This module will be assessed by a 3000 word research proposal relating to your final year dissertation.


For this assignment you are asked to submit a research proposal for an undergraduate business studies dissertation. Your aim should be to identify a topic that is suitable for the dissertation you are asked to complete in your final year of study. Undertaking this task will assist you in understanding the requirements of an undergraduate dissertation and will introduce you to the skills of the literature review and possible research methods. It will also encourage you to analyse, evaluate and synthesise information gained from a variety of sources. In addition undertaking the work involved with this assignment will help you to achieve progress with your own dissertation.

Task: structure of your research proposal

1. Title: initially this might be regarded as a working title and ideally it should reflect closely the content of the document

2. Introduction and background to research: this section of the proposal should introduce the research topic under consideration and set out why it is an important and relevant topic to examine

3. Aim and objectives of research: this section should set out the aim of your research. This is the central research question that you are seeking to address. It should be concise, clearly defined and free of ambiguity about the focus of the research. You should then set out 3-5 research objectives. These are the mini questions that you need to answer in order to provide an overall answer to the research question set out in your research aim.

4. Literature review: this should be a statement of the existing state of knowledge on your proposed topic. You should identify six (maximum) articles, books, or book chapters which provide an example of the scope of research that has already been undertaken in relation to your chosen research area. You should also indicate how your proposed research builds upon existing knowledge, or takes the research area into a new direction (this might be in terms of focus or application)

5. Research design: this section should set out the methodology you are going to employ in order to obtain answers to your research aim and objectives. You should set our your choice of design (i.e. quantitative or qualitative), the specific form of research instrument that you are going to employ (e.g. experiment, questionnaires, interviews, secondary literature), how you are operationalising the key concepts/ideas, details of who is going to be included in the research (sample), sources of data/information (i.e. primary/secondary and specific details of the nature of these), how the information is going to be collected, and finally the form of analysis that this data/information is to be subjected to (statistical[details], interpretative),

6. Timescale: a timetable (Gantt chart) that will give the indication of viability of the research proposal and whether you will successfully complete the dissertation in time. The research process always seems to take longer that anticipated.

7. Resources and access to study population: finance, data access, equipment, official approval for access to subjects; this section should explain how you intend to get the data, possible difficulties in doing this, limitations that may restrict your access to it. These issues will impact on the methodology to be adopted.

8. Ethical considerations: ethical issues may arise at any stage of this research project. It is related to issues of consent regarding the collection of data, dissemination of information, the way research is conducted, etc.

9. References: at this stage you are not required to produce a lengthy bibliography, but a small list, enough to inform your proposal. The list of project and literature review, using Harvard method of referencing. The references should clearly show your area of research and link with the issue to be investigated.





Research Proposal



The Relationship between Capital Structure and Capability of Profitability: Evidence from Medium and Small Sized Enterprises of China



This proposal is set to demonstrate the reasons, objectives and methodology of the future research on relationship of capital structure and capability of profitability. This proposal includes the background of the research and the necessity to do it. And the following section will be a clear content of the aims and objectives which the research will be achieved. To make the research have a clear ground, a literature review will be organized. Under this condition, a short and simple literature review of the existing studies will be obtained. The companies to be analyzed are the medium and small sized enterprises of China. Finally, a timeframe, ethical issues and conclusion will be given.



With the policy of reform and open in China, the medium and small sized enterprises have played an important role in promoting the development of economic. The employment created by these enterprises has taken up more than fifty percent of the total employment in China. Moreover, the tax revenue from medium and small sized enterprises has contributed to forty percent of the national income for the country (Source: State Statistics Bureau).


As the Chinese economic development has come to a new stage, more and more problems need to be resolved, so as to promise the sustainability and stability of the social and economic environment. Most of studies have demonstrated that five hundred people and thirty million Renminbi would be the bottleneck for the medium and small sized enterprises. Whether these enterprises could resolve the bottleneck or not would influence the continuous development and growth. It is necessary for these enterprises to adjust the capital structure to enhance the capability of profitability. As Brännback et al (2009) pointed out that profitability would be the prerequisite factor to realize the economic growth through the research of the relationship between the growth and profitability, which was based upon the Finnish Life Science firm.


In addition, the medium and small sized enterprises face the problems of labor intensity and decomposition. The products of these firms would be with low technological level so that the competitive advantages in the market would be rather limited. Moreover, the elasticity of employment capacity and investment would be higher than the enterprises with large scale. And thus it would be easily influenced by the changes of economic condition.


In the present stage, there are differences of development among different areas. The resources would be better to accumulate in some places with good economic conditions. The expansion of the enterprises would depend upon the ability of profitability. The speed of growth would be fast when the advantages could be integrated together. In consequence, the medium and small sized enterprises would be fastened to a certain area and industrial.


The difficulty of financing would also influence the further development of the enterprises. The deficit of money would limit the operation activities to a large extent. Owing to the shortage of the financial agencies, there are few agencies where enterprises would obtain a loan. Besides, the use of money could not be promised. In consequence, the capital structure needs to be carefully designed so as to sustain the operation and management of these enterprises.


Questions and objectives of research

Research Questions

A few research questions can be identified when the background has been given. The questions would direct the research and the following objectives are also based upon the research questions. Moreover, the consequent research methods will be decided based upon these questions. The research questions are listed as follows:

l What is relationship between capital structure and the capability of profitability based upon the existed materials?

l What is the current condition of the capital structure arrangement in the medium and small sized enterprises of China?

l  How can these enterprises make profit under a giving capital structure?

l What kinds of capital structure would efficiently enhance the ability of profitability of these enterprises?


Research Objectives

To resolve these research questions listed above, some clear and concrete objectives are displayed as below:

l Examine the present condition of the existed researches on capital structure, capability of profitability, and the relationship between capital structure and capability of profitability.

l Gather information and data to study the capital structure of medium and small sized enterprises in China.

l Point out how these enterprises make profit based upon the existed data and information.

l With the help of the consequent software, analyze the relationship between the capital structure and capability of profitability of these enterprises.


Literature review

The research on capital structure and profitability could be dated back to the research held by Jensen and Meckling (1976), who pointed out that the optimal capital structure choice, would be the point where the agency cost of stakeholder finances and debt financing reach to the minimum value. When the decreasing agency cost of stakeholders resulted from debt financing equals to the agency cost of financial claim, the capital structure of enterprises would realize the optimal point. However, the school of control right held that the optimal structure would be the point where the revenue of control rights equal to the loss of control rights. Harris and Raviv (1991) proposed that managers could determine the optimal capital structure through the weighting of stock revenue and stock loss. In addition, Israel (1991) advanced that the optimal capital structure would be the effect of increasing income for target enterprises. The procedure of taking over would cause loss and increase of debt so as to deteriorate or improve the capital structure.


The present researches have been demonstrated that the capital structure and profitability have got intimately relationship with other factors, for instance, legal, right distribution, debt ratio, and so on. Mishra and Tannous (2010) suggested that the native law would influence the activities of the multinational companies in the USA. Moreover, they have studied that the long-term debt would have positive relationship with the global development of companies, especially those with similar origin of legal, investor protection and so on. Ahmed et al (2010) found that the capability of profitability has been decreased since the implementation of the Sarbanes-Oxley Act. This research was processed from the sample of 1428 enterprises. The law or legal would cause the negative influences upon the profitability of enterprises. Moreover, Vasiliou and Daskalakis (2009) investigated the differences of institutional characteristics which would result in different decisions of capital structure. And the result has demonstrated that the managers would not consider of the institutional features when they determine the issues of capital structure. To some extent, the decision of the consequent capital would not take caution upon the law and institutions, but other crucial factors.


Moreover, the distribution of the right would also influence the capital structure and profitability. Céspedes et al (2010) suggested that the companies with centralization would have no motivations to issue stocks, for they would not wish to share the controlling rights. As a result, the capital structure would be consequently influenced. The larger the enterprises, there would be more tangible assets. Under this condition, the capital structure would be taken up mostly by tangible assets. Ovtchinnikov (2010) has researched that the decentralization would influence the operative environment and decisions. Moreover, the decentralization would also enhance the capability of profitability, increase the tangible capital and the growth opportunities, improve the capital structure. In addition, Zhao et al (2010) pointed out that the performance of enterprises and competitive advantages could be enhanced through the decentralization and technological progress. Also it would have positive effects in adapting the new managing environment. However, the decentralization would decrease the efficiency owing to the dispersion of the right and sectors.


The influence of debt ratio would differ from different companies and industrials. As Addarwal and Kyaw (2010) pointed out, the debt ratio of multinational companies would be lower than the native companies. With the increase of the multinational property, the consequent debt ratio would be continuously decreased. As a result, the capital structure would be adjusted to a more optimal level. Moreover, Margaritis and Psillaki (2010) used the performance approach to examine whether there would be more enterprises with efficiency which would choose the capital structure with more debt or less debt. The results have demonstrated that the debt ratio would be related to the capability of profitability and the operative environment. Campello (2003) suggested that the capital structure would influence the outcomes of products markets. The results have demonstrated that the debt financing would have negative influence upon the sales of companies. That is, the sales of companies would not be enhanced even if companies collected money through the debt financing. Kayhan and Titman (2007) have examined how cash flow, investment expenditure and stock price influenced the debt ratio. Results have shown that the influences would be obvious upon the capital structure. Any change of the cash flow, investment expenditure and stock price would cause the changes of the capital structure to different extent.


In addition, the business risks and leverage could also influence the capital structure and profitability. Desai et al (2008) pointed out that the business risks would promote the enterprises to change the capital structure. As a result, the cost of risk would be decreased to some extent. The results have also demonstrated that the returns of investment would not be stable in those countries with high cost of politics. The influence of political would be negative. Caldart and Olireira (2010) suggested that the competition between the industrial sectors would hinder or improve the profitability. The results have demonstrated that the strength of the competitive complexity would undermine the performance of the industrial. With the increase of the competitors, the negative effect of the competitive complexity would be enhanced. The more of the competitive complexity, the profitability of enterprises would be decreased to a large extent. Moreover, Brounen et al (2008) pointed out that the leverage of the Canadian multinational companies would be higher than the native companies, comparing with the USA. Owing to the lower cost of debt agency, the leverage would be taken into efficient action. The capital structure of the multinational companies would be different from companies according to the decision factors of leverage inter-countries. Yang et al (2010) concluded that the capital structure would be influenced by leverage, expected growth, profitability, value and liquidity in the stock market.


There are other literatures researching the issues from different perspectives. Brounen (2006) found out that the capital structure would be different from the private enterprises and public enterprises. And this condition could be similar from one country to another. There was no significant evidence showing that agency problem would bother the choice of capital structure. Istaitieh and Rodriguez-Fernández (2006) pointed out that non-financial stakeholders related with the design of capital structure. And there would be an interaction between capital structure and market structure. Finlay (2010) suggested that sustainable financial performance would benefit the maximum of the profit contribution. Harper and Endres (2010) used the Menger and Lachmann approach to examine that the capital was consisted and experienced by entrepreneurs. And the capital structure of capital goods, combination and economic range would be distributed as nest-like form. Hund et al (2010) found that the business cycle and uncertainty would be consistent with the mean capability of profitability. The value of companies would be examined through the empirical analysis when there were no special fluctuations.


Research design

Research Method

This research will mainly adopt the analyzing method of quantitative analysis so as to look through the relationship between the capital structure and capability of profitability of medium and small sized enterprises. The analysis will be based upon the data which demonstrates the characteristics of these enterprises. The data which will be used in this research is the data from the medium and small sized enterprises of China in the recent 10 years.


The variables which will be selected to examine the capital structure include the percentage of cash, stock, debt and others. The variable which will be selected to examine the capability of profitability is the revenue obtained every year.


To eliminate the influences from other factors, it is necessary to set some controlling variables in the research, including the district of the enterprises, industry, age of these medium and small sized enterprises, and the revenue of last year.

Table 1: Variables in Research

Dependent Variable  
Capability of Profitability Revenue every year
Independent Variables  
Capital Structure Ratio of Cash
  Ratio of Stock
  Ratio of Debt
  Ratio of Others
Controlling Variables  
District Similar level of Development
Industry Imaginary variable
Ages The years since its establishment
Former Performance Revenue of the last year


Data Collecting Methods

In the research, the data will be collected through both secondary data and primary data so as to make the research go smoothly.


Owing to the easy access and less costly to obtain, the secondary data will be the main way to be used. Under this condition, the internet will provide rather convenience for collecting data. And the data of medium and small sized enterprises will be easily obtained from the online database. Moreover, the additional data which will be used in the research will be obtained from the website and their annual reports.


The primary data collecting method will be used when the above method failed to obtain the required data and information. The available method is interview through telephone and e-mail, which will be obtained from the default of these enterprises.


Figure 1: Data Collecting Methods


Data Collection



Secondary Data                       Primary Data



Online Database                       Interview via

Websites                           telephone and e-mail

Annual Reports


Data Analysis Methods

In the research, the descriptive analysis and regressive analysis will be used to obtain the proper results.


Through the descriptive analysis, it is probable to obtain an understanding of the present situation of the capital structures and capability of profitability of these medium and small sized enterprises of China in the recent ten years. To have a deep understanding of capital structure and profitability ability, it is necessary to examine all of the maximum, minimum, average, median and standard deviation. Microsoft Office Excel 2007 will be used to process the descriptive analysis.


Regressive analysis is used to study the relationship between the capital structure and the capability of profitability of medium and small sized enterprises of China. In the research, the multiple variables linear regression model will be used. The variables in this model have been demonstrated in Table 1. The software which is used for the regressive analysis will be Stata 11.



The dissertation is planned to be finished from May 1st, 2010 to September 15st, 2010, a period of four months.


May 1st to May 31st: Literature Review (LR)

The first month, from May 1st to May 31st, will be used to finish the task of literature review. And some of the job has been done in the proposal. However, there are only few literatures which have been done during a short period. The Further readings and investigations will be done from May 1st to May 31st, 2010.


June 1st to June 15th: Secondary Data Collection (SDC)

The data which will be used in the research will be obtained from the consequent data sources and database. In addition, it is a good way to browse the websites of the selected enterprises. Besides, it is necessary to read the annual reports in this period of time.


June 16th to June 30th: Primary Data Collection (PDC)

Examine the information and data which have not yet been sufficient in the first phase to fulfill the analysis and research. Find the contacting telephone numbers and e-mail from the website of the enterprises. And then it is time to make interviews with the man of the firms via e-mail and telephone so as to obtain the data and information.


July 1st to Aug.15th: Data Disposal and Analysis (DDA)

This is the most important stage, for the results of the research will be obtained and examined. However, it is necessary to make sure that the data and the required two sorts of software are available before the data analysis is taken into procedure. In this phase, the descriptive analysis and regressive analysis will be processed.


Aug. 16th to Aug. 31st: Compose the Dissertation (CD)

In this phase, the results obtained from the former stages need to be composed and arranged. It will take one and a half month to finish this job. Details which will be used in the dissertation will be covered in this phase.


Sep.1st to Sep.15th: Proof Reading (PR)

Examine that there is no mistake in the dissertation, including the grammar, data, information, and so on. Half a month will be arranged to proof reading.


The procedure of the time will be demonstrated as the following Gantt chart:

Ethical considerations

The aim of ethics in research is to promise that no one would be harmed in the procedure of research activities (Cooper and Schindler, 2006). The research will be processed according to the ethical requirements which are in accordance with the university and Social Research Association. The respondents will all be informed with the consequent purpose and processes of the research. Whether participate in the research will be up to the respondents.


In addition, the information and data about the enterprises will be kept secretly. The purpose of academy and commercial usage will not be processed about this dissertation.



In conclusion, the relationship between capital structure and capability of profitability differs from different researchers according to the former literature review. Still there are no unified results. As a result, it needs further researches and discussion. In this dissertation, it aims to examine the present condition of the capital structure, capability of profitability and the relationship between each other through the use of data and information collected via secondary and primary methods. And thus it is possible to obtain the satisfying results. Through the description analysis and regressive analysis, the consequent model will be obtained. Four months will be taken to finish the research while detailed timeframe included in the proposal. And the ethical considerations are referred to in the proposal.




Aggarwal, R. and Kyaw, N.A. (2010) ‘Capital Structure, Dividend Policy, and Multinationality: Theory versus Empirical Evidence’, International Review of Financial Analysis, Vol.19, No.2, pp, 140-150.


Ahmed, A.S., McAnally, M.L., Rasmussen, S. and Weaver, C.D. (2010) ‘How Costly is the Sarbanes Oxley Act? Evidence on the Effects of the Act on Corporate Profitability’, Journal of Corporate Finance, Vol.16, No.3, pp, 352-369.


Brännback, M., Carsrud, A., Renko, M., Östermark, R., Aaltonen, J. and Kiviluoto, N. (2009) ‘Growth and Profitability in Small Privately Held Biotech Firms: Preliminary Findings’, New Biotechnology, Vol.25, No.5, pp, 369-376.


Brounen, D., Jong, A. and Koedijk, K. (2006) ‘Capital Structure Policies in Europe: Survey Evidence’, Journal of Banking & Finance, Vol.30, No.5, pp, 1409-1442.


Caldart, A.A. and Oliveira, F. (2010) ‘Analysing Industry Profitability: A “Complexity as Cause” Perspective’, European Management Journal, Vol.28, No.2, pp, 95-107.


Campello, M. (2003) ‘Capital Structure and Product Markets Interactions: Evidence from Business Cycles’, Journal of Financial Economics, Vol.68, No.3, pp, 353-378.


Céspedes, J., González, M. and Molina, C.A. (2010) ‘Ownership and Capital Structure in Latin America’, Journal of Business Research, Vol.63, No.3, pp, 248-254.


Cooper, D. R. and Schindler, P. S., 2006, ‘Business Research Methods’, New York: McGraw-Hill/Irwin.


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