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Foreign Investment and Firm’s

Performance of Sharia
Compliance: A Comparative
Study of Indonesia and Malaysia

Dr. Saiful
Universitas Bengkulu, Indonesia

Assoc Prof. Dr. Hilwani Hariri


1 Universiti Teknologi MARA, Malaysia
Introduction

 Muslims can invest in capital market by purchasing stock of


sharia compliance companies
 Shares are generally purchased for the annual dividend or the
intention of capital gain,
 Some islamic sholars argued that purchasing and selling shares
with the intention of capital gain is based on speculation
(gambling)
 So muslim investor should purchase stock for dividend purpose
 Since dividend depend on annual earnings, so muslim investor
should company with higher profit
 In the ASEAN context, muslim investor could be choice sharia
compliance in indonesia and Malaysia Stock Exchange as well.
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Introduction
 FI types (Hannon & Reddy, 2012):
 mergers and acquisitions,
 building new facilities,
 reinvesting profits earned from overseas operations
 intra-company loans.
 FDI as the situation when one individual or business owns 10%
or more of a foreign company's capital (IMF).
 FDI advantages:
 the economic development
 improvement in business
 improvement in technology
 standard of living

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Literature Review

FDI-firm performance
Generally most of the previous literatures either in Indonesia,
Malaysia, or other countries indicate there are positive
relationship between foreign investment and firm’s
performance.

Boone (2011foreigners investor improved the performance of


the firm

Tong (2001), found a positive impact FDI on local firms


knowledge inflow.

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Literature Review

 Altzinger (2008), reported that the profitability of FDI firm


increase on average return on equity of 8.3%.
 Yasar and Paul (2007) evaluate the performance of foreign-
owned versus domestic firms and they found that
performance of FDI firm improve
 The positive aspect of foreign investment was supported by
Aydin, Sayim and Yalama (2007) who found there are
significant differences on operating profit margin, return on
assets and return on equity between foreign owned
participation firms and domestic firms listed in Istanbul Stock
Exchange.

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Research Methodology

 Population and sample selection.


Table 1: Number of countries
Countries N(Percent)
Malaysia 64(31.9)
Indonesia 30(68.1)
Total 94(100.0)

 Definition of Variables
 Performance is measured accounting
performances(ROA, ROE, NPM) and the
market indicator (Tobin’s Q)

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Descriptive
Statistics Min Max Mean (Sd)
All Foreign investment .00 91.31 14.26 (sd 22.76)
Return on assets -19.46 40.67 6.03 (sd 8.60)
Return on equity -53.14 82.21 9.87 (sd 17.34)
Net profit margin -105.82 79.83 12.50(sd 23.57)
Tobin’s Q .00 13.69 1.42 (sd1.99)
Debt ratio -77.30 151033.11 1712.38 (sd 15567.31)

Malaysia Foreign investment .00 55.00 5.16(sd 9.88)


Return on assets -19.46 20.54 4.12(sd 6.88)
Return on equity -53.14 62.03 6.15(sd 14.89)
Net profit margin -105.82 70.27 8.59(sd 25.58)
Tobin’s Q .00 13.69 1.05(sd 1.74)
Debt ratio 4.23 624.60 99.54(sd 104.55)

Indonesia Foreign investment .00 91.31 33.69(sd 29.59)


Return on assets -7.17 40.67 10.10(sd 10.45)
Return on equity -37.88 82.21 17.82(sd 19.66)
Net profit margin .01 79.83 20.83(sd 15.97)
Tobin’s Q .22 11.77 2.21(sd 2.27)
Debt ratio -77.30 151033.11 5153.11(sd 27552.71)

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Independent T-test

Countries Mean (Sd) t Sig


Foreign Malaysia (n=64) 5.16(Sd 9.88) -5.150 .000**
investment Indonesia (n=30) 33.69(Sd29.59)
Return on assets Malaysia (n=64) 4.12(Sd 6.88) -2.856 .007**
Indonesia (n=30) 10.10(Sd10.45)
Return on equity Malaysia (n=64) 6.15(Sd 14.89) -3.188 .002**
Indonesia (n=30) 17.82(Sd19.66)
NPM Malaysia (n=64) 8.59(Sd 25.58) -2.406 .018**
Indonesia (n=30) 20.83(Sd 15.97)
Tobin’s Q Malaysia (n=64) 1.05(Sd 1.74) -2.741 .007**
Indonesia (n=30) 2.21(Sd 2.27)

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Regression Analysis

R square
IV DV Model Model df F value Sig. Beta
1 2 Sig.
Total ROA .146 .171 3,90 6.206 .001** .194 .102
ICGI ROE .123 .138 3,90 4.784 .004** .146 .227
(N=64) NPM .087 .093 3,90 3.065 .032* .088 .474
Q .108 .112 3,90 4.907 .003** .220 .070

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Conclusion
 there is significant difference between the
performance of Shar’iah-compliance companies in
Malaysia and Indonesia.
 Mean of Return on assets, return on investment
and net profit margin Tobin’s q for Indonesia
companies is higher compared to Malaysia
 Regression analysis indicates that the foreign
index does not significantly influence performance
indicators namely ROA, ROE, NPM and Tobin’s
Q.

Gambaran Umum AK LO 3
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Question and sugestion

Thank

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