer their dividends in the form of cash go for the issuance of extra shareholder’s equity. Additional shares are issued to the shareholders in order to increase the portion of their investment in the business. This enables retention of funds  that can be re-invested in the business within the real market activities.  Dividendsare of significance toinvestors, policy makers, lenders and managers. All of them use the value of dividend yield to predict the future fluctuations in the figure in market. Ohlson, (1995)has showed that such predictions have great influence over the stock assessment. Likewise,according to author the variability in the stock prices also influence the dividend policy matters. Based on the precise overview of the dividend and its policies, it can be analysed that the whole market reaction is associated with the change in the dividend policy matters.Hashemijoo et al., (2012)have also stated that importance of dividend policy cannot beundermined in the current period where the firms have been using their dividends’ policy for addressing the ways used to attract the investors in different tax brackets. These values also help in increasing the market value of the companies and assist them in pursuing the shareholders to go for the share repurchase rather than going for the cash dividends.The authors of past studies have stated that dividend is a vital component of balance sheet but is not promised by the companies. The firms in the timesof distress often avoid the payment of dividends to their shareholders.

3.2.2      Common Stock Price

Another key variable in the study is common stock prices of the firms. Lucas & McDonald, (1990) define stock price as the prices of stocks that can help the investors in deciding about the investment into the business. The firms use the advertisements to decide about the initial prices offerings of their stocks when the shares of the corporation are issued. The information is made public to the people.

Accounting literature has categorised the stock into two major types’i.e. common stock and preferred stock. According to Khan, (2012),common stocks are the kind of stocks that offers real ownership claims to the owners of the share. In other words, the holder of common stock in the firm is likely to become chief beneficiary as well as chief losers. On the other hand, preferred stock holders are the ones that have higher claims on the company’s assets and its earning relative to the common stock. Such higher claim can be attributed to the characteristics of the debt and equity claims both. Wright, (2015) further added that upon bankruptcy the preferred shareholders gain priority claims on remaining assets, however the amount of dividend paid to the preferred shareholders is smaller as compared to the common stockholders.

The investors consider the stock prices of common stocksin order to predict the performance of the business. Chan, (2003)points out towards some factors affecting the change in stock prices. These include business expansion,market change, and economic estimate and others. Any relevant information can also place significant impact on the business.Numerous models are used by the authors in past studies for calculating and predicting the stock prices of the firms’ shares. Some of these include After-tax Capital Asset Pricing Model by Brenan cited in (Ramaswamy, 1982; Campbell & Thompson, 2008).

After assessing the basic description of the dividend and stock prices from the perspective of different authors, the next section of literature discusses theories underlying the research.

3.2.3      Theories Underlying Current Research

 

3.2.3.1           Miller and Modigliani (1961) (MM) Theory

One of the important theoriesis related with the MM theory proposed by Miller and Modigliani (1961). The theory offers a way to examine how the relationship exists between dividend policy of a firm and the stock prices of the companies in the sense of modern finance. According to their theory,there are three key assumptions underlying their analysis of  the relationship between the research variables. These include perfect market, rationale behaviour and perfect certainty. The variable of the Perfect certainty refers to investors have completely curtained information about the future investment plans and future earnings and so on of the company. Second variable of  perfect market in their study is defined as the set of certain assumptions including the presence of a large number of investors in the market, and any trader (including the issuer). These do not affect the prices of the securities through their own behaviours. Secondly, perfect market further assumes that all investors are able to obtain fairly information related to the price of securities and features about other aspects of securities with no cost. The third assumption figures out that there is no commission, transaction tax or other transaction costs in trading or issuance of securities. Lastly, in the perfect market no difference appears between dividends and capital gains in terms of tax. The theory assumes investors to have rationale behaviour (third variable), seeking more wealth but no systematic preference for cash payments and stock appreciation. However, based on these assumptions, the authors disregarded the influence of the dividend policy on the price of the firm or its cost of capital.

In the MM theory, perfect certainty is defined as the investors’ behaviours towards the complete curtailment of the information about the future investment plans and future earnings and so on of the company. Miller and Modigliani (1961) showed effectively through their theory that in a perfect financial market, current stock price does not vary because of the changes in the future dividend policy.

This dividend irrelevance theory creates the base for investigation of the relationship between stock prices and dividends in the UK-Listed companies.The theory has received severe criticism due to unrealistic nature of assumptions considered by the authors in their theory. According to the past researchers, tax cannot be eliminated from the business where income taxes and transaction costs are the vital part of the business and firm’s cost of capital is always affected by the portion of retained earnings it offers to its shareholders (Villamil, 2002). However, Miller & Modigliani, (1961)theory can be used to examine what does all the factors does in shaping the association between the stock and dividend, which are considered irrelevant by these authors.

The subsequent theories have emerged out as response to the dividend irrelevance theory of the (Miller & Modigliani, 1961). It can be examined that Ghosh & Woolridge, (2008) in their research have pointed out towards the more representative theories are signalling theory, customer effect theory and agency cost theory and so on.

3.2.3.2           Signalling Effect Theory

Another theory highlighted in the literature is related with the signalling effect theory. Despite of the irrelevance theory of the dividends proposed, (Miller & Modigliani, 1961) have also argued on the signalling effects of the dividend. Irrelavnce theory shows no association between the dividend and stock prices. Miller & Modigliani (1961) offer details of their arguments and elaborate that top management of the company with the most of information about company’s stock prices, can use the dividend to forecast the earning of their business for the future period. Deeptee & Roshan, (2009) further confirm the signalling effect of dividends by highlighting the importance of the information symmetry in the business. According to them, those working in the business tend to have more information about the business and therefore, they can use the dividend as signallingmechanism to transmit information to the investors in the market or to its shareholders. The information about the present dividend can be used by the firms in changing the expectations of the investors about the business. By increasing the price of dividend payout ratio, firms tend to inform the existing and potential investors of the company the value of business  (Deeptee & Roshan, 2009).

Literature has confirmed the importance of signalling theory in increasing and decreasing the stock prices of the business. It can be determined that signalling theory shows how the stock dividend paid reflects the company’s investment value and growth potential for the future periods. The growth or reduction trends in dividend ultimately alerts the investors about the positive or negative response of the stock prices to the dividends amount in the future market (Vieira & Raposo, 2007).

Dainelli et al., (2010 ) havecriticized the signalling effects of dividends by stating that it is assumed that most profitable companies tend to provide growth information about their business to increase stock prices and investors’ interests. However, this is not true in the practical world because firms with high profits may issue lower dividends to project inaccurate information either intentionally to commit financial fraud or to make investment of the funds into the other sources.Bini et al., (2010) in their research study have also confirmed, “Market is capable of controlling the production and use of information, concentrating it on the focal points of the agency relationship” (Dainelli et al., 2010, p.1). They added that use of doctored figures and ratios can be used to hide the actual performance of the business from the market participants.

Eriksson et al., (2012) in their research study have also substantiated the findings of the Bini et al., (2010). According to the authors, reported dividend values to the market are based on the random factors management take into account in increasing or decreasing the value based on the expectations to generate sufficient profits. Market participants are not able to realize and understand these random factors and their decisions are purely based on the information conveyed by the business management. Only firm’s expectations concerning their earning power can be transmited to the market participants. However, future market fluctuations can disregard these expectations and generate different trends.

Thus, the contrasting views discussed by the past authors in their research studies and theories direct the need to use Miller and Modigliani (1961) theory and signalling effect theory to examine the relationship between the dividend and stock prices of the UK listed companies in different business sectors. The information would help in investigating that whether the type of sector can lead to varied results in terms of relationship between these two variables or in shaping the signalling effects between these. After developing the theoretical framework of the current research, the next section of the literature critically reviews the relationships between dividends and common stock prices investigated in earlier the research studies.

3.3           Critical Review

3.3.1      The Relationships between Dividends and Common Stock Prices

Dhillon & Johnson, (1994)cited in the research study of Ali & Chowdhury, (2010), have tested the relationship between the dividend announcement and bond and stock prices of the firms listed in the New York Exchange. The research covered the period from January 1987 to December 1987. The tsuyd is based on one-year period only. The authors reported a positive and significant relationship between the research variables. They found that with an increase in dividend, stock prices of the firms also tend to show an increasing inclination. On the other hand, Ali & Chowdhury, (2010) themselves investigated the stock price reaction to the dividend announcement using the sample of Bangladeshi listed companies during 2009. The authors employed pooled-t test methodology in investigation the association. The results showed interesting facts in the observation period, when the authors found non-statisticallysignificant difference between the stock prices of the banks and their dividend announcement. The results reject the signalling effect theory due to the strong contribution of insider trading and some other market factors.

Another key research substantiating the research findings of the Dhillon & Johnson, (1994), it can be examined that Yoon & Starks, (1995) investigated the issues using another angle of relating investment opportunities, signalling and dividend announcement. The authors undertook the examination of the several factors in order to examine the change of dividend.The key assumption in assessing their results was related with the unknown attribute of the investment policy information. The hypothesis of signalling cash flow depicted similar results i.e. with the increase in dividend; firms tend to increase the stock prices’ of their firms.Jensen et al., (2010)argued in investigating such direct relationship between the stock prices of the firms and their dividends policies. They state that a decline in the corporation recognized dividend corresponds with a cut in the worth of the firm’s real options. Earnings recoilsubsequentto the dividend drop due to the savings that result as the firm allows growth options to expire. They added that when the firms’ reduce dividends earnings the investors are able to realise the lost value related with the forthcoming expiration of the growth opportunities in the market. In response to such reduction, they also tend to return their portion of investment.

In an earlier study by Ariff et al., (2000), the authors used different approach to test out the relationship between the chosen research variables. They used joint linear influence of payout ratio, dividend yield, price earnings ratio, leverage, earning per share and size to build up the scene for their research. The researchers composed the data from the three different Asian markets in Malaysia, Japan and Singapore about 16 years. All the six factors show high relativity in these three markets. Based on the findings, authors concluded that two-fifth of the change in stock price could be  attributed to the changes occurred within the crucial factors in Japanese market. However, this result did not make sense in the markets of Malaysia and Singapore. Additionally, macroeconomic factors were more welcoming in these three markets, which did not consider the cross-sectional test. This meant the investors would prefer tentative information rather than basic factors.

Additionally, Boyd & Jagannathan, (1994) in their study examined the common stock prices around the ex-dividend dates. According to the authors, such price information normally contains the information about the mix of observations. The results confirmed that the marginal price drop out of the companies’ stock is not statistically different from the dividend amount. They concluded that for a long period, probably over the last several decades, one-for-one marginal price drop has been identified as an excellent or average rule of thumb in understanding the association between the dividends and market prices.

In another global study focusing on Pakistani listed corporations, Shahbaz et al., (2007)established the effects of dividends on common stock price of corporations that were listed on Lahore Stock Exchange. Author employed sample of 24 corporations for the period of one year from 2002 to 2003. Only the researchers in their study that depicted high stock turnover selected those stocks. Unlike previous studies, they used Cumulative Abnormal Return and Market-Adjusted Abnormal Return to deal with data. The results of their research were confirmatory with the Ali & Chowdhury, (2010) findings. They also reported that the effects of dividends on common stock price were not strong on Lahore Stock Exchange in the period under investigation (Shahbaz et al., 2007).Khan, (2012) in her research has also affirmed the findings of Shahbaz et al., (2007). She found that dividend irrelevance theory is of no worth in case of the chemical and pharmaceutical industry in Pakistan due to presence of association. However, they concluded that earning per share and stock dividend have negative insignificant relationship with the stock prices of the listed corporations in the chemical and pharmaceutical industry of Pakistan.

Furthermore, Dasilas & Leventis, (2011) investigated the reverse causation link by concentrating on the impacts of trading volume and stock price on dividend. The data sample used by the authors was covering the information from 2000 to 2004 financials. The research location under investigation was the Greek market in which dividend can be paid on annual period without tax. The study used Standard Event Study methodology. Dividend changes were calculated by naïve model and irregular returns were calculated by raw return model, market-adjust model and market model. The findings of the study concluded that dividend decrease could lead to increase in share prices (Dasilas and Leventis, 2011).

Hanlon and Slemrod (2009) further believe that dividend announcement is necessary due to the tax issue. These authors have confirmed the negative association between the prices of stock and dividend announcement. They believe that tax also influences the amount of dividend issued by the firm. Normally, when the tax of dividend is at a higher level, in comparisonto its capital gain, it could have negative influence on the investors(Hanlon and Slemrod, 2009). It is therefore identified as worthy to note down that in UK, the basic rate of tax is about 10% and higher-tax payers are required to pay 25% of the net dividend they receive (Piggott and Whalley, 2009).Investors, therefore, respondnegatively to the increased dividends amount.

3.4           Critical Summary of Literature Reviewed

Thus, from the comparison of the methodologies and findings of the past studies investigating the relationship between the stock prices and dividend policies of global corporations, mixed observations are viewed in determining the association. Some depicted positive significant association while other depicted negative significant association between the under investigation research variables. In contrary, some of the past studies revealed insignificant association between the research variables. These differences can be attributed to the differences in markets, regions, sample size, and the methods of measurement used by the researchers. The influence of market factors can also not be undermined in assessing the association between the research variables. It is worthy to notice that some researchers like (Campbell & Thompson, 2008) have concentrated on the impact of overvalued markets in their research study and its influence on the relationship. Market overvaluation raised suspicions for the authors as according to the basic rule, the stock prices should not be far away from the basic value. They also reported that stock prices respond to the market fluctuations and dividend declaration abruptly because soon after the period passing the dividends’ announcements, these values drop back to the original prices.

From the examination of the two key theories discussed in modern finance, i.e. signalling effect theory and MM Theory, it is not ony worthy to examine the association between the stock prices and dividend rather determination of the long-term signalling effects of the dividend policies on the stock prices of the UK listed corporations is also significant in order to provide the real picture of the relationship between them.Miller & Modigliani, (1961) and Bini et al., (2010) offered a set of great findings that could be applied over the data samples of the current research in order to obtain the results.

Thus, in spite of varying conclusions in the past studies, the literature reviewed critically points out towards the limited amount of research taking both the dividends and tax information into the consideration at the time of setting the stock prices. The absence of such focus may bring different results for the stock price in reality. It can be examined that stock price and dividends have varied relationships in different markets. Therefore, the selection of appropriate methodology can help in applying the theory on data sample of UK firms in the subsequent research chapter.

3.5           Conclusion

The chapter offered an overview of the basic definitions, classifications and importance of both the dividends and stock price (primarily common stock prices). The theoretical framework based on MM’s dividend irrelevance theory and signalling effect theory has provided a strong base for investigating the same in UK context to identify which theory UK listed firms in different sectors support. The chapter also examined the differences in results and methodologies of the past global studies investigating the relationship between the stock prices of the firms and their dividend values. From the analysis of such studies, it can be point out that there are few studies about the United Kingdom after 2008 when the taxation system of the country became more complicated and matured. Therefore, current research would help in highlighting how the firms in the current UK regulatory environment are performing and making better decisions on pricing stocks and investment. The findings of the current study would help in clarifying the issue.