External and internal determinants of performances of Shariah and non-Shariah compliant firms

Abstract

Purpose This study aims to provide comprehensive models that investigate the combination of both external fundamentals and internal characteristics on firm performance and if there is any difference between Shariah and non-Shariah compliant firms. The objective of this paper therefore is to analyze the significant relation between external fundamentals, internal characteristics and firm performance. Design/methodology/approach Panel data regression analyses are applied to determine significant results. It helps to control for unobserved factors of firm heterogeneity, which may result in spurious regression. Findings Most internal firm characteristics are found to be significant, but the same cannot be said for external fundamentals. Firm size is found to be very significant in driving both sets of firm performances. Financial distress in term of higher level of leverage is found to be a negative driver of non-Shariah-compliant firms’ performance in terms of return on asset but not for Shariah firms consistent with Islamic finance understanding. Shariah-compliant firms with higher liquidity tend to perform much better than less liquid firms, but the same is not found for non-Shariah-compliant ones. Research limitations/implications This study is limited to the industrial production sector and compares both Shariah and non-Shariah compliant firms. Practical implications This study adds new findings to clarify the roles of external macroeconomic fundamentals and internal characteristics determinants on firm performance. Findings from this study combine relevant information on different sets of determinants on firm performance and produce empirical evidence beneficial to both sets of Shariah and non-Shariah compliant firms in the industry. Originality/value This paper fulfills the need for firms to understand the external and internal environment for continuous survival and performance. It is therefore important for firms to recognize the possible factors which may influence their performance and mechanisms to sustain their performance for long-term survival.

An Investigative Study on Sustainable Competitive Advantage of Manufacture Companies in Indonesia

“…Internal factors, including liquidity and leverage, have a significant effect on company performance, which is explained by return on assets, return on equity, and net profit margins. The findings of the proof of this hypothesis support the results of previous studies, such as the findings of Chowdhury andRasid's (2016) research, Bist et al (2017), Lasisi et al (2017), Nanda and Panda (2018), Dioha et al (2018), Alarussi and Alhaderi (2018) and Ho and Mohd-Raff (2019).…”

“…Alarussi and Alhaderi (2018) also found that liquidity is not an essential factor in firm performance. Then, Ho and Mohd-Raff (2019) found that liquidity influences firm performance of Shariah-compliant, but not for non-Shariah-compliant firms. Lasisi et al (2017) found that liquidity influences firm performance.…”

“…As in Table 1, Ho and Mohd-Raff (2019) to investigate the impact of the external and internal factors on firm performance and to recognize that the mechanisms are essential to sustain performance for long-term survival, therefore this study following up on the recommendation. Maury (2018) stated that past performance and sustained market share influence the firms' sustainable competitive advantage (Maury, 2018).…”

The Parabolic Effect of Managerial Ownership and the Impact Toward Firm’s Performance

“…Generally, the big corporates will have a better performance than smaller corporations. The statement is supported by prior studies e.g., (Ho and Mohd, 2019;Khan et al, 2019). However, there exist some large-scale companies that have been experiencing a decrease in price-to-book value during the period of 2014-2018, such as Gudang Garam and Indofood Sukses Makmur which is two of the biggest companies in Indonesia.…”

“…In general, big scaled firms will have good performance so an increase in the firm's size will increase the firm's performance (Khan et al, 2019). (Ho and Mohd, 2019) stated that when a firm is developing, the firm will earn some developments on market power, the economics of scale, and market experience which will in time increase the firm's performance. Furthermore, an increase of a firm's size plays a role in developing a firm's operational activities which will increase revenue and will finally increase the firm's performance (Ko et al, 2017).…”