Dr N Balakumar

A researcher should take extra care when he/she is using secondary data for his/her research work since the data that your research work depends on is not compiled by you. It has been compiled by someone else or some organization or firm to suit their data or research requirements.

Thus, when you are using the data compiled by another body, you should be very careful that the data will suit your research requirements. Else, your data analysis and research finding will yield false results.

Let us view this issue with a case study.

Assume that a candidate is doing a project in the broad area of finance and his/her specific area is capital market who is executing a study on behaviour of share price. Thus, the researcher will obviously depend on secondary data that is share prices of the selected sample shares.

An abrupt shift is experienced in the movement of share prices due to sudden change in the capital structure of a company. Adjustments in share prices become inevitable in such cases for comparability over time period to identify the real share price movements.

The paid up capital structure of a company may change due to bonus issue, for example, share prices may, also, change due to sub-division or consolidation of a share.

As it is well-known, the bonus issue causes a sudden downward drift in the share price. The extent of the downward drift depends on the ratio in which it is issued. Therefore, in such cases, the ex-bonus prices need to be adjusted with cum-bonus quotations.

The ex-bonus prices are adjusted by multiplying them by an Adjusting Factor (AF) which is, mathematically, defined as follows:

AF = (a + b) divided by b

When the bonus ratio is a : b.

Similarly, subdivision and/or consolidation of the face value of the shares do cause abrupt changes in share prices.

Appropriate adjustments need to be done to get the real share price movements.

For example, if a company sub-divides it Rs 100 paid-up share into Rs 10 paid-up share, the price data after sub-division has to be multiplied by 10.

In sum, a researcher should adjust data to suit his/her research work, if required; when his/her research work depends on secondary data.