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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
i
Proceedings
4th International Conference on Management, Finance &
Entrepreneurship
Medan, Indonesia
11 -12, April 2015
ISSN 2311-6269
Organized by
International Foundation for Research and Development
(IFRD)
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
ii
Preface
Dear Distinguished Delegates and Guests,
The Conference Committee warmly welcomes our distinguished delegates and guests to the 2015
International Conference on Management, Finance and Entrepreneurship (ICMFE-2015) held on April 11-
12 in Medan, Indonesia.
ICMFE-2015 is organized by International Foundation for Research and Development (IFRD). The
conference is aimed at discussing with all of you the wide range of problems encountered in present and
future issues in economies and Societies. ICESS-2015 is organized in collaboration with Universitas Islam
Sumatera Utara, Medan, Indonesia, Yildirim Beyazit University, Turkey, Shinawatra International
University, Thailand, PERTRE ANDERI of IASI, Romania and National Academy of Management,
Ukraine where researchers from around the world presented their work. The conference committee is
itself quite diverse and truly international, with membership around the world.
Proceeding records the fully refereed papers presented at the conference. Main conference themes and
tracks are Management, Finance and Entrepreneurship. Conference aims to bring together researchers,
scientists, engineers and practitioners to exchange and share their experiences, new ideas and research
results about all aspects of the main conference themes and tracks and discuss the practical challenges
encountered and the solutions adopted. The main goal of the event is to provide a scientific forum for
exchange of new ideas in a number of fields that interact in depth through discussions with their peers
from around the world.
Conference has solicited and gathered technical research submission related to all aspects of major
conference themes and tracks. All the submitted papers have been peer reviewed by the reviewers drawn
from the scientific committee, external reviewers and editorial board depending on the subject matter of
the paper. Reviewing and initial selection were undertaken electronically. After the rigorous peer-review
process, the submitted papers were selected based on originality, significance, and clarity for the purpose
of the conference. Conference program is extremely rich, featuring high-impact presentations. The high
quality of the program guaranteed by the presence of an unparalleled number of internationally
recognized top experts. Conference will therefore be a unique event, where attendees will be able to
appreciate the latest results in their field of expertise, and to acquire additional knowledge in other fields.
The program has been strutted to favor interactions among attendees coming from many diverse
horizons, scientifically, geographically, from academia and from industry.
We would like to thank the program chairs, organization staff, and members of the program committee
for their work. We are grateful to all those who have contributed to the success of ICMFE-2015 especially
our partners. We hope that all participants and other interested readers benefit scientifically from the
proceedings and find it stimulating in the process. Finally, we would like to wish you success in your
technical presentations and social networking.
We hope you have a unique, rewarding and enjoyable time at ICMFE-2015 in Medan.
With our warmest regards,
Conference Committee
April 11–12, 2015
Medan, Indonesia.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
iii
ICMFE-2015
Conference Committee
Conference Chair
Jumino Suhadi, Ph. D., Universitas Islam Sumatera Utara, Medan, Indonesia
Conference Co Chair
Dileep Kumar, M., Ph. D., University Utara Malaysia, Malaysia
Conference Convener
Dra. Hj. Hasrita, M.Pd. Ph. D., Universitas Islam Sumatera Utara, Medan, Indonesia
Members
Sisira R. N. Colombage, Ph. D., Monash University, Victoria, Australia
John C. Walsh, Ph. D., Shinawatra International University, Bangkok, Thailand
Nek Kamal Yeop Yunus, Ph. D., Univerisiti Pendidikan Sultan Idris , Perak, Malaysia
Alexandru Trifu, Ph. D., University, Petre Andrei, Iasi, Romania
Izah Mohd Tahir, Ph. D., University Sultan Zainal Abidin, Terengganu, Malaysia
Rishidaw Balkaran, Ph. D., Durban University of Technology, South Africa
Hamdan Said, Ph. D., Universiti Teknologi Malaysia, Johor Bahru Johor, Malaysia
Johan de Jager, Ph. D., Tshwane University of Technology, South Africa
Somnath Sen, Ph. D., University of Birmingham, United Kingdom
Chux Gervase Iwu, Ph. D., Cape Peninsula University of Technology, South Africa
Chandana Prasad Withana, Ph. D., Charles Sturt University, Sydney, Australia
Susantha Herath, Ph. D., St. Cloud State University, USA
Wei-Bin Zhang, Ph. D., Ritsumeikan Asia Pacific University, Japan
Katalin Jackel, Ph. D., Budapest Business School, Budapest, Hungary
R K Uppal, Ph. D., DAV College, Punjab, India
M. Saman Dassanayake, Ph. D., University of Colombo, Colombo, Sri Lanka
Ayhan Kapusuzoglu, Ph. D., Yildirim Beyazit University, Turkey
Ahasanul Haque, Ph. D., International Islamic University Malaysia (IIUM), Malaysia
Boubker Sbihi, Ph. D., I-shcool ESI, Rabat, Morocco
Pratibha Samson Gaikwad, Ph. D, Shivaji University of Pune, India
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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International Conference on Managemnt, Finance &
Entrepreneurship (ICMFE-2015)
Table of Contents
Description
Pages
Preface
ii
Conference Committee
iii
Table of Contents
iv
Papers
vi
Developing Islamic City through Network-of-Mosque (NoM), Abdul Rahman Ahmad Dahlan,
Ammar Ihsan Nasution, Muhammad Iqbal Husaini, Mohamed Hassan Ahmed
1
The Influence of Job Market Factorsand Parentalinfluence towards Accounting Students in
Becoming Professional Accountants in Indonesia, Vina Arnita
15
Using the Social Network for Business Sustainability: Examining Start-up SME Firms in
Malaysia, Ehsan Fansuree Surin, Ismail Ab. Wahab, Mohd. Hazman Fitri Hussin, Mohd Najib
Saad, Mior Harris Mior Harun
19
Weekend Effect of Stock Returns in Indonesia: The UnconditonalMethod and the Conditional
Method, Ika Pratiwi Simbolon
29
World Oil Price Movement And Stock Return on Some Capital Markets in Southeast Asia,
Hersugondo, Robiyanto, Harjum Muharram
38
The Examination of Day of the Week Effect and Turn-of-Month Effect in Indonesian Stock
Exchange using Garch Approach, Hersugondo, Robiyanto, Irene Rini D. P.
43
Minimalizing Agency Costs through Bonding Mechanism, Maya Indriastuti, Chrisna Suhendi
50
Fat to Fit – an Asian Obesity Management Program and the Malaysian Case Study, Dee Dee A.
SALLE, Yii Bonn BONG, Abdul Majid MOHAMED, Asma Ahmad SHARIFF, Amir Feisal MERICAN
54
Entrepreneurship Education in Sports: Issues and Challenges, Payam Ansari, Solha Husin
60
Analyze on the Influence of Financing Risk, Capital Adequacy and Financing to Deposit Ratio to
Profitability Islamic Bank in Indonesia, Osmad Muthaher, Sri Dewi Wahyundaru
67
The Effect of Characteristics and Behavior, Socialization and Perception, and Financing System
of SMEs on Financing Distribution of Islamic Banking, Sri Dewi Wahyundaru, Osmad Muthaher
78
Role of Commitment in the Relationship between Islamic Leadership and Islamic Work Ethic
on Employee Performance, Heru Sulistyo
83
Fraudulent Financial Statement (Factors Analysis), Imam Setijawan, Yulfarida Listyo Pertiwi
90
Acceptance Analysis of Smart Transport Application Using Technology Acceptance Model
Approach, Zuniati Hasiholan Sinaga, Ratih Hendayani
98
Dampak Tekanan Organisasional Terhadap Stres Kerja Pada Perawat Rumah Sakit Islam (RSI)
Di Kota Semarang, Ardian Adhiatma, Yuka Windyaningtyas
105
Environmental Management Practices in Small Batik Industry in Kelantan, Malaysia, Mohd Rafi
Yaacob, Nur Faizah Mat Zain, Mohd Nazri Zakaria, Muhammad Ismail
117
Individual Psychology as Component of Entrepreneurial Process: The Cognitive Perspective
Contribution of the New Venture Creation among E-Commerce Entrepreneurs, Ahmad
Firdause Bin MdFadzil, Mohd Rafi Bin Yaacob, MohdNazri bin Muhayiddin
125
The weak of control systems result in the emergence of a number of problems within the
organization, Muhammad Jafar Shodiq
133
Factors Influencing Trends Against Fraud (Fraud): Employee Perceptions of District Kendal,
Dedi Rusdi, Zulmina Kumalasari
134
Determinant Factors of Cooperative Capital Structure in Financial Perspective, Sugiyanto
144
How to Promote Franchisee Endurance in the Franchise System based on Entrepreneurial
Orientation, Erlinda
153
Independent Value Creation: Concept, Activities and Implications, Yudi Sutarso
161
Model of Improvement Operational Performance Based on Quality Management, Creativity
Innovation, Imitating and Role of Strategic Human Resources, Marno Nugroho
170
Improving New Product Performance through Market Intelligence Quality, Customer
179
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
v
Interaction Capabilities and Customer-Centric Commitment on Indonesia Micro Retail
Fashions, Hendar, Tatiek Nurhayati
Aggregate Economic Forces and Malaysian Equity Market: Equilibrium Time-Series Approach,
Mohamed Ibrahim Mugableh
192
Pengaruh Right Issue Terhadap Kinerja Keuangan Pada Perusahaan Terbuka Sektor
Perbankan Di Indonesia, Oleh, Ibnu Khajar
199
Female Fertility and Labour Force Participation for Asean-5: A Dynamic Heterogenous Panel
Analysis, Thirunaukarasu Subramaniam, Nanthakumar Loganathan, Mazlan Majid
209
Corporate Social Responsibility and Airline Performance, Teguh I. Maulana
210
The Influence of Money Perception toward Unethical Behavior of Employee (A Study at the
Supreme Court in Southeast Sulawesi), Moh. Ali Shahab, Ismanto
224
Improving Entrepreneurs Capability Models of the Creative Industry Through The Triple Helix
and Anticipatory Learning, Tatiek Nurhayati, Mulyana
233
Change Management in the Higher Education Landscape: A Case of the Transition Process at a
South African University, Renitha Rampersad, Vaneshree Govender
242
The Influence of Audit Committee Efektivity toward Earning Management Practices, Dista
Amalia Arifah, Wahyu Agung Isriyani
243
The Improvement of Organizational Citizenship Behavior (OCB) Affected By Transactional
Leadership Style, Abdul Hakim, Asnur
249
Entrepreneurial and Relationship Marketing toward Innovation and the Impact on Business
Performance on Small Industries of Wearing Apparel in West Java, Sambudi Hamali, Yuyus
Suryana, Nury Effendi, Yudi Azis
259
Credit Risk Influence on Systemic Risk in Indonesia Banking System, Alfiana, Erni Tisnawati
Sule, Sutisna, Dian Masyita
267
Perception and Expectation of Marketing Mix on Customer Satisfaction and Confidence in
Consumer Finance Branch Mandala Multifinance Poleang, Shouteast Sulawesi Province,
Wuryanti K., Usman Nur U.
275
The Relationship between Environmental Management, Environmental Performance, and
Company Performance at Small-Medium Enterprises, Budhi Cahyono
283
Entrepreneurial and Market Orientation towards Innovation and Marketing Mix Strategy, and
their Impact on Business Performance on the Florist Business in Dki Jakarta Province, Cecep
Hidayat, Yuyus Suryana, Faisal Afiff, M. Fani Cahyandito
291
Improvement of Human Resources Performance through Empowering Leadership, Intrinsic
Motivation, Training and Employee Wellbeing, Mutamimah dan Haryana
292
Effect of Islamic Based Leadership Style to Motivate Creativity of Syariah Bank Employee,
Muhammad Tafsir, Roziana Bt Shaari, Azlineer Bt Sarip
293
Analysis the Effectiveness of Cocoa Distribution Channel in the Province of Aceh, Indonesia,
Syafruddin Chan, Rulfah M Daud, Fauziah Aida Fitrie
294
The Role of Marketing Environment Audit in Marketing Performance through Index Of
Services Marketing Excellence (ISME) in Bandung Stars Hotel, Likewati W.O., Kartini, D.,
Ariawati, R., Sari D.
303
Financial Performance: Current Assets, Debt to Equity Ratio, Return on Assets, and Growth
towards Dividend Payout Ratio, LeniSusanti
304
A Conceptual Model of Resonant Leadership, Dian Alfia Purwandari
315
The Impact of Consumer Animosity and Consumer Ethnocentrism on Intention to Purchase
Foreign Products: The Case of Chinese Branded Household Appliances in Vietnamese Market,
Nguyen ThiHuongGiang, Nguyen DinhKhoi
320
The Benefits of Financial Ratios’ as the Indicators of Future Bankruptcy on the Economic
Crisis, Setia Mulyawan
334
Neoclassical Growth Model: Application to the Analysis of Human Capital For Regional
Development, Aulia A. Abdhy
342
The Role of External and Internal Factors in the Accuracy of Predicting Financial Distress,
Pramudena Marti Sri
343
Knowledge Management System Role in Stock Investment Behaviour, Didi Sundiman, Ali
Kesuma
350
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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International Conference on Management, Finance &
Entrepreneurship (ICMFE-2015)
PAPERS
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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Developing Islamic City through Network-of-Mosque (NoM)
Abdul Rahman Ahmad Dahlan, *Ammar Ihsan Nasution, Muhammad Iqbal Husaini,
Mohamed Hassan Ahmed
International Islamic University Malaysia (IIUM)
*erecsson20@yahoo.com
Abstract: Learning from the history, our prophet used mosque to provide many activities and served as
community centrefor the purpose of society welfare. Today, we can find the mosque everywhere but its
function were limited and only used for religious and spiritual purposes. Thus, this conceptual program
will develop the Islamic City through Network of Mosque.Network of Mosque can be used to create centre
for transformation which can provide the services to the society. These services will include community
classes, zakat collection and distribution, halal certification, and eating place for the hungry and needy.
This conceptual program introduces to improve the quality of service through strategic partnership
between government, industry, and society which will result to raise the entrepreneurs and lead to the
prosperity. This program offers Quadruple Helix Model (QHM) which involve the Government, Academia,
Industry, and Citizen as the main actor for this program. Nine blocks of Business Model Canvas (BMC)
framework and Literature Review used as the methodology for this paper. To achieve its goals, this
program collaborates and synergize with the Whole of Government (WoG). The findings of this paper
show that the Mosque can facilitate and serve the society better by harnessing Network of Mosque, which
guide to the developing Islamic City.
Keywords: Islamic city, Network of Mosque, Business Model Canvas, Society welfare, Quadruple Helix Model
1. Introduction
Today, people use mosque only for the purpose of Ibadah. But,we realize that Network of Mosque (NoM)
has a great potential to improve social welfare for the society who live around the mosque. By harnessing
Network of Mosque (NoM) we can help the people to save time without having to go to a government or
industry building. Mosque committee will provide many kind of service such as for marriage class and
education, hajj and umroh training, waqaf and zakat collection and contribution, Islamic learning, and
more. Based on the Office for National Statistics (ONS) (Measures of National Well-being, 2014), there are
ten factors to consider in order to measure the national wellbeing. From their graphic, health is one of the
factor that is important for national wellbeing. From ONS National wellbeing graph, health, personal
wellbeing, relationship, and education and skills are some of the factors that we need to understand. And
Islamic city program can help the government to improve the national wellbeing from these factors.
Islamic City developed to create the wellbeing for society. One of its program is to provide medical service
that will benefit for society's health and helping the government in providing the medical treatment to the
society (Portal resmi Kementrian kesehatan Malaysia, 2014). Islamic city developed using Network of
Mosque that will create the better relationship to the people around the mosque. Personal interaction
between the society and committee can bring the positive impact and satisfy the customers (Azam, 2013).
In education sector, Islamic City has a program to educate the people. Islamic city provide an online and
offline class for Muslim and Non-Muslim society. Moreover, Islamic city developed to help people in their
activities. With Islamic city, the personal wellbeing can be improved to create the happiness in the
society.
Program Background: This paper proposed the developing of wellbeing by creating Islamic city
harnessing of the Network of Mosque (NoM). Through our program we are trying to make a lot easier for
the people. We propose Mosques to be our center services. Since we can find mosque everywhere, than
we can provide many activities that can help more people. The focus targeted audiences of this program
are all the people who lives around the mosque interfaith everyone. This program has the potential to
provide quality services for the society and improve the level of awareness’s of the society. This can be
achieved by providing certain services and programs, namely: marriage class and education, hajj and
umroh training, waqaf and zakat collection and contribution, Islamic learning. This program synergize
with the Whole of Government (WoG), where similar/related/cluster of government agencies collaborate
to achieve the goals(Habiba, et. al, 2013). Besides that, this program also offered Quadruple Helix Model
(QHM), which is a concept in innovation research that that integrates Government, Academia, Industry &
Citizen/Community (Ania Fuzi, 2013). Islamic city project provides services to help the Muslim society,
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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this services include immigration problems and counselling, legal advice, marriage counselling, marriage
arrangement counsellor and setter-up information, family planning advice, making the Muslim
communities aware of help and opportunities available for them, have some sort of facilities to the help
the destitute, temporarily homeless. We also try to organize a group of people for welcoming visitors to
the mosque and advertising mosque functions to the community. Then we can reach our vision as the
religion of "Rahmatan Lil Alamin" (mercy to all mankind).
Program Objectives: The main objective for this paper is to propose the creation of Islamic city to create
the wellbeing for society. Islamic city defined as a city where the communities are well advanced in terms
of education, economic, services and social lives according to Islamic traditions (Rabah Saoud, 2002). By
harnessing Network of Mosque (NoM) we can help the people to save time without having to go to a
government or industry building by providing the service for them. Mosque committee will provide many
kind of service such as for marriage class and education, hajj and umroh training, waqaf and zakat
collection and contribution, Islamic learning, and more.Islamic City can collaborate with Lembaga Tabung
Haji to provide the hajj, umroh and other Islamic activities (Bimbingan – Lembaga Tabung Haji, 2014).
These can make the Muslim society more convenient on performing their obligation as a Muslim. As we
know, almost all of the services that has been mentions are very rare to be seen at the similar
place/centre, the Muslim society might spent a huge cost to reach each of the service. This is an
opportunity for the Muslim to centralize all of the Muslim activities in one place as we call it as an “Islamic
City”. In Islamic city, Islamic scholars around the world are encourage to be contributed in Islamic city in
order to give sermonsfor people who are needed or lack of Islamic knowledge. This Islamic city can be
accessible all over the world but also played a very important role in spreading Islam and also to clarify
the misconceptions of non-Muslims about true of Islam.
This project will bring the wellbeing to the society. This program offers Quadruple Helix Model (QHM)
which involves the Government, Academia, Industry, and Citizen as the main actor. It will cooperate with
a government institution such as Jabatan Kebajikan Malaysia (JKM), Ministry of Health Malaysia (KKM),
Jabatan Kemajuan Islam Malaysia (JAKIM), and Tabung Hajj department of Malaysia. Besides, this
program will collaborate with hospitals and clinics in Malaysia to provide and improve the health service
to the society. For event development, this program will include the public company such as wedding
event organizer that will help society in managing and organizing the wedding activities. For educational
cluster, this program will collaborate with universities in Malaysia and the society expertswho want to be
volunteers. As the main actor in this program, mosque committee has a significant impact to handle the
program through the network of mosque.
2. Literature Review
The world mosque or masjid taken from Arabic language which is sujud (sajada). It means the devoted,
loyal, and with bowed heads with full of respect and reverence. The mosque use for many function, not
only for worship but also to seek for knowledge, Muslim centre activities, as well as the centre developing
economic of the ummah. According to Omar Bakri (Muhammad, O. B, n.d.) on his book The Role of
Mosque explained that in the prophet time, there are 20 activities/tasks which we expect from the
mosque. Some of the activities that expected from the mosque are the mosque as the Judiciary Court,
themosque as the headquarters of the Islamic State's supreme leadership, themosque as a section of the
Department of Information and Culture,themosque as the University for Learning and
Teaching,themosque as the platform for oratory, eloquence and poetry, themosque as the hospital where
casualties of war are treated, the mosque is a home and refuge for the poor, needy and the travellers, the
mosque as an eating place for the hungry and the needy and the Mosque as a place for consultation and
exchanging views. From the points above, only few activities that handled by the mosque in this time.
Today, the Mosque do not act as the Muslim centre anymore, Muslim uses mosque as the place for
religious practices only. We as Muslim should expand the culture of the Mosque based on the prophet era,
as a key role of Muslim activities. We need to return the Mosque to its original function.
In this globalization era, we may utilize the Mosque as the Muslim centre in order to develop Islamic
country. We can have many Islamic activities that can be handled in the mosque. This activities can be
implemented in different program. We can harnessing the Network of Mosqueto establish the Mosque as
a centre of education, marriage course, zakat collection and distribution, Umroh and Hajj training, halal
certificate distribution, Islamic seminars, and providing other value-added services to the people who live
around the mosque. But, in order to develop Islamic city, all stakeholders must give its contribution
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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including Government, Mosque committee, company, and the society (Habiba, et. al, 2013). Then, we can
improve the social welfare for those people who live around the mosque. In Malaysia, Urban
Transformation Centre or UTC becomes one of the good example to improve the social welfare for people
around him. UTC is one of the government effort and initiatives providing the urban community with key
government and private sector services under one roof. With UTC, people around can come for many
activities. The services that UTC provides are, National Registration Department, MyEg, Public
Transportation Commission (SPAD), Immigrations Departments, Department of road transportation (JPJ),
Lembaga Hasil Dalam Negeri (LHDN), and Companies Commissions of Malaysia (Treasury-UTC, 2012).
The main purpose of UTC is to provide the business service centre that bring the social welfare to the
society. Based on the News Strait Times dated 6 of August 2014, the government targeted 123000
business registrations for the Goods and Service Tax (GST) which bring the social welfare for those who
life around UTC(Dasspetaling, 2014).
Currently, the coverage of UTC is still not nation-wide.Thus, the researcher suggests the Network of
Mosque as the solution to improve the social welfare because we can find the mosque even in remote
areas. We can use this network to develop Islamic country that will served the Ummah better just like
what the sahabah did in the prophet era. We can also can learn from Smart city concept. Smart city is the
concept is really a framework for a specific vision of modern urban development. Smart city recognizes
the growing importance of information and communication technologies (ICT) as drivers of economic
competitiveness, environmental sustainability and general liveability (Alcatel-Lucent, 2012). Smart cities
are expected to be the key to combine a sustainable future with continued economic growth and job
creation which also bring the welfare to the society. The main purpose of Islamic city is to establish a
“user-driven” based development model to enhance the community quality of life. Islamic City project
combines and merges government agencies services and voluntary services in an easy way, saving money
and time. Islamic City project will connect all the Mosques in Malaysia through Network of Mosque (NoM)
and provide Services for the Society. As we can find mosques almost everywhere in Malaysia, we decided
to use NoM to create an Islamic city which the basic services will be delivered through it. The activities
that will be served in the Islamic city project through theNetwork of Mosque are:
1. Community classes: Community classes’ purposes to educate people become better. This will help
Muslim youth to learn how to read the Quran, learn about Islamic history, manners and Etiquettes,
traditions of the holy prophet (SAW), Fiqh as well as memorization of the Quran. And for the Non-Muslim,
they may joined the language class. So, they can learn English and Arabic language that can be benefit for
their future. We can have Muslim communities who are fluent in Arabic and English to teach them.
Furthermore, we also have special classes for Elders women and men separately. As the fact is, that in our
societies we find many elders who cannot even read the Quran. We will provide special classes teaching
how to read the Quran properly and memorizing the small surah’s of the Quran so that they can read in
their prayer. This will also help the elders invest their time in a good matter and gives them the
opportunity to meet each other and strengthen the bond of Muslim hood. All the teaching services
mentioned above not only for the Muslims. We will also encourage and welcome the non-Muslims to join
these classes. This can be a good example of Da’wah.
2. Marriage-related services: Marriage is the Sunnah of our prophet. Based on themalaymailonline.com
dated march, 3rd 2014 there are 148,806 Muslim marriages in 2012, according to the Department of
Islamic Development Malaysia (JAKIM) and a total of 65,993 marriages were registered in 2012 (Su-lyin,
2014). This number shows that there are the significant numbers of marriage in every year. With Islamic
City, we can help people who want to get married by providing marriage service. These services include
marriage registration, certification and wedding event. For marriage event, NoM will also cooperate with
other wedding organizer. Besides, Islamic City also provide birth certification and marriage consultation.
3. Zakat and Waqaf collection and distribution: Zakat is the practice of taxation and redistribution,
including benefits paid to poor Muslims, imposed upon Muslims based on accumulated wealth. It is
obligatory for all who are able to do so, and it is considered to be a personal responsibility for Muslims to
ease economic hardship for other Muslims to eliminate inequality among followers of Islam (Wikipedia,
2014). As the centre of Muslim community, Zakat can be collected through the mosque and it can
distribute to the needy people around the mosque. This benefit will bring the wellbeing to the society
who live around the mosque because the mosque committee know who are the needy and can distribute
it to the right people.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
(ICMFE-2015)
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4. Promoting Halal Product: Network of Mosque unable us to distribute and promote the halal product
easily. One of the conceptual solutions for promoting halal product via Network of Mosque is an
eHalal4All Program which aim to raising the economic and social status of rural
communities/entrepreneurs in Sabah, Malaysia (Abdul Rahman, et. al, 2014). We can cooperate with
JAKIM in order to succeed on of their program in promoting Halal Product (Bantuan Kebajikan – Jabatan
Kebajikan Masyarakat Malaysia, 2014). Thus, it can improve the wellbeing for the society.
5. Sermons and Islamic lecturers: As the centre of Muslim society, Mosque can be used to spread
Islamic value. One of the way to spread Islamic value is through the lecturer and sermons. Mosque also
can be used as the place for those who want to convert to Islam, and people who just converted to Islam
can present in Islamic lecturer and learn basic Islamic activities such as how to perform wudhu, prayer,
and so on.
6. Umroh and Hajj learning: With harnessing the Network of Mosque, government can easily manage
and monitor the people who intent to perform Umroh and hajj easily. Mosque committee can cooperate
with Tabung Hajj for Umroh and Hajj learning activities. It included the registration of Hajj and Umroh,
the seminar about Hajj and Umroh, learning and guidance and counselling about Hajj and Umroh. Besides
that it also helps the people to apply for passport, health test, payment of the costs, and the updated
information about hajj.
7. Medical centre: Based on the WHO Statistics, Malaysia has a big number for the total expenditure on
health per capita in Malaysia which is $692 (WHO Malaysia, 2012). With this conceptual solution, mosque
can be used as the medical centre. Thus, Muslims without insurance or those who are in need of
emergency help can receive treatment. It can be conducted by cooperating with the minister of health
Malaysia and the nearest hospital to the mosque. With Network of Mosque, people can save their time and
money because they do not need to go further if they need any treatment.
8. Home for the disable, needy, and traveler: Jabatan Kebajikan Masyarakat (JKM) declared that one of
their objective is to help the disable people (Bantuan Kebajikan JKM, 2014). With network of Mosque, we
can cooperate with JKM to provide the home for disable people and needy. Not only that, mosque can be
used as the home for travellers, especially for those who spread the Islamic messages (da'wah).
9. Eating place for the hungry and needy: Today, Malaysian government concerned and makes the
poverty eradication as one of the primal priority. (Abdul Rahman, et.al, 2014). In Islamic city, we can help
government to control and help the disable, hungry and needy people. Based on the Department of
Statistics Malaysia, the poverty rate went up from 3.6 percent in 2007 to 3.8 percent in 2009 while the
hardcore poverty rate remained at 0.7 percent. (Suara Sarawak, 2012).Thus, by utilizing the network of
mosque the Islamic City can collaborate with government institution like JKM to feed the disable, hungry,
and needy people. People may also give their Sadaqah to the mosque to feed the needy. Moreover, we may
have the fasting and future together as the weekly agenda in the mosque so that we can help the people
around us.
Figure 1: Islamic City Portal (Homepage)
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Figure 2: Islamic City Portal (Menu Page)
10. Islamic city portal: Islamic city portal is an online website that consists of all information regarding
the activities in the mosque including the service that provide by the mosque and its procedures. With
Islamic city portal, people can get and update any information directly through their gadget. Islamic
portal also provided articles that can be read for free by visitor. Moreover, it also has an online learning
that provided to the people who want to learn Islam via internet. People must pay subscription fees in
order to get these features. The ten activities above can improve and guide to the wellbeing of society.
With network of Mosque, it is not impossible to develop Islamic City. The current and future trend of
people to come to the mosque at least for performing five times prayers. At this five times, people comes
and gather to perform Islamic rituals. And people gathering may have a great potential, not only for
silaturrahmi but also to build and improve their life. Mosque that build in the centre of the city or village
and can be used as central of activities because of its strategic location. With Network of Mosque, we can
provide more service and activities to the society around the mosque. Then, we can improve the
wellbeing of the society.
Proposed Conceptual Solution: In order to create the Islamic city, we can utilize the use of Network of
Mosque to develop wellbeing to the society. Ibnu Khaldun as one of Islamic Scholar states that
entrepreneur is seen as a knowledgeable individual and is instrumental in the development of a city-state
where enterprises will emerge (Mervyn, K. 2007). We can practice this concept to the network of mosque
to improve our social welfare. Managing and creating the Mosque as the Community center can help
people in many activities. Moreover, people can find the mosque everywhere which will reach more
targeted audience that will cover more people in the society. In Islamic City, we also come with an online
portal that include all information and activities that related to the Islamic City activities. This portal will
help people to view and get the updated news about the mosque and its activities. It will include the
procedure to apply marriage certificate, halal promotion, and Learning material. Also it will display the
event that will be hold by the mosque committee such as seminar information and wedding event. Not
only that, it also will include the khutbah, islamic teaching, and Islamic articles that can be read by the
society for free. The society can also do an online consultation via Islamic city portal. Thus, it can develop
the wellbeing of people and make society’s activities become easier. In order to achieve its goal, this
program will collaborate with many government agencies including Islamic Department of Malaysia,
Ministry of Health Malaysia, Jabatan Kebaikan Masyarakat Malaysia,and Tabung Haji Malaysia. Also it will
collaborate with the university and academia in order to provide Islamic activities such as sermons and
Quranic learning. In industry and Malaysian company, this program also collaborates to achieve its goal
as Islamic City, such as a wedding organizer. Mosque committee plays an important role in Islamic City.
They will handle the activities with collaboration with the government, industry, academia, and society
who will use the system.
Customer Segments: The Customer Segments is the society or the organization that involve and have a
contribution in developing Islamic city. The customer segments included:
- Poor families
- Disable people
- Malaysian society
- Malaysian organization/companies
- Malaysian entrepreneurs
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Cost Structure: The Cost Structure is the cost amount that must be paid from the activities that utilized
during developing Islamic city. The Cost structure included:
- Portal development and maintenance.
- Staff salary
- Food for the poor and needy
- Seminar cost
- Medicine
Revenue Streams: The Revenue Streams is the revenue that generates from the customer to cover the
cost structure in developing Islamic city. The revenue streams included:
- Service fees for marriage and hajj program
- Proposal funds from the government
- Freemium service for Online Islamic lecturers and learnings
- Subscription fees for those who want to subscribe to an online learning, such as the
subscription fee for those who want to get the weekly Islamic courses through Islamic portal website.
- Booking fees for those who want to book the mosque facilities such as for wedding party
- Advertising fees for advertisement that related to Islamic City
- Seminar fees for those who want to join the seminar
- Donation and Waqaf from the society.
Key Partners: The Key Partner describes the people or group of people who that act as partners order to
run the Islamic City Program. The key partners include:
- Public company such as wedding organizer in Malaysia to organize marriage related activities.
- Tabung Hajj department of Malaysia for Hajj and Umroh program
- Society that want to be volunteer
- Mosque committee
- University in Malaysia for running the community class and educational program
- Hospital in Malaysia for treatment and medical related activities
- Ministry of Health Malaysia for medical related activities
• Government
Agencies
• Government
Islamic
Departments (e.g.
JAKIM)
• Mosques
• Local Community
• Small Medium
Enterprises (SME)
• Public companies
• Academia
• Islamic city portal
• Marriage service
• Zakat distribution
• Halal promotion
• Islamic lecturers
• Hajj learning
• Medical service
• Home for disable
and needy
- Eating
place for the hungry
and needy
• - Provide Islamic
city portal
• Islamic expertise
• Mosque Committee
• Programmer
• Government
• Trusted database
system
• Trusted Ad Space
• Convenient
• Trusted
information
• Ubiquity
• Efficiency
• Trusted zakat
collection and
distribution
• Trusted teaching
and learning
system
• Mass Customized
• Acquisition
• Retention
• 1 to 1
• e-Halal4All
Portal
• Online portal
• Network of
Mosques (NoM)
• Face to face
• Seminar
• Poor families
• Disable people
• Malaysian
entrepreneurs
• Malaysian
society
• Malaysian
organization
• Portal Development/ Maintenance
• Staff salary
• Food and medicine
• Fees for Ad space
• Subscription fees for premium services
• Donation/Waqaf
• Service cost
•
Figure 3: Business Model Canvas (BMC) for Islamic City Program
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- Jabatan Kabajikan Masyarakat (JKM) for organizing the home for disable and needy activities
- Islamic Department of Malaysia such as JAKIM to qualify the application of Halal certification
Key Activity: The Key Activities is the main activities that provide in Islamic City to develop the wellbeing
to the society. The key activities included:
- Provide Community classes
- Provide Marriage service
- Collect and Distribute zakat and Waqaf to the right people.
- Provide Halal certification
- Provide Sermons and Islamic lecturers
- Provide Umroh and Hajj learning
- Provide Medical service
- Home for the disable, and needy
- Eating place for the hungry and needy
- Provide Islamic city portal
Key Resources: The Key Resources describes the most necessary assets required to process Islamic City
Program work. The key resources such as:
- Islamic expertise on marriage, hajj, zakat and knowledge of Islam.
- Tabung haji is required in order to support the financial of candidate of hajj
- Companies that can provide the weeding party
- Programmer that can build an Islamic city portal
- Islamic department of Malaysia (JAKIM) for collaboration in Islamic related activities
- Jabatan Kebaikan Masyarakat (JKM) to support the home and eating place for the needy
- Ministry of Health Malaysia (KKM) to collaborate in the medical center program
Value Preposition: The Value Propositions is the value of the services that provided in the Islamic
society in order to satisfy the customer. The value prepositions included:
- Convenient and customer can save their time
- Trusted zakat collection and distribution
- Trusted database system
- Trusted ad space
- Trusted information distribution
- Trusted teaching and learning system
- Ubiquity, because people can find the mosque everywhere and at anytime
- Efficiently in processing marriage because we are providing almost all of the services which are
the regulation of marriage in Malaysia such as HIV test, Seminar, Wedding.
Customer Relationship: The Customer Relationships is the type of relationship that used in the Islamic
city Program. The purpose of this program is to provide the efficiency of different aspect of activities,
including marriage, umroh, hajj, learning, waqaf, zakat and other related activities for the Muslim society.
Channels: The Channels are the parties that communicate in Islamic city program in order to achieve its
Value Proposition. The Channels included:
- Network of Mosque
- Islamic City Portal
- Face to face
- Seminar
2. Conclusion and Future Works
In the prophet era the utilizing of mosque not only for Ibadah but also for spread knowledge and dakwah.
Nowadays, the function of mosque is not well optimized like in the during the prophet era. To improve
the function of Ibadah, mosque also can be used as a centre of Islamic activity. Mosque not only utilized
for Ibadah but also for the activity that can help ummah which spreading knowledge, contribution of
Zakat and many others. In order to reach the Islamic city, the Network of Mosque is one of the ways that
can be used. In Islamic City, we also come with an online portal that include all information and activities
that related to the Islamic activities. Indeed, another program and tools also can be added for future
works for example, in order improve the development of Islamic city we might also utilize social
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networking as a media of communication. Islamic City program should provide video, cassette and CD
libraries, with equipment to use them. This is a very important facility that every mosque should have.
Another future work suggestion could be providing shelters for the visitors. Moreover, provide Muslim
shop, where they can find Islamic Books, clothes, Islamic decorations. It would be a great idea if a Muslim
Bookshop, cafeteria, and Halal food-store could be incorporated into the areas around the mosques.
References
Abdul Rahman, et.al, (2014). Holistic Development of Human Talent – Leveraging On EMaarah Tuition
Program through the Network of Mosque (Nom). IOSR Journal of Research & Method in
Education. Volume 4, Issue 3 Ver. IV, PP 60-68
Abdul Rahman, et. al, (2014). Enhancing Societal Wellbeing and Wealth Creation - Sewing Skills
Programmed. IOSR Journal of Humanities and Social Science. Volume 19, Issue 5 Ver. IV, PP 117-
122
Alcatel, L. (2012). Getting Smart about Smart Cities. Boulogne-Billancourt, Frence: Alcatel-Lucent.
Ania, F. (2013). Quadruple-Helix and its types as user driven innovation models. Triple Helix International
Conference 2013
Azam, A. (2013). Financial Management Practices of Mosque in Malaysia. GJAT Malaysia Vol 3 Issue 1.
Bantuan Kebajikan – Jabatan Kebajikan Masyarakat Malaysia (2014). Retrieved October 05, 2014, from
http://www.jkm.gov.my/content.php?pagename=bantuan_kebajikan
Bimbingan – Lembaga Tabung Haji (2014). Retrieved October 06, 2014, from
http://www.tabunghaji.gov.my/web/guest/bimbingan
Dasspetaling, F. (2014, August 6). Govt targets 123,000 GST registrations. Retrieved from September 28,
2014, from: http://www.nst.com.my/node/20626
Habiba, et.al (2013). MyMosqueNet2Cloud Collaborative System: A network of mosques towards
eradicating poverty in Malaysia. American Academic & Scholarly Research Journal. Vol. 5, No. 5
Measures of National Well-being (2014, September). Retrieved October 13, 2014 from
http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc146/wrapper.html
Mervyn, K. (2007). Handbook of Islamic Banking. Northampton, USA :Edward Elgar Publishing
Muhammad, O. B. (n.d.). The Role of the Mosque. Al-Muhajiroun Publications.
Portal resmi Kementrian kesehatan malaysia (2014). Retrieved October 06, 2014, from
http://www.moh.gov.my/index.php/pages/view/137
Rabah, S. (2002). Fondation for Science Technology and Civilization: Introduction to Islamic city.
Manchaster, United Kingdom: FSTC Limited
Suara Sarawak (2012, July 24). Retrieved on 2014, November 5. from
http://www.barubian.net/2012/07/malaysia-suffers-first-rise-of-poverty.html
Su-lyin, B. (2014, March 3). One divorce in Malaysia every 10 minutes. Retrieved October 08, 2014, from
http://www.themalaymailonline.com/malaysia/article/one-divorce-in-malaysia-every-10-
minutes
Treasury-UTC 2013 [Brochure]. (n.d). Kuala Lumpur, Malaysia: UTC Center
WHO Malaysia (2012). Retrieved 2014 November 5 from http://www.who.int/countries/mys/en/
Zakat (n.d.). In Wikipedia. Retrieved October 08, 2014, from http://en.wikipedia.org/wiki/Zakat
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The Influence of Job Market Factorsand Parentalinfluence towards Accounting Students
in Becoming Professional Accountants in Indonesia
Vina Arnita
University North Sumatera
vina_arnita26@yahoo.com
Abstract: This study aims to investigate accounting students’pursue of becoming professional
accountantsin Indonesia and how this may influence their career path decisions. There has been much
talk thatexperienced professional are lacking considerably over the last decade. Although this trend has
attracted academic attention regarding the factor that influence accounting students has increase become
professional accountants . In this article, we provide a critical review on the contextual variables such as
job market factorsand parental influence. This study adds to present literature by explaining conceptually
on the linkages between the variables by applyingtheTheory of Planned Behaviour (TPB).
Keywords: job market factor,parental influence, accounting students and professional accountant
1. Introduction and background
Accounting is one of the major fields in the economic faculty that demands for accounting students.
Accounting students’ ambition are to become professional accountantsWhile Many accounting students
have the motivation to become an accountant because they have plans to study to professional
accountant education because many companies is requiring professional accountant in Indonesia.
Throughout the world, future accountants are expected to meet certain minimum educational
requirements for entering the professional field. In Indonesia, as in other countries, Professional
Accounting Education (PAE) has emerged since the year 2000 as a result of the implementation
of the Government of Indonesia’s Regulation Number 60 of 1999 that states the education for
professional accountants is a mandatory function of the professional association. In this case, it
is the Indonesian Institute of Accountants (IIA). IIA established a set of PAE curricula in
which a candidate shall pass minimum 7 mandatory subjects or equivalent of 245 hours. The
purpose of PAE is to enhance the accountants’ professionalism. There are several chronological
stages to be accomplished before becoming a public accountant in Indonesia.
These namelyinclude:
(1) He/she must hold a Bachelors degree in Economics (Sarjana),
(2) He/she must pass the PAE and
(3) He/she who continues and achieves the PAE certification will have an additional title,
called a professional accountant, which isabbreviated as Ak and will receive a registered number
for accountants from the Ministry of Finance
(4) He/she must pass the Certified Public Accountant examination ( Ujian Sertifikasi Akuntan
Publik ).
This long process requires not only time but also additional costs. To most university accounting
graduates this is seen as a barrier into becoming a Certified Public Accountant. Tompessy
(2005) shows that the interest of final year undergraduates to continue their career in a public
accounting firm is lower as compared to those who are in school. It appears that the
undergraduates have better understanding of the process required for becoming Certified Public
Accountants . It takes a long time and incurshigh costs, when theyarein the final years in the
university. Year2009 saw 26 new Public Accountants while 24 more people emerges to became
Public Accountants in 2010. The number of new Public Accountants were lesser when compared to
the number of graduates from Professional Accountant Education Institutesall over Indonesia; that
isonly 0.005%. The percentage becomes even more insignificant when compared to the number of
university graduates from the last ten years. The decline in Public Accountant popularityoccurs in
developed countries as well. Take Australia as an example; the local CPA launched an advertising
campaign since 2003 to promote the Public Accountant field. The campaign emphasized “the
diversity of its membership, inspirational role models and the opportunities and excitement that
accounting offers as a career.” (Anonymous, 2008). 75% of the Public Accountant population in the
United States will soon retire, as mentioned by Murphy (2006), CPA, Chairman of AICPA and a
partner in Plante & Moran Public Accounting Firm. Recruiting new CPA’s has never been an easy task.
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Most CPA’s remain in public accounting firms for as long as five to seven years only (Baldiga, 2005; Bufe &
Murphy, 2004; Murphy, 2006). When compared to the other countries, the number of public
accountants in Indonesia is relatively small (Sarwajuno,2013).
Accounting profession witnesses more than a century of standards setting in developed countries
(Flesher et al., 1996). Nonetheless, in the developing countries, accounting profession and standard
setting has been basically developed in the line of primary mentor, colonial or influential developed
countriessuch as Indonesia,Malaysia, Thailand and China.TheIndonesian accounting professionwas
formed in the line of the Netherlands. TheIndonesian Institute of Accountants (IAI) which wasestablished
in 1959 created the Financial Accounting Standards Committee in 1974 to develop the required
accounting standards. In 1994 this committee restructured to Financial Accounting Standards Board
(FASB) to be more independent than IAI. In recent years, FASB is working towards international
harmonisation in standard setting (Radebaugh, et al, 2006, 87). The Malaysian accounting professionwas
formed in the line of theUK. Standard setting in Malaysia is in the hands of theMalaysian Accounting
Standards Board (MASB). The financial Reporting Foundation monitors standard setting under Financial
Reporting Act of 1997, but not involved intheprocess of standard setting. So far, out of 32 MASB's
Standards, 29 are the same as International Financial Reporting Standards (Radebaugh, et al, 2006, 83).
In Thailand, accounting standards must be approved by the Ministry of Commerce. Thai's accounting
standards are issued by the Institute of Certified Accounting and Auditors of Thailand which was
established in 1948. This country has adopted 21 of the International Accounting Standards until the end
of 2005 (Radebaugh, et al, 2006, 89). China’s accounting systems has been influenced by both Western
(UK and USA) andtheSoviet Union.As China moves towards market oriented economy, theaccounting
profession and standard setting changed to meet new economic development requirements. More
recently in 1992, the conceptual framework of accounting has issued Basic Accounting Standards for
Business Enterprises (Radebaugh, et al, 2006, 86). After the announcement by IFAC in December 2015,
the Chinese Auditing Standards Board has decided to adopt the International Standards on Auditing.
2. Literature Review
Job market factors: Dalci, Arasli, Tümer, and Baradarani (2013)examines the influence of various
career-choice factors on students’ decisions to choose an accounting major in Iran. The findings indicate
that students who wish to select an accounting major attach significantly higher priority to “financial and
job-market factors” than those students who would choose a non-accounting major. Additionally, the
discriminate analysis reveals that “financial and job-market factors” have the highest discriminatory
power. This means that the more Iranian students’ perceive the “financial and job-market factors” as
important, the more likely they would be to major in accounting. This finding could be attributed to the
war, high-inflation rates, foreign embargos, and high unemployment rates in Iran because students are
likely to strive for financial and job-market issues when looking for a career under such conditions. Anna
and Rahayu (2011) showed that the most significant factor affecting the selection accounting department
students and professional accounting education (PAE) choose their profession as public accountants and
non public accountants are number of job offers and work environment. Significant factors that influence
the selection of the public accounting profession and non public accountants when viewed by gender is
the type of work and student perceptions about the benefits of the public accountant. The
differences become significant factors in influencing selection between accounting department
students with PAE students in choosing the profession as a public accountant and public accountant
non showed no significant factors that influence the selection of the public accounting profession.
Financial and job-market factors: several prior studies Mauldin, Crain, and Mounce (2000)suggest that
“financial and job-market factors” may influence students’ major choice. For instance, Lowe and Simons
(1997) findings in the USA reveals that future earnings have the strongest influence on students’ choice of
a major in accounting. Additionally, Ahmed et al.(1997) found that New Zealand students place
considerable importance on financial factors when choosing an accounting major. Similarly, the findings
of Felton et al. (1994) in Canada revealed that accounting students place greater emphasis on job
availability and good long-term earnings. A number of research, Chatzoglou et al. (2011), Spector (1997),
Spathis (1999), and Dole and Shroeder (2001), indicate staff turnover is caused by low job
satisfaction. Chatzoglou et al. (2011) also added that if job satisfaction is met, public accounting firm’s
commitment and sustainability will certainly improve. On the contrary, unmet job satisfaction will result
in turnovers and absenteeism. Lander, Reinstein and Henson (1993) added two factors that cause
unmet job satisfaction: low compensation rates (Gullapalli,2005) and unmet expectations (Sutton
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and Griffin,2004). This condition is caused by the disparity between individual expectations and the
reality of things (Cluskey Jr. and Vaux,1997). Adriyanto (2009) mentions that professional
mismatches often occur in public accounting firms, particularly for auditors working on taxation.
Parents influence: Tan and Laswad (2006) found that parents influence appear to have a stronger
influence on students’ intentions to major in accounting. The parents’ perception and the students’ view
of becoming professional accountants influence students’ career choice.Myburgh (2005) found that, for
first-year accounting students at the University of Pretoria in South Africa, the factors that have the
greatest influence on their choice towards becoming a professional accountant is the parental influence.
Despite the range of approaches used, there are significant similarities in the career choice variables
selected for consideration in accounting career choice studies. In addition, background variables, such as
prior work experience and parents’ occupation, have also been included in some of these studies (Leung
& Clegg, 2001). As previously noted, general research on career choice has demonstrated that key figures
in the lives of young people exert a strong influence on their career aspirations (Levine & Hoffner, 2006;
Paa & McWhirter, 2000).
In a US study, Paolillo and Estes (1982) reported that teachers had a greater influence than parents or
peers on students’ decisions to pursue a career in accounting. The influence of parents was also much
greater for accountants than for three other professional groups. In two US studies,Inman, Wenzler, and
Wickert (1989) and Mauldin, Crain, and Mounce (2000) found that parents, followed by teachers, had a
strong influence on students’ decisions to major in accounting. In a study set in New Zealand, Tan and
Laswad (2006, 2009) reported that students who majors in accounting were more motivated to comply
with their parents than non-accounting major students when making career choices. Myburgh (2005) in a
study set in South Africa, also found that the advice given by parents, relatives and school teachers
influenced Asian, black and white students’ decisions to pursue a career in accounting. Hence, the
inconsistencies in the findings regarding key referents maybe due, in part at least, to cultural differences.
In contrast, Gul et al. (1989) found that Australian students were not influenced by their parents, teachers
or peers in choosing to study accounting. Bebbington, Thomson, and Wall (1997) reported that parents,
friends and career advisors had very little influence over students’ ambition to be an accountant.
Similarly in the US,Lowe and Simons (1997) reported that friends, teachers and parents were the least
influential factors in the students’ decision to major in accounting. This finding is consistent with a later
US study by Strasser, Ozgur, and Schroeder (2002), who reported that parents, peers and advisers had
little influence on students’ choice of majoring in business. Law (2010) shows that parental influence
makes significant and independent contributions in predicting the career choice of accounting students.
The results also indicate that parental influence has significant influence on the decision whether to select
a CPA career. Another study byAllen (2004)also concluded that the important referents such as parents
support influence the students’ decisions to major in accounting in the university. However,limited
research has been conducted on the parental factorsand its influence in the career choice of accounting
students. Jackling and Calero (2006) suggest that parental factors influence students’ aspiration to pursue
a career in professional accountancy.
Intention to Professional accountant: Jackling and Calero (2006), Chatzoglu et al. (2011), Spathis
(1999), and Dole and Shroeder (2001) found typical causes that make graduate accountants’ reluctant to
become professional accountants. However, these studies were conducted on positivism view,
therefore the results only shows the surface and the general problemssuch as, fresh graduates from the
department of accounting are reluctant to become public accountants as they have limited
knowledge on what a public accountant really is. This perspective is supported by the empirical results
that states the following: a student’s perception towards an accountant’s scope of work, relevant
professional knowledge, intrinsic interest towards the discipline, and job satisfaction of their studies, are
primary factors that influences their interest (Jackling and Calero 2006). Extensive measures must be
taken to encourage students to work in a field relevant to their academic discipline. Perspectives also
need to be straightened, and awareness need to be raised so that graduates do not have the wrong
perception towards the world of public accounting. Doing so may secure the regeneration rates of public
accounting firms.
Sugahara, Hiramatsu and Bolland (2007) state that students do not choose to become public
accountants due to this negative perception. In a student’s mind, a public accountant’s work is
structured, repetitive, according to the standard operating procedures (SOP), demanding high
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precission, rigid, monotonic, boring, and introverse. According to Sakagami, Yoshimi, and Okano (1999)
major accounting profession divisions include not only charteredaccountants and chartered certified
accountants, but also includes chartered public finance accountants and chartered management
accountants. Chartered public finance accountants conduct accounting operations and auditing of
corporations in the public sector in the UK and no equivalent professional accounting position exists in
Japan. Moreover,it cannot be said that Japanese CPA or certified public tax accountants carryout auditing
for corporationsin the public sector or providea managementaccounting service. The conceptual
framework that will be used in this study is illustrated in Figure 1. The job market factors and
parental influencetowards accounting students in becoming a professional accountant.
Conceptual Framework
3. Conclusion
The purpose of this study is to investigate the factors influencing accounting students in becoming
professional accountants. The intention is to provide a critical explanation of the specific model
ofonthe accounting students’ decision in becoming professional accountants.The present evidence also
suggests that the key to influence accounting students to become professional accountant have
understanding how accounting students have to become professional accountant.
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Accounting students in
becoming professional
accountants
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Using the Social Network for Business Sustainability: Examining Start-up SME Firms in
Malaysia
*Ehsan Fansuree Surin,1 Ismail Ab. Wahab,2 Mohd. Hazman Fitri Hussin1, Mohd Najib Saad1,
Mior Harris Mior Harun1
1Universiti Teknologi MARA, Selangor, Malaysia
2Malaysian Academy of SME & Entrepreneurship Development (MASMED), UiTM, Malaysia
*efansuree@salam.uitm.edu.my
Abstract: The purpose of this paper is to examine social network among SME firms in Malaysia.
Specifically, this paper aims to investigate the usage of social network among Malay ethnic entrepreneurs
in the start-up phase of SME firms in manufacturing sectors. Secondly, this paper aims to investigate the
relationship between social network and business performance of the start-up manufacturing SME firms
in Malaysia. The research data were collected through self-administered and mail questionnaire with a
stratified random sample of 83 SME firms around Malaysia. The hierarchical regression was used for
hypothesis testing. The result shows that Malay entrepreneurs used extensively business contact in their
social network. For the hypothesis testing, the hierarchical regression shows that social network has
significantly positive relationship with business performance. This paper contributes to the body of
knowledge especially to the social network theme in Malaysia which is considered to be in the infant
stage still. The discussions of the results, the contribution to the body of knowledge as well as limitations
of the study are also discussed.
Keyword: Social network, Start-up phase, SMEs, Malay entrepreneurs Malaysia
1. Introduction
Social network is defined as the interrelationship between the entrepreneurs (ego) and their contacts
(alter/s) for business development purposes (Formbrun, 1982). The concept of network and its focus lies
on the person who has the relationship with ego and thus, social network research utilises the
relationship either directly or indirectly between the ego and their alter(s). Alters comprise family
members, friends, relatives and business contacts (Birley, 1985; Brown and Butler, 1995; Das and Teng,
1997; Premaratne, 2001). The need for social network was cited by the scholars to secure important
resources from the alters especially for the start-up firms (Witt, 2004; Witt, Schroeder and Merz, 2008).
Even though the research on social network theme was done extensively, there is a limited understanding
on the role of social network especially in the developing country like Malaysia (Minai, Ibrahim and
Kheng, 2012; Wahab and Surin, 2013). Majority of the researches were done in the western countries for
example in the Scandinavia (eg. Greve, 1995; Nybakk, Lunnan, Jenssen and Crespell, 2013; Nybakk,
Vennesland, Hansen and Lunnan, 2008), in the United Kingdom (eg. Cromie and Birley, 1992; Kenny and
Fahy, 2011; Ostgaard and Birley, 1996) and in the United State of America (eg. Martinez and Aldrich,
2011; Quan and Motoyama, 2010; Zimmerman, Barsky and Brouthers, 2009). Thus, this paper was
carried out to examine social network among manufacturing SMEs in Malaysia during their start-up
phase. Specifically, this study attempts to examine; (1) the usage of social network of Malay
manufacturing SME firms, (2) the relationship between social network and business performance of
Malay manufacturing SME firms. Malay entrepreneurs are included in the analysis as this ethnic
constitutes as one of the major ethnic players in the entrepreneurship field in Malaysia. The remainder of
this paper is organised as follows. We introduce social network theory and the development of the
hypothesis in Section 2. The research methodology comprises of sample and data collection method as
well as operationalisation of variables used in this study is presented in Section 3. In Section 4, we
present the research findings including descriptive analyses, reliability test, mean, standard deviation and
correlation and also the hypothesis testing. In the discussion section (Section 5), we present the adoption
of the alters in the entrepreneurs’ social network and discuss how finding reflects on prior investigation.
We also put forward the contributions and limitations of the study in Section 6.
2. Literature Review
Social Network Theory: The social network theory was popularised in the middle of the 1980s by Birley
(1985) and sought to explain the capability of the network to help the entrepreneur access resources. A
social network is made up of persons to whom the individual primarily relates to on a social level. This
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network functions largely on trust (Porras, Clegg and Crawford, 2004). Firms’ survival in the business is
dependent on the resources obtained by the entrepreneurs. The core argument of this theory is
entrepreneurs will fulfil their firm’s demands through alters due to the lack of certain resources. Due to
the resource constraint, the entrepreneurs have searching for the alters to obtain an assistance through
social network (Starr and MacMillan, 1990). The resources mentioned could take the form of information,
motivational resources and material resources (Jenssen and Koenig, 2002). Social network adopted the
structuralist perspective when operationalising and measuring network and try to connect the theme
with organisational outcomes (Borgatti and Foster, 2003; Hoang and Antoncic, 2003). Structuralist
perspectives explain the configuration of network ties of the social network. The network is structured
within which the entrepreneurs and the alters interact. It also provides an understanding of the role of
network structures in influencing entrepreneurial outcomes. The perspectives included in this study are
network density and network centrality.
Network density can be defined as alters that are connected and know each other in the network of the
ego (Hansen, 1995). The density of a network forms part of the network characteristic and also identifies
the number of ties that link the ego to the alters (Rowley, 1997; Frazier, 2000). Ibarra (1995) introduced
the term homophily in social network that refers to the tendency of individuals to bond with others who
are similar. For example, Ibarra found that a group of people bonded as they shared a similarity in terms
of sex. Some of the barriers faced in a dense network are communication problems where different
languages are spoken, a lack of familiarity between the alters and the uncertain purpose of participating
in the group. People who share a common understanding maybe included in the dense network. From the
ego’s perspective, a dense network that functions on trust will enable them to acquire resources easily.
Previous studies discovered the network density positively affects firm’s business performance (Liedka,
1991). Reese (1992) also concluded that network density may contribute to the business performance.
On the other hand, network centrality refers to the position of the ego in the group from which the flow of
information is spread (Frazier, 2000). In business, an ego that is central to communication will have early
access to information and thus control the spread of information to the alters. Centrality is key to
controlling the flow of information from multiple sources (Rowley, 1997) and also essential in controlling
the distribution of resources (Boje and Whetten, 1981). However, in large network, not all information
will be transferred evenly to the alters. Therefore, it is necessary to place oneself centrally in the network
in order to access information and control the transfer of information. Individuals can still be associated
with others even though they are not in the same area or field (Perry-Smith, 2006). Centrality is beneficial
to motivate the individual’s innovation effort (Ibarra, 1993), allow learning and knowledge transfer
(Cantner and Joel, 2011), business unit’s innovation enhancement (Tsai, 2001) and also beneficial to the
ego as they are able to influence resource transactions among the social network members (Perry-Smith,
2006). In this paper, we propose positive relationship between social network and business performance
as suggested by social network theory (Hoang and Antoncic, 2003). The positive relationship was
developed to indicate the direction for the hypothesis testing. It had been adopted by prior researchers
(Brown and Butler, 1995; Bruderl and Preisendorfer, 1998; Greve, 1995; Quan and Motoyama, 2010).
Therefore, the hypothesis is;
H1: There is a positive and significant relationship between social network and business performance
3. Methodology
Sample and data collection method: Our unit of analysis is organisation, therefore the data were
collected from the SMEs owner-managers. In Malaysia, the entrepreneur can be viewed simply as an
owner-manager because both these roles are significant to the business (Ndubisi and Kahraman, 2005).
A total of 306 firms were selected by using stratified random sampling (the firms were categorised
according to their geographical zones; North, South, East, Central and West). The listing was obtained
from Companies Commission of Malaysia (SSM) based on the criteria of being a manufacturing SME;
which have either of the following; (1) more than 5 and fewer than 150 full-time employees and (2) an
annual sales turnover between RM250,000 and less than RM25 million. Additional criteria were also used
in sample selection; (1) the full name of the owner has been stated in the directory, (2) the firm must
been operating not more than three years, and (3) the firm is not a franchise-based. This is due to the lack
of control over their business and tailored to the requirement of their parent company. This study utilised
mailed questionnaire and self administered questionnaire to obtain data from the sample firms in
Malaysia. Questionnaire is found to be predominant research method used in social network-based
research (Greve, 1995; Greve and Salaff, 2003; Marsden, 1990). 83 completed questionnaires were
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received, yielding a response rate of 8.3 percent (1000 questionnaires sent). Another 5 responses were
considered inappropriate as they did not meet the SMEs criteria and provided incomplete information for
the name generator. The questionnaires sent out especially to food and beverage entrepreneurs were
attached with official receipts and packaging of the entrepreneurs’ brands to demonstrate researcher
support. The initiative was conducted in order to increase the response rate.
Operationalisation of Variables: In order to determine social network, the entrepreneurs were asked to
list down five names of alters they had been in contact with over the last month. In general, respondents
are usually required to name five important alters that they interact with whilst running the business
(Greve, 1995; Hansen, 1995; Marsden, 1990). Based on the name listed by entrepreneurs, they are then
asked to rate how familiar each alter is with other members in the network (network density). The
respondents were then asked to rate the items using a 5 points Likert scale where 1 point meant that they
strongly disagreed whilst 5 points signified that they strongly agreed. These answers would thus uncover
strong links where alters knew each other well and weak links where alters were mere acquaintances.
For another measure, network centrality was measured by using six items using a 5 points Likert scale. 1
point meant that they strongly disagreed whilst 5 points signified that they strongly agreed. For the
business performance measure, the modified non-financial business performance items were adopted
from Lee and Lee (2007) and Lee, Lee and Wu (2010). The items were rated using the 5 points Likert
scale. In this scale, 5 points signify strong agreement whilst 1 point shows that the entrepreneurs strongly
disagreed. This study employed non-financial measure to analyse business performance. Procuring
financial data directly from the SME entrepreneurs may lead to false information due to the sensitive
nature of the data (Mahmood and Hanafi, 2013; Wahab, 1996). Therefore, utilising subjective measures
are acceptable when the nature of the data is sensitive which may lead to inaccurate reporting by
entrepreneurs (Ahmad, 2007). Lastly, we controlled the potential bias towards business performance.
The control variables include firm size, firm age and parental business history.
4. Findings
Descriptive Statistics: The findings showed that the majority of the respondents were male accounting
for 51.8 percent of the sample, whereas females accounted for 48.2 percent of respondents. The age of the
respondents showed that most of them were 46 years old and above (39.8%). Only 7.2 percent 26 to 30
years of age, meanwhile no respondent comes from 25 years and below. In terms of educational level, the
majority of the respondents obtained the SPM (31.3%). This is followed by diploma holders (25.3%),
undergraduate degree (22.9%), STPM (4.8%), master’s degree (3.6%), and Ph.D (1.2%). Approximately 7
percent of respondents reported no formal educational. The majority of respondents (37.3%) possessed
11 to 15 years of work experience. This is followed by 31.1 percent of respondents who had 16 to 20
years of work experience and 26.5 percent with 5 to 10 years of work experience. A small number of
respondents represented the maximum years of work experience with 4.8 percent having more than 20
years of working experience. No respondents indicated less than 5 years of working experience. In terms
of firm’s profile, the majority of businesses (54) came from the food and beverage sector, wood-based
product (11), textiles, apparel and leather (5), electric and electronics (3), plastic-based products (2) and
rubber-based products (1) and approximately 7 of the respondents indicated their firms were in other
sectors, representing a combination of businesses in wood, iron and metal-based sectors. As regards
business types, sole-proprietorship firms accounted for 48.2 percent of enterprises, and 27.7 of
enterprises reported sole-proprietorship while another 24.1 percent of enterprises were private-limited
firms. In terms of firm’s location, most of the firms operated in Western region (29), followed by Southern
region (26), Northern region (15), Central region (11) and Eastern region (2). Through the name
generator method, majority of the respondents indicates that business contacts are the main player in
their social network which constitutes 156 persons. This is followed by family members (135) and friends
(89). Only a small number of relatives (35) were included in the entrepreneurs’ social network.
Reliability Test: For this study, the reliability test was conducted on each variable to ensure their
reliability and internal consistency. The Cronbach’s alpha value were considered good since all the
reliability values were above 0.70, which concur with Nunnally’s (1978) minimum threshold of 0.70. The
results of reliability test are presented in Table 1.
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Table 1: Cronbach alpha values for variables
Study variables
Items
Cronbach alpha
1. Social network
- Network density
- Network centrality
2. Business performance
3
6
6
0.750
0.749
0.771
Mean, Standard Deviation and Correlation: Table 2 illustrates mean, standard deviation and
correlations of the studied variables. The results revealed that the correlation between social network
and business performance was significant (r = 0.283, p < 0.01).
Table 2: Means, standard deviations and correlations for the variables
Study variables
Mean
Std. deviation
Correlation
1 2
1. Social network
2. Business performance
3.84
3.78
0.5
0.48
.283**
.283**
* p< 0.05
** p< 0.01
Hypothesis Testing: Table 3 summarises the result of the hierarchical regression analysis. In the first
step, the model shows the R2 = .047, R2 change = .047, F value = 4.029 and a significant F change of .048
which indicated that the model is significant. For the second step, the model was improved with R2 = .111,
R2 change = .064, F value = 5.005 and a significant F change = .019 which means that the model is also
significant. Control variables were examined and parental history was included in the model as it
achieved a valid significance level in both the first (β= -.218, p< .05) and second step (β= -.178, p< .01).
However, the finding is inversely associated with business performance and against the view of previous
research (Che Rose, Kumar and Yen, 2006). Meanwhile, the regression analysis revealed that social
network was positively and significantly related with business performance (β= .256, p < 0.05).
Therefore, hypotheses 1 was supported.
Table 3: Hierarchical regression analysis
Study variables
Standardised Beta
First step
Standardised Beta
Second step
Control variable
Parental history
Independent variable
Social network
-.218*
-.178*
.256*
R
R2
R2 change
F value
Significant F change
.218
.047
.047
4.029
.048
.333
.111
.064
5.005
.019
Discussion: The challenges facing by SME firms have led to a growing interest by scholars in
entrepreneurship field including social network theme. Despite of the importance of social network,
however there are limited studies done on social network especially for Malaysian SMEs scenario. Social
network is important to SME firms as an important part of the firms’ effectiveness and broadly accepted
as a tool for securing resources from alters (Laere and Heene, 2003; Sengupta, 2011). This study revealed
that business contact constitutes a big number in the Malay respondents’ social network through name
generator technique. This is followed by family members, friends and the least number is relatives.
Previous literatures have widely discussed the important roles of business contact in enhancing
entrepreneurs’ business performance. For example, supplier plays a crucial role in supplying market and
competitor information to the entrepreneur (Fortner, 2006; Idris, 2008). Millington, Eberhardt and
Wilkinson (2006) also discussed the finding of foreign firms operating in China relied on their suppliers
to provide information on the activities of their competitors. The information gleaned from the suppliers
would be of purchasing activities of their competitors. If competitors cease to purchase certain items, this
would be a reason to follow suit in their own business. The reason for these actions will be sought from
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other firms. In Malaysia, Hamed (1995) stated that Malay entrepreneurs depended on the information
gleaned from their suppliers.
More than half of the successful manufacturing firms in Malaysia built social network consisting of family
members and embraced the moral support, information and benefits gained (Osman and Hashim, 2003;
Sulaiman and Mohd Saukani, 2007). This is supported by Birley (1985) whose study identified family
members as an important player in the social network. Family members play an integral role in the
success of entrepreneurs as these relationships are often close knit (Bratkovic and Antoncic, 2009). For
the involvement of friends in the social network, the present study found that friends were at the third
place. Ahmad (2005) found that some owner-managers in Malaysia depend heavily on friends for morale
support and advice. Hamed (1995) also discovered that friends also provide funding to the
entrepreneurs. Even though there is a lack of in-depth discussion of the roles of relatives in the social
network, some studies have found that relatives provide great support to entrepreneurs (Bogren,
Friedrichs, Rennemo and Widding, 2011; Copp and Ivy, 2001). Relatives comprise of a wider family
network and also include the family of the spouses (Hamed, 1995). In this study, there is relatively small
attention given to incorporate relatives in the social network. However, previous scholar for example
Wahab (1996) discovered that the financial advisors of small business entrepreneurs in Malaysia
comprised of relatives. Ahmad (2005) found that entrepreneurs in the tourism industry included
relatives in their social network while Ibrahim (1998) also revealed that small-sized firms relied greatly
on their relatives for financing since formal financing was often inaccessible. Among the reasons for
sourcing financial aid from these informal channels are the ease of access, the urgency of financial need,
the lack of formal procedures in obtaining funds and the flexibility in loan repayment.
Indeed, relying on social network alters are crucial to the SME entrepreneurs to gain important resources.
Even though the government through their agencies provides the financial assistance for the SMEs’
development, however, not all applicants are successful in securing the assistance. Omar (2006) brought
forth the issue of the applicants’ personalities in the selection process that could lead to bias especially for
entrepreneurs who are not well or fully established. Abu Bakar (2008) reported that accessibility to
financial aid is still very limited despite the government’s efforts to promote the various aids programs.
The author noted that graft and bureaucracy problems are among the significant factors that prevent
certain entrepreneurs from getting assistance. This view is supported by Mohamed (2001) who noted
that bureaucracy, slow decision making and grafting are synonymous with government agencies. Mohd.
Jan, Wahab, Salleh, Abdul Kadir and Osman (2010) also found that bureaucracy is one of the factors that
contributed to the failure of SMEs in Malaysia. In addition, Wahab (1996) also provided evidence that
unreasonable levels of collateral and higher interest rates are among the barriers faced by small firms
trying to gain access to financing. Another studies found that the collateral is taken into consideration by
the financial institution prior to approving a loan to entrepreneurs (Mohd Harif, Hoe and Md. Zali, 2011;
Zairani and Zaimah, 2013).
For the hypothesis testing, the hierarchical regression analysis was conducted to examine the
relationship between social network and business performance. The result shows that social network is
positively and significantly related to business performance. This finding supports past studies
(Kristiensen, 2004; Ostgaard and Birley, 1996; Premaratne, 2001; Surin and Wahab, 2013; Thrikawala,
2011) on the importance of the alters to enhance business performance. Two new findings appear in this
study regarding the relationship between social network and business performance that have not
discovered in the literature so far. Firstly, the result of this study found that social network affect
business performance where the business performance was measured by non-financial indicator. Prior
studies tend to use financial data in measuring business performance. However due to constraint in
gathering the financial data, the subjective measures were deemed appropriate especially for SMEs in
Malaysia (Ahmad, 2007; Mahmood and Hanafi, 2013; Wahab, 1996). Secondly, social network affects
business performance for Malay manufacturing start-up firms in Malaysia.
5. Conclusion
This study examined Malay manufacturing start-up firms in Malaysia with emphasis on the social
network of these firms. It empirically tested the relationship between social network with business
performance while the business performance was measured by using non-financial indicator. Prior
researchers have concentrated the social network research in the Western context; given the
opportunities to carry out the research for this theme in the developing country like Malaysia. Besides,
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this paper also examined the roles of four types of alters in the entrepreneurs’ social network; family
members, friends, relatives and business contacts using the name generator technique. The result
contributes to the growing body of knowledge especially on SME firms use of social network in Malaysia.
The finding shows that the social network is positively related to business performance. This study lies
on the ties between entrepreneurs and their family members, friends, relatives and business contacts,
making it a unique contribution to the literature centred on the social network theme. Previous literature
on social network has focused on these ties but mainly in relation to the transferring of resources.
Moreover, previous literature has been criticised as it overlooked the role of family members, friends,
relatives and business contacts in social network and placed more focus on formal network. Lastly,
previous research on SMEs in Malaysia have limited their scope to certain regions only (Muhammad,
Ahmad and Shahnon, 2011; Zainol and Wan Daud, 2011). This study, however, includes all the regions in
Malaysia and aims to generalise the findings to the whole manufacturing sector population.
It should be noted that this study has several limitations. The sectoral biases that are of concern in this
study arise from the investigation concentrating SME manufacturing firms. The current study attempts to
examine the social network for the following sectors; (1) textiles, apparels and leather (2) food and
beverage (3) wood-based products (4) plastic-based products (5) rubber-based products and (6) electric
and electronics. Therefore, the results produced might differ from that of other sectors. This study also
focuses on start-up SME firms and as such, the results cannot be generalised to the manufacturing firms
that are operating in the later phases. Lastly, the sample chosen is drawn from each region in Peninsular
Malaysia and Borneo. To reach out to these respondents that are based over a wide area, a suitable data
collection method, i.e. the postal questionnaire was adopted. This method is deemed suitable as opposed
to the personal interview which involves higher cost and is time consuming. However, it is impossible to
ensure that the selected respondents from each region are represented in the sample. To rectify this
problem, the researcher sent reminder letters to the respondents four weeks after the original
questionnaire was posted.
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Weekend Effect of Stock Returns in Indonesia: The UnconditonalMethod and the
Conditional Method
Ika Pratiwi Simbolon
Doctorate Program in Padjadjaran University
pratiwika_s@yahoo.com
Abstract: This paper examines the weekend effect on stock market returns by using the unconditional
method and the conditional method. This paper uses daily closing prices of firms listed in Indonesian
Stock Exchange by using LQ-45 Index from January 2006 to December 2013 in three subperiods: all
months, non January months and January month. Independent sample t-test is applied to examine the
significance of the weekend effect. Results support the weekend effect in three subperiods by using the
unconditional method. But when using the conditional method, the weekend effect only exists in down
market for all months period and non Januarymonths period. There’s no weekend effect in January month
period by using the conditional method, both in up and down market. This paper presents new evidences
and supplements the finance literature on the weekend effect for the case in Indonesian Stock Exchange,
and also help investors to develop a good investment strategy.
Keywords: weekend effect, the unconditional method, the conditional method, return of stock
1. Introduction
Information is one of the key factor for an investor in the capital market. Efficient market is defined as
one in which the prices of securities quickly and fully reflect all available information about the assets
(Jones, 2004). According to the efficient market, prices of securities are assumed random, not patterned,
and unpredictable. Market anomalies are in contrast to what would be expected in a totally efficient
market. Numoreus empirical studies have indicated persistent and potentially exploitable weekend effect
and January effect in stock returns in many countries. The first study of weekend effects in security
markets appeared in the Journal of Business in 1931, written by Fields (1931).Fields didn’t use statistical
tests, but many researchers interested in the same field of research. French (1980) continued this
direction of research and was the first author to employ statistical methods in order to test for the
existence of the calendar effects. There’re many other studies about weekend effect anomaly, which
referred tothe negative Monday returns and the positive Friday returns (Lin and Chen, 2008;
CinkoandAfci, 2009; andKamathand Liu, 2011). However, various studies on market anomalies
notoccured only on Monday and Friday, but also occured on other days. There’re negative returns on
Tuesday (Raj andKumari, 2006). Elangoand Al (2008) found the lowest returns were on Monday and
Friday, whereas the highest returns were on Wednesday.Tachiwou (2010) found the lowest returns were
on the middle of the week, Tuesday and Wednesday, and a higher pattern towards the end of the week,
Thursday and then Friday. Derbaliand Khadraoui (2011) found negative returns on Wednesday and
positive returns on Friday. Darrat, Li and Chung (2013) found Monday Effect and Tuesday Effect, whereby
the returns on Monday and Tuesday were significantly lower than the return on the benchmark day of
Wednesday.
Market anomaly also appears on January month, it’s called January effect. Wachtel (1942) was the first to
examine January effect. Since this discovery, many studies that examined this market anomaly. Other
researchers that supported the existence of January effect were Kato andChallhei (1985); Choudhry
(2001); Al-Rjouband Alwaked (2010); and Guler (2013). Market anomalies also appear on other months.
Ahsanand Sarkar (2013) found June Effect in Bangladesh, whereby there were significant positive returns
on June. However, in contrast to the findings from Nageswari, Selvam, Vanithaand Babu (2013), they
found the highest returns were on December and the lowest returns were on January. Ogieva,
Osamwonyiand Idolor (2013) found negative returns were on February, March, April, May and December.
Wheras positive returns were on January, August, September, October and November. Stock prices in the
stock market will always fluctuate. Fluctuations in market can occur whether in up or down market. For a
rational investor, that fluctuations must be faced with a good investment strategy to obtain the optimal
returns at a certain level of risk that is able to be carried. This study will also test the weekend effect
without differentiated market (the unconditional method) and differentiated market (the conditional
method).So far, no studies have examined more comprehensively about the capital market anomalies,
namely weekend effect, with three subperiods for the test: all months, non Januarymonths and January
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month, using the unconditional method and the conditional method in companies listed in the LQ-45
Index in Indonesian Stock Exhange.
2. Literature Review
Weekend effect is used to describe the phenomenon in financial markets in which stock returns on
Monday are often significantly lower than those of the immediately preceding Friday (Singhal and
Bahure, 2009). Weekend effect anomaly is contrary to the theory of market efficiency. This anomaly is
appealing to be examined because the presence of weekend effect can be useful as a trading strategy that
can gain profits for investors. Investors could buy stocks on days with abnormally low returns and sell
stocks on days with abnormally high returns (Tachiwou, 2010).Fields (1931) examined the pattern of the
Dow Jones Industrial Average (DJIA) for the period 1915-1930. He compared the closing price of the DJIA
for Saturday with the mean of the closing prices on Friday and Monday. For the 717 weekends he studied,
the Saturday prices were more than $ 10 higher than the Friday-Monday mean.French (1980) continued
this direction of research and was the first author to employ statistical methods in order to test for the
existence of the calendar effects. He used the S&P 500 index to study daily returns and obtained similar
results. He studied the period 1953-1977 and found that the mean Monday returns were negative for the
full period and also for every five year sub-period. The mean returns were positive for all other days of
the week, with Wednesdays and Fridays having the highest returns.Lin and Chen (2008) found the
weekend effect in the Taiwan mutual fund market in period January 1986 to June 2006. The results
revealed significantly negative Monday returns and positive Friday returns. This weekend effect did not
vary greatly between the early and later periods of the month.CinkoandAfci (2009) used the data in
Istanbul Stock Exchange from ISE-100 Index. The data set was composed of daily returnsfor 324
stockstraded in ISE and market capitalization based portfolio returns during 1995-2008. By the use of
regression model, they found significant negative Monday returns and significant positive Thursday and
Friday returns. Kamathand Liu (2011) examined the daily return data on the market index, IPSA, of the
Santiago Stock Exchange of Chile. By using the regression model, in the first sub-period (January, 2003-
October, 2005), there was the traditional Monday-Friday pattern, in the second sub-period (November
2005 – Agustus 2008), the anomaly effect was attributable to the significantly positive Wednesday
returns.
However, various studies on market anomalies were occuredon other days. Raj and Kumari (2006)
investigated the presence of seasonal effects in the Indian stock market by the two major indices, the
Bombay Stock Exchange Index and the National Stock Exchange Index. By using the multiple regression
model, the results found returns on Monday were positive, returns on Tuesday were negative and January
effectwas not found in India.Elangoand Al (2008) used the real-time data of the National Stock Exchange
of India (NSE) for 1999-2007 period of three of the major indices, S&P CNX Nifty, S&P CNX Defty, and CNX
Nifty Junior. Results indicated lower returns on Monday and Friday. Surprisingly, Wednesdays have
yielded the maximum returns across indices. Tachiwou (2010) investigated daily stock market anomalies
by using daily opening and closing values for the two stock Index of West African regional markets from
September 1998 to December 2007. The two indexes were Brvm-10 index and Brvm-composite index. A
pattern of lower returns around the middle of the week, Tuesday and then Wednesday; and a higher
pattern towards the end of the week, Thursday and then Friday, were observed.Derbaliand Khadraoui
(2011) used the data of Morocco Exchange Market for 74 companies. The results showed that Friday was
a statistically significant positive return on assets. While that on Wednesday was a statistically significant
negative return on assets. Darrat, Li and Chung (2013) examined seasonal anomalies in Johannesburg
daily stock returns from January 1973 to September 2012. They found no compelling evidence for either
a January or December effect in the South African market. Returns on Monday and Tuesday were
significantly lower than thereturns on the benchmark day of Wednesday. Nevertheless, these
strongseasonal effects disappeared in thepost-2008 period following the global financial crisis.
Market anomalies also occur in January month, whereby stock prices tend to fall towards the end of
December and then recuperate quickly in the first month of the New Year, January (Ahsan and Sarkar,
2013). Wachtel (1942) was the first to examine January effect in the Dow Jones Industrial Average (DJIA)
Index from 1927 to 1942. He found that the returns in January were higher than other months. Since this
discovery, many studies that examined this market anomaly.Researchers who supported the existence of
January effect were Kato andSchallheim(1985). Kato danSchallheim (1985) used the data for the twenty-
nine year period of 1952 to 1980 in the Japanese stock market in two market indices, Value Weighted
Index (VWI) and Equally Weighted Index (EWI). This study examined stock returns on the TSE for the
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presence of January and size effects. Both of these anomalous effects appeared in the Japanese data.
Choudhry (2001) investigated seasonal anomalies in the mean stock returns of Germany, the UK, and the
US during pre-World War I period using the data from January 1870 to December 1913 in Germany and
the UK and from January 1871 to December 1913 for the US. The empirical research was conducted using
a non linear GARCH-t model. Results obtained provide evidence of the January effect and the month of the
year effect on the UK and US returns. There was month of the year anomaly, but there was no January
effect in German returns. Al-Rjouband Alwaked (2010) used the data from the Dow Jones industrial
average (DJIA), the Standard and Poors 500 (S&P 500) and the National Association of Securities Dealers
Automated Quotations (NASDAQ) indicesBy using Ordinary Least Square regression, this paper found
that the average January returns were consistently negative during crises. They also found that average
loss in returns of January during crises were much smaller than average loss in returns during other
months of the crises. Guler (2013) found January effect in China, Argentina and Turkey returns. However
no evidence of a January effect was found at Brazil and India stock markets.
Market anomalies also occur in other months. Ahsanand Sarkar (2013) examined the existence of January
effect in Dhaka Stock Exchange (DSE) in Bangladesh. Regression model combined with dummy variables
and monthly DSE All Share Price Index (DSI) from January 1987 to November 2012 has been used to test
January effect in the stock return in DSE. It was empirically found that, although January anomaly didn’t
exist in DSE, there was significant positive return in June. Nageswari, Selvam, Vanithaand Babu (2013)
found that the highest mean return was earned in December and the lowest/ negative mean return
earned in January Month for S&P CNX Nifty index. The S&P CNX 500 Index recorded the highest mean
return in the month of March and the highest negative mean returns in the month of January. The
analytical results of seasonality indicated the absence of January anomaly during the study period. Ogieva,
Osamwonyiand Idolor (2013) examined the calendar effect in the Nigerian Stock Market from 19 April
2005 to 30 September 2010. Using the multiple ordinary least square regression, they found negative
returns on Monday, Thursday and Friday. They also found positive returns on Tuesday and Wednesday.
Returns in February, March, April, May and December were negative significant. Wheras the positive
returns appeared in January, August, September, October and November. In the case of June and July
there were mixed signs.
3. Methodology
This paper uses weekly data, every Monday and Fridayin period 2006-2013 and it is divided into 3
subperiods: all months, non January months and January month. By using purposive sampling, this paper
has 12 firms that continued listing in LQ-45 Index in Indonesian Stock Exchange. Dependent variable in
this paper is return of stock, calculated as:
Ri(t) =
1)-i(t
1)-i(ti(t)P
PP
Where Ri(t) is return on stock i at time t; Pi(t) is price on stock i at time t; Pi(t-1) is price on stock i at time t-
1.Independent variables in this paper are weekend effect. Weekend effect refers to the abnormally high
returns to common stocks on Friday and negative returns on Monday. This paper uses the unconditional
method and the conditional method (Pettengill, SundaramdanMathur, 1995). The unconditional method
is a method without dividing the market conditions, wheras the conditional method is a method with
dividing the market conditions, up and down market. Up market is whenthere is a positive risk
premium(Rm – Rf) > 0 dan down market is when there is a negativerisk premium(Rm – Rf) < 0. Where
Rm refers to return of market and Rf refers to return of risk free rate. The hypotheses in this paper are:
Ho: The average return on Monday is the same to the average return on Friday.
Ha: The average return on Monday is different to the average return on Friday.
Before testing the significance of differences between return on Monday and return on Friday, first it can
be found if there is weekend effect in each of the subperiods, where the mean return on Monday is lower
than the mean return on Friday. Next, the significance of differences should be investigated. In testing the
hypothesis, this study will use the independent sample t-test. If the probability of significance ≤ 0.05, Ho
is rejected, that means the average return on Monday is different to the average return on Friday. If the
probability of significance > 0.05, Ho is accepted, that means the average return on Monday is the same to
the average return on Friday.
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4. Results and Discussions
(1) All months period by using the unconditional method
Tabel 1: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
Monday
4677
-.0015
.04593
.00067
Friday
4500
.0011
.02800
.00042
Table 1 shows that the average return on Monday is -0.0015, lower than the average return on Friday,
0.0011.
Tabel 2: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
35.124
.000
-3.277
9175
.001
-.00261
.00080
-.00418
-.00105
Equal variances
not assumed
-3.306
7779.361
.001
-.00261
.00079
-.00416
-.00106
The probability of significance in Levene’s test for equality of variances is 0.000 ≤0.05, that means the
variance is different. Thus the t-test analysis is using equal variances not assumed. The probability of
significance in equal variances not assumed is0.001 (two tailed). So it can be concluded that there is
weekend effect, whereas the average return on Monday is lower than the average return on Friday, and
the average difference on Monday and Friday is significant different (the probability of significance 0.001
≤ 0.05).
(2) All months period by using the conditional method(up market):
Table 3: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayUp
2299
.0137
.03599
.00075
FridayUp
2601
.0104
.02635
.00052
Table 3 shows that the average return on Monday is 0.0137, higher than the average return on Friday,
0.0104.
Table 4: Independent Samples Test
Levene's Test
for Equality
of Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
7.817
.005
3.639
4898
.000
.00325
.00089
.00150
.00501
Equal variances
not assumed
3.571
4164.844
.000
.00325
.00091
.00147
.00504
The probability of significance in Levene’s test for equality of variances is 0.005 ≤0.05, that means the
variance is different. Thus the t-test analysis is using equal variances not assumed. The probability of
significance in equal variances not assumed is 0.000 (two tailed). So it can be concluded that there is no
weekend effect, whereas the average return on Monday is higher than the average return on Friday,
eventhough the average difference on Monday and Friday is significant different (the probability of
significance 0.000 ≤ 0.05).
(3) All months period by using the conditional method (down market):
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Table 5 shows that the average return on Monday is -0.0149, lower than the average return on Friday, -
0.0116, or in other words, theaverage loss in return of Monday is bigger than Friday.
Table 6: Independent Samples Test
Levene's
Test for
Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
4.540
.033
-3.719
4264
.000
-.00339
.00091
-.00518
-.00160
Equal variances
not assumed
-3.828
4254.106
.000
-.00339
.00089
-.00513
-.00165
The probability of significance in Levene’s test for equality of variances is 0.033 ≤0.05, that means the
variance is different. Thus the t-test analysis is using equal variances not assumed. The probability of
significance in equal variances not assumed is 0.000 (two tailed). So it can be concluded that there is
weekend effect, whereas the average return on Monday is lower than the average return on Friday, and
the average difference on Monday and Friday is significant different (the probability of significance 0.000
≤ 0.05).
(4) Non January months period by using the unconditional method:
Table 7: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayNonJanuary
3791
-.0007
.03383
.00055
FridayNonJanuary
4140
.0011
.02798
.00043
Table 8: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
13.936
.000
-2.643
7929
.008
-.00184
.00069
-.00320
-.00047
Equal variances
not assumed
-2.621
7374.977
.009
-.00184
.00070
-.00321
-.00046
Table 7 shows that the average return on Monday is -0.0007, lower than the average return on Friday,
0.0011. The probability of significance in Levene’s test for equality of variances is 0.000 ≤0.05, that means
the variance is different. Thus the t-test analysis is using equal variances not assumed. The probability of
significance in equal variances not assumed is 0.009 (two tailed). So it can be concluded that there is
weekend effect, whereas the average return on Monday is lower than the average return on Friday, and
the average difference on Monday and Friday is significant different (the probability of significance 0.009
≤ 0.05).
(5) Non January months by using the conditional method (up market):
Table 5: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayDown
2367
-.0149
.03281
.00067
FridayDown
1899
-.0116
.02507
.00058
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Table 9: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayNonJanuaryUp
2154
.0135
.02819
.00061
FridayNonJanuaryUp
2410
.0103
.02641
.00054
Table 9 shows that the average return on Monday is 0.0135, higher than the average return on Friday,
0.0103.
Table 10: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
3.805
.051
3.959
4562
.000
.00320
.00081
.00162
.00479
Equal variances
not assumed
3.945
4423.468
.000
.00320
.00081
.00161
.00479
The probability of significance in Levene’s test for equality of variances is 0.051 >0.05, that means the
variance is the same. Thus the t-test analysis should use equal variances assumed. The probability of
significance in equal variances assumed is 0.000 (two tailed). So it can be concluded that there is no
weekend effect, whereas the average return on Monday is higher than the average return on Friday,
eventhough the average difference on Monday and Friday is significant different (the probability of
significance 0.000 ≤ 0.05).
(6) Non January months period by using the conditional method (down market):
Table 11 shows that the average return on Monday is -0.0147, lower than the average return on Friday, -
0.0116, or in other words, average loss in returns of Monday is bigger than Friday.
Table 12: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
3.840
.050
-3.327
3857
.001
-.00314
.00094
-.00499
-.00129
Equal variances
not assumed
-3.413
3849.810
.001
-.00314
.00092
-.00494
-.00133
The probability of significance in Levene’s test for equality of variances is 0.050 ≤ 0.05, that means the
variance is different. Thus the t-test analysis should use equal variances not assumed. The probability of
significance in equal variances not assumed is 0.001 (two tailed). So it can be concluded that there is
weekend effect, whereas the average return on Monday is lower than the average return on Friday, and
the average difference on Monday and Friday is significant different (the probability of significance 0.001
≤ 0.05).
(7) January months period by using the unconditional method:
Table 11: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayNonJanuaryDown
2129
-.0147
.03211
.00070
FridayNonJanuaryDown
1730
-.0116
.02497
.00060
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Table 13 shows that the average return on Monday is -0.0116, lower than the average return on Friday,
0.0012.
Table 14: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
16.491
.000
-2.075
752
.038
-.01277
.00615
-.02484
-.00069
Equal variances
not assumed
-2.160
445.939
.031
-.01277
.00591
-.02438
-.00115
The probability of significance in Levene’s test for equality of variances is 0.000 ≤ 0.05, that means the
variance is different. Thus the t-test analysis should use equal variances not assumed. The probability of
significance in equal variances not assumed is 0.031 (two tailed). So it can be concluded that there is
weekend effect although in January month, whereas the average return on Monday is lower than the
average return on Friday, and the average difference on Monday and Friday is significant different (the
probability of significance 0.031 ≤ 0.05).
(8) January months period by using the conditional method (up market):
Table 15: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayJanuaryUp
145
.0166
.09371
.00778
FridayJanuaryUp
191
.0122
.02550
.00184
Table 15 shows that the average return on Monday is 0.0166, higher than the average return on Friday,
0.0122.
Table 16: Independent Samples Test
Levene's Test
for Equality of
Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
4.626
.032
.615
334
.539
.00437
.00710
-.00960
.01833
Equal variances
not assumed
.546
160.260
.586
.00437
.00800
-.01143
.02016
The probability of significance in Levene’s test for equality of variances is 0.032 ≤ 0.05, that means the
variance is different. Thus the t-test analysis should use equal variances not assumed. The probability of
significance in equal variances not assumed is 0.586 (two tailed). So it can be concluded that there is no
weekend effect, whereas the average return on Monday is higher than the average return on Friday, and
the average difference on Monday and Friday is not significant different (the probability of significance
0.586 > 0.05).
(9) January months period by using the conditional method (down market):
Table 13: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayJanuary
394
-.0116
.11353
.00572
FridayJanuary
360
.0012
.02828
.00149
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Table 17: Group Statistics
Day
N
Mean
Std. Deviation
Std. Error Mean
Return
MondayJanuaryDown
238
-.0170
.03853
.00250
FridayJanuaryDown
169
-.0113
.02606
.00200
Table 17 shows that the average return on Monday is -0.0170 lower than the average return on Friday, -
0.0113, or in other words, average loss in returns of Monday is bigger than Friday.
Table 18: Independent Samples Test
Levene's Test
for Equality
of Variances
t-test for Equality of Means
F
Sig.
t
df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
Return
Equal variances
assumed
.771
.380
-1.674
405
.095
-.00571
.00341
-.01242
.00099
Equal variances
not assumed
-1.784
404.124
.075
-.00571
.00320
-.01201
.00058
The probability of significance in Levene’s test for equality of variances is 0.380 >0.05, that means the
variance is the same. Thus the t-test analysis should use equal variances assumed. The probability of
significance in equal variances not assumed is 0.095 (two tailed). So it can be concluded that there is no
weekend effect, because the average difference on Monday and Friday is not significant different (the
probability of significance 0.095 > 0.05).
5. Conclusion and Recommendations
Results support the weekend effect in three subperiods by using the unconditional method. But when
using the conditional method, the weekend effect only appears in down market in all monthsperiod and
non Januarymonths period. There’s no weekend effect in January month period when using the
conditional method, both in up market and down market.This paper presents new evidences and
supplements the finance literature on the weekend effect for the case in Indonesian Stock Exchange, and
also help investors to develop a good investment strategy. Investors could buy stocks on Monday with
abnormally low returns and sell stocks on Friday with abnormally high returns in three subperiodsby
using the unconditional method. Investors could also buy stocks on Monday,because the prices on
Monday are lower than the prices on Friday in all months period and non January months period by using
the conditional method in down market, and then sell stocks on Friday in three subperiods by using the
unconditional method.
References
Ahsan, A.F.M.M., and Sarkar, A. H. (2013).Does January Effect Exist in Bangladesh?.International Journal of
Business and Management, Vol. 8, No. 7
Al-Rjoub, S.A.M., and Alwaked, A. (2010).January Effect during Financial Crises: Evidence from the U.S.
European Journal of Economics, Finance and Administrative Sciences, Issue 24
Choudhry, T. (2001).Month of the year effect and January effect in pre-WWI stock returns: Evidence from
a non-Linear GARCH Model.International Journal of Finance & Economics
Cinko, M., and Afci, E. (2009).Examining the Day of the Week Effect in Istanbul Stock Exchange.The
International Business & Economics Research Journal
Elango, R., and Al. M., N. (2008).Monday Effect and Stock Return Seasonality: Further Empirical Evidence.
The Business Review, Cambridge,Vol. 10, No. 2
Darrat, A. F., Li, B., and Chung, R. (2013).Seasonal Anomalies: A Closer Look at the Johannesburg Stock
Exchange. Contemporary Management Research, Vol. 9. No.2
Derbali, A., and Khadraoui, N. (2011).Day of the Week Effect on Assets Return: Case of the Stock Exchange
of Casablanca. Interdisciplinary Journal of Contemporary Research in Business, Vol. 3, No. 3
Fields, M.J. (1931).Stock Prices: A Problem in Verification. The Journal of Business of the University of
Chicago, Vol. 4, No. 4
French, K. R. (1980).Stock Returns and the Weekend Effect. Journal of Financial and Economics
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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37
Guler, S. (2001). January Effect in Stock Returns, Evidence from Emerging Markets, Interdisciplinary
Journal of Contemporary Research in Business, Vol. 5, No. 4
Jones, C. P. (2004). Investments. Analysis and Management(9th Ed), United States of America: John Wiley
& Sons, Inc.
Kamath, R., and Liu, C. (2011).The Day-of-the-Week Effect on the Santiago Stock Exchange of
Chile.Journal of International Business Research, Vol. 10, Special Issue Number 1
Kato, K., and Schallheim, J. S. (1985).Seasonal and Size Anomalies in the Japanese Stock Market.The
Journal of Financial and Quantitative Analysis, Vol. 20, No. 2
Lin, MC (2008). The Profitability of the Weekend Effect: Evidence from the Taiwan Mutual Fund Market.
Journal of Marine Science and Technology, Vol. 16, No. 3, pp. 222-233
Nageswari, P., Selvam M., Vanitha, S., and Babu, M. (2013).An Empirical Analysis of January Anomaly in
the Indian Stock Market.International Journal of Accounting and Financial Management
Research, Vol. 3, Issue 1
Ogieva, O. F., and Osamwonyi, I.O., and Idolor, E. J. (2013).Testing Calendar Effect on Nigerian Stock
Market Returns: Methodological Approach. Journal of Financial Management and Analysis
Raj, M., and Kumari, D. (2006).Day-of-the-Week and Other Market Anomalies in the Indian Stock
Market.International Journal of Emerging Markets, Vol. 1, No. 3
Singhal, A. and Bahure, V. (2009).Weekend Effect of Stock Returns in the Indian Market. Great Lakes
Herald, Vol. 3, No. 1
Tachiwou, A. M. (2010).Day-of-the-Week-Effects in West African Regional Stock Market.
InternationalJournal of Economics and Finance, Vol. 2, No. 4
Wachtel, S. B. (1942).Certain Observations on Seasonal Movements in Stock Prices.The Journal of
Business of the University of Chicago, Vol. 15, No. 2
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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World Oil Price Movement And Stock Return on Some Capital Markets in Southeast Asia
Hersugondo, Robiyanto, Harjum Muharram
Financial Management Diponegoro University, Indonesia
gondoarum65@gmail.com
Abstract: The existence of inconsistent research results on the effect of changes in world oil prices on the
capital market return also shows the need for a study on the effect of oil price changes on the stock
market return. Therefore, this study examines the effect of the change on world oil prices on the stock
market return located in Southeast Asia such as the Indonesia Stock Exchange, Kuala Lumpur Stock
Exchange, Singapore Stock Exchange, Philippines Stock Exchange and the Stock Exchange of Thailand.
The data used in this study is a composite price index data on the capital market being observed, and
West Texas Intermediate (WTI) crude oil prices in the period of January 2003 to December 2013. Data
are analyzed using Generalized Autoregressive Conditional Heteroscedasticity / GARCH (1,1). The results
of this study show that changes of the world oil prices only have a significant impact on the Malaysian
capital market, represented by the Kuala Lumpur Composite Index (KLCI), and the Thai capital market,
represented by the SET Index.
Keywords: West Texas Intermediate (WTI), GARCH, Capital Markets in ASEAN Region
1. Introduction
Investment activities are capital investing activities either directly or indirectly, in the hope in due course
the owners of capital (or investors) will get some benefit from the results of their investment. Investment
at the present time is not only dominated by investments in financial markets alone, but has penetrated to
the commodity markets. Today’s commodity markets are evolving and price movements in these
commodity markets are also capable of affecting the movement of stock prices in the stock markets. The
existence of the investments made by the investors in different varieties of asset classes also create a link
between commodity markets and capital markets (Morales, 2009). One of the main commodities that
affect the movement of stock prices in the stock market in general, and in the portfolio management in
particular is oil. Fischel (1989) suggests that the risk due to changes in oil prices is essential for portfolio
management. It is based on the idea that oil is one of the main energy source used by the industry. Even
oil is also a strategic commodity for the global economy (Hussin, Muhammad, Awang, Marwan, & Razak,
2013; Hussin, Muhammad, Razak, Tha, & Marwan, 2013; Le & Chang, 2011) and the price of energy in the
form of oil can affect the world economy (Papież & Śmiech, 2012). However, the results of research on the
effects of oil on the capital markets in general, and the stock markets in particular are still quite varied,
for example research conducted by Le and Chang (2011) finding that changes in world oil prices do not
affect the stock market in Japan. This finding is supporting research conducted by Papież and Śmiech
(2012) which concludes that there is no effect of changes in world oil prices to the S & P500 index. The
same result is found by Basit (2013) who finds that there is no relationship between the oil and the stock
market in Pakistan.
Meanwhile, the research conducted by Abdelaziz, Chortareas, and Cipollini (2008); Hussin, Muhammad,
Awang, et al. (2013); Hussin, Muhammad, Razak, et al. (2013); Jubinski and Lipton (2013); Patel (2012)
finds the opposite results. Abdelaziz et al. (2008) finds that there is a relationship between the oil and the
stock market in Egypt, Oman, Saudi Arabia and Kuwait. Patel (2012) also finds that his research results
are consistent with this finding by using the Indian capital market as an object of the study. In the
research carried out by using the S & P500 index, Jubinski and Lipton (2013) also find that changes in
world oil prices have a significant impact on the stock market return as represented by the S & P500
index. The research results of Hussin, Muhammad, Awang, et al. (2013); Hussin, Muhammad, Razak, et al.
(2013) confirm this by concluding that the world oil price changes affect the short-term and long-term
against the FTSE Bursa Malaysia Emas Shariah Index (FBMES). The existence of inconsistent research
results on the effect of changes in world oil prices on the capital market return also shows the need for a
study on the effect of oil price changes on the stock market return. Therefore, this study examines the
effect of the change on world oil prices on the stock market return located in Southeast Asia such as the
Indonesia Stock Exchange, Kuala Lumpur Stock Exchange, Singapore Stock Exchange, Philippines Stock
Exchange and the Stock Exchange of Thailand.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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2. Literature Review
Malkiel (2011) argues that there are two world oil prices which is used internationally. They are the price
of West Texas Intermediate and Brent North Sea (Brent North Sea / Europe Brent). The West Texas
Intermediate is the benchmark oil price in the United States, while the Brent North Sea is a benchmark
price in Europe. In practice, the price of West Texas Intermediate often become the main reference in
international oil prices. After the oil price shocks in the 1970s, much research was done to assess the
effect of oil price changes on real economic variables. Most of these studies find that shocks to oil prices
will affect the economic activities of developed and developing countries (Fischel, 1989). The studies then
bloom again after the oil price increases very dramatically in the years leading up to the 2008 global
financial crisis due to the high demand for oil from Asia and the geopolitical risks occuring in the Middle
East (Masih, Peters, & Mello, 2010). The impact of rising oil prices is relatively varied on the economy in
general and on the capital markets in particular. In the economy of oil-exporting countries, the increase in
oil prices has a positive impact, but for the importing countries and consumers of oil, the effect of the oil
price increase is negative. Meanwhile, the empirical studies conducted to assess the effect of changes in
world oil prices in the capital market have been done by many researchers. The research conducted by Le
and Chang (2011) concludes that the world oil price changes do not affect the stock market in Japan. The
research conducted by Papież and Śmiech (2012) also finds the same thing. In their research, Papież and
Śmiech (2012) state that there is no effect of oil price changes to the S & P500 index. Similar findings are
obtained by Basit (2013) who studies the effect of the change of the world oil prices on the stock market
in Pakistan.
At the same time, there are many studies which find that there are influences and/or significant
relationships between the world oil price changes and the stock market. The research conducted by
Abdelaziz et al. (2008); Hussin, Muhammad, Awang, et al. (2013); Hussin, Muhammad, Razak, et al.
(2013); Jubinski and Lipton (2013); Patel (2012) find the opposite results.Abdelaziz et al. (2008) find that
there is a relationship between the oil price changes and the stock market in Egypt, Oman, Saudi Arabia
and Kuwait. Patel (2012) also finds that his research results are consistent with these findings by using
the Indian capital market as an object of his study. In the research carried out by using the S & P500
index,Jubinski and Lipton (2013) also find that changes in the world oil prices have a significant impact
on the stock market return as it is represented by the S & P500 index. The research results of Hussin,
Muhammad, Awang, et al. (2013); Hussin, Muhammad, Razak, et al. (2013) confirm this by concluding
that the world oil price changes, both in the short-term and in the long-term, affect the FTSE Bursa
Malaysia Emas Shariah Index (FBMES).
3. Methodology
Data: The data required in this research are the data for the monthly closing price of West Texas
Intermediate crude oil and the data for the monthly closing stock price index in the capital markets
studied in the period of January 2003 to December 2013. The data for the monthly closing price of West
Texas Intermediate (WTI) crude oil is obtained from the US Energy Information Administration. The data
for the composite stock price index required in this research are the data for the closing months of the
Indonesia Stock Exchange Composite Index (JCI), KLCI at the Kuala Lumpur Stock Exchange, the Straits
Times Index on the Singapore Stock Exchange, PSEI in Philippines Stock Exchange and the Stock Exchange
of Thailand SET in the period of January 2003 until December 2013. These data are entirely derived from
the Capital Market Statistics published by the Financial Services Authority (FSA).
Operational Definition of Variables: There are two variables used in this research, namely the WTI
crude oil return, and the stock market return. The WTI crude oil return is measured by the ratio of the
measurement scale. It is calculated with the following formula:
WTI -
R
1 -t
1-tt
t
WTI WTI
WTI
where:
WTIt = the closing price of WTI oil spot in month t
WTIt – 1 = the closing price of WTI oil spot in month t - 1
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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The same thing applies to the stock market return variable measured by the ratio of the measurement
scale. The stock market return being studied is measured by the ratio of the measurement scale, and
calculated using the following formula:
C C - C
R
1 -t
1-tt
t
momposite
ompositeomposite
where:
Composite t = the Closing Stock Price Index at the Stock Exchange studied in month t
Composite t – 1 = the Closing Stock Price Index at the Stock Exchange studied in month t – 1
GARCH (1,1): The data analysis is performed by using the Generalized Autoregressive Conditional
Heteroscedasticity / GARCH (1,1). The Model of Generalized Autoregressive Conditional
Heteroskedasticity (GARCH) is developed byBollerslev (1986) which is the development of the ARCH
model. This model is built to avoid too high order in ARCH models that are based on the principle of
parsimony or choose a simple model, so it will ensure the variance is always positive.
The equation used is as follows:
R t
m
= α + β1
R t
WTI
+ εt
with
εt = Φt-1 + ... + Φt εt-p + ηt
ηt = σtεt
σ2t = α0 + α1η2t-1 + .. + αpη2t-p + β1σ2t-1 + ... + βqσ2t-q
and εt is independent and identical distributed N (0,1) and is independent of past state of ηt-p.
R t
m
= the Return of capital markets studied in month t
R t
WTI
= the Return of WTI crude oil in month t
Before the GARCH analysis, the stationarity test data is performed by using the Augmented
Dickey-Fuller Test / ADF (Enders, 2009; Greene, 2003).
4. Results and Discussion
Stationarity Test Result of Data: In the following Table 1, we can see the stationarity test results of data.
Table 1: Stationarity Test Result of Data
Source: FSA and U.S.Energy Information Administration, processed.
* Significant at the level of significance of 1%
Based on Table 1, it can be seen that all the data used in this study has a significant value of ADF level at a
significance level of 1%. Hence, it is concluded that all the data used in this study are stationary and they
are not indicated by the presence of a unit root. Therefore, no further treatment is necessary specifically
for this data and this data can be directly analyzed by using GARCH analysis technique. For data that can
be analyzed directly without any further treatment, analysis of GARCH (1,1) is a proper analysis to be
used (Posedel, 2005). Therefore, this study using analysis of GARCH (1,1).
Results Analysis of the GARCH (1,1): This section will discuss the results of the analysis of GARCH (1,1).
The summary of the results of the analysis of GARCH (1,1) can be seen in Table 2 below.
No.
Variable
Level
1.
WTI
-8,869594*
2.
JCI
-9,229721*
3.
STI
-8,949736*
4.
SET
-9,514737*
5.
PSEI
-11,17431*
6.
KLCI
-12,26893*
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Table 2: Results Analysis of the GARCH (1,1)
Source: FSA and the US Energy Information Administration, processed.
* Significant at 10% significance level
** Significant at the 5% significance level
*** Significant at 1% significance level
Changes in world oil prices (WTI) has no significant effect on the return of JCI. The WTI influence
coefficient is negative indicating that the greater the rate of change in the WTI oil price the lower the JCI
return will be. This is quite reasonable because Indonesia is an importer of oil and its trade balance will
depend on world oil prices, especially the increase in world oil prices would cause the fuel subsidy born
by Indonesia will swell, and it will ultimately have an impact on Indonesia's macroeconomic stability and
the industrial sectors in general. Changes in world oil prices (WTI) has no significant effect on the returns
of PSEI and STI. Unlike the influence coefficient of WTI to the JCI return which has negative sign, the
influence coefficient of WTI to the returns of PSEI and STI is positive which indicates the existence of
potential positive relationship between WTI and the returns of PSEI and STI. Meanwhile, the changes in
world oil prices (WTI) have a significant positive effect on the returns of KLCI and SET. This suggests that
the higher the level of change in the world oil prices, the higher the returns of KLCI and SET will be.
5. Conclusion
Changes in world oil prices only have a significant impact on the Malaysian capital market return (KLCI)
and the capital markets of Thailand (SET) with a positive influence. There is no significant effect of
changes in world oil prices on the stock market return in the Indonesia Stock Exchange, but the sign on
the regression coefficients indicate a potential negative effect. Furthermore, it is found that there is no
significant effect of changes in world oil prices on the stock market return in Singapore and the
Philippines despite their signs of regression coefficient are positive.
Recommendations: Because of the time difference of trade due to the geographical location of WTI
trading on the New York Mercantile Exchange (NYMEX), the change in the closing session on the NYMEX
trading can be a reference for stock investors in Southeast Asia. Investors in Indonesia Stock Exchange
need to pay attention to changes in world oil prices in the stock investing due to changes in world oil
prices have potential negative affect to stock returns in the Indonesia Stock Exchange. If the closing price
on the NYMEX WTI shows better improvement of the equity, the investors in Indonesia Stock Exchange
need to avoid stock transaction that can potentially lead to a decrease in the share price. Meanwhile, the
investors in the capital markets of Malaysia and Thailand can make transactions, due to the closing price
of WTI which tends to rise may increase stock returns in the capital markets of Malaysia and Thailand.
Future Research Agenda: The researchers interested in assessing the same field can develop a more
robust analysis method to examine the same field so that the results found in this study can receive
support by using different analytical methods. The impacts of other commodities can also be examined
towards the capital markets in the ASEAN region.
References
Abdelaziz, M., Chortareas, G., & Cipollini, A. (2008). Stock Prices, Exchange Rates, and Oil: Evidence from
Middle East Oil-Exporting Countries. Working Paper.
Basit, A. (2013). Impact of KSE-100 Index on Oil Prices and Gold Prices in Pakistan. IOSR Journal of
Business and Management, 9(5), 66-69.
Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroscedasticity. Journal of Econometrics,
31, 307-327.
Enders, W. (2009). Applied Econometric Time Series: John Wiley & Sons, Inc.
Constant
WTI
Resid(-1)^2
GARCH(-1)
JCI
0,023012***
-0,088432
0,455880***
-0,044506
KLCI
0,014679***
0,085800**
0,296887**
-0,170552
PSEI
0,015074***
0,053423
-0,057350
0,467846
SET
0,010098
0,123800*
0,253303**
0,587452***
STI
0,008013*
0,072037
0,251098***
0,644687***
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Fischel, D. R. (1989). Efficient Capital Markets the Crash and the Fraud on the Market Theory. Cornell Law
Review, 74, 907-922.
Greene, W. H. (2003). Econometric Analysis 5th Edition. New Jersey: Prentice Hall.
Hussin, M. Y. M., Muhammad, F., Awang, S. A., Marwan, N. F., & Razak, A. A. (2013). The Dynamic
Interaction Between Islamic Stock Market And Strategic Commodities. Journal of Islamic
Economics, Banking and Finance, 9(3), 53-68.
Hussin, M. Y. M., Muhammad, F., Razak, A. A., Tha, G. P., & Marwan, N. (2013). The Link between Gold
Price, Oil Price and Islamic Stock Market: Experience from Malaysia. Journal of Studies in Social
Sciences, 4(2), 161-182.
Jubinski, D., & Lipton, A. F. (2013). VIX, Gold, and Oil: How Do Commodities React to Financial Market
Volatility. Journal of Accounting and Finance, 13(1), 70-88.
Le, T.-H., & Chang, Y. (2011). Dynamics Between Strategic Commodities and Financial Variables. Economic
Growth Centre Working Paper.
Malkiel, B. G. (2011). The Efficient Market Hypothesis and the Financial Crisis. Working Paper.
Masih, R., Peters, S., & Mello, L. D. (2010). Oil Price Volatility and Stock Price Fluctuations in an Emerging
Market: Evidence from South Korea. Working Paper.
Morales, L. (2009). Interlinkages Between Equity, Currency, Precious Metals and Oil Markets: An Emphasis
on Emerging Markets. Doctor of Philisophy in Economic Dissertation, University of Limerick.
Papież, M., & Śmiech, S. (2012). Causality in Mean and Variance Between Returns of Crude Oil and Metal
Prices, Agricultural Prices and Financial Market Prices. Paper presented at the 30th International
Conference Mathematical Methods In Economics, Karviná: Silesian University, School of
Business Administration.
Patel, S. (2012). The Effect of Macroeconomic Determinants on the Performance of the Indian Stock
Market. NMIMS Management Review, 22, 117-127.
Posedel, P. (2005). Properties and Estimation of GARCH(1,1)Model. Metodoloski zvezk, 2(2), 243-257.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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The Examination of Day of the Week Effect and Turn-of-Month Effect in Indonesian Stock
Exchange using Garch Approach
Hersugondo, Robiyanto, Irene Rini D. P.
Financial Management, Diponegoro University, Indonesia
gondoarum65@gmail.com
Abstract: Seasonality or Calendar Anomalies is an interesting topic in capital market. A lot of studies have
been documented that seasonality still exists in capital market through time. The most prominent
seasonality is Day of the Week Effect and Turn-of-Month-Effect. Some researchers have already studied
Day of the Week Effect in Indonesia Stock Exchange with various conclusions but no one has studied
Turn-of-Month-Effect in Indonesia Stock Exchange. Moreover, most researchers tend to use limited
period in their studies and abandon the heteroscedasticity in return data. Since limited period of study
can produce a misleading conclusion,Wiley and Zumpano (2009) suggest that researchers must use broad
range of data to avoid this mistake. Based on that fact, this study will scrunitize Day of the Week Effect
and Turn-of-Month-Effect in Indonesia Stock Exchange by using long research period. This study uses
daily return of Jakarta Composite Index (JCI) from 1 July 1997 to 3 June 2014. By applying GARCH (1,1),
the finding shows that there are Day of the Week Effect and Turn-of-Month-Effect in Indonesian Stock
Exchange. All trading days have significant impact towards JCI return. Monday has negative and
significant impact towards JCI return, meanwhile other trading days have positive and significant impact
toward JCI return, and Friday has the highest impact. Days during Turn of Month have positif and
significant impact towards JCI return. These findings may have implications for investors’ trading
strategies.
Keywords: Seasonality, Day of the Week Effect, Turn-of-Month-Effect (TOME)
1. Introduction
Seasonal phenomenon (seasonality) or calendar anomalies in the capital market is a phenomenon that is
very attractive to many researchers both abroad and within the country. This phenomenon has evolved
from merely the influence of the trading day (Day of the Week Effect and Monday Effect) which has been
investigated by Altiza (2007); Brockman and Michayluk (1998); Brooks (1997); Cahyaningdyah and
Witiastuti (2010); Coutts and Sheikh (2002); Dickinson and Peterson (1995); Iramani and Mahdi (2006);
Kristiawan (2010); Lakonishok and Maberly (1990); Lutfiaji and Djazuli (2012); Rita (2009); Widodo
(2008) to the influence of matters that are superstitious like Friday the 13th Effect (Coutts, 1999; Lucey,
2000, 2001). Seasonal phenomenon has also become one of the evidence that the stock market tends to
be inefficient in its weak form, and this proves that behavioral aspects play a role in the process of
investment’s decision making made by investors. Research on the calendar anomalies that have been
carried out in Indonesia, especially that examines the Day of the Week Effect is often performed by using
analysis tools that are less appropriate for the nature of the stock market return data that are used daily.
This can result in differences in the research results. Techniques of Ordinary Least Square (OLS) is an
analytical technique that is often used in calendar anomalies research in Indonesia (e.g. research
Ambarwati (2009); Cahyaningdyah and Witiastuti (2010); Kristiawan (2010)), but this technique
assumes that the data must be normally distributed and there is no heteroscedasticity in the data used.
Corhay and Rad (1994) state that the daily stock market returns do not tend to be normal and there is
heteroskedastistas. This is also strengthened by the statement of Kamath, Chakornpipat, and Chatrath
(1998) who discover a stock market return in Thailand that is also abnormally distributed and there is
heteroskedasticity. Robiyanto (2000) finds that all returns of share price index in the Jakarta Stock
Exchange are not normally distributed. The analysis tool that can accommodate the data behavior is
GARCH (Generalized Autoregression Conditional Heteroscedasticity) which was introduced by Bollerslev
(1986). Therefore, this study uses GARCH analysis in analyzing the data. In addition, this study also
examines Turn-of-Month Effect because research on this is still relatively rare in Indonesia, although there
is a lot of overseas research that proves the existence of this phenomenon such as research conducted by
McGuiness (2006); Nikkinen, Sahlstrom, and Aijo (2007); Zwergel (2010). The study period used in this
research husband is a long period, viz. the daily periods from 1 July 1997 to 3 June 2014. It is different
from the research conducted by the Indonesian Stock Exchange which uses shorter period than the
period used in this study. The application of long period of study is due to the warning stated by Wiley
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and Zumpano (2009) who suggest that research on anomaly happening in the capital market should use
broad research data.
2. Literature Review
Capital Market Efficiency: One of the main hypothesis in the field of modern finance is the Efficient
Capital Market Hypothesis. Fama (1970) states that an efficient capital market is the capital market
supplying stock prices which always reflect complete information available quickly. There are three
forms of testing the efficiency of the capital market, firstly, a weak form efficiency testing where the
capital market is said to be efficient if its stock price movements cannot be predicted/random (random
walk). Secondly, semi-strong form efficiency testing where the capital market is said to be effecient when
its stock prices reflect all available information publicly. Thirdly, strong form efficiency testing where the
capital market is said to be efficient when efficient capital market if its stock prices reflect all available
information. Various studies on the efficiency of the capital market, especially those that examine the
efficiency of the capital market using the weak form efficiency testing find things contrary to the concept
of efficient capital markets as a pattern that is seasonal and not as a result of a reaction to the existing
information. When the stock market reacts to things that are not included in the concept of efficient
market then this is referred to as anomalies or interference (Fitriyani & Sari, 2013). Anomalies that often
occur in the capital market is an anomaly in the form of Day of the Week Effect and Turn-of-the-Month
Effect.
Day of the Week Effect: Day of the Week Effect is an anomaly where the trading day differences have an
influence on the pattern of stock returns in one week. One of the major phenomena in the Day of the Week
Effect is Monday Effect, it is an empirical regularity that a stock returns tend to be lower on Monday when
compared with other days. According Lakonishok and Maberly (1990), this can happen due to the
tendency of high selling act of the investors on Monday compared with the tendency to make a purchase.
Turn-of-the-Month Effect: The phenomenon of Turn-of-Month-Effect has been found in many capital
markets (Martikainen, Perttunen, & Puttonen, 1995). Pioneering research study on the Turn-of-the-Month
Effect is research conducted by Ariel (1987). Ariel (1987) finds that the stock return in the first half of the
month tends to be higher than half of the next month. He even notes that half of the next month is likely to
produce negative stock returns. Nikkinen et al. (2007) suggests that the phenomenon of Turn-of-Month-
effect can occur due the announcement of macroeconomic data at the beginning of the month. Different
thing is proposed by Ogden (1990) yang melakukan penelitian untuk melakukan telaah lebih jauh
mengenai Turn-of-Month-Effect. Ogden’s research (Ogden 1990) does not only provide an explanation, but
it also tests the validity of the Turn-of-the-Month Effect. Ogden (1990) concludes that the Turn-of-the-
Month Effect in the United States may occur due to the US standard payment system that pays salaries,
dividends and other things at the beginning of the month and this turns out to encourage investment
activity at the beginning of the month . While Sias and Starks (1995) state that the policy of the pension
fund to purchase shares at the beginning of the month as portfolio strategy impacts on stock returns at
the beginning of the month.
Hypothesis: Investors' liquidity needs may change from day to day of the trading week. This condition
leads to the activities of buying and selling a stock which can change every day according to the demand
for money. Due to the wants and needs of the investors that are likely to change throughout the day, the
stock market is also changing both in price and quantity traded. The hypothesis of the liquidity needs
states that the individuals prefer to estimate their needs for liquidity at the weekend, but put a sell order
at the beginning of the week. Furthermore, the hypothesis of information processing also states that
individual investors tend to make their policies of portfolio balance at the end of the week, but it depends
on the condition occurs (Brockman & Michayluk, 1998). The above explanation shows that individual
investors play a role in influencing the behavior of stock prices every day. In fact, however, institutional
investors also play a role in influencing the behavior of stock prices. This is proved by Sias and Starks’s
research (Sias and Starks 1995) that finds that stocks with large institutional ownership tend to have a
higher seasonal behavior than stocks with a low level of institutional ownership. Based on the above
matters, in general, it can be stated that the behavior of investors on every trading day tend to be
different and this may affect the behavior of stock returns. Various studies have found that the trade can
influence stock returns such as research conducted by Brockman and Michayluk (1998); Cahyaningdyah
and Witiastuti (2010); Iramani and Mahdi (2006); Pearce (1996); Rita (2009); Robiyanto (2000); Sias and
Starks (1995). Therefore, the hypothesis is formulated as follows:
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H1: The trading day having effect on stock returns
The days of month transition (Turn of Month) is the days which are estimated to influence the behavior of
stock returns because of the macroeconomic data released at the beginning of the month (Nikkinen et al.,
2007) and the existence of the payment system that adheres to the payment of wages, dues and other
things at the beginning of the month (Ogden, 1990) well as the purchase of shares for investment policies
of pension funds at the beginning of the month (Ariel, 1987). Various empirical evidence shows that the
days of month transition has an influence on stock returns, such as research conducted by Ariel (1987);
Martikainen et al. (1995); McGuiness (2006); McGuiness and Harris (2011); Nikkinen et al. (2007); Ogden
(1990); Zwergel (2010). Therefore, the hypothesis is formulated as follows:
H2: The days of the month transition has an influence on stock returns
DATA: The data used in this research is the data of Composite Stock Price Index (CSPI) daily closing in
Indonesia Stock Exchange during the period of 1 July 1997 to 3 June 2014. These data are used to
calculate the daily CSPI returns by using the formula: Return CSPIt = (CSPIt - CSPIt-1) / CSPIt-1. These
data were obtained from Yahoo Finance.
GARCH: In this study, the data analysis is conducted by using Generalized Autoregressive Conditional
Heteroskedasticity (GARCH) introduced by Bollerslev (1986). GARCH model used in this study is a GARCH
(1,1). To test the impact of trading days on the market return, I use the following model:
Return CSPIt = β1MONDAY + β2TUESDAY + β3WEDNESDAY + β4THURSDAY + β5FRIDAY + εt
with
εt εt = Φt-1 + ... + Φt εt-p + ηt
ηt = σtεt
σ2t = α0 + α1η2t-1 + .. + αpη2t-p + β1σ2t-1 + ... + βqσ2t-q
and εt is independent and identical distributed N (0,1) and it is independent of the past state of ηt-p.
Return CSPIt = CSPI daily return
MONDAY = MONDAY dummy variable, 1 if it is MONDAY and 0 if it is not
TUESDAY = TUESDAY dummy variable, 1 if it is TUESDAY and 0 if it is not
WEDNESDAY = WEDNESDAY dummy variable, 1 if it is WEDNESDAY and 0 if it is not
THURSDAY = THURSDAY dummy variable, 1 if it is THURSDAY and 0 if it is not
FRIDAY = FRIDAY dummy variable, 1 if it is FRIDAY and 0 if it is not
To test the impact of trading days at the turn of the month to the market return, I use the following model:
Return CSPIt = β6TOM + εt
with
εt εt = Φt-1 + ... + Φt εt-p + ηt
ηt = σtεt
σ2t = α0 + α1η2t-1 + .. + αpη2t-p + β1σ2t-1 + ... + βqσ2t-q
and εt is independent and identical distributed N (0,1) and it is independent of the past state of ηt-p.
CSPIt Return = Daily CSPI return
TOM = Dummy variable of days of month transition, 1 if it is the first trading day until the third trading
day at the beginning of the month and 0 if it is not
3. Findings and Discussion
Descriptive Statistics of CSPI Return: Descriptive statistics of CSPI Return based on trading day can be
seen in Table 1. According to Table 1, it can be seen that Monday has the greatest maximum value of CSPI
return if it is compared with the other days. However, Thursday has the lowest minimum value of CSPI
return if it is compared with the other days. Meanwhile, based on the average value, Friday has the
highest average value of CSPI return if it is compared with the other days, and Monday has the lowest
average value of CSPI return, and it is the only day that has an average rating of CSPI return with a
negative sign. Furthermore, based on the standard deviation, Monday is the day with the value of the
highest standard deviation of CSPI return, it shows that the risk of stock transactions on Monday is higher
than the other days.
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Table 1: Descriptive Statistics of CSPI Return Based on Trading Days
Monday
Tuesday
Wednesday
Thursday
Friday
Maximun
0.140285
0.121771
0.079215
0.084082
0.112836
Mininum
-0.10357
-0.08874
-0.10375
-0.11955
-0.07639
Average
-0.00137
0.000567
0.001122
0.000939
0.001807
Standard Deviation
0.018595
0.016313
0.016818
0.017257
0.016518
Sourcer: Yahoo Finance, processed.
Descriptive Statistics of CSPI Return based on days of month transition can be seen in Table 2.
Table 2: Descriptive Statistics of CSPI Return Based on Days of Month Transition
TOM
Non TOM
Maximun
0.1402848
0.1217708
Mininum
-0.103753
-0.119546
Average
0.0012235
0.0005072
Standard Deviation
0.0182124
0.0169508
Source: Yahoo Finance, processed.
Based on Table 2, it can be seen that the CSPI return on the days of month transition has greater
maximum value than on the days other than the days of month transition. However, different thing is
found on the minimum value of the CSPI return. On the days of month transition, the minimum value of
the CSPI return is smaller than the minimum value of CSPI return on days other than the days of month
transition. The average value of the CSPI return on the days of month transition is higher than the average
rate of CSPI return on the days other than the days of month transition, but the risk on the days of the
month transition is greater when it is compared with the risk of days other than the days of month
transition. It can be seen from the value of the standard deviation of the CSPI return on the days of month
transition is greater if it is compared with the standard deviation of the CSPI return on the days other
than the days of month transition.
Unit Root Testing: The unit root testing is done by using the Augmented Dickey-Fuller Test. The results of
this test are shown in Table 3. Based on Table 3. it can be concluded that the data used in this study are
the data that do not have unit root and they are stationary.
Table 3: Result of Unit Root Testing
Description
t-Statistics
Probability
Conclusion
Return
-55,70965
0,000
Stationary
Source: Yahoo Finance, processed.
Day of the Week Effect Testing: The results of the Day of the Week Effect Testing, done by using the
GARCH (1,1) can be seen in Table 4.
Table 4: The results of the Day of the Week Effect Testing
Day
Coefficient
Z Statistics
Probability
Monday
-0,001027
-2,531315
0,0114
Tuesday
0,001157
2,636504
0,0084
Wednesday
0,002182
5,285159
0,0000
Thursday
0,000898
2,156100
0,0311
Friday
0,002409
5,951737
0,0000
Variance Equation
C
6.30E-06
9,661144
0,0000
RESID(-1)^2
0.139437
18,00397
0,0000
GARCH(-1)
0.846805
119,1339
0,0000
Source: Yahoo Finance, processed.
Based on Table 4 above, it can be seen that all the trading days have significant impacts on the CSPI return
in the Indonesian Stock Exchange. Therefore, H1 stating that the trading days have no effect on stock
returns is accepted. But Monday is the only day that has an adverse impact on the CSPI return in the
Indonesia Stock Exchange. While Friday is a day that has the greatest positive impact on the CSPI return
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in the Indonesian Stock Exchange when it is compared with the other days. It supports much research on
the Day of the Week Effect conducted abroad by using long research data such as Sias and Starks (1995)
using data from 1977 to 1991 period, Pearce (1996) which uses data from 1972 to 1994 period, and
Brockman and Michayluk (1998) using data from 1963 to 1993 period. But it is not consistent with some
research on the Day of the Week Effect conducted in Indonesian Stock Exchange by using a relatively short
period of study such as Rita’s research (Rita 2009) which uses the study period from January 2008 to
December 2009, and it finds that Wednesday is the day which has the greatest CSPI daily return. Judging
from the side of the value of the average return, the results of this study find that the CSPI average return
on Friday is the highest return compared with the other days, this is different from the results Ambarwati
(2009) who found that the average return Wednesday is the highest compared to the average return on
another day, but the influence of the trading day in this study is consistent with the results of
Ambarwati’s research (Ambarwati 2009) finding that Monday has a negative effect on returns and Friday
has a positive influence on the return. The findings of this study which indicate that all trading days have
significant impacts on the CSPI return in which Monday has the greatest negative impact and Friday has
the greatest positive impact are in general also inconsistent with the results of Robiyanto’s research
(Robiyanto 2000) finding that only Thursday has significant impact on the CSPI return. In general, the
differences of the research results occur because the previous study uses very short data, viz. data taken
from a period of one to two years of observation.
Testing Turn-of-the-Month Effect (TOME): In the following Table 5 below, it can be seen the test results
of Turn-of-the-Month Effect using a GARCH (1,1).
Table 5: The test results of Turn-of-Month-Effect
Description
Coefficient
Z Statistics
Probability
TOME
0,001819
3,805761
0,0001
Variance Equation
C
6,10E-06
9,587319
0,0000
RESID(-1)^2
0,129124
18,07433
0,0000
GARCH(-1)
0,856548
127,4993
0,0000
Source: Yahoo Finance, processed.
Based on Table 5, it can be seen that the days of month transition (Turn of Month) have a significant
positive impact on the CSPI return. Therefore, H2 stating that the days of month transition have an
influence on stock returns is accepted. This is consistent with the studies that have been carried out
abroad such as Martikainen et al. (1995) who conduct research on capital markets in Finland, McGuiness
(2006) who conducted research on capital markets in Hong Kong, and Nikkinen et al. (2007) who
conducted a study on the S & P 100 Index. In general, the payment system in Indonesia is similar to the
United States. Ogden (1990) suggests that the standard payment system in the United States makes the
payment of salaries, dividends and other things at the beginning of the month and it is able to encourage
investment activity at the beginning of the month. In Indonesia, the same thing also applies primarily to
the payment of salaries and dues associated with the investment (eg insurance companies, pension funds,
and others). At the beginning of the month, after the payment of the premium holders, the investment
managers perform an investment strategy commonly referred to as dollar cost averaging. They purchase
shares in the beggining of each month to add their portfolios. Empirically, Ariel (1987) suggests that the
purchase of shares by using pension funds systematically in the early months contributes to the Turn-of-
the-Month Effect. The same strategy is also done by individual investors who have more liquidity in the
early months after the receipt of their salaries.
4. Conclusion and Policy Implications
This study finds that all the trading days have significant effects on stock returns in the Indonesian Stock
Exchange. Monday influence is negative, but the other days’ is positive, and Friday has the greatest
positive effect. In general, this study is consistent with similar studies conducted in overseas capital
markets, and similar studies conducted in Indonesian Stock Exchange by using a long period of research.
When it is compared with the research on the Indonesian Stock Exchange using the short study period
(one to two years), the findings tend to be different. The use of long data is done to follow the advice of
Wiley and Zumpano (2009) ) in order to avoid misleading results. This study also finds that the days of
month transition (Turn of Month) has a significant positive effect on stock returns in the Indonesian Stock
Exchange. This is consistent with the studies that have been done previously abroad. These findings
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indicate that the payment system adopted in Indonesia and investment policies adopted by individual
investors and institutional investors influence the behavior of stock returns in the Indonesian Stock
Exchange.
Policy Implications: The influence of the trading day and the days of month transition on stock returns
in the Indonesian Stock Exchange have implications for stock investors in the stock trading transactions
in the Indonesian Stock Exchange. Buy low sell high strategy can be done by way of purchasing shares by
the end of the session on Monday in the event of a decline, and selling shares on Friday when the stock
price increase. Furthermore, investors should consider buying shares at the end of the month and selling
them in the early days of the month when there is an increase in the stock price.
Research Limitations: Although this study used a long period of research during the period of
approximately 17 years, this research has not made any separation analysis during specific periods such
as the period after the financial crisis and the post-global financial crisis. Furthermore, there is a need to
learn on the interaction between the daily behavior of the stock and the behavior of the stock in the days
of month transitions. Therefore, in the future, similar studies are needed to accommodate the things I
have just mentioned.
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Minimalizing Agency Costs through Bonding Mechanism
Maya Indriastuti, Chrisna Suhendi
Sultan Agung Islamic University (UNISSULA), Semarang, Indonesia
maya@unissula.ac.id
Abstract: Agency costs arise from the agency problem in which the majority of a company manager will
act for their own interests than to maximize the achievement of corporate goals. Related to this, the
principal must spend a greater amount of costs to monitor the agent. This is because a company is almost
impossible to have zero agency cost in order to guarantee the manager will take optimal decisions of view
of the interests of shareholders because of the great difference between them. The conflict between the
principal and the agent can be reduced to align interests between principal and agent, one through
insider ownership. Insider ownership is expected to directly benefit managers feel of any decisions taken,
where this process is called the bonding mechanism, which is a process to align the interests of
management through binding program management in the company's capital. This study uses a
manufacturing company that has gone public in Indonesia Stock Exchange in 2011-2013 were analyzed
by simple linear regression method. The results showed that agency costs can be reduced through
bonding mechanisms, one of which is the managerial ownership, where managerial ownership shows a
negatively and significant effect either partially or simultaneously.
Keywords: insider ownership, agency costs, bonding mechanism, manufacturing company, and simple
linear regression method
1. Introduction
Every company has a different agency problems with other companies. Stiglitz (1992) in Harjito and
Nurfauziah (2006) suggested that the problems between the principal and the agent will appear when the
relationship between the principal and the agent are imperfect information. Reichelstein (1992) in
Harjito and Nurfauziah (2006) stated that the agency problem will arise when the principal, the owner of
the company given the task to the agent (manager) to manage the company for the value of the invested
by the owner can grow optimally. However, because the manager does not share in the increased value of
the investment and compounded by the imperfect information in relation to the owner and manager then
comes the problem of the agency. Harjito and Nurfauziah (2006) which states that the agency problem
may be the use of corporate funds for the purchase of excessive facility managers, corporate profits
detention for less profitable investments, and a variety of fraud that could reduce the earnings or assets of
the company as the company selling the product at a cheap price Another company that was owned by
the manager. The phenomenon of the emergence of the agency problem is then to encourage the
emergence of agency costs. According to Jensen and Meckling (1976), agency costs can be minimized
through a bonding mechanism that one through the ownership structure. The structure of ownership in a
company will have a different motivation in terms supervise or monitor the company and the
management and board of directors. The ownership structure is a mechanism to reduce conflicts between
management and shareholders Jensen and Meckling (1976). The ownership structure is believed to have
the ability to influence the future course of the company that could affect the performance of a company.
Jensen and Meckling (1976) states that managerial ownership is one of the mechanisms that can control
agency problems that exist in a company.
Hypothesis Development
Effect of Managerial Ownership Cost Against Agency: Managerial ownership is ownership by the
management company, as measured by the percentage of the number of shares held by management
(Jensen and Meckling, 1976; Indriastuti 2014). Managerial ownership structure can be explained by two
viewpoints, the agency approach and the approach imbalance. Agency approach considers managerial
ownership structure as an instrument or tool used to reduce the agency conflict between some of the
claims against the company sebuat. Approach sees information imbalance mechanism managerial
ownership structure as a way to reduce the imbalance between insider with an outsider information
through disclosure of information within the company. Improving managerial ownership is used as one
way to address the agency problem in the company. With the rise of managerial ownership, the manager
will be motivated to improve their performance so that in this case will impact both the company and
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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meet the wishes of the shareholders. The greater managerial ownership in the company will be more
active management to improve its performance because management has the responsibility to fulfill the
wishes of shareholders other than himself. Management will be more careful in making a decision,
because the management will participate directly benefit from decisions taken. In addition, management
also bear the loss if the decisions taken by them wrong.
Research on the effect of managerial ownership on agency costs (agency costs) are also carried out by
Crutchley and Hansen (1989), Bathala, et al., (1994); Chen and Lanfeng, 2005; Harjito and Nurfauziah,
2006; Chen and Yu, 2011; Chen and Xuan, 2011) concluded that the level of higher managerial ownership
can be used to reduce the agency problem. The size of the number of managerial stock ownership in the
companies may indicate the presence of a common interest between management and shareholders.
Companies with a large number of stock ownership should have a low agency conflict and agency costs
low. Lower agency conflict are reflected in the high rate of turnover of the company's assets and the low
operating expenses to sales. Thus the hypothesis:
H1: Managerial ownership and significant negative effect on agency costs
2. Methodology
Sample and Data: The population of this research is manufacturing companies listed in Indonesia Stock
Exchange in 2011 - 2013. The sample was purposive sampling method. Sources of secondary data used
comes from the Indonesian Capital Market Directory (ICMD) and website idx.co.id.
AC = α + β1 MO it + εit .......................................
Where Is:
AC: Agency Cost firm i in year t-1
MO: Managerial Ownership firm i in year
Operational Definition of Variables
Managerial Ownership: Managerial ownership is a shareholder from the management that actively
participate in the decision-making companies (Directors and Commissioners). Managerial ownership,
measured in proportion to the ownership of the shares owned by managerial (Jensen and Meckling,
1976). Crutchley and Robert, 1989; Bathala, et al., 1994; Ang, et al., 2000; Demsetz and Belen, 2001; Chen
and Lanfeng, 2005; Harjito and Nurfauziah, 2006; Bozec and Richard, 2007; Chen and Yu, 2011; Chen and
Xuan, 2011) states that the ownership of the shares owned by management increases, then the manager
will be more cautious in carrying out its operational activities, it can reduce operating costs, assuming the
company is doing business expansion. Managerial ownership is ownership by the management company,
as measured by the percentage of the number of shares held by management (Jensen and Meckling, 1976;
Indriastuti 2014). The formula:
The number of shares held by management
MO =
Total stock company
Agency Cost: Agency costs is the economic concept of the cost of the owner (principal) good
organization, individual or group of people, when the owner (principal) select or hire an "agent" to act on
his behalf. Both sides have different interests and agents have more information, then the owner
(principal) can not directly ensure that agents always act in the best interests of the owner (principal)
(Jensen and Meckling, 1976). Agency costs mainly arise due to the cost of the contract and the difference
control, separation of ownership and control as well as different manajer.yang purposes (not the
maximization of shareholder). Measurement variables using the agency cost burden ratio, ie operating
expenses divided by total annual sales. The load ratio measures the inefficiency of controlling operating
costs by managerial side, a high ratio (an indicator of inefficient operation) associated with high agency
costs (Ang, et al., 2000). The formula:
Operating Expenses
AC =
Total Sales
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3. Research Result
Effect of Managerial Ownership Cost Against Agency: The test results demonstrate the significance of
the model calculated F value of 3.322 (0.001) so that the significance level below 5% can be said that
managerial ownership is jointly affect the agency cost (AC). Adjusted R2 values obtained at 0.2661. The
adjusted R2 value indicates that 26.61% of the variation can be explained by the independent variable
that managerial ownership, the remaining variation agency cost is influenced by other factors outside the
model. The test results showed regression coefficient of managerial ownership is negative (-0024). The
coefficient is negative means that managerial ownership has a negative effect, meaning that the higher the
level of ownership by the manager agency costs will be lower / reduced. Significance level α <5% means
that the hypothesis H0 is rejected or one that says public companies with high managerial ownership
have lower agency costs. Indonesia, which is one of the developing countries found to be largely a public
company ownership structure of the company is owned by managerial (La Porta, 1999; Arifin, 2003;
Siregar and Main, 2008). Referring to the agency theory (Jensen and Meckling, 1976), agency costs can be
minimized through a bonding mechanism that one through the ownership structure. The structure of
ownership in a company will have a different motivation in terms supervise or monitor the company and
the management and board of directors. The ownership structure is believed to have the ability to
influence the future course of the company that could affect the performance of a company. Jensen and
Meckling (1976) states that managerial ownership is one of the mechanisms that can control agency
problems that exist in a company.
4. Conclusion
Hypothesis test results indicate that managerial ownership variable significant negative effect on agency
costs. This is consistent with the mechanism of managerial ownership structure as a way to reduce the
imbalance between insider with an outsider information through disclosure of information within the
company. Limitations of this study include: the unit of analysis is only derived from the manufacturing
companies listed on the Stock Exchange. It is recognized that the results become more narrow in
generalizing the results, and the period of observation in this study is quite, but there are limitations of
the variables used in this study. Therefore, for future research should add that not only the unit of
analysis is derived from manufacturing companies alone (do research on companies across industries or
cross country) and develop other measures of agency costs such as using rsio use of the asset, so that the
owner of the company apat measure effectiveness in the use of the asset management companies.
References
Ang, James S., Rebel A., Cole dan James Wuh Lin. 2000. Agency Costs and Ownership Structure. The Journal
of Finance, Vol. 55 No. 1. pp. 81-106.
Bathala, C.T, et al. 1994. Managerial Ownership, Debt Policy, and the Impact of Institutional Holdings, and
Agency Perspective. Financial Management 23. pp 38-50
Bozec, Yes dan Richard Bozec. 2007. Ownerhsip Concentration and Corporate Governance Practices:
Substitution or Expropriation Effects? Canadian Journal of Administrative Science Vol. 24 no. 3
pp 182-190
Chen, Chiung-Jung & Yu, Chwo-Ming Joseph. 2011. Managerial Ownership, Diversification, and Firm
Performance: Evidence from an Emerging Market. International Business Review xxx (2001)
Chen, Lin, Ma, Yue, & Xuan, Yuhai. 2011. Ownership Structure and Financial Constraints: Evidence From A
Structural Estimation. Journal of Financial Economics 102 (2011) 416–431
Chen, Alin dan Lanfeng Kao. 2005. The Conflict Between Agency Theory and Corporate Control on
Managerial Ownership: The Evidence from Taiwan IPO Performance. International Journal of
Business 10 (1), pp39-59
Crutchley, Claire E dan Robert S. Hansen. 1989. A Test of The Agency Theory of Managerial Ownership,
Corporate Leverage and Corporate Dividends. Fianncial Managerment Vol. 18 pp 36-46
Demsetz, Harold dan Belen Villalonga. 2001. Ownership Structure and Corporate Performance. Journal of
Corporate Finance Vol 7 pp 209-233
Ghozali, Imam. 2013. Aplikasi Analisis Multivariate dengan Program SPSS. BP-UNDIP :Semarang.
Harjito, Agus & Nurfauziah. 2006. Hubungan Kebijakan Hutang, Insider Owenership dan Kebijakan
Deviden Dalam Mekanisme Pengawasan Masalah Agensi di Indonesia. JAAI, Vol. 10 No. 2.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Indriastuti, Maya. 2014. The Increasing Of Financial Performance With Ownership Structure. Proceeding
2nd IFMA International Conference on Finance. ISBN 978-602-14716-1-6. December 16-
17,2014.
Jensen, M.C. and Meckling, W.H. (1976). “Theory of The Firm: Managerial Behavior, Agency Costs and
Ownership Structure”. Journal of Financial Economics 3: 305-360.
Kusuma, Hadri & Erlan Susanto. 2004. Efektivitas Mekanisme Bonding: Kasus Perusahaan-perusahaan
yang dikontrol Komisaris Independen. JAAI, Vol. 8 No. 1
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Fat to Fit – an Asian Obesity Management Program and the Malaysian Case Study
Dee Dee A. SALLE*, Yii Bonn BONG, Abdul Majid MOHAMED, Asma Ahmad SHARIFF, Amir Feisal MERICAN
University of Malaya, Kuala Lumpur, Malaysia
*deedeefitness@gmail.com
Abstract: Fat to Fit was a 3-month weight loss program initiated for an Asian obesity management
program. The aim of this study is to investigate the effect of physical activity and changes of body size and
body composition. A total of 28 subjects ranging from 20-50 years old completed the 3-month program,
which required them to follow a structured exercise thrice per week. Subjects were screened and selected
through interviews. Anthropometric measurements for body weight, size [height, body dimension
circumferences, body mass index (BMI), body composition (fat mass and lean mass)] and skin fold
thickness were obtained using conventional method. Body composition was evaluated via Omron HBF
514C body composition monitor and scale. A guided 3-months physical exercise was used as the
intervention. Pre- and post- test analysis was computed through paired t-test using IBM SPSS Statistics
22. Changes in body size were examined and the descriptive statistics were reported. Following the
intervention, body mass and body composition was significantly lower than the baseline values. This
study will be used as a national community intervention programme to combat obesity in Malaysia. This
research will contribute to new information on obesity management in Asia Pacific region, which is rather
limited at this moment.
Keywords: Fat to fit, Asian, obesity, body size, body composition
1. Introduction
“Globesity”, an escalating global epidemic of overweight and obesity, is taking over many parts of the
world. The obesity epidemic is not only restricted to industrialized nations, but in the developing
countries as well. Obesity rates across developed countries such as the USA, England, France and others
are alarmingly high, ranging from 3-4% in Korea and Japan to more than 30% in the United States
(Organisation for Economic Cooperation and Development, 2014). Flegal et al. (2010) expressed that
many Asian countries have rates which are similar to that of the United States too. Malaysia is now the
fattest country in South-East Asia (The Malaysian Insider, 2014). A 2013 study in Lancet recorded that
nearly 45% of Malaysian men and almost half of the women population are obese. The World Health
Organization (WHO, 2013) reported that in 2008, more than 1.4 billion of the world’s adult population
was overweight (BMI 25-29.9 kg/m2) and 11% were obese (BMI > 30kg/m2). Obesity brings metabolic
diseases which hampers the functional capacity, thus negating the quality of health. Although men may
have higher rates of overweight, women have higher rates of obesity (300 million women versus 200
million men) (WHO, 2015). Obesity poses a major risk for non-communicable diseases, including diabetes
mellitus, cardiovascular disease, hypertension and stroke. It is the significant independent risk factor for
cardiovascular disease among women as reported in the Framingham Heart Study (Hubert et al., 1983).
Furthermore, Wolin et al. (2010) stated that about 20% of all cancers are caused by excess weight.
Obesity may also interfere with the ability to deliver other forms of treatment.
Anthropometric measurements are used for evaluation of health and dietary status, disease risk and body
composition changes over time (Fryar, Gu & Ogden, 2012). Body circumference measurements have been
recognized as simple indicators for disease prevalence and nutritional assessment. Body mass index
(BMI) may be the most frequently-used and easiest indicator for overweight and obesity status, but
studies have shown that waist and hip circumferences may be more strongly related to obesity-related
diseases (Bosy-Westphal et al., 2006; Rexrode et al., 1998). In view of greater lean mass in non-abdominal
regions, hip and thigh circumferences show a protective effect with health risk (Janssen, Katzmarzyk &
Ross, 2004). Yusof et al. (2005) found that greater hip circumference has been linked to a reduced
likelihood of myocardial infarction. Physical activity is a common recommendation to promote weight
loss as well as improve fitness in the overweight and obese population. However, the latest research
survey by Mohd Salleh Aman et.al (2014) pointed that only 40.8% Malaysians are active in sports. Fat to
Fit was an initiation for an Asian obesity management program. The 3-month weight loss program was
televised as a TV segment on RTM Malaysia’s national Television channel, had parallel programmes in
Singapore and Malaysia and is expanding into Thailand, Indonesia, Philippines and Brunei. The aim of this
study is to investigate the effectiveness of Fat to Fit program in combating overweight and obesity.
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2. Methodology
Subjects: The study followed a randomization design. A total of 30 subjects ranging from 20-50 years old
were recruited for the study. However, 2 subjects pulled out in the middle of the program. They were
screened and selected through interviews conducted in University of Malaya, Kuala Lumpur. All
participants were academic and non-academic staffs working in the university. Participants were briefed
and agreed to follow a 3-month physical training program (intervention). Socio-demographic
characteristics of the subjects were obtained through survey form.
Experimental design: Participants for the Fat to Fit program were screened prior of the study. Only those
who were previously sedentary, having overweight or obese problem and not on medications that would
affect the outcome of the study were selected. Participants then completed an administered survey form
and body composition assessment before started the exercise intervention program. The subjects
completed a 3-month (12-week) training program and another body composition evaluation at the
conclusion of the weight management program. The entire anthropometric measurements and body
composition assessment was carried out on the same day. Height, body weight, circumference for neck,
arm, chest, waist, hip, thigh and subcutaneous skin fold thickness were manually obtained. The BMI,
waist-to-hip ratio and relative weight loss were calculated. Measurement protocols were the same for
both pre and post- intervention.
Anthropometric methods and body composition assessment: Anthropometric measurements of the
subjects were taken manually after subjects had changed into tight-fitting clothing made from a mixture
of Lycra and cotton. Height and body weight were measured t the nearest 0.1cm and 0.1kg, respectively,
using the Seca body meter (Seca, Germany) and the Omron HBF 514C body composition monitor and
scale (Omron Healthcare Inc., USA). Circumference measurements for neck, arm, chest, waist, hip and
thigh were taken to the nearest 0.1 cm using Myotape (AccuFitness LLC, USA). Skin fold thickness
measurements were made to the nearest 0.1mm at the triceps, abdominal and thigh with a Holtain
callipers (Holtain Ltd, UK). This was achieved by the measurer gently grasping the fold of skin and
underlying subcutaneous adipose tissue of the subjects, with the amount grasped depending on the
thickness of this tissue. All measurements followed the procedures recommended by Lohman et al.
(1988) and were taken in duplicate on the right side of the body.
Exercise training intervention: A guided 3-months thrice weekly physical exercise was used as the
intervention. Dynamic warm ups are utilized as opposed to static stretching warm ups because of its
effects on power and agility (Macmillian et al., 2006). The exercise training interventions consisted of
dynamic warm ups for 5 minutes, intensity intervals and bodyweight exercises (consisting of modified
push ups, modified curl ups, burpees, bodyweight squats, planks) of 20 minutes, dynamic cool down and
static stretches of 5 minutes. The intensity intervals of the bodyweight movements will be executed in
three sets of 12, 9, and 6 repetitions, respectively with 90 seconds of rest in between sets. Midway
through the 12 weeks intervention, their rest will be shortened to 30 seconds intra sets.
Cardiorespiratory endurance exercises was incorporated from walks/jogs/runs in the Arena Stadium at
University Malaya. The twelve static stretches consist of the Quadriceps Stretch, Adductor Stretch,
Hamstring Stretch, Tibialis Anterior Stretch, Gastrocnemius Stretch, Oblique Stretch, Latissimus Dorsi
Stretch, Pectorals Stretch, Deltoids Stretch, Triceps Stretch and Sternocledomastoid stretches.
Data analysis and statistical methods: The Statistical Package for the Social Science version 22.0 (IBM
SPSS Statistics, Armonk, NY, USA) was used for data entry and descriptive statistical analysis. Data were
expressed as means ± standard deviations. Descriptive statistics showed the characteristics and changes
in body dimensions of the subjects. A matched pair t-test was used to determine the significance of
differences between pre and post- intervention data. The level of significance used was 𝛼 = 0.05. Finally, a
two-way analysis of variance (ANOVA) was conducted to determine the influence of age, gender, marital
status and income on relative weight loss.
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3. Results and Discussion
Table 1: Distribution of subjects according to socio-demographics (n=28)
Note: income status: - Low < RM 1500, Moderate - RM 1500 – 3500, High - > RM3500 (Malaysian
Economic Planning Unit Classification)
The demographic characteristics of the subjects in this study are shown in Table 1. The mean and
standard deviation of age for the studied subjects were 33.6 and 7.6 years old, respectively. About 78.5%
of the subjects were in the ≤ 30 years old and 31 - 39 years old groups; the rest were in the ≥ 40 years old
group. Most of the participants were married (57.1%). The distribution of economic status among the
participants was 21.4% low income group, 60.7% earning middle income and 17.9% in the high income
group, according to the Malaysian Economic Planning Unit Classification.
Table 2: Changes in anthropometric measurements and body composition pre- to post- training
Measurements
Pre-training
(Mean±SD)
Post-training
(Mean±SD)
Paired differences
(Mean±SD)
Height
1.62 ± 0.08
1.62 ± 0.08
0.00 ± 0.003
Weight
88.51 ± 17.07
82.51 ± 16.59
5.99 ± 5.12
Body Fat Percentage
43.51 ± 6.75
40.24 ± 7.87
3.26 ± 3.23
Body Muscle Percentage
25.34 ± 3.79
26.86 ± 4.37
-1.52 ± 1.66
Visceral Fat
10.39 ± 4.18
9.25 ± 3.69
1.14 ± 1.19
Triceps skin fold
31.66 ± 8.86
27.14 ± 7.72
4.52 ± 5.84
Thigh skin fold
49.79 ±14.06
44.46 ± 14.39
5.33 ± 7.24
Abdominal skin fold
44.88 ± 14.61
37.95 ± 12.53
6.93 ± 10.10
Neck circumference
38.09 ± 4.38
36.52 ± 3.43
1.57 ± 2.52
Arm circumference
36.40 ± 3.72
34.58 ± 4.01
1.83 ± 1.74
Chest circumference
105.18 ± 8.75
94.21 ± 23.00
10.97 ± 21.76
Waist circumference
102.51 ± 11.76
97.69 ± 11.20
4.83 ± 5.90
Hip circumference
113.17 ± 10.67
108.94 ± 10.29
4.23 ± 3.77
Thigh circumference
67.10 ± 6.91
63.88 ± 5.93
3.22 ± 3.22
Body Mass Index (BMI)
33.45 ± 4.67
31.18 ± 4.69
2.27 ± 1.87
Demographic Variables
Male
Mean ±SD
n (%)
Female
Mean ±SD
n (%)
Total
Mean ±SD
n (%)
Gender
8 (28.6)
20 (71.4)
28 (100)
Age
34.1 ± 8.7
33.5± 7.3
33.6 ±7.6
≤ 30
4 (50.0)
9 (45.0)
13 (46.4)
31-39
2 (25.0)
7 (35.0)
9 (32.1)
≥40
2 (25.0)
4 (20.0)
6 (21.4)
Marital status
Single
2 (25.0)
6 (30.0)
8 (28.6)
Married
6 (75.0)
10 (50.0)
16 (57.1)
Divorced
0
4 (20.0)
4 (14.3)
Income (RM)
<1500
0 (0)
6 (30.0)
6 (21.4)
1500-3500
7(87.5 )
10 (50.0)
17 (60.7)
>3500
1 (12.5)
4 (20.0)
5 (17.9)
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Waist-to-hip ratio
0.91 ± 0.08
0.90 ± 0.07
0.01 ± 0.04
The pre- and post- training data for anthropometric measurements and body composition variables are
presented in Table 2. There were significant (p<0.01) decreases in body weight, body fat percentage,
visceral fat, skin fold thickness, circumference measurements and BMI, but the magnitude of changes was
generally small. The largest changes were obtained from skin fold thickness (triceps, thigh and
abdominal) with a percentage ranging from 10.71% to 15.44%. There was a small yet significant
(p<0.001) increase in the body muscle percentage or the lean mass (+6.00%). However, the decrease in
waist-to-hip ratio (1.10%) was not significant (p=0.197). Paired sample t-test (Table 3) was
conducted to evaluate the impact of physical activity training on body mass and body
composition in a 3-month interval. There were statistically significant decrease in body mass
and body composition from pre-training to post-training (p<0.05). The eta squared statistic
indicated large effect size, with a substantial difference in the body mass and body composition
before and after intervention based on Cohen’s (1988) interpretation. However, the waist-to-
hip ratio (WHR) showed moderate effect (0.061). Waist-to-hip ratio is an easy way to see how
much weight a person carries around the abdomen as opposed to around the hip region. Adults
who store most of their body fat around their waists have an increased risk of high blood
pressure, type 2 diabetes, heart disease and stroke compared with those who have the same
amount of body fat stored around their hips and thighs. According to the University of Maryland
Medical System, women with a WHR 0.8 or less, and men with a ratio 0.9 or less, are considered
safe.
Table 3: Paired sample t-test of anthropometric measurements and body composition pre- and
post- training
Paired statistics
Correlation
r
T
Sig.
Eta squared
Height (pre)
Height (post)
0.999
0.000
1.000
0.000
Weight (pre)
Weight (post)
0.954
6.197
0.000
0.587
Body fat (pre)
Body fat (post)
0.913
5.337
0.000
0.513
Body muscle (pre)
Body muscle (post)
0.927
-4.850
0.000
0.466
Visceral fat (pre)
Visceral fat (post)
0.962
5.069
0.000
0.488
Triceps skin fold (pre)
Triceps skin fold (post)
0.760
4.096
0.000
0.383
Thigh skin fold (pre)
Thigh skin fold (post)
0.871
3.894
0.001
0.360
Abdominal skin fold (pre)
Abdominal skin fold (post)
0.733
3.630
0.001
0.328
Neck circumference (pre)
Neck circumference (post)
0.818
3.288
0.003
0.286
Arm circumference (pre)
Arm circumference (post)
0.902
5.573
0.000
0.535
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Chest circumference (pre)
Chest circumference (post)
0.328
2.667
0.013
0.209
Waist circumference (pre)
Waist circumference (post)
0.869
4.328
0.000
0.410
Hip circumference (pre)
Hip circumference (post)
0.936
5.936
0.000
0.566
Thigh circumference (pre)
Thigh circumference (post)
0.886
5.303
0.000
0.510
BMI (pre)
BMI (post)
0.920
6.424
0.000
0.604
Waist-hip ratio (pre)
Waist-hip ratio (post)
0.877
1.324
0.197
0.061
The two-way between group analysis of variance was conducted to explore the impact of age, gender,
marital status and income on relative body weight loss. It was found that there was no statistically
significant interaction effect.
4. Conclusion
This study will be used as a national community intervention programme to combat obesity in Malaysia.
At the same time, this research will contribute to new information on obesity management in Asia Pacific
region, which is rather limited at this moment.
References
Bosy-Westphal, A., Geisler, C., Onur, S., Korth, O., Selberg, O., Schrezenmeir, J. & Muller, M.J. (2006). Value
of body fat mass vs anthropometric obesity indices in the assessment of metabolic risk factors.
International Journal of Obesity, 30(3), 475-483.
Flegal, K.M., Caroll, M.D., Ogden, C.L. & Curtin, L.R. (2010). Prevalence and trends in obesity among US
adults, 1999-2008. Journal of the American Medical Association, 303(3), 235-241.
Fryar, C.D., Gu, Q. & Ogden, C.L. (2012). Anthropometric reference data for children and adults: United
States, 2007-2010. Vital and Health Statistics, 11(252), 1-48.
Hubert, H.B., Feinleib, M., McNamara, P.M. & Castelli, W.P. (1983). Obesity as an independent risk factor
for cardiovascular disease: a 26-year follow-up of participants in the Framingham Heart Study.
Circulation, 67, 968-977.
Janssen, I., Katzmarzyk, P.T. & Ross, R. (2004). Waist circumference and not body mass index explains
obesity-related health risk. American Journal of Clinical Nutrition, 79(3), 379-384.
Lohman, T.G., Roche, A.F., Martorell, F., eds. (1988). Anthropometric standardization reference manual.
Champaign, IL: Human Kinetics Books.
Mohd Salleh Aman et.al (2014): Laporan akhir kajian budaya bersukan dalam kalangan masyarakat
Malaysia. Putrajaya: Kementerian Belia dan Sukan. Incomplete information
Organisation for Economic Cooperation and Development (OECD). (2014). Obesity rates rising: 10 fattest
countries in the developed world. Updated March 2014. Retrieved from
http://www.oecd.org/els/health-systems/theeconomicsofprevention.htm.
Rexrode, K.M., Carey, V.J., Hennekens, C.H., Walters, E.E., Colditz, G.A., Stampfer, M.J., Willett, W.C. &
Manson, J.E. (1998). Abdominal adiposity and coronary heart disease in women. JAMA, 280(21),
1843-1848.
The Malaysian Insider (2014). Malaysia is Southeast Asia’s fattest country. Updated Nov 2014. Retrieved
from http://www.themalaysianinsider.com/malaysia/article/malaysia-is-southeast-asians-
fattest-country.
Wolin, K.Y., Carson, K. & Colditz, G.A. (2010). Obesity and cancer. Oncologist, 15(6), 556-565.
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World Health Organization (2013). Media centre. Obesity and overweight. Fact sheet No 311. Updated
March 2013. Retrieved from http://www.who.int/mediacentre/factsheets/fs311/en/
World Health Organization (2015). Nutrition. Controlling the global obesity epidemic. Updated March
2015. Retrieved from http://www.who.int/nutrition/topics/obesity/en/
Yusuf, S., Hawken, S., Ounpuu, S., Bautista, L., Franzosi, M.G., Commerford, P., Lang, C.C., Rumboldt, Z.,
Onen, C.L., Lisheng, L., Tanomsup, S., Wangai, P. Jr., Razak, F., Sharma, A.M., Anand, S.S. &
INTERHEART Study Investigators. (2005). Obesity and the risk of myocardial infarction in
27,000 participants from 52 countries: a case-control study. Lancet, 366(9497), 1640-1649.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Entrepreneurship Education in Sports: Issues and Challenges
Payam Ansari, Solha Husin
University of Malaya
payam.ansary@gmail.com
Abstract: Much has been said of the importance of entrepreneurship. Entrepreneurs are giving a helping
hand to governments in job creation, economical, technological, and social development. The rise of
entrepreneurs has already begun. Having agreed on the controversial statement of “Entrepreneurs are
made, and Entrepreneurship can be taught”, universities have dipped their toes into the lake of
entrepreneurship trying to shape their students as entrepreneurs. However, studies showmanyhave not
been successful in this mission. Among academic disciplines, sports is one of those areas that despite
enormous opportunities in the industry, along with graduate level knowledge and skills capable of
improving daily lives of many, has produced fewer entrepreneurs than it intended; But why? The main
reason, according to many experts, is that entrepreneurship education is not practical. The
entrepreneurship courses are not productive and the content of such classes doesn’t make a strong bridge
between academia and industries; the gap is still there! The question is what is a practical sport
entrepreneurship course? Which instructional model is more beneficial for sport students in
entrepreneurship classes? This study attempts to answer these questions.
Keyword: Entrepreneurship education, Sport Entrepreneurship, Small Business, Sport industry, Sports
students
1. Introduction
The surge of new and innovative business start-ups has left a significant influence on the formation of
entrepreneurship as a global phenomenon, showcasing its impact on economic growth. Their undeniable
role in job creation and positive contributions to economy has earned entrepreneurial activities
governments’ recognition. The association of entrepreneurship with profit orientation, capital investment
and new markets creation (Cantillon, 1755; Schumpeter, 1934) has prompted economists to give
entrepreneurship substantial credit for economic expansion (Cole, 1949, 1995; Weber, 1930).
Consequently, regarding entrepreneurship as a major engine for economic growth and job creation is not
far-fetched (Wong, Ho and Autio, 2005; Engelen, Kube, Schmidt and Flatten, 2014; Lackeus and Williams
Middleton, 2015). Doh and Kim (2014) believe, in the current knowledge-based economy,
entrepreneurship has turned into one of the leading key players of sustainable economic development
(Grossman and Helpman, 1994; Kirzner, 1997; Shane, 2000; Audretsch and Thurik, 2001; Baumol, 2002;
Acs et al., 2004; Baumol, 2004; Audretsch and Keilbach, 2004; Acs, 2006). Moreover, Dana (2001) points
out, entrepreneurs, beyond their contributions to economic growth, improve industrialization through
creating wealth and reducing unemployment. They directly impact national wealth through taxation, and
through improving living standards they affect social well-being. So governments’ attempts in creating
more entrepreneurs do not come as surprising.
Additionally, according to OECD (2000), Small and Medium-sized Enterprises contributes over 95% of
companies and close to 70% of employment among its members. SMEs have changed the rules of play in
economic performance, leading governments to put more faith in their contributions, as thanks to new
technologies, the importance of the scale of economies are being reduced in many kinds of activities
(Liesch and Knight, 1999; McIntyre, 2001; Berry, 2002; OECD, 2004; Kramer et al., 2007). Doh and Kim
(2014) explain, policymakers should pay more attention to SMEs regarding productivity, industrial
renewal, export growth and employment opportunities, as SMEs are now one of the most important
sources of innovation and job creation in OECD area. Apart from financial incentives such as loans, tax
reduction and import/export supporting policies, one way to bring entrepreneurs into the field is
education.
Entrepreneurship Education: Many scholars, now, believe that entrepreneurship can be taught; this is
no longer a topic of debate (Gorman, Hanlon & King, 1997; Kuratko, 2005; Drucker, 2006). Bae and Qian
and Miao and Fiet (2014) conducted a comprehensive meta-analysis on entrepreneurship education
literature. They further report that based on their meta-analysis, there is an association between
entrepreneurship education and entrepreneurial self-efficacy in the literature, which in turn could have a
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role in enhancing entrepreneurial intentions (Wilson, Kickul, &Marlino, 2007; Zhao, Seibert, & Hills,
2005). In examining the literature, it appears that entrepreneurial self-efficacy is perceived to be the
belief in one’s ability to undertake and execute various entrepreneurial tasks and roles with success
(Chen et al., 1998; De Noble, Jung & Ehrlich, 1999; McGee, Peterson, Mueller &Sequeira, 2009) and is
considered to be one of the triggers of entrepreneurial intentions (Chen et al.; De Noble et al.; Douglas,
2013; Fitzsimmons & Douglas, 2011; Krueger et al., 2000; Scott &Twomey, 1988; Segal, Schoenfeld, &
Borgia, 2007; Wang, Wong, & Lu, 2002). Moreover, Education has been identified as one of the key
characteristics of entrepreneurship (Shane, 2000; Suddaby et al., 2015).Having agreed on the
controversial statement of “Entrepreneurs are made, and Entrepreneurship can be taught”, universities
have dipped their toes into the lake of entrepreneurship trying to shape their students as entrepreneurs.
Entrepreneurship education is defined by The Centre for Entrepreneurial Leadership Clearinghouse on
Entrepreneurship (refer to www.celcee.edu) as the process in which an individual receives the
knowledge and skills required for opportunity discovery, and the insight and capability to act and
implement what is necessary to pursue that discovered opportunity which was overlooked by others. The
definition of entrepreneurial education given by GEM 2012 Global Report (Xavier et al., 2012, p.35) is:
“The extent to which training in creating/managing new, small or growing business entities is
incorporated within the education and training system at all levels”. However, Fayolle et al. (2006)
explain, entrepreneurship education programs (EEP) are defined from various aspects, mainly as
pedagogical courses that aim to increase entrepreneurial knowledge, skills and attitude and also
development of certain personal qualities. Therefore, producing entrepreneurs might not be the main
objective of an entrepreneurship education program. Although the EEP literature is growing, however the
empirical evidence that support its effect on new businesses and entrepreneurial activities is still
insignificant (Cox et al., 2002; Matlay, 2008). Scholars (Peterman and Kennedy, 2003; Shepherd, 2004;
Tan and Ng, 2006) believe recent development in entrepreneurship education methods and application
are improving entrepreneurial skills and life goals among young nascent entrepreneurs (Peltier, Scovotti
and Pointer, 2008).
Entrepreneurship Education Methods: Kuratko (2005) demonstrates that there are several
pedagogical designs for entrepreneurship education and they vary from business plan to venture
creation. Business planning is used by most courses because the process of drafting business plans
intends to expose learners to sets of knowledge and skills that strengthens their entrepreneurial
intentions (Becker, 1964;Honig, 2004; Youndt, Subramaniam, & Snell, 2004; Fayolle, Gailly, &Lassas-Clerc,
2006; von Graevenitz et al., 2010). On the other hand according to Lee, Chang, & Lim (2005) many
universities opt for the venture creation focus in their entrepreneurship education. This approach intends
to teach practical steps to creating mini companies (Rodrigues et al., 2012), and because it is done
through a multi-functional implementation process it helps students develop skills needed in the
entrepreneurial venture (Liñán, 2007). Additional apprenticeship training along with formal training by
abstraction is supported by some scholars as they believe without it formal training has little value
(Brown, Collins, &Duguid, 1989). Similarly, business guru, David Birch counts three skills that
entrepreneurs must master in order to become successful: selling, managing people and creating new
product and service. He argues that critical skills like managing people are not things that can be taught
through formal training of business plan writing.
The learning-by-doing experience has received approval from education scholars. Repetition and
experientation is said to increase the confidence of an entrepreneur in actions and enhance his/her
knowledge (Minniti and Bygrave, 2001 p.7). It is further argued that this approach emphasizes venture
creation consequently giving students practical experiences and skills which otherwise would be missing
from business planning. Rasmussen and Sørheim (2006) reviewed five Swedish universities’ action
oriented programs and found out many such programs emphasize learning-by-doing. One example that
they bring up is the Chamars University of Technology in Gothenburg. In this university the designated
program tries to get students actively involved in the start-up process, team composition, and venture
formation. Audet (2000) argues that the best way for increasing entrepreneurial activities in students is
affecting their perception of desirability and feasibility of starting venture, which in turn enhances their
entrepreneurial intentions. Audet lets the participants choose between either a business plan or a field
study. People in the business plan assignment were required to find a business idea, evaluate its
commercial potential through market research and prepare a comprehensive business plan revolving the
idea. The second choice, the field study, requires students to conduct an study about an entrepreneur, by
1) finding a cooperative entrepreneur, 2) collecting information about his venture’s external environment
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and industry, 3) conducting an interview with him covering his experience and his venture, 4) with the
entrepreneurship and small business management theory in mind, analyse the information, and 5) write
a report of their findings. The idea behind the interview was to provide the opportunity of private and
intimate encounter with a genuine entrepreneur for students. As this project was a group project,
students were divided in groups consisting of no more than five and each assignment would be counted
towards more than half of the grade (55%). According to Gartner and Vesper (1994), a standard
entrepreneurship course includes lectures, texts, use of case studies, entrepreneurs’ talk and
presentations, business plan writing and the student entrepreneurship clubs.
Entrepreneurship in Sport Industry: Sport industry is divided into three separate segments by Pitts et
al. (1994): sport performance, sport production and sport promotion.Hence, sport entrepreneurs seek
opportunities in these fields and other industries which can be related to the abovementioned segments;
just to mention few, fitness clubs, gyms, goods and equipment manufacturers, sport media and
advertising agencies, etc. The definition of sports entrepreneurship and the central role of innovation are
of crucial importance because it is a relatively new field. Aside from the traditional coaching and teaching
physical education, there are several other career paths available for people who venture into the world
of sports. Thanks to Information Technology, now sport entrepreneurs can expand entrepreneurial
opportunities from sport industry to other industries; computer games, wearable devices, sports
application on smart phones, and so many other products and services are the outcomes of this. As Stier
(1993) argued, for future sport professionals the need to have an extensive knowledge of business and
necessary skills to handle challenges that rise in the business of sports is imperative. He further points
out sports entrepreneurship as one of the areas where possible opportunities for employment lie.
Moreover,Ratten (2011) relates sports entrepreneurship to people or organizations in sports that bring
about innovation in business and deliver something unlike what was previously done and known. The
importance of entrepreneurship culture for entrepreneurial opportunities in sports is highlighted by
Ratten (2012). There are common attributes and values among entrepreneurship and sports. They both
seek economic and regional development. Innovation, risk taking, pro-activeness, initiative, and
opportunity seeking are also a few of common traits that run in both fields.
As the numbers of sport entrepreneurs increases, the need among them to act more strategic and
innovative to secure their position in the ever evolving and challenging economics of the modern era rises
as well. Thus integration of sports management and entrepreneurship disciplines made its way into
scholars’ agenda (Ratten, 2011). These entrepreneurs are often contributing to creation of social wealth
through social and community activities and are not merely producing personal wealth (Ratten, 2012).
The background and experiences of sports entrepreneurs, and the amount of it they possess, is what
determines their ability in identifying and deciding on opportunities (Ratten 2012). If they are observant
and able to see new opportunities they can use innovation and creativity to clear the way for achieving
desirable results.
Sport Entrepreneurship Education: For the current system of vocational education, one of the major
challenges is to match what students learn, from knowledge and skills to behaviour and attitudes, to what
the employment market requires (European Training Foundation 1999). Therefore, the responsibility lies
on the shoulders of instructors to develop evolving curriculum standards that are capable of growing and
adapting with the changes in the employment sector. The same principle applies in the sports industry,
where the constant ever evolving nature of the industry requires instructors to be developing curricula
accordingly to prepare students for what lies ahead in their careers. In the discussion of Sport education
reform, Ge (2011) believes entrepreneurship education plays an important role. Indeed, with regard to
difficulties and challenges in entrepreneurship and self-employment in sport industry, measuring the
impact of entrepreneurship education was proposed as one solution. For that, three major measures were
suggested, namely to build favourable culture of innovation and entrepreneurship in universities campus,
to design new entrepreneurship education instructional models and finally to develop entrepreneurship
education in Sport education service system. Sport literature, when it comes to entrepreneurship area, is
very young and immature. There are studies that have focused on various aspects of Sport industry, such
as development of human capital and competitive sports (Krueger &Neergaard, 2012), entrepreneurial
attitudes and sport franchise: increase net income (Legg & Gough, 2012), entrepreneurial strategies and
brand management theories (Miloch, Lee, Kraft &Ratten, 2012), relationship between exercise and the
attainment of personal and professional goals for entrepreneurs (Goldsby, Kuratko & Bishop, 2005), sport
mega-events as promoters of urban entrepreneurship (Hall, 2006), entrepreneurial systems (Spilling,
1996) and sport entrepreneurship,field and suggestions for further research (Ratten, 2012). What is
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missing is a category of research in which scholars would study and explain the pedagogical aspect of
sport entrepreneurship. Similar need has already been pointed out for sport management field as well
(Light and Dixon, 2007). Sport is one of those areas that despite enormous opportunities in the industry,
along with graduate level knowledge and skills capable of improving daily lives of many, have produced
fewer entrepreneurs than it intended. Having considered increasing number of sport entrepreneurship
programs, the productivity of these courses needs much more attentions.
Dana (2001) explains, for training programs to reach to their full success potential, they must be relevant
to the host environment. Extending one program’s success in one environment to another, and expecting
the same effects would be a fallacy. Hence, it seems the content of a sport entrepreneurship course should
be developed based on sport students’ needs. Borges (2010) attempted to do a comparison between sport
entrepreneurship instructors and practicing entrepreneurs in what they regard as important skills to
teach student to enable their success in running sport-oriented businesses. This comparison is of great
value for students as well as educators to evaluate the current material taught in sport entrepreneurship
courses. As one of this research’s result, Borges found that larger percentage of sport management and
entrepreneurship instructors, value digital skills and strategic management more than sport
entrepreneurs do. Instead, sport entrepreneurs give more weight to financial management topic rather
than sport entrepreneurship instructors. A review on entrepreneurship education literature shows, sport
programs lack a specific and sport-oriented design and content for their entrepreneurship courses. The
responsibility of preparing students to enter the ever changing and evolving sports industry has been laid
upon instructors of sport management, as they have to ensure the curriculums developed are effective
enough to prepare students for the challenging industry of sports. Because many of the instructors do not
possess experience in owning their business or employment in large sports corporations, the need for
thorough examination of content and skills they offer is extreme (Borges, 2010).
Humphreys and Maxcy (2007) examined the value of sport economics in sport management curricula and
reported that this field has received small attention because of two possible reasons; either sport faculties
are not qualified in this regard or they are indifferent about the importance of this topic. Since
entrepreneurship, like economics, is a relatively new area in sport management programs, similar
prediction can be made to justify theindifferent approach toward sport entrepreneurship courses. On the
other hand, the quality of education system is mostly reflected in the higher education. For students who
seek formal education, higher education institutes are the last step before entering the workforce, hence
any changes that occur in the society is usually reflected in the curricula of higher education. Therefore, it
is important that the curricula are not being developed without proper attention to the needs and specific
problems of society or to their role in preparing experts of the future (Patesan&Bumbuc, 2010).This
shows the importance of pragmatism and timeliness during the instructional design of sport
entrepreneurship courses. Entrepreneurs, generally and in any industry, should exploit available
resources and tools to make money out of their entrepreneurial ideas. An up-to-date entrepreneurship
course and instructor could increase the entrepreneurial skills of students.
2. Conclusion and Suggestions
Much has been said of the importance of entrepreneurship. Similar to other industries, entrepreneurs
help the sport industry grow, both locally and globally. One way to produce more entrepreneurs is
education. Sport entrepreneurship education courses can, and should be more productive. To achieve
that, following suggestions can be a starting point:
1. An entrepreneurship education course should be designed based on specific needs of students who will
attend in that course. Hence, a precise need assessment survey should be conducted before the design
process starts. This can determine the real needs of students of any sportfaculty.
2. Sport entrepreneurship instructors should be expert in the field of entrepreneurship. It is important to
know that sport entrepreneurship is different than sport management or even sport business.
3. New methods of teaching and delivering and evaluating should be exploited during a sport
entrepreneurship course. The traditional textbook, lecture method will not work anymore.
4. Real examples and case studies of successful entrepreneurial sport-related firms and companies should
be discussed in the classrooms.
5. More action researches needs to be conducted to explore various methods of entrepreneurship
instruction in sport faculties.
6. Last but not least, sport entrepreneurship courses and programs should receive top management
support.
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Analyze on the Influence of Financing Risk, Capital Adequacy and Financing to Deposit
Ratio to Profitability Islamic Bank in Indonesia
Osmad Muthaher, Sri Dewi Wahyundaru
Sultan Agung Islamic University, Indonesia
osmad64@gmail.com
Abstract: Research on financial ratios and its effect to the profitability of banks in Indonesia have been
carried out by several researchers, but research results are inconsistent. Profitability has essential means
for long-term survival of banking business, because the profitability of the business showed good
prospects in the future. This study intends to examine the effect of Risk Financing (Non Performing
Finance/NPF),Capital Adequancy Ratio (CAR) and Financing to Deposit Ratio(FDR) to Profitability Islamic
bank in Indonesia. This explanatory research was conducted at the Islamic Commercial Bank at Bank
Indonesia. Data collection was carried out in the documentation, in the form of financial ratios data from
the financial statements of Islamic Banks gained per month of Islamic Commercial Bank Statistical Report
published by Bank Indonesia in 2009-2013. The samples are 48 financial ratios of data taken by
purposive sampling. Descriptive statistics are used to see an overview of research data individually, and
multiple linear regression was used to test the hypothesis, where the previous requirement that the
classical assumptions include normality, multicollinearity, heteroscedasticity, and autocorrelation have
been fulfilled. The results of multiple linear regression showed the CAR regression coefficient on ROA is
0.002 with p = 0.024; NPF on ROA regression coefficient is 0.008 with p = 0.894; FDR regression
coefficient on ROA is 0.009 with p = 0.007. The test results demonstrate F value 3.110 with p = 0.054, and
the test results adjusted R2 0.082 shows the explanatory power of the two independent variables in this
study was 8.2% on ROA; remaining 81.8% is influenced by other factors are not included in the
regression model. Concluded that partially CAR and FDR, respectively have a positive and significant
effect to ROA, but NPF have no significant effect on ROA.
Keywords: Profitability (ROA), Risk Financing (Non Performing Financing) and (Capital Adequacy Ratio,
FDR (Financing to Deposit Ratio)
1. Introduction
The national development of a nation involves economic development in it. In the economic development,
it is required the participation of financial institutions to finance, because the development requires the
availability of funds. Therefore, the existence of financial institutions to finance the development is
needed. Financial institution involved in the financing of economic development is divided into two; bank
financial institutions (BFIs) and non-bank financial institutions (NBFIs). Bank is one of the financial
institutions that has important role in economic field of a country as a financial intermediary and as the
lifeblood of the economy throughout the country. Many economic activities, especially in the real sector,
are driven by banks either directly or indirectly. To run its operations, bank has ultimate goal to achieve
maximum level of profitability. Profitability is the bank's ability to generate or obtain profit effectively
and efficiently. The profitability of a bank will be able to demonstrate revenue generated by the company
in one or each period. The high profitability of a bank can demonstrate that the majority of the bank's
performance is good, because it is assumed that the bank has been operating effectively and efficiently
and it is possible to allow it to expand its business. Financing becomes a source of revenue and profits of
the banks. In addition, financing is also a type of fund investment activities which often become main
cause of a bank in the face of major problems, e.g., the existence of a situation where the customer is not
able to pay part or all of its obligations to the bank as its agreement. As a result, this financing becomes
stuck or jammed.
According to Siamat (2005), financing jammed or it is known by non-performing finance (NPF) is a ratio
that shows the repayment of loans that have difficulties due to gaps factors and external factors beyond
the control of the debtor's ability. This ratio indicates the ability of bank management in managing the
problem of financing provided by the bank. It means, the higher the ratio is, the worse the quality of bank
financing will be, which led to the greater amount of possibility of financing problems of a bank, that is
the greater loss resulting from financial returns jammed. If the bank is able to suppress the NPF ratio
below 5%, the potential benefits to be obtained will be even greater, because the banks will save money
that is needed to establish loss reserves financing problems or Allowance Assets (PPAP). With the smaller
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PPAP in shape by banks, it will have a greater profitability so that the overall performance of the bank
would be good.
For the banking industry, capital is crucial; the bank must be able to maintain customer confidence with
the necessary capital for daily operations. Bank Indonesia (2003) regulates the Capital Adequacy Ratio
(CAR), that is the minimum capital requirement that must be maintained by each bank as a certain
proportion of total risk-weighted assets (RWA) amounted to 8%. With these provisions, banks are
required to maintain the availability of capital for each bank; in particular, the increase in activity as a
result of the increase of assets should be offset by the capital gain 100 to 8. The amount of financing
problems can lead to the erosion of bank capital that can be seen from the Capital Adequacy
Ratio (CAR). The decrease of CAR certainly results in decreased ability of banks to channel financing; the
bank eventually loses its ability to produce optimum profit from the main activity. The low level of CAR
also makes banks' ability to survive in times of loss is also low. In addition, the low CAR also causes a
decline in customer confidence, which in turn, can reduce the profitability of banks. Financing to Deposit
Ratio (FDR) is a ratio used to measure the level of bank liquidity that shows the bank's ability to meet the
demand for credit by using the total assets of the bank (Dendawijaya, 2003). FDR stated how far the
bank's ability to repay the withdrawal of funds by depositors to rely on loans as a source of liquidity. The
greater the credit earned income rises, as income rises automatically earnings will also increase. This
study aims to determine the extent to which the influence of risk financing financing deposit and capital
adequacy toward profitability of Islamic banks in Indonesia.
2. Literature Review
Agency Theory: Agency theory is a concept which describes the contractual relationship
between principals and agents. The principal is the party that gives a mandate to other party, namely
the agent, to do all the activities on behalf of the principal in his capacity as a decision maker (Sinkey,
1992: 78; Jensen and Smith, 1984: 7). In an agency relationship, manager as a side having direct access to
company information, has asymmetric information to external parties, such as creditors and
investors. This information, obviously, is not disclosed by the company management to external parties,
including investors. To reduce asymmetric of information, the management of company must be
monitored and controlled to ensure that the management is run with full compliance to various rules and
regulations. This effort results in what is known as agency costs, which according to this theory must be
removed such that the cost to reduce losses due to non-compliance that is found to increase
its enforcement costs. Agency cost includes costs for supervision by the shareholders; costs incurred by
the management to produce transparent reports, including the cost of the independent audit and internal
control; and costs due to the decreased value of shareholder ownership as a form of 'bonding
expenditures' which is given to management in the form of options and benefits for the purpose of
aligning the interests of management with shareholders.
Agency theory predicts that a company with a higher CAR ratio will reveal more information, because the
agency cost of companies with such capital structure is high (Jensen and Meckling, 1976: 354). Additional
information is needed to dispel doubts of bondholders towards the fulfillment of their rights as creditors
(Schipper in Marwata (2001: 18) and Meek, et. al in Fitriani (2001: 14)]. Therefore, companies with
high CAR have obligation to undertake a wider exposure than the lower ones. With higher reported
earnings, it will reduce the possibility of breaking the company's debt agreements. The manager will
choose accounting methods that will maximize current profits. Debt contract usually contains the
provision that the company must maintain a certain level of leverage (the ratio of debt/equity), interest
coverage, working capital and shareholders' equity [Watts and Zimmerman in Scott (1997:
92)]. Therefore, the higher the level of leverage (the ratio of debt/equity) is, the more likely the company
will violate the credit agreement, so that the company will strive to report the current higher profits
[Belkaoui & Karpik in Marwata (2001: 25)]. To realize the high reported earnings, the manager should
reduce costs (including costs to disclose information).
Financing Risk
The definition of Financing Risk: The term risk has been commonly used in everyday life, which is
generally understood intuitively. However, the scientific understanding basis of risk until now is still
varying, such as:
Risk in terms of result:
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1. Speculative Risk is the possibility of a loss. Yet, there is a possibility of profit instead of loss
possibilities.
2. Pure risk is the risk that there is only the possibility of loss.
Financing is a funding provided by one party to another to support the planned investment, either by
personal or institutions. In other words, the financing is the cost incurred to support the planned
investment. So the financing risk is the risk that a customer or debtor is unable to meet its financial
obligations under the contract or agreement that has been agreed upon. The definition can be expanded
that financing risk is the risk that arises due to the declining quality of financing. Financing risk arises if
the bank cannot recover the installment of principal or interest on the loan or investment given. The main
cause of the risk is how easy banks or financial institutions is, to lend or invest because of requirements
to utilize excess liquidity. As a resut, the less careful assessment on financing anticipation dealing with
possible business risks that are financed occurs.
The impact of Financing Risks: Financing problems in large numbers will bring unfavorable impact
both for the provision of financing to the economy of monetary of a State. Impact caused by financing
problems is as the following:
Impact on the smooth operation of the bank in providing the financing: Banks which are encouraged
by problems of financing in large quantities will experience operational difficulties. Poor financing quality
requires the elimination of the greater reserves which cause costs to be borne to hold those reserves
become high as well. This obviously affects the profitability of diminishing that will reduce the capital
itself; and, the good value of operation will decrease. As a result, this will affect public confidence to the
banks.
The impact on the banking sector: Financing problems in large quantities will reduce the bank's
operations. If the decline in the financing and profitability has been so severe, then, it affects the liquidity,
solvency, and profitability of the bank, the people trust in bank will also decrease.
Impact on the state of economic and monetary: Banking system which is disrupted by financing
problems will eliminate the chance of banks to finance its operations and expansion of other debtors
because of cessation rotation and what to be lent. This will minimize the chance of other entrepreneurs to
take advantage of business and investment opportunities that exist.
Dendawijaya (2005: 82) states that the financing problem is the failure of the debtor to fulfill its
obligations to pay installments of financing principal and interest that has been agreed by both parties in
the financing agreement. Meanwhile, according to Siamat (2004: 174), the definition of financing problem
is as follows: "Financing problem or problem loans can be defined as a loan repayment experiencing
difficulties due to the presence of gaps and factors or due to external factors beyond the control of the
debtor." According to the above understanding, meaning of financing problems is a loan that is
experiencing delays in the payment of principal and interest arrears or even not paid at all, due to the
inability of the debtor to pay, so the return on financing is not done in a timely and appropriate amount of
the financing agreement. According to Dendawijaya (2009), financing problems is a financing in which its
collectability categories is included in the jammed funding criteria or also known as non-performing
Finance (NPF). This ratio indicates the ability of bank management in managing the problem of financing
provided by the bank. That is, the higher the ratio is, the worse the quality of bank in financing which led
to the greater amount of financing problems, that is the greater possibility of a bank to face problematic
condition in the form of NPF on returns. One of the risks is the risk of non-payment of bank financing has
been granted or which is often called by the financing risk.
Financing risk or default risk, generally, arises from various financing problems included in the category
of Non Performing Finance. The existence of non-performing Finance in considerable amounts can cause
difficulties, at the same time; it also diminishes the bank concerned. Therefore, banks are required to
maintain the financing to be not in the non-performing Finance. The amount of NPLs that are allowed by
Bank Indonesia at this time is a maximum of 5%, if it exceeds 5%, then; it will affect the assessment of the
Bank concerned, which will reduce the value. Although it cannot avoid financing risk, it can minimize the
risk faced and make it into a normal category. According to Taswan (2008) and Bank Indonesia Circular
Letter No. 3/30/DPNP December 14, 2001, Non-Performing Finance calculation is as follows:
NPF = Financing Problems (KL, D, M) x 100 %
Total Finance
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Capital adequacy ratio: According to Hasibuan (2004: 61), it is generally argued that the bank's own
capital or equity fund is the amount of cash that has been deposited by owners and other sources from
within the bank itself which consists of core capital and supplementary capital. The bank's capital is also
the funds invested by the owners in the framework of the establishment of a business entity that is
intended to finance the bank's business activities in addition to meet the regulations set (Dahlan Siamat,
2000: 56). Therefore, it can be concluded that the bank's capital is funds invested by the owner to finance
the business activities of banks whose numbers have been assigned at the time of the bank's business
establishment. Capital is a very important factor for the development and progress of the bank, as well as
efforts to maintain public confidence. As a business entity, bank capital should be used to keep the
potential risk of loss resulting from the movement of bank assets that basically comes from a third party
loan (public funds). Capital adequacy in this study is figured out through the Capital Adequacy
Ratio (CAR). CAR indicates how much capital banks have been adequate to support the needs and as a
basis for assessing the prospects of the relevant bank business continuity (Dendawijaya, 2005: 122). In
accordance with Circular Letter No. 26/5/BPPP, May 29, 1993, the amount of the CAR to be achieved by a
bank of at least 8% since the end of 1995, and since the end of 1997 CAR must achieve a minimum of
8%. The basic formula of calculating the Capital Adequacy Ratio, mathematically, according to Jumingan
(2006: 243) is as follows:
CAR = Capital x 100 %
Total risk weighted assets (ATMR)
Capital component consists of core capital and supplementary capital by taking into account to the
inclusion of the bank as a reduction of capital, so that the RWA of commercial banks is calculated based on
the risk weighting of each post balance sheet assets and account administration. Bank Indonesia has set a
policy for all banks to meet the minimum CAR ratio of 8%, if less than 8%, it will be sanctioned by Bank
Indonesia. CAR provision, in principle, is adapted to the conditions of international agreement (BIS). CAR
which is based on the standard of BIS (8%) is one way to calculate whether the existing capital in a bank
is adequate or not. If the average capital of a bank is better than the other banks, the banks concerned
would be better solvency.
Financinf to Deposit Raio (FDR): FDR in the world of Islamic banking did not use the system of
financing with interest. FDR stated how far the bank's ability to repay the withdrawal of funds by
depositors to rely on loans as a source of liquidity. The greater the credit earned income rises, as income
rises, the profits will increase automatically. In accordance with Bank Indonesia Circular Letter No. 6/23 /
DPNP, the minimum value of good FDR was 80%.
Profitability: According to Sawir (2001), profitability is the end result of a variety of policy and
management decisions. Profitability ratios will give final answer about the effectiveness of the company's
managers and provide an overview of the effectiveness of the management of the company. Riyanto
(1998: 36) states that Profitability is the ability of a bank to generate income from operations with its
own capital and foreign capital that is used to produce such profits.
1) Profitability related to the sale: The first ratio is considered gross profit margin ratio. This ratio
shows the profit of the company relative to sales after reducing cost of production. This ratio is a measure
of the company's operating efficiency. The second ratio to consider is the net profit margin ratio as a ratio
that measures the profitability of the company from the sale after calculating all the costs and income
taxes. By considering these ratios simultaneously, then, it will give an assessment of the company's
operations. If the gross profit margin decreased, it is known that the cost of production has increased
relative to sales. This is due to lower prices or lower operating efficiency with respect to
volume. Therefore, these factors should be analyzed to determine the actual cause.
2) Profitability related to investment: One measure of the profitability related to investment is the
level of return on investment or return on assets (ROA). This ratio measures the effectiveness of the
company; in this case the bank which uses all funds shows the effectiveness of management in using
assets to obtain profitability. The ratio is also used to measure the ability of bank management to gain
profit before tax generated from average total assets. Factors that affect the profitability of the bank can
be sourced from the operating performance shown by some indicators. One of the main sources of
indicators that form the basis of assessment is the bank's financial statements. Based on the financial
statements of banks, it will be able to count a number of financial statement ratios that are commonly
used as the basis of assessment of the bank including the capital ratio by measuring CAR, asset quality
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with NPL measurement. The high profitability of a company shows that most of the company's financial
performance is good, if the company's financial performance in generating income increases, this will
show the attraction of investors and prospective investors in making an investment to a company. For
banks, the main advantage is obtained from the difference between the interest given to the storage
savings with interest on the loan and financing disbursed.
Profitability of a company is measured by the success and the ability to use assets productively. Thus, the
profitability of a company can be determined by comparing the profits earned in a period with total
assets or total capital of the company. Profitability is often used to measure the efficiency of the use of
capital in a company by comparing the income with capital employed in operations. Therefore, a high
profit does not guarantee or is not a measure that the company is successful. Using profitability to
measure the efficiency of a company is a good way, because the company will be difficult to improve
profitability without increasing efficiency. Profitability is measured by Return on Assets (ROA). According
to Munawir (2002: 269) ROA is to reflect how much the company has obtained the results of the financial
resources invested by the firm. The calculation formula of Return on Assets, mathematically, by
Syamsuddin (2004) are as follows: Net Income
ROA = Profit before taxes x 100 %
Total Assets
The Correlation of Risk Financing Variable and Profitability levels: Non Performing Finance or often
called the financing problems can be defined as a loan repayment experiencing difficulties due to the gap
factor or factors outside the control of the debtor's ability. This ratio indicates the ability of bank
management in managing the problem of financing provided by the bank. That is, the higher the ratio is,
the worse the quality of bank financing will be, which led to the greater amount of financing problems as
a result of NPF. Dendawijaya (2009) suggests the impact of unnatural non-performing Finance is the loss
of opportunity to earn income (revenue) from financing provided, thus, it will reduce profits and
adversely affects the profitability of banks. Research conducted by Hestina (2009) and Teddy (2009) on
the effects of the variables on the profitability of non-performing Finance, shows that the non-performing
Finance negatively impacts the profitability of banks. This suggests that the greater the financing
problems that occur in a bank, it will result in the bank's profitability to be poor. Non Performing
Financing is one of the bank's business risks resulting from not repay loans granted by the bank
(Muhammad: 2005). So, the greater the NPF is, it will result in declining of ROA, which also means that the
bank's financial performance decline due to greater credit risk. Vice versa, if the NPF is low, the ROA will
increase and the financial performance of banks can be said to be good. Moreover, it is also supported by
the results of research conducted by Adi Setiawan (2009) which shows that the NPF negatively effects
on ROA. Based on the description above, the hypothesis can be proposed is as follows:
H1: financing risk (Non Performing Finance) significantly and negatively influences profitability.
The correlation of Capital Adequacy Ratio and Profitability: According to Dendawijaya (2005: 119),
the effect of capital adequacy level on profitability can be expressed as follows; the level of capital
adequacy used as an indicator of the health of a bank can be defined as the ability of a bank to conduct
banking operations as normal and to be able to meet all its obligations in a manner that is in accordance
with the applicable banking regulations. Profit or benefit is an indicator of the success of an
enterprise. Information of firm performance, especially in terms of the ability of the company to make a
profit (profitability) is required to assess potential changes in the economic resources that may be
controlled in the future. Bank management is more concerned with valuation of ROA because it relates to
the value of a bank's profitability as measured by assets with funds which mostly come from public funds
deposits. The capital adequacy ratio is a factor that essential for banks in order to accommodate the loss
of business development and health; and reflects the bank aims to maintain public confidence in the
banking, protect public funds in the bank in question and to meet the provisions of the BIS
standards. With a strong capital, it will be able to maintain public confidence in the banks in question, so
that the public trust to raise funds in the bank increases. As a result, funds collected are then channeled
back by the bank to the community in the form of financing. In this form of financing, it can encourage
interest income resulting from the interest, so that banks can gain profit. With this level of earnings or
profitability, banks can increase the strong capital structure so as to form a sound financial
condition. Research conducted by Anggriani (2011) shows that there is influence of the Capital Adequacy
Ratio toward profitability, in which, the higher the CAR achieved by the bank is, the better the
performance of the bank. Therefore, the bank's profit increases. Furthermore, research conducted by
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Teddy (2009) on the the effect of CAR indicates that CAR has a positive influence on the bank's
profitability. Based on the empirical results, the hypothesis can be formulated as follows:
H2: The level of capital adequacy ratio (CAR) positively and significantly influences profitability (ROA).
The correlation of Financing to Deposit Ratio (FDR) and Profitability: The amount of FDR in
following the development of the Indonesian economy, considered healthy if the magnitude of the FDR of
80% to 110% (Ahmad Buyung, 2009). This is supported by the results of Adi Setiawan (2009) and Budi
Poncho (2008) in his research stating that the variable FDR positive effect on ROA. From the description
above can be formulated in the following hypothesis:
H3: FDR positively and Significantlty influences profitability (ROA).
Population and Sampling Techniques: Population is the whole object that meets certain requirements
and is related to the problems being studied. The populations which are observed in this study are all
Islamic banking companies registered in Bank Indonesia (Indonesian Bank) in the period of 2008 to 2012.
The sample selection is done by using census, where all data are extracted.
The Definition of Operational and Measurement of Variables
Dependent Variables ( Y ): The dependent variable (the bound variable) is the one in which its existence
factors are influenced by the independent variables. The dependent variable in this study is the level of
profitability, which shows the company's ability to generate profits or generally said that the company's
ability to control risks arising from banking activities. The profitability is measured by using ratio of
Return on Assets (ROA). The calculation uses the formula: Net income
ROA = x 100 % Total Assets - Syamsudin (2004)
Independent variable (X)
Financial Risk (X1) is a financial ratio showing the amount of distributed finance which encounters
problems on the failure of the debtor to meet its obligations to pay main installments and agreed margin.
Therefore, the higher this ratio is, the worse the quality of bank loans which lead to the greater number of
non-performing loans, putting the bank in trouble as well. So, the NPF ratio can be formulated as follows:
x 100%
Note:
NPF : Non Performing Financing
Finance KL : Substandard finance
Finance D : Doubtful Finance
Finance M : Loss finance
Capital Adequacy Ratio (X2) is the capital ratio which shows the bank's ability to provide funds for the
purposes of business development and accommodate the possible risk of loss which may occur in the
bank’s operational activities (Ahmad and Kusno, 2003). To measure capital adequacy ratio of Islamic
banks is by using the ratio of Capital Adequacy Ratio (Muhammad, 2009). Below, the formula is shown:
Financing to Deposit Ratio (X3) is The ratio is used to measure the liquidity of a bank by dividing the
amount of credit granted by the bank to deposit. Improved FDR can mean the distribution of funds to
finance the larger, so the profit will increase
FDR = (Total Credit Financing) / (Total Third Party Funds)
3. Data Analysis and Discussion
The Multiple Regression Analysis Result: From the data obtained, then it is analyzed by using
regression method and calculated by SPSS version 19.0. Based on SPSS output, partially, the effect of
those three independent variables, those are the growth of the company, the size of the company, and
profit toward CAR is shown in Table 4.6 as follows:
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Table 1: the Calculation Results of Multiple Linear Regressions
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
T
Sig.
B
Std. Error
Beta
1
(Constant)
.641
.077
8.347
.000
NPF
-.002
.014
-.020
-.134
.894
CAR
.008
.003
.355
2.373
.022
FDR
.009
.003
.260
2.817
.007
a. Dependent Variable: ROA
Sumber: Data sekunder diolah 2013
By looking at Table 4.6 above, it can be composed of multiple linear regression equation as follows:
ROA = 0.641 – 0.002NPF + 0.008CAR+ e
The regression equation has some meanings as follows:
1. The Constant value of 0.641; indicates that the value of ROA of Islamic banks in Indonesia is
0.641% if it isn’t influenced by the independent variables (CAR and, NPF).
2. The Value of CAR variable regression coefficient is 0.008. Such Positive sign of the regression
coefficient shows that every increasing of 100% CARs will lead to the increasing of ROA of 0.008%
when the effect of the other variables are constant.
3. The value of the regression coefficient of NPF variable is -0.002. This negative Regression
coefficients sign indicates that if there is an increase of 100%, every NPF will cause the decline of
ROA as much as 0.002% when the effect of the other variables are constant.
4. The Value of FDR variable regression coefficient is 0.009. Such Positive sign of the regression
coefficient shows that every increasing of 100% FDRs will lead to the increasing of ROA of 0.009%
when the effect of the other variables are constan
Hypotheses Testing: Hypothesis 1. This study stated that NPF has negative effect on ROA. The result of
multiple linear regression on the NPF variables on ROA produces t value as much as -0.134 with a
significance of 0.894; because the significance level is more than 0.05, it is stated that the hypothesis 1 in
this study is not supported in which NPF has no significant negative effect on ROA. Hypothesis 2 of this
study states that CAR has positive effect on ROA. The result of multiple linier regression analysis of the
variables on ROA CAR produces t value of 0.355 with a significance of 0.022; because the significance
level below 0.05; it is stated that the second hypothesis in this study is supported, it means that CAR has
significant and positive effect on ROA.
Analysis on coefficient of determination: The coefficient of determination (R2) mainly measures how
far the ability of the model to explain variations of the dependent variable. R2 value which is close to one
means that the independent variables provides almost all of the information needed to predict the
variation of the dependent variable (Imam Ghozali, 2005). The result of the coefficient calculation of
research determination can be seen in Table 2. below:
Model Summaryb
Model
R
R Square
Adjusted R
Square
Std. Error of
the Estimate
Durbin-
Watson
1
.348a
.121
.082
.10534
1.752
a. Predictors: (Constant), lag_ROA, CAR, NPF
b. Dependent Variable: ROA
Based on SPSS Output, it seems that the data has determination coefecient value (adjusted R2) of 0,121.
This means that the number of effecting independent variable, CAR Value, as the degree of capital
sufficiency and NPF value as the risk of finance to profitability dependent variable (ROA) is 12.1%, while
the rest, 87.9%, is influenced by other factors which are not included into this regression model.
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Discussion
The influence of Financing Risk (NPF) toward Profitability (ROA): This study shows that Financing
Risk (NPF) does not affect profitability (ROA) of Islamic Banking. This means that the high or low value of
NPF does not affect increasing or decreasing its profitability, or NPF condition which is higher on a
particular period does not directly affect the decreasing of profit on the same period. The data obtained in
this study shows that NPF tends to be decreasing, while ROA tends to be stable from time to time.
According to Wibowo and Syaichu (2013), this happens because of the significant effect of NPF on ROA
which is related to determining the level of stuck finance which is provided by a particular bank. In one
side, this is because finance is the main source of Bank income. In another side, the high NPF will
influence the rotation of bank’s working capital. Thus, whenever a bank has a high number of stuck
finance, so the banker then evaluates their work while declining the finance until the number of NPF is
decreasing. The NPF average of Islamic Banking in Indonesia in this study is still low (3.86%) and under
the standard value of BI (5%), so NPF of Islamic Banking has no significant effect on its profitability.The
value of NPF is relatively low which indicates the number of stuck installment in conventional banking is
also low, thus it has no effect on the profit of Islamic banking. The result of this study empirically does not
meet the study of Adi Setiawan (2009) which states that NPF has negative effect on ROA. This difference
may be due to the difference source of data used, Adi Setiawan (2009) used data taken from each Islamic
bank, while this study uses data taken from Islamic banks which have been determined by Indonesian
Bank.
The effect of Capital Adequacy Ratio (CAR) on Profitability (ROA): Capital Adequacy Ratio is a ratio
which is used to measure the capability of bank in maintaining adequate capital, identifying, measuring,
observing, and controlling risks which may occur and affect the number of its capital. The result of this
study shows that CAR really affects ROA positively. This means if CAR is increasing, so is the profitability.
This study is in line with Lisa and Suryani (2006) which state that the high value of CAR shows the
capability of bank in financing its operational need; this condition is beneficial for the bank due to
providing big contribution of profitability. Empirically, this study also supports some previous researches
conducted by Yuliani (2007), Budi Ponco (2008), Adi Setiawan (2009), Muhammad dan Shama (2011),
and Ghulam and Haroon (2010) which state that CAR has positive effect on the profitability of bank.
3. Conclusion
Generally, based on the discussion of the research findings done regarding the influence of NPF and
Capital Adequacy Ratio toward The profitability of Islamic Banking in Indonesia – therefore, it can be
drawn some conclusions as follows:
1. NPF does not contribute negative effects and significant toward ROA. Based on the results of
multiple regression test, it is known that NPF β coefficient is negative of -0.002 and the value
tcount>ttable that is -0134 >0284, with the significance of 0894 < 0.05 \. Thus, if any risks increase in
problematic Financing (NPF), it will not reduce the profit reflected in Corporate Income from ROA
Value.
2. CAR contributes significant and positive effects toward ROA. Based on the results of multiple
regression test, it is known that CAR β coefficient is positive to 0.008 and value of tcount>ttable that is
2.373 > 0284, with significance 0.022 < 0.05. The higher CAR indicates that the Bank has the higher
capital adequacy. With Higher Level of capital, then the bank can freely place the funds into
profitable Investment. This will enable bank to increase customer confidence because the
possibility of Bank to obtain profit is very high and chances to be liquidated is barely.
3. FDR contributes significant and positive effects toward ROA. Based on the results of multiple
regression test, it is known that FDR β coefficient is positive to 0.009 and value of tcount>ttable that is
2.817 > 0284, with significance 0.007 < 0.05. The higher CAR indicates that the Bank has the higher
capital adequacy.
4. It is known that the value of Fcount is 4.315 with significance level of 0.018. Therefore, the
probability is smaller than 0.05 by using significance level of α = 5 %. Therefore, there is a
significant influence of NPF ,FDR and the level of capital adequacy ratio (CAR) toward profitability
(ROA) of Islamic bank in Indonesia.
Recommendation
1. It needs to conduct training to customers related to finance by using bank funds to reduce the
amount of NPF.
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2. It needs to improve the effective financial management capabilities to reduce financial problems by
using the precautionary principle in the distribution of funding (Prudent bank), sensitivity in the
early detection and protection against NPF.
References
Aakesa, Ade. 2006. Bank dan Lembaga Keuangan Bank. Jakarta : PT. Indexs kelompok Gramedia.
Anggrainy Putri Ayunigrum. 2011. “Analisis Pengaruh CAR, NPL, BOPO, NIM dan LDR terhadap ROA”.
Dendawijaya, Lukman.(2005). Manajemen Perbankan. Edisi Kedua. Bogor Jakarta : Ghalia Indonesia
Dendawijaya, Lukman. 2009. Manajemen Perbankan. Bogor: Ghalia Indonesia.
Ghozali, Imam. (2007). Aplikasi Analisis Multivariat dengan Program SPSS. Semarang: Universitas
Diponegoro.
Hasibuan, Malayu. S.P. 2004. Dasar-dasar Perbankan. Jakarta: Bumi Aksara.
Hestina Wahyu Dewanti. 2009. “Analisis Pengaruh Perubahan NPM, LDR, NPL, dan BOPO terhadap
Perubahan Laba”.
Horne, James C Van dan John M Wachowicz, Jr.(2005). Prinsip-prinsip Manajemen Keuangan. Terjemahan
oleh Heru Sutojo 1997. Jakarta: Salemba Empat.
Husnan, Suad. 1998. Manajemen Keuangan Teori dan Penerapan. Yogyakarta : BPFE Yogyakarta.
Idris. 2006. Aplikasi SPSS dalam Analisis Data Kuantitaif. Padang: FE-UNP.
Indriantoro, Nur dan Bambang Supomo. (1999). Metodologi Penelitian Bisnis Edisi Pertama. Yogyakarta:
Penerbit BPFE.
Jumingan. 2006. Analisis Laporan Keuangan. Jakarta: PT. Rajagrafindo Persada.
Kasmir. 2000. Manajemen Perbankan. Jakarta: PT.Raja Grafindo Persada. Kasmir. 2007. Manajemen
Perbankan. Jakarta: PT. Rajagrafindo Persada.
Kuncoro. M, dan Suhardjono. (2002). Manajemen Perbankan Teori dan Aplikasi Edisi Pertama.
Yogyakarta: BPFE
Kuncoro, Mudrajad. (2003). Metode Riset untuk Bisnis dan Ekonomi. Jakarta: Erlangga.
Riyanto, Bambang. 1998. Dasar Pembelanjaan Perusahaan. Yogyakarta: BPFE.
Sartono, Agus,R.Drs,Mba. 1998. Manajemen Keuangan Teori dan Aplikasi. Yogyakarta: BPFE. Sartono, R.
Agus. 2001. Manajemen Keuangan Teori dan Aplikasi. Yogyakarta: BPFE
Sawir. Agnes. 2001. Analisa Kinerja Keuangan dan Perencanaan Keuangan Perusahaan. Jakarta: Gramedia
Pustaka Utama.
Siamat, Dahlan. 2005. Manajemen Lembaga Keuangan, Edisi Kelima, Fakultas Ekonomi Universitas
Indonesia, Jakarta.
Sinungan, Muchdarsyah. 2000. Manajemen Dana Bank. Jakarta: Bumi Aksara. Sugiyono. 2004. Metodologi
Penelitian Bisnis. Bandung: PT. Alfabeta.
Sugiyono.(2009).Metode Penelitian Pendidikan.Bandung : Alfabeta Syamsuddin,
Lukman. 2004. Manajemen Keuangan Perusahaan Edisi Baru. Jakarta: PT. Raja Grafindo Persada.
Taswan. 2008. Akuntansi Perbankan Transaksi dalam Valuta Asing. Semarang: UPP STIM YKPN.
Yacub Azwir. 2006. “Analisis Pengruh Kecukupan Modal, Efisiensi, Likuiditas, NPL dan PPAP terhadap
Profitabilitas Bank”.
Lampiran:
Variables Entered/Removedb
Model
Variables Entered
Variables Removed
Method
1
CAR, NPFa
.
Enter
a. All requested variables entered.
b. Dependent Variable: ROA
Model Summaryb
Model
R
R Square
Adjusted R
Square
Std. Error of the
Estimate
Durbin-Watson
1
.348a
.121
.082
.105
1,752
a. Predictors: (Constant), CAR, NPF
b. Dependent Variable: ROA
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ANOVAb
Model
Sum of Squares
Df
Mean Square
F
Sig.
1
Regression
.069
2
.034
3.110
.054a
Residual
.498
45
.011
Total
.566
47
a. Predictors: (Constant), CAR, NPF
b. Dependent Variable: ROA
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
1
(Constant)
.641
.077
8.347
.000
NPF
.002
.014
.020
.134
.894
CAR
.008
.003
.355
2.373
.022
a. Dependent Variable: ROA
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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The Effect of Characteristics and Behavior, Socialization and Perception, and Financing
System of Smes on Financing Distribution of Islamic Banking
Sri Dewi Wahyundaru, Osmad Muthaher
Sultan Agung Islamic University, Indonesia
osmad64@gmail.com
Abstract: UKM os Small and medium enterprises (SMEs) are the engines of growth and innovation in the
ASEAN region. SMEs contribute significantly to economic growth in Indonesia, with SMEs' share of GDP
ranging from 50 percent to 53 percent in 2013. In general, the syariah financing is based on profit sharing
and margin. The most common profit sharing in Syariah banking are musyarakah and mudharabah. The
method of margin is done in the form of sales contract. The most developed in Syariah banking are
murabahah, salam and istishna. This objectives of this research are to study the characteristics and
behavior of SMEs, Socialiszation and Perception, along system of financing that influence the financing
method of financial distribution. Thisis a quantitative research that used primary data. Population in this
study based on all of the SMEs owner who received financial distribution by Muamalat Bank in Baubau
City, Southeast Celebes. Data from this study was obtained from spreading questionnaire and procure 65
data which is processing to this study.The analysis was done by using validity and reliability test, and
logistic regression analysis. The result of this study indicate that : (1) characteristics and behavior of
SMEs significantly affect the Financial distribution with Murabahah as financing method , (2)
Socialiszation and Perception does not significantly affect the Financial distribution, (3) system of
financing significantly affect the Financial distribution with Murabahah as financing
method.(4)macroeconomic condition significantly affect the Financial distribution with Murabahah as
financing method.
Keywords: Islamic banking, Murabahah, Mudharabah, SMEs
1. Introduction
Prolonged monetary crisis has brought impact on the joints of the economic life of the Indonesian people.
In such condition, Small and Medium Enterprises which is made as a safety valve with the performance of
the economy tend to be relatively resistant to economic shocks. It is proven that during the crisis (1998-
2001), based on data (2002) of Statistics Indonesia (BPS) Small and Medium Enterprises (SMEs) is more
resilient to face the economic crisis. It is no doubt that SMEs is a savior, so that the process of economic
recovery can be done. SMEs encourage economic growth and absorb employment which cannot be done
by the big business. Seeing the SMEs number and their role in the economy is big enough, so it can be
used as the pillar of the national economy of its potential (Kurniawan, 2000). Seeing the development of
SMEs is quite good and not much affected by the economic and financial crisis, it also raises the spirit of
the Indonesian banking industry to provide a greater contribution in increasing the productivity of SMEs
nationwide. The SME sector is connoted with a number of negative traits, such as high risk of SME
business, inefficient scale of business, lack of business administration systems, and the lack of business
experience and the application of technology in the Small and Medium Enterprises (SME) (Pramod,
2004). It is negative traits that affect the low access of SMEs to finance the banking sector. In this context,
it should be Islamic banking as part of the national banking system that can play an important role in
order to empower SMEs with different patterns of distribution of financing to SMEs.
SMEs financing problem prevailing in conventional bank during this time is on the high interest rate
charged and the absorption of SMEs loans which is not maximum. One alternative to the above problem is
a pattern of SMEs financing with Islamic pattern. However, SMEs financing through Islamic Bank does not
necessarily solve the problem. There are many things that must be fixed in the development of SME
financing with Islamic pattern such as socialization, Islamic human resource development, public
awareness of the process of interest-minded to the way the business for a mutually beneficial outcome
(Ahmad Mujahid, 2001). Referring to the condition of SMEs in Indonesia, Islamic banking is demanded to
cooperate with the government, private sector and the wider community in realizing the economic
recovery through the generation and empowerment of the SME sector. In order to increase the portion of
BNI Islamic and provide a greater contribution in empowering the SME sector, then the study is
conducted on the various financing model that will be distributed in accordance with the characteristics
of SMEs with concerning to the principles which are closely related to prudential banking system.
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Therefore, the objectives of this study are (1) to study the characteristics and behavior of SME sectors
which affect the pattern of financing, (2) to assess barriers to the adoption of the financing system for the
pattern of results (Mudharaba and Musharaka), (3) to determine the most appropriate financing pattern
with the characteristics of the SME sector among the various patterns of financing available on Islamic
banking, and (4) to develop strategies of Islamic BNI in increasing market share and face competition in
the Islamic banking industry.
2. Literature Review
Policies in Financing of SMEs and Development Efforts in SMEs: Policies to encourage small and
medium industries with the policy after the amendment of Law No. 13 of 1968 into Law No. 23 of 1999,
and was amended again into Law No. 6 of 2009, BI no longer gives credit program. BI plays a role in such
policies, bank credit policies, institutional development and technical assistance. Assistance provided by
BI are like training to banks, training the Bank Partner Financial Consultant (BPFC), research activity,
providing information system (System of Debtor Information or SDI, and the Integrated Information
System of Small Business Development or IISSBD)
SME Financing Concept: The concept of the SME financing issued by Bank Indonesia (BI) as a supervisor
and policies maker for banking business in Indonesia through policy encourages small and medium
industries with the policy after the amendment of Law No. 13 of 1968 into Law No. 23 of 1999 to Law No.
20 of 2008, and amended again into Law No. 6 of 2009 in which there is an explanation of the concept of
SME financing.
Characteristics and Behavior of SMEs: Characteristics (Typical character) are a quality or characteristic
that remains constant and eternal characteristic that can be used to identify a person, an object, or event
(JP Chaplin: 85). According CFISEL (2010: 17-18) stated that the advantage of SMEs is possible due to
some specific characteristics of SMEs, they are: first, the majority of SME business is intensive activities
that use advantage of local resources. Second, the production time interval is relatively short, or
production can be done quickly. Third, the value of ICOR (Incremental Capital Output Ratio) activities of
SMEs is relatively low.
Socialization and Perception: Perception is defined as the process we use to interpret sensory data
(Severin and Tankard Lahlry (2011: 83). In more details, Barelson and Steiner in Severin and Tankard
(2011: 84) point out that the perception is a complex process in which people select, organize, and
interpret the response to a stimulus into the situation of a world full of artists and logical. Mujahidin
(2010) points out that socialization Islamic banking is needed in order to disseminate information and
raise public awareness about Islamic banking. This can be done continuously by face to face meeting with
the bankers, Ulama, community leaders, businessmen, academics and the public generally.
Financing system: Based on the Ministry of Cooperatives and Small and Medium Enterprises number 91
of 2004 on the instructions implementation of Islamic financial services cooperative effort Article 1
paragraph 8 the meaning of financing is the provision of funds for capital investment or cooperation
among cooperatives with members, prospective members, other cooperatives, and or its members, which
require recipients of financing to pay off the main financing to the appropriate cooperative agreement
with a payment of remuneration or profit sharing and profit from financed activity or use of the financing
fund. SMEs themselves can access / get finance / capital from several sources, including: private fund,
pawn shops, loans without collateral (non-formal), suppliers, joint ventures, banking, government in the
form of Credit (KUR) (Mubarok and Faqihudin 2011: 59).
Financing Distribution: Financing distribution can be said as finance. Finance based on Islamic
principles is providing money or claim which can liken, based on the agreement or approval between
bank and other party which makes those who get finance return the borrowed money after a particular
period of time with interest or profit-sharing.
Hypotheses Development
The Effect of Characteristic and Behavior of SMEs on Financing Distribution of Islamic Banking:
The study conducted by Purwanto et al., (2012) aims to find out the characteristic and behavior of SMEs
which has effect on financing system. The study results that the characteristic and attitude of SMEs which
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meet Islamic banking have more financing distribution to SMEs by implementing murabahah rule. Those
can be proved by the result of Chi Square count.
H1: The characteristic and Behavior of SMEs has positive effect on financing distribution of Islamic
banking.
The Effect of Socialization Perception on Financing Distribution of Islamic Banking: The study
conducted by Kurniawati et. al., (2007) points out that costumers’ willingness to interact with Islamic
banking is affected by three aspects, behavior toward behavior, subjective norm, and perceived control
behavior. Therefore this finding needs real effort to follow up by banking institution, especially Islamic
Banking. It is suggested to introduce more and make customers get interested so that they want to do
transaction with Islamic Banking. Then it is also suggested that Islamic Banking widen their socialization
about knowledge of Islamic banking.
H2: Socialization and Perception have positive effect on financing distribution of Islamic Banking.
The Effect of SMEs Financing System on Financing Distribution of Syariiah Banking: The study of
Susilo, Hubeis & Purwanto (2012) finds out that characteristics and behavior of SMEs are in line with the
statement that Islamic Banking distributes their finance more under the principle of Murabahah even
though it finds some difficulties in applying the system.
H3: Financing system of SMEs Has Positive Effect on Financing Distribution of Islamic Banking.
3. Methodology
Due to an analysis of discussing problems in financing of SMEs through Islamic Banking, it is needed to
obtain and gather the related data, review related literatures and conduct library research on theories of
various Islamic Banking system either primary or secondary data. Primary data is the main data which is
used in this study. The data are obtained from questionnaire result distributed to 280 debtors of SMEs
registered in Muamalat Bank Semarang branch. Beside the questionnaire result, the data also are
obtained by interviewing bank clerks and customers. While the secondary data, it is used for additional
support in the analysis. The data is included into quantitative data because it uses portfolio data of
Muamalat Bank Semarang Branch. The portfolio is based on the type of financing which has been
distributed, data of banking development and the segment of Islamic Banking in National Banking.
Another data is obtained qualitatively from magazine / newspaper, literatures related to Islamic Banking
and reviews of the experts in economics which are published on bulletins, scientific journals, or uploaded
in the internet. The obtained data will then be analyzed by using the following method.
Technique of Data Analysis: The method of data analysis used in this study is by using an analysis of
binary logistic regression. The hypothesis test by using this binary logistic regression is employed when
the independent variables are a combination of Continue (Metric) and Categorial (Non-Metric). This
technique of data analysis does not need a normality test on data of independent variables. (Ghozali,
2006:261). Regression model which is used in this study can be stated as follow:
Where:
= Dummy Variable of Financing Distribution of Islamic Banking (Category 1 for those enterprises
that employ Murabahah System while Category 0 for those that employ Mudharabah System)
Α = Constanta
β1β2β3 = Regression Coefficient of logistic for each Independent Variable
X1 = Characteristics and Behavior of SMEs
X2 = Socialization and Perception
X3 = Financing system of Islamic Banking
Hypothesis Test: To answer the hypotheses that have been formulated, the following methods of
analysis can be used:
Matching Test /The Feasibility of Regression Model: The feasibility of Regression models is assessed
by using the Hosmer and Lemeshow's Goodness of Fit Test. If the statistical value of Hosmer and
Lemeshow's Goodness of Fit is greater than 0.05 then the null hypothesis cannot be rejected and it means
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that the model is able to predict the value of observation or can be said that the model is accepted
because it fits the data observations (Ghozali, 2006: 269).
Model Fit Testing: In assessing the overall fit model, Cox and Snell's R Square and Nagelkereke's R
square can be used. (Coefficient of determination)
Significance of Regression Coefficients Testing
1. The level of significance (α) which is used by 5% (0.05).
2. The Criteria for acceptance and rejection of the hypothesis are based on the significance of the p-
value. If the p-value (significant)> α, then the alternative hypothesis is not supported. Conversely, if
the p-value <α, then the alternative hypothesis is supported (Ghozali, 2006: 270).
4. Data Analysis and Discussion
The results of Regression Analysis: The results of the study found that all the independent variables
have regression coefficient with positive direction. The hypothesis testing can be described as follows:
Variables in the Equation
B
S.E.
Wald
Df
Sig.
Exp(B)
Step 1a
X1
.321
.178
3.237
1
.042
1.378
X2
.038
.119
.102
1
.749
1.039
X3
.198
.096
4.231
1
.040
1.218
Constant
-10.295
4.807
4.588
1
.032
.000
a. Variable(s) entered on step 1: X1, X2, X3.
The Effects of the Company Characteristics on the Islamic Financing Choice: The test on the effects of
the company characteristics variables on the types of Islamic finance partially results Wald test statistic
value of 3.237 with a significance of 0.042. Based on the significant value, it shows that the value is lower
than the significance level of 0.05. This means that on the level significant level of 5%, the characteristics
and behavior of SMEs has significant effect on the distribution of Islamic finance, or in other words
Hypothesis 1 is supported. The effect of the characteristics and behavior of SMEs on the distribution of
finance in terms of murabaha and mudaraba types is due the fact that in order to distribute the finance,
both conventional banks and Islamic banks, a trust among other banks is badly needed. Therefore, the
banks should be familiar with the characters and things related to the customers.
The Effect of Socialization and Perceptions on the Selection of Islamic Finance Types: The test on
the effect of socialization and perception variables on the Islamic finance type selections is obtained
partially in Wald test statistic value of 0.102, with a significance of 0.749. Based on the significance value,
it indicates that the value is greater than the significance level of 0.05. This means that on the level
significant level of 5%, the socialization and perception do not have significant effect on the distribution
of Islamic banking finance or in other words Hypothesis 2 is not supported. There has been no significant
effect due to the socialization given by the banks which has not been able to change the public perception
of Islamic banking finance. The Islamic banking has not provided unceasing socialization about their
products so that the public perception toward Islamic banking is still an Islamic bank, the one which is
usury-free bank, and the profit-share bank. However, the socialization and the perception of reality do not
match the distribution of funding that dominate the Islamic banking finance, which is the finance on the
purchase scheme instead of the outcomes. Islamic banking should also assert itself as a bank without
usury, but not a bank with no load. In addition, the socialization and perceptions of Islamic finance is
currently on the type of Islamic finance offered by Islamic banks, especially Muamalat Bank which
indicates that both banking products in the forms of Islamic finance do not have different socialization, so
that both are perceived the same way by the owners of SMEs. These results support the research done by
Sadhana (2010), and Adawiyah (2010).
The Effect of “SMEs” Financing system on Islamic Financing Choice: The test on the effect of “SMEs”
financing system on Islamic financing choice partially results Wald statistical value of 4.231 with
significant value of 0.04. Based on this significant result, it shows that the value is lower than the
significance level of 0.05. This means that on the level significant level of 5%, the financing system of
“SMEs” has significant effect on distributing finance of Islamic Banking, or it can be said that the
hypothesis 3 is supported. This means that the system of financing SMEs meet the financing distribution
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by a simple murabahah system because the simple murabahah system is easy to understand, does not
depend on cash flow or profit/loss encountered by SMEs, and is not effected by global economic
conditions. The goods traded by the bank and the customers function as a collateral so that this financing
does not another collateral, this absolutely makes easy the costumers who have SME. This result is in line
with the study of Susilo, Hubeis, and Purwanto (2012) who point out that the financing system of SMEs is
in line and has an effect on financing distribution of Islamic Banking.
Suggestions: It is suggested for further study to consider these followings:
1. Islamic Banking needs to do more socialization by promoting on the internet, mass media,
electronic media, etc. dealing with the advantages and weakness of financing system of Islamic
banking both murabahah and mudharabah, so that, the owner of SMEs does not have perception
that mudharabah and murabahah equal to each and are different from any conventional banking.
2. Introducing Islamic banking to SMEs is more technical of approach which is suitable with kinds of
work performed by SMEs.
3. Finance by profit-sharing needs to be optimized because it is a core product of Islamic banking, it is
not a human-made system of economy but God’s system of economy because it has many verses
about trading which contains profit-sharing.
Limitations: This study has been conducted at one branch of Muamalat Bank (Muamalat Bank of Baubau
Branch, South East of Sulawesi) and the total of independent variables is three (The characteristic and the
behavior of SMEs) by resulting Nagelkerke Square which is only 29.70%. Therefore, a further research can
employ more Islamic banking and add some independent variables, so that, it is hoped that it can explain
more about financing distribution of Islamic banking.
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Werner J. Severin & James W. Tankard, Jr., 2011. Teori Komunikasi : Sejarah, Metode, dan Terapan didalam
Media Massa. Edisi ke-5, Jakarta : Kencana
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Role of Commitment in the Relationship between Islamic Leadership and Islamic Work
Ethic on Employee Performance
Heru Sulistyo
Sultan Agung Islamic University, Semarang, Indonesia
heru@unissula.ac.id
Abstract: This study is aimed to analyze and show the influence of the leadership perception and Islamic
work ethics toward the employee commitment in organization and employee performance The samples
of this study are 93 employees of PT. Telkom Indonesia Tbk and PT. PLN (Persero) Indonesia, who have
joined ESQ training and management qalbu. The data are collected through open and close
questionnaires.The results of quantitative test show that (1) Islamic leadership has positive and
significant effect toward employee commitment in the organization; (2) Islamic leadership has positive
and significant effect toward Islamic work ethics; (3) Islamic leadership has positive and significant effect
toward employee performance; (4) Islamic work ethics has positive and significant effect toward
employee commitment in organization; (5) Islamic work ethics has positive and significant effect toward
employee performance; and (6) Employee commitment in organization has positive and significant effect
toward employee performance. The functions of human as Khalifatu’llah fil ardhy and Abdullah stated in
Koran Surah Al Baqarah (2): 30 and Surah Al Dzariyat (51): 56 have been well and appropriately
implemented by the managers and employees.
Keywords: Islamic Leadership, Islamic work ethic, Employee commitment, employee performance, State
owned enterprises
1. Introduction
The importance of spiritual values in improving organizational performance has been conducted by many
researchers today (Chen & Yang, 2012; Lynton & Thogersen; Crossman, 2011; Fry et al., 2011, Pawar,
2008; Pin et al, 2010; Jurkiewicz &; Giacalone, 2004; Giacalone & Jurkiewicz, 2003, Duchon & Plowman,
2005; Fry, 2003;, Fry & Matherly, 2006, Ali, 2005). Spiritual leadership is part of the implementation of
spiritual values in the workplace which is the development of the theory of the previous leadership.
Concept and implementation of spiritual values in the workplace is still an issue and the relatively new
field related to the individual and organizational (Sheep, 2006; Moor & Casper, 2006) including
leadership and work ethic. The concept and measurement of spiritual leadership has been studied by Fry
(2003.2005); Fry, Vitucci, and Cedillo (2005); Malone and Fry (2003). While Islamic work ethics in the
workplace has been developed by Ali (1985) and Yousef (2000). Study about the previous leadership has
not been able to find leadership pattern which can accelerate organization member to be oriented to
performance accompanied by ethics and religious moral totally. The recent ledership patterns still
consider that the meaning of leadership is mandate from people (subordinate) and not consider
leadership as mandate from God and people. Leadership appraoach is still dominated by authority and
not by spirituality and deep inside. The follower in organization is supported by material and altruistic
influence by neglecting model values, inspiring, encouraging, empowering and humanizing.
Islamic work ethics is the life attitude and point of view toward work, work habit, the characteristics
about the way of work owned by someone which is based on divine teachings and mind that cooperate
one to another (Asifudin, 2004). Islamic work ethics reflected from belief system / Islamic belief related
to work that is formed by divine and mind. Islamic work ethics can increase performance if work is the
explanation of belief, work is based on science, work by applying the characteristics of Illahi. Oliver
(1990) found that work ethics has significant relation with organizational commitment. Yousef (2000)
found that organization commitment mediates the relation between Islamic work ethics and attitude
toward the changing of organization. The purpose of this study was to investigate the influence of Islamic
leadership, islamic work ethic and commitment to the performance of employees.
2. Literature Review
Islamic Leadership: In Islam view, leadership is a mandate and responsibility that is not only accounted
to his members he leads, but also will be accounted in front of Allah SWT. Leadership in al-Qur’an and
hadits view is a mandate that must be done well, full of responsibility, sincere, and professional.
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Consequently a leader must have the characteristics of trusteeship, professional and responsible. A leader
must have bravery to maintain law and justice. Islamic leadership can be defined as a process to direct
and to motivate other people and has cooperate bussiness based on Al-Qur’an and Hadist to reach the
purposes they wanted. Some of Islamic leadership indicators found based on conventional and Al-Qur’an
and hadist leadership theories are the characteristics of shiddiq, amanah, fathonah, tabligh. Islamic
leadership indicator consists of shiddiq based on QS. Al Baqarah (2): 177, QS. At Taubah (9): 119, QS. Al
Ahzab (33):70, trusteeship indicator based on QS. Al Mukminun (23):8, QS. Al Anfal (8): 27, QS. Al Ahzab
(33): 72 and hadist HR. Ahmad from Anas bin Malik., fathonah indicator based on QS. Al Baqarah (2):269,
tabligh indicator based on QS. An Nuur (24):54. Fair indicator based on QS. Al Maidah (5): 8, QS. Shaad
(38): 26 and sincere indicator based on QS. Shad (38):83, QS. Al-Bayyinah (98):5, QS. Az-Zumar (39):3, QS.
An-Nahl (16):66.
The research done by Mei (2003) about structural equality model of leadership behavior, organization’s
commitment concluded that there is direct influence between leadership practices toward work
satisfaction and indirectly influence toward organization’s commitment. The research done by Hennesey
(1998) concluded that leadership influence significantly toward organization performance. The research
done by Koene, et al., (2002), examined different leadership styles concluded that local leadership
influences financial performance and organization atmosphere. The research done by Brodbeck, et al.,
(2002) about leadership in Germany concluded that leadership influences significantly toward
employee’s performance. The research result done by Chen (2004) concluded that leadership influence
positively toward organization commitment. The research done by Daniel (2003) about the influence of
leadership toward organization commitment in multinational telecommunication company showed the
result that there is significant influence between leadership toward organization commitment.
Islamic Work Ethics: Rasulullah commanded: “working is an obligation for every moslem”. According to
Ali (2005) Islamic work ethics is an orientation that has great influence to Islam people and organization.
Islamic work ethics is made of four elements namely effort, competition, transparancy, and moral
behavior which have responsible in work. According to Yousef (2000) Islamic work ethics sees that work
is a goodness, work done by cooperation and consultation is the way to overcome problem and lessen
mistake in work. According to Asifudin (2004), Islamic work ethics has basic life attitude toward work,
identical to belief system or Islam attitude concerning work based on understanding from divine and
mind that cooperate each other proportionally. Yousef (2000) studied about the relation between Islamic
work ethics and attitude toward organization changing mediated by organization commitment. Yousef
found that Islamic work ethics has positive relationship toward commitment and attitude toward
organization changing. Islamic work ethics such as cooperation principle, responsibility, social influence,
and dedication proven positively produced commitment from organization members.The research done
by Yousef (2001) concluded that Islamic work ethics directly related to organization’s commitment.
Islamic work ethics directly related to work satisfaction. Islamic work ethics moderates the relationship
between work satisfaction and organization’s commitment. The research done by Putti et al. (1989) about
the relationship between work ethics and organization’s commitment in Asia concluded that intrinsic
work ethics has stronger relationship with organization’s commitment than extrinsic work ethics. Oliver
(1990) also examined the influence of employee’s work ethics toward organization commitment of
company cocluded that work ethics influences significantly toward commitment. The research done by
Yousef (2000) concluded that employee with high commitment to organization, is very satisfied with his
work and his performance is high. Kumar and Rose (2008) concluded that there is relationship between
Islamic work ethics and innovation capability. All innovation capabilty indicators have significant
correlation toward Islamic work ethics.
Hypotheses: Based on thinking process framework and conceptual framework, study hypothesis is
arranged as follow:
H1: Islamic leadership influence the employee’s commitment
H2: Islamic leadership influences Islamic work ethics of employees
H3: Islamic leadership influences employee’s performance
H4: Islamic work ethics influences employee’s commitment
H5: Islamic work ethics influences employee’s performance
H6: Employee’s commitment influences employee’s performance
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3. Methodology
Sample: Population in this research are all employees of BUMN PT. Telecommunication Tbk and PT. State
Electricity Company in Central Java Province and Special Region Yogyakarta who have joint ESQ or MQ
training. as many as 1310 employees. Sample in this research is employees of PT. Telecommunication
Indonesia Tbk and PT. State Electricity Company (Persero) in Central Java Province and Special Region
Yogyakarta who have joint ESQ or MQ training. Sample took as many as 100 people using proportional
technique sampling and purposive sampling, for PT. Telekomunikasi Indonesia Tbk as many as 66 people
and PT. Perusahaan Listrik Negara (PLN) Persero as many as 27 people. Collecting data is done by using
survey method that uses questionnaire instrument guided by interview. Questionaire instrument is
designed using combination between closed question and opened question
Measure: Islamic leadership indicatorss measured multy item using instrument developed by Zainudin
and Mustaqim (2005) as many as six indicators based on main characteristics of Rasulullah Muhammad
saw. Islamic leadership Indicators are Shiddiq, Amanah, Fathanah, Tabliq, Fair. Islamic work ethics
indicator consists of six indicators developed based on research done by Ali (2008), cooperation,
dedication, giving benefit in work, justice, creativity. All of the variables is measured using Likert scale 1
to 5. Organization commitment indicator is developed based on research done by Mowday, R.T., R.M.
Steers, and L.W. Porter, (1979). is measured multy item using Likert scale with score 1 to 5. Employee’s
performance indicator is developed based on research done by Janseen, Onne (2001) and based on Al
Qur’an and hadist . all variables were measured using a Likert scale, 1= strongly disagree and 5 = strongly
agree
4. Result and discussion
The Re sul t of Ou te r M odel: Loading score indicator of shiddiq (X1.1) is 0,893, amanah (X1.2) is
0,735, fathonah (X1.3) is 0,839, tabligh (X1.4) is 0,879 and fair (X1.5) is 0,715. the result of convergent
validity test, 5 Islamic leadership indicators have loading factor score of all indicators more than 0,5 and T
statistic score of all indicators greater than T Table as many as 1,6711. Loading score indicator of
cooperation is goodness in work (Y1.1) is 0,787, work dedication (Y1.2) is 0,821, work is useful for self
and other people (Y1.3) is 0,876, justice and comfort in work place (Y1.4) is 0,865, work creativity (Y1.5)
is 0,838. The result of convergent validity test, 5 Islamic Work Ethics indicators have loading factor score
of all indicators more than 0,5 and T statistic score of all indicators greater than T Table is 1,6711.
Loading score indicator of possessive of organization (Y2.1) is 0,838, bounded emotionally to
organization (Y2.2) is 0,814, aware to organization fate (Y2.3) is 0,678, spending career in organization
(Y2.4) is 0,745, proud of organization (Y2.5) is 0,741, organization’s problem is oneself problem (Y2.6) is
0,735. The result of convergent validity test, 6 indicators of employees’ commitment have loading factor
score of all indicators more than 0,5 and T statistic score of all indicators greater than T Table is 1,6711.
so all employees’ commitment indicators are valid. Based on composite reliability test from indicator
block that measures construction, show satisfying result that is 0,891, means that employees’
commitment construction can give relatively same result if remeasure is done to te same subject. Loading
indicator score of work quantity (Y3.1) is 0,646, work quality (Y3.2) is 0,699, work efficiency (Y3.3) is
0,667, professional standard (Y3.4) is 0,737, punctuality (Y3.5) is 0,606, often do sunnah pray (Y3.6) is
0,712, the increasing of ZIS (Y3.7) is 0,603, the increasing of devotion (Y.3.8) is 0,684. The result of
convergent validity test, 8 indicators of employee’s performance have loading factor score of all indicators
more than 0,5 and T statisti of all indicators greater than T Table is 1,6711.
The Result of Inner M od el : The first hypothesis, iss the influence of Islamic leadership toward
organization commitment, test result of t – statistic score is 2,167 and t-Table is 1,6711. While coefficient
estimation (β) score is 0.324. So it can be concluded that there is significant positive influence from
Islamic leadership variable toward employee’s commitment to organization. The second hypothesis is the
influence of Islamic leadership toward Islamic work ethics, the test result of t–statistic score is 16,428 and
t–Table is 1,6711. While coefficient estimation (β) score is 0.826. So, it can be concluded that there is
significant positive influence from Islamic leadership variable toward Islamic work ethics. The third
hypothesis is the influence of Islamic leadership toward employee’s performence, the test result of t –
statistic is 2,330 and t-Table is 1,6711. While coefficient estimation (β) score is 0.182. So it can be
concluded that there is significant positive influence from Islamic leadership variable toward employee’s
performance. The fourth hypothesis is the influence of Islamic work ethics toward employee’s
commitment to organization, the test result of t –statistic score is 3,882 and t-Table is 1,6711. While
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coefficient estimation (β) score is 0.607. So it can be concluded that there is significant positive influence
from Islamic work ethics variable toward employee’s commitment to organization. The fifth hypothesis is
the influence of Islamic work ethics toward employee’s performance, the test result of t –statistic score is
4,975 and t-Table is 1,6711. While coefficient estimation (β) score is 0,514. So, it can be concluded that
there is significant positive influence from Islamic work ethics variable toward employee’s performance.
The sixth hypothesis is the influence of employee’s commitment to organization toward employee’s
performance, the test result of t –statistic score is 2,875 and t-Table is 1,6711. While coefficient
estimation (β) score is 0.319. So it can be concluded that there is significant positive influence from
employee’s commitment to organization variable toward employee’s performance
Table 1: Result for inner weights
Original
sample
estimate
Mean of
subsamples
Standard
deviation
T-Statistic
Leadership >>
Commitment
0,324
0,316
0,149
2,167
Leadership >>
Islamic work
Ethic
0,826
0,835
0,050
16,428
Leadership >>
employee
performance
0,182
0,171
0,078
2,330
Islamic work ethic >>
Commitment
0,607
0,610
0,156
3,882
Islamic work ethic >>
employee
performance
0,514
0,481
0,103
4,975
Commitment >>
employee
performance
0,319
0,362
0,111
2,875
T-Table is 1,6711.
Discussion: Islamic leadership (X1) has significant and positive influence toward organization
commitment (Y1), so the first hypothesis of this study is proven and accepted. The results support the
findings of Fry et. al (2011) that the spiritual leadership to increase organizational outcomes. This result
widen the research done by Nowack (2004) which concluded that employee who judges his superior has
bad leadership practice make the employee has high intention to quit from organization, low work
satisfaction, stress, and employee’s commitment to organization is low. This research also widen
research done by Fry, Vitucci, Cedillo (2005), about causal model of spiritual leadership theory. Research
conclusion gives strong support toward spiritual leadership theory and the measurement. The resarch
result also support Yousef finding (2000) which stated that a leader must be able to do managerial
activities. The result of the research also widen Chen finding (2004) which concluded that leadership
with innovation culture gives positive influence toward organization commitment. The result of the
research also widen Daniel finding (2003) about the influence of leadership toward organization
commitment in multinational telecommnication company which shows result that there is significant
influence among the four leadership frameworks toward organization commitment. The result of the
research also suit to theory given by Thobroni (2005) and Nawawi (1993) which stated that Islamic
leadership is as something concerning with leading consists of directing, guiding, leading, showing the
way, conducting and training to that people lead can do themselves to reach the decided goals. Islamic
leadership in this resarch enrich conventional leadership model with main principle that the essential of
leadership is as a test, mandate from Allah Swt and human so that should be beared to Allah Swt (vertikal
responsibility) and to human (horizontal responsibility).
Islamic leadership (X1) has significant and positive influence toward Islamic work ethics (Y1), so the frst
hypóthesis of this study is proven and accepted. It means the better and more consistent the application
of Islamic values in leadership will increase Islamic work ethics of the employee. The result of this
research widen the research done by Howard and Wilson in Timpe (1999:358), leadership gives influence
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to work ethics. It means if leadership is not well done, it will cause the decreasing work ethics of
employee. Leadership process can influence organization outcomes, one of them is the higher work ethics
of employee (Pierce and Newstrom, 2006:65). Islamic leadership (X1) has significant and positive
influence toward employee’s performance (Y1), so the first hypóthesis of this study is proven and
accepted. It means the better and more consistent the application of Islamic values in leadership will
increase employee’s performance.
Islamic work ethics (Y1) has significant and positive influence toward organizaation commitment (Y1),
so the first hypóthesis of this study is proven and accepted. It means the better the implementation of
Islamic values in work ethics will increase employee’s commitment toward organization. The result of
this research widen research finding done by Yousef (2000) which research about the relationship
between Islamic work ethics and attitude toward organization changing which is mediated by
organization commitment. By using Islamic work ethics identification developed by Ali (1996), Yousef
found that Islamic work ethics has positive relationship toward commitment and attitude toward
organization changing. Islamic work ethics such as cooperation principle, responsibility, social influence,
and dedication is proven positively produces commitment from the member of organization. The result of
research widen research done by Yousef (2001) which examine Islamic work ethics as moderator of
relationship between organization commitment and work satisfaction and examine the impact of national
culture as relationship moderating variable between Islamic work ethics and work satisfaction. The result
of research also widen finding of Putti et al. (1989) about the relationship between work ethics and
organization commitment in Asia concluded that there are two major dimentions of work ethics named
intrinsic and extrinsic derived from Wollack et. al Scale analysis factor. The result of research is in line
with Oliver finding (1990) which examine the influence of employee’s work ethics toward organization
commitment company in England concluded that work ethics influences significantly toward employee’s
commitment. Employee who has strong ethics relatively has high commitment.
The result of this research widen Meglino et.al finding (1989), that work ethics can predict work
outcomes. The result of research widen Furham finding (1990), that work ethics influences behavior such
as employee’s performance. The research finding is also in line with theory stated by Asifudin (2004)
about Islamic work ethics. Identification about Islamic work ethics was firstly stated by Ali (1986). Then,
research about Islamic work ethics is developed by Yousef (2000). Organization commitment (Y2) has
significant and positive influence toward employee’s performance (Y3). The result of research widens the
research done by Yousef (2000) about organization commitment as relationship moderator between
leadership behavior and work satisfaction and performance. The result of research also widen Suliman
and Iles finding (2000) which examine the relationship between commitment characteristics on three
companies in Yordania with employee’s performance, concluded that there is significant influence
between affective, continuance and normative commitment toward performance. The strong possessive to
organization and always feel bound emotionally with organization will create strong employee’s
commitment to organization and will increase employee’s professionalism in work and the inceasing
employee’s spiritual perforrmance in doing sunah worship which finally increase employee’s
performance wholly.
5. Conclusion
Based on the results of the study showed that the leadership of Islam and Islamic work ethic is very
important in improving employee commitment and performance. Leadership and work ethic that is based
on the spiritual values will encourage employees to commit to the organization and have a passion to
improve performance.
Recommendations: The leaders need to master and to explain in practice of Islamic leadership concept
based on Al Qur’an and As-Sunah and to be able to understand and explain Rasulullah Muhammad Saw
leadership values to have honesty, can keep amanah, can communicate, smart in taking decision, fair and
wisdom. Management should continuously do spiritual activities in order to understand and to master the
content of Al-Qur’an and As-Sunnah especially that relate to the application of Islamic leadership, Islamic
work ethics and implement and civilize the Islamic values in management of company. Government in
this case states own enterprises ministry need to organize management by emphasizing spiritual values
more, so that employees and organizational performance can increase significantly. Good company
management and supported by the strengthening of spiritual values will increase organizational
performance optimally more.
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Limitation of the Study: Based on the result of this study, there are some things that have not been able
to be finished, so there are some limitedness in this study. The less support theory and empiric in this
research need further exploration study to find more satisfying indicators for each variables.
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Fraudulent Financial Statement (Factors Analysis)
Imam Setijawan, Yulfarida Listyo Pertiwi
Sultan Agung Islamic University
galih90@yahoo.com
Abstract: The purpose of this study is to analyze the factors that influence the fraudulent financial
statement on manufactures company in indonesia. The independent variables which used are audit
quality as measured by audit size (Public Accounting Firm big four and non big four) and financial
distress as measure by Z score Zmizewzky model, while the dependent variabel which used is fraudulent
financial statement as measured by F score model. As population in this study is manufacturing
companies which were listing on the indonesia stock exchange between 2010-2012 period. Sampling was
conducted with a purposive sampling method and there were 61 as sample of the manufactures
companies, so that there were 183 observations. The method of analyzes which used is multiple linear
regression. Based on the result of the study show that audit quality as measure a Public Accounting Firm
big four have the negative effect on fraudulent financial statement, while financial distress have the
positive effect on fraudulent financial statement.
Keywords: fraudulent financial statement, audit quality, financial distress, F score
1. Introduction
Nowadays, many illegal cases are published and it indicates the seriousness of fraud occurring in financial
statement. One of the fraudulences that exist in Indonesia happens at PT Kimia Farma Tbk in which its
financial statements is audited on December 31, 2001 by Hans Tuanakotta and Mustafa (HTM), and based
on the indications made by the Ministry of BUMN and BAPEPAM (2002), it shows that the management of
Kimia Farma is reported to have a net profit of Rp. 132 billion. Unfortunately, this net income is
considered to be too high and indicated to possess elements of manipulation. Having held a re-audit on
October, 03, 2002, the financial statement of Kimia Farma of 2001 is restated because it is found a very
basic mistake in its financial report in which it only reports profit of Rp. 99.56 billion or lower than
Rp32.6 billion or USD 24.7 billion from the beginning of the report. In addition, another case that shocked
the world is conducted by Enron. The company suffers a loss and bankrupt of US $ 50 billion. Enron is
suspected of practicing window dressing because management of Enron inflates (mark-up) its income of
US $ 600 million and hide their debt by using off-balance amount of US $ 1.2 billion. The scandal has
scratched the image of accounting profession. The cases presented are the result of Fraudulent Financial
Statement practices.
According to Yustitia and Tarmidzi (2012) Fraudulent Financial Statement is a behavior of entity actors
which is done intentionally, whether by action or omission, which results in financial statements bias.
When a financial report contains elements of fraud, it can lead to the fall of the integrity of information in
the financial statements (Ansar, 2011). According to Rezaee (2002), in the last period, the fraudulent
financial statement has increased substantially due to the weak controls over financial reporting.
Essentially, the financial report is a guide of stakeholders to make decisions related to the economic
condition (Ghazali and Chariri, 2007). The financial statements must be presented fairly in accordance
with generally accepted acounting principles (GAAP/PABU). According to FASB in Tjun Tjun., Et al
(2012), there are two important characteristics that must be presented in the financial statements, they
are relevance and reliability. The financial statements will lose its relevance and reliability when the
financial statements presented have misstatement that would lead to a fraud (Aulia, 2013). In the fraud
triangle theory developed by Cressey in Skousen (2009) and introduced in the Professional Literature on
SAS 99 about Consideration of Fraud in a Financial Statement Audit, to detect the fraudulent financial
statements, there are three conditions that must be paid attention on it, they are the pressure, opportunity
and rationalization. Referring to the research conducted by Rahmawati (2013) which states that
rationalization factor in the fraud triangle theory is so difficult to study, so that, the rationalization factor
is not used in this research, it will only use the aspect of opportunities and pressures.
The first variable is taken from the opportunity factor of fraud triangle theory. This research uses the
variables of audit quality that is reflected in the use of services by the big four and non-big four Public
Accounting Firms (PAF/KAP). The audit quality is categorized as an opportunity factor of fraud Triangle
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theory. According to research conducted by Yustitia and Tarmidzi (2012) which is in line with the Gerayli
(2009), it states that companies that use the services of the big four have low level of fraud if compared
with those who use non big four. Therefore, auditors of the big four PAF are considered to be able to limit
fraud. The second variable is the financial distress. According to plat and plat (2002), financial distress is a
condition where the company is experiencing financial difficulties to fulfill its obligations. According to
the study by Ansar (2011), in the fraud triangle theory, financial distress is categorized as pressure,
because theoretically when entity actors are confronted with the current state of the company which is
suffering any financial distress, such entities will attempt to commit fraud in the financial statements in
order to make it more favorable than the original one. The theory is supported by research conducted by
Hansan et al (2006), Carcello and Nagy (2004) which states that the higher the financial distress
experienced by a company is, the higher the likelihood of fraudulent financial statements in an enterprise
will be.
In this study, financial distress is measured by a Z score proxy of Zmejewski models which is referred to
the research conducted by Ansar (2011). In addition, the audit quality is proxified by big four and non-big
four PAF by using dummy variables. Moreover, the fraudulent financial statements can be measured by
various methods such as F score which is used as a proxy to oversee the presence of fraudulent financial
statement. Actually, the F-Score is developed by Dechow in 2007, yet, this F-Score method has not been
widely developed in Indonesia. In addition, the use of F-Score is used to predict the existence of fraud
early in the financial statements. This research refers to the research conducted by Yustitia and Tarmidzi
(2012) which states that the quality of the financial statements audited by the big four PAF is more
eligible than audited by the non big four ones. The difference of this research with the previous one is on
the use of financial distress and the techniques of analysis used. Although cases of fraud in the accounting
world often occur, in Indonesia itself, the cases of fraud never stop to be discussed (Wilopo, 2006). In
addition, in Indonesia, there is still less investigation of fraud by using the F-Score models, so, it becomes
opportunity for the researcher to provide an overview for stakeholders, especially investors in decision
making process.
Theoretical Framework and Development of Hypotheses
The effect of quality audit toward the fraudulent financial statement: Good financial statements are
the financial statements which do not contain misstatements material, as well as relevant and reliable if
disclosed to the public. Theoretically, companies with good financial statements are considered to use the
services of a qualified public accounting services, because the better the quality of the audit of the
financial statements is, the lower the level of fraud will be. According to Yustitia and Tarmizi (2012), the
level of risk of fraudulent financial statement in the company which uses the non-big four POF is greater
than the big four ones, because the big four apply high standard criteria in auditing financial statements.
In other words, if companies use the services of the big four, the trend of the company to commit fraud
against the financial statements will decrease when compared to those who use the services of non big
four. Moreover, this research is in line with the research conducted by De Angelo (1981) in Yustitia and
Tarmizi (2012) which analyze the correlation of audit quality and the size of the audit. The result
concludes that the large-scale auditors (Big four) are better than the small ones (non-Big four) because
the Big four have more technical ability to find fraud in client accounting system as they have more
extensive experience and high reputation if compared with non-Big Four. From the explanation above, the
hypothesis is formulated as follows:
H1: Quality audit with a proxy of the big four PAF has negative effect on the occurrence of
fraudulent financial statement.
The effect of financial distress on the fraudulent financial statement: According to Platt and Platt
(2002), financial distress is a condition in which companies are not good in financial condition or are in
crisis that results in companies struggle to meet its obligations. According to research conducted by Ansar
(2011), based on the theory of fraud triangle, financial distress or financial difficulties can be categorized
as pressure (pressure) faced by business entities related to businesses. Theoretically, if a company is
experiencing financial distress, then the company will tend to make financial statements to look more
favorable and stable, and the circumstances will motivate the management to commit fraud over financial
report. According to research conducted by Hasnan, et al (2006) which is in line with research conducted
by Carcello and Nagy (2004) in Subroto (2012), it states that financial distress positively influences fraud,
because the higher the existing financial distress in a company is, the higher the likelihood of fraud in the
financial statements will be. Based on the explanations above, the hypothesis is formulated as follows:
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H2: financial distress positively affects the occurrence of fraudulent financial statement.
2. Methodology
Population and Sample: The population in this study is the financial report of companies listed in
Indonesia Stock Exchange in 2010 - 2012. The sampling method used in this research is purposive
sampling method (IDX 2010-2012). In purposive sampling, sampling is done with the aim of existing and
already planned beforehand. The criteria for the sample used in the research are:
1. Manufacturing company which is listed on the Indonesia Stock Exchange (IDX) during the period of
2010 to 2012 and presents its financial statements in company website or IDX website and present
a complete financial statement data for the entire year of observation.
2. Companies that are not delisted and do not change their PAF during the observation period, in
other words during the years 2010 - 2012 the company do not change the use of the financial
statement audit services from the big four to non big four or vice versa.
Types and Sources of Data: Data used in this research are secondary data obtained from the website of
the Stock Exchange (www.idx.co.id) in the period of 2010-2012. In addition, the data obtained from
various journals published and used as reference are related with the problem in this study, the data are
also sourced from auditing books and other supporting books.
Operational Definition and Measurement of Variables: There are two variables, they are the
independent and the dependent, the dependent variable is fraudulent financial statements (Y) and the
independent variables consist of audit quality (X1) and financial difficulties (financial distress) (X2)
Dependent Variables: Definition of Fraudulent Financial Statement by the Association of Certified Fraud
Examiners (ACFE) in Rezaee (2002) is:
"The intentional, deliberate, misstatement, or omission of material facts, or accounting data is the
which is misleading and, when Considered with all the information made available, would case the reader to
change or alter his or her judgment or decision."
The Regression Measurement of fraudulent financial statements uses F SCORE proxy. The F SCORE is
developed by Dechow (2008) and Skousen et.al (2009) in Sukrisnadi (2010). Clearly, it can be presented
as follows:
F-Score = Predicted probability / unconditional probability
Predicted probability = e(PredictedValue) / (1+ e(PredictedValue))
PredictedValue = a + α1RSST accrual + α2ch_rec + α3ch_inv + α4ch_er + α5ch_cs + α6ch_roa + α7issue.
Unconditional probability = 0.0037
The formula of predicted value is as follows:
RSST Accrual = (ΔWC + ΔNCO + ΔFIN) / Average Total Assets
WC = (Current Assets – Cash and Short term Investments) – (Current Liabilities – Debt in Current Liabilities)
NCO = (Total Assets – Current Assets – Investment and Advances) – (Total Liabilities – Current Liabilities –
Long Term Debt)
FIN = (Short Term Investments + Long Term Investments) – (Long Term Debt + Debt in Current Liabilities +
Preferred Stock)
ATS = (Beginning total assets + end total assets) / 2
Change in receivable: Δ Receivable / Average total Assets
Change in inventory: Δ Inventory / Average total Assets
Change in cash sales: [(Δ Sales / sales (t)) – (Δ Receivable / receivable (t))]
Change in earnings :[( Earnings (t) / Average total Assets (t)) – (Earnings (t-1) /Average total assets (t-
1))]
Change in ROA = change in return on assets
Issue = variable indicating whether the company issues securities in that period.
Independent Variable
Quality Audit: De Angelo (1981) in Yustitia and Tarmidzi (2012) defines quality audit as a probability in
which an auditor discovers and reports on the existence of a fraud in its audit accounting system, audit
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quality here is measured by a dummy variable with the number of 0 for company of non big four users and
the number 1 for the company of big four users.
Financial Distress (financial difficulties): Platt and Platt (2002) define financial distress as a condition
in which financial companies are not in good condition or are in crisis. Financial distress cannot be
directly calculated but using a proxy Z score, where Z score models Zmijewski, because the Z score can be
used to detect bankruptcy appropriately (Komang and Lely 2014). The formula is as follows:
ZFC = - 4.3 – 4.5 X1 + 5.7 X2- 0.0043 X3
X1 = ROA (net income/total assets)
X2 = LEVERAGE (Rate Debt/Total Assets)
X3 = liquidity (Current Assets / Current liabilities)
Data Analysis Method: The analysis technique used for this study is multiple regression analysis with
the following equation:
Fraud: β0 + β1PAF + β2 financial distress + ε
3. Findings
Descriptive Statistics: In this study, qualitative data is analyzed by the elaboration of the descriptive
statistics of the variables of research. The purpose of this test is to measure descriptive statistics (mean,
maximum, minimum, and standard deviation) of all variables used in this research. Under Annex 1, the
minimum value of financial distress condition variables of company is -5.2290, while the maximum value
of the ZFC ratio is equal to 0.1263 with average value (mean) of -2.2715, the average negative value
indicates that the company does not have the potential of bankruptcy while standard deviation is 1.1573.
Fraud variables measured by F-score of the whole sample during the study shows a minimum value of
0.0556, while the maximum value of F score is equal to 5.5280. the average value of F score is equal to
0.2703, the low average value of the F-score shows little acts of fraud committed by the sampled
companies. From these results, it can be concluded that the distribution of data variable of financial
distress and fraudulent is quite good. Meanwhile, the audit quality as measured from the big four or non
Big Four PAF of the sampled companies indicate that as many as 94 companies or 49.18% of the company
sample is audited by the Big Four and the rest is audited by non-Big Four Public Accounting Firms.
Data Analysis
Classical Assumption Test: Classical assumption test aims to determine whether the regression model
obtained can produce a good linear estimator prior to testing the hypothesis by using multiple regression
analysis.
Multiple Linear Regression Testing: A statistical calculation in multiple linear regression analysis in
this research is assissted by SPSS for Windows version 16. The use of multiple linear regression equation
is to test the effect of independent variables (quality audits and financial distress) on the dependent
variable (fraudulent financial statement)
Tabel 1: Result of Multiple Linear Regression Testing
Fraud = 0.236 + 0.018 PAF+ 0.013 ZFC + e
Discussion
The Effect of Audit Quality on the Occurance of Fraudulent Financial Statement: Hipothesis 1 states
that auditor quality which is reflected from the size of the big four Public Accounting Firms has no effect
Model
Unstandardized
Coefficients
Standardize
d
Coefficients
T
Sig.
B
Std. Error
Beta
1
(Constant)
.236
.0122
19.628
.000
KAP
.018
.011
.127
1.645
.102
ZFC
.013
.005
.217
2.806
.006
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on the occurance of fraudulent financial statement. Based on the data analysis, the hypothesis is not
supported. The result of linear multiple regression on the table shows that the size of Public Accounting
Firms (big four)has significance higher than 0.05. This variable significance level of the size of big four
Public Accounting Firms which is higher than 0.05, means that the size of big four Public Accounting
Firms has no effect on the possibility of occuring fraudulent financial statement. This result is in line with
Wisnu’s research (2013) which states that either big four auditor or non big four auditor who has audited
financial report, has no significant different from one to another on their financial report.The financial
report audited by the big four auditor, does not guarrantee that the result is better than those audited by
non big four auditor. Another reason is proposed by Veronica (2005) in Luhgianto (2010) which states
that the quality of audit which is projected with the size of PAF of either big four or non big four, is unable
to limit the occurance of fraud. This is becuase the management still wants to show good performance to
those who want to be their investors. However, this study does not meet the theory which states that the
big four PAF is able to decrease the occurance of fraud,and not in line with the research conducted by
Yustitia andTarmidzi (2012) which state that audit quality reflected by the use of the big four PAF will
decrease the presence of fraud than those who use the non big four PAF. Only a few of enterprises in
Indonesia does use big public accounting firms like KPMG, Ernst and Young, PWC, and Deloitte. This is
due to the ability of enterprise in paying the fee of audit service conducted. The service of Public
Accounting Firms of big four is used by big companies in order to keep their image on people’s opinion of
good and competent audit used by them. The result of this study finds out that the enterprises audited by
the Big four PAF has an increase rate of fraud.This means that the image of Big four PAF in Indonesia is
lack of ability to detect early accounting fraud done by management.
The effect of Financial Distress on the Occurance of Fraudulent Financial Statement: Hypothesis 2
states that Financial Distress has positive effect on the occurrence of Fraudulent Financial Statement.
Based on the data analysis, the hypothesis is supported. The result of regression on the table shows that
Financial Distress ZFC has significant value of 0.006. This significant value is smaller than 0.05 which
means that there is inability of company in meeting their obligations and their continuously loss
condition. Such kind of loss pressures management because they are considered to be unable to carry out
their duties. The pressure has effected much enough on their career in maintaining financial. By this, it is
proven that the higher financial distress occured in a particular company is, the higher the fraud (AICPA)
indicated to them will be. The result of the research above is in line with the research conducted by
Hasnan et.al (2006) which states that Financial Distress has possitive effect on Fraudulent Financial
Statement. This also meets the research conducted by Kinney dan McDaniel in Ansar (2011) which stated
that financial report which is stated false is correlated to companies who are in a Financial Distress, and
the management who know that the enterprise is in their way to get down, will motivate their employers
to do unethically by making up the content of financial report which has been made before. In other
words, Financial Distress has possitive effect on Fraudulent Financial Statement.
4. Conclusion, Limitations and Suggestions
This study is conducted to find empirical evidence on factors which can affect Fraudulent Financial
Statement, consisiting of PAF and Financial Distress. Based on the discussion of tested hypotheses, it can
be inferred that the effects of the independent varible in this study can be concluded as follows:
a. Based on the result of hypothesis 1 test, it is proven that PAF variable has no significant effect on
the occurrence of Fraudulent Financial Statement. So, the hypothesis 1 (H1) is not supported.
b. Based on the result of hypothesis 2 test, it is proven that Financial Distress variable has significant
possitive effect on the occurance of Fraudulent Financial Statement. So, Hypothesis 2 (H2) is
supported.
Limitations of the research: This research has some limitations as follows:
a. This research is conducted in a short period. The period is only 3 years of observation. Thus, this
research can not give a maximum result. Beside, this research only uses manufacturing companies,
so that, it has no variation and the result can not give a comparison of Fraudulent Financial
Statement occured.
b. This research uses a few number of sample, so that, it is used SPSS. Beside that, this research only
has two variables, so that it is lack to give description of externals and internals who are in charge
of this to take decision on any economic policy.
Suggestions: Based on the discussion of data analysis, it is suggested that:
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a. Further research is suggested to add research period so that the sample of research which will be
employed is bigger and widen the field of subject so that it will be not only on manufacturing
company but also other sector such as bank, as a result, it will give information about fraud clearly.
b. If the further research uses a huge sample, so SAS can be used to test the hypotheses proposed.
Further researcher can add and change independent variables which have effect on fraud such as
profitability, leverage etc.
References
ACFE. 2002. “Fraud Examiners Manual”. Third Edition. New York.
American Institute of certified Public Accountant. 2003. “Consideration of fraud in a financial statement on
audit, statement on auditing satandart (SAS) no.99”. New york, ny; AICPA
Ansar, Muhammad. 2011. “ Analisis Faktor Faktor yang Mempengaruhi Kecurangan Pelaporan Keuangan
pada Perusahaan Publik di Indonesia “. Skripsi. Universitas Diponegoro. Semarang
Aulia, Ruri. 2013. “Analisis Faktor yang Memengaruhi Kemungkinan Terjadinya Fraud pada laporan
keuangan”. Skripsi Universitas Indonesia. Jakarta
Badan pengawas pasar modal (BAPEPAM). 2002. Artikel dirujuk dari www.wordpress.com.17 mei 2014-
11-08.
Carcello, J. and A. Nagy. 2004. “Audit Firm Tenure and Fraudulent Financial Reporting”. Auditing:A Journal
of Practice & Theory, Vol. 23, No. 2, pp. 55-69.
Gerayli, etal.2011.”Impact of audit quality on earning management ; FROM IRAN” International Research
ournal of Finance and Economic, Issue 66 PAGE 77-84.
Ghozali, imam. 2008. “ Aplikasi Analisis multivariate dengan Program SPSS”. Semarang: BP Undip.
Ghozali, imam dan Anis chariri. 2007. “ Teori Akuntansi”. Edisi 3. Semarang : Badan Penerbit Universitas
Diponegoro.
Hasnan Suhaily, dkk. 2006. “Management Prediposition, Motive, Opportunity, and Earnings Management
for Fraudulent Financial Reporting in Malaysia”. Managerial Auditing Journal. Malaysia.
J. Skousen, christoper.,dkk.2009. “Fraud in Emerging Market : a Cross Country
Analysis.http://ssm.com/abstract=1340586
Luhgianto. 2007. “Analisis Pengaruh Kualitas Audit terhadap Manajemen Laba Studi pada Perusahaan yang
Melakukan IPO di Indonesia “. Tesis S2. Magister Sains Akuntansi Universitas Diponegoro. Tidak
dipublikasikan.
Platt, H., dan M. B. Platt. 1990. “Development of a class of stable Predictive variables” : The case of
bankruptcy Predictions. “ Jurnal of Business Finance & Accounting. 17:31-51.
Purnajaya, Komang Devi Methili. 2014. “ Analisis Komaparasi Potensi Kebangkrutan Dengan Metode Z
Score ALTMAN, SPRINGATE, dan ZMIJEWSKI pada industri Kosmetik yang Terdaftar di Bursa Efek
Indonesia”. E-Jurnal Akuntansi Indonesia Udayana 7.1 Hal 48-63. ISSN:2302-8556.Bali.
Rachmawati, Yulia. 2013. “ Pengaruh Kualitas Audit terhadap Manajemen Laba”. Skripsi Universitas
Diponegoro. Semarang.
Rezaee, Zabihollah. 2002. “Financial Statement Fraud Prevetion and Detection”. USA: John Wiley & Sons,
inc.
Tjun Tjun, Lauw.,dkk. 2012. “Pengaruh Kompetensi dan Independensi Auditor terhadap Kualitas Audit”.
Jurnal Akuntansi Vol.4 No.1 Mei Hal.33-56.
Sukrinadi, Dedy. 2010. “Pemakaian Ukuran F score dalam Kasus Kasus Salah Saji Laporan Keuangan di
Pasar Modal Indonesia”. Tesis Universitas Indonesia.
Subroto, Vivi Kumalasari. 2012. “ Pengaruh Karakteristik perusahaan dan Karakteristik Auditor Eksternal
terhadap Kecurangan Laporan Keunagan”. Aset Hal. 83-93. ISSN 1693-928X. Vol.14 No.1
Wilopo. 2006. “ Analisis Faktor- Faktor yang berpengaruh terhadap kecenderungan kecurangan
Akuntansi”. Makalah. Simposium Nasional Akuntansi 9 Padang. STIE PERBANAS. Surabaya.
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Perusahaan Sektor Manufaktur yang Go Public di BEI Periode 2008-2010. Jurnal Ilmiah
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APPENDICES
Appendix 1: Result of Descriptive Statistic 1
N
Minimum
Maximum
Mean
Std. Deviation
ZFC
183
-5.2290
0.1263
-2.2715
1.1573
Fraud
183
0.0556
5.5280
0.2703
0.4130
Valid N (listwise)
183
Source : tabulation of secondary data, 2014
Appendix 2: Result of Descriptive Statistic 2
Auditor’s Quality
Keterangan
Jumlah
Persentase
Non Big 4
93
50,82
Big 4
90
49.18
Total
183
100,0
Source : tabulation of secondary data, 2014
Appendix 3
Research framework
Independen dependen
Appendix 4 : Normality test
One-Sample Kolmogorov-Smirnov Test
Unstandardized Residual
N
170
Normal Parametersa
Mean
.0000000
Std. Deviation
.06898947
Most Extreme Differences
Absolute
.095
Positive
.095
Negative
-.042
Kolmogorov-Smirnov Z
1.243
Asymp. Sig. (2-tailed)
.091
a. Test distribution is Normal.
Source : tabulation of secondary data, 2014
Appendix 5 : Multicolinierity Test
Variabel
Tolerance
VIF
KAP
0.951
1.052
ZFC
0.951
1.052
Source : tabulation of secondary data, 2014
Appendix 6 : Autocorrelation test
Fraudulent financial
statement
KUALITAS AUDIT
FINANCIAL DISTRESS
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Model
Durbin-Watson
1
2.111
Appendix 7 : Heteroskedasticity test
Appendix 8. : F-Test
ANOVAb
Model
Sum of Squares
Df
Mean
Square
F
Sig.
1
Regression
.043
2
.022
4.488
.013a
Residual
.804
167
.005
Total
.848
169
a. Predictors: (Constant), ZFC, KAP
b. Dependent Variable: Fraud
Appendix 9 : Result of Coefisien of
Determination
Model Summaryb
Model
R
R Square
Adjusted R
Square
1
.226a
.051
.040
a. Predictors: (Constant), ZFC, KAP
b. Dependent Variable: Fraud
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AcceptanceAnalysisof SmartTransportApplicationUsing Technology Acceptance
ModelApproach
*Zuniati Hasiholan Sinaga, Ratih Hendayani
TELKOM UNIVERSITY JL, West Java, Indonesia
*sinagazuni100@gmail.com
Abstract: This study purposed to prove some constructs of the Technology Acceptance Modelin
influencing intentions applications use GPS-based products for publictrans portationin Bandung city. This
study used that personal innovativeness moderator variables to analyzed the impact on attitude toward
using variable influence on behavioral intention to use variables. The data used in this study are primary
data obtained through questionnaires to 100 peoples ampled using Likert type and analyzed
quantitatively with the program Statistical Product and Service Solutions. Based on the results of the
regression analysis, concluded that (1) perceived ease of use has a significant positive effect on perceived
usefulness (2) perceived usefulness, perceived enjoyment and perceived ease of use has a significant
positive effect on attitude toward using (3) perceived usefulness, perceived enjoyment and attitude
toward using has a significant positive effect on behavioral intention to use (4)andasa moderator
variable, personal innovativeness has a significant negative of moderate the relationship influence
attitude toward using on behavioral intention to use.
Keywords: technology acceptance model, personal innovativeness, GPS application, public transportation,
regression
1. Introduction
Alongwith the development ofinformationandcommunicationtechnologyinthe eraafter2000, the use
oftechnologyincreasinglysoar. Informationandcommunicationtechnologyalso tookpart inthemobile
phonefunctionsthat we use(Pranata, 2014). Landscape ofthe mobile industryis undergoing
arapidchangeinIndonesia. eMarketerestimates thatpenetration ofsmartphonesamongmobile
phoneusersinIndonesiawillriseto 47percentby 2016witha total of87.4millionusers(Kurniawan, 2013).
Asia ledtothe affairs ofadoptionandintensity ofuse of smartphones. Trends'mobile-first' is very
commoninAsian countries, especiallySouth East Asia(Rachmatunisa, 2014). Based on theresults of
research conductedbyNielsenasthe organization administrator ofinformationglobal, Google Maps, which
is one ofthe navigationapplicationonthe smartphone isranked5(Shukla, 2013). In
Indonesia,severalapplicationsfortransportationsolutionsthat have beenused includeSygic, Wisepilot,
Waze, Google Maps, NokiaHereandLewatmana.com(Mahardy, 2013). Public transportis ideally
usedbymost of thepeople of the city. The willingness ofpeople to usepublic transportis drivenby
theinformationthat offersseveralalternativemodes of transportationroutesalongwhichcan be chosenso
that peopleknowwhatmode of transportationavailableandthey can use(Devi, 2013). Advances in
information technologyled tothe GPStechnologyasone ofthe findings ofadvanced technologyhas
beenapplied widelyforcommercial purposes, including thenavigation functionforvehicle(Chen &Chen,
2011). Bandungisone of themajorcitiesinIndonesia, buthas not yet adoptedthe
ITStosupporttransportation. In the citythere are several kindsof transportationserving the routeboth in
the city, and acrosscitiesaroundthe area of BandungRaya. Forland transportation, there ispublic
transportation(public transportation), bus, car travelBandung, trains, andtaxis(Cempaka, 2013).
Based onthe aboveconditions, thentomeet theneeds ofpublictransportinformationin Bandung, PT. Xfound
asolutionfor the communitytofacilitatetravelin the city, namely the applicationof
SmartTransportproducts. Based onsome of thephenomenathat have beendescribed above, it will
becarried outresearchaimedtoidentify thesuccess ofSmartTransportproductscanbe acceptedandusedby
potentialusers.The study was conductedthroughthe analysis ofthe constructscontained in theTechnology
AcceptanceModel(TAM). Based onTAMapproach, formulation of research problemsrelated toapplication
ofSmartTransportproductsare: Is theperceivedease of use, perceived usefulness, attitude towardusing,
perceived enjoyment, personalinnovativeness, effect onbehavioralintention to
usetheapplicationuseSmartTransportproduct?
The purpose ofthis studyis to ascertainthe effect ofperceivedease of use, perceived usefulness, attitude
towardusing, perceived enjoyment, andpersonalinovativenessonbehavioralintention to useof theSmart
Transport product applicationusagein Bandung.Advantagesof thisresearchisthe object under studyis
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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thelatestnavigationapplicationsthat are usedforpublictransportation. So thatthe resultscandescribe of
thetrendof consumerperceptionsthat need to bein receipt ofanewtechnology.
2. Literature Review
Name: Ching-Fu ChenandPei-Chun Chen
Title: ApplyingtheTAMtotravelers'usageintentionsofGPSdevices
Description: The results were obtainedfromthe hierarchicalregressionthat isperceivedease of usehas
asignificant positive effectonperceived usefulness, perceived usefulness, perceived
enjoymentandperceivedease of usehas asignificant positive effecton theattitude towardusage, attitude
towardusagehas asignificant positive influenceonbehaviorintention, andpersonalinnovativenessbuild
relationshipsbetweenattitudeandbehaviorintention.
Name: Sanny
Title: Analysis of EffectSubjective Norm and Technology Trust inTechnology
Acceptance Model onIntention To Use E-Ticketing Transjakarta
Description: The results statedbyusingTAMobtainedthatfactorperceptionandperceived ease ofuse ofthe
positiveuseto triggerthe behaviorto adopt the technology. Whileother factorssuch astrustandfamiliarityis
alsoa positive influenceon theintention to usee-ticketing transjakarta.
Name: Abraham Theodorus, Alfons Natanael, Kidsein
Title: Metrotrans A Crowd-Sourced Public Transportation Application In Jakarta on Android Platform for
PT. Lintas Karya Integrasi
Description: The study states that Metro Transuseful Android apps to discover information and
navigation route public transportation. Web applications and Android Metro Transalsoassessed user
friendly so it will notbe difficultduring use.
Name: Arif Surachman
Title: Analysis of EffectPerceived Usefulness, Perceived Ease of Use,Subjective Norm, Mobility, and Use
Situation on Individual’s Intentionof Using M-Library
Description: Hypothesis test resultsindicatethat theuse ofe-libraryintentionis causedby the
needtosupport the smoothrationalstudy, not becausethere isa commandorinfluencethe environment.
Name: Abraham Septa Creado Munthe
Title: Analysis of Factors that Affecting Users on Adopting CloudComputing Using TechnologyAcceptance
Model Approach
Description: The results showed that the Attitude toward using cloud computing is positively and
significantly influenced by the perceived ease of use and perceived usefulness. Perception of ease of use of
cloud computingis positively and significantly influenced by personal innovativeness. Intentiontouse
cloud computingis positively and significantly influenced by personal innovativeness and attitude toward
using, and the quality of the internet connection does not significantly influencethe intentiontousecloud
computing.
Name: Nooa Qotrun Nada
Title: Acceptance Analysis of IPTV Technology (Case Study Groovia Tv In Semarang)
Description: The results showedthat theAttitudeTowardIPTV(ATT) andperceivedofusefulness(PU) effect
onIntentionTo Use(IU). Ofperceivedease of use(PEU), perceived ofenjoyment, andperceivedof quality(PQ)
effect onATT. Customerintentionto usethe TVGrooviainfluencedbyperceptions ofservice quality,
perceivedpreferences, ease ofuseandthe benefitsthatcan be obtained.
Name: David Kurniawan, Prof. Dr. Hatane Semuel. S.E., M.Si, and Edwin Japarianto, S.E., M.M.,
Title: Acceptance Analysis Customers of Mobile Banking ServiceUsing Technology Acceptance Model
andTheory of Reasoned Action
Description: Based on the analysisof datait can be concludedthat
thedirectandindirectvariableperceivedease of usehasan influence on theattitude towardthe useof
variablesby means ofthe variableperceived usefulness. Attitude towarduseto havean influence
onbehaviorintention.
Name: Andreas Pardyanto and Tengku Ezni Balqiah
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Title: Intention Adoption ofMobile Commerce Garuda Indonesia PerspectiveTheory
of Planned Behavior andTechnology Acceptance Model
Description: The results showedthatthe PerceivedUsefulnessandPerceivedBehavioralControlprovidesa
positiveand significanteffecton the intentionto use (Intention to Use), whilethe
SubjectiveNormandAttitudenotsignificantlyaffectusageintention(Intention to Use).
Name: Ni Luh Nyoman Sherina Devi and I Wayan Suartana
Title: Technology Acceptance Model Analysis on Information System usage in Nusa Dua Beach Hotel &
Spa
Description: The results showedthatcomputerself-efficacyandtrustpositive and significant impacton
theperceived usefulnessandperceivedease of usewhilepersonalizationhas no effect onthem.
Name: Lambertus P. Wairisal and Nur Khusniyah I
Title: Behavioral Analysis of Information Technology (Study on Universitas Pattimura
Ambon Lecturers)
Description: culturalperceptions ofthe ease of useof informationtechnologysignificantly influence
theperception ofthe benefitsandinterest in usinginformationtechnology. Perception ofthe benefits
ofinformationtechnologysignificantly influence theinterest in usinginformationtechnology. Interest
inusing information technologysignificantly influence thebehavior ofthe useof informationtechnology.
Name: Dr. Ya-Wen Yu and Kanlaya Buhon
Title: Exploring Factors Influencing Consumer Adoption on Mobile Commerce Services
Description: The study statesthat theadoption of mobilecommerceis affectedbyhow themobile
commercecompanyorset upa websitesellingfocusesononline users.
Name: Cheng-Kiang Farn, Yi-Wen Fan andChun-Der Chen
Title: The Study of Electronic Toll Collection Service Adoption: An Integrated Model
Description: Perceived usefulnessandperceivedease of use, tested positive forthe
riderraisesattitudetowardsthe adoption ofthe e-toll card. In addition, the
resultsalsoindicatethatattitude,subjectivenorms, and perceived behavioralcontrolpositivelyaffects
theintention ofadoptingthe e-toll card.
Name: Chin-Chao Lin
Title: Exploring TheRelationship Between TechnologyAcceptance Model and
Usability Test
Description: The resultsof thestudyshowedthat thePEUTAMhasa significant effect onPUandattitude
towardusingtechnology. Among thehypothesesarerejected, PUdoes nothave adirect influence
onbehavioralintention. The difference ofthis study withprevious researchisthe research object isa
GPSapplicationfor smartphonesas smart citysupportforpublictransport in a big city.
Framework: Applications of Smart Transport product will be investigated by analysis Technology
Adoption Model involving multiple constructs. Figure2.1 shows the framework that has been used in
studies of Chen and Chenin 2011andre-applied to the researchforproduct applicationsSmartTransport.
To consider the existence of the unique features (functions entertainment offered), then the perceived
enjoyment are also involved. Meanwhile, individuals have highlighted the innate innovationandbecome
ahypothesisinTAMtoexplainthe influence ofindividual differencesinthe intention ofadopting
thetechnologyinnovationof technologyintoday'sinformationtechnologyresearch.
Based ontheframework, the generatedseveralhypothesesasbelow:
H1: Perceivedease of usehas positive effect onperceived usefulnessonthe use ofproduct
applicationsSmartTransport
H2:Perceived usefulnesshas positive effect onattitude towardusingonthe use ofproduct
applicationsSmartTransport
H3: Perceivedease of usehas positive effect onattitude towardusingonthe use ofproduct
applicationsSmartTransport
H4: Perceivedusefulnesshas positive effect onbehavioralintention to useonthe use ofproduct
applicationsSmartTransport
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H5: Attitude towardusinghas positive effect onbehavioralintentiontouseonthe use ofproduct
applicationsSmartTransport
H6: Perceivedenjoymenthas positive effect onattitude towardusingonthe use ofproduct
applicationsSmartTransport
H7: Perceivedenjoymenthas positive effect onbehavioralintention to useonthe use ofproduct
applicationsSmartTransport
H8: Personalinnovativenesspositivelymoderate the relationshipbetweenattitude
towardusingandbehavioralintention to useonthe use ofproduct applicationsSmartTransport.
Figure 1: Framework
3. Methodology
The research methodin this studyis quantitativein whichdata collection was
conductedthroughquestionnaires. There are6operationalvariablesused, consist ofseveralitemsin the form
ofa statementtothe respondents. The variables are perceived ease of use, perceived usefulness, perceived
enjoyment, attitude toward using, personal innovativeness and behavioral intention to use. The
populationforthe studyproduct applicationsSmartTransportisunknownbecause it can notbe
determinednumberof peoplewhowillusethe product.The
samplingtechniqueusedisnonprobabilitysamplingbyconvenience samplingmethod.The sample sizeused
was basedon theBernoulli formulabecausethe population is notknown(Siregar, 2013: 37).With
aconfidence levelof95%, the obtainedsample of 100people.Then, data were analyzedstatisticallywith the
aim oftesting thehypothesisthathas been set. Sodescriptivelywillexplainthe characteristicsofthe
variablesused.The hypothesis was tested by using simple linear regression analysis. T-test was used as a
reference for acceptance or rejection of the hypothesis because of the influence between variables occurs
partially. Under the terms in the statistical analysis using the t test, then the rejection of H0 is done when
the value of t> t on the table.
4. Result and Discussion
Hypothesis Testing Result: With a confidence level of 95% or alpha of 0.05, the results of the analysis of
each hypothesis is stated in the following table:
Table 1: T-test Result
Variable
t- table
PU
ATT
BI
PEOU
1,98422
11,
025
9,088
PU
1,98422
11,46
8
5,688
PE
1,98422
9,070
7,709
PI (M)
1,98422
-
1,581
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ATT
1,98422
6,451
Based onthe above tableit can be concludedthat:
1. Perceivedease of usehas positive effect onperceived usefulnessonthe use ofproduct
applicationsSmartTransport
2. Perceived usefulnesshas positive effect onattitude towardusingon the use of
productapplicationusageSmartTransport
3. Perceivedease of usehas positive effect onattitude towardusingon the use
ofproductapplicationSmartTransport
4. Perceived usefulnesshas positive effect onbehavioralintentionon theuse ofproduct
applicationsSmartTransport
5. Attitude towardusinghas positive effect onbehavioralintentionon the use ofproduct
applicationsSmartTransport
6. Perceivedenjoymenthas positive effect onattitude towardusingon the use
ofproductapplicationSmartTransport
7. Perceivedenjoyment haspositive effect onbehavioralintention on the use
ofproductapplicationSmartTransport
8. Personalinnovativenessnegativelymoderate the relationshipbetweenattitude
towardusingandbehavioralintention on the use of product applicationSmartTransport.
Percentage Effect Between Variables: Based on theresults ofthe above hypothesiscan be seenthe
percentage ofinfluencebetween variableswereanalyzedfromthe value ofR square. Comparison ofR-square
valuesbetween variablesare describedin Table2.
Table 2: Result percentage effect between variables
Variable
PU
ATT
BI
PEOU
55,4%
45,7%
PU
57,3%
24,87%
PE
45,6%
37,7%
PI (M)
30,6%
ATT
29,8%
Based onthetableit can be concludedthat:
1. Percentageinfluence ofperceivedease of useto theperceived usefulnessisabout 55.4% while the
restis influencedbyother variables outsidethe scope ofthe study
2. Percentageinfluence ofperceived usefulnessto theattitude towardusing is about57.3% while the
restis influencedbyother variables outsidethe scope ofthe study.
3. Percentageinfluence ofperceivedease of useto theattitude towardusingis about45.7% while the
restis influencedbyother variables outsidethe scope ofthe study.
4. Percentageinfluenceofperceived usefulnessto the behavioralintention to useis about24.87% while
the restis influencedbyother variables outsidethe scope ofthe study.
5. Percentage influenceof attitude towardusingto the behavioralintention to useisabout 29.8% while
the restis influencedbyother variables outsidethe scope ofthe study.
6. Percentage influence ofperceivedenjoymentto theattitude towardusingis about45.6% while the
restis influencedbyother variables outsidethe scope ofthe study.
7. Percentageinfluence ofperceivedenjoymentto thebehavioralintention to useis about37.7% while
the restis influencedbyother variables outsidethe scope ofthe study.
8. Percentageinfluenceattitude towardusingto thebehavioralintention to useis about -30.6% as a
resultmoderatedbyvariablespersonalinnovativeness. The rest is influencedbyother
variablesoutsidethe scope ofthe study.
Thepercentageresultscan also be describedinthe followingframework:
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Figure 2: Framework With The Effect Percentage Between Variables
Discussion: Researchhas much in commonwithpreviousstudies. Resultsof7hypothesis
thatrelationshipsbetween variablesimpacta positive effect. Diverse tothe results ofhypothesisto8,
moderatorvariablesthatpersonalinnovativenessshoweda negative effectinrelationofattitude
towardusingon behavioralintention to use. Whileresearch conductedbyChing-Fu ChenandPei-Chun Chen,
personalinnovativenessshoweda positive effect. So it is assumedthat theculture of the
peopleineachcountry is differentin adoptingatechnologythat isthe differencein terms ofthe individual's
willingnesstotry outnew information technology(personalinnovativeness).
4. Conclusion
The resultsof this studydemonstratethat theappropriateframeworkused, perceivedease of
useaffectperceived usefulness by 55.4%, perceived usefulnessaffect attitude towardusingby 57.3%,
perceivedease of useaffect attitude towardusingby45.7%, perceived usefulnessaffect behavioralintention
to useby24.87%, attitude towardusingaffect behavioralintention to useby 29.8%,
perceivedenjoymentaffect attitude towardusingby45.6%, perceivedenjoymentaffectbehavioralintention
to useby 37.7% andpersonalinnovativenessnegativelymoderate the relationshipinfluenceattitude
towardusingto thebehavioralintention to useat 30.6%. So it canbe concludedthat thevariables -
variablescontained in theTAMconstructs indirectlyinfluencingbehavioralintention to usesubmittedbythe
variablesthatdirectlyinfluenceperceived usefulness, attitude towardusing, andperceivedenjoyment.
Whilepersonalinnovativenessvariablesproved tobe negativelymoderate the relationshipvariableattitude
towardusingthemeans to lessenthe influenceof thevariableattitude towardusingbehavioralintention to
use.
Recommendations: PT. Xshouldperformimprovementonaspectsthat support thecustomer's perception
in the element ofusefulness, easytouse, andenjoymentof theSmartTransportapplicationssuch as
addingotherfunctionsarestillwithin the scope ofpublictransportso thatthe attitudecanencourageintention
(interest) use ofthe productthe customeris increased.Suggested thatnext researchshould
analyzeTAMwiththe addition ofexternal variablesthat have beencarried outbyseveralprevious
studiestoprovewhetherother variables outsidethe constructsof TAMhavebigenough influenceon the
interestto adoptatechnology.
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Dampak Tekanan Organisasional Terhadap Stres Kerja Pada Perawat Rumah Sakit Islam
(RSI) Di Kota Semarang
Ardian Adhiatma, Yuka Windyaningtyas
MM Unissula Semarang
ardian.greenoase@yahoo.com
Abstract: This article was design to investigate the relations between organizational stressors and job
stress with gender as a moderate variable. Population in this research are all the employee at islamic
hospital in Semarang municipality, and the number of samples are 235 nurse. The independent variabel is
organizational stressor that have five dimensions: conflict, block career, alienation, work overload, and
unfavorable work environment. So the dependent variable is job stress. In this article, we use gender as a
moderating variable. All dimensions at organizational stressors were measure with 5 point Likert-scale,
and for the job stress was measure with five point (never – always). The result indicate that the
hipotheses were partially supported. The variable that influence and have significant impact on job stress
are block career, alienation, and work overload. And the other result indicate that gender moderate the
relation between unfavorable work overload and job stress. Job experience as a moderating variable for
the relationship between work overload and job stress, smart working as a moderating at relationship
between conflict and job stress. Finally, smart working as a moderating effect for relationship between
block career with job stress.
Keywords: organizational stressors, job stress, smart working, gender, Islamic hospital
1. Pendahuluan
Stres dalam pekerjaan merupakan sebuah konsep penting dalam kaitannya dengan mempelajari perilaku
organisasi. Stres dapat ditimbulkan dari semakin banyaknya tantangan yang dihadapi, seperti lingkungan
kerja, karakteristik persaingan yang semakin tinggi, tidak dapat memanfaatkan waktu secara maksimal,
faktor-faktor yang tidak terkontrol, tidak cukupnya ruang untuk bekerja, perkembangan teknologi
informasi yang terus-menerus, tuntutan permintaan yang berlebihan dari stakeholders (Hall dan Savery,
2006). Disamping itu juga menurut Muberg (2001), stres lebih disebabkan oleh meningkatnya tuntutan
akan manajemen partisipatori, sistem komputerisasi, dan meningkatnya ketidakpastian. Pada sisi lain
seorang pimpinan atau manajer dituntut untuk dapat bekerja dan mengelola organisasi dibawah tekanan.
Dari waktu ke waktu stres karyawan akan menjadi masalah yang serius bagi organisasi. Muatan tugas
yang begitu besar cenderung merupakan penyebab stres yang dominan, karena mereka harus bekerja
lebih banyak dengan kemampuan yang dimiliki. Menurut Singer (1990), terdapat tiga klasifikasi
penyebab stress, pertama: organizational stressor, yang secara langsung terkait dengan lingkungan kerja
dan fungsi secara langsung dengan pekerjaan. Kedua, live events yang tidak dipengaruhi oleh aspek
organisasi tetapi lebih didominasi dari peristiwa kehidupan individu. Ketiga, individual stressor terkait
dengan karakteristik yang dimiliki masing-masing individu dalam memandang lingkungannya. Sementara
Davis (2006), menyimpulkan bahwa stressor terbagi dua, yakni stressor organizational, dan stressor non-
pekerjaan. Robbin (2006) menyatakan bahwa terdapat hubungan yang erat antara stress dengan kinerja.
Pada tahapan tertentu stress akan meningkatkan kinerja karyawan, namun dengan semakin tinggi
tingkatan stress akan berdampak pada menurunnya kinerja karyawan. Stress dapat diindikasikan dari
beberapa gejala yang muncul. Robin (2006) juga menyatakan bahwa terdapat tiga hal yang menyebabkan
stres, yaitu: faktor lingkungan, faktor organisasi dan faktor individu. Faktor lingkungan memiliki cakupan
yang sangat luas, seperti ketidakpastian ekonomi, ketidakpastian politik, dan ketidakpastian tehnologi.
Faktor organisasi meliputi: banyaknya tugas, banyaknya peran dalam organisasi, hubungan
antarpersonal, struktur organisasi, kepemimpinan dalam organisasi dan siklus hidup organisasi.
Sedangkan faktor individu lebih menekankan pada permasalahan-permasalahan keluarga dan
permasalahan-permasalahan ekonomi.
Variabel organisasional disinyalir dapat menciptakan stres pada karyawan (Greenhaus dan Beutell,
1985), melalui berbagai variabel, antara lain conflict, block career, alienation, work overload dan
unfavourable work environment. Disamping itu berbagai sifat individual (personality traits) juga
merupakan sumber stres. Goldberg, (1993), dalam studinya telah mengindikasikan bahwa sifat personal
merupakan sumber utama terjadinya stres. Berbagai sifat individual antara lain neuriticism, extraversion,
openness, agreebleness dan conscientiousness. Pengaruh stres dalam kelompok gender memberikan
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dampak yang berbeda. Miller dan Ellis, (1990), menyatakan bahwa kelompok perempuan cenderung
memiliki tingkat stress yang lebih tinggi dibanding dengan laki-laki. Hal ini diperkuat oleh pendapat Jick
dan Mitz (1995), bahwa menurut pengalaman, secara psikologis perempuan lebih cenderung mengalami
stres, depresi, ketidakstabilan emosi dibanding laki-laki. Penelitian lain dilakukan oleh Nasurdin dkk
(2004), hasilnya mengindikasikan bahwa gender memoderasi hubungan antara variabel independen
terhadap stres, artinya bahwa dugaan perempuan cenderung memiliki stres lebih tinggi terbukti.
Frekwensi stres yang tercermin dari tingkat depresi, emosional lebih tinggi dibanding laki-laki. Terborg
(2007), menemukan bahwa pekerja wanita cenderung memiliki peran yang overload dan tingkat konflik
yang tinggi akan menghasilkan tingkat stres yang tinggi. Penelitian yang dilakukan oleh Nasrudin dkk
(2004), hasilnya mengindikasikan bahwa gender memoderasi hubungan antara prediktor variabel
dengan stres. Tytherleigh, Ricketts, and Cooper (2007), dalam penelitiannya menunjukkan bahwa
terdapat perbedaan antara usia, kategori karyawan, tingkatan gaji, jam kerja per minggu, terhadap stres
kerja. Sementara itu untuk karyawan pria dan wanita memiliki kesamaan stress dalam hubungan
pekerjaan, keseimbangan kerja dan hidup, kelebihan beban kerja, keamanan kerja, pengawasan,
sumberdaya dan komunikasi, dan pekerjaan secara keseluruhan.
Kerja cerdas (working smart) merupakan sebuah pencapaian kinerja yang tinggi dengan memfokuskan
pada tujuan dan selalu menciptakan cara-cara yang efisien untuk memecahkan setiap masalah yang
berhubungan dengan pekerjaan (Jaramillo, Mulki, and Boles, 2011). Sementara itu Sujan dkk (1994),
mendefinisikan kerja cerdas sebagai sebuah perilaku yang diarahkan untuk mengembangkan
pengetahuan tentang situasi tertentu dan memanfaatkan pengetahuan tersebut dalam situasi tertentu
pula. Kedua definisi ini menggambarkan bahwa secara kontekstual, kerja cerdas memerlukan
perencanaan atau persiapan mental dari karyawan, keyakinan penuh dengan mendasarkan pada
kemampuan seseorang untuk memilik perilaku yang diinginkan, dan kemudian membuat penyesuaian
perilakunya dalam berbagai situasi yang terjadi. Sebagaimana Hauck and Snyder (2008), dalam
penelitiannya menemukan bahwa beban kerja yang berlebihan akan menurunkan kinerja dan
meningkatkan stres. Dalam tenaga keperawatan ditemukan adanya pengaruh yang signifikan dan positif
antara beban kerja dengan tingkat stres, sehingga beban kerja merupakan prediktor tingkat stres.
Zeytinoglu, Denton, and Boss (2007), menyatakan bahwa sebagai dampak dari perubahan organisasi,
maka para perawat dituntut untuk bekerja secara lebih intens. Intensifikasi yang terjadi sejak adanya
reformasi bidang kesehatan memberikan kontribusi terhadap peningkatan stres dan penurunan
kepuasan kerja. Hasil penelitian juga menunjukkan bahwa intensifikasi pekerjaan telah memberikan efek
terbalik terhadap kesehatan karyawan, masa depan, dan sikap karyawan. Jumlah pasien yang banyak atau
meningkat, maka perawat dituntun untuk lebih produktif dan semakin care. Pada kondisi ini perawat
akan semakin merasa overwork, stres, dan berkianat terhadap organisasi (Baumann et.al, 2001).
Selanjutnya jumlah pasien yang semakin meningkat akan berdampak pada penurunan kepuasan kerja
karena perawat akan melakukan perawatan yang lebih komplek (O’Brien, 2004). Vijay and Vazirani
(2012) dalam penelitiannya di Rumah sakit India, menyatakan bahwa perawat memiliki potensi stres di
tempat kerja, mengingat profesi perawat membutuhkan level keahlian yang tinggi, kerja tim dalam
berbagai situasi selama 24-jam dalam memberikan pelayanan. Tiga penyebab stres para perawat yang
bekerja di rumah sakit swasta, antara lain; perilaku teman dan saudara pasien, hubungan interpersonal,
dan tingkat gaji yang rendah. Sementara itu di rumah sakit milik pemerintah, tiga penyebab stress terdiri
dari: infrastruktur yang kualitasnya jelek, jumlah pasien yang ditangani setiap hari, dan jumlah jam kerja
dalam sehari yang sangat banyak.
Rumusan Masalah: Miller & Ellis (1990), Terborg (2007), dalam penelitiannya menemukan bahwa
perempuan sebagai kelompok yang memiliki stres yang lebih tinggi dibandingkan kelompok laki-laki,
yang tercermin dari tingkat depresi, emosional lebih tinggi dibanding laki-laki. Pekerja wanita cenderung
memiliki peran yang overload dan tingkat konflik yang tinggi akan menghasilkan tingkat stres yang tinggi.
Nasrudin dkk (2004), juga menemukan bahwa variabel gender memoderasi hubungan antara tekanan
organisasional dan sifat-sifat individu dengan stres. Cahyono (2006) juga menemukan adanya peran
moderasi variabel gender dalam hubungan antara tekanan organisasional dan sifat individu terhadap
stress pekerjaan. Cahyono (2006) menemukan bahwa variabel masa kerja berpengaruh negatif dan
signifikan terhadap job stress. Hasil lain mengindikasikan bahwa semua variabel demografi (gender,
status, dan masa kerja) memiliki pengaruh negatif dan signifikan terhadap stress pekerjaan. Sedangkan
untuk variabel independen tekanan organisasional, pertentangan dengan rekan kerja dan beban kerja
yang berlebihan menjadi penyebab stress kerja. Hasil ini bertentangan dengan penelitian Nasurdin dkk
(2004), dimana usia memiliki pengaruh yang positif dan signifikan terhadap stress pekerjaan.
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Mendasarkan pada latar belakang, maka identifikasi terhadap faktor stressor organisasional yang
dominan terhadap penyebab stress menjadi masalah yang menarik dan penting untuk diteliti. Disamping
itu penelitian ini juga menguji apakah faktor gender dan masa kerja memoderasi hubungan antara faktor
organisational stressor dengan stress pekerjaan (job stress).
Stress: Menurut Singer (1990), definisi stress adalah: “stress encompases the physiological and
psycological reactions which people exhibit in response to environment event called stressor”. Stress
memunculkan reaksi psikologis dan psyiologis dimana seseorang tidak mampu merespon penyebab
stress. Robbin (1991) mendefinisikan stres sebagai suatu kondisi dinamik yang di dalamnya seorang
individu dikonfrontasikan dengan suatu peluang, kendala, atau tuntutan yang dikaitkan dengan apa yang
sangat diinginkannya dan yang hasilnya dipersepsikan sebagai tidak pasti dan penting. Davis dkk (1995)
menyatakan bahwa stress adalah kondisi ketegangan yang mempengaruhi emosi, proses pikiran dan
kondisi fisik seseorang. Sedangkan Gibson dkk (2006) mendeskripsikan stres sebagai tanggapan
penyesuaian yang diperantai oleh perbedaan-perbedaan individu atau proses psikologis yang merupakan
suatu konsekwensi dari setiap tindakan dari luar, situasi atau peristiwa yang menetapkan permintaan
psikologis atau fisiologis berlebihan pada seseorang. Ivancevich dan Matteson dalam Luthan (2005),
menyatakan bahwa stres sebagai bentuk interaksi antara individu dengan lingkungan. Lebih jauh
dikatakan bahwa stres sebagai sebuah respon adaptif, yang dimediasi oleh perbedaan individu dan atau
proses psikologis yang dapat menyebabkan berbagai tindakan, situasi, atau event eksternal yang
menimbulkan dampak psikologis dan permintaan psikis dari seseorang. Sementara Beehr dan Newman
dalam Luthan (2005), mendefinisikan stres sebagai sebuah peningkatan kondisi sebagai dampak
interaksi orang-orang dan pekerjaan yang dicirikan dengan perubahan dalam diri seseorang yang
mendorong mereka untuk menyimpang dari fungsi normalnya. Dari kedua definisi tersebut, stress dapat
disimpulkan sebagai sebuah respon adaptif terhadap situasi eksternal sebagai hasil dari penyimpangan
phisik, psikologis, dan perilaku bagi anggota organisasi.
Pengaruh Tekanan Organisasional terhadap Stress Pekerjaan: Menurut Robbin, konsekwensi yang
ditimbulkan karena dampak stres sangat dipengaruhi oleh pengalaman seseorang terkena stress
(experienced stress). Sedangkan sumber-sumber potensial stress akan mempengaruhi pengalaman stress
dan dapat dimoderasi oleh berbagai variabel perbedaan individu (persepsi, pengalaman kerja, dukungan
sosial, dan keyakinan). Baron (2006) mengidentifikasikan terdapat dua faktor penyebab terjadinya stress.
Pertama, penyebab yang berhubungan dengan organisasi, dan faktor kedua berhubungan dengan faktor
individu, yang meliputi: kejadian-kejadian kehidupan yang menegangkan, percekcokan dalam kehidupan
sehari-hari. Gibson mengidentifikasi sumber-sumber stres dalam pekerjaan terdiri dari: lingkungan fisik
(cahaya, suara, suhu, dan polusi udara), konflik peran, peran ganda, beban kerja berlebihan tidak ada
kontrol, tanggung jawab, hubungan buruk dengan rekan kerja, bawahan atau atasan, desain struktur
organisasi jelak, tidak ada kebijakan khusus.
Stres dapat disebabkan oleh faktor lingkungan, organisasi dan individual (Matteson, 1999). Faktor
organisasi merupakan penyebab munculnya stres pada karyawan di tempat kerja, antara lain: conflict,
block career, alienation, work overload, and unfavorable work environment. Role conflict memiliki
hubungan positif terhadap stres, dimana seseorang memiliki dua peran atau lebih dalam pekerjaan.
Menurut Rahim (2006) menemukan bahwa terdapat hubungan positif antara berbagai rintangan karir
terhadap stress, hal ini terjadi apabila karyawan merasakan adanya peluang karir yang tidak jelas dan
tidak ada kepastian tentang masa depan organisasi, maka akan berdampak pada stres. Pada kondisi
tertentu, dimungkinkan karyawan memiliki beban kerja yang banyak, baik kualitas maupun kuantitas,
akan berdampak pada munculnya berbagai gejala yang bersifat physiologis, psikologis maupun
perubahan perilaku. (Robert, 1997). Miller & Ellis, (1990) mengidentifikasikan lingkunan kerja dengan
iklim organisasi yang tidak menyenangkan, seperti tidak adanya privasi akan menyebabkan stres.
Mardiana dan Muafi (2001), dalam penelitiannya menemukan adanya pengaruh antara stressor tuntutan
tugas, stressor tuntutan peran, dan stressor tuntutan pribadi secara bersama-sama berpengaruh
terhadap kinerja. Stressor tuntutan peran memiliki pengaruh dominan terhadap kinerja.
Efek Moderasi: Gender, Masa Kerja dan Kerja Cerdas: Sudah banyak diyakini bahwa perempuan
sebagai kelompok yang memiliki stres yang lebih tinggi dibandingkan kelompok laki-laki (Miller & Ellis,
1990). Frekwensi stres yang tercermin dari tingkat depresi, emosional lebih tinggi dibanding laki-laki.
Terborg (1977), menemukan bahwa pekerja wanita cenderung memiliki peran yang overload dan tingkat
konflik yang tinggi akan menghasilkan tingkat stres yang tinggi. Penelitian yang dilakukan oleh Nasrudin
dkk (2004), hasilnya mengindikasikan bahwa gender memoderasi hubungan antara prediktor variabel
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(organizational stressor dan individual traits) dengan stress kerja. Penelitian Cahyono (2010), hasilnya
mengindikasikan bahwa ada efek moderasi gender dalam hubungan antara tekanan organisasi dan sifat
individu, dengan stress kerja. Berbagai variabel organizational stressor yang memiliki nilai mean kurang
dari rata-rata, antara lain: conflict, alienation (pertentangan), work overload dan unfavorable work
environmental. Hasil mean masing-masing indikator mengindikasikan bahwa responden mengalami
konflik, pertentangan dengan rekan kerja, beban kerja yang berlebihan dan lingkungan kerja yang tidak
baik masih dalam batas-batas yang ditolerir, artinya mereka merasa indikator tersebut masih bisa
dikendalikan. Hasil ini berbeda dengan penelitian yang dilakukan oleh Nasurdin dkk (2004), dimana sifat-
sifat individual responden yang memiliki nilai di atas rata-rata hanya neoriticism (kestabilan emosi,
ketidakpastian peran).
Hasil regresi tahap pertama yang memasukkan variabel demografi dengan job stress, hasilnya
menunjukkan bahwa hanya variabel masa kerja yang berpengaruh negatif dan signifikan terhadap job
stress. Hasil ini bertentangan dengan yang diteliti oleh Nasurdin dkk (2004), dimana usia memiliki
pengaruh yang positif dan signifikan terhadap job stress. Hasil regresi tahap kedua dengan memasukkan
variabel independen organizational stressor dan individual trait, variabel demografi yang signifikan
adalah masa kerja dan status. Sedangkan untuk variabel organizational stressor, pertentangan dengan
rekan kerja dan lingkungan kerja yang tidak baik memiliki pengaruh signifikan terhadap job stress. Pada
regresi tahap ketiga dimasukkan variabel interaksi antara variabel independen dengan gender, hasilnya
mengindikasikan bahwa semua variabel demografi (gender, status, dan masa kerja) memiliki pengaruh
negatif dan signifikan terhadap job stress. Sedangkan untuk variabel independen organizational stressor,
pertentangan dengan rekan kerja dan beban kerja yang berlebihan menjadi penyebab stress kerja. Hasil
lain menunjukkan bahwa semua variabel interaksi memiliki pengaruh signifikan terhadap job stress,
kecuali lingkungan kerja yang tidak baik dan ketelitian. Nilai R2 pada regresi tahap ketiga juga mengalami
peningkatan sebesar 0,227 (0,861 – 0,643). Hal ini menunjukkan bahwa variabel gender dalam penelitian
ini memoderasi hubungan antara independen variabel dengan dependen variabel.
Kerja cerdas memiliki peran penting dalam berbagai model stres, sebab kerja cerdas memiliki hubungan
signifikan dengan berbagai variabel, seperti: kompetensi, efisiensi alokasi sumberdaya, dan orientasi
pembelajaran. Jex (1998), menyatakan bahwa karyawan yang kompeten akan memiliki pengaruh kecil
terhadap stres. Selain itu McFarlan (2003) juga menyatakan bahwa seorang individu yang
mengalokasikan sumberdayanya secara lebih efisien akan memiliki dampak stres yang lebih kecil, dan
mereka dapat secara efektif mengatasi kesulitan-kesulitan dalam pekerjaannya. Kerja cerdas pada
dasarnya akan dapat membantu karyawan mengatasi pekerjaan yang overload, melalui penggunaan
waktu dan energi secara efisien, serta mengeleminasi berbagai konflik yang tidak penting diantara rekan
kerja. Jaramillo dkk (2011), mengidentifkasikan bahwa kerja cerdas memoderasi hubungan antara work
overload dengan konflik interpersonal. Selain itu juga kerja cerdas berpengaruh signifikan terhadap
konflik interpersonal, dan sikap kerja (kepuasan kerja dan komitmen, dan turn over karyawan).
Kerangka Penelitian
Gambar 2.2: Kerangka Penelitian
Mendasarkan pada kerangka penelitian (Gambar 2.2), dapat dijelaskan bahwa variabel independen dalam
penelitian ini adalah Tekanan Organisasional, dan variabel dependennya adalah stres kerja, serta
moderating variabel yang digunakan antara lain: gender, masa kerja, dan kerja cerdas. Pada variabel
independen tekanan organisasional ini merupakan konstruk yang memiliki lima dimensi, yaitu: conflict,
block career, alienation, work overload, dan unfavorable work environment.
Stres Kerja
Tekanan Organisasional
1. Conflict,
2. Block career
3. Alienation
4. Work overload
5. Unfavourable work
environment
Gender
Masa Kerja
Kerja Cerdas
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Jenis Penelitian: Jenis penelitian yang digunakan adalah “explanatory research” atau penelitian yang
bersifat menjelaskan, artinya penelitian ini menekankan pada hubungan antar variabel penelitian dengan
menguji hipotesis uraiannya mengandung deskripsi tetapi fokusnya terletak pada hubungan antar
variabel (Singarimbun, 2009). Pengujian hipotesis dimaksudkan untuk membenarkan atau memperkuat
hipotesis dengan harapan, yang pada akhirnya dapat memperkuat teori yang dijadikan sebagai pijakan.
Populasi dan Sampel: Populasi dalam penelitian ini adalah semua perawat pada Rumah Sakit Islam di
Semarang, yaitu: Rumah Sakit Islam Sultan Agung (RISA) dan Rumah Sakit Roemani. Jumlah populasi
keseluruhan adalah 481 perawat. Adapun jumlah sample yang diambil berdasarkan pada rumus Slovin
dengan tingkat kesalahan yang ditoleransi sebesar 5% adalah sebanyak 235 responden, dengan teknik
sampling proporsional random sampling. Secara terperinci jumlah sample yang diambil dapat dihitung
sebagai berikut:
Tabel 3.1: Penentuan Jumlah Sampel Penelitian
Institusi
Populasi
Sampel
Laki-laki
Perempuan
Laki-laki
Perempuan
RISA
64 orang
215 orang
(64/481)x235=31
(215/481)x235=105
Rumah Sakit
Roemani
70 orang
132 orang
(70/481)x235=34
(132/481)x235=65
Jumlah
134 orang
347 orang
65 orang
170 orang
Sumber: Personalia RISA dan RS Roemani (2013)
Kriteria tingkatan stress pekerjaan dengan mengacu pada pendapat Davis dkk (2000), yaitu dengan
mengalikan jumlah indikator dengan jawaban responden, kemudian dirata-ratakan. Stres dikelompokkan
menjadi lima: Untuk menentukan tingkatan stres responden, maka dapat dihitung dengan menggunakan
rumus: Skor 1,00 -1,80 : stress rendah, Skor 1,81-2,60: cukup stres, Skor 2,61-3,40: menderita tinggi,
Skor 3,41-4,20 : stress tinggi, Skor 4,21-5,00: stress sangat tinggi.
Hasil Penelitian Dan Pembahasan: Hasil jawaban responden menunjukkan bahwa jenis kelamin
responden para perawat di rumah sakit Islam Kota Semarang didominasi oleh perawat perempuan, yaitu
sebesar 81,7%. Sementara itu jumlah perawat laki-laki sebanyak 18,3%. Hasil ini mengindikasikan bahwa
di rumah sakit Islam lebih banyak menggunakan perawat perempuan, yang didasari pada sifat kesabaran,
ketelitian, dan keuletannya. Sementara dilihat dari usia responden, maka keberadaan perawat di rumah
sakit Islam Kota Semarang didominasi oleh perawat yang usianya masih muda, yaitu usia 21-31 tahun
dengan jumlah perawat mencapai 144 orang atau 61,3%. Disusul oleh perawat dengan usia antara 32 –
42 tahun berjumlah 66 orang atau 28,1%, dan terakhir perawat dengan usia 43 tahun ke atas sebanyak
10,6%. Keberadaan perawat usia muda tentunya akan lebih energik dalam membantu para dokter terkait
dengan perawatan kepada pasiennya. Dilihat dari status responden, maka sebagian besar responden,
yaitu sebanyak 77% sudah menikah, sementara yang belum menikah sebanyak 23%. Sedangkan ditinjau
dari masa kerja perawat, hasilnya menunjukkan bahwa masa kerja paling lama didominasi masa kerja 1
sampai dengan 9 tahun (74%), sementara itu masa kerja perawat antara 10 – 18 tahun sebanyak 17,2%,
masa kerja perawat 19 – 27 tahun sebanyak 6,3%, dan masih terdapat perawat yang masa kerjanya lebih
dari 28 tahun, yaitu sebanyak 2,5%.
Stres Pekerjaan: Variabel stres pekerjaan memiliki rata-rata sebesar 1,64. Hasil ini menunjukkan bahwa
tingkat stres responden berada pada tingkatan rendah (Skor stres rendah antara 1,00 -1,80) (Davis,
2000). Artinya bahwa tingkatan stres pada perawat di RS Islam di Kota Semarang menunjukkan pada
tingkatan stres yang paling rendah. Namun demikian dari sepuluh indikator stres pekerjaan, terdapat
beberapa indikator yang menggambarkan tingkat stres yang dikelompokkan pada tingkatan cukup stres.
Indikator-indikator tersebut antara lain: frekwensi sakit, penurunan kepuasan kerja, hambatan-
hambatan tugas, sulit tidur,dan depresi. Indikator ini tentunya perlu diperhatikan oleh manajemen rumah
sakit Islam di Semarang, mengingat memiliki dampak terhadap stres pekerjaan yang lebih tinggi.
Sementara itu beberapa indikator yang memiliki indikasi rendah dalam kaitannya dengan stres pekerjaan
antara lain: tekanan darah dan kecelakaan kerja. Sementara itu variabel kerja cerdas yang merupakan
variabel moderating memiliki nilai rata-rata sebesar 3,98. Nilai ini masuk dalam kelompok skor tinggi
(3,67 – 5,00), artinya berdasarkan persepsi jawaban responden dapat dinilai bahwa responden perawat
dalam bekerja memiliki konsep penerapan kerja cerdas. Indikator yang memiliki nilai rata-rata tinggi
kaitannya dengan kerja cerdas para perawat, antara lain; mereka memiliki waktu perencanaan kerja,
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rekor terhadap pekerjaan yang baik, memiliki prioritas kerja dan menilai bahwa perencanaan dalam
bekerja sebagai perawat sangatlah penting.
Tekanan Organisasi: Tekanan organisasi merupakan konstruk yang meiliki terdiri dari 5 variabel, yaitu:
conflic, block career, alienation, work overload, dan unvaforable work environment. Adapun nilai mean dan
standar deviasi untuk semua indikato dari masing-masing variabel disajikan dalam tabel berikut ini.
Persepsi responden mengenai variabel yang diteliti, studi ini menggunakan kriteria rentang sebesar 1,33
yang diperoleh dari hasil perhitungan nilai tertinggi dalam skala Likert yaitu 5 (lima) dikurangi nilai
terendah yaitu 1 (satu) kemudian dibagi 3 jenis kriteria nilai (Ghozali, 2005) sebagai berikut :1,00 – 2,33
= rendah; 2,34 – 3,66=sedang; dan 3,67 – 5,00=tinggi
Variabel conflict menunjukkan bahwa rata-rata jawaban sebesar 2,31. Hasil ini mengindikasikan bahwa
tingkat konflik yang terjadi pada responden perawat di rumah sakit Islam di Semarang pada tingkatan
yang rendah. Adapun indikator yang memiliki nilai mean yang sangat rendah yaitu indikator
pertentangan keyakinan dengan tindakan (mean=1,92) dan jawaban sangat tidak setuju ditambah tidak
setuju sebesar 83%. Sementara itu untuk indikator tuntutan yang berbeda memiliki nilai mean jawabah
2,39, dengan jawaban sangat tidak setuju dan tidak setuju sebesar 56%. Dan indikator pertetangan
pendapat memiliki nilai mean 2,64, dengan jawabah sangat tidak setuju ditambah tidak setuju sebesar
45%. Variabel block career hasilnya menunjukkan bahwa rata-rata jawaban responden perawat adalah
2,3. Hasil ini mengindikasikan bahwa tingkat block career atau pembatasan terhadap karir seorang
perawat di rumah sakit Islam di Semarang rendah, atau dengan kata lain responden merasa bahwa
tingkat pembatasan atau pemblokiran terhadap karir tidak terlalu dominan. Namun demikian dari tiga
indikator yang ada dalam block career, indikator peluang berkarir kecil memiliki nilai rata-rata yang
menurut persepsi responden sedang (2,44) dengan jumlah jawaban sangat tidak setuju dan sangat setuju
sebesar 60%. Sementara itu indikator halangan karir semakin banyak memiliki nilai rata-rata sebesar
2,32 (rendah), dengan jumlah jawaban STS dan TS sebesar 63%. Dan terakhir adalah indikator karir yang
terhalang dengan nilai mean 2,14 (rendah), dengan jumlah jawaban STS dan TS sebanyak 68%.
Berdasarkan pada tanggapan responden untuk variabel alienation yang merupakan perasaan seseorang
merasa terasing dengan lingkungannya, menunjukkan nilai rata-rata jawaban responden sebesar 2,07.
Hasil ini mengindikasikan bahwa tingkat alienation atau keterasingan responden perawat di rumah sakit
Islam di Semarang rendah, atau dengan kata lain responden merasa bahwa mereka tidak merasakan
adanya keterasingan dalam menjalani pekerjaan sebagai perawat. Indikator yang memiliki nilai rendah
cenderung bahwa kondisi para responden akan lebih baik. Misalnya untuk indikator bekerja sendiri
(mean = 1.99), dengan jumlah jawaban STS dan TS sebesar 79%. Sementara itu indikator kurang adanya
dukungan memiliki nilai mean 2,08, dan jumlah jawaban STS dan TS sebesar 77%. Dan terakhir adalah
indikator tentang persepsi adanya sedikit teman memiliki nilai rata-rata sebesar 2,13 (rendah), artinya
bahwa responden merasa sebagian besar tidak bekerja sendiri. Sedangkan untuk indikator ini, nilai
jawaban responden STS dan TS sebesar 73%.
Variabel work overload memiliki nilai rata-rata jawaban responden sebesar 2,37. Hasil ini
mengindikasikan bahwa tingkat work overload atau beban kerja yang berlebihan seorang perawat di
rumah sakit Islam di kota Semarang adalah sedang, atau dengan kata lain responden merasa bahwa
tingkat beban kerja yang berlebihan tidak benar, atau mereka merasa tidak ada beban kerja yang
berlebihan. Namun demikian dari tiga indikator yang ada dalam work overload, terdapat indikator yang
memiliki nilai mean agak tinggi, yaitu kelebihan beban kerja (mean = 2,40) dengan jumlah jawaban STS
dan TS sebesar 62%. Sementara itu indkator waktu untuk keluarga kurang memiliki nilai rata-rata
sebesar 2,35 dengan jumlah jawaban STS dan TS sebesar 61%. Dan terakhir adalah indikator beban dan
kualitas kerja yang memiliki nilai rata-rata sebesar 2,35 dengan jumlah jawaban STS dan TS sebesar 67%.
Variabel unfavorable work environment (UWE) memiliki nilai rata-rata 2,30. Nilai rata-rata ini
mengindikasikan bahwa variabel lingkungan yang tidak mendukung menurut persepsi responden dinilai
rendah, artinya nilai rendah menunjukkan para responden merasa lingkungan kerjanya justru
mendukung karir mereka sebagai perawat. Nilai rata-rata indikator yang masih agak tinggi terdapat pada
indikator interaksi kurang (mean 2,4) dengan jumlah jawaban STS dan TS sebesar 61%, maksudnya
interaksi dengan atasan, rekan kerja dan bawahan dari sebagian responden masih dirasa kurang.
Sementara itu indikator sumberdaya kurang memiliki nilai mean sebesar 3,1 dan jumlah jawaban STS dan
TS sebesar 67%. Dan indikator terakhir yang memiliki tidak menjamin prifasi memiliki nilai rata-rata 2,2
dengan jumlah jawaban STS dan TS sebesar 71%.
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Hasil Uji Ku al it as Ku es io ner: Hasil pengujian validitas dengan mengkorelasikan antara masing-
masing indikator dan totalnya menunjukkan bahwa semua hasil korelasi tersebut (lampiran 4) memiliki
nilai signifikansi 0,000 atau dibawah 0,05. Hasil ini menunjukkan bahwa semua indikator dari konstruk
tekanan organisasional (conflict, block career, alienation, work overload, dan unvaforable work
environment) dan indikator dari variabel stres pekerjaan (10 indikator) memenuhi syarat validitas. Untuk
menguji tingkat reliabilitas variabel penelitian, maka digunakan standar nilai cronbach Alpha, dengan
ketentuan nilai cronbach alpha minimal 0,6 (Ghozali, 2011). Dari hasil perhitungan cronbach alpha untuk
konstruk tekanan organisasional dan variabel stress pekerjaan, maka diperoleh nilai antara 0,603 sampai
dengan 0,800. Hal ini mengindikasikan bahwa semua variabel penelitian memenuhi syarat reliabilitas
berdasarkan pada level penerimaan minimum yakni sebesar 0,6 (Nunnally, 1978).
Hasil Pengujian Hipotesis: Dalam pengujian hipotesis digunakan analisis regresi hirarki dengan tiga
tahapan, yaitu: (1) regresi variabel kontrol terhadap stres pekerjaan, (2) regresi variabel independen
terhadap stres pekerjaan, dan (3) regresi variabel interaksi (independen dengan moderating variabel)
dengan stres pekerjaan. Hasil regresi antara variabel kontrol terhadap stres pekerjaan (dependen
variabel) menunjukkan bahwa tidak satupun variabel kontrol memiliki pengaruh yang signifikan
terhadap stres pekerjaan. Namun demikian salah satu variabel yaitu variabel kerja cerdas memiliki
pengaruh yang negatif dan signifikan (beta= - 0,142, sign = 0,043). Temuan ini menunjukkan bahwa
perawat dalam bekerjanya lebih mementingkan tindakan, bukan menekankan pada pekerjaan yang harus
direncanakan secara mendetail. Disisi lain, nilai R2 adalah sebesar 0,043 yang merupakan nilai R2 yang
sangat rendah, artinya variabel demografi memiliki kontribusi yang sangat kecil (4,3%) dan tingkat
signifikansi sebesar 0,070 dalam mempengaruhi stres pekerjaan.
Regresi tahap kedua untuk mengetahui pengaruh variabel independen dalam konstruk tekanan
organisasi, yaitu: Conflict, Blocked career, Alienation, Work overload, dan Unfavorable work environment
terhadap dependen variabel stres pekerjaan. Hasil perhitungan regresi secara terperinci diuraikan
berikut ini: Variabel konflik memiliki pengaruh yang tidak signifikan terhadap stres pekerjaan (beta=
0,039, dan sign = 0,545), artinya bahwa variabel konflik tidak memiliki pengaruh terhadap stres
pekerjaan pada rumah sakit Islam di Kota Semarang. Variabel block career memiliki pengaruh positif dan
signifikan terhadap stres pekerjaan (beta = 0,274, dan sign = 0,000), artinya bahwa semakin dihambat
karir seorang perawat akan meningkatkan stres pekerjaannya. Variabel alienation memiliki pengaruh
positif dan signifikan terhadap streaa pekerjaan (beta = 0,291, dan sign = 0,000), artinya semakin merasa
terisolir atau menyendiri bagi perawat, maka akan semakin meningkatkan stres pekerjaan. Variabel work
overload memiliki pengaruh yang tidak signifikan terhadap stres pekerjaan (beta = -0,113, dan sign =
0,148), artinya bahwa variabel work overload tidak berpengaruh terhadap pembentukan stres pekerjaan
pada perawat di rumah sakit Islam di Semarang. Variabel unfavorable work environment memiliki
pengaruh positif dan signifikan terhadap stres pekerjaan (beta = 0,339, dan sign = 0,000), artinya bahwa
lingkungan kerja yang semakin tidak mendukung bagi para perawat akan berdampak pada peningkatan
stres pekerjaan pada rumah sakit Islam di Semarang. Nilai R2 pada persamaan kedua adalah sebesar
0,613, artinya ada peningkatan nilai R2 dari persamaan pertama sebesar 0,570 (0,613 – 0,043). Besarnya
R2 (determinasi) sebesar 0,613 mengandung arti bahwa variabel independen memiliki kontribusi sebesar
61,3% terhadap variabel dependennya, sementara selebihnya (38,7%) dipengaruhi oleh variabel lain
yang tidak diteliti.
Berbagai temuan satu sampai lima mengindikasikan bahwa temuan tersebut mendukung hipotesis 1 yang
berbunyi: Semakin meningkat tekanan organisasional akan meningkatkan pula stress kerja secara
parsial. Terdapat tiga temuan yang mendukung hipotesis pertama, yaitu block career, alienation, dan
unfavorable work environment memiliki pengaruh positif dan signifikan terhadap stres pekerjaan.
Sementara itu variabel konflik dan kelebihan beban kerja tidak memiliki pengaruh terhadap stres
pekerjaan. Selanjutnya untuk menguji hipotesis kedua yang berbunyi: Variabel Gender, masa kerja, dan
kerja cerdas memoderasi hubungan antara organisasional stressor dengan stress kerja, maka digunakan
persamaan regresi interaksi yang dikaitkan dengan stres pekerjaan sebagai variabel dependen. Dari hasil
persamaan regresi interaksi diperoleh hasil sebagai berikut: Interaksi antara jenis kelamin dengan lima
varibel independen (Conflict, Blocked career, Alienation, Work overload, dan Unfavorable work
environment) hasilnya menunjukkan bahwa terdapat satu variabel interaksi yang memilliki pengaruh
positif dan signifikan terhadap stres pekerjaan, yaitu variabel jenis kelamin x unfavorable work
environment (JK*UWE). Artinya bahwa perawat wanita memiliki kecenderungan bahwa kalau lingkungan
kerjanya semakin tidak mendukung, maka akan berdampak pada stres pekerjaan yang semakin
meningkat. Sebaliknya kalau lingkungan pekerjaannya semakin mendukung bagi perawat wanita, maka
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akan menurunkan stres pekerjaan. Sementara itu beberapa interaksi yang memiliki pengeruh negatif
antara lain: jenis kelamin x konflik (JK*K), jenis kelamin x block career (JK*BK), dan jenis kelamin x work
overload (JK*WO). Interaksi ketiga variabel ini memiliki pengaruh negatif terhadap stres pekerjaan,
sehingga hasilnya tidak mendukung hipotesis bahwa tekanann organisasi berpengaruh positif terhadap
stres pekerjaan. Selain itu juga terdapat satu variabel interaksi yang memiliki pengaruh positif tetapi
tidak signifikan (JK*A), artinya walaupun variabel interaksi jenis kelamin dengan alienation memiliki
pengaruh terhadap stres pekerjaan, namun pengaruhnya tidak penting.
Interaksi antara masa kerja dengan lima varibel independen (Conflict, Blocked career, Alienation, Work
overload, dan Unfavorable work environment) hasilnya menunjukkan bahwa terdapat satu variabel
interaksi yang memilliki pengaruh positif dan signifikan terhadap stres pekerjaan, yaitu variabel masa
kerja x work overload (MK*WO). Artinya bahwa masa kerja memoderasi hubungan antara work overload
dengan stres pekerjaan berlaku bagi perawat yang masa kerjanya tergolong belum lama, yaitu masa kerja
1-9 tahun dan 10-18 tahun. Sementara itu terdapat variabel interaksi yang memiliki pengaruh positif
terhadap stres pekerjaan namun tidak signifikan, yaitu: masa kerja x konflik, dan masa kerja x alienation.
Selain itu juga terdapat variabel interaksi yang memiliki pegaruh negatif terhadap stres pekerjaan, yaitu:
masa kerja x block career, dan masa kerja x lingkungan kerja yang tidak diinginkan. Interaksi antara kerja
cerdas dengan lima varibel independen (Conflict, Blocked career, Alienation, Work overload, dan
Unfavorable work environment) hasilnya menunjukkan bahwa terdapat dua variabel interaksi yang
memilliki pengaruh positif dan signifikan terhadap stres pekerjaan, yaitu variabel kerja cerdas x konflik
(KC*K), dan variabel kerja cerdas x block career (KC*BK). Temuan ini menunjukkan bahwa konflik dapat
mempengaruhi stres pekerjaan dan terjadi pada perawat yang dapat menerapkan kerja cerdas pada
setiap tindakannya. Sementara itu juga temuan kedua mengindikasikan bahwa block career memiliki
pengaruh positif dan signifikan terhadap stres pekerjaan khususnya pada perawat yang menerapkan
kerja cerdas pada setiap tindakannya. Terdapat tiga varaibel interaksi yang justru memiliki koefisien
negatif terhadap stres pekerjaan, yaitu: kerja cerdas x alienation, kerja cerdas x work overload, dan kerja
cerdas x lingkungan kerja yang tidak diinginkan. Nilai R2 pada persamaan ketiga adalah sebesar 0,663,
artinya ada peningkatan nilai R2 dari persamaan pertama sebesar 0,050 (0,663 – 0,613). Besarnya R2
(determinasi) sebesar 0,663 mengandung arti bahwa variabel independen (variabel interaksi antara
independen dikalikan dengan moderating variabel) memiliki kontribusi sebesar 66,3% terhadap variabel
dependennya (stres pekerjaan), sementara selebihnya (33,7%) dipengaruhi oleh variabel lain yang tidak
diteliti.
Pembahasan: Hasil perhitungan regresi untuk mengetahui pengaruh antara variabel independen dalam
konstruk tekanan organisasi (Conflict, Blocked career, Alienation, Work overload, dan Unfavorable work
environment) terhadap dependen variabel (stres pekerjaan), mengindikasikan bahwa dari lima variabel
independen terdapat tiga variabel yang memiliki pengaruh positif dan signifikan terhadap stres
pekerjaan. Ketiga variabel tersebut adalah block career, alienation, dan unfavorable work environment.
Block career memiliki pengaruh signifikan terhadap stres pekerjaan, mengandung makna bahwa
walaupun menurut persepsi responden nilai mean block career termasuk rendah (mean=2,30), namun
kejelasan jenjang karir bagi perawat merupakan sebuah tahapan yang ingin ditempuh oleh para perawat
dalam melaksanakan profesinya. Penahanan terhadap karir para perawat akan memiliki dampak yang
serius bagi tingkat stres pekerjaan mereka. Mendasarkan pada uraian tugas keperawatan, maka seorang
perawat dengan pendidikan dan pengalaman tertentu dapat memiliki peluang untuk meningkatkan
karirnya, baik sebagai manajer keperawatan, kepala bagian keperawatan, kepala ruang, ketua tim
perawat, kepala shift keperawatan, dan pelaksana keperawatan.
Alienation juga memiliki pengaruh signifikan terhadap job stres. Alienation merupakan kondisi
keterasingan seseorang dalam organisasi dalam penelitian ini memiliki dampak penting dalam
menciptakan stres pekerjaan. Walaupun rata-rata indikator variabel alienation rendah (mean=2,07),
namun perlu adanya perhatian yang serius terhadap para perawat kaitannya dengan dampak yang
ditimbulkan, yaitu stres pekerjaan. Indikator lain yang memiliki pengaruh signifikan terhadap stres kerja
adalah unfavorable work environment (UWE). Walaupun nilai mean variabel UWE tergolong rendah
(mean = 2,30), namun manajemen rumah sakit perlu memperhatikan berbagai indikator UWE, mengingat
dari hasil kajian ditemukan adanya dampak penting dalam membentuk stres pekerjaan. Jaminan prifasi
para perawat perlu mendapatkan tanggapan oleh manajemen rumah sakit, selain itu juga tingkat
interaksi antar perawat dengan perawat, perawat dengan dokter juga perlu dipertahankan. Tingkat rata-
rata tekanan organisasi yang cukup rendah pada rumah sakit Islam di Semarang (mean=2,30), baik dari
variabel konflik, blok karir, alienation, beban kerja yang berlebihan, dan lingkungan kerja yang tidak
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mendukung mengindikasikan adanya sebuah perencanaan yang sistematis dalam manajemen rumah
sakit Islam di Semarang sebagai upaya untuk mengurangi tingkat stres para perawat. Dalam misinya,
misalnya di RSI Sultan Agung, tercantum kata “mencintai Allah Menyayangi Sesama”, yang berarti
menjadikan Allah SWT sebagai prioritas utama dalam seluruh aktivitas pelayanan sehari-hari di Rumah
Sakit. Hal ini sejalan dengan apa yang diterapkan oleh RS Islam Bandung yang menerapkan nilai-nilai
Islam dalam pelayanan kesehatan RS Al Islam Bandung menerapkan nilai-nilai Islam dalam membangun
corporate culture, yakni nilai yang menjadi falsafah utama yang dipegang teguh oleh anggota organisasi
dalam menjalankan atau mengoperasikan kegiatan organisasi. Dari corporate culture itulah, segenap
karyawan RS Al Islam Bandung diajak untuk melaksanakan nilai dasar seperti kasih sayang , bersih, jujur,
disiplin, tanggung jawab, kerjasama dan ridho Allah. Pelaksanaan kegiatan yang dilakukan di RS Al Islam
Bandung, seperti santunan kerohanian pasien , ceramah ruhiah bagi pasien dan sederet kegiatan lainnya
yang masih bernapaskan nilai-nilai Islam. Untuk lebih memantapkan karyawan dalam bekerja. RSI Sultan
Agung juga mengundang trainer dari ESQ untuk memotivasi langsung semangat para karyawan agar RSI
Sultan Agung berkembang lebih pesat untuk beberapa tahun mendatang.
Temuan ini senada dengan pendapat Robin (2006), yang menyatakan terdapat tiga hal yang
menyebabkan stres, yaitu: faktor lingkungan, faktor organisasi dan faktor individu. Faktor lingkungan
memiliki cakupan yang sangat luas, seperti ketidakpastian ekonomi, ketidakpastian politik, dan
ketidakpastian tehnologi. Faktor organisasi meliputi: banyaknya tugas, banyaknya peran dalam
organisasi, hubungan antarpersonal, struktur organisasi, kepemimpinan dalam organisasi dan siklus
hidup organisasi. Sedangkan faktor individu lebih menekankan pada permasalahan-permasalahan
keluarga dan permasalahan-permasalahan ekonomi. Konsekwensi yang ditimbulkan karena dampak
stres sangat dipengaruhi oleh pengalaman seseorang terkena stress (experienced stress). Sedangkan
sumber-sumber potensial stress akan mempengaruhi pengalaman stress dan dapat dimoderasi oleh
berbagai variabel perbedaan individu (persepsi, pengalaman kerja, dukungan sosial, dan keyakinan).
Persepsi terkait dengan reaksi karyawan dalam merespon antara harapan dan realitas itu sendiri.
Persepsi akan memoderate hubungan antara stres dan reaksi karyawan terhadap stres. Baron (2006)
mengidentifikasikan terdapat dua faktor penyebab terjadinya stress. Pertama, penyebab yang
berhubungan dengan organisasi. Faktor organisasi yang berhubungan dengan stres misalnya: hubungan
dalam pekerjaan, tuntutan tugas atau pekerjaan, kekaburan peran, konflik peran, kelebihan atau
terlampau sedikitnya beban kerja, tanggung jawab terhadap orang lain atau bawahan, dukungan sosial
sangat kurang dan kurangnya partisipasi dalam pengambilan keputusan. Kesemuanya ini dapat
berpengaruh terhadap prestasi kerja seseorang. Kedua faktor individu, yang meliputi: kejadian-kejadian
kehidupan yang menegangkan, percekcokan dalam kehidupan sehari-hari.
Mardiana dan Muafi (2001), dalam penelitiannya menemukan adanya pengaruh antara stressor tuntutan
tugas, stressor tuntutan peran, dan stressor tuntutan pribadi secara bersama-sama berpengaruh
terhadap kinerja. Stressor tuntutan peran memiliki pengaruh dominan terhadap kinerja. Miller & Ellis,
(1990) mengidentifikasikan lingkunan kerja dengan iklim organisasi yang tidak menyenangkan, seperti
tidak adanya privasi akan menyebabkan stres. Hauck and Snyder (2008), dalam penelitiannya
menemukan bahwa beban kerja yang berlebihan akan menurunkan kinerja dan meningkatkan stres.
Dalam tenaga keperawatan ditemukan adanya pengaruh yang signifikan dan positif antara beban kerja
dengan tingkat stres, sehingga beban kerja merupakan prediktor tingkat stres. Penelitian Cahyono
(2006), hasilnya menunjukkan bahwa tingkat stres responden pada tingkatan menderita stres (suffering
job stress). Variabel stressor organisasional yang memiliki pengaruh signifikan terhadap stres kerja
antara lain aleination dan lingkungan kerja yang tidak nyaman.
Variabel organisasional disinyalir dapat menciptakan stres pada karyawan (Greenhaus dan Beutell,
1985), melalui berbagai variabel, antara lain conflict, block career, alienation, work overload dan
unfavourable work environment. Vijay and Vazirani (2012) dalam penelitiannya di Rumah sakit India,
menyatakan bahwa perawat memiliki potensi stres di tempat kerja, mengingat profesi perawat
membutuhkan level keahlian yang tinggi, kerja tim dalam berbagai situasi selama 24-jam dalam
memberikan pelayanan. Tiga penyebab stres para perawat yang bekerja di rumah sakit swasta, antara
lain; perilaku teman dan saudara pasien, hubungan interpersonal, dan tingkat gaji yang rendah.
Sementara itu di rumah sakit milik pemerintah, tiga penyebab stress terdiri dari: infrastruktur yang
kualitasnya jelek, jumlah pasien yang ditangani setiap hari, dan jumlah jam kerja dalam sehari yang
sangat banyak. Sementara itu Robbin (2006) menekankan pada dua pendekatan untuk menangani stres.
Pertama pendekatan individu, dimana seorang karyawan dapat menyelesaikan tanggung jawab personal
untuk mengurangi tingkat stresnya. Strategi individual yang telah terbukti efektif mencakup pelaksanaan
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teknik-teknik manajemen waktu, meningkatkan latihan fisik, pelatihan pengenduran atau relaksasi, dan
perluasan jaringan dukungan sosial. Kedua, pendekatan organisasional yang muncul sebagai dampak
tuntutan peran dan tugas, struktur organisasi.
Peran Variabel Moderating dalam Hubungan antara Tekanan Organisasional dengan Stres
Pekerjaan: Selanjutnya untuk menguji hipotesis kedua yang berbunyi: Variabel Gender, masa kerja, dan
kerja cerdas memoderasi hubungan antara organizational stressor dengan stress kerja, maka digunakan
persamaan regresi interaksi yang dikaitkan dengan stres pekerjaan sebagai variabel dependen. Hasil
penelitian menunjukkan bahwa dari hasil persamaan regresi interaksi diperoleh hasil sebagai berikut:
Interaksi antara jenis kelamin dengan lima varibel independen hasilnya menunjukkan bahwa terdapat
satu variabel interaksi yang memilliki pengaruh positif dan signifikan terhadap stres pekerjaan, yaitu
variabel jenis kelamin x unfavorable work environment (JK*UWE). Artinya bahwa perawat wanita
memiliki kecenderungan bahwa kalau lingkungan kerjanya semakin tidak mendukung, maka akan
berdampak pada stres pekerjaan yang semakin meningkat. Sebaliknya kalau lingkungan pekerjaannya
semakin mendukung bagi perawat wanita, maka akan menurunkan stres pekerjaan. Interaksi antara
masa kerja dengan lima varibel independen hasilnya menunjukkan bahwa terdapat satu variabel
interaksi yang memilliki pengaruh positif dan signifikan terhadap stres pekerjaan, yaitu variabel masa
kerja x work overload (MK*WO). Artinya bahwa masa kerja memoderasi hubungan antara work overload
dengan stres pekerjaan berlaku bagi perawat yang masa kerjanya tergolong belum lama, yaitu masa kerja
1-9 tahun dan 10-18 tahun. Interaksi antara kerja cerdas dengan lima varibel independen hasilnya
menunjukkan bahwa terdapat dua variabel interaksi yang memilliki pengaruh positif dan signifikan
terhadap stres pekerjaan, yaitu variabel kerja cerdas x konflik (KC*K), dan variabel kerja cerdas x block
career (KC*BK). Temuan ini menunjukkan bahwa konflik dapat mempengaruhi stres pekerjaan dan
terjadi pada perawat yang dapat menerapkan kerja cerdas pada setiap tindakannya. Sementara itu juga
temuan kedua mengindikasikan bahwa block career memiliki pengaruh positif dan signifikan terhadap
stres pekerjaan khususnya pada perawat yang menerapkan kerja cerdas pada setiap tindakannya.
Berbagai temuan dalam penelitian ini mendukung hasil-hasil penelitian sebelumnya. Misalnya penelitian
Miller dan Ellis, (1990), yang menyatakan bahwa kelompok perempuan cenderung memiliki tingkat
stress yang lebih tinggi dibanding dengan laki-laki. Hal ini diperkuat oleh pendapat Jick dan Mitz (1995),
bahwa menurut pengalaman, secara psikologis perempuan lebih cenderung mengalami stres, depresi,
ketidakstabilan emosi dibanding laki-laki. Penelitian lain dilakukan oleh Nasurdin dkk (2004), hasilnya
mengindikasikan bahwa gender memoderasi pengaruh seluruh variabel independen terhadap stres,
artinya bahwa dugaan perempuan cenderung memiliki stres lebih tinggi terbukti. Perempuan sebagai
kelompok yang memiliki stres yang lebih tinggi dibandingkan kelompok laki-laki (Miller & Ellis, 1990).
Frekwensi stres yang tercermin dari tingkat depresi, emosional lebih tinggi dibanding laki-laki. Terborg
(2007), menemukan bahwa pekerja wanita cenderung memiliki peran yang berlebihan dan tingkat
konflik yang tinggi akan menghasilkan tingkat stres yang tinggi. Penelitian yang dilakukan oleh Nasrudin
dkk (2004), hasilnya mengindikasikan bahwa gender memoderasi hubungan antara prediktor variabel
dengan stres. Cahyono (2006) dalam penelitiannya menemukan adanya fungsi moderasi variabel jender
dalam hubungan antara independen variabel (block career dan work overload) dengan dependen variabel.
Hasil regresi tahap pertama yang memasukkan variabel demografi dengan job stress, hasilnya
menunjukkan bahwa hanya variabel masa kerja yang berpengaruh negatif dan signifikan terhadap job
stress. Hasil ini bertentangan dengan yang diteliti oleh Nasurdin dkk (2004), dimana usia memiliki
pengaruh yang positif dan signifikan terhadap job stress. Hasil regresi tahap kedua dengan memasukkan
variabel independen organizational stressor dan individual trait, variabel demografi yang signifikan
adalah masa kerja dan status. Sedangkan untuk variabel organizational stressor, pertentangan dengan
rekan kerja dan lingkungan kerja yang tidak baik memiliki pengaruh signifikan terhadap job stress.
Sementara itu Tytherleigh, Ricketts, and Cooper (2007), dalam penelitiannya menunjukkan bahwa
terdapat perbedaan antara usia, kategori karyawan, tingkatan gaji, jam kerja per minggu, terhadap stres
kerja. Karyawan pria dan wanita memiliki kesamaan stress dalam hubungan pekerjaan, keseimbangan
kerja dan hidup, kelebihan beban kerja, keamanan kerja, pengawasan, sumberdaya dan komunikasi, dan
pekerjaan secara keseluruhan. Banyak penelitian telah membuktikan bahwa berdasarkan pengalaman
pekerja wanita memiliki tingkatan stres pekerjaan yang lebih tinggi dan memiliki dampak negatif
psikologis yang lebih tinggi dibanding dengan laki-laki (McInnis, 1999). Kerja cerdas (working smart)
merupakan sebuah pencapaian kinerja yang tinggi dengan memfokuskan pada tujuan dan selalu
menciptakan cara-cara yang efisien untuk memecahkan setiap masalah yang berhubungan dengan
pekerjaan (Jaramillo, Mulki, and Boles, 2011). Sementara itu Sujan dkk (1994), mendefinisikan kerja
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cerdas sebagai sebuah perilaku yang diarahkan untuk mengembangkan pengetahuan tentang situasi
tertentu dan memanfaatkan pengetahuan tersebut dalam situasi tertentu pula. Kedua definisi ini
menggambarkan bahwa secara kontekstual, kerja cerdas memerlukan perencanaan atau persiapan
mental dari karyawan, keyakinan penuh dengan mendasarkan pada kemampuan seseorang untuk
memilik perilaku yang diinginkan, dan kemudian membuat penyesuaian perilakunya dalam berbagai
situasi yang terjadi.
Kerja cerdas memiliki peran penting dalam berbagai model stres, sebab kerja cerdas memiliki hubungan
signifikan dengan berbagai variabel, seperti: kompetensi, efisiensi alokasi sumberdaya, dan orientasi
pembelajaran. Jex (1998), menyatakan bahwa karyawan yang kompeten akan memiliki pengaruh kecil
terhadap stres. Selain itu McFarlan (2003) juga menyatakan bahwa seorang individu yang
mengalokasikan sumberdayanya secara lebih efisien akan memiliki dampak stres yang lebih kecil, dan
mereka dapat secara efektif mengatasi kesulitan-kesulitan dalam pekerjaannya. Kerja cerdas pada
dasarnya akan dapat membantu karyawan mengatasi pekerjaan yang overload, melalui penggunaan
waktu dan energi secara efisien, serta mengeleminasi berbagai konflik yang tidak penting diantara rekan
kerja. Jaramillo dkk (2011), mengidentifkasikan bahwa kerja cerdas memoderasi hubungan antara work
overload dengan konflik interpersonal. Selain itu juga kerja cerdas berpengaruh signifikan terhadap
konflik interpersonal, dan sikap kerja (kepuasan kerja dan komitmen, dan turn over karyawan).
Simpulan: Hasil penelitian ini dapat disimpulkan secara umum bahwa stres pekerjaan dipengaruhi oleh
berbagai tekanan organisasi (organizational stressors). Sehingga dari hasil penelitian ini dapat
diidentifikasi berbagai tekanan organisasi yang berpengaruh terhadap stres pekerjaan khususnya bagi
para perawat di rumah sakit Islam di Kota Semarang. Selain itu juga dari hasil regresi interaksi dengan
memasukkan tiga variabel moderating (gender, masa kerja , dan kerja cerdas), hubungan antara
independen variabel dengan dependen variabel dapat menghasilkan hubungan yang lebih jelas. Dari
kelima variabel tekanan organisasi (conflict, block career, alienation, work overload dan unfavourable
work environment), terdapat tiga variabel yang memiliki pengaruh signifikan terhadap stres pekerjaan,
yaitu block career, alienation, dan unfavorable work environment. Stres pekerjaan pada perawat di Rumah
Sakit Islam di Kota Semarang akan semakin meningkat kalau ditunjang oleh kebijakan-kebijakan yang
mengarah pada penghambatan karir sebagai perawat. Disamping itu juga stres pekerjaan akan semakin
meningkat karena munculnya gejala perasaan keterasingan di antara perawat, dan juga lingkungan kerja
yang tidak mendukung.
Gender memoderasi hubungan antara lingkungan kerja yang tidak mendukung dengan stres pekerjaan.
Bagi perawat wanita yang mendominasi jumlah perawat di RSI di Kota Semarang (81,7%) keberadaan
lingkungan kerja yang baik sangat memperkuat hubungan antara tekanan organisasi dengan stres
pekerjaan. Temuan lain mengindikasikan bahwa masa kerja memoderasi hubungan antara variabel beban
kerja yang berlebihan dengan stres kerja. Beban kerja akan memiliki pengaruh signifikan terhadap stres
pekerjaan hanya berlaku bagi perawat yang masa kerjanya masih sebentar. Kerja cerdas memoderasi
hubungan antara variabel konflik dengan stres kerja. Disamping itu kerja cerdas juga memoderasi
hubungan antara variabel beban kerja dengan stres pekerjaan. Temuan ini mengindikasikan bahwa
hubungan konflik dan stres pekerjaan akan terjadi pada karyawan yang mengaplikasikan kerja cerdas
dengan baik.
Berkaitan dengan block career perlu dikembangkan sistem perencanaan karir bagi perawat yang dapat
memberikan harapan karirnya sebagai perawat. Demikian juga perlu sistem yang mengatur kejelasan
karir bagi perawat. Variabel alienation perlu lebih dikembangkan lagi kedekatan hubungan antar perawat
yang satu dengan yang lain melalui kegiatan yang terencana dan berkesinambungan, yang didukung juga
adanya jaminan bagi perawat untuk mudah berinteraksi satu sama lainnya dalam rangka mendukung
lingkungun kerja yang lebih baik. Sementara itu berkaitan dengan peran variabel moderating, perlunya
mendapatkan perhatian bagi perawat wanita yang berhubungan dengan lingkungan kerja yang tidak
nyaman, karena kaitannya dengan stres pekerjaan sangat signifikan. Selanjutnya perlu kebijakan yang
lebih baik lagi dalam kaitannya dengan beban kerja bagi perawat yang tergolong muda, mengingat
adanya efek moderasi dalam hubungan antara beban kerja yang berlebihan dengan stres pekerjaan.
Terakhir perlu adanya pemahaman dan penerapan kerja cerdas bagi perawat, mengingat adanya
hubungan signifikan antara konflik dan block career dengan stres pekerjaan.
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Environmental Management Practices in Small Batik Industry in Kelantan, Malaysia
Mohd Rafi Yaacob, Nur Faizah Mat Zain, Mohd Nazri Zakaria, Muhammad Ismail
University Malaysia Kelantan, Malaysia
rafi@umk.edu.my
Abstract: Small businesses form a backbone of economy in developed countries as well as in developing
countries. However, at the same time, small businesses significantly contributed to environmental
degradations because they are preoccupied with matters pertaining to business as well their limitation in
resources to look after the environment. In Malaysia, batik industry is one of handicraft products that
contributed significant to the country economy, but the industry has poor environmental record. Yet until
recently, not many researchers in Malaysia conducted in research pertaining to environmental
management practices of SMEs entrepreneurs by using batik as a case. This paper examines
environmental practices adopted by entrepreneurs in their business activities. This study utilized in-
depth interviews with three entrepreneurs in the industry in Kelantan. The results of the study found that
the level of implementation of environmental-friendly practices among batik entrepreneurs were low.
Keywords: Environmental management practices, SMEs, batik industry
1. Introduction
Since the late 1980s, the business impact on the environment has become an issue of increasing concern,
particularly in western economies (Gerrans and Hutchinson, 2000; Robbins, 2001). Usually big
businesses are getting more attention when it comes to their impacts on the environment relatively due
sheer size of their business.In the context of small business, surely ithas very limited operations, but ithas
the potential impact to the environment. Stakeholders and many small business owners believed that
they have little impact on the environment (Lee, 2000; Rowe and Hollingsworth, 1996). Similar to its
medium and big business counterparts, small business’ activities have also contributed to environmental
problems. Although an individual contribution towards environmental problem compare to big
businesses, taking together, they have a very large impact to such problems (Welford, 1994; Tilley,
1999a). In this regard, special attention should also be given to small businesses in order to address
environmental degradation in the country. But, one must bear in mind that small businesses is not a little
version of big business, in regard of their limitations in terms of resources –finance, human and
technology. They need different approaches in addressing the problems.
Sustainable development in business should have itsunique position which balancing both sustainable
production and sustainable consumption ((Weerasiri & Zhengang, 2012). Its responsibility should be
start with pollution prevention then expand into control and environmental design (Chavan,
2005).Sustainable business practices in a company are characterized by environmentally-friendly
practices initiated by a company for the purposes of becoming a more sustainable organization in the
future.Entrepreneurs or the owner managers may first recognize the importance of sustainable practices
in their business activities to ensure environmentally-friendly business. In the case of batik industry,
batik entrepreneurs quite difficult to practiseenvironmental management in productionof Batik because
of their equipments and tools in the production of Batik is traditionally inherited from generation to
generation (Ahmad, Harris, & Seng, 2007).Low phase of technology advancement of this industry add to
this predicament. In Malaysia Batikis classified ashandicraftindustrybecauseitinvolves the use
ofmeans,methods,and tools that usetraditionalandraw materials forindustryrelieffromcustoms duties.
Batik premisesare builtalong the river because ownersintended touse waterfrom riversaswatersources
and then discharge Batik effluence into the river.Batik industries generate a huge contribution to
Malaysia’s economic development. However, Batikactivities also produce large amounts of effluents with
a high concentration of pollutants which required extensive treatment before discharging into the
environment.
Amongst various cottage industries, Batik industry is chosen as a case because a number of reasons. First,
the said industry is responsible for water pollution and according to the latest report by department of
the state of Kelantan compliant rate of the industry relatively low compared with other industries-65%
(DOE Kelantan Report, 2011). This industry produces wastewater or discharge which contributes to
water pollution since it utilizes heavy chemicals. Wastewater from Batik industry contains grease, wax,
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heavy metal suspended solids, and dyes (in painting and coloring processes) (McClatchy, 2011). Second,
Batik industry is a significant industry in Malaysia. It is a cottage industry which is run by Malay
entrepreneurs, largely in the two Malay belts state of Kelantan and Terengganu. This industry not only
provides income for entrepreneurs but at the same time employs thousands workforces in both
downstream and upstream of the industry. The future of Malay craft relies on the survival of the very
industry. So, it comes as no surprise to see why this industry has given more priority by government.
Within the Batik industry, the areas of concern pertaining to the environment include premise
housekeeping such as detachedwetanddryareas, space for Batikstyling, fabric dyeing space, color
stabilization space, removecandle(boil) andmeltingwax space and rinsing and immersion space. Then,
managerial raw materials like providing proper storage of colors and waxes. Next, water, fuel and
electricity usage management and comfortable workspacefor employees in Batik premise. A proper waste
management can include the establishment of drainage system and compliance with occupational health
and safety. This qualitative research study was designed to explore the current level of implementation of
environmentally sustainable practices inthe Batik industry in Kelantan area. The hope is to generate a
more in-depth understanding of what each batik entrepreneur is doing to address this issue, and also
create baseline information on the environmental practices as a whole among Batik entrepreneurs.
Batik Industry Issues: According to Department of Environment in 2011, Batik manufacturing
industries in Kelantan achieved the lowest percentage of environmental compliance (62.50%), and other
manufacturing industries like metal fabrication, leather, electric and electronic, food and drink, rubber
based, Batik handicraft and textile recorded 100% compliance. Low-compliance by Batik manufacturing
was identified due to contributed tothe highest carbon emissions per year among Small and Medium
Enterprises(SMEs) in the country.In the same year, there are 47 premises notspecifiedunderthe
Regulations Environmental Quality (Industrial Effluents) Regulations 2009. 40 of these premises are
Batik industry and 7 other manufacturing premises. Compliance with Regulations Environmental Quality
(Industrial Effluents) Regulations 2009 bynon-designatedpremisesis95.31%. Hence, the compliance with
environmental law by these manufacturing industries could be improved significantly.
As an alternative, firms are obligated to adopt new ways in managing the production process by adding
the environmental factor in the management that is an environmental management and measuring
environmental performance of their industry. This method had already been adopted mostly in European
countries. In the past, most businesses and industries measured only aspects directly related to legal
requirements or financial costs. Towards sustainable development, firms and industries have begun to
manage environmental aspects of their business more systematically. Measuring environmental
performance of the industry is an option to overcome the pollution problem in Malaysia. It shows that the
cooperation from the industrial sector is also vital to implement the plans and strategies to reduce the
pollution. Realizing the negative actions taken by Batik entrepreneurs for implementing environmental
management, Faizahet. Al, 2014 have developed a green model focusing on the Batik industry by
highlighting three options for green strategy such as premiselayout, consumptionof raw materials and
waste management option. The implementation of green industry practices is very profitable for every
part of earth system components. Overall, most research pertaining to small business and environmental
performance was conducted in developed countries (Welford, 1993, Shaper, 2002, Tilley, 1999a, 1999b,
Debby, 2008; Groundwork, 1995; Friedman &Miles, 2001; and Hillary, 2004). A number of related studies
were also conducted in developing countries (Sonnenfeld, 2000; Frijns, Phuong and Arthur 2000; Rao et
al., 2009). However, only a few researchers have delved into this particular research area in Malaysia
(Yaacob, Mahmood&Nik Ismail, 2007, Yaacob, 2010).
Environment In The Context Of Sustainability: An increasing human populations may cause
declination of natural ecosystems and changes in the balance of natural cycles which lead to negative
impact on both humans and other living systems. So that, an initiative called Local Agenda 21 (LA21) was
proposed at the United Nations Conference on Environment and Development (UNDEC) in 1992 (Tonami
and Mori, 2007) for creating the integration balance soon. Sustainable development requires the
integration and balance of three parts such as environmental, social and economic benefits in the
decisions of any development (Atkinson, 2004). The starting point of sustainable development is the idea
that the long-term preservation of our environment, our habitat as well as its biodiversity and natural
resources and the environment will only be possible if combined simultaneously with economic, social
and political development particularly geared to the benefit of the poorest members of society. It finds
expression in the integrated concept of environment and development.
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Environmental Management Practices: The improvements in environmental management practices
can affect a multitude of benefits to SMEs including reduction in waste, cost savings, increased customer
satisfaction, higher employee commitment, improved products, better public relations and competitive
advantage (Simpson et al., 2004). There nine typical benefits of implementing an EMS pointed out by
Shen & Tam in 2002 such as ; fewer fines associated with violations, improved corporate image due to
environmental performance; (3) contribution to the improvement of public environmental standards; (4)
contribution to environmental protection; (5) better overall business competitiveness; (6) fewer
environmental complaints; (7) improved work environment that boosts morale; (8) reduction in
environment-related sickness and injuries; and (9) less environmental risk in air, landand water
pollution. In 2013, Altmets have combined the adoption of two members of Scandinavian and
Ensoniaenvironmental practices. The result found thatalthough there have high environmental
awareness among Scandanian members but they are not persistent in following that on the actual
practice. He prove that Scandinavian members society have more environmentally conciuos than
Estonia.On the other hand, small businesses have therefore been often found to have limited ability and
willingness to engage with the best environmental practices for the issues (Hamann et al., 2009; Spence,
2007; Biondi et al., 2000; Gerrans and Hutchinson, 2000; Hillary, 2000) and they are often highly
dependent on a small number of customers and are thought to suffer from greater constraints in financial
and managerial resource(Williams & Schaefer, 2013).
2. Research Methods
This research drawn samples from population of Batik entrepreneurs provided by
PerbadananKemajuanKraftangan Malaysia Kelantan State (PKKM, 2014). Informants of study consisted
of Batik entrepreneurs who have premises in Kota Bharu and Bachok. All the interviews were conducted
in September 2014. An interview protocol was used to facilitate interviews. In the early part of the
interview protocol consist of questions regarding to entrepreneurs background and premise profiles. In
the second part consists of environmental practices adopted by entrepreneurs in producing Batik.
Questions related to five options such as premise housekeeping, the use of raw materials, water and
electricity usage, good and comfortable work space and waste material management. The interview
protocol were construct based on Green Batik practices provided by the Department of Environment
guidelines which aims to sustainable development in the future prospects. The interviews were
conducted between 30 minutes to 1 hour at the Batik premises. All the interviews were audio-taped with
the consent of Batik entrepreneurs. The data obtained through interviews with the entrepreneurs were
then transferred to word processor verbatim.
The analysis of data was done manually. Coding the questions was based on interview protocol construct.
The respondents were namely Informant X, Informant Y and Informant Z.
The results of the analysis of interview data presented in the form of a narrative form.
3. Research Findings
Demography: Out of three informants, X and Y are male, and Z is female. As far as the highest educational
level is concerned, informants education varies, informant A earned diploma, whereas informants Y and Z
respectively SPM and SRP. The informant A was the youngest, age 27 years old, both informants Y and Z
were in the middle ages – mid forties. Informant A quite new in Batik industry, only 6 years compared
with informant Y and Z who involved in the industry for almost 2 decades. Both informants X and Y yet to
have any children, informants Z had 5 children. In terms of number of employees, both informants X and
Y had 5 employees and informant Z had 10 employees. Judging from the number of employees, it can be
said all of them were in the category of small business. Start-up capital amongst informants varies, the
lowest one was informant Z who parlayed on RM200 almost 20 years ago. This is followed by informant
Y who spent RM2,500 and informant A who spent 4 times higher than informant B. When one of the
researchers asked all the informants of the last reconstruction of their premises, all the informants
admitted that they did not. Table 1 shows a background of informants and their batik premises.
Table 1: Background of informants and their businesses
Informant
X
Y
Z
Respondent Profile
Gender
Female
Female
Male
Highest education
Diploma
SPM
PMR
Age
27 years old
43 years old
47 years old
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Years in current job
6 years
15 years
17 years
Number of children
-
-
5 persons
Business Profile
Number of employees
5 persons
5 persons
10 persons
Capital to run the business
RM10000
RM2500
RM200
Years in operation
1-5 years
1-5 years
More than 10 years
Last substantial reconstruction of
premise
2009
2011
2004
Environmental Management Practices
Premise Housekeeping: In response to environmental initiatives taken by their premisesall the key
informants said that they have adopted separate wet and dry areas. The former for chemical storage, ,
rinsing and immersion space, column for drying fabric.. The laterforBatikdesign color stability, drying
space and office. Then, two of the informants mentioned that their premise did not have space for Batik
styling (menerap) but only informant Y had that . Informant Z explained that he used a space for styling
Batik and fabric dyeing. The same goes to Informant Y, her premise did not separate space for fabric
dyeing because of the small space of her premise whereas Informant X provided a space for fabric dyeing
which the basin of melting wax is located close to the styling space (menerap), the good ventilation space,
and the spaceswere be labelled. Informant X and Y confirmed that their premise did not have a space for
color stabilization. The good space for fabric dyeing means the space provide close to coloring mixes
space, the premise have special shelvesto organize dyes. In contrast, Informant Z uses a special space for
color stability and a space to wash the fabric after stabilised thecolor. The space for colorstability shall
provide a place for drying fabric. After that, two of the informants have two separate spacestoremove
waxes (boiling) waxes.Only Informant Y used the same space for remove waxes (boil) and melting wax.
In response to the space for rinsing and immersion fabric, only one of informant, which Informant Y did
not spare a space for rinsing and immersion, but Informant X and Informant Z provides two different
spaces for rinsing and immersion fabric while produce Batik.
Premise housekeeping
OPTIONS
INFORMANTS
X
Y
Z
Detachwetanddryareas
/
/
/
Space forBatikstyling(Menerap)
/
X
X
Fabric dyeing space
/
X
X
Color stabilization space
X
X
/
Removewaxes(boil) andmeltingwax space
/
X
/
Rinsing and immersion space
/
X
/
*(/) = Yes
*(X) = No
Use of raw materials: Informant X,Y and Z were asked to explain the environmental initiatives adopted
in managing raw materials, two of the informants have a good environmental implementation in
providing colors.The good two informants said that they kept the dye in a closed container and they used
scales to measure the dyes.Agreed with that statement, informant Z said that he kept the dye in the
suitable storage shelves but not labeled. Only informant Y not have good environmental adoption, her
practice have proven by the following statement :
..“There are no scales used for measuring the dyes.I have produced over the years since my first time using
the dye powder. The right measure was found after color the fabric repeatedly through my own observation.
It takes long time to see the stabilize color....”(Informant Y)
In providing fabric area, all of the informants’ response for good adoption in implementing green
business. They cut the fabrics as needed, used the excess fabric to light a fire and take the initiatives to
make products such as blouses, pajamas, shawl and pillow. When they were asked about the use of waxes,
all of them confirmed that they recycled the used waxes. Informant Z said that he recycled the waxes by
using the wax to light the fire apart from the use of wood.
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Use of raw materials
OPTIONS
INFORMANTS
X
Y
Z
a) Providing colors
/
X
/
b) Providing fabric
/
/
/
c) Providing waxes
/
/
/
*(/) =Yes
*(X) = No
Water and Electricity Usage: When the entrepreneurs were asked what the initiative have taken to
reduce the water usage, only Informant Z has used the water effectively, which soaking the fabric in a
bundle, use rubber pipe to drain the water, use the floats to control water levels and the pipe have valve
cover, however, the water tank do not comply with the size set by government stakeholders.Informant Z
agreed that the float is very important for blocking the water flow from flowing out. Informant Y decided
to soak the fabric one by one and it caused waste water. In the response of electricity usage options, two
of the informants (Informant X and Informant Y) have least practices for reducing the electricity usage.
The environment in Batik premises was constructed in the poor lighting. Most of the premises were built
in the closed area and it caused the workers to use the lamp while produce Batik. Only Informant Z
installed the transparent roof to have good lighting practice.
Water and Electricity Usage
OPTIONS
INFORMANTS
X
Y
Z
Reduce of : Water Usage
X
X
/
Reduce of : Electricity Usage
X
X
/
*(/) = Yes
*(X) = No
Comfortable work place: When all the informants were asked in response about the comfortable work
space while working on the Batik premise, all the informants do not have good ventilation in their
premise. According to Informant X and Y, they need more space to adopt the greening aspects. Informant
X said :
..“I built premises on a small scale and still not able to take the initiative to green Batik.It is good if there was
more space. Now, there is no place to store the chemicals and others”..
Good and comfortable work space
OPTIONS
INFORMANTS
X
Y
Z
Good and comfortable work space
X
X
X
*(/) =Yes
*(X) = No
Waste Material Management
OPTIONS
INFORMANTS
X
Y
Z
Drainage system
X
X
/
Recycle
X
X
X
Occupational Health and Safety
X
X
X
*(/) =Yes
*(X) = No
When all the informants were asked about their waste material management, Informant X and Y
confirmed that they do not have a drainage system to be discharged into an Effluent Treatment
System.Only Informant Z said that his premise has small drains to discharge the wastewater into the river
and drainage system is in good condition ( no rubbish in the drain).Both Informant X and Informant Y did
not built a gradient and cement flooring in their premise. In the response of recycling option, all key
informants mentioned a type of practice that not adopted in environmental practices. This involved a
variety of recycling efforts, including waxes, plastic bag, water recycle and excess fabric. In occupational
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health and safety options, all the informants (Informant X, Informant Y, Informant Z) said that their
premise did not have motivation to encourage the employee for using appropriate clothing such as
mask,apron, glove and shoes while control the chemical, dyes, waxes and so on. In addition, all the
informants’ premise did not provide a fire extinguisher in the premise and kept in the right place and
trained the employees to use the fire extinguisher.Then, all the informants did not provide the nail cover
on the pemidangbesi.
4. Discussion and Conclusion
This research has generated some interesting findings and contributed to inherent knowledge about how
Batik entrepreneurs adopt environmentally friendly practices in their businesses. First, among three
Batik entrepreneurs, Informant X and Informant Z have good practicesfor housekeeping. They
establishedseparatespacesfor various activities such as styling (Menerap) space, fabric dyeing,
colorstability, space tor remove waxes (boil) and melting wax space and rinsing and immersingspace.
Second, practice was proper section to store usage of raw materialssuch as fabric and wax.In this option,
all the informants adopted highest practice for those raw materials exceptproper storingcolors. The
entrepreneurs did not keep the dyes in a closed containers and did not use scales to measure and weight
dyes accordingly. Third practice related to usage of utilities - water and electricity usage. The informants
have least practice of minimizing water and electricity usage. As far as research is concerned excessive
usage of water was common practice. For example like soaking fabric, was done piece by piece. Rubber
pipedid not use to control excessive flow of water. Water float switch for water level controller and faucet
did not have valve cover. As far as electricity is concerned, Batik premises were constructed near
entrepreneurs’houses or extension of their houses. As a result of not properly designed, electric light
needs to be apply all the time during production of Batik, this will increase consumption of electricity.
Little efforts had been done to reduce usage of electricity. Fourth, most of the informants did not establish
good and comfortable work space. Perhaps informants did not perceived size of workplace l space of
premise and good ventilation in their premises as crucial, or lack of capital prevent them to provide better
working environment.
Last, all the informants seem not to mmanage their waste materials either solid of liquid. They did not
have a proper drainage system to discharge Batik effluent. If they have drainage system it was not in
good condition (rubbish chocked drain), floorsof the premises were not properly covered with concrete.
Furthermore, a variety of recycling efforts includingplastic bag, water recycle and excess fabric recycling
were least observed.None of entrepreneurscomplied with occupational safety and health requirement.
They did not prepare safety equipments and let alone motivate their employeesto use appropriate
clothing such as mask, apron, glove and safety shoes when dealing with chemicals, dyes, waxes and so on..
None of ofthe informantshad kept and trained their workers to use the fire extinguishers. As a
conclusion, Batik entrepreneurs in Kelantanshowed lowenvironmentally friendly practices .
Understanding this situation is crucial to develop a proper mechanism to increase awareness of
entrepreneurs on the importance environmental management in Batik industry. Exposing entrepreneurs
on negative sides of the industry to the surrounding is also helpful, realising this effect can change their
mindsets and in turn motivate them to address the problem. Listening to their predicaments is also
helpful to address the problem. As far as result of this finding is concerned, low environmentally friendly
Batikpractices required long and hard way to push them to the next level. Sustainability of this industry
requires proactive efforts from entrepreneurs.
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Individual Psychology as Component of Entrepreneurial Process: The Cognitive
Perspective Contribution of the New Venture Creation among E-Commerce
Entrepreneurs
Ahmad Firdause Bin MdFadzil, Mohd Rafi Bin Yaacob, MohdNazri bin Muhayiddin
Universiti Malaysia Kelantan
ahmad_firdause@yahoo.com
Abstract: Studies on entrepreneurs as one of the main components contributing to entrepreneurship
particularly for new venture creation processes, has been widely highlighted by previous researchers. An
entrepreneur is the main actor in entrepreneurship based on how they thinkand make decisions. Most
previous researchers studying the cognitive aspects of the entrepreneur have looked at the process of
creating new ventures in general, but research focusing on creating e-commerce businesseshas not been
investigated much at all. The aim of this study is to identify how the role of cognitive characteristics of e-
commerce entrepreneurs has contributed to the creation of new e-commerce businesses in Malaysia. This
research uses a case studies approach in which data was collectedby interviewing a total of twelve e-
commerce entrepreneurs from May 2013 until December 2014. The findings of this study have found the
contribution to the creation of new businesses by cognitive entrepreneurs in e-commerce in Malaysia is
based on personal background (i.e. education, family) and experience in a previous work &business that
facilitates their creation of new businesses. Therefore, the government's role in encouraging
entrepreneurial activity in the country needs to emphasize elements of entrepreneurs’cognitive abilityin
order to enhance the economic development of the country through the emergence of new business in e-
commerce in the future.
Keyword: Entrepreneurship, psychology and e-commerce
1. Introduction
The research of entrepreneurship has begun debatedsince some issues thathave beenhighlightedby
different perspectives and definitions ofthe new venture creation.Per Davidsson (2005, p. 1)referred to
several definitions by previous researchers regarding the phenomenon of entrepreneurship amongst
others as new entry (Lumpkin &Dress, 1996), the creation of new enterprise (Low&MacMillan, 1988),
the creation of organizations (Gartner, 1988), a process of creating something different with
value(Hisrisch&Peters, 1989). However, all these definitions highlighted creation of organisations,
therefore, this studylooksthe definition of the term entrepreneurship as referring to the creation of new
organization based on the William B. Gartner (1988) to answer the question" How does an organization
come into existence" which involves a complex processthrough theinteraction of the variouscomponents.
Referring toR. A. Baron (1998),cognitive and reasoning of thinking are the mechanisms in
entrepreneurship which in many aspects answer questionswhy and when entrepreneurs think diffrently
than other people to pursue opportunities for creating new bussiness?. The different human cognition
prosesesare caused of information they are receivedfromprevious experiences and/ or personal
backgroundwhich greatly influencetheir personal judgment and decision to start new creation. The study
of cognitive perpective is a valuable tool for answering entrepreneurship’s basic question “why”(R. A.
Baron, 2004). The basic question in entrepreneurship according to R. A. Baron (2004) is why do some
choose to become entrepreneurs and why some can recognize opportunities to create the new
organization and other do not. . The capabality of cognitive process between entrepreneurs compare with
others leads to decision to start new venture creation.
Studies onentrepreneurshipparticularly regarding the new venture creationine-commerce is stillless
investigated by manyprevious studiestofind outthe question how doesanorganizationcomeinto
existence?Therefore, the aimof this studyistoidentifyof howthe role ofcognitive domain of e-commerce
entrepreneursas oneelementinthe individual componentsthat have contributed to thenew venture
creation inMalaysia. Generally speaking Dheeriya (2009)describesthee-commerce as any
ventureconductedsolelyontheinternetortheWorld Wide Web.E-commerce businessis different compared
tothe brick-and-mortar business because its nature of business usesmainlyoninternetandtechnology-
basedcomputer systems. According to him, the conceptual framework concerning online
entrepreneurshiphas yet toformallydevelopedto date comparedwith regular entrepreneurshipis
oftendebatedbymanypreviousresearchers. William B. Gartner (1985)explainsthat theprocess of new
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venture creation islikely tovary according tothe type of business, industry or specific entrepreneurs
which affected the emergence of new business. Therefore, there is a crucial important to know regarding
how the role of the entrepreneur's cognitivecan be relatedto thecreation ofnew ventureine-commerce.
Based onprevious studies, entrepreneurship can be explained as a factor thatcontributes toeconomic
developmentina country(Carree & Thurik, 2005; Wennekers & Thurik, 1999). The phenomenon
ofentrepreneurshiphavean impact onmarket activityoreconomic system(P. Davidsson, 2008, p.
10)through the creation ofwealthor the creationof asomething value(Drucker, 1985; Morris, 1998)andhas
encouragedthe creation ofanentrepreneurial activityforproducts and services(Shane, 2003). Although
entrepreneurship does not include as part of resources of a contry, many scholars agree that
entrepreneurs and enterpreneurship are the engine of economic growth.
Until lately, with the advance of ICT and telecommunication e-commerce and related business co-existed
with it started flourishing and many have embraced on e-commerce due to its advantages. This is evident
as contributionof e-commerce entrepreneurship keeps increasing and at the same time manages to
reapbillions of dollarsand at the same time erodestraditionalbusiness chain. Indeed it now has becomea
significantcomponentof theglobalsalesrevenuegrowthfirms(Dheeriya, 2009). Reported by
vernacularSinarHariannewspaperonJuly 30, 2013by interviewed withMr. Azizan Mohd Findithe General
Secretariat of Planning and Coordination Commission has clarified the tradeine-commerce in Malaysiain
2010 until 2011, counting for almost two billion dollars and an increase to three billion dollars in
2012(Mohd Firdaus Hashim, 2013). Althoughnoaccurate figures forexplainingthe number ofbusiness
entities thatconducted e-commerce business inMalaysia, but the numbersof threebillionRinggit
contributed tothecountry's tradein 2012clearlyshowsthe emergence ofnew businessine-commerce
inMalaysiaare very encouraging. Sinceen trepreneurship is theengineofeconomic growthina country(R. A.
Baron, Shane, S., 2008, p. 8; William B Gartner & Bellamy, 2009, p. 34)through the creation ofnew
businesses, job creationandinnovation, many researchershave beeninterested in exploringissueswhyan
entrepreneur decided tostart anew businesswhich isnotto others(David M. Townsend, 2010). Therefore,
raise ofinterestof many researcherson entrepreneurship domainlooks at the roleof cognitive process that
has influencedthenew venture creation.
2. Methodology
Altogether twelve successful entrepreneurs who were highlighted by the Communication
Commission(MCMC) 2013 were interviewed using purposive sampling as method of sampling.
Entrepreneurs who were interviewed varies, involved invariety of sectors such as business involvement,
gender, location and historical background ine-commerce business. All the twelvee-commerce
entrepreneurs interviewed are in small and micro enterprises (MSE) which has anumber of employees
not exceeding 30 or total sales not exceeding RM30 milliona year. They activeine-commerce business,
runningfull-time business and thei rbusinesses have been operating between one to sixy ears. Interviews
were based onsemi-structured questions Each interview was audio-recorded and transcribed verbatim
immediately and Analysis of the interviewsproducedtentativecategories orthemesto answer the purpose
of study (Merriam, 2009, p. 171). In the early stagesof data analysis, researchers inductively discovered
tentative themes based on research questions. After th etheme built, researchers made acomparative
analysis of the data that emerged among in formants in categories. According to Merriam(Merriam, 2009,
pp. 178-193), there areseveral steps toanalyze thedatainductively(category construction) whichbegan
withopencodingona passage inthe interviewtranscriptsthat are relatedtoanswer the research questions.
After that, thecodingl inserts to one category(the groupingofopencode)or calledaxialcodingbyCorbin and
Strauss (2008). The early stage of developing themes involved three stages processes: opencoding, axial
codingandselective coding. This approach is the same withthegroundedtheorymethodbyCorbin and
Strauss (2008). Referring to approachby Corbin and Strauss (2008)tentativethemesbegan
whenresearchersstartto analyze the data withopencodingto identify thepassagesin the transcript ofthe
interviewislinebylinefrom eachinformantfor the themes construction toanswer the research questions.
Then,after refinement of the transcript of interview, opencodingwould beplaced undertheaxial coding
“codingthatcomesfromreflectiononinterpretationandmeaning”. Inanother words, axial coding is derived
from several open coding that has been constructed and has almost the same meaning reflects a
particular theme. Next, a third process was to build selective coding of the main categories, comprising
several axial coding, which supported theconstruction ofthemain categories.
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3. Finding
The findings of the study basedon fifteen interviewsidentified fouramong twelve entrepreneurs
associated their previous education contributed the new venture creation in e-commerce. Education,they
received play very important roles as the basic guideline before theymade decision to startnew business.
Previous education gave them basic ideas to create new business and how to manage theirbusinesses
with good strategies.For example, accordingto informant nine (P9), her previous study at MMU wasa
good flatformto get knowledge about graphic multimedia and digital media skills - basic abilities to start
new venture in e-commerce
“Yes (previous study).My previous study atMalaysiaMultimediaUniversity(MMU) helped me a lotin this
business.I am very… likethe computer.It is highlyimpactbecauseduringmy studies,I was taughtaboutgraphics,
multimedia anddigitalmedia.SoIcancreategraphics, takepictures, editthe pictures.Ican do it. Soduringthe
early stages ofstartup mybusinessthat knowledge really helps me.all aboutgraphicskills. This is
onlinebusiness. All about image”
That basic knowledge received from previous study atMalaysia Multimedia University (MMU)refers to P9;
was applied during startupduration in the e-commerce business. She did allthe basic requirements
needed in e-commerce business based on basic knowledge that she acquired beforehand.
“Justexpertise, meansthe knowledge Iacquired duringmy previous study.Iapplied that knowledge to startup
my businessonline. In termsgottaimage, updatethe image.Thenhave to findinformation tointernet. That
knowledgeindeedhelps me”
Sharing same opinion with P9, referring to informant eleven (P11) she also learned a little-bit about
marketing strategy and branding. That knowledge was applied in order to help her in starting new
business
“My previous study can be use tocreatemybusinessnow. SoIknowlittle-bit about marketing and branding.
When I want to startup my business, I canrecallbackthe thingsI learned before. Oo..Ilearned about this
before. I learned about the targetmarketing,marketreach.I learnedaboutbranding, wordofmouth.
Likethat.SoIcanuseback formy business”.
Degree in Hospitality at UITM gives her an advantage to starting new business because she know the
basic a knowledge of marketing strategy
“Yes. That is influenceis (previous education). Itmay be anadvantageto me. Maybe not all people
learnedabout brandingright?Sois anadvantageactually. How Iam going to make customerrememberand
know about our business”.
This pattern was clearly discerned, according to informant number three (P3) she also degree holder
from Malaysia Multimedia University (MMU) in computer digital art (same college with P9). She was
exposedin e-commerce as compulsory subjectsat the said university.She also claimed almost all MMU
students involved in e-commerce business after graduated because they already exposed with basic
knowledge of e-commerce
“Ihavea degree inComputerDigitalArtat Malaysia MultimediaUniversity. I was studyatMultimediaUniversity.
Beforethat, Iwassupposed tostudy in UnitedKingdomin the architecture. Butthe economiccrisispada1997I
think.When IfinishedSPMin 1996, I enteredforAlevelin 1997. So, because of got theJPAscholarship. So
weshould notbetoUK. Sotheyoffered me toMultiMediaUniversity. SoI study the ComputerDigitalArttill
graduationinMMU”.
“Iexposedsince study of theMalaysia MultiMediaUniversity. Soifyou know manystudentsfrom Malaysia
MultimediaUniversity (MMU) starting the businessonline. We are alreadyexposedto doing the business online
since at university.Thatis good advantage we arestudied MMU”
Difference situation with informant number two (P2), He is not a degree holder but only had
highproficiencycertificate in technical designer at IKBM–training institute. During his stint at the
institution, helearned a lot of things about how to design the product base on steel meterial. The basic of
skills can be applied for wood-basedprodukwhat he had done in the current business.His expertise in
parang(machete) maker, selling the product via e-commerce starting year 2009. Recallingthe
memorieswhen he firststartedbusinessbased onwood-basedproduct, he had no any experience to make
“parang” because never see before how people do it. With basic skills as steel-based designer he tried to
make parang from learning from other who is an expert. After that, he able to made parangtogether with
its casewith good quality, surpassingcustomers’ expectation. After 5 years operated the business he
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gained confident to penetrate potential market via e-commerce after realized the huge opportunies
through e-commerce business in 2009. In another case, heis also ex-student Islamic religious school in
Seremban Negeri Sembilan. Whilein schoolheused to learnaboutthe importanceof Muslimsdoing business
tochange their lives.Therefore, hewanted to bea successful entrepreneurin the future.Technological
changes especially in internet hithertohas encouragedhimtopursue his dream and seizedopportunities by
establishingnew firm in e-commerce totap untapped market due to burgeoning industry.
Second cognitive factor related to personal background also contributes to the new venture creation
among e-commerce entrepreneurs because of family life history involved in business. Tacit knowledge
that they acquired and accumulated within their mindset strongly embedded due to such
entrepreneurship environment. Conscious and subconscious mind about early exposure to business that
sparked during the early venture creation could be considered as their advantages that not easily gained
by others. Seven out of twelveentrepreneurs were interviewed,concurred that their entrepreneurship
much related with family history as a significant factor in business startup.Referring to informant number
one (P1); he has a sister and brother who also involved in business. His mother was the founderofkapok
pillow more than 20 years ago in his hometown. After his mother retired in 2006, that company was
taken over by him until year 2011, whereh first year his business via e-commerce was started. Having
agreat motherasthe founder of thecompanykapokpillow producerin the village; his late grandfather is the
pioneering who started business in rice processing plant in Alor Star, Kedah. In year 2011 where internet
infrastructure accessible in his howntown, he started torealizingthe potential of e-commerce and
interestedin exploring more details how to expand the market share.
“..When we have an own product to sell the customer, the main focus is how arewe going tobe market the
product? That's influencemy decissiontodothe businessonline”
“..Now times change, people now are using broadband internet facilities to make their life easier. So from
there I took the opportunity to market online”
Referring to informant number twelve (P12), his wife family is from family business background which
motivated him to participate to join them in the business. As for informant number ten (P10), his father
was small business entrepreneur who used to sell traditional cakes around their village.Although his
father not so successful businessman but that situation does not prevent him to be an entrepreneur, but
always motivates him to be successful businessman. Family background playsan important factor for
ones to be an entrepreneur because ones familiar with suchsituationand become part and parcel of their
life. In other words such as a candle flame that burns inside just waiting to burst to become
entrepreneurs, sooner or later. According to informant number five (P5), he likely born to be a
businessman because almostall his family have owned businesses.
“What I saidearlierI was borntobeabusinessman ... mybloodflow ... is an entrepreneur, becausemost
ofmyfamilyis businessman”
He informed the researchers that while he was a child healways helpedhis mother business during school
break. Later, that experience gave himmore confident and brave enough to embark on his business on his
own.
“It basicallyteachesme… brave, moreconfidentwith yourself”
Informant number eleven (P11) mentioned in those days she always helped her mother to sell tradisional
biscuits especially during hariraya. That situation that she experienced in early life has causeda great
interest in her to be an entrepreneur. During study inonce of many UITM campuses, she polished her
entrepreneurship capabilities, unlike other students she was very active in business
“..It was effect(family background).Yes..Mymother is very active to make the biscuits especially during
hariraya celebration. She makes the biscuits frommy villagetradition. Not at hariraya celebration only but
my mother also receiveda large quantity of demand with sold a thousand of peiciesto madedoorgiftand so
on. So it’s maybe aboutthe blood flowing (sprit of business). But what Inoticedis actuallyfrom standard
six,Iwaskind ofperson excitedto sell goods. Evenbeforecreatethis businessIwassoldcookiesthat I has
mademyself during my study in UITM. AlthoughI am not got a lot of moneybutIenjoyed it.Actuallyit
moreabout theinterestsand not just to be business follower orI wanttoget moremoney ...”
Out of twelve entrepreneurswere interviewed, only threeentrepreneurs reiterated that failing to get job
that they applied pushed them into the world of entrepreneurship. According to informant number
twelve (P12), he started his new business because of job opportunities in Malaysia werevery limited
based on his qualification.
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“One reasonI startedthis business because ofemployment opportunitiesinMalaysiaislimited. Ilookedat the
limited jobbecause of what? Wheni'm donemymastertried tofindwork, verydifficult. So, I seewhy I amhaving
masterevendifficult to getwork. The reasonI was freshieandnoexperience. I thinkthereis indeeddifficult to
getwork. Soiftheydo notgivethe jobto me, Ihad tochoosemy ownwork to doing business”.
Similarly informant number ten (P10) was unemployedabout a few years before he started his new
venture.
“SowhenIfinish my study, Iwasunemployed. Itried all kinds ofjob. I am worked as canteens school assistant
and helped my father at market night. Ialso work as sales man walk home by home sell to the product. The
work likepeople saythere is norealmeaning of life. I did not meetthe truemeaning of life. After unemployment
my age 21untilage 25,I have doneall kind ofwork whilestay in my village. Peopletalknoreallife. Thereis no
moneysometimes”.
Previous working experience of informant number two (P2) hadcontributed very significantly for the
new venture creation in e-commerce. Hislast previous work as a technical assistant,he work as designer
and foreman inthe factory that he was exposed with computer skills since a monochrome computer to
done the rotuine work. The basic knowledge of computer skills gave him an advantage to start new
business especially in e-commerce that much dealing with computer.
“I realize my previous work is the greatest experience to start new business in e-commerce. I already know a
computer since my office used computer as black and white (monochrom). So we use monochrome. Allthe
same, it’s hard. Since DOS to the monochromwe already use computers.After I resign my job, I was started
the new busness in my village without involved in the computer anymore. Suddenly my village had reached
to excess the internet; I was bought a new computer because I know the potential of e-commerce in my
business. I already know and used the computer before although the software is so difference. I learn a lot a
computer because I know that I can get a lot of benefits from that. I spent the money to learn back about the
cumputer. I realize my previous work as factor to start e-commerce compare with those did not have basic
experience in computer and did not realize the potential of e-commerce.So maybehefeltconfused whether it
can generate the money,facilitated or worth to do investment. At the time there is no internet coverage in my
village and maybe I am staying in town my business futher. So, I spent money learn and bought computer. At
that time I was subscribe the broadband by telco provider”
“..Justmy experienced,I amworked infactoryandas designerneed to use the computer. It wasthe
biggestcontributing”
An experience of entrepreneurs in previous business is oneof basic elementscontributinga new venture
creation via e-commerce in Malaysia. Some of e-commerce entrepreneurs startedwith other business
before establishing a new e-commerce enterprise. In this casethe first informant (P1) hasexperienced in
brick and mortar business since year 2006 andemphasized the most important aspect in business is how
to market the product.Viable marketing strategy he realized to sell product is via e-commerce
“I had experience (business)... The first time what I see,what I saidat the beginning is aboutthe marketing.
Marketingis veryimportant. My experience (brick and mortar business), ifwe have product, we need tosell
that product.Howare we going tosell?For whomare we going tosell?Thatquestionwe needs to be answer.
That is issue we need to think
Base on his experience in business, he argued that if entrepreneurs interested to sell products beyond
local market, they need to explore in detail about business online because such platform able to reach
huge number of potential customers.
“Based on my experience what I hadsaid; e-commerce can able to market the product to outside. Sothrough
theinternet, we can the marketto the outside.So if beforewe are only at local market like a Pahang, Perak.
Butby doing business online wejust onlyshipment theproduct to customer via post nationwide.Thusitgreatly
simplifies”
Informant number twelve (P12) also involved in other business before establishing new e-commerce
business in year 2012. He startedthe business in KL
“Before axistingmy business online I am always joint business in bazaar. I was going toeverywhere.But
beforeI am to thebazaar, Ialsousedthe onlinetotell the customer that I went to opena small shopin bazaar
ateverywhere in Kuala Lumpur. At that timeI am still a single, all the stock was storeinmyhouse. If I
wenttoopensmall shop in bazaar,Iwill handle alone in car, movingalone. It’s very hard atearly stage of my
business”
The same situation was observed with informant number ten (P10), who had many experiences in others
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businesses before deciding to establish a new business based on cosmetic products. He involved
inconsultancy and trading business for 7 years, started in year 2006 and end in 2013, he established
current company in 2014
“Before thisI wasin trading(business). Iam also asconsultant, businessconsultant. I was a trainer in IPTA
(public university) andIPTS (private university). Manyuniversities callme totalksharingin an
entrepreneurshipissue.BeforeI am creating myown product,I was sold product others peopletoo.I was started
sold from other people's products before created my own product. I was involvedinthis businessstart
fromyear 2006but seriously in year 2008.So, I resign my job. Because at the moment I still worked, soI
stopworked. In year2008 Isold freelanceas fulltimebusinessfrommy home. Operatein home. So, last yearI was
setupmy newoffice”
Healso experience e-commerce when he manage to sellhis product via online through ebay.com tofor
international marketbefore establishing new company based on cosmetic product in 2014. He
alreadyknowledgeable about how to market his products via online
“A lot of kind of business I had tried. I had sold all kind of things involved the consumer products, household
and accessories. Istartmyfirstproduct by sellingtooverseasmarket. I soldin e-bay. SofromthereI got all
thetheexperienceandthenstart with training what I mentionearlier. I teachpeoplehow toebaybusiness. I
encouraged people to sell their product in oversea market.It is so many platforms in business online.
Platformwhat I am explainedthatalmost 95% percentforonlinebusiness. So, manyplatform suche-bay,
mudah.my, facebook, blogs, website, and also e-commerce”
Informant number five (P5) has started business since he studied at a local university when he identified
opportunities to solve students problem. He realizedthe opportunities to sell the printing t-shirt for
student which is stock ready to madefrom outsourcingsuppliers. After that he also tried to involve in
other business such contractor and trainning before he established e-commerce printing company in year
2011/2012. The same situation with informant five (P5), informant number two (P2) tried all kind of
businesses after he resigned the job in 1998. He involved inmany businesses such asfixing mechinery,
plumbing, and welding workshop but all fail. According to him experienceswere helpfulin business,
especially how to manage and treat customers with respect. His earlier experience can be also applied in
e-commerce business.
“But the experiencedinterms ofbusiness principles. That meaning itmorecontributed to thebusiness
principles, wecan also applyittoonlinebusiness. Business online is easierbecause we do notto directly
dealwith customers. Weare nottalking directlyface to the peoples.Sowe justwrote,if the word are not
properly used wecandelete it. That is difference. We canreadwhat we want toposting. Readour used word
nicely before to post to the customer. So compared tobrick and mortarbusiness, if we've mistakenlytalk, it
hard tobackwards. It hasnothing to do, right? Soit morecomfortable”
In the same vein, informant number four (P4)started in business since she a single whenreceived the
ordersto sew traditionalclothes for customers in her village. At that time the interestin the business
started whenshe wasthinking of the future.So she started business in traditional bakery in year 2005. She
realizedthe potential market by sellingltraditional biscuit via online market and planned to establish the
e-commerce company in year 2011. As for informant number eleven (P11) andeight (P8), they had the
business experience since their studies at universities a few years ago. Informant eight(P8) started
business online during last semester of her study at Universititeknologi MARA (UITM),she realized the
opportunities of online business at the time.
From started of business (business history)? Ok, I actually start from the time that I was study in a degree of
tourism at UITM Shah Alam, last semester. I see at the time business online stillnot established.So I tried to
start, at that time people did not know about online business. I only sell produk via blogs.Offer by blogs. But
at the time no customer but just to try see how the businessonline. I only that time started the business online
becausemany people still does not know about business online. At that timeYuna (celebrities)selling the
product via online but she has not become an artist. She was selling clothes like that. Sugarscarfis also the
pioneer in business online. So shestarts first. I did not sell the hijab at time but one drop perfume, clothes.
After that in year 2009 my friend told me try to sellthe scarves because it had lot of potential. Some people
are not wearing a scarf yet. After that, I try to sell. Alhamdulillah the response was ok; a lot of people are
bought it. At the time I had no capital, one week I can make a profit 500 or more like that. At the time also I
saw business online had good opportunities for the future. I was determined after finish the study I will
continue to do business online.
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Discussion: Human cognition prosesses are caused by information they are received from previous
experiences and/ or personal background which greatly influence their personal judgment and decision
to start new creation. The findings of this study it isclearly demonstratedthat cognition in which very
much related with cognitive perspective of thinking and reasoningof an entrepreneurhas agreat influence
on the new venture creation ine-commerce inMalaysia. The cognitive rolessuch as personal background
due to family involvement in business and personal experiences pertaining to information, computer and
technologyhave been recognised as important elementstoinfluence the creation ofnew businessesbye-
commerce entrepreneursinMalaysia.The framework of cognitive perspective which is paramount
important for early new venture creation in e-commerce is shown in table 1
Figure1: Cognitiveas anindividual component thatcontributes to the new venturee-commerce
entrepreneursinMalaysia
Based on the figure1, its shows the roles of cognitive perspectiveemerge from to two main factorsthat
related to new venture creation in e-commerce in Malaysia. First main factor related to the roles of
cognitive entrepreneur is personal background such previous education they are received and family
background. Second factor refer to cognitiveentrepreneur’sare related with previous work and business
experience of entrepreneurs before decision to start e-commerce business in Malaysia. The personal
historicalbackgroundsuch as education where they are received before started their business play very an
important factor to lead their decision for creating the new business in e-commerce. Education gives
them information to generate basic ideas and awareness on how to start the new business in e-commerce.
The families backgroundsalso an important in business as influential factor to the new venture creation
among entrepreneurs. Family background in business gave them the information and exposure about the
business experience since they areyoung especially about how to create the product and manage the
business.
The work experiences also play significan factor leading ones on the new venture creation amongs e-
commerce entrepreneurs in Malaysia. Their previous work experienced gave them the knowledge
especially in computer; it is a basic to establish the e-commerce business. There
werealsoamongentrepreneurswhohavehardexperience offindingthe workthat encouragesthem to start
the newe-commerce business as asource ofincome in the life. There werealsoentrepreneurs whohave
hadvariousexperiencesinother businessbeforestarting an e-commerce. Theyalready hada strong
foundationin thebusinessessuch the basic knowledge from others business experienced as basic ideas to
create new e-commerce bussines. In the conclusion, the personal background such as education and
family background and also the work and business experience play important roles in
cognitiveperpective becauseitprovidesa usefulsource of informationfor entrepreneursto start the new
businessin the futurecompare who thosedo nothave any information about thebusiness.
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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The Weak of Control Systems Result in the Emergence of a Number of Problems within
the Organization
Muhammad Ja’far Shodiq
Sultan Agung Islamic University, Indonesia
mjafarsyah@unissula.ac.id
Abstract: The weak of control systems result in the emergence of a number of problems within the
organization. In contrast, the control system that is too tight cause the appearance of action that it is
counter-productive, such as increasing of cost of control systems design and decreasing of flexibility and
innovation. The control system is able to reduce the risk of management by identifying problems and
provide the best chance for corrective actions. Thus the control system is closely related to the
organizational performance. Previous studies have shown that the impact of the control system on
organizational performance is not directly so, but there is a contextual variables that affect the
relationship between control system and performance. Unfortunately, commonly some previous studies
use a non-systemic approach, so that the effect of all contextual variables on the relationship between
control system and performance does not describe the real conditions. This study was done to examine
the effect of contextual variables on the relationship between control system and performance by using
system approach. Compared with the selection and interaction approach, the system approach is better in
providing solutions to the complexity of multidimensional relationship problems. The model in this study
is built on three main variables, namely Contextual Variables, Management Control Systems (MCS,
Organizational Variable), and Organizational Performance. Contextual variables consist of Perceived
Environment Uncertainty (PEU), Job Uncertainty (JU) and Company size (Size). Sample suddenly stand up
of a number of medium and large manufacturing companies in Central Java, and the sampling is done by
using purposive proportional sampling. The hypotheses are tested using multiple regression. The results
showed that the PEU, JU and Size are moderating variables on the relationship between MCS and
organizational performance. The relationship among contextual variables, organizational variable, and
organizational performance is not simple, but there is complex and systemic relationship.
Keywords: Perceived Environment Uncertainty, Job Uncertainty, Company Size, Management Control
System, Organizational Perfromance, System Approach
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Factors Influencing Trends Against Fraud (Fraud): Employee Perceptions of District
Kendal
Dedi Rusdi, Zulmina Kumalasari
Diponegoro University, Indonesia
Student of Sultan Agung Islamic University, Indonesia
edirusdi70@gmail.com
Abstract: Government agencies is one of service to the community to realize the achievement of good
governance in Indonesia. However, in reality many of the staff members who commit fraud. This research
is aimed to explore the perceptions of employees in government agencies about factors that impact fraud
such as the effectiveness of internal control, information asymmetry, the suitability of compensation,
organizational commitment, leadership style, organizational ethical culture compliance to accounting
rules, and law enforcement. The sample in this research were 166 employees of government agencies in
the Kendal Regency. Data collection using questionnaires. Data analysis in this study using a model full
analysis Structural Equation Modeling (SEM) with smartPLS analysis tools. The results showed that
internal control effectiveness, information asymmetry, the suitability of compensation, organizational
ethical culture, compliance to accounting rules, law enforcement affected with fraud significantly. But the
research showed that organization’s commitment and leadership styles did not affect with fraud. The
advice given in this research to government service in Kendal that is expected to be more transparent
abaout financial statements to the public, giving the reward employees for their work, the leader explain
to more clearly convince the direction and purpose to the goal of organization. It is also suggested to next
studies for making research in bank, private sector, trading and manufacturing company, another finance
company are trend with fraud.
Keywords: Fraud, Perception, Goverment Sector
1. Introduction
We often hear and read articles and news about the indications of fraud or fraud / irregularities in a
company or government agency that is committed by the employee / employees. The rise of the news
about the investigation of the indications of irregularities (fraud) in the state management of the
Company and also of going to press and television increasingly made aware that we have to do something
to correct the irregularities. Fraud or cheating itself is an act against the law by people from within or
outside the organization, with a view to personal gain and or group that directly harm others. Laymen
often narrowly interpreted that fraud is a criminal act or acts of corruption. The tendency of accounting
fraud (KKA) include various forms such as the tendency for corruption, the tendency to misuse of assets,
and the tendency to deceive financial statement (Thoyibatun, 2009). In the public sector, forms of fraud
(fraud) in this case is a corruption such as leakage. In this case it is the case with regard to local
government Kendal. In the news reported by www.tabloidlidik.com mention the findings of the
Indonesian Forum for Budget Transparency (Fitra) said, that the Kendal district ranks first in Central
Java, the most common irregularities during the 2013 budget of 35 Regency / City in Central Java,
Allegations of misappropriation of state funds in Kendal is estimated at 200 billion over the 94 cases.
For example, according www.beritakendal.com, occurring within a deviation of local budgets (budget)
involving a civil servant (PNS) Department of Highways, the SDA and the ESDM Kendal and two
contractors in fiscal year 2012 which led to loss of 200 countries million dollars. Another case was
conducted by the former marketing manager of Kendal Town PD BKK mode with embezzling clients and
fictitious credit application. The total losses suffered by PD BKK Kendal reached Rp 1.2 billion City. As
well as cases of corruption Social Assistance (Bansos) conducted by legislative candidates (candidates)
House of Representatives from the Golkar Party and former Regent of Kendal and corruption cases equity
participation company-owned Enterprises in Various Regions 2004-2011 by the Director of PD Aneka
Business, Director Finance and Operations Director. Many things can be the reason for someone to
commit fraud such as pressure, opportunity and justification happens to actors, but the real fraud (fraud)
that occur in the environment of government agencies not only tour of duty and corruption, there are
many other modes. Almost in all the business processes and services run by government agencies, central
and local levels are still fraught with fraud and corruption. In addition fictitious business travel mode,
deviations that have been uncovered include: engineering procurement of goods / services, reception
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deviations country / region, the cost of licensing, illegal charges and others. Several studies have shown
that factors mem¬pe¬ngaruhi tendency fraud (fraud). Wilopo research (2006) shows that the internal
control, compliance, accounting rules, accounting and information asymmetry affect the morality
management of unethical behavior and tendencies of accounting fraud, while compensation does not
affect the suitability of unethical behavior and tendencies of accounting fraud and unethical behavior
affect the tendency of accounting fraud. Najahningrum (2013) conducted a study on employees of
government agencies DIY. The results indicate that there are significant between the enforcement of
regulations, the effectiveness of internal control, asymmetry infor¬masi, distributive justice, procedural
justice, organizational commitment and ke¬cenderung¬¬an fraud (fraud), while the ethical culture of the
organization does not ber¬pengaruh cheating tendencies (fraud).
Theoretical Framework and Hypotheses Development
Theoretical Basis
Theory of Perception: This theory includes the psychological theory of behavior, that perception is a
psychological factor that has an important role in influencing behavior. The difference in perception is
strongly influenced by the different interpretations on any individual or group (Mahmud, 1990 in
Rukmawati, 2011). Perception according to Robbins (2008) is the process by which individuals organize
and interpret their sensory impressions in order memberi¬kan meaning to their environment. However,
what is received by a person can essentially differ from objective reality. The behavior of individuals
based on their perception of reality, not kenyatan itself.
Attribution theory: Attribution theory developed by Kelley (1967), and Green and Mitchell (1979). They
argued that leadership behavior is caused by attributes cause. The theory explains why the leadership
attributes leadership behavior occurs. So leadership is inseparable from the way of thinking, feeling,
acting, act, and behave in a job in an organization with subordinates or others (Waworuntu, 2003). The
tendency Fraud (Fraud) Definition of fraud according to Black's Law Dictionary in Rukmawati (2011) are:
"A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to
his or her detriment, a tort is usual, but in some cases (esp. When the conduct is willful) it may be a
crime."
The above definition means that, cheating is kesengaja¬an on one statement of a truth or disembunyi¬kan
state of a material fact which may influence others to commit acts which harm him, usually an error but in
some cases (especially when taken intentional) allows a crime.
Internal Control Systems: Internal control is a management tool used to monitor the implementation of
the powers and responsibilities given to subordinates. In addition, internal controls can also be used as a
tool to control the operation of the company in order to operate more effectively and efficiently.
Understanding Internal Control itself according to PP 60 of 2008 is a process that is integral to the actions
and activities that are carried out continuously by management and all employees to provide reasonable
assurance on the achievement of organizational goals through effective and efficient, the reliability of
financial reporting, safeguarding of state assets, and compliance with laws invitation.
Information asymmetry: The most important thing is the information from the real world. Asymmetric
Information or inequality of information is a situation where the manager has different information
(better) on the condition or prospects of the companies owned by investors (Brigham, 1999: 35 in
Susetyo, 2006). This information asymmetry occurs because the management has more information than
the investors (Husnan, 1996: 325 in Susetyo, 2001).
Suitability Compensation: Compensation or remuneration are all forms of payments made by the
company to employees as remuneration for the performance of duties or the employee's contribution to
the company, both of which are given on a regular basis as well as situational. Reward or compensation is
an important factor affecting how and why people work in an organization and not on the other
organization.
Organizational Commitment: Organizational commitment is defined as the degree to which employees
are involved in the organization and intends to remain a member, where it contains the loyalty and the
willingness of employees to work optimally for the organization in which the employee works (Greenberg
and Baron, 2003).
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Leadership Style: The style of leadership is how a leader carry out the functions of leadership and how it
is seen by those who seek leads or those who may be observing from the outside (Robert, 1992).
Significant leadership role to the success and failure of an organization.
Organizational Ethical Culture: Organizational culture is a pattern that are shared within an
organization that is not written to be obeyed by all persons involved in the organization. The existence of
organizational culture in any organization tend to be the result of interaction between the founders'
biases and assumptions on the one hand, with what is learned by the first member of the organization,
which dipekerja¬kan by the founders of the organization, from their own experience.
Obedience Accounting Rules: Theoretically, accounting obedience is also an obligation. Therefore, if the
financial statements are made without following the applicable accounting rules, the state declared as a
form of failure and will lead to a tendency of cheating or unethical behavior that can not be or is difficult
to trace the auditor. Adherence to accounting rules is viewed as the degree of conformity procedures
asset management organization, implementation of accounting procedures, and presentation of financial
statements and all supporting evidence, the rules established by the CPC and / or SAP (PP RI No.
24/2005).
Law Enforcement: Law enforcement is a process for the enforcement of remedies, or the functioning of
legal norms to guide behavior in real traffic or legal relations in society and state. (Shidique, Jimly A,
2006).
Hypotheses Development
Relationship Effectiveness of Internal Control and Fraud Trends (Fraud): The tendency of fraud
(fraud) is influenced by the presence or absence of an opportunity to do so. Great Opportunity makes the
tendency of cheating (fraud) is more common. These opportunities can be reduced by good internal
control system. Good internal control can reduce or even shut down opportunities for cheating
tendencies.
H1: Internal Control Effectiveness negatively affect tendency fraud (fraud).
Relationship of Information Asymmetry and Trends Fraud (Fraud): If there is asymmetry of
information on the scope of government, users, especially people who do not know information about the
use and management of budget funds the possibility of financial reports will be manipulated by the
preparers of financial statements that would open up opportunities to commit fraud (fraud). Wilopo
study (2006) showed that the positive effect of information asymmetry on the trend of cheating. Thus, the
higher the asymmetry that occurs between the manager and the users of financial statements, the
likelihood of fraud (fraud) will be higher.
H2: Information Asymmetry positive effect on the tendency of cheating (fraud)
Relations Compensation Compliance and Fraud Trends (Fraud): To reduce fraud committed
someone in the company, the company usually give rewards or gifts to employees in the form of a bonus
or something. It is expected that employee perceptions of the compensation awarded company in
accordance with the capabilities that it provides for the company. Due to reward or prize, is expected to
raise the motivation of employees to be more passionate in their work and will forget to do acts of fraud.
H3: Compliance Compensation negatively affect the propensity fraud (fraud)
Relationships and Organizational Commitment Fraud Trends (Fraud): Organizational commitment
is defined as the degree to which employees are involved in the organization and intends to remain a
member, where it contains the loyalty and the willingness of employees to work optimally for the
organization in which the employee works (Greenberg and Baron, 2003). Employees with a high degree
of organizational commitment would involve himself in the organization and work on behalf of the
organization. If an employee in an organization has a high organizational commitment to the organization
this can reduce the occurrence of acts of fraud (fraud).
H4: Organizational Commitment negative effect on the propensity fraud
Relationship of Leadership Style and Trends Fraud: Person's leadership style will greatly affect the
performance of subordinates, in this case if a leader has a style of leadership that is respected by his
subordinates are expected to reduce acts of fraud within the organization. Otherwise, if the person's
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perception of his boss's leadership style is not respected tend to do things that will hurt the company as
an act of fraud.
H5: Leadership style negatively affect the tendency of cheating
Ethical Culture and Relations Organization Trends Fraud: The founder of the organization have a
positive impact for the survival of the organization, which is why the founders of the organization often
becomes a legend in every organization. If the institution has an ethical organizational culture is low it
will encourage employees to perform acts of fraud, but on the contrary, if in an agency has instilled the
values that a fraud is an act that is not good and detrimental to many parties, the staff members will be
less likely to commit fraud. It can be concluded that the better the organization's ethical culture of an
agency, the lower the tendency of employees to commit fraud.
H6: organizational ethical culture negative effect on the propensity fraud
Obedience relationships and tendency Fraud Accounting Rules: Disclosure requirements explained
that each accounting entity within the government is expected to present the financial report comprising
the financial statements and performance reports. These reports are made in a form and content
according to SAP so that the organization's performance between periods can be compared. So the
obedience of an agency or company in the preparation of financial statements in conformity accounting
rules would reduce the likelihood of fraud because it is easier to detect Auditor.
H7: Obedience accounting rules negatively affect the propensity fraud
Relations Law Enforcement and Fraud Trends: Cheating in general is an unlawful act committed by
persons from within or outside the organization, with a view to personal gain and or group that directly
harm others. Most people know about the law, but did not stick with it. So in this case the required
awareness. Public awareness of law enforcement can arise when running properly. Good law
enforcement is expected to reduce fraud (fraud).
H8: Law enforcement negatively affect the tendency of cheating
2. Methodology
Types and Sources of Data: Data used in this study are primary data obtained through filling a
questionnaire conducted by the respondent. Data sources are the characteristics and perceptions of civil
servants working in Kendal subsections that deal with financial or finance.
Population and Sample: The population in this study were all civil servants working in the Department
of Local Government Kendal with a total of as many as 1,114 employees. Research conducted the study
population but not the study sample, which examines some of the populations represented. The sample of
this study is a regional secretariat, one Bappeda and 16 district offices in Kendal, the author assumes that
employees working in finance or financial handling as many as 10 employees for each department, but
the authors gave questionnaires to several agencies with the reason for having the possibility of cheating
high tendency in that agency. So the sample size is 195 employees.
Method of Data Collection: The collection of the data required in this study a data collection conducted
from questionnaires. The questionnaire consists of questions with explanations given for each question in
order to facilitate the respondents in answering. The questionnaire in this study were prepared using a
Likert scale. This study will use a Likert scale of 1-5, with details as follows: (1) Strongly Disagree (STS),
(2) Disagree (TS), (3) Undecided (R), (4) Agree (S) and (5) Strongly Agree (SS)
Measurement of Variables
Effectiveness of Internal Control (KPI): The instrument used to measure the tendency of fraud consists
of five items were developed from the PP question number 60 of 2008 on the Internal Control System of
the Government. The response of the respondents was measured with a Likert scale 1 strongly disagree
to 5 strongly agree.
Information asymmetry (AI): The instrument used to measure the asymmetry of information consists
of six items dikembang¬kan question by researchers Dunk (1993) in Wilopo (2006). The response of the
respondents was measured with a Likert scale 1 strongly disagree to 5 strongly agree.
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Suitability Compensation (KK): The instrument used to measure the suitability of compensation
(Gibson, 1997 in Wilopo, 2006) regarding the reward and consists of six items question. The response of
the respondents was measured with a Likert scale 1 strongly disagree to 5 strongly agree.
Organizational Commitment (KO): The instrument used to measure organizational commitment was
developed from research Pingka (2013) consists of seven items of questions. Likert scale of 1 strongly
disagree to 5 strongly agree was used to measure the response of the respondents.
Leadership Style (GK): The instrument used to measure the leadership style developed by Fiedler's
theory (Stoner et al, 1996 in Pramudita 2013) consists of five items the question. Likert scale, 1 strongly
disagree to 5 strongly agree was used to measure the response of the respondents
Organizational Ethical Culture (BEO): The instrument used to measure the ethical culture of the
organization (Robbins, 2008 in Pramudita, 2013) consists of five items the question. The measurement
using a Likert scale, a scale of 1 strongly disagree to 5 strongly agree
Obedience Accounting Rules (KKA): The instrument used to measure adherence to accounting rules
developed from (IAI, 1998 in Wilopo (2006)) consists of seven items concerning the code of ethics
questions accountant. Likert scale, 1 strongly disagree to 5 strongly agree was used to measure the
response of the respondents.
Law Enforcement (FH): The instrument used to measure the law enforcement consists of five items
were developed from the research questions Pramudita (2013). The response of the respondents was
measured with a Likert scale, 1 strongly disagree to 5 strongly agree.
The tendency of cheating (FO): The instrument used to measure the tendency of fraud consists of five
items of questions developed from (IAI, 2001 in research Pramudita, 2013). Measurement of this variable
using a Likert scale, 1 strongly disagree to 5 strongly agree.
Method of Data Analysis: This study methods of data analysis using structural equation modeling (SEM)
is a statistical technique that analyzes the relationship patterns and indicators of latent constructs, the
latent constructs to each other, as well as measurement error directly. The analytical tool used is
SmartPLS. Method of analysis undertaken include descriptive statistics, testing the model outer, inner test
models, and hypothesis testing.
3. Results and Discussion
Descriptive Statistics: Data analysis was based on respondents' answers collected as many as 166
respondents. From the descriptive statistics it can be seen that all the variables are the average values are
different.
Tabel 1: Descriptive Statistic
N
Min
Max
Sum
Mode
Mean
Std.Dev
KPI
166
15
25
3471
20
21
2,5246
AI
166
6
29
3001
24
18,0783
6,11307
KK
166
8
30
3893
24
23,4518
4,01747
KO
166
10
35
4471
28
26,9337
4,91644
GK
166
7
25
3277
20
19,741
3,15447
BEO
166
8
25
3177
20
19,1386
3,25093
KAA
166
12
35
4598
28
27,6988
3,89323
PH
166
8
25
3292
20
19,8313
3,0164
FR
166
5
25
1574
10
9,48193
3,82293
Source: Data processed, 2014
From the descriptive statistics in Table 1 it can be concluded that the mean value of the KPI by 21 which
means that the effectiveness of internal control into the category of very effective. AI mode value of 24,
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which means that the asymmetry of information into categories of high information asymmetry. KK mean
value of 23.45 which means that appropriate compensation entered into the appropriate category. The
mean value of 26.93 KO which means that organizational commitment into committed category. GK The
mean value of 19.74, which means that the leadership style into either category. BEO mean value of 19.13,
which means that the ethical culture of the organization into the ethical category. KAA mean value of
27.69, which means that the accounting rules into obedience obedient category. The mean value of pH of
19.83, which means that the rule of law into an effective category. FR mean value of 9.48, which means
that the tendency of fraud (fraud) into the rare category.
Model Test Banks
Convergent Validity Test: In this study there were nine variables: the effectiveness of internal control,
information asymmetry, the suitability of compensation, organizational commitment, leadership styles,
ethical culture of the organization and law enforcement against the tendency of cheating (fraud). Test of
the validity of research using tools which SmartPLS count. Based on the PLS outputs which can be seen in
Table 2, it can be concluded that of all the results are valid questions.
Tabel 2:
Original Sample
Estimate
Mean of
Subsamples
Standard
Deviation
T-Statistic
KPI1 -> KPI
0.276
0.276
0.024
11.474
KPI2 -> KPI
0.281
0.286
0.036
7.752
KPI3 -> KPI
0.268
0.263
0.028
9.524
KPI4 -> KPI
0.204
0.200
0.031
6.618
KPI5 -> KPI
0.199
0.196
0.043
4.660
source: Output PLS, 2014
Test Composite Reliability: From a reliability test in table 3 it can be seen that all the variables in this
study revealed reliable since the composite reliability of each variable is greater than the value
established common standards, namely 0.70.
Tabel 3: Composite Reliability Test
Composite Reliability
Effectiveness of Internal Control
0,928
Information asymmetry
0,947
suitability Compensation
0,908
Organizational Commitment
0,925
Leadership Style
0,932
Organizational Ethical Culture
0,894
Obedience Accounting Rules
0,888
Law Enforcement
0,922
The tendency of cheating
0,955
source: Output PLS, 2014
Discriminant Validity Test: Based on table 4 test results or test the discriminant validity correlations
between variables indicate the value of the square root of AVE of each construct is greater than the value
of the correlation between the constructs with other constructs in the model on the correlation of latent
variables, the discriminant validity is said to have good value.
Uji Convergent Validity
Tabel Outer Weights
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Tabel 4: AVE & Correlation of Latent Variables
Test Inner Model: The test results show that the model's inner R-square value tendency fraud (fraud)
(KK) of 0.719. R-square value of 0.719 means that the variability construct tendency fraud (fraud) can be
explained by the variability of the effectiveness of internal control constructs (KPI), asimteri information
(AI), the suitability of compensation (KK), organizational commitment (KO), leadership style (GK ), the
ethical culture of the organization (BEO), adherence to accounting rules (KAA) and enforcement (PP) at
71.9%, while 28.1% is explained by other variables outside of research.
Hypothesis Testing: Table 5 known hypothesis testing of the path coefficients in the above table where
the limit to reject and accept the proposed hypothesis is +1.96, which if the value of the t value <t table
(1.96), the alternative hypothesis (Ha) will be rejected or the In other words accept the null hypothesis
(H0). So it can be known variables KPIs, AI, KK, BEO, KAA, PH, whereas KO variables and GK is not
accepted (rejected).
Tabel 5: Path Coefficient (Mean, STDEV,T-Values)
Original Sample
Estimate
Mean Of
Subsamples
Standard
Deviation
T-
Statistic
KPI -> FR
-0.220
-0.223
0.095
2.308
AI -> FR
0.133
0.130
0.058
2.297
KK -> FR
-0.187
-0.178
0.085
2.187
KO -> FR
0.035
0.021
0.066
0.532
GK -> FR
0.008
0.026
0.075
0.108
BEO -> FR
-0.212
-0.220
0.092
2.296
KAA -> FR
-0.189
-0.184
0.096
1.971
PH -> FR
-0.212
-0.217
0.105
2.015
Source: Output PLS, 2014
Discussion: The first hypothesis proposed in this study is that the effectiveness of internal control
negative effect on the tendency of fraud (fraud). This means, the more effective system of internal control
in an agency will be able to decrease the tendency of fraud (fraud). The results of this study indicate that
the effectiveness of internal control negative effect on the tendency of fraud (fraud). Thus, the test results
received the first hypothesis (H1). With meningkat¬kan effectiveness of an entity's internal control will
eliminate the chances of a person to commit acts of fraud (fraud) as opportunities arise through
weaknesses in the supervision of the internal control system of an agency.
The second hypothesis proposed in this study is that the positive effect of information asymmetry on the
trend of fraud (fraud). This means that the higher the employee's perception of information asymmetry in
a government, it can increase the occurrence of fraud (fraud) in the government sector. These results
indicate that the positive effect of information asymmetry on the trend of fraud (fraud). Thus, the test
results accept the second hypothesis (H2). The results of this study indicate if an agency in the case of
information asymmetry between the employee (internal) and public (external), the agency will open up
opportunities for employees (internal) agency to perform acts of fraud (fraud). However, if an
organization diber¬lakukan transparency on matters relating to the organization and the effect on the
financial statements, it is certainly not going to happen.
The third hypothesis proposed in this study is that the suitability of a negative effect on the tendency
compensation fraud (fraud). This means that the higher the perception of employees regarding the
(AVE)
KPI
0,721
0,84236
AI
0,748
0,86487
KK
0,622
0,78867
KO
0,640
0,80000
GK
0,734
0,85674
BEO
0,629
0,79310
KAA
0,533
0,73007
PH
0,702
0,83785
FR
0,808
0,89889
Sumber: Output PLS, 2014
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suitability kompen¬sasi in a government, it can reduce the tendency of fraud (fraud). These results
indicate that the negative effect on the suitability kompen¬sasi fraud (fraud) in the government sector.
Thus, the test results received a third hypothesis (H3). The results of this study indicate that the
compensation received by the employee in accordance with the performance and fulfillment levels so as
to reduce the amount of fraud (fraud). Thus, the objective of which compensation program that indivdual
balance, internal, external to all employees and an increase in the success of the organization's
performance can be done well. The fourth hypothesis proposed in this study is that organizational
commitment negative effect on the tendency of fraud (fraud). This means that the higher the employee's
perception of organizational commitment in a government, it can reduce the tendency of fraud (fraud).
The results of this study indicate that organizational commitment has no effect on the tendency of fraud
(fraud). Thus, the test results reject the fourth hypothesis (H4). The reason for this finding does not
support the hypothesis and opinion from various previous studies are (1) the provision of any type of job
assignment can not be assumed that the employee has been fully committed to the advancement of the
shelter organization, (2) the difference principle is believed by every employee who is not aligned with
the system exist in the organization that was followed, and (3) lack of appropriate consideration in
selecting the organization that led to a lack of a sense of pride in having the organization.
The fifth hypothesis proposed in this study is that the leadership style of a negative effect on the tendency
of fraud (fraud). That means that if a leader has a leadership style that is respected by his subordinates
are expected to reduce acts of fraud within the organization. The results of this study indicate that
leadership style has no effect on the tendency of fraud (fraud). Thus, the test results reject the fifth
hypothesis (H5). The reason for this finding does not support the research hypothesis, is (1) in a weak
leader or men¬dorong guiding subordinates to define realistic goals, by way of explaining the role and
task requirements, (2) the leader lacks the charisma that subordinates assume that the ability of a leader
they are mediocre and do not inspire the organization that was followed, and (3) the leader is not
responsive to subordinates completing the job on time so that less motivate subordinates to do so. The
sixth hypothesis proposed in this research is an ethical organizational culture negative effect on the
tendency of fraud (fraud). This means that the ethical culture of the organization with it will reduce the
level of fraud in the organization. The results of data processing show that the ethical culture of the
organization negatively affect the tendency of fraud (fraud). Thus, the test results received a sixth
hypothesis (H6). Good organizational ethical culture is very influential on the performance of employees
and can reduce cheating action (fraud) as a good organizational ethical culture will form the
organizational actors have a sense of belonging (sense of belonging) and a sense of identity (sense of
pride as a part of an organization ).
The hypothesis put forward is the seventh observance of accounting rules negatively affect the tendency
of cheating (fraud). That is, the obedience of an agency to follow accounting rules issued by the
government, the smaller the chances of fraud action (fraud) accounting. The results of testing the
hypothesis in this study states that the observance of accounting rules negatively affect the tendency of
fraud (fraud). Therefore, this test accepts the hypothesis seven (H7). Adherence to accounting rules is
viewed as the degree of conformity procedures asset management organization, implementation of
accounting procedures, and presentation of financial statements and all supporting evidence, the rules
established by the CPC and / or SAP (PP RI No. 24/2005). So, if the financial statements are made without
following the applicable accounting rules, the state is expressed as a form of failure and will cause
kecenderung¬an fraud that can not be or is difficult to trace the auditor. The eighth hypothesis proposed
is law enforcement negatively affect the tendency fraud (fraud). In other words, the higher the
enforcement of regulations in an agency, the lower the possibility of fraud in the intansi. The results show
that the enforcement of regulations negatively affect the tendency of fraud (fraud). Thus, the test accepts
the hypothesis eighth (H8). Basically fraudulent practices will continue to be repeated in an entity if the
employee does not adhere to the applicable laws and regulations. In an entity, rules are made so that the
operations of the entity run more effectively and efficiently. Regulation here pertains to the rules
governing employees as those directly involved with the operations of the entity.
4. Conclusion
Conclusion that can be drawn from this study that the effectiveness of internal control, information
asymmetry, the suitability of compensation, organizational ethical culture, observance of rules of
accounting, law enforcement significantly influence kecenderung¬an cheating. But this study shows that
organizational commitment and leadership style has no effect on the tendency of cheating.
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Suggestions: Suggestions submitted to this study, is hoped to government agencies in Kendal for
transparency of financial statements by way of loading it in the print media or local government agencies
Kendal website so that people more easily gain an understanding of the financial statements of the
relevant agencies. It is expected that the leaders of government agencies to more clearly Kendal in
delivering the desired direction and purpose that employees understand what the objectives of the
institution. Expected for employees in government agencies Kendal to be able to run the values and the
ethical rules that apply in the organization.
Research Limitations and Future Research Agenda: The study has some limitations that need
improvement and development in the study - the next study, the limitations of this research are:
1) Measurement of the tendency of cheating is an extremely sensitive measurement that SSR assessment
seems less objective self-report. Should be measured from the auditor's assessment of which the
inspectorate.
2) The study was conducted at government agencies. Research still needs to be done back in different
populations, for example, banking institutions service companies, trade and manufacturing, or financial
institutions other than banks.
3) Develop a questionnaire to capture in real terms over all the variables used.
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Determinant Factors of Cooperative Capital Structure in Financial Perspective
Sugiyanto
Institut of Indonesia Cooperative Management
giyant2000@yahoo.com
Abstract: Research on capital structure is mostly done on the type of profit-oriented and go public
companies. The same research topic also needs to be developed in cooperative organization, because
there are difference in the member service orientation and the characteristics of the organization. Ability
to raise capital also becomes a major problem for cooperative organization. The study was conducted to
assess the financial performance as determinant factors affecting capital structure, using regression
correlation analysis either partially or simultaneously. The results showed that, not all financial
performance that analyzed to be determinant of cooperative capital structure, six financial performances
as measured partially, only the sales stability, asset structure, and the company size that become
determinant factors that effects the cooperative capital structure, while profitability, liquidity, and
business risk are not be determinant factors of cooperative capital structure. But simultaneously all
financial performances that analyzed by multiple correlation becomes determinant factors that effects the
cooperative capital structure.
Keywords: Cooperative Organization, Financial Performance Factors and Cooperative Capital Structure
1. Introduction
A lot of researches in the field of Financial Management with capital structure topic, that applied on
profit-oriented and go public companies, but not yet many research is applied in a cooperative
organization that operated with special characteristics and member service but not profit oriented.
Cooperative business with its members referred to services, which can be used by members and the
general public, both as consumers or businesses such as micro, small, and medium enterprises. Members
who take advantage of cooperative services (as user) and the other side member have to act as an owner,
both member function that called dual identity of cooperative member. As user, a member obliged to use
cooperative services, while the owner is obliged to participate for sharing capital, supervise and take
decisions through the member meeting forum. The classic problems of cooperative organization related
to the ability to raise capital, which should have collected from members, capital resources are coming
from outside of members. Cooperative capital resources nationally more than 50% are still sourced from
debt, this condition is not in accordance with the principle of independence of the cooperative,
cooperative was founded, managed and used by members. Cooperative as a business entity owned by the
members and also services to members, capital requirements should be met by the members themselves.
Statistical data from Ministry of Cooperatives and SME’s indicates that the performance of cooperative
capital in 2010 to 2012, there are 188,181 units of cooperatives with a membership approximately 31
million people, only able to finance cooperatives capital approximately 49%, and 51% cooperative capital
financed by debt. The proportion of outside cooperative capital compare with its equity, that measured by
debt-to-equity ratio (DER) is greater than 1 (DER> 1) illustrates the proportion of debt is greater than
their equity. Capital structure can help cooperatives in the development of its business and may also be a
risk for the cooperative. This condition indicates that the cooperative has been unable to fulfill the value
of self-help in the development of its business. This conditions is not much different from the conditions
cooperative capital in West Java, the DER value <1 in 2012. West Java was chosen as the research object.
Cooperative has a structural weakness of financing, which is characterized by variability the amount of
capital required (Munkner, in Sutaryo Salim, 2000: 3). Another opinion states that “the capital function in
a cooperative is handicapped, because the amount of benefits available for a member is not dependent on his
capital contribution but on his patronage of the cooperative” (Röpke J. 2002). Cooperative is less attractive
to members, prospective members and other investors, who wish to become a member simply because it
has excess capital.
Determining the appropriate capital structure is a difficult decision that cooperatives need to consider
several factors that can influence the capital structure. Factors affecting to capital structure is the stability
of sales, asset structure, operating leverage, growth rates, profitability, tax, control, management attitude,
the attitude of lenders and agencies ratings, market conditions, internal conditions and the company's
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financial flexibility (Brigham and Houston, 2001). Research on the factors affecting capital structure have
been carried out, but from several previous studies are inconsistencies in the results, Asih Suko Nugroho
(2006), Joni and Lina (2010), Ahmed et al (2010), Chen, Shun-Yu (2011) and Pahuja et al (2011). Based
on the description above, the title of this research is the determinant factors of cooperative capital
structure in the financial perspective. This study aimed to assess the financial performance as
determinant factors that effects cooperative capital structure in West Java.
2. Literature Review
Cooperative is an economic movement based on the principle of brotherhood that has function and very
important role in fostering the economic potential of the people, and to realize the prosperous society.
Cooperative is a modern economic organizations demanding conceptual and rational thinking because
cooperative exist in a dynamic economic environment and continue to move forward, more and more
open, globalized and create increasingly intense competition (Ramudi Ariffin 2003). Cooperative
activities based on co-operative values and principles, which are guidelines for cooperative work in
making any effort, cooperatives as economic organizations that are not specialized activities to create
gain but rather to create the members welfare, in a form of satisfactory service, the principal task of
cooperative to support the economic interest of the member. Business decision should be based on the
interests of the members, in order to stimulate and increase the effective participation of members. In
addition of cooperative values and principles that distinguish with other business entities, some
characteristics as criteria of cooperative organizations (Hanel, A 1989):
1) The number of individuals who joint together in a group on the basis of at least one common
interest or goal (Cooperative Group).
2) Members of the cooperative group individually determined to achieve the goal of improving their
economic and social situation, through the efforts (actions) together and help each other
(Organization of cooperative groups).
3) As an instrument (vehicle) for the purpose of a company that is owned and coached together
(cooperative company).
4) The Company of cooperative assigned to support the interests of the members of the group, by way
of providing or offering goods and services required by the members in their economic activities,
namely in the company or each household members (Member Promotion).
The capital structure as a balance of the amount of permanent short-term debt, long-term debt, preferred
stock and common stock (Agus Sartono, 2001), the same sense described by Brigham, E. F, et al (1999).
Obtaining capital structure indicates the source of capital or capital contributions from owners and
creditors, financial contribution of members as equity or shares, reserves and other deposits formation,
thereby cooperative capital resources can also be obtained from its own capital resources (equity) as well
as the source of loan capital (Debt) (Hanel, A 1989). Difference of opinion regarding the theory of capital
structure continues until now. Modigliani and Miller argue that leverage (capital structure) is
independent of the value of the company, and is known to irrelevance theory, Furthermore, Modigliani
and Miller concluded that leverage will increase the value of the company due to debt interest reduces the
taxable income (Brigham, E. F, et al, 1999). Cooperative capital consists of principal saving, compulsory
savings, other deposits which have the same characteristics as compulsory savings, capital investments,
capital contributions, reserves and undistributed net income (IAI, 2004). Equity of cooperative has four
general criteria are:
1) Derived from the owner and or determine ownership of the company that is in the form of reserves
or retained earnings,
2) Capital as a risk taker and income is not fixed,
3) An owner claims when the company is liquidated or dissolved,
4) Embedded in the company in the long term is not limited, or also known as permanent capital
Capital sources from debt or financial leverage has three important implications (Brigham, E. F, and
Houston, 2001: 84):
1) Obtaining funds through debt makes shareholders can retain control of the company with limited
investment.
2) Creditors look at the paid-up equity or fund owner to provide a safety margin, so if shareholders
only provide a fraction of the total financing, the risk of a small part company is on the creditor.
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3) If the company gain greater returns on investment that is financed with borrowed funds compared
with the interest payments on capital returns for the owner will be greater, or leveraged.
Cooperatives are also faced by the decision of selecting capital sources, the use of debt can be justified, if
it can provide additional services at a better price. The theory of capital structure has been developed
include: Agency theory, signaling theory, Asymmetric Information Theory, and the Pecking Order Theory.
Agency theory, proposed by Jensen and Meckling (1976) Horne and Wachowicz,(1998), a management as
an agent and owner as a principal. Principal hopes the agent will act on his behalf, to be able to function
properly, the management should be given incentives and adequate supervision. Signaling theory, a signal
of management actions taken to give guidance to investors about how management sees the company's
prospects, companies with favorable prospects will try to avoid the sale of shares and commercialize any
new capital required by other means, including the use of debt that exceeds the normal target capital
structure (Brigham and Houston, 2001).
Asymmetric Information Theory, is a situation where managers have different information (better) about
the prospects of the company owned by investors, information asymmetry occurs because the
management has more information than investors (Suad Husnan, 1996), (Myers and Majluf, 1984), so
that outside investors trying to capture signal activity manager to suspect the company's prospects.
Pecking Order Theory, (1) companies like internal financing (retained earnings), (2) if funding from
outside (external financing) is required, the company will publish the safest securities in advance, which
began with the publication bonds or debt, followed by securities that characterized the options (such as
convertible bonds), (3) finally if it is still inadequate, the new shares issued. In accordance with this
theory, there is not a target of debt to equity ratio, because there are two types of capital itself, namely
internal and external. Own capital from the company preferably own capital that comes from outside the
company. Companies prefer to use funding from internal capital, the funds derived from cash flow,
retained earnings and depreciation (Myers, 1996). The order of the use of funding sources with reference
to the pecking order theory is: internal funds, debt and equity. In this study, the capital structure is a
combination of various sources of funding, with the main categories of debt and equity, which used the
cooperative to fund the investments of its assets with the formula:
Debt to Asset Ratio
=
Total Debt
× 100% ………………………………………………………………………………………….1)
Total Asset
Many factors that predicted by experts as a determinant factors of the capital structure. The determinants
of the capital structure right now is a difficult decision for cooperatives organization, that need to
consider several factors which can influence the capital structure. The capital structure is defined as the
ability to raise funds and partially offset by an increase in organizational performance. This is to maintain
business continuity, trust members and stakeholders. Risk factors of business, tax position, financial
flexibility and conservatism or aggressiveness of management are factors that determine capital structure
decisions; especially in the target capital structure (Brigham and Houston 2001). Research conducted on
the determinants of capital structure shows that the variables of growth of assets, fixed asset ratio, R & D
Expenditure significant effect on the capital structure (Ghosh et al, 2000), (Ahmed et al 2010). Further
research, it turns agency cost and ownership structure significantly influence the capital structure (Moh'd
et. al, 1998). Empirical research shows that the determinants of capital structure are: Return on assets
(ROA) or economic profitability Chang and Rhee (1990). Company with a good reputation can gain
greater debt because lenders believe that reputation will continue to be maintained, there is a positive
relationship between reputation and debt (Wiwattanakantang, 1996). Determinant factors are affecting
capital structure in this study, limited by factors relating to the financial performance of cooperatives,
such as: (1) Sales stability, companies with relatively stable sales may be safer to obtain more loans and
fixed using a higher burden in the form of interest on loans compared with companies whose sales are
unstable (Brigham and Houston, 2001), (Ahmed et al 2010). Sales stability, company with sales relatively
stable means having a stable cash flow as well, it can use more debt than companies with sales of unstable
(Agus Sartono, 2001). Sales stability, measured by growth in sales or service, according to the formula:
Sales Growth
=
Pj,t - P j,t
- 1
……………………………………………………………………….………………………………………….2)
P j,t - 1
PJ,t = sale at the end period
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P J,t – 1 = sale at last period
(2) Profitability, measures the ability to generate profit from the level of sales, assets, or certain capital,
thus profitability can be described by profit margin, return on assets and return on equity. Return on
Assets used in this study, to measure a company's ability to generate profits based on the level of certain
assets (Mamduh Hanafi, 2005), the net profit of cooperative organization assumed to be equal to the
cooperative surplus. Several researches indicate that The ability of company create profit, there in no
relationship with capital structure (Joni and Lina, 2010) (Rafique, 2011). But the other research indicate
that there is significant relationship between profitability with capital structure (Saleem et al, 2013),
Profitability is defined as earnings before interest and tax to total assets:
Return On Asset
=
EBIT
………………………..………………………………………………………………………………….3)
Total
Asset
(3) Asset Structure is the overall assets owned by cooperatives or listed on the balance sheet, which
includes current assets and non-current assets. Companies that have a corresponding proportion of
assets to guarantee loans tend to use debt. Multipurpose asset that can be used by many companies is a
good guarantee. Asset structure describes some amount of assets that can be pledged as collateral value
of assets. Companies that have the guarantee of debt will be easier to get debt than companies that do not
have a guarantee (Brigham et al, 1999). Capital structure affected by asset structure (Frank and Goyal,
2007) The asset structure is measured by comparing the non-current assets with overall assets owned by
the cooperative in a certain period.
Asset Structure
=
Non Current
Asset
……….………..………………………………………………………………………………….4)
Total Asset
(4) Liquidity is measured by the current ratio and current liabilities, high liquidity means the company
has the ability to pay short-term debt, so that tends to lower the total debt, which eventually capital
structure will be smaller. The liquidity ratios measure the relationship between a firm's liquid or current
assets and its current liabilities (Cornet et al, 2012). Liquidity is measured:
Current Ratio
=
Current Assets
………………..………………………………………………………………………………….5)
Current
Liabilities
(5) Business risk is the risk of the company is currently not able to cover operational costs and influenced
by the stability of income and expenses. Companies with high business risk tend to avoid using debt
financing. The world recognize investment business risks as part of the risk premium, which is defined as
the uncertainty of the revenue stream due to the nature of the business itself as products, customers, and
how to produce the product. Business risk is the uncertainty faced by the company in business. Business
risk is calculated as the standard deviation of return can be shaped margin, return on equity and the other
for several years. Measured by the formula:
Risk = standard deviation of cooperative returns…………………………………………………………………………6)
(6) The Company size, describe the size of a company, measured by total sales or total assets. Some
researchers use asset or sales growth is positive reflecting the greater size of the company, thus
multiplying also funding alternatives that can be selected in increasing profits. In this study the size of the
company is measured by the amount of asset growth of cooperatives as compared to previous
cooperative assets.
Asset Growth
=
Pa,t - P a,t
- 1
……………………………………………………………..………………………………………………….7)
P a,t - 1
Pa,t = Cooperative Assets at the end period
Pa,t-1 = Cooperative Assets last period
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Based on the literature review, research framework can be described as follows:
Figure 2.1: Model of Research Paradigma
Sales Stability
Profitability
Asset Structure
Likudity
Business Risk
Company Size
Capital Structure
Brigham dan Houston (2001), Ghosh et al, (2000), Wiwattanakantang, Y, (1999), Frank and Goyal (2007),
Ahmed et al (2010), and Joni and Lina (2010)
Based on the research framework above, the hypothesis can be formulated as follows: "the financial
performance as determinant factors that effect to cooperatives capital structure". Partially, withdrawn
hypotheses: (1) There is the effect of sales stability to cooperative capital structure, (2) There is the effect
of profitability to cooperative capital structure, (3) There is the influence of asset structure to cooperative
capital structure, (4) There is effect of liquidity on the cooperatives capital structure, (5) There is effect of
business risk to the cooperatives capital structure, and (6) There is the effect of firm size to cooperatives
capital structure.
3. Methodology
This type of research is descriptive quantitative research. The survey method and limit the sample are
used. The sample size of 56 units of cooperatives in West Java, the sampling technique is used by two-
stage cluster sampling. Methods of analysis to explain the strength and direction of the influence of the
independent/explanatory variables on the dependent variable are using multiple regression models. Use
of this analytical model, should avoid the possibility of deviation by the classic assumptions. In this study,
the classical assumptions that are considered most important are (Gujarati, 1995): (1) It has a normal
distribution, (2) Nothing happens Multicolinearity between independent variables, (3) does not occur
Heteroskidastity or variant disturbance variables constant (Homoskedastisitas), and (4) does not occur
autocorrelation between residuals of each independent variable. Technique of data analysis is using SPSS.
The relationship between the dependent variable (Y) with the independent variable (X) is described in
the multiple regression models.
Y = f (X1, X2, ….., Xn)…………………………………..……………………..…………………………………..…. 8)
Multiple regression equation becomes:
Y = a + b1 X1 + b2 X2 +…..+ bn Xn………………………………………………………………………………9)
Notes: Y as a dependent variabel, a value of Y when X = 0
X1, X2,…, Xn as a independen variabel 1,2, and-n
b slope of variabel X1,X2,.,Xn.
Regression Equation:
Y = a + b1 X1 + b2 X2 + b3 X3 + b4 X4 + b5 X5 + b6 X6 + b7 X7…………………………………….10)
Notes:
Y = Debt to Asset ratio
b1 … bn = coefficient of regression
X1 = Sales Stability
X2 = Profitability
X3 = Asset Structure
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X4 = tingkat Likuiditas
X5 = Risiko bisnis
X6 = Ukuran perusahaan Koperasi
Hypothesis test is conducted by the significance test of independent variables (Xi) to the dependent
variable (Y) either partially or simultaneously with the statistical test t (t - test) and F test.
4. Result and Discussion
This study has tested a variety of classical assumptions required and considered important in the
multiple regression analysis, the results are the data/residual is normal distribution/normal data, does
not occur Multicolinearity among the independent variables, does not occur Heteroskidastity or variant
disturbance variables constant (Homoskedastisitas), and not occur autocorrelation between residuals of
each independent variable. The results of the partial correlation analysis, the correlation coefficient (r)
and the determinant coefficient (r2) to describe the influence of financial performance as determinant
factors of the cooperatives capital structure can be explained in the following table:
Table 4.1: Correlation coefficient, coefficient Determinant and Significance Effect
No
Affecting Variables
Correlation
Coefficient
Determinant
Coefficient
Significance
1
Sales stability to capital structure
0.489
23,9%
Significance
2
Profitability to capital structure
0.016
0%
Not significance
3
Asset Structure to capital structure
0.685
46,9%
Significance
4
Liquidity to capital structure
-0.066
0,4%
Not significance
5
Business risk to capital structure
-0.015
0%
Not significance
6
Company size to capital structure
0.502
25,2%
Significance
Sources: Analysis result
Based on the analysis results, it can be explained on the analysis of the effect of each independent variable
in the form of a cooperative financial performance as a determinant factors on the capital structure: (1)
The magnitude of the correlation coefficient of influence sales stability to the cooperatives capital
structure of r = 0.489 with determinant coefficient of r2 = 23.90% with a significance test result of 0.000,
because the probability of 0.000 less than 0.05, it can be stated that the stability of sales affect on the
capital structure is significantly. This means that the ability of cooperatives to raise capital sourced from
loan capital is influenced or determined by the sales stability. (2) The effect of profitability to the
cooperatives capital structure with a correlation coefficient of r = 0.016 or determinant coefficient of r2 =
0.00%. Results of tests of significance of 0.902, greater than 0.05, it can be stated that profitability does
not affect on the capital structure. So the hypothesis that there is an influence on the profitability of
capital structure is not proven. (3) The effect of the structure of assets to cooperatives capital structure,
with r = 0.685 or determinant coefficient of r2 = 46.90%. Results of tests of significance of 0.000, less than
0.05, it can be concluded that the structure of asset significant effect on capital structure. (4) The effect of
liquidity to the capital structure can be explained that the magnitude of the correlation coefficient of r = -
0.066 or determinant coefficient of r2 = 0.40%. Test results are not significance for a significance level of
0.618 is greater than 0.05, then the liquidity does not affect the capital structure. (5) The influence of the
business risk to capital structure cooperative with correlation coefficient of r = -0.015 or the determinant
coefficient of r2 = 0%. Significance test results can be seen that the significance level of 0.910 is greater
than 0.05, then the business risks do not affect to the capital structure. And (6) effect of the size to the
cooperative companies on capital structure with a correlation coefficient of (r) = 0.502 or the
determinant coefficient of (r2) = 25.20%. Result of significance test of 0.000 is smaller than 0.05, then the
firm size effect on the capital structure. Simultaneously, the influence of the stability of sales, profitability,
asset structure, liquidity, business risk and the size of the cooperative enterprise to the cooperative
capital structure can be explained from multiple correlation analysis in the following table:
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Tabel 4.2: Model Summary Multiple Regression
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
dimension0
1
.708a
.502
.445
8.36641
a. Predictors: (Constant), Sales stability, Profitability, Asset structure , Liquidity, Business risk and
company size
Based on the analysis in Table 4.2, it can be explained that the determinant factor Stability sales,
profitability, asset structure, liquidity, business risk and the size of the cooperative companies together
have a very strong influence, with a correlation coefficient of 0.708, coefficient determinant of 50.20 %.
Tests of significance can be seen that the significance level of 0.000, less than 0.05, it can be stated to six
of determinant factors of financial performance effect on the capital structure significantly. The results of
multiple regression equation used to predict how much the variable capital structure change when there
is a change in the variable stability of sales, profitability, asset structure, liquidity, business risk, and the
size of the company. Results calculated by regression analysis are presented in the following table:
Tabel 4.3: Calculation Coefficients Regression
Model
Unstandardized Coefficients
Standardized
Coefficients
Beta
t
Sig.
B
Std. Error
1
(Constant)
-.770
1.466
-.525
.602
Sales Stability
.019
.024
.096
.769
.445
Profitability
-.002
.112
-.002
-.016
.987
Asset Structure
.100
.027
.518
3.699
.001
Likuidity
-.002
.005
-.072
-.409
.684
Business Risk
.019
.303
.071
.392
.697
Size of Company
.093
.058
.192
1.603
.115
a. Dependent Variable: Capital structure
Linear regression equation is:
Y = -0.770 + 0,019X1 - 0,002X2 + 0,100X3 - 0,002X4 + 0,019X5 + 0,093X6
Based on the significance test, it can be seen that with a significance level of 0.000, less than 0.05, it can be
concluded that the stability of sales, profitability, asset structure, liquidity, business risk, and the size of
the companies affect to the cooperative capital structure. Constants significance testing can be done by
comparing the value t tabel with t count price, for a 5% error level test of the parties with df = n-2, the
obtained t table of 1,997. If -1.997 ≤ t ≤ 1.997 mean that there is a significant influence between the
stability of sales, profitability, asset structure, liquidity, business risk, and the size of the cooperative
enterprise to the cooperative capital structure. Based on the result of statistical analysis on partial
correlation shows that not all financial performance to be determinant factors to the cooperative capital
structure of the six financial performance measure that determinant factors of the capital structure are
only sales stability, asset structure, and size of cooperative company. Profitability, liquidity, and business
risk are not a determinant factor to cooperatives capital structure. Stability sales, asset structure, and the
size of the cooperative enterprise become the determinant of cooperatives capital structure can be
described as follows; (a) The ability of co-operatives in maintaining the stability of sales or services will
be determinant in the decision of acquisition of loan funding sources. This illustrates that if service
activity can be improved by cooperative, the cooperative should find additional sources of financing, the
easiest is sourced from a loan, rather than from other sources such as members of the deposit, if the
deposit must be upgraded members have to wait for a decision member meeting, or rely on sources of
surplus arrested, usually cooperative surplus also very small amount. (b) The structure of assets have a
significant effect on the capital structure, structure of assets pledged as collateral for loans cooperatives,
the greater the ratio, asset structure shows that the cooperative increasingly the ability to provide
collateral for loans obtained in other words the more solvable. (c) The size of the cooperative enterprise
effect on capital structure, it can be explained that the cooperative has bigger size of cooperative
companies, cooperative has greater the opportunity for obtaining fund from the loan. Or in other words,
the greater the cooperative is the easier to access capital sources, especially from the loan.
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Variable profitability, liquidity, and business risk is not a determinant factor of cooperative capital
structure, that can be explained: (a) There is no effect of profitability on the cooperatives capital
structure, it means the ability of cooperatives to raise capital sourced from capital loans are not
influenced or determined by the profitability of the cooperative, this condition illustrates that the
decision to increase the financial resources derived from the loan, does not consider the level of
profitability, since most of the profitability of small cooperatives and cooperative goal is not to make a
profit. (b) The results of this analysis showed that the level of liquidity is not a significant effect on capital
structure, because the source of the loans are obtained by cooperatives mostly of the credit program,
which is channeled through cooperatives or for the cooperative itself, such as Kredit Usaha Rakyat, loans
disbursed by Lembaga Pengelolaan Dana Bergulir, a soft loan from the partnership program (Program
Kemitraan) and so on, in which direction the distribution in order to empower cooperatives and SMEs,
and not pay attention to the ability of liquidity. And (c) the business risk variable has no effect on the
capital structure, because that lender to ignore the risks facing cooperative, because as described here in
above risk is measured as the deviation of the expected return with the return that happen. Return
obtained year after year cooperative relatively stable thus indicating the occurrence of low volatility. It
can be seen in ROE obtained from cooperative sample during the last three years of growth averaged only
0.21% per year. Based on the multiple correlation analysis showed that of the six of financial performance
can be a determinant factors of cooperative capital structure, it indicates that together all six of financial
performance can be determinant factors on the cooperative capital structure, these results are basically
consistent with previous studies.
5. Conclusion And Recommendation
The conclusion from this study include: (1) In partial analysis are not all of financial performance as
determinant factors of the cooperative capital structure, of the six financial performance is measured only
financial performance as measured by the stability of sales, asset structure, and the size of the
cooperative enterprise be a determinant factors of the cooperative capital structure. Profitability,
liquidity, and business risk are not a determinant factors of cooperative capital structure. And (2) Based
on the multiple correlation analysis showed that all of six variables of financial performance as measured
by the stability of sales, profitability, asset structure, liquidity, business risk, and the size of the
cooperative enterprise, as determinant factor that affect to the cooperatives capital structure.
Recommendation: Recommendations to be done to improve cooperative capital: (1) Cooperatives
should always strive to improve the financial performance of cooperatives, particularly financial
performance becomes a determinant factors of cooperatives capital structure, it is necessary to increase
the confidence of capital owners, thus simplifying access to financing sources. (2) Establish a cooperative
effort with other similar networks, the secondary cooperatives, cooperative secondary role to provide
services that cannot be met by each cooperative as it is considered too expensive when performed by
each cooperative. And (3) For further research suggested can complement this research, through the
development of research variables that have been used, not limited to financial performance, but also can
be developed with variables related to the specific characteristics of cooperative organizations, such as:
participation of members, internal processing cooperatives, member satisfaction levels, government
policy in the development of cooperatives, and other macro-economic factors.
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How to Promote Franchisee Endurance in the Franchise System based on
Entrepreneurial Orientation
Erlinda
Padjadjaran University Bandung
Muhamadiyah University, Aceh Indonesia
erlinda.ass@gmail.com
Abstract: Entrepreneurial orientation is important to maintain the franchisee’s outlet endurance. This
researh aims to find out franchisee entrepreneurial orientation that appropiate to outlet endurance in the
given franchise system. Through a qualitative casa study approach, data were gathered by conducting 12
depth interviews to franchisees from 12 differences brand in Banda Aceh municipality, to get a cleaner
and deeper picture of franchisee entrepreneurial orientation and their outlets endurance. Based on
entrepreneurial profiles of prospective franchisees by Boulay and Stan (2013), the result indicates that,
franchisees in the system developer class, will have a high endurance by giving independent autonomy,
allowing them to innovate and operating system with multi outlets. Franchisees in the in-store
craftsperson class will have a high endurance by detail and clear standart operating procedure and
develop collaborative communication. And franchisees in the opportunistic class will have high
endurance by strengthening brand. Overall franchisees having cooperative entrepreneurial orientation.
Keywords: Entrepreneurial Orientation, Franchisee, Coopertaive Entrepreneurial Orientation, Franchisee
Endurance
1. Introduction
Franchisee who purchases the right from franchisor to use its brand name and operating system, faced a
dilemma, on the one hand to endurance their outlet, they have to applicated entrepreneurial behaviour,
but on the other hand they couln’t applied, due to limitation of standart operational that has been set by
franchisor. Then which type of entrepreneur orientation can be matched with the franchisee? This
question is important because it’s related to franchisees endurance in the franchise system. Previous
study have questioned whether franchisee investor or entrepreneur like (Grunhagen and Mittelstaedt,
2005: Ketchen, Short and Combs., 2011; Boulay and Stan, 2013), because if categorized as entrepreneurs,
franchisee doesn’t meet all contained aspects in the general concepts of entrepreneurship. But if we says
that they aren’t entrepreneurs, franchisee implementing some of entrepreneurial dimension. The most
widely referenced of entrepreneurial dimension by Lumpkin dan Dess (1996), consist of autonomy,
innovativeness, risk taking, proactiveness and competitive aggresiveness. In this case franchisee has
conducted three of five entrepreneurship dimensions i.e risk taking, autonomy and pro active.
From three studies mentioned above (Grunhagen and Mittelstaedt, 2005: Ketchen, Short and Combs.,
2011; Boulay and Stan, 2013), essentially they conclude that franchisee is ‘entrepreneur’. Therefore, the
next question is how entrepreneurial profile suitable for franchisee in order to their endurance? This
question posed to respond empirical phenomena that occured in Banda Aceh Municipality. In the last five
years business sector including franchising began to grow after the peace agreement and recovery from
earthquake and tsunami disaster. But in early 2015 the data shows, many franchise outlets difficult to
survive and finally failed. From 35 franchise brands listed in Banda Aceh during observation period in the
last five years, 15 brands (43%) failure. Observing the failure rate of franchise outlets in Banda Aceh are
high enough, it’s interesting to explore further the franchisee endurance in franchise system. Basically
many aspects in researching franchising including franchisee endurance. As suggested by Dant, et.al.,
(2008), there are trichotomy of franchising domain: 1. Franchisor 2. Franchisee (company outlet) and 3.
Customer. This indicates, there are three parties which play in franchise business, therefore researh on
franchising can be done, first, from franchisor side as the party having company and parent brand which
sells the rights to other parties (franchisee). Second, from franchisee side as the party who purchases the
right from franchisor to use its brand name and operating system to sell goods and services to
consumer/customer as end user. And third, from cusomer side as end user of franchise product and
services.
Although research on franchisee endurance can be seen from three domain mentioned above, but this
study is limited to the franchisees. The main reason for this restriction is due to high failure rate of
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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franchisees in Banda Aceh, despite operating outlets on relatively low competition. Whether the failure is
related to franchisees entrepreneurial orientation? As a comparison, in Pontianak city West Kalimantan
province with geographic and demographic characteristics similar to Banda Aceh, from 33 franchise
brands, untill now all brands still survive. Why in Banda Aceh doesn’t? It is interesting to study more.
Boulay dan Stan (2013), asserted that there are three entrepreneurial profiles of ideal franchisee (system
developer, in-store craftsperson and opportunistic investor) as suggestion to the franchisor in order to
choose their ideal franchisees. This researh aims to promote franchisee outlet endurance, based on
entrepreneurial profile as asserted in research by Boulay and Stan (2013). It is expected that this
research can provide guidelines to franchisees in order to endurance their outlets and as suggestion to
the prospective franchisee, what type of franchise should they choose.
2. Literature Review
Entrepreneurial Orientation: In order to determine franchisee entrepreneurial orientation, first
reviewed the concept of entrepreneurial orientation from expert and previous researchers.
Entrepreneurship was presented first by Schumpeter in 1934 as ‘an innovator’. An entrepreneur is
someone who create new business by taking risks and uncertanties to achieve profit and growth by
identifying significant opportunities and combine the needed resources, so it’s can be capitalized
(Zimmerer & Scarborough, 2008:4). Entrepreneurship according to Hisrich, et.al. (2008: 10), is the
process of creating something new on the value of using requires time and effort, bear financial, physical
and social risks, receive generating monetary rewards, personal satisfaction and freedom. Essentially
entrepreneurship is the process of creating something new and taking risks and returns. Jain (2011),
stated that entrepreneurship is a process of (i) recognizing (by the individuals or team of individuals) that
the entrepreneurial opportunities, for new venture creation or new value creation exist and they have
value (ii) deciding to exploit the opportunities by them (iii) exploiting the opportunities by the way of
new venture creation or new value creation by them for realization of some desired value.
The popular models of entrepreneurial orientation (EO), is proposed by Lumpkin and Dess (1996), that
there are five dimensions of EO, namely autonomy, innovativeness, risk taking, proactiveness and
competitive aggresiveness. But there are three dimensions that stand out are innovativeness, risk taking
and proactiveness (Miller, 1983) and has been used as a consistent literature in EO. Furthermore,Suryana
(2011:24), revealed that entrepreneurship is a creative and innovative capabilities as the basis, tips and
resources to look for opportunities to success. The essence of entrepreneurship is the ability to create
something new and different through creative thinking and innovative action to create opportunities.
Zenovia (2011) menyatakan the concept of entrepreneurship is seen as the process of uncovering and
developing an opportunity to create value through innovation and seizing that opportunity without
regard to either resources (human and capital) or the location of the entrepreneur – in a new or existing
company.
Some proponent arguments, that stated franchisees are entrepreneurs: To find out an appropiate
form of franchisee entrepreneurship in order to endurance franchisee outlet, some previous research will
be reviewed. Grunhagen, (2005:219), stated that franchisee as entrepreneur through the following
statement: ‘the franchise industry, in an attempt to promote the attractiveness of franchising to aspiring
entrepreneurs has coined the catchy phrase: ‘be in business for yourself, but not by yourself’’.’ Ketchen
et.al. (2011), through 38 responden from Entrepreneurship Theory and Practice (ETP) board members,
consist of 61.5% full profesor, 30.8% associate profesor and 7.7% assistan profesor. They asked, ‘Do you
consider franchisees to be entrepreneur?’ The answered showed that 12 (31.6%) said yes, six said no
(15.8%), and 20 (52.6%) said that some are and some are not. Comapring ‘yes’ and ‘no’ answered, It is
concluded that franchisee is entrepreneur. Furthermore, Ketchen, et.al., (2011:587) suggested that they
(franchisees) do almost all functions as other entrepreneurs except that they do not need to come up with
the business idea” and that “from the individual franchisee’s perspective, a franchise is a new venture and
therefore can be considered an entrepreneur. Some reasoning from practices through Ketchen, et.al.,
(2011:584):
- Franchisees are, however, entrepreneurs in the most important meaning of the word, and that is
that franchisees put their own capital and net worth at risk, seeking the best return on their
investment.—Don Larose, Senior Vice President of Franchise Development, Express Oil Change,
LLC
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- A franchisee is absolutely an entrepreneur. Anyone who is willing to take a risk by putting their
own money and, many times, all they own on the line for a business is my definition of an
entrepreneur.—Tom Hunt, Owner and President of PHD Hotels, Inc., a franchisee of Hampton Inns.
Other advocates stressed that franchisees engage in risk-taking, a key element of an entrepreneurial
orientation (Lumpkin & Dess, 1996). One respondent, for example, asserted that “franchisees who
assume the risks of ownership and engage in innovative behaviors to make their franchise a success
would be considered to be entrepreneurs.” Rajagopal (2007:346), stated ‘As primary income generators
of franchise businesses, organisational effectiveness and growth of the entire organisation rests on the
abilities of the franchisees.’ Zimmerer and Scarborough (2008), stated some studies have identified
several characteristics that tend to be identicated by entrepreneur are: 1. The disere for responsibility 2.
Prefers moderate risk 3. Convinced ability to succeed 4. The desire to get feedback immediately 5. High
energy level 6. Future orientation 7. Organization skills 8. Assessing that achievement higher than money
9. High commitment 10. Tolerance for ambiguity 11. Flexibility 12. Tenacity.
Previous research by Withane (1991), which explicitly examination of why people choose to join a
franchise rather than start an independent business, Withane (1991) asked 150 franchisees to rank the
importance of seven personal characteristics for the success of a franchisee. His results are need for
achievement, initiative, self-reliance, competitiveness, internal control, autonomy, and risk-taking; but
when the same respondents provide self-assessments of how they manifest each characteristic, the
ranking is quite different, with risk taking, competition, and self-reliance as the top three characteristics.
Garg (2005), said that franchising is cooperative entrepreneurship than independent entrepreneurship.
Cooperative entrepreneurship as opposed independent entrepreneurship. More specific research on
entrepreneurial of franchisee has been done by Boulay and Stan (2013) that revealed three
entrepreneurial profiles of ideal franchisee as shown in Table 1.
Tabel 1. Entrepreneurial profiles of ideal franchisee
Source: Boulay and Stan (2013)
Franchisee Endurance: The term of franchisee endurance yet used widely in franchising research.
Franchisee endurance connected with sustainability of outlets during the contract period and extend the
contrct further. Many aspects that can be used as a basis for assessing the franchisee endurance. Several
indicators can be used to measure franchisee endurance. First from performance. Rajagopal (2007:341-
346) finding that franchisee performance was reflected in their competitive gains, perceived use values,
volume of buying and level of quintessence with the CRM services of the organisation. The strategic
performance of franchisee outlets and effective retailing augment the customer perceptions and help
build the long-run customer demand towards the franchisee outlets. It has been obeserved in the study
that the performance of franchisee outlets is function of outlet attraction, supply and manufacturing
management quality, price and promotional strategies as functional factors. Besides, relational variables
including personalised customer services, leisure support and customer convenience also influence the
performance of outlets.’
Second, from franchisee satisfaction. Gauzente (2003), states that the franchisee satisfaction contribute to
the long-term durability of the franchise network. Then Lee, et.al. (2010:569), propound that franchisee
satisfaction which consist of two dimension, economic satisfaction and social satisfaction, affect to
franchisee loyalty (intention to renew contract and advocacy intention). Third from trust. It’s means as
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franchisee trust to their franchisor. As research by Chiou, et.al., (2004:24), that intention to remain in the
franchise system is a result of trust. Fourth from franchisor-franchisee relationship. Researchers who
supporting this idea are Brown and Dev (1997), stated that the closer the relationship between
franchisee headquartes and the on-site managers, the better individual franchisee will ferform and the
stronger the chain becomes.
Franchisee Endurance Based on Entrepreneurial orientation: Even though franchisee endurane
indicators which have been mentioned above are not describe entrepreneurial orientation directly, but to
achieve those indicators (performance, satisfaction and trust), the franchisees must seek to implement
entrepreneurial orientation dimensions such risk taking, proactiveness. According to Garg (2005),
research that can explain franchisees endurance based entrepreneurship orientation/profile is needed.
Despite of entrepreneurial orientation dimensioun are not implemented overall by franchisee, but in
order to endurance their outlets, the franchisee must perform entrepreneurial behaviour. Basically since
teh first assessing what type of franchise will be purchased, how much investment is required, the level of
risk, choose a location, it is already carrying out entrepreneurial orientation (based on Lumpkin and Dess,
1996; Zimmerer and Scarborough, 2008). But entrepreneurial orientation is needed by franchisee, is
different from others entrepreneurs, even though managers. As Rajagopal (2007:345) submitted: ‘As
franchisees are perceived to be independent and self-employed entrepreneurs, their ongoing
development is frequently overlooked or poorly managed, particularly compared with the development
opportunities for corporate staff in their support offices. The concern, however, is that franchisees do not
prioritise their own professional develop ment due to their inability to diagnose and source appropriate
training, their focus on immediate operational needs and a lack of free time to undergo development
activities. As primary income generators of franchise businesses, organisational effectiveness and growth
of the entire organisation rests on the abilities of the franchisees.’
The Types of Franchising: Franchising classification related to level entrepreneurial orientation is
needed. Several researchers classify franchising as follow:
Garg, (2005:60) said franchising is usually classified into two categories:
1. Traditional (or tradename or product), (e.g. gasoline stations), a franchisee function as a
distributor or a retailer for the products manufactured by franchisor.
2. Business format franchising (e.g. fast food chain restaurants), a franchisor typically provides a way
of doing business. To its franchisees consisting of a trademarked set of procedurs, designs,
management approaches and services that are to be delivered exactly as specified by the
franchisor.
Rajagopal (2007:341), stated the quest for global markets through franchising has however, traditionally
relied on employing just three generic franchising options: 1. Direct franchising 2. Master franchising and
3. Area development. Further, Zimmerer (2011:30), there are three basic types of franchising: 1. Trade
name franchising 2. Product distribution franchising 3. Pure/comprehensive/ business format
franchising.
3. Methodology
Qualitative research was deemed appropiate methodology, given the lack of literature on franchisee
endurance based on entrepreneurial orientation. Particularly, the case study approach, through depth
interviews towards 12 franchisees from 12 brands which exists in Banda Aceh municipality who are able
to explain perception, opinion and attitude towards their entrepreneurial orientation in order to
endurance their outlets. Interviews conducted which lasted approximately 45 minutes until one hour for
each franchisee. The participants were chosen through purposeful sampling, with aim of selecting
franchisees from different brand in order to meet the required information of entrepreneurial profile of
ideal franchisee from Boulay and Stan (2013). Face to face interviews were conducted on the franchisees’
work setting. The main themes in the interview guide were: 1. What are encouraged and considered
factors before joining franchising? 2. Whether the franchisees’ feel as investor or entrepreneur? 3. What
are they do before deciding to choose a particular brand? 4. How are their responds on outlet
management procedure? 5. What are they do in order to their outlets endurance? In addition to the
questionaires above, they also asked about 6. Whether they have other business or other jobs? 7. How
many years become franchisee? The participants and franchising brands and sectors are presented in
Table 2 as follow:
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Table 2: The participants, brands and sector of franchising
No
Initials
Brand
Sector
1
AM
KFC
Fat Food
2
AR
Indomaret
Retail
3
YF
GSC Super Bimbel
Education
4
JH
TIKI
Courier
5
MA
King’O Donuts
Food & Beverage
6
AW
Rudy Hadisuwarno
Salon
7
IM
Bimbel Alumni
Education
8
B
JNE
Courier
9
FF
TK Khalifah
Education
10
R
Kuch2 Hotahu
Food & Beverage
11
D
AHASS
Motor serice
12
FM
Primagama
Education
4. Result
Based on depth interviews from 12 franchisees with different brands, the result can be described as their
answers from seven questions (q1-q7) as follow:
q1. Before joining franchising, first almost all of interviewees were encourage and considere of
market opportunities, except D whose coninuing his father’s in law outlet. Second reasoning
(AM,AR, YF,AW,IM,F,R,FM) are having idle fund, while JH and B because get trust from master
franchise. The next reason is being franchisees more easier than set-up independent business,
beside well known brand already or brand which starting to famous.
q2. All of franchisee feel that they are as entrepreneurs or having entrepreneur spirit.
q3. Before deciding to choose a particular brand, they would seek the relevant information about one
brand and business system which following it. They are also comparing some brands and systems
of franchising, including franchise fee, franchise royalty, level of risk, contract system, outlet
management.
q4. Their responds about outlet management procedures have some differencies. Many factors
influence their comments as their entrepreneurial orientation, their characters and the franchise
system. The comments for this question could grouping into three types franchisees character.
Franchisee with SD characters have a positive and negative comments. Basically francisee with SD
characters are independent person, they don’t like to be restricted. According to them, franchise
system more profitable to franchisor including profit sharing.
Similarity with their comments, Laurence and Kaufmann (2011:289) have made a parable about
franchisee-franchisor relationship as folow:
‘A scorpion needs to get across the river, and says to the frog, carry me across the river, and the frog says, you
know, no, you’ll sting me and I’ll die. The scorpion said, well no, once we get on the river, if I sting you, we’ll
both die; I’ll drown. So the frog says, okay,and they get halfway across. The scorpion stings him and he says,
why did you do that? He says, I’m a scorpion, it’s what I do. Well, the scorpion’s the franchisor and the frog’s
the franchisee – Collins’
Thus the parable of franchisor-franchisee relationships. Fortunately franchisee in SD characters, they
have others business as independent business, so they don’t think too much during the performance
outlets still favorable. Then the franchisees with ISC character prefer the franchise system where they are
follow to participate managing the outlet. Because basically they reason become a franchisee are for main
souce of their economic living. Therefore they have great interest for their outlet endurance. And the
franchisee with OI characters prefer the franchise system where they are not too much follow to
participate managing the outlet. Generally they have regular job in other sector, so become franchisee as
to invest and earn their money.
q5. To endurance their outlet, the franchisees always monitoring constantly their outlets performance.
They are also building good communication with their franchisor. But some franchisees complained
about the lack of supervision of their franchisor after contract is signed.
q6. For question about whether franchisees have others business or others jobs, the answer could be
grouped into three type of franchisees entrepreneurial characteristics. AM, AW,FM, AR, JH whose include
SD characteristics, they have others business before joining franchising business. Generally they are the
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real entrepreneurs. Their business more than two sectors. Become franchisees just for invest their idle
funds. While B,D,MA,R, could be said that they are the real franchisees. Generally, become franchisees as
their economics living sources. They are focus on one business, and difficult to arrange many business.
They are not agile like franchisees in SD category. Therefore they are prefer to choose the franchise
where they come running daily business operation. Latest, F,YF,IM which OI characteristic, actually they
have regularly jobs before joining as franchisee. Therefore their motivation to be franchisees are to earn
they money and income. They don’t have enough time to manage their outlets. From dept interviews they
prefer to choose franchise with good operating systems, good franchisors track records and prospective
brand name. They are wily to catch the opportunity and dare to be the first franchisee in one area. They
are not too fear with risk, because having permanent jobs. In order to understand how to promote
franchisee endurance based on interviews abovo and entrepreneurial profile from Boulay and Stand
(2013), then 12 frachisees who have been interviewed, could be grouped into three types, there are:
System Developer (SD), In-Store Craftperson (ISC) and Opportunistic Investor (OI). The result shown in
the following table:
Table 3: The participants and their personality characteristics associated with their EO
Class
Participant
Years as
franchisee
Personality characteristics (specific vocabulary)
SD
AM
AW
FM
AR
JH
33
4
14
3
17
Entrepreneur, Independent autonomy, not only as franchisee but
they have others business, opportunity catcher, leader, internal
locus of control, risk making, first, innovativeness, pro-active,
mobile
ISC
B
D
MA
RCP
15
7
2
2
Become a franchisse with hope, it will be their livelihood source,
risk taking, focus, devote their time and give more atention for
outlets, opportunity catcher, detail, in store
OI
FF
YF
IM
4
4
5
Become a franchisee just for earn their money, becaus they have
had a stable job (government office). Risk taking, opportunity
catcher, not enough time to manage the business, information up
date.
All interviewed franchisees feel that themselves have entrepreneurship souls and spirits. All of them have
the same reasons, that if someone has entrepreneurial spirit, they will always looking for business
opportunities, seeking and up date information pro-actively, dare to take the risks. Five of twelve
interviewed franchisees (AM, AW,FM,AR,JH) have SD personality characteristics. They are the real
entrepreneurs, because first they have their owns (independent) business before joint as franchisees.
They have not only one business sectors but engaged in some business sectors. Their average age were 45
years and over. Their economics have been established. They have high spirit of leaderships, high internal
locus of control, high confidence, considering that failure was a valuable experience to success. They are
not easily to be satisfied, even though getting successes. Franchisees in this category prefer to joint
franchising wih well-known brand, standardized system, because basically for them become a franchisee
just for sideline investment.
Next, four of twelve interviewed franchisees (B,D,MA,R) have ISC personality characteristics. Basically
becomes a franchisee because of teir circumstances, especially as source of their economics living. Like
Boulay and Stan (2013) described, actually they want to set up their own business by opening a retail
outlet. They are focus to manage their outlet. There is a difference with Boulay and Stan (2013) resulted
that ISC profiles looking for a second career. But here franchisees will looking for the second career if
their outlet failed. But if their outlet success they will focus on the progress of their outlet. Their business
ambitions are not as high as the franchisees with SD profile. Generally they are good and thorough
workers, happy to entervene managing their outlet. Two of four franchisees in this category are business
beginners, who choosing became a franchisee as a place to study business. Franchisees in this category
prefer to joint franchising with tolerance system, because they want to participate actively in managing
outlet. Generally they prefer to buy a cheaper franchise, but confidence with franchise prospect. They
need good communication (collaboration communication) between franchisor-franchisee. Then three of
twelve interviewed franchisees (F,YF,IM) have OI characteristics. Actually they are opportunities catchers
and the real investors. All of them have a regular job as government employees. Their motivation as
stated by Boulay and Stand (2013), are to earn (money) and first. Therefore they prefer to buy franchise
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with nead system, franchisor with good track record because they don’t have enough time to manage
their outlets. The third are the first franchisee for a particular brand in Aceh province. So, specific
vocabulary from Boulay and Stan (2013) for this class is proven.
Discussion: From depth interviews and three grouping, there are something to be discussed. First, from
personality characteristics, it can be said that all participants have entrepreneurial orientation. But there
are some differencies in levels or degrees of their entrepreneurial orientation, which affect their
behaviors. The problem is how they adjust their entrepreneurial orientation behavior with the given
system in the frachise business system. The grouping by Boulay dan Stan (2013) directed to how
franchisor choose their franchisees, but the facts are they are often did not meet directly with their
prospective franchisee and even during the franchise contract lasts. Therefore, this research more
suitable for prospective franchisee, what type of franchise system should they choose, to get match with
their entrepreneurial characters and if its were, so their endurance will be better. Through this
discussion, the author would like to introduce a new term associated with entrepreneurship degree
required by franchisee, that is ‘kw-preneur’ or ‘entrepreneur kw2’. It’s mean entrepreneurship with lower
level than the real entrepreneur. This level of entrepreneurship more suitable for franchisee, because
franchisees must following a given business system, so they cann’t express their entreprenerial
orientation at all. Garg (2005:58) said that franchising is cooperative entrepreneurship than independent
entrepreneurship.
5. Conclusion
Based on results that explanation above, we take conclusion that for promote franchisee endurance based
on franchisee entrepreneurial orientation, then franchisees in the system developer (SD) class, will have
a high endurance by giving independent autonomy, allowing them to innovate and operating system with
multi outlets. Franchisees in the in-store craftsperson (ISC) class will have a high endurance by detail and
clear standart operating procedure and developing collaborative communication. And franchisees in the
opportunistic class will have high endurance by strengthening brand.
Recommendation: Even though this research is intended for franchisee in order to promote their outlet
endurance, but also provides some useful recommendation for scholars, prospective franchisees, and
franchisors. Understanding of entrepreneurial orientation in franchise system bring us to one variable
that rarely studied namely ‘cooperative entrepreneurial’. For future researchs, can continue this
research with larger sample and quantitave research methodology, also associated about cooperative
entrepreneurial with franchiser-franchisee endurance. So it can be enrich the knowledge and determine
which indicators most influencing franchisees endurance based on entrepreneurial orientation. Further,
for prospective franchisees, this research provides some important information as a guide in determining
which type franchise should be purchased which is associated with their entrepreneurial profile (SD,ISC
or OI). It is importand to consider in order to their endurance later. Whereas for franchisors, this research
provides some information related to background and motivation of prospective franchisees, because it’s
will contribute to the success of franchisee as well as an success indicator measurement for franchisors.
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Grunhagen, Marko and Mittelstaedt, Robert A, 2005, Entrepreneurs or Investors? Do Multi-unit
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Independent Value Creation: Concept, Activities and Implications
Yudi Sutarso
STIE Perbanas Surabaya, Perbanas School of Banking and Business, Indonesia
yudi@perbanas.ac.id
Abstract: Marketers need to understand to value creation process performed by customers, not only in
term of co-creation (value creation performed jointly with provider)but also independent value creation
(value creation conducted independently by customer without direct interaction with provider). By its
understanding, it would help in designing of what services required by customer, how to develop the
customer value, and the underlying factors. For marketers , this information will guide in determining the
capacity of services to accommodate customervalue creation in exchange. This study aims to
investigateindependent value creation, particularly to describe its concept, its activities and value, and to
investigate how personality role in value creation. The study used qualitative design, in which theprimary
participantsare the customer of higher education servicesor students in Indonesia. The participants’
selection is performed by a judgment sampling. The main data collection in this study is through in-depth
interviews. The findings showsthat value creation can be perform by both of value co-creation and
independent value creation. By independent value creation, there are activities, namely:collecting of
knowledge sources, critical thinking, evident finding, informationsharing, personal interaction, and
helping. There are benefits found from independent value creation such as functional, social, and
relational. Personality has potential opportunity to influence the customer performance in independent
value creation. Marketing implications of the independent value creationare also discussed in this paper.
Keywords: co-creation, independent value creation, value creation, marketing, service dominant logic.
1. Introduction
Historically, the meaning of customer value has shifted from value as utility, economic worth, perceived
satisfaction, net benefit,mean-end, and phenomenological experience (Ng and Smith 2012). Moreover, in
SD logic view, value has clarified in nature and scope, through the dominant premise, namely : the
customer is always a co-creator of value; the enterprise cannot deliver value, but only offer value
propositions; value is always uniquely and phenomenological determined by the beneficiary; and the
premise which defines the resource-creation process that underlies value creation, through service
provision, all social and economic actors are resource integrators (Vargo and Lusch 2008). Value
creation as center of marketing activities in marketing and management literature has different
terminology, including: co-production and co-creation. Co-production concept is often used to describe
customer participation before the term of co-creations appears. The co-production is often obscured by
term of co-creation in marketing literature, resulting miss interpretation. Moreover, among
researchers,there are differences in understanding co-production and co-creation. Vargo, Lusch and
Morgan (2006) defines them differently, where value co-creation is activity consisting two different
things, namely co-creation of value, which refers to creation of value through both direct interaction and
not directly with marketers, and co-production, which refers to participation of customer in creating a
core offering. In this sense, co-production is a component of co-creation of value (Vargo and Lusch 2008).
However, Grönroos and Voima (2013) provides a different perspective on the both, where they are same
concept, namely the joint value creation activities, but with a different perspective. Co-production is
creation of joint value of perspective or point of view of production, and co-creation is the same activity in
perspective of value creation. Even, some interpretthat co-production and co-creation are not
dichotomous view or mutually exclusive, but they are as a continuum based on the value creation process,
where the co-production is on one continuum, and co-creation on the other continuum (Chathoth et. al
2013). In otherview, co-production or joint production is a situation in which companies and consumers
interact and participate in production (Bendapudiand Leone 2003; TroyeeandSupphellen 2012) or
cooperation of consumers and production partner (Etger 2008).
This gap encourages the need to look beyond value creation performedby customer. Grönroos and Voima
(2013) classified value creation,namely joint value creation or co-creation and independent
valuecreation. Both terms are in customer perspective. Independent value Creation is value creation
carried out by no direct interaction with provider. Furthermore, in marketing literature, mostlyvalue
creation study analyze in the sense of co-creation, while the sense of independent value creation is
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limited. Based on this gap, this research problemsarewhat is the concept of independent valuecreation,
it’s activitiesand itsvalue or benefit, and how personality factors play a role in the activities.Thus, this
study addresses three questions related to independent valuecreation. Firstly, the question related to
what activities carried out by customer in independent value creation. Providers need to understand to
what extent the possibilityof independent value creation, so it is necessary to know the spectrum of
independent value creation activities from the lowest to the highest level. For providers, this information
will guide in determining the capacity of the service or value proposition to accommodate the
customervalue creation in exchange. Secondly, question related to what’s value or benefit obtained by
independent value creation. Information of the benefits required by providers and customers in order to
determine how much the potential benefit for customer and how much can be developed.Finally,
questions related to how personality factors related to independent value creation activities. Personality
factors regarding how the personality traits (introverts vs extrovert) associate with the customer's
independent value creation activities..
2. Literatur Review
Customer Value Creation: Understanding value and process of creation has shifted from a view of
product and company centric to be a view focusing on personalized customer experience (Prahalad and
Ramaswamy 2004). The interaction between customer and company became the locus of value creation,
where customers are active, informed, networking, and power perform co-creation with company or
provider. In addition, value creation in an interaction between customers and providers can be classified
into four classifications, namely: value facilitation, value co-creation / value creation, independent value
creation, and independent social value creation (Grönroos and Voima 2013). This classification is
distinguished by subject, type of interaction between customer and provider, and value creation activities
undertaken. Value creationindicating how customerinteract directly with provider often termed as co-
creation (Vargo and Lusch, 2008; Grönroos, 2011). This terminology indicating the involvement of
customers in value creation activities have long studied in literature, namely participation (Dong, Evans
and Zou 2008, Fang 2008, Casalo, Flavian and Guinaliu 2008), involvement (Kristensson, Matthing, and
Johannsen 2008; Lagrosen 2005 ; Hollebeek and Brodie 2009), and co-production (Etgar 2008;
Bendapudi and Leone 2003; Troye and Supphellen 2012). Therefore, it gives an overview of how
evolution and dynamic of the interaction concept between customers and marketers in the exchange, and
demonstrate these concepts have relationships, similarities and differences.
Customer participation initially occurs on public health sector with the motivation to manage risk in
medical decision making (Vertinsky and Uyeno 1971). In subsequent developments, customer
participation evolved and appeared some definition of customer participation. Customer participation is
degree to which the customer is involved in production and delivery of services (Dabholkar 1990),
contribution of customers in exchange namely:in marketingprocess, consumption and delivery of
products or services (Dong et.al 2008), or the level of customer involvement in providing and sharing
information, providing advice, and decision-making for co-creation and delivery process (Chan, Yim and
Lam 2010). A shift in participation definition is ranging from the narrow involvement such asinformation
contributions (Kelley, Donnelly and Skinner at.all 1990), into the high level involvement in production
and delivery (Dabholkar 1990), provide resources (time, effort, information and co-production)
(Namasivaam 2003), participateas co-creation component in value creation (VargoandLusch 2008). Thus,
customer participation is more commonly used to describe activities of customer co-production.
The initial concept of co-creation is joint value creation by company and customer, which enables
customers to construct experience, define and solve problems together, and create an
experienceenvironment where customer can actively engage in dialogue, in which the emphasis is on
experience variation (Prahalad and Ramesway2004). Furthermore, co-creation becomes growing and
dynamic concept, which it’sconceptualized in two perspectives, namely focusing on company and on
customer (McColl-Kennedy, Vargo, Dagger, Sweeney andKasteren 2012). Comparing co-creation and co-
production would be seen a comparison of some aspects (Chathothet.al 2013). Co-creationis value
creation conducted by joint creation a unique experience, customers play an active role as information
providers and value creators, customer participation is repeated interaction regarded as operant
resources, customer expectations is products co-creator, activities focus is on customer and experiences,
it engage customers with high level of information, innovation and design is conducted together with
customers, its learning from customers, as well as communication is done through open and transparent
dialogue. However,co-productionis more asvalue creation through achievement of economic value and
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product quality, customer role is passive which is more as a resource, customer participation is at the end
of value chain, consumer expectations are matchingcustomer’s needs with offering, its focusing on
production and enterprise, innovation is directed by company, and communication is listening to
consumers and less transparent (Chathothet.al 2013).
In addition to value creation performed through interaction with providers, there is a value creation
performed by customer without any direct interaction with provider. Grönroos and Voima (2013)
referred this concept as independentvaluecreation and independent social value creation. The first
concept shows that value creation is conducted by customer on an individual basis without any direct
interaction with providers, and the second concept describes value creation performed without any
direct interaction with provider, but with interaction with others (eg, customers, family). Both
terminologies are very limited discussed in literature. Moreover, Rihova, Buhalis, and Gouthro (2013)
definessimilar term called customer-to-customer co-creation (C2C) to show independent social value
creation, which in his study, there are four categories of C2C co-creation based on who is doing. Co
creation is done by two consumers in pairsas “detected customers"; by group known by customer (ex:
family or friends) as "social bubble"; by temporary community that is not known (ex: moviegoers)
as"temporary community"; and by active customer community (ex: football fans) as "ongoing neo-tribes".
A study of independent social value creation is reflected on how interaction among customer in value
creation. Huanget.al (2015) found that relationship between consumers at early stages would be close,
but at a later stage would be far, in which itsin line with achievement level of individual goals and
perceived uncertainty. In addition, the relationship among consumers is also providingcustomer benefits
in creating value, for example, relationshipsamong customer affect goalin whichthe number of friends
make easier to achieve objectives, and the achievementcan be at un imagine level (Fitzsimons and Bargh
2003). Relationships between customers also provide social support in achieving purchase goal (Uchino
2006). Sense of community ownership positivelyassociates with quality and commitment at products
having high relationship among customers (Bunker 2014). Additionally, Duhachelk, Zhang and Khrisnan
(2007) explains that interactionsamong customers influence purchasing decisions, in which the type of
information and groups’attitudes affect to attitudes toward product, and it is influenced by group
interaction. Thus, these studies confirm that customer value creation associated with interaction among
customer.
Independent Value Creation in Higher Education: Concept of independent value creation can be found
limitedlyin literature. Fagerstrom and Ghinea (2013) investigated co-creation in higher education, and
concluded that network marketing via Facebook could be co-creation media for prospective students in
their study decision-making, not only co-creation with universitybut also with other students. Moreover,
Diaz-Mendez and Gummeson (2012) showed that education services is one of the most representative
examples of value co-creation approach, where if student is not learn on their own or co-create value,
they would not get value from educational services. The concept of value creation, especially in higher
education can be found in some term. In connection with independentvalue creation, value creation in
higher education became a model which has developed. Some of the terminology is independent learning,
autonomous learning, and self-directed learning. It is undeniable that there is no common definition of
independent learning (Morison 2011). Independent study is a process, a method and a philosophy of
education:in which a student acquires knowledge by his or her own efforts and develops the ability for
inquiry and critical evaluation; it includes freedom of choice in determining those objectives, within the
limits of a given project or program and with the aid of a faculty adviser; it requires freedom of process to
carry out the objectives; and it places increased educational responsibility on the student for the
achieving of objectives and for the value of the goals (Candy 1991). In addition, inlinguistics, it is known
independent language learning where it is a movement that led to student-centered learning, in which it
sees learners are individuals who have needs and rights, where they can develop and practice the
responsibility for their learning (White 2008). In other word, in fact independent value creation in
education is not a new concept, but it has grown and developed with different terminology.
In this study, there are two types of independent value creation in higher education, namely independent
personal value creation and independent social value creation. Personal value creationor personal
learning is a learning activity that is conducted with no interaction with other students, while
independent social value creation or joint learning is when students do joint learning with others. In the
personal learning, activities carried out individually by students, there is indirect interaction with
campus, and no control of campus ontheir students. While in joint learning is a value creation activity
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undertaken by student with their friends or others, with no direct interaction with campus, and no
control of campus on students.
3. Methodology
Since the creation of an independent value in higher education is still very limited, this study uses
qualitative exploratory design to achieve the study objectives, namely inductive approach and aims to
gain a deeper understanding of a problem (Wahyuni 2012, H.2). This study uses a case study design to
answer the research question, because the study is more to answer questions from what and how aspect
of the study topics, researchers cannot control the events under study, and the research focus is more on
current events or contemporary (Yin 1989). In addition, the unit of analysis in this study shows how the
selection of participants in the study. In this research study is the dyadic relationship between the
campus and the students in the transaction. So that participants will be selected in this study were
students. To select the participants of this study, it is used purposive sampling technique, the sampling
technique in which participants were chosen because it meets qualification criteria determined by
objective research. Participants in this study were students. The sample size in this study is based on the
theoretical saturationprinciple, i.e. one point in the collection of data in which cannot be found additional
information anymore to answer research question.The main data collection in this study is through in-
depth interviews. This study has conducted interviews with twelve participants in three university
students in Indonesia. Undergraduate student’s participants were interviewed for approximately 30-60
minutes each. Data analysis is using the principle that data analysis is a progress and is an ongoing
process, and not just at one time.
4. Finding
Independent Value Creation Activities: Independent value creation activities undertaken by students
in college arecomposing of personallearning and joint learning. Personal learning is learning activities
undertaken individually without directinteracting with the other party, and joint learning islearning
activities carried out jointly with other students. Some of independent learning activities are as follows.
a. Collecting of knowledge sources. Collecting information is an activity to collect materials and learning
resources such as data, information, knowledge, or references required by students to achieve learning
goals. The collection of materials and learning resources is done in several ways, namely: asking a friend,
a senior or others (outside lecturers), reading books or records, viewing or listeningrelevant information
from electronic information channels. Television, radio, internet, social media), going to library, observing
student learning techniques, and through learning from experience. Participants described these
activities in the following terms.
"When I learned in the morning, usually I read a book, and if there were important things in the book I would
note. I were also looking for other references, for example from a book said that they quote from awriter, for
example from Thomas Edison, later I would look again what it’s said in a part of anotherbook"……"Usually I
watched television ornews; learning is not only focus on a book. For example, when Ilearnpositioning topic
(in marketing), at the time Isaw a billboard in road or on public transport, there are information I can learn
from"…."Once I get syllabus, I will search for books or journals in library. Although it’s not all I read, but at
least I understand it and I came to know the author "….."Usually to look for information in group learning, I
will immediately ask a friend, and also by giving my opinions….my expectation is came true when I give an
opinion then there will be a response from my friend….I'll see new information or its also increasingly
convinced me that this is true because my friend explain by giving example ... ".
In addition to this activity, participants also said that listening to music is also part of learning activities
that promote concentration. Sources of information coming from Internet (google,ebook) are widely used
in searching for information.
b. Critical thinking. Critical thinking is thinking activitiessuch as contemplation, precipitation, remember,
stringing, imagine, and analyze information and knowledge gained in learning process. Some of being
taught is rememberingprevious subject lecture, learning technique, subjects’problem solving, and the
relationship amongtopics in lecture. Some of thinking phenomenon of participants is as follows.
"The way of my thinking is imagining, making analogy with available facts ... for some things I became more
relax thinking and not deeply understand the topics... Oh look like this... But I will be relax to read, because
eventually it will also be discussed in group”….."What I think is how to remember more easily, what’s the key
to make information is easier to remember, and then my thinking leads to the completion method"…."For
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example, when there are topics discussed in class, delivered differently, and then we think there is athinking
note,… means that what is presented is wrong, the truth is like this…"
c. Evident Finding. This activity is studenteffort to find argumentation or problems solving in learning
through looking for supporting evidences. Some activities are matchingsubjectswith other sources (book)
and looking for examples of applications.
"there were a group assignment and we had already done and discussed in class, whenwent back home, I
would compare with literature ... oh there was a mistake in previous discussion because when we compared
with a reference book, this is right ... usually I look for examples of ads on YouTube, to find examples of its
application”
d. Sharing information or knowledge. This activity is mutual communication activities such as a
conversation or discussion amongstudentsin groups. There are some activity, namely: informing a way to
do assignment, discussing difficulty in understanding the subjects to other students, suggestinghow to
improve learning, offering alternative learning resources outside the specified and other relevant
information, responding when getting an explanation from another student, and answering questions of
other students associated with course material. Participants described these activities in the following
terms.
"The first is expressing each opinion of student, then it’s giving comments on the opinion, and discussing of
how toclose gaps (difference opinion) that we comment on or less or misunderstandings to" ….."Merging the
minds of many people into one thinking"
e. Personal interaction. Personal interaction is to communicate and relate well with other friends sothe
friendships would be sustain. Description this activity is reflected such as: interacting with other
students, listening explanations of other students, joking at the right moment, and sharing something fun
(food). Expression of personal interaction phenomena in this activity is as follows.
"To facilitate relationships, sometimes we share a meal or a joke to start or in the middle of critical
condition, there is a friend who starting a humor... the more often is in the middle of group study sometimes
we took a break.”
f. Helping.This activityis providing assistance to other students who are facing trouble orproblem, and
making effortto increase learning achievement. Participants expressionson this activityare including:
helping other students who ask for helping in learning, helping other students who have trouble in
understanding the course material, teaching other students on how to understand the course material,
and advising to other students in learning. The phrase that expressed by a study group show that the help
is given for those who request for assistance or it is given on their own initiative. Participants described
these activities in the following terms
"At first, friend who needs help informs difficulties about reading, and then the team leader will ask the best
group member who could understand the reading, to read the passage, after which he will explain to this
friend"…..“There is also a friend that he was quite clever, and quickly understands the reading, when he had
finished and made a summary, he will say something like “anyone needs help? ... He would give his own
initiative to do so, when it is not there (who asked for help) he will continue other activities”…"What happens
when we learn in group, if a friend has difficulty but he is not asking for help, then we will think that he's
going through it in his own way in learning process"
Independent value creation activities, both personally and socially carried out with other students have
similarity with co-creation activity in marketing literature. For example,there aretwo-dimensional of co-
creation activities, namely customer participation behavior and extra role behavior or customer
citizenship behavior (Yi and Ging 2013). The participation behavior consists of information finding,
information sharing, responsive behavior, and personal interaction, while the extra role behavior consists
of feedback, advocacy, helping, and tolerance. The value creation activity in present study adds critical
thinking and evidence finding activities.
Customer Creation Value: There are values or benefits gained by students either through personal or
joint learning. By personal learning, students get functional benefits, while by joint learning; they find not
only functional benefits, but also social and relational benefits.
a. Functional benefits. Functional benefits perceived by participants including: learning subject is fitting
with what student want to be learned, making easier to understand lecture material,learning time is
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flexible as I can or want, improving quality of learning, providing a solution for my learning difficulties,
improve understanding course material, a way of learning that suits my way, more focused, able to own
methods, and flexible or free. Some expressions associated with the functional benefits of learning are as
follows.
"Personal learning makes me able to find information I need and possible to not be disturbed by other
information that is not I need"…. "By personal learning, I feelfreer to decide what I learned and which
chapter I will be more focused"…"For me, by individual learningI will get the information I want, if I learn in
groups I get additional information from the discussion. For example, I have been getting information A,
from the learning group I get information of A + B and A + C. Sometimes, I also get the information that I
obtained cons before, so I also understand differences in the discussion”…."There is no interference, more
flexible how I think, how I learn, and how I read”
b. Social benefits, social benefits are benefits associated with how others see a student with learning
activities are being carried out. Students gain social benefits in terms of learning itself is a positive
perception as someone who has a high intellectual. The expression given by participants are as follows:
"When I bring a book even though I have not read, but I felt others would assume that I'd like to read. It
makes me ok, and my heart feel happy ... also when I read book, I feel others will think differently…when
others are busy with cell phone, while I read book ... this is anti-mainstreamstudent .... "
c. Relational benefits. This benefits concern on how the increasing of intensity and quality of student
relationships with other students. The quality of this relationship is asimportant capital for student life.
Some of the benefits ofjoint learning activities are “help me maintained close relationships with other
students” and “the closer interaction with other students”.
The Role of Personality Characteristics: Personality traits in this study are viewedfromextroversion
characteristic point of view, in which it states that everyoneis grouped into a continuum between
extroverts and introverts. Extroversion is characterized by nature gregarious, active, assertiveness,
positive emotion and warmth (Parvin, Cervoneand John 2005). These characteristics in this study were
associated with two concepts value creation, which is done by the students in higher education services.
The relationship is shown by students who tend to be introvert would prefer toindividuallearning, while
extrovert will tend to prefer to joint learning. Participant gives an overview of this relationship as follows.
"Extrovertstudent would prefer to group learning, while introvert student would prefer to individual
learning. Introvert studenton my knowledge is not like disturbance, while extrovert student isno problem
with disturbances.Introvert student usually more difficult to get along with others, while extrovert student is
easier to get along with other people. Introvert student will be easier to learn themselves and not easy to talk
when in group discussion. Extrovert student will quickly bored to learn on their own, more often be "nosy"
when in group learningand be more as ice breaker ..."
Implications: The findings in this study expands the understanding of independentvalue creation
(Grönroos and Voima 2013) in higher education,especiallyon value creation done by the student
personally (personal value creation) and value creation performed with other students (social value
creation). There are some managerial implications from the findings. Firstly, university needs to make
value creation activities, either personally or socially as part of a commitment to improve quality of
higher education services. The facilitator role for student learning activities needs to be strategies for
improving graduates quality. Emphasis on value creation has become complement for value co-creation
activities. Important feature of independent value creation is the lack of control of university on value
creation activities done by students. For marketers, independent value creation activity on higher
education can be a guide in managing services outside of education. Uniqueness of customer and
exchange in higher education provides guidance on how customers make independent value creation,
both in the sense of personal independence and jointly with other customers. Personal self-learning
students in higher education services could be a model of customer management to improve benefits. The
view that customers as learner canbe a guide for service providers to facilitate customers in better
way.Secondly, universities need to synchronize students’ independent value creation activities with their
value co-creation activities. This would encourage the integration of student value creation activities,
which influence to increase value or benefits. Synchronization of independent value creation and value
co-creation in higher education can be through the provision of internet and e-learningmedia, in which
not only studentscan get learning materials, but also can communicate and share knowledge with both
faculty member and other students. Similarly,internet playsa central role for customer value creation and
co-creation activities with marketers, because it can be not only as media of dissemination of information
or product promotion, but also as a medium of communication with and among customers.
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Thirdly, universities should facilitate student independent personal value creation through creating a
productive atmosphere by providing self-learning facility including books, libraries, cubicle, and internet
access at campus locations. It would encourage an atmosphere that allows students to focus in
independent learning, getting flexibility of where, how and when to learn. At the level of other services,
marketers need to provide a means for independent value creation activities, such as products
information that are easily to be accessed by customers. Brochures, websites, billboards, and various
other media are not only aimed at raising awareness and purchase, but also facilitate independent value
creation activities.Fourthly, the facilitationrole for independent social value creation activities could be
conducted by providing better physical facilities allowing students perform joint learning. Provision of
discussion rooms at each campus area will increase chancesfor students to learn together. Also, itis
important to encourage students to work together as a method of learning, through group assignment in
which structurally inherent in teaching. Encourage students to create value with outside parties such
public, stakeholders with the subject matter (eg: business), or their family will increase benefits of
student learning activities.Fifthly, at cognition level, it is important to provide an understanding of how
independent value creation activities to students. It is conductedthrough disseminate information of the
technique of effective independent learning. Availability of the information through verbal
communication and internet plays an important role.
Finally, universities need to provide information guiding to how to increase productivity in independent
value creation, associated with both education benefits and how to access the services. Information
ofeducation benefits, how to obtain the educational benefits for student goals. Aspects of how to get the
greatest benefit from the study highlight the need in communication. For example, information about
English language learning success tips, tricks applying for jobs, and so on. The method intended is how
customers can understand on how to independently get greater potential benefits provided by product.
Detailed and massive spread information would help process of independent value creation. Also, in the
case of independent value creation performed with other customers, it should be provided with
information, customers’ media, and management of the media in order customer value creations can be
productive.
5. Conclusion
This study extends an understanding of customer value creation, which is performed independently or
through no direct interaction with provider. The limitationof independentvalue creation topic studied in
literature motivate the present study to elaborate independentvalue creation performedpersonally
(personal value creation) and jointly with other customers (social value creation). Both type of value
creation complete customer value creation carried out by direct interaction with provider (co-creation).
In addition, control and two-way communication are to be conceptual boundaries of independent value
creation with co-creation. At the time of value creationperformed throughno direct interaction with
provider in whichthey do not control the activities, independent value creation is conducted. Thus,
independent value creation is value creation without direct interaction with providers, even thoughit’s
involving othercustomers’ interaction.
Independent value creation activities are performed through both personally and socially. In higher
education, independent value creation undertaken through some activities, namely : collectingknowledge
sources, critical thinking, getting evidence or resolve problems, doing physical activities, sharing
information, doing personal interaction, and helping. Moreover, the activities were done fully through
social value creation, but it’sonly partially carried out through personally value creation. Some activities
done through personal value creation arecollectingknowledge sources, critical thinking, getting evidence
or problem solving, and doing physical activities.Value or benefit gained by students in personal value
creation activities is more as functional value, namelygetting more focused in activities and flexibility in
time, method, and place. Enjoyment value is only occurs in a few students. Meanwhile, through social
value creation, students got some value, including:functional, relational and social value.
Limitation and research implications: This study is subject to some of limitation, which will effect on
the interpretationof findings. Firstly, the scope of higher education in the study is not
distinguishededucation types. The field of education will have a difference in learning, where different
knowledge is very likely different ways of learning. Secondly, the judgment sampling would provide
weaknesses in representation of higher education institution. Finally, interview techniques used in this
study less include group dynamics in elaborating data compared to group discussion.
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Model of Improvement Operational Performance Based on Quality Management,
Creativity Innovation, Imitating and Role of Strategic Human Resources
Marno Nugroho
Diponegoro University
Sultan Agung Islamic University (UNISSULA) Semarang, Indonesia
marnonugroho@unissula.ac.id
Abstract: This study aims to examine the influence and contribution of Human Resources Strategic to
build the creativity of imitation, innovation and quality management initiatives in order to improve
operational performance of Small and Medium Enterprises. At the present time, it is impossible to find an
industry that is not continuously required for innovation and reorientation to adjust to the dynamics of
the environment, especially the market. Factors influencing the success of HR management come from
individual and organizational factors (Koberg, 1999; Scott, 2011). An important point related to the
resource-based viewpoint (RBV) and knowledge management of a company is a company must have
inherent capabilities resources and difficult to imitate. The indicators built include awareness of creating
innovation and imitation. How HR Strategic is seen as stakeholders of the company will contribute to
greater competitive advantage through organizational learning. Therefore, HR Strategic will give
contribution to attitude and capability. The uniqueness of this research is to integrate aspects of HR and
Operations together in a sustainable organizational learning. With a sample of 224 SMEs and 7
hypotheses proposed are all supported, I hope this model can be used as a further model of SME
development and new research agenda.
Keywords: Quality Management, Knowledge Management, Imitating Creativity, Innovation, Strategic
Human Resource Management
1. Introduction
The rapid environmental changes and competition require each company manager to be proactive to the
changes that occur. Company managers need to utilize all the potential that exists within the company.
Therefore, to know the dramatic environmental changes not only belongs to the manager itself, but also
to the employees, so that they can be independent and able to contribute to advancing the organization
(Marno, 2012). The concept of quality management still brings different interpretations; it means that
there is no agreement of the expert related to quality management. The difference is based on the
terminology used in the literature. Feigenbaum (1991) uses the term total quality control, Lascelles and
Dale (1991) uses the term total quality improvement, and Ishikawa (1985) uses companywide quality
control, and strategic quality management (Garvin, 1988). The difference in quality management concept
is often unclear and creates confusion. Small and medium enterprises in the competitive environment still
have some drawbacks, such as: difficult access to capital, low product reliability, difficult to adjust to
customer demand, limited human resources and production equipment, and difficult to access the
market. Human resource management paradigm changes with the changing demands of the environment
and employees. Competency-based and Strategic Human Resources are paradigm examples of Human
Resources management (Marno, 2010). HR is seen as a unique asset, competitive and highly desirable for
the survival of the organization.
The tendency of empirical research on HRM strategy is rarely associated with operational management,
in particular, quality management. It is possible because of the difference concept between the
operational Management and HRM (Human resource management). However, some research such as
conducted by Sohel Ahmed, (2003), John W. Boudreau (2002) and Lilian M. de Menezes (2010) integrate
those two. A research conducted by Pfeffer (1998), S. Ahmad (2003) about seven Operational
management practices underlies HRM correlation with OM (operation management) to be the framework
of the research. The emphasis of problem in this research is how to construct and test the HR Strategic
Empowerment Model integrated with Operational Management, particularly, quality management in
SMEs Operational Performance Improvement through Innovation and Imitating Creativity. Meanwhile,
the purpose of this study is to examine the role of strategic human resources in improving Operational
Performance for Small and Medium Enterprises by reviewing the extent to which an understanding of
small and medium enterprises and cultural in an effort to improve the quality of imitating, innovation and
organizational learning creativity to improve operational performance .
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2. Literature Review
Innovation Capability and Imitating Creativity: As we know that HR is increasingly recognized as a
strategic asset for any business and a key element of the company (Boxall & Purcell, 2003; Pfeffer, 1998;
Gratton, Hailey & Truss, 2000). Driven by increased competition, rapid changes in technology,
globalization and other factors, a business actor is trying to understand how one of the last resources
becomes really competitive. Human resources can be managed for competitive advantage (Wright, 1996).
A research by Ana Pérez-Luno (2007) fills the concept and phenomena of imitation and innovation. It
explains how to distinguishe companies with strict innovation and imitation. The findings explain that
innovation and imitation can sustain a competitive advantage. A non-protected patent will be replaced or
recognized its novelty by other party. The quick development and time to participate in market is crucial
to win the competition. Robert Lomas (2006) describes how the innovation will not be more
advantageous than imitation. In today's knowledge of economy, organizational performance and
competitive advantage comes more than what a company knows and human capital allows to use what
they know instead of manual work (Argote & Ingram, 2000; Grant, 1996; Hatch and Dyer, 2004; Kogut &
Zander, 1992; Pfeffer & Sutton, 2000; Winter, 1987). Based on the theory of the Technology Acceptance
Model (TAM) and Theory of Reasoned Action (TRA), this research is focusing on how to make the
technology acceptance factor construct, control behavior, intensity, purchasing behavior and awareness
of intellectual property (Collin, 2003).
Strategic Human Resource Management: Changes in the business environment will bring the impact of
changes in business strategy. As we know, the changes in business strategy will be increasingly directed
managers to clarify the direction in which the vision and mission of the HR field will be taken by the sense
that HR is an integral part of the organization. Because this change involves many aspects and demands to
be achieved, it is necessary to improve and develop human resources quality. The development of human
resource quality is usually done through HR investment activity. Therefore, it is necessary to note that the
presence of the HR investment will change HR strategy pattern and require changes to the type of
competence in different task types that will have an impact on the changing role of HR. Plessis, Frederick
(2010) provide an understanding that the strategic HR management is necessary when dealing with
business competition. Research at Rosebank in Auckland, New Zealand explains the gap between what
the business want and what the HR is given today. The employee strength which can be improved in
economic growth is by training the talented employees. Hu (2007) reviews some literatures on how to
lose fundamental SHRM based on Resource Based View, HR Development, which leads to improve
performance, particularly financial performance of a sustainable advantages. It is emphasized that,
regarding talent development strategy, training, organization, performance, and leadership development
is truly needed. Moreover, another research confirms that SHRM is a decisive factor to provide
competitive advantage and HR practices will further build and support the superiority source (eg, Snell,
Youndt, & Wright, 1996; Wright et al., 2001).
Coursun and Enz (1999) modify a research by Spreitzer (1995), it states that empowerment will consist
of internal organizational relationships built by the construct of Peer Helping Behavior and Support
Environment Organizational. Empowerment is also determined by customer relationship built by the
construct of Supportive Customer and Employee-Customer Value Congruity. According to Koberg, et.al
(1999), all of the above factors are studied by developing the complex dimensionality, in addition to have
demonstrated previously (Spreitzer, 1995). Research by Koberg is continual, so, what is researched is on
Locus of control, Tenure, Sex, Education and Etnics. In today's knowledge of economy, organizational
performance and competitive advantage comes more than what a company knows and human capital
allows to use what they know instead of manual labor (Argote & Ingram, 2000; Grant, 1996; Hatch and
Dyer, 2004; Kogut & Zander, 1992; Pfeffer & Sutton, 2000; Winter, 1987). Knowledge management and
administrative empowerment is a new concept in the science of management education, where the desire
has increased over recent decades. This results in a lot of practice and a different concept of specialization
of the researcher and his views. Therefore, the concept is still under development and exploration stage.
The application of knowledge management methods and administrative empowerment of workers in
modern educational institutions appear to provide new capabilities and possibilities of different
competition. (Badah, 2012)
The ability to quickly create and effectively manage organizational knowledge is essential for survival
(Bettis & Hitt, 1995). This shift has changed the nature of work which most people do in fundamental
ways (Austin, 2012; Howard, 1995; Lengnick-Hall & Lengnick-Hall, 2003) and puts a priority on the
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organization's ability to understand the knowledge involved in the work. Integration of knowledge refers
to the recombination on knowledge by combining, categorizing, reclassifying, and synthesizing existing
knowledge (Alavi and Leidner 2001; Grant 1996). Knowledge management research, in general, has
stated that integrated knowledge is important as the process of knowledge capture and reuse of personal
knowledge (Garud and Kumaraswamy 2005; Postrel 2002), as well as the capture of knowledge and
skills. Knowledge management processes will improve organizational processes, such as collaborative
innovation, encouraging decision-making, and creativity of individual and collective learning to be better.
As a result, it will improve organizational creativity of internalization process that will produce
intermediate results like better decisions, organizational behavior, products, services and customer
relationships (King, 2009).
Knowledge is often defined as "a justified personal belief." There are many taxonomies that define the
various types of knowledge. The most fundamental difference is between "tacit" and "Explicit"
knowledge. Tacit knowledge inhabits the minds of people, and depend on the interpretation of people
(Polanyi, 1966). The definition is related to either impossible or difficult to articulate. Most knowledge
initially tacit in nature, but rather painstakingly developed over a long period of time through trial and
error, and being underutilized because "organizations do not know what it is to know" (O'Dell and
Grayson, 1998). Some knowledge are embedded in business processes, activities, and relationships that
have been made from time to time through the implementation of the continuing series of improvements.
Therefore, the hypotheses proposed are as follows:
H1: The better the HR Strategic Empowerment is, The better the Innovation Capability will be.
H2: The better the HR Strategic Empowerment is, The better the Imitating Creativity will be.
Quality Management: Marno (2007) raises the topic of total safety management in improving operating
performance. The independent variable in this study is the sustainable improvement and employee
fulfillment, while the dependent varabel is operational performance. A sustainable improvement is the
tendency of organizations to be able to perform a sustainable improvement of the quality of safety
through relentless innovation. Employee fulfillment is a level when employees feel that the organization
is able to provide the fulfillment of the sense of safety in their work. While the employee's performance is
the degree of settlement tasks that accompany the work of someone reflecting how well an individual
meets the demands of work. The results indicate that there is positive and significant correlation between
sustainable improvement and employee fulfillment on operational performance of employees. The
limitations of this research, HR is seen as part of the input, while the Operational Management HR
Strategic HR is positioned as partners and stakeholders of the company's success. The concept of quality
is translated comprehensively by SR ISO 9000/2001 through quality standards and measurements
(Blaga, 2002). Quality must meet the needs of the market (market needs) and contract stipulations
(explicit needs) including viability, profitability, manufacturing cost, maintenance and exploitation costs
and other aspects related to the consideration of HR and environmental harmony. Lilian (2010)
integrates the practical aspects of HRM with Operations Management especially regarding
Empowerment, JIT, IT, Supply Chain, Time-based work and TQM. Proposition and the results found that
there is a strong correlation between HR practices with an operational management practices
longitudinally.
Siyamtinah (2006) in a study of small and medium business partnership in Semarang aims to identify the
reasons for small and medium enterprises in Semarang to make alliances with other companies. The
variables used are knowledge transfer, tacitness, specificity, complexity, experience, protectiveness and
organizational culture. The results show no significant differences among the seven variables for small
and medium enterprises. In conclusion, the research shows that there are four reasons for small and
medium enterprises to do partnerships, namely: complementarity, business linkages and similarities,
dependence on suppliers, and expanding marketing network. Besides that, there are five reasons why
they do not form an alliance, they are: the new operation company, the use of simple technology,
employees’ ability to complete the entire job, a lot of rules to establish partnerships, and no one has
invited to be a partner. The results shows that there are any significant negative effect among variables of
tacitness, complexity, experience, organizational cultural differences with variable of operational
performance, while two variables have no significant difference, namely specificity and protectiveness.
H3: the better the Understanding of Quality Management is, the better the Innovation capability
will be.
H4: the better the Understanding of Quality Management is, the better the Imitating creativity will
be.
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Operational Performance: Siyamtinah (2007) conducts a research to determine and analyze the
differences in the pattern of building organizational capability in the Small and Medium Industries (SMI)
in Semarang. The variables used are seven, they are human capabilities, the use of technology, interaction
with outsiders, marketing capabilities, new product development, production capabilities and operations,
and research and development. Two distinguishing factor in building innovation capabilities are company
size (number of workers) and the age of the company (long operation). The results show that the size of
the company makes the difference of SMEs in building organizational innovation capabilities in HR
capability variables, use of technology, marketing capabilities, as well as research and development.
While three other variables: interaction with outsiders, new product development, and research and
development have no difference. Furthermore, the age of the company led to the difference in SMEs in
building organizational innovation capabilities in the variable: the use of technology, interaction with
outsiders, marketing capabilities, as well as research and development. While the capabilities of human
resources, new product development, and production capabilities and operation have no difference.
Samson and Terziovski (1999) state that TQM process has been applied in order to improve the level of
competition, but give different results. There is a gap in research related to quality management,
especially regarding the effectiveness of the implementation of TQM. This research is basically to test the
impact of quality management practices and operational performance, both individually and collectively.
The finding shows that TQM practices and organizational performance have a significant correlation, but
not all indicators of TQM practices become a strong predictor of operating performance. TQM Element
consists of leadership, people management, customer focus, strategic planning, information and analysis,
and process management. While the performance of the company have indicators include: customer
satisfaction, employee morale, productivity, level of damage to the product, warranty costs, the cost of
quality, and delivery time. There are three indicators that have the strongest influence on the
performance, namely: leadership, management of people and customer focus. These findings are
consistent with previous findings, where behavioral factors such as: leadership commitment, employee
empowerment, and open culture can create competitive advantage if compared to a mere means and
techniques in TQM (process improvement, benchmarking, information and analysis).
Fok and Hartman (2001) examine the correlation of Total Quality Management (TQM) and the
development of information systems. Organizational culture in this research serves as a mediating in the
relationship between independent and dependent variables. Organizational culture is focused on
organizational climate, which include: openness, level of competition, the formality of the procedures,
cooperation, team orientation, centralization, the level of employee participation, quality orientation,
degree of innovation, and a proactive attitude. In particular, this research considers whether the
organization which fully adopts TQM have differences in their approaches in the development of the
Information System (IS). Therefore, the hypotheses proposed are as follow:
H5: The better the Innovation Capability is, the better the Operational Performance will be.
H6: The better the Imitating Creativity is, the better the Operational Performance will be.
H7: There is a strong correlation between the Empowerment of strategic HR and Quality
Management
Research Framework
H7
H7
3. Methodology
Type of Research: This research is the exploration research which is trying to uncover or to explore the
factors that determine the operational performance of various aspects of supporting and inhibiting. In
H2
Human Resourses
Strategic Management
Quality
Management
Innovation Capability
Operational
Performance
Imitating
Creativity
H1
H1
H1
H3
H4
H5
H6
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this regard, the type of study is a Confirmatory Factor Analysis (CFA) that is intended to confirm the
analysis of the elements that define a factor indicator or a latent constructs (Ferdinand, 2006).
Sources, Type of Data, Population and Sample
Sources and type of data: Source of data used is primary data, the data are obtained directly by
distributing questionnaires and the mail survey followed by in-depth interviews. Respondents are the
managers of Small and medium enterprises in Semarang and Demak. Because this research involve so
many institution, cooperation with the Department of Industry in Semarang and Demak has been well-
established. Types of data are Quantitative and Qualitative Data, this involves ordinal and interval scale
for qualitative analysis. The qualitative data are needed to support the discussion of the quantitative
research in order to draw conclusion of the data used.
Population, Sample and Sampling Techniques: The population in this study are all the Small and
Medium Enterprise (SME) in Semarang and Demak with the criteria of the number of employees between
5 to 19 people for small enterprises, and between 20 to 100 people for medium ones. According to the
data source from the Department of Industry, Trade and Investment in Demak (2012) there are 3,708
pieces of business units with the amount of labor as many as 10,272 people. Those business units are the
combination of Large, Medium, Small Business and Home Appliances. Briefly, the small and medium
enterprises are about 3,700. In 2012, the number of SMEs in Semarang are about 5,720, so that, the
population of this research consists of 9,210 SMEs. The sampling technique used in this research is
gradual. First, it is by the method of sampling area, which is based on a sampling of existing companies in
the areas or districts in the city of Semarang and Demak which has a large population of SMEs. Second, it
is by the method of proportional sampling, the sampling in proportion to each district. The distribution of
samples has a common variation for all fields of SMEs are well represented; they have developed a
business more than 5 years and have market or potential competitors. Moreover, they also have sufficient
education to receive ideas from both development agencies and other sources. There were 224
respondents who once verified can be analyzed through the AMOS ver. 22.
The Definition of Operational and Measurement Variables: This research uses a questionnaire to
decrypt the operational variables which are standardized. First, it has been tested its validity and
realibility. The dimensions of Strategic HRM, all questions use five (5) Likert scale (1 = Strongly Disagree
and 5 = Strongly Agree). Some variables use ordinal scale category with in-depth interviews. Table 3.1
below describes each operational variables.
Table 3.1: The definition of operational variables
Variables
Indicators
Measurement
General Description of the
respondents
1. Number of Employee
2. Number of Customer
3. Type of Business
4. Understanding on Competition,
quality and operational activity
in business
5. Development strategy
1, 2, 3 is by Ordinal Scale
4. The questionnaire with 5
points of Likert scale
5. Scale ratio
Dimension of
Strategic HRM
1. Aspects of Psychological
Empowerment
2. Aspects of Irreplaceable
3. Aspects of Competence Scale
interval scale with the
dimensions construct of each 5
which is embodied in the
questionnaire with 5-point of
Likert scale
Dimension of
Quality Management Practices
1. Quality Awareness
2. Quality and Knowledge
Management
3. Organizational learning
interval scale with the
dimensions construct of each 5
which is embodied in the
questionnaire with 5-point of
Likert scale
Innovation Capability
1. Planning
2. Initiator
3. Improvement
interval scale with the
dimensions construct of each 5
which is embodied in the
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4. Implementation
5. Final Configuration
questionnaire with 5-point of
Likert scale
Imitating Creativity
1. Flexibility
2. Up to date
3. Technology adoption
4. Pro-active
5. Legal Constrain
interval scale with the
dimensions construct of each 5
which is embodied in the
questionnaire with 5-point of
Likert scale
Dimension of Operational
Performance
1. Cost
2. Quality
3. Delivery
4. Flexibility
5. Speed
interval scale with the
dimensions construct of each 5
which is embodied in the
questionnaire with 5-point of
Likert scale
Technique of Analysis: A research requires appropriate analytical tools and in accordance with the
pattern of research and variables to be studied in order to be interpreted. As the research framework, the
researcher uses the path diagram and the Structural Equation Modeling (SEM) of AMOS statistical
software package in the model and hypothesis testing. Validity Test, test internal consistency (reliability)
and normality or cut off to test the fit model has been carried out. The result of the conversion of the
model is shown below:
Cut-off limit for the residual amount is 5%, when the residual amount is greater than 2% of all residual
covariance generated by the model, then a modification needs to consider. When it is found that the
residual value of the resulting models is greater enough (ie > 2:58), then the other way to modify is to
consider adding a new channel to the estimated model. The residual value which is greater than or equal
to ± 2:58 is interpreted as statistically significant at the 5% level. As seen in the AMOS output with cut-off
as in the picture, it can be concluded the model was fit and could be interpreted, the estimation of
hypothesis testing can be discussed as follows:
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Estimate
S.E.
C.R.
P
Label
Inov
<---
HR
1.090
.160
6.814
***
Imi
<---
HR
.752
.112
6.736
***
Imi
<---
Quality Management
- .274
.093
-2.933
.003
Inov
<---
Quality Management
- .491
.140
-3.504
***
Perfrmnce
<---
Imitating
.876
.859
-1.020
.005
Perfrmnce
<---
Innovation
.747
.681
1.097
***
4. Findings and Discussion
H1: The better the HR Strategic Empowerment is, The better the Innovation Capability will be
(supported).
Having regard to the calculation results of AMOS, then, there is positive and significant variables of
strategic human resource empowerment on innovation capability. This finding generally supports the
infrastructure developed by HR Strategic related to HR policies regarding the consistency of psychological
empowerment, competence and irreplaceable strategic of HR planning and boosting innovation
capability.
H2: The better the HR Strategic Empowerment is, The better the imitating Creativity will be
(supported).
Having regard to the calculation results of AMOS, then, there is positive and significant variables of
strategic human resource empowerment towards creativity Innovation. These findings generally support
the infrastructure developed HR Strategic related to HR policies regarding the consistency of
psychological empowerment, competence and irreplaceable strategic human resources in doing imitating
that does not violate the law. Imitating and Innovation remains a dialectic development of SMEs in which
their parts of the problem concern the capital. Strategic HR will develop a strategy on how the two
aspects are beneficial both financial and legislation. Strategic HR that process an integration with other
infrastructure needs to be developed (Aviv Kidron, 2013).
H3: the better the Understanding of Quality Management is, the better the Innovation Capability
will be.(supported)
H4: the better the Understanding of Quality Management is, the better the Imitating creativity will
be.(supported)
Observing the results of AMOS, the 3rd and 4th hypothesis are supported but has a negative correlation.
This research has failed to connect the Quality Management with Innovation capability and Creative
Imitating. It is realized by the researcher and as Siyamtinah stated (2006) that SMEs fail to build
partnerships. SMEs have a regular job characteristics, so that, they tend to work by order. SMEs belong to
the association which has the same characteristics. Therefore, knowledge of Quality Management is not
enough to encourage innovation and imitating capabilities.
H5: The better the Innovation Capability is, the better the Operational Performance will be.
(supported)
H6: The better the Imitating Creativity is, the better the Operational Performance will be.
(supported negative)
H7: There is a strong correlation between the Empowerment of strategic HR and Quality
Management. (supported)
As shown in the calculation of AMOS, partially, the hypotheses are supported. Therefore, it can be defined
that operational quality as measured by various indicators of sustainability, employee moral, productivity
and networking output quality can be explained by the indicators of innovation capability variables but it
fails to be explained by imitating creativity. The correlation of the HR Strategic Empowerment and quality
management is high (0.88). It shows that it has already been integrated the understanding among the
functions of Management. This finding supports Lilian (2010), Collins (2003) and Boudreau (2002)
research.
Limitations of Research: In conclusion, the current SMEs are more innovation-oriented than imitating
one. SMEs are now more risk averter than the risk taker which is quite interesting to do further research.
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There are some negative hypothesis that can not be described quantitatively. Future research is expected
to explain the limitations of this research.
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Improving New Product Performance through Market Intelligence Quality, Customer
Interaction Capabilities and Customer-Centric Commitment on Indonesia Micro Retail
Fashions
Hendar, Tatiek Nurhayati
Sultan Agung Islamic University, Indonesia
hendar010263@yahoo.com
Abstract: The purpose of this paper is to examine and test the mediator of customer interaction
capabilities in relationship with quality market intelligence (MIQ) and customer centric commitment
(CCC) with the new products performance (NPP). This paper chooses 184 micro retail fashions and
examines the relationship of MIQ, CCC with CIC and NPP. The findings indicate that MIQ only affects the
NPP, while the CCC is not. Nonetheless, CIC actually mediate the relationship between MIQ and CCC with
NPP. By examining the diverse learning literature market, CRM, NPD and entrepreneurship, this paper
offers a unique analysis on the quality of market intelligence and customer centric commitment and their
impact on customer interaction capability and performance of new products. Conceptual and empirical
discussion results to extend previous research on market orientation culture on SMEs.
Keywords: Market Intelligence quality, customer centric commitment, customer interaction capabilities,
and new product performance
1. Introduction
The success of new product development is an essential part in the long-term development of
company. Unfortunately, not all companies succeed in developing new products. A study by Cooper
(1996) has shown that companies in the manufacturing industry that is capable of producing unique
products and offer value to customer superiority are only able to achieve 79.6 percent success of the
time. Even companies that use high-quality technology are only capable of achieving 43.2 percent
successes (Cooper 1996 ). This has led many researchers attention to the factors that can encourage new
product development performance. Some researchers tried to approach their studies through market
intelligence approach as the basis of the information search behavior of customers and competitors
( Jaworski and Kohli 1993 , Carbonell and Escudero 2010 ).
Market Intelligence continues to be a top priority for many organizations, and the role of market
intelligence that is so dominant in improving business performance led to the concept to become an
important foundation in the competition for many organizations and has consistently attracted many
academics and practitioners to conduct research of this field ( IKA, Jones et al. 2013 ). Some researchers
have found that the intelligence market such as intelligence generation, intelligence
dissemination and responsiveness to market are factors that really affect the performance of the company
( Meunier-FitzHugha and Lane 2009 , Carbonell and Escudero 2010 , Chen - Ho Chao and Spillan
2010 , Haverila and Ashill 2011 ). This suggests that the market intelligence can drive business
performance. Unfortunately, some dimensions of market intelligence developed by Jaworski and Kohli
(1993) and Carbonell and Escudero (2010 ) do not always give positive impact on business performance
or the performance of new products. The two dimensions of market orientation, intelligence
generation and intelligence dissemination, are proven not a strong incentive for new product
performance. It is only responsiveness that gives positive effect on the performance of the new product
development (Carbonell and Escudero 2010 , Chao and Spillan 2010 ). Surprisingly, the findings by Rojas-
Mendez and Rod (2013 ) show that the business performance is influenced by market intelligence
dissemination; but not with market intelligence generation and responsiveness. Moreover, other studies
have shown that market sensing as part of the market intelligence is not a decisive factor of company
performance, such as revenue, margin and profit growth rate (Morgan, et al Slotegraaf. 2009 ).
What is described above show that there are inconsistencies on research findings about the correlation
of market intelligence to the performance of new products. Some researchers have included mediating
variables that can bridge the correlation of market intelligence and new product performance, for
example, the innovation speed ( Carbonell and Escudero 2010 ), New product capability ( Trainor, Krush
et al. 2013 ), Organizational knowledge ( Toften and Ottar Olsen 2003 ). However, some studies which use
the mediating variables of customer interaction capability to bridge market intelligence relationships
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with new product performance still seems have not been studied. Therefore, we use these variables to
mediate the correlation of market intelligence with new product performance. We are of the view that the
quality of information obtained from market intelligence activity is an essential resource for shaping
customer interaction capabilities, and an increase in customer interactions which potentially improve the
performance of new products. It is important to be tested, especially for micro-enterprises that have close
relations with customers better than large companies (Zimmerer and Scarborouggh, 1998). In a highly
competitive market, such as the fashion industry, the quality of market information is needed to
determine ways of micro entrepreneurs interact with customers effectively and efficiently.
Characteristics of micro enterprises are close to give customers the opportunity of testing the variable
customer centric commitment as other antecedent of customer interaction capabilities and performance
of new products. The previous research has proven that a customer centric or customer focus is
antecedent of the company's performance. For example, customer responsiveness has effect on ROA
( Pehrsson 2013 ), Customer orientation has positive effects on individual service performance (Acer,
Zehir 2013). There is an association of customer focus and new product performance ( sanuri Mohd
Mokhtar 2013 ). However, several other studies have shown the opposite, customer centric has no
positive impact on the firm performance. For example, Organizational customer orientation does not give
a positive effect to the salesperson performance ( Cross, Brashear et al. 2007 ), Customer Orientation does
not affect the performance of the company (Aaron J. Johnson, C. Clay Dibrell, and Eric Hansen,
2009). Therefore, it shows that the correlation of the customer centric and company performance is still
filled with uncertainty. As in the study of the relation MIQ with NPP, we also assume that CIC also
becomes mediation of CCC and NPP. We believe that companies that focus on the customer will have the
capability of interacting with the customer. As a result, they will able to improve their performance,
including the performance of new products. There is still unclear relationship between MIQ and CCC
toward NPP. Therefore, it motivates us to propose testing on the mediating role of CIC as bridging process
variables of such relationship because the purpose of this study is (1) to build a new approach to improve
the NPP based on MIQ and CCC and (2) to test the mediation of CIC in relation of MIQ and CCC with NPP.
Conceptual Development of Customer Interaction Capabilities (CIC): Customer Interaction
Capabilities (CIC) is a concept that we derive from the approach of Resource Based View (RBV) and
Customer Relationship Management (CRM).According to Srivastava, Fahey et.al. 2001, a company is
formed by a variety of resources and capabilities possessed. Here, capabilities will describe a series of
skills needed to use the resources. The resources here are the tangible and intangible entity that is
available to companies that allow them to produce the efficiency and effectiveness of market offerings
that have value for some marketing segments ( Hunt 1999 ). Information and relational sources are two
of intangible resources that can drive superior business performance if used intelligently and
diligently. The previous researchers like Jaworski and Kohli (1993 ), Narver and Slater (1990 ),
and Morgan, Vorhies et al. (2006 ) have agreed that the information and knowledge about customers and
competitors obtained from market intelligence activity are valuable resource for improving business
performance. These resources are the basis for increasing the capability of customer relationship
management (CRM) of company because the relationship with the customer is only formed when the
company has complete information about customers and competitors. Lamb, Hair et al. (2010 ) explains
that CRM is a business strategy designed to optimize profitability, revenue and customer satisfaction by
focusing on the determination of the appropriate customer groups. The main focus of CRM lies in the use
of information about the customer to create a marketing strategy in developing and maintaining long-
term desirable customer relationships ( Pride and Ferrell 2009 ). CRM has a basic philosophy that
companies can increase profitability by building good relationships with their customers. As a result,
customers become loyal and disloyal (PEPPERS and ROGERS 2011 , Levy, Weitz et al. 2012 ). Thus, the
CRM is the process of cross-functional organization that focuses on building, maintaining, and improving
long-term relationships with interested customers ( Lin, Chen et al. 2010 , Wang and Feng 2012 ).
According to Lin, Chen et al. (2010 ) there are 5 of the most popular CRM activities today and each
company needs to have the capability to apply it. These five activities are to share information, customer
engagement, long-term partnership, joint problem solving, and technology based. Thus, CRM capability is
defined as the ability or skill and knowledge accumulation companies use to acquire, deploy and utilize
relational resources to achieve superior performance (Day 1994 , Morgan, et al Slotegraaf. 2009 ). One
form of CRM capabilities is the ability to build a company's interactions with customers. The ability to
interact with a strong customer is one of the most important marketing capabilities that can help
companies achieve superior business performance and sustained competitive advantages ( Day
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1994 , Morgan, et al Slotegraaf. 2009 ). The above description shows the interaction between the
customer and the company is the foundation of the CRM system. Because only through effective
interaction, companies can learn about the expectations of customers, acquire and manage knowledge
about them, negotiate a mutually satisfactory commitment, and build long-term relationships. Through
effective customer interaction management, the company will obtain the customer data as a point of
contact for satisfactory service. Here, touch points is the main base of contact with the customers, such as
customer registration for certain services, customer communications about product information,
handling warranty for the product, or customer talking to the seller and delivery personnel ( Lamb, Hair
et al. 2010 ). According to Lamb, Hair et al. (2010 ), a large amount of information can be obtained when
the company establishes the organization of interaction with customers. Through interaction, the
customer and the company can exchange information and develop a learning relationship. A customer
typically defines interactions with the stated preferences. The company will respond by designing
products and services around the desired customer experience.
Customer interaction process begins with gathering marketing information which will be the basis of
CRM data. Based on this database, the company can apply the interaction with customers through
campaign management, loyal customer retention programs, cross-selling other products and services,
marketing communications plan, strengthening customer purchasing decisions, encouraging the sale of
products to new customers, increasing the effectiveness of marketing and distribution channels to
improve customer service ( Lamb, Hair et al. 2010 ). Therefore, customer interaction capabilities (CIC) is
the central point in establishing good relationships with customers and increase the performance of the
company in the long run. This study specifically highlights the capabilities of customer interaction, gives
the ability to identify, acquire and retain profitable customers as an essential factor for improving the
performance of new products of small and medium enterprises. Therefore, CIC is defined as the ability of
the company to build an intensive interaction with the customer through the stages of customer
identification, customer acquisition and retaining profitable customers.
Market Intelligence Quality (MIQ) and Customer Interaction Capability (CIC): The study of MIQ can
refer to the views by Jaworski and Kohli (1993 ) and Morgan, Vorhies et al. (2006 ) on market-oriented
business culture. According to Jaworski and Kohli (1993 ), market intelligence is part of a market
orientation. Market-oriented business culture is needed to boost the company's performance. Continual
gathering information about the needs of customers and competitors’ condition will help companies to
identify what customers want. Enterprise knowledge about the customer needs to create superior
customer value over time ( Narver and Slater 1990 , Garcia and Calantone 2002 , Gellynck, Banterle et al.
2012 ). Here, Customer knowledge is the most common level of knowledge, more specialized and highly
specialized ( Aspara, Tikkanen et al. 2011 ). Knowledge at the most general level can be knowledgeable
about the industry, environmental and social trends. At a more specific level, the necessary knowledge is
in the form of knowledge about customers in a particular market segment, which is typically behavior of
customers in a particular market segment, as well as the distinctive needs and wants of customers in
certain market segments. The most specific level of knowledge can be a knowledge of enterprise to
customers individually or behavior of individual customers of other companies, their decision-making
process, their wants and needs, as well as their contact information ( Aspara, Tikkanen et al. 2011 ).
According to Jaworski and Kohli (1993 ), market intelligence is built by three-dimensional orientation of
the market, namely intelligence generation, intelligence dissemination and responsiveness to market.
Intelligence generation gathers information about market activities and competitive environment and
interprets this information into the definition of objectives and strategies. Intelligence
dissemination regards information dissemination activities throughout the functional areas of the
company through horizontal communication to gain understanding or integration between different
departments. Through intelligence dissemination, information is discussed and formally or informally
distributed among the relevant users within organization (Moorman 1995 , Carbonell and Escudero
2010 ). Open sharing of information on all parties involved in the new product development process will
improve better understanding of the capabilities and limitations of each party. However, some
researchers have shown that high incoming information and engagement in an organization can have a
negative effect on the pace of innovation ( Moorman 1995 ).
Responsiveness to market is an evaluation to measure the effectiveness of measures aimed to meet the
needs of customers, such as the determination of the target market, product offerings, distribution, and
promotion ( Jaworski and Kohli 1993 ). Slater and Narver (1995 ) have stated that the ability to gather
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information from customers and competitors will give advantages for company in response to the
opportunities and threats. Thus, responsiveness to market is the enterprise perspective to external
threats. In relation to this, responsiveness to market is seen as the ability to modify the organization's
strategy to align environmental threats with opportunities. Responsiveness to market is one of the
strategic factors that influence the competitive advantage ( Dong, Hinsch et al.
2013 ). Responsiveness allows companies to reconfigure their processes to meet the needs of new
markets, take advantage of information processing systems and adopt new products and processes to win
the competition ( Dong, Hinsch et al. 2013 ).Therefore, it is not surprising that the responsiveness to
market is key in improving the success of the competition. Companies that are better to understand the
needs and desires of customers will be able to respond to information about the needs and desires will
generate more value from customers. Moreover, companies that are more active in gathering information
about customers will be more responsive to customer needs and more aware of the movement of
competitors (Dong, Hinsch et al. 2013 ).
In addition to the opinion by Jaworski and Kohli (1993 ), Morgan, Vorhies et. al. (2006 ), state that
the market intelligence capability is the ability of the company with its business resources to learn about
the market and use knowledge of the market to improve the performance of the company. Market
intelligence activity involves gathering information about customers and competitors, analyzing the
market information, and utilizing it to develop marketing programs ( Morgan, et al Vorhies. 2006 ). Such
information is vital in helping decision-making for strategic marketing organization oriented to market
development. Thus, market intelligence capability is an organizational asset that facilitates the
development of distinctive capabilities ( Bruce, Jordan et al. 1994 ). Therefore, the market intelligence
quality is a quality of company in analyzing and distributing information to certain related parties and
uses such information as aid in decision-making process of strategic marketing.
Market intelligence is the most important skills needed in the success of new product development. The
important information, the accuracy and reliability of information on the changing needs and desires of
today's customers or potential customers obtained from market intelligence will be a strong foothold in
the new product development process. The information obtained from market intelligence also allows a
reduction in the cost of the NPD, accelerate new product development time, and significantly contributes
to the profitability of the company ( Haverila and Ashill 2011 ). In general, many successful companies
have utilized more in the collection and sharing of information, conducting market research, and involved
in the acquisition of intelligence and learning ( Garcia and Calantone 2002 ). In the process of new
product development, information collection gives an opportunity to the new product development team
to learn, so that, from the information obtained, they can act more quickly in decision-making ( Carbonell
and Escudero 2010 ).
Regarding that market intelligence is important part of market orientation (customers and competitors),
it can be said that market intelligence can strengthen a company's CRM capabilities, and thus can improve
the performance of the company. CRM capabilities include the ability to interact with customers such as
the ability to identify the customer, get customers and retain profitable customers. Therefore, CIC is
defined as the ability of the company to build an intensive interaction with the customer through the
stages of identification, acquisition and retaining profitable customers. The quality of market
intelligence will enable the company to develop the CIC. In new product development, market intelligence
will determine the success of the quality of new products as the ability of interaction management with
the customer is only possible when the company acquired more information about customers and
competitors. Therefore, the following hypothesis is proposed:
H1: Market intelligence quality (MIQ) has a positive correlation with the customer interaction capabilities
(CIC).
Market Intelligence Quality (MIQ) and New Product Performance (NPP): According to Hart, Tzokas
et al. (1999 ), the effective use of market information for the process of new product development (NPD)
may improve the success rate of new products. Empirical evidence supports a positive relationship
between the use of market information and new product performance ( Akgun, Byrne et al. 2007 ). A high
level of utilization of information will increase the effectiveness of decision-making and implementation,
which in turn will produce a new product performance to be greater ( Moorman 1995 ,Liu and Tsai
2013 ). Subsequently, Liu and Tsai (2013) show that knowledge management capabilities and
mechanisms to share information really affect the performance of new product development. Cooper and
Kleinschmidt (2000 ) and Moorman (1995 ) also show that the market intelligence generation has a
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positive influence on the performance of the new product. Luca and Atuahene-Gima (2007 ) find a
positive relationship between the acquisition of information and new product performance. While
Jaworski, Kohli et al. (2000 ) have shown that there is a positive effect of market orientation on business
performance, it means the market intelligence is really an important driver for improving the
performance of the company ( Chao and Spillan 2010 ), including the performance of new products
( Carbonell and Escudero 2010 ). In this study, the performance of new product is a measure of the
success of new product development involving (1) the suitability of new products produced with the
expected volume, (2) the ability to meet or exceed the sales receipt or expected results, (3) the ability
meet or exceed the expected profit rate, (4) the ability to match or exceed the rate of expected return on
investment (ROA), (5) the ability to match or exceed the expectations of the owner or management
(Cooper 1996 , Akgun, Byrne et al. 2007 ). Thus, the second hypothesis that we propose is:
H2: Market intelligence quality (MIQ) has a positive correlation with the new products performance (NPP)
Customer Centric Commitment (CCC) and Customer Interaction Capabilities (CIC): According
to Kim, Park et al. (2012 ), CRM implementation success depends on the strategy adopted, the people
involved, the processes run and the technologies used. The involvement of people like the owners,
managers, and employees become the most important factor for determining the successful
implementation of the strategy, process and use of technology in CRM. Their commitment is needed to
ensure that the company remains focused on the implementation of centric customer to always perform
interactive communication with customers ( Kaur and Sharma 2009 , Kim, Park et al. 2012 ). Interactive
communication can be done by determining the company policy that encourages customer interaction on
a regular basis, face-to-face dialogue with customers, stimulate customers to provide information about
changes to the terms of service, encourage customers to complain or give advice, encourage employees on
the front lines to interact directly with customers and learn how to serve them better, and conduct
regular surveys or interviews with customers to update information on customer service requirements
( Kaur and Sharma 2009 ).
Commitment is an important factor in the success of marketing relationship as a determinant of corporate
behavior, increase the efficiency and productivity of people in the company, especially employees
( Morgan and Hunt 1994 , Eisenberger, Karagonlar et al. 2010 , Lub, Bijvank et al. 2012 , Fu, Li et al.
2014 ). Psychological literature has identified three types of organizational commitment, those are a
commitment to sustainability, normative and affective ( Bansal, Irving et al. 2004 , Meyer and Allen
2004 , Kuo 2013 ). Affective commitment considers the strength of the emotional attachment,
identification and involvement of people with a particular organization. A Sustainable commitment
considers the extent to which the commitment of people remains in the organization when they consider
leaving the organization. Meanwhile, a normative commitment sees the feelings of the people on the
remaining obligations in the organization ( Anari 2012 , Chen, Wang et al. 2012 , Joo, Yoon et al.
2012 ). Among those commitments, affective commitment is regarded as one of the most important and
beneficial because it can affect other components in the long term ( Meyer and Allen 2004 , Joo, Yoon et al.
2012 ). Employees with a strong affective commitment can continue the work with the organization and
tend to make more effort to the organization ( Joo, Yoon et al. 2012 ). Fu, Li et al. (2014 ), explains that a
person who has affective commitment will be seen from their characteristics, such as a characteristic to:
(1) consider the problems the company as a matter of him as well, (2) think that the company is very
meaningful for himself, (3) discuss the company with others on something important, (4) have a strong
affection on the company, and (5) feel part of the company. This is similar to the view of Sejjaaka and
Kaawaase (2014 ) which state that organizational commitment is a tendency to remain in the
organization and identify selves with the organization; involve in the organization of work
roles; willingness to exert all efforts; and a desire to remain in the organization. Similarly, the opinion
of the Crow, Lee et al. (2012 ), states that the organizational commitment is a psychological condition of
an individual to an organization that is visible from the level of loyalty to the organization, the
internalization of organizational goals, and dedication to the goals of the organization.
Customer-Centric Commitment is a synthesis of the concept of the commitment to the organization and
customer centric. Thus, the customer-centric commitment is the strength of the emotional attachment,
identification and involvement of people in the organization to implement the programs in satisfying the
needs and desires of customers that ensure the achievement of the efficiency and effectiveness of
marketing activities. Niininen, Buhalis et al. (2007 ) describes a customer-centric management as an
activity to capture and use customer insights to improve marketing effectiveness and serve them in the
best way. Customer-centric management (CCM) is composed of a three-step process: (1) collecting and
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organizing information and data of individual customers; (2) using such information to be more effective
in achieving the target fulfillment for existing customers; and (3) allowing customers to customize and
personalize the service to meet their own needs and preferences. Thus, in order to achieve success in the
implementation of the CCM, each person in the organization needs to have a strong commitment to
implement the above three-step process. If follow the view of the Crow, Lee et al. (2012 ), Sejjaaka and
Kaawaase (2014 ), and Fu, Li et al. (2014 ), the quality of customer-centric commitment will be seen from
the extent to which people in the organization, (1) have a tendency to remain in the organization and
identify organizations to support programs that affect customer service and efficiencies; (2) directly
involve in operational activities to increase customer satisfaction, (3) have a willingness to exert every
effort in meeting the needs and desires of customers; (4) consider the problem of customer focus as their
problem too, and (5) continue to discuss customer service issued with other people because it is very
important and urgent.
Customer-centric is the orientation of the company with an emphasis on understanding the needs and
desires of profitable customers to guarantee the efficiency and effectiveness of marketing activities ( Kaur
and Sharma 2009 ). Wang and Feng (2012 ) describes a customer-centric organization system as an
important determinant of CRM capabilities, including, customer interaction capabilities. Regarding that
the implementation of customer-centric is depending on the people who play a role in the organization,
the commitment of a strong customer-centric will enable the company to interact with
customers. Therefore, the proposed third hypothesis is:
H3: customer-centric Commitment positively affects customer interaction capabilities.
Customer-centric Commitment and new products performance: Previous studies have shown the
correlation of loyalty to the organization with organizational outcomes such as absenteeism, tardiness,
organizational performance, engagement, productivity, satisfaction, customer loyalty and turnover. These
kinds of people do not just become a member of the organization, but more than that, they are willing to
bend over backwards for the organization. People, who has a strong commitment will be able to
contribute to the improvement of the performance of the organization because they regard the
achievement of organizational goals is important. Conversely, people with low organizational
commitment will have a low attention to the achievement of organizational goals and tend to hinder the
improvement of organizational performance. The commitment of these people is important for
companies to improve the competitiveness of the organization and maintain its market position ( Suliman
and Kathairi 2013 ). At the very least, a study by Kuo (2013 ) has demonstrated organizational
commitment (sustainable, affective and normative commitment). People in the organization are key
driver of organizational performance.
In customer-oriented company (customer-centric), the success of new products depends on the
commitment of the stakeholders. Customer-centric management requires top management support and
organizational commitment to CRM implementation. Top management support and organizational
commitment are key factor for the success of CRM implementation in improving organizational
performance (Chen and Popovich 2003 ). Previous studies also show that customer-oriented company is
a company that is able to improve the company's performance, including the performance of new
products ( Appiah-Adu and Singh 1998 , Zhang and Duan 2010 , Pehrsson 2013 ). It shows that customer-
centric organizational commitment of the people involved in the organization will determine the
performance of the organization, including the performance of new products in it. Thus, the fourth
hypothesis we propose is as the following:
H4: customer-centric Commitment positively affects the new products performance.
Customer Interaction Capabilities (CIC) and New Product Performance (NPP): Referring to the RBV
approach presenting resource capabilities role in improving business performance and competitive
advantage ( Barney 1991 , Peteraf 1993 ), the capabilities of the company in the field of CRM are also able
to produce superior performance including performance of marketing and financial performance
( Coltman, Devinney et al. 2011 ) . Wang and Feng (2012 ) and Coltman, devinney et al. (2011 ) prove that
there is a positive effect of CRM capabilities toward company performance. This study shows that
companies that have a good CRM will be able to improve its performance. Considering that the customer
interaction is the basis of CRM, the intensive customer interaction capabilities will become a key driver of
new product performance enhancement. Gruner and Homburg (2000 ) show that customer interaction
during certain stages of new product development process has a positive impact on the success of new
products. The collaboration with customers to provide information about the characteristics of customers
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is very useful for leaders in improving the success of new products. The ability to do good interaction
with customers will enable the company to produce new products according to customer
requirements. In the development of new products, the better the CIC is, the better the success of new
products will be. Each new product entering the market must be introduced, promoted and brought
closer intensively. Thus, the fifth hypothesis we propose is:
H5: Customer interaction capabilities positively influence the performance of new products.
The influence of CIC on mediating the correlation of MIQ and CCC with NPP: This study thinks that
the correlation of MIQ and CCC with NPP is likely to be mediated by the CIC. Market intelligence is the
most important skills needed in the success of new product development. As we know, market
intelligence (market intelligence generation, dissemination and responsiveness) has a positive effect on
company performance ( Jaworski and Kohli 1993 ), including the performance of new products
( Moorman 1995 , Cooper and Kleinschmidt 2000 , Carbonell and Escudero 2010 ) . In the process of new
product development, information collection gives an opportunity to the new product development team
to learn, so that, from the information obtained, they can act more quickly in decision-making ( Carbonell
and Escudero 2010 ), including strategic decisions in the development of CRM ( Wang and Feng
2012 ). Market intelligence can strengthen a company's CRM capabilities, including the ability to interact
with customers. Therefore, the Quality of market intelligence will enable the company to develop the CIC.
Meanwhile, previous studies have shown that the customer-oriented company is a company that is able to
improve the company's performance, including the performance of new products ( Appiah-Adu and Singh
1998 , Zhang and Duan 2010 , Pehrsson 2013 ). Therefore, the management of customer-centric requires
support from stakeholders, especially top management and organizational commitment to CRM
implementation. The commitment of stakeholders is needed to ensure that the company remains focused
on the implementation of customer -centric with constantly do interactive communications with
customers ( Kaur and Sharma 2009 , Kim, Park et al. 2012 ). Wang and Feng (2012 ) describe the
organizational system of customer-centric as determinants of CRM capabilities, including customer
interaction capabilities. It shows that customer-centric commitment of those involved in the process of
the organization will determine the performance of the organization, including the performance of new
products in it. CIC is part of CRM capabilities, and these capabilities affect the performance of the
company ( Coltman, DEVINNEY et al. 2011 , Wang and Feng 2012 ). In other words, the better the CIC is,
the better the company's performance improvement will be. This is consistent with the findings of Gruner
and Homburg (2000 ) about the existence of a positive effect of customer interaction during certain
stages of new product development process to the success of new products. What is described above is
basically suggests that CIC has the potential as a mediation of the correlation of MIQ and CCC with
NPP. MIQ and CCC in addition to potentially increasing the NPP directly, also has the potential to improve
the CIC. CIC here will strengthen the NPP. Thus the 6th and 7th hypothesis are as follows:
H6. CIC mediates the correlation of MIQ and NPP.
H7. CIC mediates the correlation of CCC with NPP.
Research design: A structural equation model (SEM) is used to test the research model empirically by
using data from the owner of the micro retail in Central Java, Indonesia. Confirmatory Factor Model is
used to test the multidimensionality of a theoretical construct (construct validity test). In addition, SEMs
are also used as a comprehensive test tool for full structural models. The analysis follows the process
advocated by Joseph F. Hair, Black et al. (2010 ). First, we create a model of the path diagram causal
relationship between the construct and its indicators. Second, we examine the un-dimensionality of each
construct with confirmatory factor analysis. Third, we estimate the full equation of structural models for
indicators that have passed the confirmatory test. Fourth, we discuss the convergence and descriminant
validity before moving to the substantive analysis. SEM analysis is performed by using the Amos software
version 22:00.
Sample and procedure: Data are obtained from 187 complete questionnaires of 300 questionnaires
distributed (62.33%). We focus on the fashion industry because this industry shows that the level of
innovation activity is higher than the creative industry in Indonesia (Department of Trade, Tourism and
Creative Industries of Indonesia). Companies with employee ownership of less than 20 people are
selected on the basis of criteria for small businesses in Indonesia with possession of less than 20
employees (CBS, 2014). A total of 300 retail fashions become the target population in this study. The
questionnaire is accompanied by a signed covering letter submitted by officers who have been trained in
advance to small business owners or to people who are entrusted with the small business. From the 300
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questionnaires distributed, only 250 respondents give their consent to participate in this survey
(83.33%). The final evaluation of the questionnaires received show that there are 187 questionnaires
(62.33%) which is suitable to be used for data analysis. The selected respondents consist of 65% males
and 35% females, most of them are married (64.17%), not yet (29.95%) , and divorced (5.88%).
Furthermore, 52.41% of their education is high school or under, 29.95% and 17.65% are Diploma
Bachelor's, and they have run a minimum of 2 years of retail fashion.
Operational variables
1. QIA. Market intelligence quality is modified by the view of Jaworski, Kohli et.al. (2000 ), which are
essentially as quality market intelligence generation, intelligence dissemination market
responsiveness and market intelligence gained from the activity of sensing market. From the three
concepts, it is developed 5 item of questionnaire question regarding customer information quality,
competitors’ information quality, dissemination information quality, market sharing information
quality, responsiveness and quality of market information.
2. CCC. Commitment customer centric is adopted from the initial view of Fu, Li. et al. (2014 ), namely
the ability of the company to build an intensive interaction with the customer through the stages of
customer identification, customer acquisition and retaining profitable customers. 4 items
questionnaire question are developed by regarding willingness to support customer service
programs which are effective and efficient; exerting every effort in satisfying customer
needs, customer focus and discussing customer service issues on a regular basis.
3. CIC. CIC concept is adopted from the initial view of Wang and Feng (2012 ) which has been
adjusted, i.e. the ability of the company to build an intensive interaction with the customer through
the stages of customer identification, customer acquisition and retaining profitable customers. 4
item questionnaires are applied to measure the CIC, the ability to gain loyal customers,
communicate with customers, serve customers and retain loyal customers.
4. NPP. NPP concept is adopted from the views of Cooper (1996 ) and Akgun, Byrne et al. (2007 ) that
have been adjusted; it is the description of the successful development of new products. 6 item
questionnaires are applied to measure this construct, they are the compatibility with the expected
volume, the result of expected sales, expected profit rate, the expected ROI, the owner’s hope, and
the contribution of new products in the company's development.
Analysis: We report the results of confirmatory factor analysis (CFA) for the full sample. We make
observations on 19 indicators (5 indicators of QIA, 4 indicators of CCC, 4 indicators of CIC and 6
Indicators of NPP) to obtain 19 loading factor values (λ1-λ19) to be relevant and in accordance with the
existing provisions in AMOS. The loading factors for all latent variables are observed to have good validity
if it has a value above 0.5. Furthermore, we let all latent constructs correlated, so that the relationship
between them can be evaluated. We report the results of testing Goodness-of-fit indices are good because
it produces criteria in accordance with the recommended SEM (Ӽ 2 165.218, p-value is 0.132, GFI is 0.905,
AGF is 0.876, TLI is 0.837 and RMSEA is 0.027). Unless AGF and TLI indices are lower than recommended
(<0.90), the others are in conformity with the criteria recommended. Ӽ 2 165.218 produce a p-value of
0.132 which is not significant at α 0.05, GFI> 0.9 and RMSEA less than 0.05 are the criteria recommended
in the SEM. This shows that the recommended models are fit or have eligibility to examine the
relationship between variables. To prove mediation of CIC, we use Sobel test.
Table 1: Descriptive, all = 184. Inter-correlation, CR and AVE
Path
CR
Inter-correlation (C)
Average Variance Extracted (AVE) in bold
CCC
MIQ
CIC
NPP
CCC
0.863
0.930
MIQ
0.862
0.826
0.928
CIC
0.881
0.849
0.855
0.939
NPP
0.652
0.793
0.906
0.872
0.958
CCC = Customer Centric Commitment; MIQ = Market Intelligence Quality CIC =
Customer Interaction Capability; NPP = New Product Performance
Descriminant validity test: Construct reliability demonstrates high internal consistency, which means
that the indicator has consistently represent the same latent constructs (Joseph F. Hair, Black et al.
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2010 ). We use the construct reliability (CR) and the average variance extracted (AVE) to measure the
internal consistency of indicators used. CR value is greater than 0.7 for the CCC, MIQ and CIC, as well as
approaching 0.7 for the NPP. Moreover, the AVE value which is greater than the value of inter-correlation
shows that each construct has good discriminant validity. We assess undimensionality through
examination of the maximum likelihood estimates of the standardized estimates loading factor, which
exceeds 0.5 or better than 0.6 (Joseph F. Hair, Black et al. 2010 ).
Table 2: Parameter estimates for the path: direct effects
Estimate
SE
CR
P
Miq
---->
CIC
0.483
0.126
3.643
***
CCC
---->
CIC
0.45
0.116
3.527
***
Miq
---->
NPP
0.61
0.139
4.025
***
CIC
---->
NPP
0.377
0.142
2.543
0.011 *
CCC
---->
NPP
-0.031
0.111
-0.244
0.807
Note: * p <0.05; *** P <0:01
Table 3: Parameter estimates for the path: indirect effects (Sobel test)
Path
Beta
SE
CR
P
Miq
---->
CIC
---->
NPP
0182
0.083
2.183
0.029 *
CCC
---->
CIC
---->
NPP
0.170
0.077
2.183
0.028 *
Note: * p <0.05; *** P <0:01
Figure 1: The results of empirical models
The results show that there is a significant positive effect of the MIC and CIC (Beta = 0.483, t-value =
3.643, p <0.01), CCC on CIC (Beta = 0:45, t-value = 3,527, p <0.01), MIQ on NPP (Beta = 0.61, t-value =
4.025, p <0.01) and CIC to NPP (Beta = 0.377, t-value = 2.543, p <0.05). While CIC has no effect on NPP
(Beta = -0.031, t-value = 0.111, p> 0.05). This suggests the hypothesis H1, H2, H3, and H4 are supported,
whereas H5 is not. This study aims to test whether CIC plays a mediating role in the correlation of MIQ
and CIC with innovation. By regarding the H6 and H7, through the Sobel Test antecedents, it really affects
NPP through CIC. More specifically, CIC acts as a full mediating role in the relationship between MIQ with
NPP (indirect effects: Beta = 0.182, t-value = 2.183, p <0.05). In addition, CIC also mediates the
relationship of CCC with NPP (indirect effects: Beta = 0.170, t-value = 2.183, p <0.05). Therefore, the
hypothesis H6 and H7 are supported.
Discussion: This study aims to investigate the correlation of MIQ and CCC with CIC and NPP, as well as
the mediating role of CIC in relation with MIQ and CCC with NPP. This study has shown how important
the role of CIC for companies engaged in the fashion industry with characteristics: short life cycle,
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unstable demand, low predictability and a high level of impulse purchases ( Christopher, Lowson et al.
2004 ). CIC has been a mediator in the relationship of MIQ and CCC with NPP. At least this study has given
a new reference that gives a solution to the controversy over the relationship of market intelligence and
customer centric with the performance of new products. Our results have confirmed the role of external
and internal factors in strengthening CIC. External factors are derived from the quality of the information
obtained from competitors and customers in the form of quality market information, while internal
factors are derived from the commitment of the owners, leaders, and employees to focus on satisfying
customers. As CIC external drivers, the quality of market information arises when a company has a strong
market orientation culture. Meanwhile as an internal CIC drivers, CCC appears in the form of a
commitment to understand the needs of the company orientation and profitable customer that wish to
guarantee the efficiency and effectiveness of marketing activities ( Kaur and Sharma 2009 ).
We agree with the view of Narver and Slater (1990 ), Garcia and Calantone (2002 ) and Gellynck, Banterle
et al. (2012 ) that the collection of market information continuously will help companies identify what
customers want, and this knowledge will be a positive impact on firm performance. According Zimmerer
and Scarborouggh (1998), the secret of success in marketing is by knowing who the customers of the
company, what they need, how much demand is and what his desire, before the competitors come to meet
the needs, demands and desires. Customer knowledge abundant becomes an important resource to build
the capability of interaction with customers. In another sense, the quality of market information will
enable the company to interact with customers. Therefore, it is not surprising that the quality of market
intelligence is an important driver for the creation of customer interaction capabilities and improved
performance of new products. In fact, micro-enterprises are more effective than large companies in
marketing relationships, which is the process of developing and maintaining long-term relationships with
customers so that they can return to shop (Zimmerer and Scarborouggh, 1998). Micro-enterprises can
serve a narrow target market effectively and efficiently and achieve excellence in niche markets
faced. Special advantages can include close relationships with customers, personal attention, focus on
service, flexibility and management organizations and (Scarborouggh Zimmerer, 1998). The main
customer focus means involving the management of customer-centric to be more serious, so that, it
continues to deliver superior value to customers. Given the implementation of customer-
centric depending on the people who play a role in the organization, the strong customer-
centric commitment will enable the company to interact with customers.
Slightly different from the study of Wang and Feng (2012 ) which shows the capabilities of CRM affect the
performance of the company, this research is a dip in the CRM capabilities, the customer interaction
capabilities, in relation to the performance of the company. Through effective customer interaction
management, the company will obtain the customer data as a point of contact for service satisfying
( Lamb, Hair et al. 2010 ). The increase in customer interaction capabilities will impact the performance of
the company (Day 1994 , Morgan, et al Slotegraaf. 2009 , Wang and Feng 2012 ). One thing that is
different from other studies, we find that the CCC does not directly affect the performance of new
products. This may occur when the willingness of stakeholders to support the programs of customer
services effectively and efficiently; are directly involved in operational activities to increase customer
satisfaction, willingness to exert every effort in satisfying customer needs, and a willingness to discuss
customer service issues on a regular basis which are not sensitive enough to the performance of new
products. In a highly dynamic fashion industry, each entrepreneur requires intensive interaction
continuously to ensure customers keep abreast of the latest fashion. Without the interaction capabilities,
it is very difficult for micro entrepreneurs to improve their business performance. Therefore, companies
with a strong customer centric commitment and be able to boost the capabilities of the customer
interaction is a company that has the potential of improving the performance of new products.
According to the analysis of the structural model as a whole, MIQ has a direct impact on the CIC and the
performance of new products. While CCC only directly influences the CIC but it has no effect on the
performance of new products. CCC does not directly affect the performance of new products through
CIC. In particular, the quality of market intelligence contributes to customer interaction capabilities,
which in turn improve the performance of new products. Consistent with research Wang and Feng
(2012 ), this study further confirms the mediating role of CIC in the relationship between the quality of
market intelligence and business performance, which is neglected in the study of Toften and Ottar Olsen
(2003 ), Chao and Spillan (2010 ), Haverila and Ashill (2011 ), Trainor, Krush et al. (2013 ), and sanuri
Mohd Mokhtar (2013 ).
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Limitations and future research recommendation: Previous studies have put the capabilities of CRM
as a mediating variable of customer orientation, customer centric organizational systems, and CRM
technology with company performance. This study has been more specific by placing market intelligence
as part of a market orientation, customer centric commitment as part of a customer centric organizational
system, customer interaction capabilities as part of CRM capabilities, and new product performance as
part of the company's performance. Meanwhile, in-depth study on other dimensions of research Wang
and Feng (2012) such as CRM technology, customer relationship upgrading capabilities and customer
win-back capabilities in relation to the performance of the company still needs to be done. In the future,
testing of other mediating variables of market intelligence and relationship of customer-centric
commitment premises NPP upgrading capabilities such as customer relationship and customer win-back
capabilities are excavated from the view of Wang and Feng 2012, the pace of innovation (Carbonel 2010),
new product development capability (Trainor and Krush), or organizational knowledge (Toften and
Olsen), is still needed in the development of the science of marketing management.
Previous studies have put the variable in the context of moderate internal market intelligence
relationship with the performance of new products, such as the speed of innovation (Carbonel 2010). By
linking (Jaworski and Kohli, 1993; Slater and Narver, 1995; Greenley, 1995 ;. Han et al, 1998), it argues
that the external context variables, such as market and skills mortality, the intensity of competition and
market growth, play a moderating role in the relationship between orientation market and business
performance. Conclusions of previous studies are inconsistent. The external variables should add to our
model, to test empirically whether the impact is managed. Additionally, Matsuno and Mentzer (2000)
argue that this type of business strategy will affect the impact of market orientation on business
performance. Therefore, future studies should include the type of business strategy in our model to
examine the relationship between the type of business strategy and existing construction.
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Aggregate Economic Forces and Malaysian Equity Market: Equilibrium Time-Series
Approach
Mohamed Ibrahim Mugableh
College of Administrative and Financial Sciences, Irbid National University, Jordan
mugableh83@yahoo.com
Abstract: This paper examines long-run and short-run relationships between industrial production
index, producer price index, consumer price index, exchange rates, narrow money supply, broad money
supply, and Malaysian equity market index. To accomplish these goals, it utilizes Augmented-Dickey
Fuller and Phillips-Perronstationary tests. The paper thenuses Pesaran bounds F-statistic for testing co-
integrating relationship among variables. However, the study’s findings are of particular interest and
importance to policy makers, financial economists, and investors dealing with Malaysian economy and its
equity market.
Keywords: Co-integration; Economic Equilibrium; Macroeconomic Indicators; Malaysia
1. Introduction
During the past decades, the equilibrium relationships between macroeconomic variables and stock
prices have been widely studied by academic researchers and practitioners. In fact, the literature is very
rich for matured stock markets of Canada, France, Germany, Italy, Japan, the UK, and the US. However,
latest studies in this area support the argument that stock prices are influenced by macroeconomic
variables such as industrial production index (IP), consumer price index (CPI), producer price index
(PPI), federal funds rate (FFR), narrow money supply (M1), broad money supply (M2), interest rates
(INT), real gross domestic product (RGDP), and exchange rates (ER) in matured stock markets
(Beltratti&Morano, 2006; Hatemi-J &Morgan, 2009; Humpe& Macmillan, 2009; Kizys&Pierdzioch, 2009).
Since the early 1980s, there has been an increasing attention to study the relationships between
macroeconomic variables and stock prices in emerging stock markets. However, in the early 1990s, many
emerging countries liberalized their stock markets and decided to open their domestic stock markets to
foreign investors. As a result, this led to rapid growth in their stock markets and economies as well as
increased their positions in the international economic and financial environment (Ghosh &Ariff, 2004).
In light with these matters, it’s reasonable to conclude that emerging stock markets have features attract
investors and researchers to recognize, policy makers to evaluate and studythese matters.
Notable studies have been conducted to examine the relationships between macroeconomic variables and
stock prices in emerging stock markets. Hanousek and Kocenda (2011) used generalized autoregressive
conditional heteroscedasticity (GARCH) Model and found significant evidence that emerging European
stock market indices i.e., Czech Republic, Hungary, and Poland were strongly influenced by mature
European and the US stock market indices as well as their macroeconomic variables. Nguyen (2011) used
moving average exponential (MAE)-GARCH Model and found that the US macroeconomic variables had
positive effects on the conditional mean and negative effects on the conditional variance of Vietnam stock
market index(GSE- share index).Using arbitrage pricing theory (APT), Rjoub et al. (2009) documented
significant pricing relationships between stock returns and macroeconomic variables for the case of
Turkey. Tsoukalas (2003) used vector autoregressive (VAR) Model and found that macroeconomic
variables (CPI, ER, IP, and M2) were strongly related to stock prices for the case of Cyprus.
Similarly,Verma and Ozuna (2005) showed that the changes in the macroeconomic variables of one Latin
American country did not affect the stock markets of other Latin American countries. Moreover, they
found that the Mexican stock market significantly affected other Latin American stock markets and the
reverse did not hold.
In Malaysian context, few notable studies have been found in our area of interest. Ibrahim (1999) studied
the relationships between seven macroeconomic variables (ER, foreign reserves (FR), credit aggregates
(CG), consumer prices (CP), IP, M1, and M2) and the Malaysian stock market index using vector error
correction model (VECM) and monthly time series data for the 1977-1996 period. The results suggested
that Malaysian stock market index was efficient with respect to CP, CG, and FR, while inefficient with
respect to M1, M2, ER, and IP. Similarly, Ibrahim and Aziz (2003) examined the short-run and long-run
relationships between four macroeconomic variables (IP, CPI, M2, and ER) and Malaysian stock market
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index using monthly time series data for the 1977-1998 period. They found positive short-run and long-
run relationships between Malaysian stock market index and both of CPI and IP. Additionally, they found
negative short-run and long-run relationships between Malaysian stock market index and both of M2 and
ER. The current paperprovides further evidence to the literature on the equilibrium relationships
between macroeconomic variables and stock prices. In particular, it examines equilibrium relationships
between six macroeconomic variables (IP, PPI, CPI, ER, M1, and M2) and stock market index (SMI)in
Malaysia for the 1977-2011period. The rest of the paper is divided into six sections. Section 2 presents an
overview of Malaysian stock market; Section 3 discusses the review of previous empirical studies; Section
4 provides the bounds statistics methodology; Section 5 reports empirical results and analysis; while
conclusions, suggestions, and further studies are discussed in Section 6.
Overview of Malaysian Stock Market: The Malaysian stock market is considered the second among
largest South East Asian according to its domestic market capitalization (See Figure 1). Figure 1 shows
that the Singapore stock market achieved the highest domestic market capitalization of $598 million at
the end of 2011 followed by the Malaysian, Indonesian, Thailand, and Philippine stock markets which
recorded $396, $390, $268, and $165 million, respectively. The SMI is the weighted average of stock
prices which used to reflect the market capitalization of its components (Bursa Malaysia, 2015). SMI was
started officially its operations in 1977 with a value of 113.40 points as shown in Figure 2.Figure 2 shows
that SMI recorded an annual growth rate of 5.7% from 1977 till 2011. Before the onslaught of Asian
financial crisis (AFC) in 1997-98, the performance of SMI rose sharply to reach the first peak in 1993 and
the second peak in 1996 with 1275 points and 1238 points, respectively. However SMI achieved more
than 1400 points at the end of 2011. Besides that, Figure 3 shows that the trading volume of shares in
Malaysian stock market was vivid. However, the trading volume of shares recorded an annual growth rate
of 6.7% for the 1993-2011 period. The trading volume started at RM20.6 billion and fell gradually to
reach the first sharp decline in 1995 with a value of RM8.24 billion, then, the trading volume increased
slowly to reach the first peak in 2007 with a value of RM55.8 billion. The trading volume remained stable
from 2007 till 2009. However, the trading volume declined sharply from RM28.6 billion in 2010 to RM27
billion in 2011.
Figure 1: Domestic market capitalization for the 1990-2011 period
Source: Bursa Malaysia (2015)
Figure 2: Stock market index for the 1977-2011 period
Source: Bursa Malaysia (2015)
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Figure 3: Trading volume for the 1993-2011 period
Source:Bursa Malaysia (2015).
2. Literature Review
The equilibrium relationships between macroeconomic variables and stock market indices received a lot
of attention from academics who employed different macroeconomic variables and data from both
matured and emerging stock markets. However, in this section the researcher reviews selected number of
previous empirical studies from the vast literature which conducted in matured stock markets followed
by studies conducted in emerging stock markets.
Previous Empirical Studies in Mature Stock Markets: Beltratti and Morano (2006) applied Markov
switching (MS)-GARCH Model and daily time-series data to examine the relationship between
macroeconomic variables (monthly IP, monthly CPI, FFR, and weekly M1) and the US stock market index
(S&P500). They found a causality direction from S&P500 volatility to macroeconomic volatility. However,
the causality direction was stronger from macroeconomic to S&P500 volatility. Hatemi-J and Morgan
(2009) explored whether the Australian stock market was information-ally efficient in the semi-strong
form in relation to ER and INT using Auto-Regressive Conditional Heteroscedasticity (ARCH) Model and
daily time-series data for the 1994-2006 period. They found that the Australian stock market was not
information-ally efficient with respect to the INT and ER. Humpe and Macmillan (2009) investigated the
impact of macroeconomic variables (IP, CPI, M2, and long-term INT) on S&P500 and the Japanese stock
market index (Nikkei 225) using VECM. For the US market, they found that S&P500 was positively related
to IP and negatively related to both CPI and long-term INT. They also foundpositive relationship between
S&P500 and M2. However, for the Japanese data, they found that Nikkei 225 influenced positively by IP
and negatively by CPI and long-term INT.Kizys and Pierdzioch (2009) examined the relationships
between macroeconomic variables (short-term INT, inflation (INF), ER, CPI, and PPI) and the matured
stock market indices of (Canada, France, Germany, Italy, Japan, the UK, and the US) using VAR Model and
monthly time-series data for the 1975-2004 period. They found that the stock market indices were not
systematically linked to the macroeconomic variables in both long-run and short-run.
Previous Empirical Studies in Emerging Stock Markets: Aburgi (2008) examined the impact of
macroeconomic variables (ER, INT, IP, and M1) on stock market indices of four Latin American countries
(Argentina, Brazil, Chile, and Mexico) using VAR Model and monthly time-series data for the 1986-2001
period. He found that macroeconomic variables influenced Latin American stock markets indices
significantly. Adjasi (2009) employed Exponential (E)-GARCH Model and monthly time-series data to
investigate the effects of macroeconomic variables (CPI as a proxy of INF, M2, INT, gold prices (GP), oil
prices (OP), and ER,) on the volatility of Ghanaian stock market index. He found that the volatility of INT
increased the volatility of Ghanaian stock market index, while the volatility of GP, OP, and M2 reduced the
volatility of Ghanaian stock market index. Liu and Shrestha (2008) examined the long-run relationship
between macroeconomic variables (time deposit INT, INF, M2, IP, and ER) and the two indices of Chinese
stock market namely, Shanghai Stock Exchange, and Shenzhen Stock Exchange using GARCH Model and
monthly time-series data for the 1992-2001 period with a total of 120 observations. The results showed
that a co-integration relationship existed between stock market indices and macroeconomic variables in
the long-run. Pal and Mittal (2011) applied VECM and quarterly time-series data for the 1995-2008
period to examine the equilibrium long-run and short- run relationships between macroeconomic
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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variables (INT, INF, gross domestic savings (GDS), and ER)and stock market indices in India. The results
indicated co-integration relationships between macroeconomic variables and Indian stock market indices
in both short-run and long-run.
Based on the previous empirical studies, the following hypotheses could be formulated for the current study:
H1: There are significant long-run relationships between macroeconomic variables and SMI.
H2: There are significantshort-run relationships between macroeconomic variables and SMI.
3. Methodology
In fact, the research methodology needs to be carefully designed to obtain results that are quite robust,
objective, and realistic. For the current paper, several steps of the research methodology have been
adopted.
Variables Sources: The present study uses annual time series data covering the 1977-2011 period.
However, data on SMI obtained from Bursa Malaysia (2015); data on M1, M2, and ER obtained from BNM
(2015); data on IP, PPI, and CPI obtained from DOSM (2015).
Model Specification and Variables Descriptions: The researcher examineslong-run and short-run
relationships between six macroeconomic and SMI, by relying on the following model.
LSMIt = α0 + α1LIPt + α2LPPIt + α3LCPIt + α4ERt + α5LM1t + α6LM2t + εt (1)
Where α0denotes the intercept term; αi (i= 1… 6) represent the coefficients of the explanatory variables;
εtdenotes the error term.LSMItrepresents the logarithms of yearly figures of Malaysian stock market
index which obtained by taking weighted average of daily closing stock prices; LIPtrepresents the
logarithms of yearly weights of Malaysian industrial production index, and covered manufacturing,
mining, and electricity sectors using 2005 as the based year; LPPItdenotes the logarithms of yearly
weights of Malaysian producer price index, and covered agriculture, fishing, mining, manufacturing,
electricity, gas, and water supply sectors using 2000 as the based year;LCPItdenotes the logarithms of
yearly weights that has been taken to measure Malaysian aggregate price level of main groups of goods
and services using 2000 as the based year;ERtrepresents the yearly values of bilateral Malaysian Ringgit
(RM) exchange rate vis-à-vis the US dollar ($); LM1tand LM2tdenote the logarithms of yearly figures of
total amount of money available in Malaysian economy, and expressed in RM (millions). However, all
variables transformed into natural logarithmic forms expect ERtto make this variable simultaneous with
other variables or series (Bekhet&Al-Smadi, 2015; Bekhet&Al-Smadi, 2014;Bekhet&Matar, 2013;
Bekhet&Mugableh, 2013; Bekhet&Mugableh, 2012; Chen et al., 1986; Mugableh, 2015).The error-
corrections representations for ARDL Approach and for the variables in Eq. (1) can be written as the
following model.
LSMI = β +β LSMI +β LIP +β LPPI +β LCPI +β ER +β LM1 +β LM2
t47
0 1 t-1 2 t-1 3 t-1 t-1 t-1 6 t-1 t-1
5
+
1 2 3 4
h h h h
ΔLSMI + ΔLIP + ΔLPPI + ΔLCPI +
t-s t-s t-s t-s
s=0 s=0 s=0 s=0
5 6 7
h h h
ΔER + ΔLM1 + ΔLM2 +ε
t-s t-s t-s t
s=0 s=0 s=0
(2)
Where (∆)’s represent the first difference operators; β0denotes the intercept term; βi (i= 1… 7) represent
the long-run coefficients of one lagged variables; h signifies the lag length;
ζ (i = 1...7)
i
denote the short-
run coefficients at lag order s; and εt represents error term. The current paper uses bounds statistics
methodology to examine equilibrium relationships between variables. Specifically, it starts by testing
whether the variables achieve their stationarybehavior at upper or lower bounds using augmented
Dickey-fuller (ADF) and Phillips-Peron (PP) tests. Then, the co-integrating phenomenon has been tested
using Pesaran et al. (2001) bounds statistics test. Finally, results of stationary and co-integration tests
have been used to analyze long-run and short-run relationships between variables.
5. Results and Analysis
StationaryStatistics Tests: Table 1 shows that all variables in both ADF and PP tests are non-stationary
at the lower bound except LSMIt. When the first differences executed, all the variables are stationary.
Specifically, at the lower bound, LSMIt is stationary at 10% significance level in ADF test; while it is
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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stationary at 5% significance level in PP test. At the upper bound, all variables are stationary at 1%
significance level except LM2t which is stationary at 10% significance level.
Table 1: Results of ADF and PP tests
Stage
Variables
ADF
Critical values
PP
Critical values
Trend and
intercept
1%
5%
10%
Trend and
intercept
1%
5%
10%
At
Lower
Bound
LSMIt
-3.50(0)***
-4.25
-3.54
-3.22
-3.59[4]**
-4.25
-3.56
-3.21
LIPt
-2.36(0)
-4.26
-3.53
-3.21
-2.36[0]
-4.26
-3.55
-3.23
LPPIt
-1.62(0)
-4.25
-3.55
-3.23
-1.78[3]
-4.24
-3.54
-3.21
LCPIt
-1.89(0)
-4.28
-3.56
-3.21
-1.91[3]
-4.25
-3.55
-3.22
ERt
-1.86(0)
-4.25
-3.55
-3.22
-2.04[5]
-4.24
-3.51
-3.25
LM1t
2.87(0)
-4.26
-3.54
-3.23
4.55[2]
-4.25
-3.56
-3.26
LM2t
3.13(0)
-4.28
-3.53
-3.24
2.55[2]
-4.24
-3.55
-3.27
At
Upper
Bound
LSMIt
-7.86(0)*
-4.26
-3.55
-3.21
-8.38[4]*
-4.26
-3.55
-3.21
∆LIPt
-5.81(0)*
-4.27
-3.56
-3.22
-5.81[0]*
-4.28
-3.52
-3.22
∆LPPIt
-5.71(0)*
-4.24
-3.53
-3.20
-5.73[3]*
-4.26
-3.55
-3.21
∆LCPIt
-6.26(0)*
-4.26
-3.55
-3.21
-6.32[3]*
-4.29
-3.52
-3.25
∆ERt
-6.20(0)*
-4.25
-3.58
-3.22
-6.30[5]*
-4.27
-3.56
-3.21
∆LM1t
-4.97(0)*
-4.27
-3.56
-3.23
-4.94[2]*
-4.28
-3.55
-3.22
∆LM2t
-3.34(0)***
-4.34
-3.59
-3.25
-3.33[2]***
-4.26
-3.57
-3.23
Note:*, **, ***, describe the stationarystatus at 1%, 5%, and 10% significance levels, respectively.
Source: Output of EViews 8.1 Software Package.
PesaranBounds Statistics Tests for Co-integration: The present study uses F-statistics as suggested by
Pesaran et al. (2001) to test the null hypothesis of no co-integration between variables. That is, it sets
long-run coefficients of one lagged variables in Eq. (2) equal to zero i.e., H0: βi= 0, against alternative
hypothesis of co-integration between variables where, the long-run coefficients of one lagged variables
are not equal to zero i.e., H0: βi ≠ 0. The calculated F-statistic value is compared with tabulated F-statistic
critical value in statistical tables of Pesaran et al. (2001). If the calculated F-statistic value is greater than
upper bounds, then the null hypothesis of no co-integration is definitely rejected, which means that the
variables are shared long-run relationships among themselves (Pesaran et al., 2001).If the calculated F-
statistics value is smaller than the lowerbounds, then the null hypothesis of no co-integration is accepted,
which means that the variables are not shared long-run relationships among themselves (Pesaran et al.,
2001).However, if the calculated F-statisticvalue falls between upper and lower bounds, then, the decision
is inconclusive to either accept or reject the null hypothesis of no co-integration among variables(Pesaran
et al., 2001).Table 2 presents the computed and critical values of F-statistic to test the null hypothesis of
no co-integration among variables.
Table 2: Co-integration test
Model
Computed
F-statistics
value
Significance
levels
Critical values of F-statistics
Lower Bound
Upper Bound
LSMIt = ƒ (LIPt, LPPIt, LCPIt,
ERt, LM1t, & LM2t)
2.23
10%
1.92
2.89
5%
2.17
3.21
2.5%
2.43
3.51
1%
2.73
3.90
Source: Output of Micro-Fit 5.1 Software Package.
Table 2 shows that the null hypothesis of no co-integration among variables inLSMIt is rejected because
the calculated F-statistics value falls between lower and upper bounds at the 10% significance level
(Mugableh, 2013).
Equilibrium RelationshipsAnalysis: The main objective of the current study is to analyze long-run and
short-run relationships between macroeconomic variables and LSMIt. However, after conducting the
bounds statistics tests for co-integration; we conclude that all variables are co-integrated. Therefore, we
need to examine long-run and short-run relationships among these variables. Table 3 shows the
estimations of long-run and short-run coefficients.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Table 3: Long-runand short-run coefficients estimations
Variable
Coefficient
Standard error
p-value
Significance level
C
0.91
0.05
0.43
Insignificant
LIPt-1
0.14
0.08
0.01
1%
LPPIt-1
0.81
0.18
0.01
1%
LCPIt-1
-0.04
0.21
0.01
1%
ERt-1
-0.13
0.31
0.01
1%
LM1t-1
-0.08
0.20
0.70
Insignificant
LM2t-1
0.56
0.40
0.01
1%
∆LIPt-1
2.87
0.91
3.16
1%
∆LPPIt-1
3.28
0.77
4.25
1%
∆LCPIt-1
9.96
2.93
3.41
1%
∆ERt-1
9.78
2.81
3.49
1%
∆LM1t-1
4.71
2.25
2.09
5%
∆LM2t-1
-0.10
4.13
-0.02
Insignificant
ECmt-1
-1.10
0.18
-5.74
1%
Source: Output of Micro-Fit 5.1 Software Package.
Table 3 shows thatat 1% significance level, the variables LIPt-1, LPPIt-1, and LM2t-1 are positively
associated with the LSMIt, while LCPIt-1 and ERt-1are negatively related.
4. Conclusion and Further Studies
The present paper examineslong-run and short-run relationships between macroeconomic variables (IP,
PPI, CPI, ER, M1, and M2) and SMI using annual time-series data for the 1977-2011 period. Results of
pesaran bounds F-statistics reveal that all variables are co-integrated with SMI.This study adds to the
existing literature and focuses on long-run and short-run relationships between macroeconomic
variables and stock prices for the case of an emerging stock market, Malaysia, rather than mature stock
markets, the US or the UK, which have been frequently studied in the past. In fact, future research could
broaden this study by including more than one country to draw robust results, since the main limitation
of this study is the use of one country.
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Pengaruh Right Issue Terhadap Kinerja Keuangan Pada Perusahaan Terbuka Sektor
Perbankan Di Indonesia
Oleh, Ibnu Khajar
Unissula-Semarang
didijon58@yahoo.co.id
Abstract: The purpose of this study is to analyse financial performance of Banking sector in Indonesia
Stocks Excange (IDX) before and after the right issue. This study uses the event study five windows
periods, that is two years before and after announcement the right issue and the wilcoxon Signed Rank
Test non-parametric statistic. The empirical results show that the financial performance in profitability
and in activity after the right issue is different significannly compare with before the right issue. This
findings of this study contrary with Saputro (2013) but consistent with Burns (1991) and Budi (2003).
Keywords: right issue, event study, wilcoxcon signed rank test statistics.
Pendahuluan
Latar Belakang Masalah: Pada perkembangannya perusahaan yang go public umumnya masih
membutuhkan dana yang cukup besar untuk membiayai kegiatan operasionalnya. Dana yang cukup besar
tersebut tentu saja tidak hanya diperoleh dari sumber dana intern saja tetapi juga melalui sumber dana
ekstern. Salah satu cara yang dapat dilakukan perusahaan untuk memperoleh tambahan sumber dana
ekstern adalah dengan melakukan penawaran terbatas(right issue). Right issue adalah aksi korporasi yang
dalam bahasa Indonesia disebut Hak Memesan Efek Terlebih Dahulu (HMETD), atau penerbitan hak
dengan tujun menambah modal perusahaan yang pastinya setelah memperoleh persetujuan dari
pemegang saham (Teru Belajar: Main Saham, Google, 2013).. Right issue ini dilakukan dengan
menawarkan sekuritas baru kepada pemegang saham perusahaan untuk membeli saham baru tersebut
pada harga tertentu dan pada waktu tertentu pula. Pada umumnya right issue dibatasi kepada pemegang
saham lama. Tetapi jika pemegang saham lama tersebut tidak mau membeli, maka dia dapat menjual
right tersebut. Perusahaan mengeluarkan right issue dengan tujuan untuk tidak mengubah proporsi
kepemilikan pemegang saham dan mengurangi biaya emisi akibat penerbitan saham baru. Selain itu
perusahaan dapat mengurangi biaya emisi tersebut dikarenakan dalam melakukan right issue biasanya
tidak menggunakan jasa penjamin (underwriter). Bagi pemegang saham right issue juga dapat melindungi
dari nilai saham yang merosot (Jogiarto, 1998). Apabila perusahaan melakukan right issue maka akan
menambah kuat struktur modal tersebut. Hal ini dapat diterima apabila dana yang diperoleh dari hasil
right issue dimanfaatkan secara benar. Selain itu jika pemanfaatan dana tersebut benar, maka kinerja
keuangan perusahaan akan meningkat (Budi,2003:226). Gap hasil penelitian antara Loughran dan Ritter
(1997) dan Puji Harto (2001) salah satu alas an mengapa penelitian ini dilakukan. Loughran dan Ritter
(1997) menggunakan enam rasio keuangan meneliti kinerja keuangan lima tahun sebelum dan lima
tahun sesudah right issue, hasilnya menunjukkan kinerja keuangan (profit margin dan ROA) mengalami
penurunan. Puji Harto (2001) dalam penelitiannya menemukan bahwa kinerja operasi, profitabilitas, dan
saham perusahaan mengalami penurunan kecuali kinerja likuiditas yang justru meningkat setelah
dilakukan right issue.
Rumusan Masalah: Berdasarkan latar belakang masalah, rumusan masalah penelitian ini adalah “
hubungan antara pengaruh right issue terhadap kinerja keuangan (rasio likuiditas, leverage, profitabilitas,
aktivitas, dan pasar) pada perusahaan yang go public di Bursa Efek Indonesia “. Pertanyaan penelitian
(Question Research) ini adalah bagaimanakah kinerja keuangan (CR, TDTA, NPM, ATO, dan PER) sebelum
dan sesudah right issue pada perusahaan yang go public di Bursa Efek Indonesia.
Tujuan Penelitian
1. Untuk menganalisis pengaruh right issue terhadap kinerja keuangan yang diukur melalui rasio
likuiditas pada perusahaan yang go public.
2. Untuk menganalisis pengaruh right issue terhadap kinerja keuangan yang diukur melalui rasio
leverage pada perusahaan yang go public.
3. Untuk menganalisis pengaruh right issue terhadap kinerja keuangan yang diukur melalui rasio
profitabilitas pada perusahaan yang go public.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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4. Untuk menganalisis pengaruh right issue terhadap kinerja keuangan yang diukur melalui rasio
aktivitas pada perusahaan yang go public.
5. Untuk menganalisis pengaruh right issue terhadap kinerja keuangan yang diukur melalui rasio
pasar pada perusahaan yang go public.
Manfaat penelitian:
1. Penelitian ini diharapkan mempunyai manfaat sebagai pengembangan ilmu manajemen keuangan,
khususnya dalam pengukuran kinerja perusahaan yang melakukan right issue.
2. Hasil penelitian ini diharapkan dapat dijadikan sebagai referensi bagi pihak yang berkepentingan
terhadap penelitian lebih lanjut tentang pengaruh sebelum dan sesudah melakukan right issue
terhadap kinerja keuangan perusahaan yang go public.
3. Penelitian ini diharapkan mempunyai manfaat sebagai bahan pertimbangan pengambilan
keputusan dalam menanamkan modalnya di perusahaan yang go public.
Tinjauan Pustaka
Investasi: Investment represents the current commitment of an investor’s fund (wealth) for a future period
of time in order to earn a flow of funds that compensates for two factors: the time the funds are committed,
and the risk involved (Jones, 1996:174). Tujuan investor adalah (Klinik Go Publik, 1994): (1)
mempertahankan nilai investasinya, (2) mendapat penghasilan secara berkala baik dalam bentuk dividen
maupun bunga, dan (3) mengharapkan kenaikan atas nilai investasinya. Pemilikan aktiva financial dalam
rangka investasi pada sebuah institusi atau perusahaan dapat dilakukan dengan dua cara, yaitu : investasi
langsung (direct investing) dan investasi tidak langsung (indirect investing). Investasi langsung diartikan
sebagai suatu pemilikan surat-surat berharga secara langsung pada suatu institusi atau perusahaan yang
secara resmi telah go public dengan harapan akan mendapatkan keuntungan berupa dividen dan capital
gains. Sedangkan investasi tidak langsung terjadi bilamana surat-surat berharga yang dimiliki
diperdagangkan kembali oleh perusahaan investasi (investment company) yang berfungsi sebagai
perantara.
Right Issue: Right issue atau penawaran terbatas merupakan salah satu cara yang ditempuh untuk
memperoleh sumber dana. Right issue adalah penawaran kepada pemegang saham berjalan untuk
membeli saham secara pro rata, yaitu secara proporsional dengan proporsi kepemilikan saham mereka
pada harga tertentu dan waktu tertentu pula (Ross et al dalam Budi, 2003: 230). Right issue ini dilakukan
dengan menawarkan sekuritas baru kepada pemegang saham perusahaan untuk membeli saham baru
tersebut pada harga tertentu dan waktu tertentu pula (Budi, 2003 : 225). Pada umumnya right issue
dibatasi kepada pemegang saham lama. Tetapi jika pemegang saham lama tersebut tidak mau membeli,
maka dia dapat menjual right tersebut. Menurut Robert Ang (1997). Right issue adalah kegiatan
penawaran umum terbatas pada pemegang saham lama dalam rangka hak memesan efek terlebih dahulu.
Jadi jika suatu perusahaan publik ingin menerbitkan bukti right, maka kegiatannya harus melalui
penawaran umum terbatas. Penawaran umum berarti memberikan tawaran kepada publik untuk
memesan atau membeli saham, sedangkan makna terbatas menunjukkan bahwa penawaran umum ini
hanya diajukan kepada pemegang saham lama, dengan right issue dana dapat dikumpulkan melalui
partisipasi pemegang saham lama perusahaan itu sendiri. Bagi pemegang saham right issue juga dapat
melindungi dari nilai saham yang merosot. Bagi investor right issue berdampak positif jika tidak
berpengaruh terhadap harga saham, tetapi sebaliknya berdampak negatif jika menyebabkan menurunnya
harga saham. Pada umumnya dengan melakukan right issue, perusahaan dapat meningkatkan frekuensi
perdagangan saham atau dengan kata lain dapat meningkatkan saham. Pemegang saham lama
mempunyai hak yang sering disebut dengan preemptive right yaitu suatu hak bagi pemegang saham lama
untuk menjaga proporsi kepemilikan, maka jika pemegang saham tidak ingin melaksanakan haknya maka
ia dapat menjual haknya tersebut.
Kinerja Keuangan: Kinerja menjadi ukuran prestasi yang telah dicapai dalam menjalankan tugas, yang
sesuai dengan kemampuan yang dimiliki. Kinerja perusahaan merupakan suatu tampilan perusahaan
dalam periode tertentu. Penilaian kinerja keuangan adalah penentuan secara periodic, efektifitas
operasional suatu organisasi, bagan organisasi, karyawan berdasarkan sasaran, standar dan kriteria yang
ditetapkan sebelumnya (Mulyadi, 1997). Kinerja keuangan perusahaan adalah suatu tampilan atau
keadaan keuangan perusahaan selama periode waktu tertentu. Kinerja keuangan merupakan gambaran
dari kinerja sebuah perusahaan,. Informasi posisi keuangan dan kinerja perusahaan di masa lalu sering
kali digunakan sebagai dasar untuk memprediksi posisi keuangan dan kinerja di masa depan. Sehingga
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informasi tersebut dapat digunakan investor untuk memperoleh perkiraan tentang laba dan dividen di
masa mendatang dan risiko atas penilaian tersebut, serta dapat digunakan sebagai alat ukur
pertumbuhan kekayaan pemegang saham (investor).
Penilaian Kinerja Keuangan: Kinerja perusahaan dapat dinilai melalui berbagai macam variable atau
indikator. Sumber utama variable atau indicator yang dijadikan dasar penilaian ialah laporan keuangan
perusahaan yang bersangkutan. Berdasarkan laporan tersebut dapat dihitung sejumlah rasio keuangan
yang lazim dijadikan dasar penilaian kinerja perusahaan. Rasio Keuangan yang digunakan dalam
penelitian ini adalah Rasio Leverage, Profitabilitas, Aktivitas dan Pasar. Pengukuran kinerja perusahaan
yang umum digunakan adalah pengukuran terhadap tingkat likuiditas, solvabilitas, profitabilitas dan
aktivitas (Gitman dan Joehnk, 1996). Solvabilitas untuk mengukur kemampuan perusahaan membayar
utang apabila perusahaan dilikuidasi. Profitabilitas mengukur kemampuan perusahaan dalam
menghasilkan laba. Dan aktivitas dimaksudkan mengukur kemampuan perusahaan dalam menggunakan
dana.
Pengaruh Right Issue Terhadap Kinerja Keuangan: Right issue adalah penawaran kepada pemegang
saham berjalan untuk membeli saham secara pro rata, yaitu secara proporsional dengan proporsi
kepemilikan saham mereka pada harga tertentu dan waktu tertentu pula (Ross et al dalam Budi,
2003:230). Right issue merupakan upaya emiten untuk menambah saham yang beredar dan menambah
modal perusahaan (Khajar, 2009:66). Jika perusahaan melakukan right issue maka menambah kuat
struktur modal perusahaan tersebut. Hal ini dapat diterima apabila dana yang diperoleh dari hasil right
issue dimanfaatkan secara benar. Apabila pemanfaatan dana tersebut benar, maka kinerja keuangan
perusahaan juga akan meningkat (Budi, 2003:226). Sehingga apabila kinerja keuangan suatu perusahaan
itu bagus atau meningkat, investor juga akan berminat untuk menanamkan modalnya pada perusahaan.
Kerangka Pemikiran
Gambar 2.1 Kerangka Pemikiran
Hipotesis: Berdasarkan telaah literature dan kerangka pemikiran teoritis di atas, maka hipotesis dalam
studi ini adalah: “Terdapat perbedaan kinerja keuangan perusahaan (TDTA, NPM, ATO, dan PER) yang
signifikan sebelum dan sesudah melakukan right issue”.
Metode Penelitian
Jenis Penelitian: Penelitian ini merupakan jenis event study (studi peristiwa) yaitu studi yang
menganalisis reaksi pasar terhadap suatu peristiwa yang informasinya diumumkan kepada public.
Populasi dan Sampel: Populasi adalah semua individu atau unit-unit yang menjadi obyek penelitian
(Zaenal Mustofa, 1992). Populasi dalam penelitian ini adalah seluruh perusahaan yang go public di BEI
Analisis
perbedaan kinerja
keuangan
sebelum dan
sesudah right
issue
Pengumuman Right Issue
Kinerja Keuangan:
Rasio Leverage / Total debt to total asset
Rasio Profitabilitas / Net Profit Margin
Rasio Pasar / Price Earning Ratio
Rasio Aktivitas / ATO
Sebelum Right
Issue
Sesudah Right Issue
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dan melakukan right issue. Sampel adalah sebagian individu atau unit-unit yang diambil dari populasi.
Teknik pengambilan sampel adalah “purposive sampling ” yaitu tehnik pengambilan sampel dimana
pertimbangan perorangan / peneliti memegang peranan bahkan menentukan di dalam pengambilan
obyek untuk diteliti (Sudjono, 1986). Dalam penelitian ini kriteria yang digunakan untuk sampel ini
adalah :
Perusahaan melakukan right issue antara tahun 2008 sampai dengan tahun 2011.
Emieten tergabung dalam industry sector keuangan sub sector bank
Perusahaan yang melakukan right issue minimal telah melakukan penawaran perdana (initial
public offering) dalam jangka waktu dua tahun sebelumnya.
Perusahaan yang melakukan right issue lebih dari satu kali harus mempunyai jangka waktu antar
right issue minimal selama tiga tahun. Hal ini untuk melihat pengaruh dari kegiatan right issue
dalam jangka waktu dua tahun, dimana perusahaan yang digunakan adalah perusahaan yang pada
tahun pertama melakukan Right Issue.
Data penerbitan laporan keuangan tersedia selama lima tahun berturut-turut mulai dari dua tahun
sebelum sampai dua tahun sesudah kegiatan right issue.
Pengecualian untuk perusahaan perbankan dan lembaga pembiayaan, karena perusahaan jenis ini
terdapat regulasi yang kuat mengenai permodalan sehingga biasanya mempunyai Leverage yang
tinggi.
Berdasarkan criteria di atas dengan menggunakan metode pengumpulan data dokumentasi data
sekunder yang diambil Bursa Efek Indonesia (IDX) terkumpul 26 emiten melakukan right issue periode
tahun 2008 – 2011. Setelah diamati dan diteliti lebih lanjut terkait dengan kelengkapan data, maka hanya
terdapat 11 emiten (perusahaan) yang memenuhi syarat dijadikan sampel.
Jenis Data dan Sumber Data: Jenis data yang digunakan dalam penelitian ini adalah data sekunder yaitu
data yang diperoleh dari pihak lain dalam bentuk sudah jadi berupa bukti, catatan atau laporan historis
yang telah tersusun dalam arsip (Nur Indriantoro dan Bambang Supomo, 1999: 50). Dalam hal ini data
yang diperlukan yaitu laporan keuangan dari tahun 2006 – 20013. Dalam penelitian ini, data yang
diperoleh dari Bursa Efek Indonesia (IDX).
Definisi Operasional dan Pengukuran Variabel: Variabel penelitian adalah rasio keuangan yang
digunakan untuk mengukur kinerja keuangan sebagaimana Tabel 3.1.
Tabel 3.1: Definisi Operasional dan Pengukuran Variabel
Variabel
Konsep
Rumus
Rasio Leverage
Total debt to total asset tiap tahun
Total debt to total asset =
asset total
kewajiban Total
Rasio Profitabilitas
Net Profit Margin tiap tahun
Net Profit Margin =
bersihpenjualan pajaksetelah Laba
Rasio Aktivitas
ATO tiap tahun
ATO =
aktiva total bersihPenjualan
Rasio Pasar
PER tiap tahun
PER =
bersih laba saham Harga
Periode
Pengumuman / Hari
Kejadian
Tanggal Pengumuman
Tehnik Analisis Data: Teknik analisis yang digunakan berupa rasio-rasio keuangan dan untuk pengujian
hipotesis digunakan uji Wiloxon Signed Rank Test. Alat statistic yang digunakan merupakan statistic non-
parametrik karena jumlah data kurang dari 30 (sample hanya 11 perusahaan).
Rasio Keuangan
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Leverage: Rasio hutang yang nilainya merupakan hasil perbandingan antara total hutang dengan total
asset, dengan formula sebagai berikut:
Total debt to total asset =
asset total
kewajiban Total
Net Profit Margin: Rasio profitabilitas yang nilainya merupakan hasil perbandingan antara laba bersih
dengan penjualan, dengan formula sebagai berikut:
Net Profit Margin =
bersihpenjualan pajaksetelah Laba
Asset Turn Over: Rasio aktivitas yang nilainya merupakan hasil perbandingan antara penjualan dengan
total asset, dengan formula sebagai berikut:
ATO =
aktiva total bersihPenjualan
Price Earning Ratio: Rasio penilaian investor terhadap EPS yang nilainya merupakan hasil perbandingan
antara harga saham dengan EPS dengan formula sebagai berikut:
PER =
bersih laba saham Harga
Uji Wciloxon Signed Rank Test: Merupakan alat uji statistik non parametrik, digunakan untuk
mengetahui apakah ada perbedaan antara rasio-rasio keuangan sebelum dan sesudah sesudah right issue
dengan asumsi data tidak berdistribusi normal (jumalah data kecil yaitu 11). Langkah-langkah
pengambilan keputusan menerima atau menolak hipotesis sebagai berikut:
H0: tidak ada perbedaan kinerja keuangan yang signifikan (total debt to total asset-TDTA, net profit
margin-NPM, Asset Turn Over-ATO, dan Price Earning Ratio-PER) sebelum dan sesudah right issue.
Hl: ada perbedaan kinerja keuangan yang signifikan (total debt to total asset-DAR, net profit margin-NPM,
ATO, dan PER) sebelum dan sesudah right issue.
Kriteria Pengujian digunakan alpha 5%, maka jika tingkat signifikansi (asymptotic significance) > 0,05
(5%) maka Ho diterima dan Ha ditolak, dan jika tingkat signifikansi (asymptotic significance) < 0,05 (5%)
maka Ho ditolak Ha diterima.
Hasil Penelitian dan Pembahasan
Emiten Yang Melakukan Right Issue Periode 2008 – 2011: Sampel penelitian adalah emiten yang
tergolong dalam industri keuangan. Sektor Keuangan dari perusahaan industri jasa yang merupakan
perusahaan publik (emiten), sektor keuangan yang terdaftar di Bursa Efek Indonesia (BEI) terdiri dari :
Sub sektor Bank, Sub sektor Lembaga pembiayaan, . Sub sektor Perusahaan Efek, Sub sektor Asuransi, dan Sub sektor lainnya.
Penelitian ini focus pada sub sector bank. Setelah dilakukan dokumentasi perusahaan yang melakukan
right issue periode 2008-2011 terdapat 26 perusahaan. Dari jumlah tersebut berdasarkan kelengkapan
data hanya terdapat 11 perusahaan yang memenuhi, sebagaimana tabel 4.1.
Tabel 4.1: Right Issue Perusahaan Sektor Perbankan Periode 2008 – 20011
NOMER
EMITEN
TAHUN
1
BANK ARTHA GRAHA INTERNASIONAL Tbk (INPC)
2008
2
BANK AGRONIAGA Tbk (AGRO)
2009
3
BANK CAPITAL INDONESIA Tbk ( BACA)
2009
4
BANK CIMB NIAGA Tbk (BNGA)
2010
5
BANK TABUNGAN PENSIUNAN NASIONAL Tbk (BTPN)
2010
6
BANK NEGARA INDONESIA Tbk (BBNI)
2010
7
BANK PERMATA Tbk (BNLI)
2010
8
BANK MAYAPADA INTERNASIONAL Tbk (MAYA)
2010
9
BANK NUSANTARA PARAHYANGAN Tbk (BBNP)
2010
10
BANK WINDU KENTJANA INTERNATIONAL Tbk (MCOR)
2010
11
BANK MANDIRI ( PERSERO ) Tbk (BMRI)
2011
Sumber: Bursa Efek Indonesia (IDX)
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Deskripsi Variabel Penelitian
Rasio Leverage: Rasio ini mencerminkan struktur modal perusahaan. Dari total asset yang dimiliki
perusahaan, berapa persen didanai dari hutang. Dari 11 perusahaan Bank yang dijadikan obyek
penelitian rasio leverage sebagaimana tabel 4.2.
Tabel 4.2: Rasio Leverage (DAR)
NOMOR
KETERANGAN
DAR (rata-rata)
1
Sebelum right issue
0.903
2
Setelah right issue
0.890
Perubahan
-1.36%
Sumber: data IDX yang diolah
Berdasarkan data rasio leverage pada tabel 4.2, secara rata-rata komposisi hutang perusahaan sebelum
dan sesudah right issue menurun sebesar -1,36%, oleh karena itu dapat dikatakan tidak mengalami
banyak perubahan.
Net Profit Margin: Rasio ini mencerminkan efisiensi sekaligus tingkat keuntungan, dari nilai penjualan
yang berhasil diperoleh berapa persen dapat ditransfer menjadi keuntungan. Semakin tinggi rasionya
berarti semain tinggi tingkat keuntungan sekaligus semain efisien, dan sebaliknya berarti semakin rendah
keuntungan dan efisiensinya. Dari 11 perusahaan Bank yang dijadikan obyek penelitian net profit margin
sebagaimana tabel 4.3.
Tabel 4.3: Net Profit Margin (NPM)
NOMOR
KETERANGAN
NPM (rata-rata) %
1
Sebelum right issue
8.96
2
Setelah right issue
16.44
Perubahan
83.43
Sumber: data IDX yang diolah
Berdasarkan data net profit margin pada tabel 4.3, secara rata-rata Net Profit Margin perusahaan
sebelum dan sesudah right issue meningkat sebesar 83,43% oleh karena itu dapat dikatakan
profitabilitas perusahaan meningkat cukup besar.
Price Earning Ratio (PER): Rasio ini mencerminkan seberapa besar investor menghargai keuntungan
perlembar saham perusahaan. Rasio ini juga disebut sebagai rasio pasar karena dalam perhitungannya
menggunakan harga pasar saham di Bursa. Semakin tinggi PER semakin tinggi investor menghargai
setiap rupiah keuntungan per lembar saham, semakin mahal dan begitu sebaliknya berarti semakin
murah. Dari 11 perusahaan Bank yang dijadikan obyek penelitian Price Earning Ratio sebagaimana tabel
4.4.
Tabel 4.4: Price Earning Ratio (PER)
NOMOR
KETERANGAN
PER (rata-rata)
1
Sebelum right issue
65.02
2
Setelah right issue
14.78
Perubahan
-77,27%
Sumber: data IDX yang diolah
Berdasarkan data net profit margin pada tabel 4.4, secara rata-rata price earning Ratio perusahaan
sebelum dan sesudah right issue menurun sebesar 77,27% oleh karena itu dapat dikatakan Price Earning
Ratio perusahaan menurun cukup besar.
Asset Turn Over (ATO): Rasio ini mencerminkan seberapa besar aktivitas perusahaan yang ditunjukkan
oleh persentase niali penjualan terhadap total asset. Samakin tinggi rasio semakin tinggi pemanfaatan
asset perusahaan yang diwujudkn dalam nilai penjualan, dan sebaliknya berarti semakin rendah
pemanfaatan asset. Dari 11 perusahaan Bank yang dijadikan obyek penelitian Price Earning Ratio
sebagaimana tabel 4.5.
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Tabel 4.5: Asset Turn Over (ATO)
NOMOR
KETERANGAN
PER (rata-rata)
1
Sebelum right issue
0.10
2
Setelah right issue
0.09
Perubahan
-9,73%
Sumber: data IDX yang diolah
Berdasarkan data Asset Turn Over pada tabel 4.5, secara rasionya sebelum dan sesudah right issue
menurun sebesar 9,73% oleh karena itu dapat dikatakan Asset Turn Over perusahaan menurun
meskipun tidak besar.
Hasil Penelitian
Pengaruh Right Issue Terhadap Kinerja Keuangan (Debt Aset Ratio/DAR): Hipotesis yang diajukan
bahwa terdapat perbedaan yang signifikan antara Debt Asset Ratio (DAR) sebelum dan sesudah right
issue. Hasil pengolahan data secara statistic dengan metode Uji Wciloxon Signed Rank Test dapat
dirangkum sebagaimanan Tabel 4.6.
Tabel 4.6: Rangkuman Uji Wilcoxon Debt Asset Ratio (DAR)
KETERANGAN
DAR-before
DAR-after
Z
-1,207
Asymp. Sig
0,227
Sumber: data yang diolah
Berdasarkan angka dalam tabel 4.6, nilai Asymp. Sig. 0,227 adalah melebihi alpha 5%, maka hipotesis
yang diajukan ditolak. Tidak ada perbedaan kinerja keuangan yang signifikan dalam hal ini dilihat dari
Debt Asset Ratio sebelum dan sesudah right issue. Disimpulkan bahwa right issue tidak berpengaruh
pada kinerja keuangan dari aspek Debt Asset Ratio.
Pengaruh Right Issue Terhadap Kinerja Keuangan (Net Profit Margin/NPM): Hipotesis yang
diajukan bahwa terdapat perbedaan yang signifikan antara Net Profit Margin (NPM) sebelum dan
sesudah right issue. Hasil pengolahan data secara statistic dengan metode Uji Wciloxon Signed Rank Test
dapat dirangkum sebagaimanan Tabel 4.7.
Tabel 4.7: Rangkuman Uji Wilcoxon,Net Profit Margin (NPM)
KETERANGAN
NPM-before
NPM-after
Z
-2,667
Asymp. Sig
0,008
Sumber: data yang diolah
Berdasarkan angka dalam tabel 4.6, nilai Asymp. Sig. 0,008 adalah kurang dari alpha 5%, maka hipotesis
yang diajukan diterima. Ada perbedaan kinerja keuangan yang signifikan dalam hal ini dilihat dari Net
Profit Margin sebelum dan sesudah right issue. Disimpulkan bahwa right issue berpengaruh pada kinerja
keuangan dari aspek Net Profit Margin (NPM).
Pengaruh Right Issue Terhadap Kinerja Keuangan (Price Earning Ratio/PER): Hipotesis yang
diajukan bahwa terdapat perbedaan yang signifikan antara Price Earning Ratio (PER) sebelum dan
sesudah right issue. Hasil pengolahan data secara statistic dengan metode Uji Wciloxon Signed Rank Test
dapat dirangkum sebagaimanan Tabel 4.7.
Tabel 4.7: Rangkuman Uji Wilcoxon,Price Earning Ratio (PER)
KETERANGAN
PER-before
PER-after
Z
-1,778
Asymp. Sig
0,075
Sumber: data yang diolah
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Berdasarkan angka dalam tabel 4.6, nilai Asymp. Sig. 0,075 adalah lebih dari alpha 5%, maka hipotesis
yang diajukan ditolak. Tidak ada perbedaan kinerja keuangan yang signifikan dalam hal ini dilihat dari
Price Earning Ratio sebelum dan sesudah right issue. Akan tetapi jika digunakan alpha 10% maka
hipotesis diterima, artinya terdapat penurunan harga saham dalam hal ini menggunakan proxy rasio PER.
Disimpulkan bahwa right issue tidak berpengaruh pada kinerja keuangan dari aspek Price Earning Ratio
(PER) pada alpha 5%, tetapi jika alpha 10% right issue berpengaruh signifikan terhadap kinerja
keuangan dari aspek Price Earning Ratio (PER).
Pengaruh Right Issue Terhadap Kinerja Keuangan (Asset Turn Over/ATO): Hipotesis yang diajukan
bahwa terdapat perbedaan yang signifikan antara Aset Turn Over (ATO) sebelum dan sesudah right issue.
Hasil pengolahan data secara statistic dengan metode Uji Wciloxon Signed Rank Test dapat dirangkum
sebagaimanan Tabel 4.7.
Tabel 4.7: Rangkuman Uji Wilcoxon Net Profit Margin (NPM)
KETERANGAN
ATO-before-ATO-after
Z
-2,682
Asymp. Sig
0,007
Sumber: data yang diolah
Berdasarkan angka dalam tabel 4.6, nilai Asymp. Sig. 0,007 adalah kurang dari alpha 5%, maka hipotesis
yang diajukan diterima. Ada perbedaan kinerja keuangan yang signifikan dalam hal ini dilihat dari Asset
Turn Over sebelum dan sesudah right issue. Disimpulkan bahwa right issue berpengaruh pada kinerja
keuangan dari aspek Asset Turn Over (ATO).
Pembahasan
Pengaruh Right Issue Terhadap Kinerja Keuangan (Debt Aset Ratio/DAR): Berdasarkan bukti
empiris penelitian ini menunjukkan corporate action perusahaan berupa right issue tidak berpengaruh
pada kinerja keuangan dilihat dari aspek Debt Asset Ratio. Artinya komposisi hutang perusahaan
terhadap total asset sebelum dan sesudah right issue tidak berubah secara signifikan. Data sekunder
menunjukkan adanya penurunan rata-rata DAR yang sedikit menurun setelah right issue yaitu sekitar
satu persen dan secara statistic tidak signifikan. Temuan ini mendukung Fahmi dan Saputro (2011) yang
menyatakan bahwa solvabilitas perusahaan tidak mengalami perbedaan yang signifikan antara sebelum
dan sesudah right issue. Hal ini terjadi karena kemungkinan dana yang diperoleh dari right issue
digunakan untuk investasi sehingga dan tidak digunakan untuk membayar hutang sehingga komposisi
hutang perusahaan tidak mengalami perubahan yan signifikan setelah right issue.
Pengaruh Right Issue Terhadap Kinerja Keuangan (Net Profit Margin/NPM): Berdasarkan bukti
empiris penelitian ini menunjukkan corporate action perusahaan berupa right issue berpengaruh secara
signifikan pada kinerja keuangan dilihat dari aspek Net Profit Margin. Artinya prosentase keuntungan
yang berhasil diperoleh dari penjualan yang dihasilkan mengalami peningkatan setelah right issue. Dapat
juga diartikan efisiensi perusahaan meningkat setelah right issue, hal ini ditunjukkan adanya Net Profit
Margin yang mengalami peningkatan secara signifikan setelah right issue. Right issue dapat diartikan
adanya aliran modal baru ke dalam perusahaan sebagai hasil dari penjualan saham baru dalam bentuk
right issue. Tambahan modal tersebut dapat meningkatkan kapasitas perusahaan untuk menjalankan
kegiatan perusahaan. Peningkatan kegiatan operasional pada akhirnya dapat meningkatkan keuntungan
perusahaan, dalam penellitian ini terbukti dengan adanya peningkatan Net Profit Margin pasca right issue
secara signifikan.
Hasil temuan ini tidak mendukung Fahmi dan Saputro (2013) yang menyatakan bahwa profitabilitas
perusahaan sebelum dan setelah right issue tidak berbeda secara signifikan, mereka menjelaskan bahwa
penggunaan dana hasil aksi korporasi tersebut digunakan untuk investasi jangka panjang sehingga
hasilnya belum kelihatan setelah dua tahun paska aksi tersebut. Akan tetapi jika dibandingkan dengan
hasil penelitian Ichsan Setiyo Budi (2003) hasil penelitian ini mendukung, dimana dinyatakan dalam
penelitiannya bahwa dengan menggunakan 5 rasio keuangan (likuiditas, leverage, profitabilitas, aktivitas,
dan pasar modal) menunjukkan bahwa kinerja perusahaan setelah right issue lebih baik dibandingkan
sebelum right issue atau dengan kata lain right issue dapat meningkatkan kinerja perusahaan. Sedangkan
jika dibandingkan dengan Burns (1991) penelitian ini mencatat hasil yang sama yaitu adanya
peningkatan profitabilitas pasca right issue.
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Pengaruh Right Issue Terhadap Kinerja Keuangan (Price Earning Ratio/PER): Berdasarkan bukti
empiris penelitian ini menunjukkan corporate action perusahaan berupa right issue tidak berpengaruh
secara signifikan pada kinerja keuangan dilihat dari aspek Price Earning Ratio (PER). Artinya harga
saham perusahaan tidak mengalami kenaikan atau penurunan yang signifikan secara statistic, meskipun
data empiris menunjukkan adanya penurunan. Akan tetapi jika digunakan tingkat kesalahan alpha dalam
nalisis hipotesisi penelitian sebesar 10%, maka secara empiris penilitian ini mencatat bahwa right issue
berpengaruh signifikan terhadap kinerja keuangan aspek Price Earning Ratio (PER). Setelah right issue
harga saham mengalami penurunan secara signifikan. Sesuai hukum permintaan (demand) dan
penawaran (supply) bahwa semakin banyak yang ditawarkan maka harga akan turun. Corporate action
right issue analog dengan dengan penambahan volume saham yang ditawarkan dipasar, konsekwensinya
harga saham mengalami penurunan. Hasil temuan empiris ini mendukung hasil penelitin dari Burns
(1991) yang menyatakan bahwa harga saham dari perusahaan yang melakukan right issue mengalami
penurunan. Penurunan saham terjadi karena investor merasa takut bahwa dipasar akan terjadi kelebihan
penawaran saham (oversupply) di pasar saham.
Pengaruh Right Issue Terhadap Kinerja Keuangan (Asset Turn Over/ATO): Berdasarkan bukti
empiris penelitian ini menunjukkan corporate action perusahaan berupa right issue berpengaruh secara
signifikan terhadap kinerja keuangan dilihat dari Asset Turn Over (ATO). Artinya aktivitas perusahaan
mengalami perubahan secara signifikan pasca right issue. Aktivitas perusahaan berupa kegiatan
operasional perusahaan dengan proxy penjualan. Penelitian ini mencatat bahwa pasca riht issue aktivitas
perusahaan justru secara signifikan mengalami penurunan. Menurunnya aktivitas tersebut dapat
dianalisis bahwa perusahaan belum memanfaatkan aliran kas dana segar dari kegiatan right issue. Atau
dapat dianalisis bahwa dana yang diperoleh dari right issue digunakan untuk investasi dalam jangka
panjang sehingga hasil dari investasi tersebut belum nampak dalam penelitian ini, dimana periode
pengamatan hanya 5 hari pasca right issue. Meskipun demikian profitabilitas perusahaan sudah
meningkat pasca right issue, hal ini dapat dipahami bahwa investor sudah mengantisipasi prospek
prusahaan ke depan akan menjadi lebih baik karena telah menginvestasikan dalam jangka panjang dana
hasil dari right issue.
Kesimpulan Dan Saran
Kesimpulan
1. Dari empat hipotesis penelitian, dua hipotesis diterima sedangkan lainnya ditolak, yaitu pengaruh
right issue terhadap kinerja keuangan dalam hal ini Net Profit Margin (NPM) diterima, dan
pengaruh right issue terhadap aktivitas perusahaan dalam hal ini Asset Turn Over (ATO) juga
diterima.
2. Dua hipotesis yang ditolak; pertama pengaruh right issue terhadap kinerja keuangan dalam aspek
Debt Asset Ratio (DAR) dan kedua pengaruh right issue terhadap kinerja keuangan dalam aspek
Price Earning Ratio (PER).
Saran
1. Untuk mengkonfirmasi hasil penelitian ini silahkan ditambah periode jendala, bisa 3 atau 4
sebelum right issue dan 3 atau 4 setelah right issue, dikarenakan effek penggunaan dana hasil right
issue untuk investasi jangka panjang lebih memungkinkan hasilnya akan tampak setelah 3 atau 4
tahun.
2. Untuk mengkonfirmasi hasil penelitian ini silah dicoba obyek sampel penelitian lain diluar sektor
perbankan. Dikarenakan corporate action berupa right issue tidak hanya dimonopoli oleh sektor
perbankan, sektor-sektor lain seperti manufaktur, food and beverage, infrastruktur juga
melakukan right issue.
Daftar Pustaka
Budi, Ichsan Setiyo. 2003. Pengaruh Right Issue Terhadap Kinerja Keuangan Perusahaan yang Go public di
BEJ. Jurnal Ekonomi dan Bisnis. September. Vol IX. No.2: 225-238.
Burns, Stephen, 1991. Carter Holt's Earnings Report, Rights Issue Depress Stock Price. Asian Wall Street
Journal, Jun 10, 1991.
Husnan, Suad dan Emy Pudjiastuti. 2004. Dasar-Dasar Manajemen Keuangan, Edisi ke-4. Yogyakarta:UPP
AMP YKPN.
Jogianto. 1998. Teori Portofolio dan Analisis Investasi, Edisi Pertama, Yogyakarta: BPFE UGM.
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Jones, Charles P., 1996. Invesments Analysis And Management, John Wiley & Sons, INC., Canada.
Khajar, Ibnu.2009. Pengantar Pasar Modal Dilengkapi dengan Sistem Transaksi On-Line dan Pasar
keuangan Syari’ah, Unissula Press, Semarang 50112.
Madura, Jeff, 2003. Financial Market and Institutions, Sixth Edition, Thomson, South-Western, United
States of America.
Masruroh, 2004, Manfaat dan Pengaruh Rasio Keuangan Dalam Analisis Kinerja Keuangan Perbankan,
Benefit, Juni, Vol.8 No. I hal: 37-51.
Mulyadi, 1997, Akuntansi Manajemen, Jakarta, Salemba Empat.
Nugraheni, Fitri dan Dody Hapsoro. 2007, Pengaruh Rasio Keuangan CAMEL, Tingkat Inflasi dan Ukuran
Perusahaan Terhadap Kinerja Keuangan Perusahaan Perbankan di BEJ. Wahana. Agustus. Vol 10.
Not : 63 -80.
Payamta dan Machfoedz, 1999. Evaluasi Kinerja Perusahaan Perbankan sebelum dan sesudah menjadi
perusahaan public di BEI. Kelola.
Puji Harto. 2001. Analisis Kinerja Perusahaan Yang Melakukan Right Issue. Di Indonesia. SNA IV.
Semarang. Hal: 307-322.
Riyanto, Bambang. 1995. Dasar-Dasar Pembelajaran Perusahaan. Yogyakarta: BPFE.
Saputro dan Fahmi 2011. Analysis of Financial Performance In A Form Of Financial Ratio Before And After
Right Issue At The Indosia’s Stock Exchange (BURSA EFEK INDONESIA). International Journal of
Business and Social Science Vol. 2 No. 24; December 2011.
Saputro dan Fahmi 2013. Analysis of Profitability Ratio in Publishing Right Issue Decision at Indonesia
Stock Exchange. International Journal of Business and Social Science Vol. 4 No. 4; April 2013.
Wahyuningsih, Eni Kristiani dan Bambang Hadinugroho. 2004, Pengaruh Kinerja Keuangan Terhadap
Harga Sahara. Fokus Manajerial. Vol.2. No.l : 17-30
Weston, J. Fred dan Thomas E. Copeland, 1993, Manajemen Keuangan. Edisi Kedelapan, Jakarta. Erlangga
Weston, J. Fred dan Thomas E. Copeland, 1991, Manajemen Keuangan. Edisi Kesembilan, Jakarta. Erlangga
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Female Fertility and Labour Force Participation for Asean-5: A Dynamic Heterogenous
Panel Analysis
Thirunaukarasu Subramaniam, Nanthakumar Loganathan, Mazlan Majid
University of Malaya, Kuala Lumpur
Universiti Sultan ZainalAbidin, Kuala Terengganu, Terengganu
Abstract: This study explores the bilateral relationship between female fertility and female labour force
participation for ASEAN-5 countries namely Malaysia, Singapore, Thailand, Indonesia and the Philippines.
The data covers for the period from 1980 to 2012 and we used dynamic cointegration and causality panel
time series analysis. Firstly, the findings from this study reveals that there is a long-run cointegration
relationship between those two variables for ASEAN-5 countries using dynamic cointegration methods
namely DOLS, FMOLS and Westerlund analysis. Secondly, we found that there is an inverse relationship
between female fertility and female labour force participation for all ASEAN countries except for
Thailand. Thirdly, we found the existence of short-run relationship using bilateral heterogenous panel.
Finally, we also found a bidirectional causality between female fertility and female labour force
participation using Dumitrescu-Hurlinpanel Granger causality test.
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Corporate Social Responsibility and Airline Performance
Teguh I. Maulana
Faculty of Economics and Business, Universitas Indonesia
teguh.im@ui.ac.id
Abstract: This study is conducted to find empirical evidences about the impacts of operation-related and
non-operation-related CSR activities on airline industry’s specific performance measurement namely
passenger load factor and passenger yield. In addition, the study tries to identify whether the airline’s
business model has a moderating effect in influencing the association between CSR activities and airline’s
performance. The study employs 263 observations of airlines in 46 countries from 2009-2012. Data are
mainly collected from airlines’ annual reports and/or sustainability reports, while CSR value is derived
from self-checklist items which are developed from KLD STATS database. This study finds, first, the
negative operation-related CSR activities have a negative impact on both airline’s passenger load factor
and passenger yield. Second, airlines’ involvement in the positive operation-related CSR activities may
influence passenger load factor as well as providing additional passenger yield if such activities have
exceeded customers’ expectation regarding the airline’s operational performance for the customer. Third,
the study finds a trade-off between passenger load factor and passenger yield for airlines that have
engagement in the positive non-operation-related CSR activities. Finally, the study identifies a moderating
effect of airline’s business model on the relationship between positive non-operation-related CSR
activities and the airline’s performance.
Keywords: Corporate Social Responsibility, Airlines, Passenger Load Factor, Passenger Yield, Business
Model
1. Introduction
In the airline inadustry, CSR has also enjoyed a promising direction. Today, more airlines integrate the
corporate sustainability agenda into their overall business strategy (Heeres, Kruijd, Montgomery, &
Simmons, 2011). A report from (International Air Transport Association, 2013)mentioned that the airline
is the only industry that has global environment objectives especially related to the carbon emission. The
report also stated that the airline industry has a growing concern not only on the environmental issues,
but also on the product quality improvement issues, the safety management issues, the employment
issues and the coordination with other industries. On the other hand, the industry has been facing
pressure on their performance for the recent years. The pressure has been caused by both external
factors such as the recent financial crises (i.e. the 2008 global financial crisis, Eurozone’s debt crisis); the
sharp increase of oil price (International Civil Aviation Organization, 2012), and the industry internal
factor, especially the growing of low cost carriers in several markets and the more intense competition
(International Air Transport Association, 2013). The report from IATA also indicates that for the period of
2009 until 2012, the industry had a positive trend of passenger traffic growth but the passenger yield
showed an opposite direction. Such condition forces the airline companies to implement more strategic
and effective decision, including its CSR activities in order to sustain their success in the market.
CSR is regarded not only as a tool to advance a company’s sustainable footprint in its activity (Kemper,
Schilke, Reimann, Wang, & Brettel, 2012) but also as a strategy to compete in the market. Unfortunately,
the association between CSR and corporate performance is poorly understood (Kemper, Schilke,
Reimann, Wang, & Brettel, 2012), even less the studies in the airline industry are very limited and
apparent needs(Lee, Seo, & Sharma, Corporate social responsibility and firm performance in airline
industry: The moderating role of oil prices, 2013). Referring to firm performance classification provided
by(Backx, Carney, & Gedajlovic, 2002), research that try to investigate the association between CSR and
firm performance commonly clarify the general performance measurement, but lack in elucidating the
airline industry performance measurement. In fact, the airline industry may have certain operational
indicators that may be differently influenced by company’s CSR activities. Current study tries to analyze
the association between CSR activities towards the airline industry’s specific performance measurements
namely passenger yield and passenger load factor. In addition, it also tries to find evidence whether the
airlines’ business model i.e.a full service carrier (FSC) or a low-cost carrier (LCC), moderates the
association between CSR and airline financial performance. The study is going to focus on specific
performance measurement instead of general performance measurement of the airline companies as it
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provides more useful representation to capture the industry’s characteristic. It also employs separated
CSR measurement, i.e. operation-related and non-operation-related CSR activities, instead of aggregated
CSR measurement in order to firmly explain how each CSR activities dimension affects the corporate
performance(Mattingly & Berman, 2006). The examination of specific industry as suggested by Godfrey &
Hatch (2007) can capture the unique aspect of the industry’s social interests that really influences its
performance. The next chapter reviews theoretical concepts that significantly underly the current studies
including the concept of CSR measurement, corporate performance measurement and the airlines specific
performance measurement. The hypotheses development is provided to conclude. The subsequent part
explains research methodology, data and sampling mechanism. Thereafter, the analyses and results will
be presented. A discussion and concluding part is provided as a summary of current findings and is also
complemented with current study’s limitation and prospective steps for further research agenda.
2. Literature Review
CSR and Corporate Performance in Airlines Literature: In the airline industry, empirical research of
the CSR impacts on corporate performance is recognized as insufficient in contrast with the fact that the
industry’s more attention and commitments to the social performance. So far, the airline industry is
usually included as part of hospitality industry study. (Kang, Lee, & Huh, 2010)examined the impacts of
CSR activities on company performance in the hospitality industry including the airline industry. They
separated the CSR activities into the positive group and the negative group. The separation is justified by
some researchers who argue that people tend to weight more on the negative information than the
positive one (Kang, Lee, & Huh, 2010). They found that the positive CSR activities deteriorate an airline’s
accounting-based performance while the negative CSR has no influence on the accounting-based
performance. On the other hand, negative CSR activities have a negative impact on market-based
performance, while positive CSR has no influence to the airline’s market-based performance. They note
that an airline should pay attention about the negative effect of CSR activities to increase their firm value.
Further, in support to Friedman (1970), they asserts that CSR causes an additional cost to an airline
company that may decrease firm’s short-term profitability. But their study was influenced by the fact that
they used small sample sizes of US public firms.
In contrast to Kang et al, Inoue & Lee (2011)disaggregated CSR activities into five dimensions and
examined the impact of each dimension to corporate performance in tourism-related industries including
the airline industry. The segregation of CSR into several dimensions was conducted to follow Barney’s
(1991) the resource-based view which indicates that heterogeneous firm resources are an important
aspect to develop firm’s competitive advantages (Inoue & Lee, 2011). According to their study, CSR
activities in the community dimension have a negative impact on accounting-based performance, while
other dimensions fail to show significant influence. On the other hand, CSR activities in the product-
related and the employee-related dimensions have a positive impact on market-based performance, while
other dimensions fail to show significant influence. These results once again support the detrimental
effects of CSR for short-term performance and also support enhancing effects of CSR for long-term
performance of the airline industry. The latest study of Lee, Seo, & Sharma (2013) is one of a very limited
number of studies that exclusively examined the association between CSR and corporate performance in
the airline industry. They used five CSR dimensions as utilized by Inoue & Lee (2011) but they grouped
those dimensions into two separated main activities, namely operation-related (OR) and non-operation-
related (non-OR). They conclude that OR (non-OR) activities have a significant (no significant) positive
impact on corporate performance. Moreover, they also note a positive (negative) moderating effect of oil
prices on the relationship between OR (non-OR) CSR activities and corporate performance. Unfortunately,
generalization was a concern of their study since they employed only a very limited number of US public
airline firms.
Multidimensionality of CSR: As mentioned in the previous part, there is no generally agreed definition
of CSR, given its dynamic and broad characteristics. The current development of CSR studies tends to
focus on defining the dimension of CSR to explain how the issue is evolved in both academic and practice
fields. Many scholars suggest that CSR studies should employ multiple (separated) dimensions instead of
aggregating all CSR activities into a single dimension (Godfrey & Hatch, 2007). A single or unified
dimension is recognized to be inadequate as it fails to capture a variety of preferences between
stakeholders of the firm (Griffin, 2000). Carroll (1979, 1991) is known as one of the first scholars who
introduced the multidimensionality of CSR activities by proposing several dimensions of corporate social
performance, namely economic responsibilities, legal responsibilities, ethical responsibilities, and
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discretionary responsibilities. Although Carroll’s work is recognized as a leading framework in explaining
the social issues in business and management field, but it faces several weaknesses such as a possibility of
misunderstanding, especially to discretionary responsibilities, overlapping nature of each domain, and
incomplete assessment criteria to categorize corporate activities (Schwatz & Carroll, 2003). (Clarkson,
1995) added that the ethical responsibilities were more difficult to be defined as there are no general
accepted ethical principles. (Clarkson, 1995)then introduced a CSR dimension based on the relationship
of management and its stakeholders which would be more effective to analyze corporate social
performance. He proposed stakeholders could be classified as primary and secondary stakeholders.
Thereafter, many scholars (e.g. Dahlsrud (2006); Inoue & Lee (2011)) follow Clarkson’s (1995) CSR
dimension to examine the relationship between CSR and corporate performance. One of the well-known
measurements using the Clarkson’s dimension is the Kinder, Lydenburg, Domini (KLD) data. Sharfman
(1996) indicates that the data exhibits robust construct validity so researchers may confidentially use it
as a measurement for corporate social performance. KLD data indicates the presence or the absence of
strengths and concerns of each dimension. Several prior studies have usually subtracted the concerns
score from the strength score to get a single composite score (Mattingly & Berman, 2006). Mattingly &
Berman (2006)oppose this way of treatment as they argue that strengths and concerns are not
necessarily co-varied and do not measure opposing sides of the underlying construct. Kang, et al. (2010)
support the notion by arguing that subtracting the positive and negative impacts may be problematic due
to different magnitude of the impacts. The recent study of Lee, et al. (2013) took a different approach in
analyzing firm’s CSR activities. They proposed a new dimension separating CSR activities into operation-
related activities and non-operation related activities. Unfortunately, Lee, et al. (2013) still subtracted the
strengths (positive) and concerns (negative) impacts of each dimension.
Airlines Performance Measurement: Talking about corporate performance raises a subsequent debate
since the corporate performance itself is a very wide concept. In particular, the corporate performance is
mainly identified as financial performance and non-financial performance. Many studies have commonly
employed two types of financial performance measurement, namely: accounting-based measurement to
assess short-term profitability, and market-based measurement to assess market evaluation of future
profitability (Cochran & Wood, (1984); McGuire, Sundgren, & Schneeweis (1988)). Non-financial
performance consists of many spectrums including sales growth, productivity, cost competitiveness,
market share, or other operational performances.Both aforementioned measurements, which Backx, et. al
(2002) refer to the general performance, are commonly appeared in the study of corporate performance
including in the airline industry. However, the unique characteristic of the airline industry requires a
study of corporate performance in the industry to consider several specific measurements or dimensions
that are usually used to assess an airline’s performance (Backx, Carney, & Gedajlovic, 2002). Schefcyzk
(1993)mentioned that the specific dimensions to be captured could be in the form of financial or
operational nature as long as reflecting strategic aspects of the industry.
Feng & Wang (2000) have classified airline’s performance indicators into three groups, namely factor
input, product output, and consumer consumption. Some of the most important airline specific
measurements are passenger yield and passenger load factor. Those measurements are particularly used
to evaluate consumer consumption aspect according to Feng & Wang (2000). Passenger yield is generally
measured by total passenger revenue per revenue passenger kilometer (RPK). The important of
passenger yield was described by Oum, Fu, & Yu (2005)who indicated that the bankruptcy of Canadian
International Airlines was caused by an inability to provide sufficient yield although it has significant
productive efficiency and cost competitiveness compared to its competitors. It indicates that the ability of
an airline to generate revenue is one of the most important measurements to assess the survival and
success of an airline. On the other hand, passenger load factor expresses passenger-kilometers carried as
a percentage of available seats per kilometer (ASK). As a part of productivity measurements, passenger
load factor reflects how an airline utilizes its competitive advantage in the market (Chang & Yeh, 2001).
Oum, Fu, & Yu (2005) assert that passenger load factor has a significant positive influence to the
productivity of an airline.
Hypotheses Development: Based on the above discussions, this study takes a view that the positive
operation-related (OR) CSR activities will lead to the improvement in airline’s performance as it helps an
airline to have more efficient operational activities and increases the value offered by the company. On
the other hand, negative OR CSR activities impair an airline’s performance as it deteriorates the value of
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products offered by the company and makes the operational activities to be less efficient. Consequently,
this study proposes
H1a (b) : Positive (negative) OR CSR activities improve (harm) airlines’ operational indicators.
H1c (d) : Positive (negative) OR CSR activities improve (harm) airlines’ financial indicators.
Although non-operation-related (non-OR) CSR activities are not directly related to an airline’s operational
efficiency, according to Post, Preston, & Sachs (2002) favorable stakeholder relationships generate long-
term competitive advantages to the firm. Freeman (1984) also suggests that a firm should make decisions
and take some actions that may meet numerous stakeholders’ interests. More attentions toward non-OR
CSR activities means better relations with stakeholder, which then provide better reputation (Brammer &
Millington, 2005), customer satisfaction (Luo & Bhattacharya, 2006) and loyalty (Arikan & Guner, 2013).
Those factors are expected to provide higher airline’s financial performance and to improve airline’s
operational performance. Given this logic, this study offers
H2a (b) : Positive (negative) NOR CSR activities improve (harm) airlines’ operational indicators.
H2c (d) : Positive (negative) NOR CSR activities improve (harm) airlines’ financial indicators.
Next, Kang, Lee, & Huh (2010)suggest to utilizing key mediators for each industry such as business
structure, profits driver or main stakeholder group which may influence a company’s CSR strategy. A
company may choose one of the three generic strategies, namely product differentiation, cost leadership,
and focus(Porter, 1980). Each strategy has its own way to provide competitive advantage in order to
maximize the company’s value. But in recent year, business model is used as the unit of analysis which
defines the way to create customer value in the market (Graf, 2005). In the airline industry, there are
several business models such as full service carrier (FSC), low-cost carrier (LCC), charter carrier, and
regional carrier. Those business models have the same output, which is to transport passengers between
two destinations, but they have different value chain and value creation process (Graf, 2005). Graf (2005)
also indicates that the FSC is particularly regarded to follow the product differentiation strategy by
offering additional value for its passengers in compensation to relatively premium price. On the contrary,
the LCC seems to achieve cost leadership by operating simple or no-frills service which allows them to
have flexible pricing.
In such business strategies, stakeholders may perceive airline’s CSR activities differently. The FSC’s
customers may consider positive (negative) CSR in both OR and non-OR activities as an additional
(diminishing) value for them, hence increasing (decreasing) willingness to pay for a premium price, and
also trigerring (deteriorating) the use the airline’s service as indicated by improving passenger load
factor. Compared to the FSC model, the LCC’s customers view the cost to implement CSR activities as a
burden when causing relatively higher price to be paid. The higher price is considered to place an LCC in a
weak position compared to other competitors especially the FSCs. When the pricing offered by the LCC is
not significantly different from the FSC’s pricing, the LCC will lose its competitive advantage then
influencing its performance. Alamdari & Fagan (2007)found that there is no evidence whether an
additional product offered by the LCC could lead to higher yields. Based on these arguments, this study
posits
H3a (b) : Airline’s business model moderates the effect of OR CSR activities on airlines’ operational
(financial) performance indicators
H4a (b) : Airline’s business model moderates the effect of non-OR CSR activities on airlines’ operational
(financial) performance indicators.
3. Data and Methodology
Data and Analysis: This study utilizes several sources to obtain the required data. The CSR data were
collected from a checklist item that is developed based on KLD STAT CSR indicators from KLD Research
and Analytics. The own checklist item was utilized because of the lack of data availability for the airline
industry that covers intended research sample target in major databases. The checklist mainly focuses on
information provided by the airlines in their annual reports and/or sustainability reports, and does not
intend to use other sources of CSR information such as mass media publications since the limited
availability and the limited access to the sources. The annual reports were also utilized to obtain other
important data including total passenger revenue, total passenger, total miles flown, average load factor,
total asset, and the location where the airline is originated. The data of gross national product were
collected from the World Bank, while the data of airline’s business strategy were obtained from the
Center for Asia Pacific Aviation database. The sample period is from 2009 to 2012 and the number of
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sample observation is determined by the availability of the data especially annual report of the airlines.
The data are unbalanced panel with 76 sampled airlines with 276 numbers of observationswhich ranging
from one to four observations per airline.
Model: The current study uses regression analyses to examine the effect of the CSR dimensions which are
grouped into operation-related and non-operation-related CSR activities, and the airlines’ business
strategy on airline specific performance measurement namely passenger yield and passenger load factor.
Firm size, airline’s membership in alliance, home country’s economic condition, degree of customer
awareness, and region of origin are added to control their effects on the dependent variables. Two models
are used to test the hypotheses where the equation (1) examines H1 and H2, while the equation (2)
examines H3 and H4. The represented models are:
(1)
and,
(2)
Variables
Main Variables: This study examines corporate performance by utilizing airline’s specific performance
measurements. In particular, passenger yield (YIELD) is used as a proxy for airline’s profitability.
Passenger yield measures average fare paid per kilometer, per passenger, calculated by dividing
passenger revenue by revenue passenger kilometers (RPK) (American Airlines, n.d.). The measurement is
recognized as one commonly used indicator of airline revenue performance (Oum, Fu, & Yu, 2005). The
study also utilizes passenger load factor (LOAD) as a proxy for airline’s capacity utilization which is
expressed as percentage of the number of RPK to the available seat kilometer (ASK) (American Airlines,
n.d.). The load factor is a simple, standard, and fairly good industry metric of airline performance
(Lazzarini (2007); Behn & Riley (1999)).
Five main independent variables are included in the model: operation-related CSR activities (PSOR and
NGOR), non-operation-related CSR activities (PSNOR and NGNOR), and airline’s business strategy
(STRAT). The CSR activities rating is derived from the checklist rating items which is based on KLD STATS
ratings criteria from KLD Research & Analytics Inc. This study follows Lee, Seo, & Sharma (2013) that
separate CSR activities into operation-related (OR) and non-operation-related (NOR). OR CSR activities
include employees, product quality and safety, and corporate governance, while NOR CSR activities
include the other dimensions: local community, diversity, and natural environment. This study excludes
the human right dimension as the indicators mostly do not conform to the airline industry practice.
Moreover, some indicators in the human right group are already represented in the other measurement
dimensions. Then, both OR and NOR will be sub-classified following Lee & Park (2010) which separate
the CSR into positive and negative activities. As a result, this study employs four independent variables
that are derived from the checklist namely positive OR (PSOR), negative OR (NGOR), positive NOR
(PSNOR), and negative NOR (NGNOR). PSOR and PSNOR (NGOR and NGNOR) are measured as a summed
score of strengths (concerns) CSR ratings in six key social activities from the checklist. The checklist is
developed using the same approach with the KLD STATS with scoring 1 for the observed presence of the
indicator and 0 for the absence of the indicator. The OR CSR activities have the minimum (maximum)
score of 0 (15) for the positive CSR activities, and the minimum (maximum) score of 0 (13) for the
negative CSR activities. On the other hand, the NOR CSR activities have the minimum (maximum) score of
0 (20) for the positive CSR activities, and the minimum (maximum) score of 0 (12) for the negative CSR
activities.
As the checklist procedure requires a certain degree of judgment, the procedure was conducted solely by
the author to make sure the consistency in evaluating the CSR activities among samples. The checklist
procedure was performed by inspecting the information about CSR activities in the annual report and/or
the sustainability report of an airline company. If the information is positive, the study assumes that an
airline will provide any information as long as it is valuable in elevating the airline’s reputation. In
contrast, if the information is negative, the study assumes that an airline will disclose the information as
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long as it is material according to the accounting standard. In other word, this study holds an assumption
that the unavailability of the information is either the airline does not have such positive CSR activities or
the airline recognizes the concern in CSR activities is not material enough to be reported. Another main
variable is business strategy (STRAT) as a dummy to indicate whether an airline chooses to implement
the full service carrier model (FSC) or low cost carrier model (LCC). This study only chooses to include
FSC and LCC business model as two other business models (i.e. regional carrier and charter carrier) have
a concern in the availability of data. The current study employed Center for Asia Pacific Aviation (CAPA)
database to get the information about the business model of each airline.
Control Variables: This study uses six control variables: first, SIZE is used to control the impact of
different size of firms that may influence a firm’s performance. Several studies (e.g. Kemper, Schilke,
Reimann, Wang, & Brettel (2012); Lee, Seo, & Sharma (2013)) argue that in benefiting from economy of
scale, large firms may perform better than small firms so they have greater purchasing power and lower
cost. Second, the model uses ALLIANCE which is proxied as a dummy variable where 1 for an airline that
joins in an alliance membership, and 0 for an airline that does not join in an alliance membership. Iatrou
& Alamdari (2005)found that airlines have indicated whether joining an alliance has led to the increase in
airlines’ traffic; passenger load factor, and passenger revenue (yield). Third, home country’s economic
condition is included to control each country’s general economic conditions (as measured by gross
national product) effect on an airline performance for the period. As indicated by Backx, Carney, &
Gedajlovic (2002), GNP levels in carrier’s home country are related to a number of outcome variables
such as profitability and productivity. Fourth, familiarity to the airlines is measured by advertising
expense (ADV). As indicated by Servaes & Tamayo (2013) whether CSR can provide benefit to the firm
with sufficient degree of customer awareness. The last control variable is REGION which controls the
region of origin effect to the corporate performance (Backx, Carney, & Gedajlovic (2002); Francis, LaFond,
Olsson, & Schipper (2005)). The study uses the region definition according to IATA and ICAO which then
proxied as a set of dummy variables where Asia Pacific as the reference region.
4. Results and Analyses
Descriptive Analysis: The study conducts a descriptive statistics analysis to identify the characteristics
of the data set. Table 1 presents the summary of important statistics figure of the data set.
Table 2: Summary of descriptive statistics
Variable N Mean Median S.D. Minimum Maximum
Passenger Rev (in $ million) 276 5.372 2.886 6.234 599 36.670
Load Factor (in percent) 276 0,77 0,78 0,06 0,61 0,92
Yield/KM (in dollar) 276 0,097 0,092 0,031 0,044 0,286
ADVEXP (in $ million ) 276 283 150 395 0 2.074
Total asset (in $ million) 276 7.710 3.984 9.327 7 44.437
GNP (in S million 276 3.962.184 1.000.480 5.623.040 9.606 16.514.500
Positive Non OR 276 10 10 5 1 18
Negative Non OR 276 1 1 1 1 5
Positive OR 276 12 13 2 5 15
Negative OR 276 1 1 1 0 5
Passenger revenue (asset) shows the mean value by US$5,372 million (US$ 7,212 million), ranging from
US$ 599 million (US$ 7 million) to US$ 36,670 million (US$ 44,437 million), indicating that the sampled
airlines are taken from both major and small airlines in term of passenger revenue. Advertising and
marketing expenditure has the range from US$ 273 thousand to US$ 44.437 million with the average of
US$ 7.212 million for an airline in a period. It can be assumed that this study also includes airlines with
various degrees of customer awareness. In addition, the study took the sample set from main economy
countries which is indicated by the average GNP by US$ 3.962.184 million (standard deviation US$
5.623.040 million). Furthermore, the sample set includes country with the minimum GNP by US$ 9.606
million to the maximum GNP by US$ 16.514.500 million during the observation period. For the CSR
variables, average value of positive non-operation related (non-OR) CSR activities is 10 points. No airlines
without positive CSR as seen by the minimum value for positive non-OR CSR activities is one point, while
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at the maximum score, the sampled airlines fulfill 18 indicators. On the other hand, the negative non-OR
CSR activities has at least 1 point because all airlines generate their main income from oil, coal or derived
fuel activities which is categorized as a concern in the environmental issue by the KLD. The minimum
value of negative and positive OR CSR activities is 0, on this study the positive OR CSR activities variable
has at least 5 points and maximum 15 points with an average value of 12 points. Negative OR CSR
activities variable has, on average, 1 point of concern with a minimum (maximum) of 0 (5) points.
With regard to the dependent variables, passenger load factor of sampled airlines is, on average, 77%
during the observation period with the lowest load factor was 61% and the highest load factor was 92%.
In terms of yield per KM passenger airlines in the sample generated a minimum (maximum) US$ 0,044
per KM (US$ 0,286 per KM) with a mean value of US$ 0,097 per KM. Based on region of origin, 23 to 25
airlines are originated from Asia; 20 to 23 airlines are from Europe; 12 airlines are from North America;
and the remaining sample airlines are from the Middle East, Africa, and South America which then
grouped into other region. Table 2 shows the descriptive statistics for dependent variables based on
region. On average, airlines in the North America have higher passenger load factor compared to other
regions with the mean by 0,83; followed by Asia (0,77), Europe (0,76), and Other region (0,75). On the
other hand, European airlines generate the highest yield per KM amounting US$ 0,111 per KM compared
to Asia (US$ 0,0893 per KM); Other Region (US$ 0,0999 per KM) and North America (US$ 0,0864 per KM)
as the lowest.
Table 3: Summary statistics of dependent variable based on region of origin
Asia Europe
North America
Other
N23 23 12 11
Load Factor (%) 0,75 0,7 4 0,81 0,73
Yield/KM (in $) 0,0788 0,1086 0,0795 0,1002
N24 22 12 11
Load Factor (%) 0,78 0,7 6 0,83 0,75
Yield/KM (in $) 0,0876 0,1058 0,085 0,1003
N25 21 12 12
Load Factor (%) 0,77 0,7 6 0,83 0,76
Yield/KM (in $) 0,0946 0,1135 0,0899 0,1014
N25 20 12 11
Load Factor (%) 0,77 0,7 8 0,84 0,76
Yield/KM (in $) 0,0955 0,1171 0,0912 0,0974
N97 86 48 45
Load Factor (%) 0,77 0,7 6 0,83 0,75
Yield/KM (in $) 0,0893 0,111 0,0864 0,0999
Region
2009
2010
2011
2012
Total
Additionally, from 2009 to 2012 the yield per KM for airlines in Asia, Europe, and North America tend to
increase, while the other regions experience a slightly declining number. Next, Table 3 presents the
descriptive statistics for dependent variables based on the airline’s business model. During the
observation period, there are 54 to 57 airlines with FSC strategy and 13 to 14 airlines with LCC strategy.
On average, the LCC tends to have higher passenger load factor (0,80) compared to full service carrier
(0,76).
Table 4: Summary statistics of dependent variables based on airline’s business model
FSC LCC Total
N56 13 69
Load Factor (%) 0,74 0,79 0,75
Yield/KM (in $) 0,0972 0,0709 0,0923
N56 13 69
Load Factor (%) 0,77 0,81 0,78
Yield/KM (in $) 0,1006 0,0706 0,095
N57 13 70
Load Factor (%) 0,77 0,81 0,78
Yield/KM (in $) 0,1058 0,0777 0,1006
N54 14 68
Load Factor (%) 0,78 0,8 0,78
Yield/KM (in $) 0,1039 0,0915 0,1014
N223 53 276
Load Factor (%) 0,76 0,8 0,77
Yield/KM (in $) 0,1019 0,078 0,0973
Business Model
2009
2010
2011
2012
Total
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On the other hand, the LCC have, on average, a lower passenger yield per KM (US$ 0,078 per KM),
whereas the FSC have, on average, higher passenger yield per KM (US$ 0,1019 per KM).
Main Analysis: Before conducting the main analysis, residual analyses were conducted to check the
multiple linear regression model assumptions, including data normality, data linearity, homoscedasticity,
independence of error and multicollinearity (Gujarati, 2003). Shapiro-Wilk test was conducted to check
the normality of the data; W statistics are 0,99380 (p-value = 0,35273) for the model without interaction
and 0,99063 (p-value = 0,08985) for the model with interaction which is indicating that it fails to reject
H0. In other word, there is no data normality assumption violation. Two other normality tests confirm the
result, namely Shapiro-Francia and Kurtosis tests. According to the Breusch-Pagan results, the LOAD
model has p-value of 0,9941 and the YIELD model has p-value of 0,0000. It indicates that the LOAD model
does not violate heteroscedasticity assumption, but the YIELD model violates the assumption. In order to
fix the violations, robust condition was conducted in running the models. The VIF examination indicates
that as a whole, no severe correlations appear in the sample set as all individual VIF still far below 10
with the average total VIF is 2,36. Furthermore, the study identified whether outlier data exist in the data
set. Outlier will be determined if the data have value more (less) than the mean value plus (minus) two-
times the standard deviation. After inspecting and eliminating outliers, the number of observations
reduced from 276 to 263.
As the number of analyzed airlines is not similar for each observation year, thus the study cannot group
the data into panel data. Since several variables are invariant among firms within a given period, the fixed
effect model is not appropriate for the current study (Woolridge, 2009). In addition, the study assumes
that the cross-sectional units in the sample set are not random drawings which make the random effect
model is not appropriate for the study (Gujarati, 2003). As the result, the inferential analysis is conducted
by performing pooled regression analysis. Table 5 presents the summary of main effects from the model.
Both models show overall significance at 1% α level with F-value of 16,33 and 15,4 for LOAD model and
YIELD model respectively. Panel I indicates the main effects of CSR activities and airline’s business model
towards airline’s passenger load factor (LOAD).Negative OR (NGOR) CSR activities show a negative and
statistically significant coefficient, -0,00469 (t-value = -2,64, at the 1% α) thus it supports H1b. On the
other hand, Positive OR (PSOR) CSR activities do not show a statistically significant impact towards
passenger load factor thus it fails to support H1a. The regression results also present a negative and
strongly significant impact of positive non-OR (PSNOR) CSR activities at the 1% significance level (t-value
= -3,21) thus it fails to support H2a. The coefficient of PSNOR, -0,00287 means that one unit increase
(decrease) in the positive non-operation-related CSR activities decrease (generate), on average, 0,287%
of an airline’s passenger load factor, ceteris paribus. On the contrary, the NGNOR CSR activities have an
insignificant coefficient (t-value = 1,04) thus it fails to support H2b. Airline’s business model (STRAT)
appears to have a negative and statistically significant impact towards airline’s passenger load factor
(LOAD). It confirms that the passenger load factor of full service carrier (FSC) is statistically lower than
the low cost carrier (LCC) by 3,104%.
Several control variables have significant impacts on passenger load factor. Airline’s membership in an
alliance (ALLIANCE) confirms to have a negative and statistically significant impact at 10% α level (t-
value = -1,74). An airline’s size (SIZE) has a positive and statistically significant impact at 1% α level (t-
value = 4,17). Advertising expenditure (ADV) as the proxy for customer awareness appears to have a
positive and statistically significant impact at 5% α level (t-value = 2,3). The coefficient in SIZE and ADV,
0,01369 and 0,00684 respectively, means that an increase (decrease) in total assets by 1% generates
(decreases) airline’s passenger load factor of 1,36% and 0,684% of passenger load factor. Finally the
region of an airline shows several results, Asia region (REG1) has a statistically insignificant different
passenger load factor (t = 1,6) with Other region; Europe region (REG2) has a higher and statistically
significant at 1% α level ( t = 2,98) passenger load factor, on average, by 2,458% compared to Other
region; and North America region (REG3) also shows higher and statistically significant at 1% α level (t =
4,89) passenger load factor, on average, by 5,366% compared to Other region. The results confirm
descriptive statistics in the prior section.
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Table 5: Correlation matrix between variables
Variable LOAD YIELD PSOR NGOR PSNOR NGNOR STRAT ALLIA SIZE ADV GNP REG1 REG2 REG3
LOAD 1
YIELD -0,296*** 1
PSOR 0,0178 0,1810*** 1
NGOR 0,0385 -0,0837 -0,1164* 1
PSNOR -0,0178 0,2838*** 0,6894*** -0,174*** 1
NGNOR -0,0117 0,1060* -0,0054 0,097 -0,135** 1
STRAT -0,282*** 0,4000*** 0,0172 0,0349 0,0374 0,178*** 1
ALLIANCE -0,0805 0,3763*** 0,1993*** 0,0477 0,403*** 0,0647 0,455*** 1
SIZE 0,3553*** 0,1612*** 0,4088*** 0,0769 0,562*** -0,014 0,1323** 0,461*** 1
ADV 0,3487*** 0,2569*** 0,3270*** 0,194*** 0,422*** 0,0762 0,190*** 0,331*** 0,789*** 1
GNP 0,4572*** -0,0817 0,0418 0,212*** 0,1076* -0,0314 -0,179*** 0,1022* 0,489*** 0,515*** 1
REG1 -0,1477** -0,2042*** -0,1017* -0,0188 -0,0825 -0,0081 0,1564** -0,0641 -0,0088 -0,072 0,0115 1
REG2 -0,0694 0,2985*** 0,0602 -0,0766 0,177*** -0,116* 0,0438 0,1480** -0,0253 -0,106* -0,239*** -0,480*** 1
REG3 0,4610*** -0,1293** -0,1293 0,198*** -0,0612 -0,0544 -0,260*** -0,0376 0,163*** 0,231*** 0,569*** -0,373*** -0,287*** 1
***Significance level at 0,01 (1%); ** Significance level at 0,05 (5%); * Significance level at 0,10 (10%)
Panel II presents the main effects for the passenger yield per KM (YIELD) model. As appears in the LOAD
model, NGOR shows to have a negative statistically and marginal significant coefficient (-0,00158; t-value
= -1,9) thus it supports H1d. In addition, as expected by H2c, PSNOR shows a positive and statistically
significant impact on passenger yield (t-value = 2,23). The coefficient, 0,00089 means that one unit
increase (decrease) in the positive non-OR CSR activity generates (decreases), on average, US$ 0,00089
passenger yield per KM, given the other variables are held constant. On the contrary, both PSOR (t-value =
-0,08) and NGNOR (t-value = 1,46) appear to have no significant impacts thus it fails to support H1c and
H2d respectively. Supporting the result in the LOAD model, STRAT shows a positive and statistically
significant impact at 1% α level of significance on passenger yield per KM (t-value = 4,74). It confirms that
a full service carrier produces a higher passenger yield per KM. On average, full service airlines could
generate US$ 0,01663 passenger yield per KM higher compared to low cost airlines.
Table 6: Summary of pooled regression analysis
Variables Coefficient StdError t-value
Variables Coefficient StdError t-value
PSOR -0,00079 0,00148 -0,53
PSOR -0,00004 0,00056 -0,08
NGOR -0,00469 0,00178 -2,64 *
NGOR -0,00158 0,00083 -1,9 ***
PSNOR -0,00287 0,00089 -3,21 *
PSNOR 0,00089 0,0004 2,23 **
NGNOR 0,0041 0,00393 1,04
NGNOR 0,00231 0,00158 1,46
STRAT -0,03104 0,008 -3,88 *
STRAT 0,01663 0,00351 4,74 *
ALLIANCE -0,01169 0,00673 -1,74 ***
ALLIANCE 0,00773 0,00305 2,54 **
SIZE 0,01369 0,00328 4,17 *
SIZE -0,00497 0,00158 -3,14 *
ADV 0,00684 0,00298 2,3 **
ADV 0,00545 0,00118 4,62 *
GNP 0,00048 0,00213 0,23
GNP -0,00014 0,00105 -0,14
REG1 0,01299 0,00812 1,6
REG1 -0,00584 0,00421 -1,39
REG2 0,02458 0,01097 2,98 *
REG2 0,00999 0,00435 2,3 **
REG3 0,05366 0,05669 4,89 *
REG3 -0,00183 0,00524 -0,35
16,33 *
15,4 *
0,4395
0,3702
0,4126
Adj R-Squared
Panel I: LOAD Model (N = 263)
Panel II: LOAD Model (N = 263)
F-value (12, 250)
F-value (12, 250)
R-squared
R-squared
LOAD represents load factor measured by revenue passenger kilometers (RPK)/available seat kilometers (ASK);
PSOR represents positive OR CSR activities measured by checklist item; NGOR represents negative OR CSR activities
measured by checklist item; PSNOR represents positive non-OR CSR activities measured by checklist item; NGNOR
represents negative non-OR CSR activities measured by checklist item; STRAT represents airline’s business model
measured by dummy variable where 1 for FSC, and 0 for LCC; Alliance represents airline’s membership in an alliance
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measured by dummy variable where 1 for membership in alliance, 0 for non-membership in alliance; SIZE represents
airline’s size measured by natural log (ln) of total assets; ADV represents degree of customer awareness measured by
natural log (ln) of total advertising expenditure for a period; GNP represents home country’s economy condition
measured by natural log (ln) of gross national product according to purchasing power parity (PPP); REG represents
origin region of an airlines measured by dummy variable where “Other Region” as the base.
*Significance level at 0,01 (1%); ** Significance level at 0,05 (5%); *** Significance level at 0,10 (10%)
Control variables that provide some significant impacts are mostly similar to the LOAD model. ALLIANCE
has a statistically significant and positive impact on passenger yield (t-value = 2,54) at 5% α level. It
asserts that membership in an alliance could generate US$0,0077 additional passenger yield per KM. ADV
also has a positive and statistically significant impact on passenger yield (t-value = 4,62). On the contrary,
an airline’s size as measured by total assets has a negative and statistically significant impact at 1% α
level. At last, only the Europe region that shows has a significantly higher passenger yield per KM
compared to the Other region at 5% α level. The coefficient of 0,00999 means that the airlines in Europe
could produce, on average, US$ 0,00999 higher passenger yield per KM compared to the Other region.
Table 7: Summary of regression withinteraction effect results
Variables Coefficient StdError t-value Coefficient StdError t-value
PSOR -0,00174 0,00484 -0,36 0,0008 0,00176 0,46
NGOR -0,00325 0,00643 -0,51 -0,00402 0,00209 -1,93 ***
PSNOR -0,00903 0,00359 -2,51 ** 0,00138 0,00125 1,11
NGNOR 0,00727 0,02222 0,33 -0,00323 0,00195 -0,44
STRAT -0,13257 0,0309 -4,29 * 0,02528 0,01244 2,03 **
PSOR*STRAT 0,00358 0,00516 0,69 -0,00111 0,00195 -0,57
NGOR*STRAT -0,00457 0,00657 -0,7 0,0034 0,00226 1,51
PSNOR*STRAT 0,00732 0,00376 1,95 *** -0,00077 0,00134 -0,58
NGNOR*STRAT 0,00019 0,0224 0,01 0,00485 0,0075 0,65
ALLIANCE -0,02546 0,00601 -4,24 * 0,0105 0,00317 3,32 *
SIZE 0,01721 0,00363 4,74 * -0,00599 0,00175 -3,41 *
ADV 0,00711 0,00317 2,24 ** 0,0057 0,00133 4,3 *
GNP -0,00057 0,002 -0,28 0,00004 0,00103 0,04
REG1 0,01129 0,00788 1,43 -0,00484 0,00411 -1,18
REG2 0,02844 0,00866 3,29 * 0,01028 0,00438 2,35 *
REG3 0,05831 0,01137 5,13 * -0,00258 0,00494 -0,52
21,02 * 20,28 *
0,5533 0,3937
R-squared
R-squared
Panel I: LOAD Model (N=263)
Panel II: YIELD Model (N=263)
F-value (16, 246)
F-value (16, 246)
*Significance level at 0,01 (1%); ** Significance level at 0,05 (5%); *** Significance level at 0,10 (10%)
Table 6 exhibits the results of the model with interaction for testing H3 and H4. Panel I exhibits a positive
moderating effect from STRAT on the relationship between PSNOR and airline’s operational performance.
A positive and marginally significant coefficient (0,00732; t-value 1,95) for PSNOR*STRAT confirms H4a.
On the contrary, the results fail to prove whether the interaction term of PSOR*STRAT, NGRO*STRAT, and
NGNOR*STRAT have moderating effects in the relationship between PSOR, NOR, and NGNOR with
airline’s operational performance. The insignificant coefficients are inconsistent with this study’s posits,
thus failing to support H3a and H3b respectively. Panel II exhibits the results of interaction model for
airline’s financial indicators. This study fails to prove whether the interaction between both OR CSR
activities and Non-OR CSR activities with airline’s business model has an impact on airline’s financial
performance as measured by passenger yield.
5. Discussion and Conclusion
This study has main objectives to extend the prior research in CSR literature and its relation to company
performance especially in the airline industry mainly the impacts of positive and negative CSR activities
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that related to airline’s operational activities and non-operational activities. In addition, the study tries to
examine the influence of an airline’s business model. Based on the analysis, the study has found that the
negative operation-related CSR activities have a negative impact on operational and financial
performance as measured by passenger load factor and passenger yield (support H1b and H2b); the
positive non-operation-related CSR activities have a positive impact on financial performance (support
H2c); and a positive moderating effect of airline’s business strategy towards the relationship between
positive non-operation-related CSR activities and airline’s operational performance (support H4a). The
negative effects of concerns in OR CSR activities towards airline’s operational and financial performance
imply that the users of the service (customers) recognize airline’s noncompliance or problems in
operational activities seriously. The customer may react by deciding to avoid using the airline’s service
which then lowering overall passenger load factor of the airline as well as lowering the price that they
want to spend for the airline’s service. The concern issues in an airline may also be seen by customers as a
concern in the airline’s sustainability or ability to provide services. It may improve the finding of Kang,
Lee, & Huh (2010) who found the existence of a negative but insignificant impact of negative CSR
activities on profitability. However, their study did not separate the OR and non-OR CSR activities which
may become an explanation for the insignificant result. By separating OR and non-OR CSR activities, this
study can further elaborate which negative CSR activities having a significant negative impact on an
airline’s performance.
The insignificant effects of positive OR CSR activities on both operational and financial performance may
indicate that customers view whether the current level of airline’s positive OR CSR activities do not
exceed their expectations. As the airline industry is a highly regulated industry, most of airline’s activities
may be viewed as efforts fulfilling certain regulation or just complying minimum requirement that should
be provided by the airlines. Customers do not see any value added from the current level of positive OR
CSR activities that may make them to prefer the airline company rather than others beyond their regular
needs to the service. The customers also do not find any operational value added that persuade them to
spend an additional price on the airline service as the current level of operational activities, on average,
do not go beyond their expectations. This issue could be an interesting issue whether OR CSR activities
that are exceeding customers’ expectation could generate a positive impact on the airline’s performance.
Interesting results are also exhibited by the impact of positive non-OR CSR activities on the airlines’
performance. A negative impact has been found on the relationship between positive non-OR CSR
activities on the airlines’ operational performance as measured by passenger load factor. On the contrary,
a positive impact exists on the relationship between positive non-OR CSR activities on airlines’ financial
performance as measured by passenger yield per KM. Kang, Lee, & Huh (2010) identified whether
positive CSR activities have a negative impact on airline’s profitability. Then, Inoue & Lee (2011)
confirmed by finding a negative effect of community-related CSR activities on short-term profitability.
This study elaborates these results by showing that an airline’s engagement in the positive non-OR CSR
activities contributes to decrease airline’s passenger load factor on one side, but generate additional
passenger yield on the other side. The reduction on passenger load factor could be explain as the impact
of increasing passenger price (yield) that is charged by an airline as the airline provides additional value
in term of the airline’s reputation. Since the airline’s customer may come from several customer groups
based on their propensity to pay, the additional passenger price is recognized to be an increasing cost for
them by the customers who determine their purchasing decision mainly based on airline’s pricing or the
price sensitive customers. In other word, the lower passenger load factor is caused by price sensitive
customers that withdraw as an airline’s customer as the price increased.
The previous explanation is well explained by the result of interaction model which has found whether an
airline’s business strategy positively moderates the impact of relationship between PSNOR and the
operational performance. The positive impact of the interaction term reverses the negative impact of
PSNOR on passenger load factor for FSC. It shows that, on average, the FSC experience lower decrease in
passenger load factor compared to the LCC. Such result confirms the explanation indicating whether the
lower load factor in an airline due to its engagement in non-OR CSR activities as the yield (price) is higher.
For FSC that has a relatively smaller number of customers with sensitive price, the increase in pricing due
to the additional value provided by non-OR activities have a lower magnitude in decreasing the airline’s
passenger load factor. On the other hand, as LCC customers are mostly within the price sensitive group,
the increase in price is not seen as an increasing of value added and has a higher magnitude in decreasing
the airline’s passenger load factor. This result also contradicts and improves the work of Lee, Seo, &
Sharma (2013)who found an insignificant impact of non-OR CSR activities on airline’s performance. The
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finding was based on study with the relatively smaller sample size, only capturing airlines in the United
States, and did not segregate the effect of positive and negative non-OR CSR activities.
This study also finds insignificant impacts of negative non-OR CSR activities on both operational
performance and financial performance. That result agrees with the finding by Kang, Lee, & Huh (2010)
which also found an insignificant impact of airline’s negative CSR activities. This result may be a sign
whether the customers weight more the negative issue related to the airline’s operational activities than
the non-operational one. In addition, this study also finds an insignificant impact of airlines’ business
strategy in moderating the relationship between CSR activities and the airlines’ performance except for
positive non-OR CSR activities. It asserts that both FSC and LCC can obtain similar effects from involving
in several kinds CSR activities especially related to operational activities. The current study provides a
contribution to the general CSR research by suggesting the next studies to consider the business model of
a company to identify the impacts of CSR activities on the company’s performance. In addition, expanding
the works of several prior research, the study also supports the utilization of several CSR dimensions,
namely operation-related and non-operation related as proposed by Lee, Seo, & Sharma (2013).
Furthermore, those CSR dimensions have to be separated into positive and negative CSR activities as
proposed by Kang, Lee, & Huh (2010), thus the impacts of each activity could be well elaborated. Next, the
study also suggests other scholars to build their own CSR measurement in the case there is no well-
developed CSR measurements available, thus it can expand the sample scope in doing CSR research
beyond the samples that are usually employed. Such CSR measurement can be developed based on
currently available CSR measurement with certain modifications needed.
The results of this study have several practical implications. For the airline industry, these findings could
be utilized as a consideration in determining an airline’s CSR activities. CSR activities engagement for
airline companies provides more benefits to the airline’s operational and financial indicators through
decreasing activities that could deteriorate airline’s operational activities. On the other hand, the
involvement in CSR activities that enhance positive operation-related CSR activities might bring
substantial benefits as long as such activities go beyond customer’s expectation. More effective strategy
could lead to the possibility for an airline to be able to charge a premium price to their customers as well
as loading their offered seats (distance) with more revenue passengers (distance). These findings also
suggest that executives in low cost carrier and full service carrier have to carefully decide their strategic
CSR decision making, especially those related to non-operation-related activities. The investment in non-
operation-related CSR activities has a trade-off between additional passenger yield and diminishing
passenger load factor. The more attention has to be paid by LCC or other airlines with more price
sensitive customer base as additional investment in non-operation-related activities may increase the
airline’s pricing that can significantly deteriorate the passenger load factor.
Limitations and Suggestions: This study is not free from limitations. Firstly, this study utilizes sample
from several countries, but only uses limited time series in the sample set. The future replication should
consider to including longer time frame, thus it can improve the results of this study. Secondly, the
current study employs the company’s annual reports and/or sustainability reports as the main sources to
obtain information about CSR activities, thus this study still relies on the information supplied by the
companies. Further studies should attempt to explore additional information from other providers, thus
the companies CSR activities could be measured more precisely. Thirdly, the study mainly focuses on the
impacts of CSR activities towards airline’s industry performance. Several variables are exclusively for the
airline industry and may not be generalized to other industries. A replication of this study may exercise
similar approach under each industry’s circumstances and characteristics. Incorporating specific
characteristics of an industry may better explain the association between CSR activities and the industry’s
performance. Fourthly, the next study may utilize the GNP per capita instead of GNP as it can better
reflect the customer’s ability to pay at the micro-level. Finally, the study developed its own CSR
measurement based on KLD STATS measurement. Although several studies have proven that KLD STATS
has construct validity and covers quite extensive CSR activities, but certain issues, especially those related
to industry specific characteristic have not been recognized yet. In the future, developing customized CSR
measurement by considering and combining several measurements could provide a more comprehensive
tool as well as it could be appropriate to each industry characteristics.
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The Influence of Money Perception toward Unethical Behavior of Employee (A Study at
the Supreme Court in Southeast Sulawesi)
Moh. Ali Shahab, Ismanto
Sultan Agung Islamic University (UNISSULA), Semarang, Indonesia
alishahab@unissula.ac.id
Abstract: This study aims to describe and analyze the correlation of variables perception of money,
salary satisfaction, organizational commitment, and unethical behavior of employee at the supreme court
office at Southeast Sulawesi province, and to develop models of the influence of the perception of money
toward unethical behavior of employee. The population of this study was all prosecutor that work in
provincial prosecutor of Southeast Sulawesi which consists of 84 persons. In determining the sample the
researcher used sensus method which means that resercher took all population as resondents for this
study. Instrument that was used for analyzing the data was Sruktural Equation Modeling (SEM) with
Partial Least Square (PLS) method. To analyze the data in this study, it is used the Structural Equation
Modeling (SEM).The findings show that the money perception has a significant influence toward
unethical behavior of employee. The salary satisfaction positively influences organizational commitment.
In contrast, the perception of money gives no significant influence toward the salary satisfaction, the
organizational commitment and the salary satisfaction also give no significant influence toward the
unethical behavior of employee. Besides that, the organizational commitment variables does not
moderate the correlation of salary satisfaction variables and unethical behavior of employee.
Keywords: Organizational Commitment, Perception of Money, Salary Satisfaction, Unethical Behavior of
Employee
1. Introduction
Employee is the most important assets to achieve organizational goals effectively and efficiently.
Employee is not just a resource, but also has become a major factor in achieving success. If an
organization has good quality employee, they can achieve optimal goal proposed. In order to create and
maintain a competitive advantage, organizations have done a lot of ways to encourage employee as
human capital to create the progress and success of the organization. One way taken by the organization
is the money approach that is by providing a decent salary and compensation for its employees in order to
attract and motivate them to produce optimal performance (Milkovich and Newman, 2002). Money as
important thing in one's life and survival has become interesting to be analyzed. Money does not just
touch the side of the external needs of someone like clothing, food and shelter, but also affect his/her
internal needs such as hope, motivation, optimism, and commitment. As we all know that money is a
medium of exchange that has a virtual value around the world. Money is very important in society.
Specifically, the management has used money as an instrument to attract, retain, and motivate employees
and also to achieve organizational objectives (Milkovich and Newman, 2002) because money has a
significant impact on employee attitudes, performance, commitment and organizational effectiveness
(Heneman, 1992; Lawler, 1990; Tang, et al. 1998; 2000).
Person's perception on money will be able to give a significant influence on work, award system, task
performance, job satisfaction, morale, organizational effectiveness (Lawler, 1981; Opsahl and Dunette,
1991; Tang and Baumeister, 1984). Even for many employees, money has been viewed as something that
is very important and become one of the goals of their career achievements (Chu et al., 2001; Harpaz,
1990). Heneman and Judge (2000), find that the employees’ dissatisfaction on money (payment of
salaries, incentive, compensation) will be able to provide negative consequences for the organization.
These negative consequences can be a turnover, embezzlement, irregularities in the workplace, and
unethical behavior in the organization which can lead to corrupt behavior (Greenberg, 1993; Hom and
Griffeth, 1995; Lim 2002). Recognizing the influence of a person's perception of money (Love of Money)
as has been described above, each organization is required to be able to understand the behavior of
individuals in perceiving himself to the payroll system provided by organizations considering that
dissatisfaction with one's money can provide mild consequences for the company. If the company can not
understand the impact of the money perception toward employee within the organization, then it will be
difficult for them to encourage the creation of optimal employee performance and lead to the appearance
of unethical behavior, irregularities, and even corrupt behavior within the organization.
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Based on qualitative research gap conducted by Adang Budiman, Amanda Roand, and Victor J. Callan
(2013) related to raising the issue of corruption of civil servants occurred in Indonesia during the Suharto
era suggest the existence of futures research specifically on the strategic government organizations using
a quantitative approach is needed to reveal the approach to the corruption of government officials. This is
also in line by Elisaveta Gjorgji Sardzoska and Thomas Li-Ping Tang (2013) which examines the presence
of unethical behavior and corruption trends in Macedonia, they recommends that a future research needs
to be conducted on a particular public sector in order to be able to see the dynamics and more specific
results because the research done by them has a limitation of research that is only examining the
company manager in Macedonia which is randomly selected. This research gap is also supported by the
phenomenon that occurs in the Supreme Court Institution in Indonesia as a law enforcement agency that
has a central position and role strategic in law enforcement. There are several crucial issues that occur in
the this institution concerning on unethical behavior of employee. It can be seen from the data
recapitulation of disciplinary sanctions in 2011 (Table 1.1) and the Attorney General's Year-End Reports
2012 as quoted by Reuters on Wednesday (26/12/212) which states that during the year 2012 as many
as 64 employees received disciplinary letters sentencing decision lightly, 135 normal, and 98 severe
discipline. Indisciplinary action is done by 43 employees of administration and 28 employees of attorney.
The act of abuse of authority by 49 employees of administration and 145 employees of attorney.
2. Literature Review
The Unethical Behavior of Human Resources: Basically, it is very difficult to measure the unethical
behavior of human resources because this behavior usually occurs in secret (Tang and Liu, 2012). The
investigation of the psychological processes underlying the unethical behavior of human resources has
turned into something important for the organization. Ashforth et. al. (2008) defines unethical behavior
as a corruption; it is something that implies a deliberate deviation of order, decency, and trust that leads
to a moral decay. According to Ashforth et al. (2008), a corruption include: (1) misuse of the
organization's position, power, or authority for personal gain or organization (accepting gifts, money,
loans; giving and accepting bribes), (2) the action taken against the company (sabotage and theft), and (3)
the action taken on behalf of the organization (firing employees for personal gain). Pendse (2012) reveals
that the unethical behavior is associated with Motive, Means, and Opportunity (MMO). It means that,
every person who intends to act such unethical behavior in the workplace will tend to have a specific
motif associated with benefits that will he get and the opportunities available. Moreover, Tang et.al
(2003) describes that the unethical behavior in the organizational context can be a fraud, abuses of
authority (corruption), diversion of resources (theft, embezzlement), and the omission of the occurence
of the unethical behavior.
Perception of Money: Money has a symbolic power, it means that money can cover self-feeling of
sufficiency or feeling of wealthy that directs a person unto the desire to be independent, to reduce the
dependence on the help of others, and to create a big difference between him and others (Vohs et al.,
2006). A person with the idea that money is beyond anything else will make him avoid such voluntary
action or actions that are not worth the money (DeVoe and Pfeffer, 2007). Moreover, this idea can also
increase the percentage of a person to commit a fraud for personal gain (Gino and Pierce, 2009). In
addition, Tang (2012) states that a person who considers money as an achievement will experience low
levels of satisfaction with the job, promotion, supervision, co-workers, and overall life
satisfaction. Perceptions of money is closely related to the love of money (LOM), it is defined as a person's
attitude toward the money involving the component of affective, behavior, cognitive, attributive meaning
and aspirations toward the money (Easterlin, 2001). According to Furnham and Argyle (1998), Love of
Money (LOM) has similarities and differences with the term obsession. Obsession relates to
circumstances in which a person feels to have a huge interest in all aspects related to money. In this case,
a person will have the belief that money is the only thing considered as the most important thing in this
life. Yet, obsession and love of money is totally different, because the Love of Money have some factors to
measure it.
To measure the perceptions of money, Tang et al. (2003, 2007, 2011, 2012, 2013) state that there are four
main factors of the Love of Money according to Love of Money Scale (LOMS), they are Rich (wealth),
Motivation, Importance and Success factors. The unethical behavior in the workplace such as
irregularities, counterproductive behavior, corruption, fraud, embezzlement, bribery, and fraud, and
corruption has a significant correlation with income and the love of money (Robbinson and Bennett,
2000; spector, 2001; Anand et.al ., 2004; Martin et.al, 2007; Ashfort et.al., 2008). Based on the explanation
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of the correlation of the love of money and unethical behavior as described above, so, the first hypothesis
proposed in this study is:
H1: If the love of money of the human resources is high, the unethical behavior will be high as well.
Salary Satisfaction: As described in the introduction that in order to retain and motivate employees to
work more optimally, organizations seek to apply some policies, one of which is to provide decent wages
and compensation for employees (Milkovich and Newman, 2002). The problem that arises of this policy is
the difference between the salary assumptions applied by the company and the expectations held by
employees. When this issue arises, the employee will experience the dissatisfaction with remuneration
provided by the company (Tang et al, 2003). The low salary satisfaction is closely related to the
expectations held by employees of the amount or value of the salary received. Love of money is a factor
that builds the expectation of this value because the love of money will reflect the standards, limits choice,
and expectations of salary which will be used to measure the satisfaction with the salary received (Tang
et.al, 2003). The different level of the love of money will lead to the different level of the salary
satisfaction (Tang et al., 2004).
Someone with so much love of money will have high expectations toward the upcoming salary received;
and if the fact does not meet or inverse with expectations, this will lead to disappointment which leads to
the salary dissatisfaction (Lawler, 1971). Conversely, someone with a low level love of money will have
low expectations toward the salary to be received, so that he will be satisfied with the salary
received. The satisfaction with the salary received can be initiated by the onset of awareness of the
condition and the reality of where they work, so a person will try to receive and not expect more
excessive salary to be received (Tang, et al., 2004). Someone with a high love of money will have high
expectations and a low salary satisfaction and so that for the opposite. So, it can be defined that the love of
money will have a negative correlation to the salary satisfaction. Based on the explanation of the
correlation between the love of money and the satisfaction of the salary, the second hypothesis proposed
in this study is:
H2: If the love of money of the human resources is high, the salary satisfaction will be lower.
Organizational Commitment: Hackett et.al (2001) defines the organizational commitment as a
confidence in the organization's aims and values, as well as the desire to maintain a presence and loyalty
to the organization. According to Luthans (2002), that as an attitude, organizational commitment is a
strong desire or motive to remain as a member of the organization; a desire to demonstrate a high level of
effort on behalf of the organization; and a strong belief in accepting the values and objectives of the
organization. Allen and Meyer (1990) state there are three components of organizational commitment,
namely affective, commitment, and normative commitment. Tang et.al (2003), states that the
commitment arises as the consequences of the fulfillment of the of employee’s satisfaction toward the
organization. Therefore, the salary satisfaction has an influence on commitment. The high employee
satisfaction towards the salary will give a positive impact on the organization, that is through the high
employee commitment toward the organization.
Cohen-Charash and Spector (2001), state that from the point of view of procedural fairness,
dissatisfaction and unfair treatment perceived by the employee will lead them to the negative perceptions
of the organization and result in counter-productive behavior that will be detrimental to the
organization. This dissatisfaction will impact on the behavior of employees towards the organization. In
this study, to measure the satisfaction level of salary and employee commitment, the researcher adapts
the Pay Satisfaction Questionnaire (PSQ) developed by Heneman and Schwab (1985) and the
Organizational Commitment Questionnaire (OCQ) by Mowday et.al (1979) with some changes in order to
conform to the context of the research to be carried out. Based on the explanation of the correlation of
salary satisfaction, organizational commitment, and unethical behavior as described above, the next
hypotheses proposed in this study are:
H3: If the salary satisfaction of the human resources is high, then, the commitment will be high as well.
H4: If the organizational commitment of the human resources is high, then the unethical behavior will be
lower.
H5: If the salary satisfaction of the human resources is high, then, the unethical behavior will be lower.
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3. Methodology
Explanatory research is conducted to test the hypothesis with intention to justify or reinforce the
hypothesis that in turn can strengthen the theory used as a foothold. Singarimbun (1989) states that the
explanatory research emphasize on the correlation among variables of research by testing the hypothesis
containing description that focus on the correlation among variables. This study is conducted in the Office
of the High Court of South East Sulawesi. Data collection techniques used in this study is questionnaire
and documentation. Questionnaire technique is used to obtain the primary data, while documentation for
secondary. In this study the determination of the value for each questionnaire questions uses a Likert
scale (level of agreement 1-5). For the variable of money perception, unethical behavior, pay satisfaction,
and organizational commitment. Respondents are asked to choose one of the 5 (five) items, started from
strongly agree (5), agree (4), Neutral / Undecided (3), disagree (2), and strongly disagree (1). To analyze
the data in this study, it is used the Structural Equation Modeling (SEM). This study develops 5
hypotheses by SEM analysis method with the help of PLS statistical analysis, and use traditional software
smart PLS 1.1.
4. Findings
Table 1: Test of Validity
Perception of Money
Variables and Indicators
Original sample estimation
T-Statistic
X1
0.838 11.595
Valid
X2
0.851 20.481
Valid
X3
0.913 29.632
Valid
Salary Satisfaction
Y1.1
0.718 3.981
Valid
Y1.2
0.855 8.417
Valid
Y1.3
0.831 4.225
Valid
Organizational Commitment
Y2.1
0.935 40.159
Valid
Y2.2
0.902 14.445
Valid
Y2.3
0.879 12.029
Valid
Unethical Behavior
Y3.1
0.872 17.825
Valid
Y3.2
0.874 30.653
Valid
Y3.3
0.925 50.204
Valid
Table 2: Test of Reliability
Variables
Composite Reliability
Criteria
Perception of Money
0.901
0.70
Salary Satisfaction
0.845
0.70
Organizational Commitment
0.932
0.70
Non Ethical Behavior
0.920
0.70
Table 3: Result For Weights
Influence
Original sample
estimate
The mean of
sub samples
Standart
deviation
T-
Statistics
Perception of Money Salary
Satisfaction
-0.213
- 0.218
0.170
1.252
Salary Satisfaction Org.
Commitment
0.301
0.332
0.093
3.248
Perception of Money Unethical
Behavior
0.615
0.623
0.111
5.557
Salary Satisfaction Unethical
Behavior
-0.143
- 0.140
0.098
1.463
Org. commitment Unethical
Behavior
0.142
0.125
0.102
1.396
R-Square Value (R 2)
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Figure 1: Results of Inner Model
Table 4: R-Square Value (R 2)
Variables of
Perception of Money
R-square
Salary Satisfaction
0.045
Organizational Commitment
0.091
Unethical Behavior
0.420
Discussion
Hypothesis 1: The Influence of the Money Perception toward Unethical Behavior of Employee
Finding of the study shows that that there is a significant influence of the money perception toward
Unethical Behavior of employee. The correlation result value in this study shows that the love of money
will encourage the high tendency of unethical behavior. This is consistent with the theory in the
discussion of literature review. As suggested by Lewicki (1983) which states that a person's decision to
engage in unethical behavior such as corruption and fraud is largely determined by the perception
toward the advantages that will he get when doing so. Pendse (2012) also explains further that unethical
behavior is closely linked to the Motive, Means, and Opportunity (MMO) where a person who will do
measures deviations in the workplace will have a specific motif associated with benefits that will he get
and the opportunities available. The benefits in this study is closely related to the consideration of
material benefits. Perceptions of the money is the perspective or the way of someone to positionate the
money in his life (Easterlin, 2001). The differences in perceptions of the money owned by each person
will direct them to a different behavior with regard to money. Sense of love of money will make someone
to place money in high cash position as the most important thing in his life above anything else, including
aspects of morality and ethics. This phenomenon will create a high desire or willingness to money which
in turn may encourage them to have a tendency to the high unethical intentions (Tang and Chiu, 2003).
Hypothesis 2: The Influence of the Money Perception toward Salary Satisfaction
The results shows that the influence of money perception toward salary satisfaction is negative and not
significant. In the literature review has been outlined that the high perception of money is one of the
triggers for the perception gap of the salary feasibility (Tang et al, 2003). Love of money will reflect the
standards, limits choice, and expectations toward the salary which would then be used to measure the
satisfaction of salary received by a person (Tang et al, 2003). Yet, in this study, the hypothesis test finding
describes that the much love of money owned by the scope of the prosecutor in the High Court Southeast
Sulawesi Office does not have a significant influence on their satisfaction on the salaries. Referring to the
research context of open-ended questions and the answers given by the respondents, the researcher can
explain that the causes of not significant influence of money toward salary satisfaction perceptions held
by respondents can be derived from factor such as status work and acceptance of respondents to the
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organization for which they work. They are totally aware that the amount of salary they will receive as a
civil servant has set by the government ,so that eventhough they have a high perception of money, they
must try to keep their great expectations towards their salaries. They are also aware of the consequences
that to live as a government employee can prevent them to hang high expectations of the salary they
would receive. This is consistent with Tang, et al. (2004) who states that the satisfaction with salary
perceived by a person can be caused by the onset of awareness of the condition and reality where she or
he works, so that, he or she will try to receive such conditions and does not hope to get excessive salary to
be received.
Hypothesis 3: The Influence of the Salary Satisfaction toward Organizational Commitment
Result of loading between the Salary Satisfaction and Organizational Commitment shows a significant
values of 3.248 and has a positive influence. This value indicates that if one's satisfaction on salary is high,
the organizational commitment will also increasingly high. In line with a positive and significant influence
of this, Luthans (2002) states that organizational commitment is a desire or motive to remain as a
member of organization; a desire to demonstrate a high level of effort on behalf of the organization; and
strong beliefs in accepting the values and objectives of the organization which can be affected by several
factors both internal and external. Furthermore, one of the influencing factors is the satisfaction of the
salary received by the employee. Tang et al (2003) states that commitment arises as consequences from
the fulfillment of employee’s satisfaction in the organization. The satisfaction on salary will have a
positive influence to the organization in the form of employee high commitment to the organization (Hom
and Griffeth 1995).
Hipothesis 4: the Influence of the Organizational Commitment toward Unethical Behavior of
Employee
The finding shows that the influence of Organizational Commitment on Unethical Behavior of employee
has a value that is not significant. This indicates that unethical behavior tendencies of employee are not
severely affected by their organizational commitment. In other words, even if a person has low
organizational commitment, he does not necessarily have a tendency to deviations of behavior in the
organization and so that for the opposite. The not significant influence of Organizational Commitment
toward unethical behavior in this study is supported by the study conducted by Tang and Chiu (2003)
which finds that the unethical behavior is not influenced by organizational commitment of human
resources.
Hypothesis 5: the Influence of the Salary Satisfaction toward Unethical Behavior
The finding shows that the influence of the salary satisfaction toward unethical behavior is negative and
not significant. This indicates that the trend of respondents to engage into unethical behavior is not
affected by the salary satisfaction they have. Referring to the context of the study, the researcher can
explain that satisfaction of the salary is not a trigger to unethical behavior within the organization. This is
happening because the respondents try to receive the salary they receive as something that it should be,
so that they can achieve a certain level of satisfaction and avoid feelings of being treated unfairly by
organization. In conclusion, they respond to the salary satisfaction by accepting the logical consequences
of becoming civil servant. This complacency gives a positive perception toward the organization that led
to the effort of human resources to maintain the continuity of the organization where they work.
Table 5: The Direct and Indirect Influence
The Correlation Among Variables
Direct Influence
Indirect Influence
Salary Satisfaction – Unethical Behavior
-0.143
-
Salary Satisfaction – Org. Commitment
0.301
-
Org. Commitment - Unethical Behavior
0.143
0.043
The results of the analysis show that the salary satisfaction can directly influence unethical behavior of
employee and influence indirectly to organizational commitment with implications to the unethical
behavior. The value of the direct influence is -0.143, it indicates that if the salary satisfaction of employee
is high, then, their unethical behavior will decrease. Instead of indirect influence (0.301) x (0.143) = 0.043
indicates a positive influence, where if the variable of salary satisfaction goes through the organizational
commitment,the salary satisfaction variable will positively influence the unethical behavior of employee,
which means that if the the satisfaction is high, the unethical behavior will also be high. The results of this
intervening correlation is contrary to the theory that if the satisfaction felt by employees is high, the
employees will create a positive perception of the organization that led to the effort of employee to
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maintain the continuity of the organization where they work (Greenberg, 1993). This statement shows
that if the influence of salary satisfaction is high, it will generate a low unethical behavior. It can be
concluded that the value of direct influence among variables of the salary satisfaction to the unethical
behavior is better than the indirect ones. It means that the organizational commitment is not the path of
correlation between salary satisfaction and unethical behavior of employee.
5. Conclusion
This study attempts to examine the influence of the money perception construct, consisting money as
something important, a factor of success, a motivator, a factor of wealth toward the salary satisfaction
construct which consists of the level / amount of salary, salary increases, salary benefits, payroll
procedures; organizational commitment construct consisting of affective, normative, sustained
commitment, and unethical behavior constructs of employee which consist of misappropriation of office,
misuse of authority, the omission of the behavior unethical, and a misuse of resources. This study is
conducted at the office of the Supreme Court in Southeast Sulawesi with a number of sample sizes of 84
prosecutors working in the court.
This study develops 5 (five) hypotheses with SEM analysis method with PLS statistical analysis
assistance, and uses the traditional software of smartPLS 1.1. The finding of 5 hypotheses proposed, it is
found only 2 (two) hypothesis in which H1 and H3 are received, while 3 others are rejected. The results
show that the unethical behavior tendencies of employee within the organization can be influenced by
their perceptions of money. This is in line with the study by Pendse (2012) which reveals that unethical
behavior is associated with Motive, Means, and Opportunity (MMO). When a person tries to do unethical
behavior in the work place, he or she will have a particular motive associated with benefits that will he
get and opportunities available. Sense of love of money will make a person places the money as the most
important thing in his life above anything else including aspects of morality and ethics. This is supported
by study conducted by Martin et al. (2007), and Ashfort et al. (2008) which also reveal that unethical
behaviors such as deviations in the workplace, counterproductive behavior, corruption, fraud,
embezzlement, bribery, and fraud, and corruption have a significant correlation with income and a love of
money.
The influence of the salary satisfaction toward organizational commitment in this study is a positive
significant. It is clear that a strong commitment is influenced by the level of satisfaction of employee to
the salary received. This is consistent with Tang et al (2003) that states that the commitment arises as the
consequence of the fulfillment of an employee satisfaction in an organization. Satisfaction with the salary
will have a positive impact to the organization that is through the high commitment of employees
towards the organization (Hom and Griffeth 1995). From the findings of this study also note that the
highest loading variable of the money perception variable is on the third indicator, namely the omission
of unethical behavior with the value of loading factor of 0.925. This indicates that the employees in the
supreme court is lack of moral sensitivity toward unethical behavior done by their fellow workers. Most
respondents agree and strongly agree if they are not concerned about the unethical behavior done by
their co-workers. This is caused by the assumption that the responsibility to take action against this
unethical behavior done by a co-worker is carried out merely by their leaders. So, this should be an
important concern for organizations. Leaders need to raise employee awareness that the monitoring of
unethical behavior occurring within the organization is not solely the responsibility of the leadership but
it is a shared responsibility. Employees should be encouraged to participate in minimizing unethical
behavior in the workplace by implementing peer control among fellow employees.
The highest loading for the variable perception of money is at the third indicator, that is money as a
motivator with a factor loading value of 0.913. Most respondents consider that money can motivate them
to work more optimally. Recognizing this, the party organization, in this case is Supreme Court
institutions in Southeast Sulawesi, needs to pay more attention to the amount of incentives or
compensation received by the employees so that they can be motivated to provide better performance for
the organization. The Lowest loading for the variable of the salary satisfaction is at the first indicator that
is at the level of salary with a value of loading factor of 0.718. Most of the employees in the scope of
supreme court in the Southeast Sulawesi state that the amount of salary received is still less or not in
accordance with the needs and workload they have. The supervisory duties including duty service in
outside the city is felt unbalanced with the salary received. Therefore, the organizations need to pay
attention to this indicator by providing adequate incentives including a sufficient operational funds to
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carry out their activities so that they can avoid the high dissatisfaction which can lead to the emergence of
unethical behavior tendencies. The lowest loading for the variable of organizational commitment is at the
third indicator that is the ongoing commitment with the value of loading factor of 0.879. Recognizing this,
the organizations, especially organizations of Supreme Courts at the Southeast Sulawesi needs to raise the
ongoing commitment held by employee. The existence of high awareness of the noble values of the
organization and the strategic role held by the Supreme Court as a law enforcement agency can
encourage the creation of high commitment of the employees.
The Future Research
1. The findings of this study indicate that the R-square value of each variable explaining the
perception of money variable is relatively small and only unethical behavior variable that has a
value of 45%. It means that the other variables in this study are not enough to explain the
perception of human resources on money. So that, the future research agenda needs to explore
other variables that may be more relevant.
2. This study does not explore the influence of morality and spiritual aspects of employee tendency
toward their unethical behavior in organizations. The upcoming research can include this aspect in
order to determine the influence of it toward the behavior of employee.
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Improving Entrepreneurs Capability Models of the Creative Industry Through The Triple
Helix and Anticipatory Learning
Tatiek Nurhayati, Mulyana
Sultan Agung Islamic University
tatiekn.h@gmail.com
Abstract: Creative industries have a major role in economic development especially in reducing
unemployment, however, the development of creative industries are still having many problems,
especially the ability of human resources. As a result, it has an impact on the weaknesses of
entrepreneurs’ capability. This study aims to examine the effect of the Triple Helix and
anticipatory Learning in improving creativity innovation capability and performance of creative
entrepreneurs. The population of this study is the business owner or manager of SMEs on sectors of
crafts, fashions and information technology (IT) in central Java. The total samples are 122 with valid
questionnaires. The sampling is by using purposive sampling. Beside, the analysis of data is by using the
Partial Least Square (PLS). The study results of the three actors in the Triple Helix, it shows that
government actors does not significantly affect creativity innovation capability, but business actors and
intellectual actors have significant effect on creativity innovation capability . Anticipatory learning has a
significant effect on creativity innovation capability. Finally, the anticipatory learning and creativity
innovation capability has significant effect on performance of creative entrepreneurs.
Keywords: Anticipatory learning, creativity Innovation Capability, Triple helix, performance of a creative
entrepreneur
1. Introduction
In the era of creative economy, the value of goods and services are determined to what extent human
resources are able to take advantage of technology, creativity and innovation as well as doing the learning
organization to be able to adapt to environmental changes. Industries that will compete in the global
market not only rely on price and quality, but also compete on the basis of technology, innovation,
creativity and imagination (Esti and Syriac, 2008). Sector of the creative economy is the seventh most
important sector of the ten sectors of the national economy. The contribution of creative economy in
gross domestic product (GDP) in 2011 are able to create added value of Rp. 256 trillion and estimated to
reach Rp 573.4 trillion in 2012. According to the Department of Commerce (2008), the problems faced by
the creative industries are: the quantity and quality of human resources as creative industries, climate
conducive to starting and running a business, appreciation or participation of the creative people and the
creative work produced, the acceleration of the growth of information technology and communications
and financial institutions that support the creative industries. The creativity and innovation of human
resources is indispensable for the development of creative industries to be able to grow and compete. The
good creative industry actor is an individual which has ability to take the challenge,
competitive, strategic and has a strong desire in business achievement (Halim, 201 2).
Creative industries have a significant contribution to the national gross domestic product, employment,
export value, so that efforts to improve and develop creative industries must continue to be pursued. The
integrated collaboration among intellectual, government and business, as well as anticipatory learning by
creative industries will be able to foster an entrepreneurial spirit to improve business performance. The
developing of creative industry has not received optimal attention from various parties which are capable
of doing assistance. The parties are such as intellectual (scholars), government and business, which are
called by Triple Helix. The collaboration of three actors of Triple Helix is considered to be capable of
improving creativity, the idea of innovation and skills (Etzkowitz, 2008). The collaboration of these three
is still not optimal, so that, the development of creative industry does not fit what is expected. Creative
industries in Central Java development has not been as expected, it is seen from the growing number of
creative industries and employment over the last four years (2008 - 2011) which is still very small, where
the increase in the number of creative industry average is only 0.06% and the increase in employment is
on average 0.07% (Department of Cooperatives and SMEs, 2012). Integrated collaboration among triple
helix (intellectual, government and business, as well as learning anticipatory organization by the creative
industries) is expected to be able to foster an entrepreneurial spirit that will enhance the company's
performance.
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The study is conducted in a creative business which is mostly done by SMEs, in the fashion sector, craft
and IT. Small businesses in Indonesia are lagging and having many disadvantages if compared with the
big ones, hence, they need for the ability to learn. Resources Based Theory (Hunt and Morgan, 1995)
states that to achieve success through information and knowledge. Several studies have been conducted
on small businesses that suggest a link between organizational learning on the performance of the
company with the possibility to achieve high performance (Anna Michna, 2009). The significance of the
positive influence of organizational learning with the company's performance has also been stated (Prieto
and Revilla, 2006; Molina, C and Jamie L. 2009). While studies on SMEs done by Christon et.al (1999)
states that organizational learning does not have correlation with the performance of the company. The
purpose of this study is to contribute thoughts on the creative industries, the influence of anticipatory
learning and triple helix on the capabilities of innovation and creativity and its impact on the performance
of creative entrepreneurs. Some studies show that there is a correlation of the organizational learning
and performance of the company while the other study results do not support such correlation. Issues
raised in this study are to build a model of organizational learning anticipatory and triple helix in an effort
to enhance the performance of a creative entrepreneur. The development of entrepreneurial innovation
capability built by anticipatory learning and triple helix is interesting to study.
2. Literature Review
Creative industries: Information and communication technology is developing rapidly. In the era of
economic globalization, it has encouraged entrepreneurs in the field of creative industries to do more
creative innovation. Industrial development has created employment patterns, patterns of production
and distribution which are cheap and efficient, so that the development of technology makes an individual
becomes more productive (value added) and innovative. Creative industry focusing on the creator of
goods and services by relying on the expertise, talent and expert creativity as intellectual property need
support to be able to thrive. According to the Ministry of Trade of the Republic of Indonesia (2008), the
creative industries are defined as industry derived from the use of creativity, skill and talent of
individuals to create wealth and jobs through the creation and utilization of creativity and inventiveness
of the individual. There are 14 creative industry sub-sectors, namely: advertising, architecture, art
market, crafts, design, fashion, video / film / photography, interactive games, music, performing arts,
publishing and printing, computer software services, television and radio, research and development. In
developing the creative industries, each region should have the competence, capability, local wisdom,
unique characteristics as strength lasting competitiveness (sustainable). The resources based view states
that success will be achieved by the ability of the resources available (Penrose, 1959; Barney
1995). While market-based view oriented efforts to meet the market demand to make an existing product
market.
Triple Helix: The development of creative industries needs support cooperation from
scholars (intellectuals / academician), business (business) and the government (government), which is
called Triple Helix. All three main actors in the Triple Helix are driving the birth of creativity, ideas,
science and technology for the growth of the creative industries. According to the Ministry of Trade
(2008), a close relationship, mutual support and mutual symbiosis among the three actors are the
foundations and pillars of the model of the creative industries that can stand firm and continuous. The
role of scholar / academician / intellectual in the context of the creative industries is the desire to apply
knowledge and pass it on. Include cultural scholars, artists, educators in educational institutions, the
pioneer in the community, hermitage, cultural centers and art, an individual or group study and a
researcher, author, and other figures in the fields of art, culture and science. The role of business or
company is as organizational entities created to provide goods or services to customers. Generally,
Business is owned privately and formed to generate profit and increase prosperity for the owner, and in
the form of a sole proprietorship, partnership, corporation and cooperative. The role of government is as
an institution that has the authority development of creative industries, both by the central and local
governments, as well as linkages in the administration of substance and relevance. The synergy between
departments and agencies at the central government and the synergy between central and local
governments are essential to achieve the vision, mission and goals of the development of creative
industries. The seriousness to build innovation at the national level is legalized by the presence of
Presidential Decree No. 32 of 2010 on the National Innovation Committee.
It is a premise that the triple helix circulation is in an area that can move people to improve creativity,
ideas and skills (Etzkowitz, 2008). Higher Education as a provider of human resources and knowledge, as
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well as socio-economic development actors is important. Triple helix model of development is based on a
premise on the importance of cooperation between the University or other education institution,
government and industrial or traditional leading institutional (business). Institutions of higher education
have the mission of teaching, researching and transferring knowledge to each community, e.g. by giving a
training model to all sectors of society through interaction with the alumni. In developing countries the
concept of triple helix has a prominent role, especially on educational institutions. The Triple helix key
development is by improving circulation among university, industry and government as an agent of
development and vice versa, blockage of circulation is an indication of the failure of society, retardation,
ideas and innovation. Based on the description above, the hypothesis can be constructed as follows:
H1: The better the role of the intellectual actor is, the better the innovation creativity capability will be.
H2: The better the role of the government is, the better the innovation creativity capability will be.
H3: The better the role of the actor is, the better the business creativity innovation capability will be.
Anticipatory Learning: Anticipatory Learning is a learning process that occurs not only adapts the
environment, but also the development of a system of thought which focuses on the dynamic
interrelationship with the environment that generates creativity and innovation to seek opportunities
(Tatiek N, 2009). According to Peter Senge (1990), the organization should focus on fundamental trends
and forces of change, so that it is necessary to have anticipatory learning in organizational
learning. Adaptive learning is learning which does not directly cause a change or innovation. Anticipatory
learning will generate competence to encourage a wide range of innovations that will create competitive
advantage (Garvin, 1991). Organizational learning is a process of creation, acquisition, sharing and
application of knowledge, and making changes and innovations in the entire level to produce optimal and
competitive performance (Chinowsky, 2007). The ability to improve learning for entrepreneurs can
improve the efficiency and capability of innovation activity in the company, as well as companies with
strong tendency on learning that can enhance better performance (Dodgson, 1994). Organizational
learning will encourage a person to undergo a skills and knowledge to overcome the problem that result
in capability or competence increases, as well as the antecedent capability or competence of the
organization (Chaston and Badger, 1999; Wang and Loo, 2003). From the description above,
the hypothesis proposed is:
H4: The better the anticipatory learning is, the better the creativity innovation capability will be.
Creativity Innovation Capability: One important feature for someone who will do entrepreneurship is
the ability to innovate (Larsen, P and Lewis, 2007). Companies without innovation will not compete and
survive in the era of increasingly intense competition. The changing needs and desires of customers to
satisfy themselves will spur companies to innovate constantly in order to create products that comply
with the wishes of customers. Hills (2008) states that innovation is an idea and a practice that are
considered to be new to individual or other units. Keeh, et.al. (2007) describes the importance of
innovation for companies as: 1) the development of rapid technological change, so companies must adapt
to changes in the technology, 2) rapid environmental changes caused by the presence of creativity and
innovation, 3) customer intelligence to meet needs, so that there is a necessary innovation in meeting
customer expectations, 4) changes in market tastes and technology products that require fast service, 5)
innovation are capable of creating growth market segments, forming corporate position as well as
enhance the company's growth. Zimerer (2008), describes the creativity is the ability to develop new
ideas and find new ways of looking at problems and opportunities, while innovation is the ability to find
creative solutions to problems and opportunities to improve the lives of people or self-enrichment. A
study by Ali Ekber Akgun et.al. (2011), innovation has strong influence on the performance of the
company. Moreover, a study by Wingwon et.al (2012) states that innovation affects the competitive
advantage and firm performance. Innovation has an important role in the competitive industry to develop
the economy and improve living standards. From the description above, the hypothesis proposed is as
follows:
H5: The better the creativity innovation capability is, the better the performance of creative
entrepreneurs will be.
Creative Entrepreneur Performance: Performance measurement should use a variety of sizes (Bhargava
et. Al, 1994). Pelham and Wilson (1996) define that the performance of the company as a successful new
product and market development can be measured through sales growth and market growth. Corporate
performance is measured in a specific time and show the success and efficiency of a company. The study
on performance measurement is conducted by Stamp et.al (2008) with dimensions of sales growth,
employment growth, market share, gross profit, and profit margin. Corporate performance indicators
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developed by Dibrell (2008) include market share growth, sales growth, profit growth, and Return on
Assets (ROA). To improve the performance, it can be constructed from learning orientation as part of the
learning organization (Wolf and Reff (2006). Learning anticipatory, in addition to adapt the environment,
also explores the search for opportunities. E. Baker & Sinkula (1999) in their research state that the
company organization with a high learning process will be able to improve performance. Furthermore,
Zheng Zhou et.al (2005) states that organizational learning has a positive effect on the performance of the
product and the performance of the company. From the description, the hypothesis proposed is as
follows:
H6: The better the anticipatory learning is, the better the performance of a creative entrepreneur will be.
Based on the hypothesis 1 until 6, it can be illustrated in the graphical model as follow:
H1
H2 H5
H3
H4 H6
3. Methodology
A study can start and end in a clear destination; hence the study needs to be simplified in variable
construction (Ferdinand, 2011). A study variable is everything in any kind of form which is set by the
researcher so that information about the object can be obtained, and then can be concluded (Sugiyono,
2009). The variable observed in this study is Triple Helix, anticipatory learning, entrepreneur capability,
innovation creativity, productivity and work. Population is the whole study subject, while sample is a part
or the representation of the observed population (Arikunto,2002). The population of this study is the
conductor of creative industry in sub-sector of handicraft, fashion, IT in Central Java. Sampling technique
is by using purposive sampling method and the number of sample is 122 respondents from 6 regencies/
the chosen city. The objective of this study is to test the effect of Triple Helix and anticipatory learning to
the entrepreneur capability and the performance of creative industry. Then, the variable and indicator
will be tested the validity and also the reliability. Measurement scale value is 1 to 10, (1: absolutely
disagree, 10: absolutely agree). The data is analyzed by using Partial Least Square (PLS) program.
Data Anaysis: The test is done through 2 stages to value fit model from a study model and the stages are
done are such as follows:
1. Measurement Model (Outer Model): Outer model is used to test data validity, and can be done
through three testing criteria, namely convergent validity, Discriminant Validity and Composite Reliability.
Convergent validity: Convergent validity is a measurement model with indicator reflection and scored by
using the correlation among value items. Individual reflection scale is considered high if the correlation is
more than 0.70 with the measured construct. But, according to Chin, 1999 (in Ghozali, 2006) for the early
stage of study from the scale development of loading value of 0.50 to 0.6, it is regarded to be sufficient.
The test result shows that the value of outer model or correlation between constructs and variable shows
that all loading factors have value above 0.50, so that construct for all variables are proven to be valid.
Intellectuals
actors
Government
actors
Business
actors
Anticipatory
Learning
Creativtyn
innovation
capability
Performance
of creativity
entrepreneur
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Discriminant Validity: Discriminant validity is aimed to ensure that every concept of each latent variable
is different from other variables. Model is said to have good discriminant validity if every loading value in
the indicator of a latent variable has the highest value from other loading value to the other latent
variables. It means that every latent variable has fulfilled good discriminant validity criteria where several
latent variables still have measurement which is highly correlated with the other construct.
Composite Realibility and Average Variance Extracted: To test the reliability can be seen from the
average variance extracted (AVE) value. Construction is said to have high reliability if the composite
reliability > 0.60 and AVE is above 0.50. Testing result can be concluded that all constructions fulfilled
reliable criteria, it is proven with Composite Reliability value is above 0.60 and AVE is above 0.50.
2. Structural Model (Inner Model): Inner model or structural model is done to see the significance of
the correlation between construction and R-square of the study model. The result of study shows that R-
square value to the innovation creativity variable is 0.747, for entrepreneur capability the value is 0.864, it
shows that innovation creativity variable can be explained by Triple Helix variable (intellectual,
government, business) and the anticipatory learning is 74.7 % while the rest (100%-74.3%=25.3%) is
explained by the other causes outside the model. R-square to variable of entrepreneur capability is
explained by triple helix (intellectual, government, business), anticipatory learning and innovation
creativity as much as 86.4%, while the rest (100%-86.4%=13.6%) is explained by the other causes
outside the model. To know the correlation of among variables in this study, it can be determined by the
significant value of effect among variables, while the result of data analysis can be seen on the output
result of inner weight. Based on the data analysis, so analysis correlation among variables can be
determined as follow as seen on table 1:
Table 1: The Test Result of Effects among Variables
Effects among
variables
original
sample
estimate
mean of
sub
samples
Standard
deviation
T-
Statistic
Explanation
Intellectuals actors->
creativity innovation
capability
0,240
0,248
0,073
3,287
Significant
Government Actors->
Creativity Innovation
Capability
0,126
0,133
0,071
1,759
Not
Significant
Business actors ->
creativity innovation
capability
0,316
0,305
0,065
4,844
Significant
Anticipatory learning ->
creativity innovation
capability
0,328
0,321
0,099
3,311
Significant
Creativity innovation
capability>
Performance of creativity
entrepreneurs
0,610
0,612
0,064
9,603
Significant
Anticipatory learning->
Performance of creativity
entrepreneurs
0,364
0,364
0,068
5,365
Significant
Discussion: Intellectual actors are the main actor of Triple Helix and have big role in developing
innovative creativity to those who conduct creative industry. The cooperation between businessman and
intellectuals help much to develop business, therefore the role of intellectuals is optimized more so that
their thought can be useful to other people. Intellectuals are the main actor who encourages creating
creativities, ideas, knowledge and technology for developing creative industry. However, this should be
developed more and more. A strong correlation among them who complete and support one to each will
help much to create a sturdy creative industry. Intellectuals have a big capacity in strengthen a basis of
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innovation both formal and non-formal, ability in accomplishing concepts of innovation, and a capacity in
creating business network. Creativity is individual activity which leads to create innovation, while an
innovation tends to be subsector activity which focuses on a particular target of problem solving but
rarely does it lead to creativity. Higher education which is a part of intellectuals is hoped to have big role
in developing creative industry through such activities reflecting Tri Dharma Perguruan Tinggi (the three
principles of higher education). Intellectuals are those who have many ideas related to their own field, so
that they have duties and responsibilities for helping other people through the three principles of higher
education. Intellectuals have role as an agent of spreading knowledge, art, and technology, and also an
agent who can develop creative industry in society. Developing business management, intellectuals can
conduct their activities through continuously mentoring in order to meet management improvement for
those who have creative industry. Intellectuals also have big role in helping to strengthen cooperation
network to business partners, as an implantation of the third principle of the three principles of higher
education. Inttellectuals have one of Triple Helix Actors who encourage creating creativities, ideas,
knowledge and technologies to the development of creative industry, so that it will produce developed
creative industry which is sturdy in facing competition, therefore it can provide job vacancies and reduce
jobless.
The role of government in developing creative industry does not meet the expectation of those who run
creative industry. This has been proven that it has no significant effect on developing innovative
creativity. Creative industry is a part of small micro enterprises, which generally does not care or lacks
understanding rules, policies made by government. As an institution which has authority of creating and
implementing law and regulations, either central or local government should have decided a policy which
supports the development of creative industry. A synergy among departments and central and local
government, is really needed to reach the vision, the mission and the target of the development of
creative industry. The beneficial policy and regulation for the creative industrial entrepreneur are truly
needed, considerably towards the well development of the local autonomy, democrational straightening,
and good governance principals. The development of the creative industry is importantly affected by the
current location and mindset in order to implement the good governance principle, law empowerment,
transparency, responsiveness, professionalism, accountability, effectiveness and efficiency with qualified
supervision shall support truly in the development of the creative industry. The main actor in business is
the entrepreneur, investor, inventor of the new technology and the creative industrial customer which
support the continuity of the industry. The claimed privileges are as followed: 1) as the creator, which
stand as a product creator and creative service, the new market which can apply the provided service and
product, also creates a new job vacancy for creative individuals or other supportive elements. 2) as the
creator of the community and creative entrepreneur, it must be supportive in establishing public sphere
so intimate mindset sharing can be done which stimulates the creativity in running the creative industry
business and conveying sharing methods in developing the managements.
The business role is determined to use the high conceptual ability, create innovation so new products and
HAKI can be established, develop a multi business relationship so conducive circumstances can be
conducted. The collaboration between the intellectuals, government and business (triple helix) is truly
expected by the development of the creative industry. Triple helix appears as a dominant factor which
generates innovational creativity among the society by creating dynamical interaction and
communication. The basic task from the three main roles in triple helix is to establish creative society and
pursuing them to be active in creating design, and generating creativity and innovation. Triple helix
appears to be a concept which can increase creativity, idea, and skills (Etzkowitz, 2008). The fast
transformation of the environment acquires innovative creativity in order to implement transformation
which can fulfill the needs of the clients, thus, the entrepreneur must conduct anticipatory learning to
adapt towards the transformation of the environment. The transformation and willing of the client in self
fulfilling satisfaction triggers the industry to continuously innovate, so relevant products can be created
as wished by the clients. The non creative companies tend to innovate yet not able to survive and
compete in this vast era. The anticipatory learning can increase the innovative creativity; this can be done
by increasing new technology control, experimenting on the developments of new products, and multi
business relationship.
The intellectuals have a vital role in spreading and implementing the knowledge, art and technology
towards the developing creative industry among the society. The academicians among the intellectuals
are expected to be involved in such big role in developing creative industry through research institutions
and volunteering programs. While developing the roles, the intellectuals are expected to assist in
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increasing the entrepreneurial ability of the creative industry individuals. The intellectual that possesses
such ability is expected to increase the entrepreneur capability. This program can be done in forms of
training, supervision in increasing the ability of imagination, practical knowledge, communication, and
social skills. Such matter appears towards the involvement of the government in developing creative
industry which is needed towards the management of the local autonomy, democrational straightening,
and good governance implementation. The providing of intrigues, challenges, and supports so business
ideas can be mobilized in such competence level is truly needed. The government is expected to have such
sensitivity towards the development of creative industry, thus the development of creative individuals is
oriented by the development of intelligence through learning. The correct learning process and oriented
by the establishment of characteristic and entrepreneurial intelligence is aimed to increase the
entrepreneur capability. By speeding up its establishment, the government may create policies, providing
facilities which support the entrepreneur capability. The main elements of the triple helix are business
(business individual, investor, the new technology inventor, and clients), as they are determined to use
their high conceptual abilities in order to create the entrepreneur capability. This program may appear as
a local gathering, community establishment, seminar and a business relation which support the self
knowledge, increase the ability of imagination, practical knowledge, inventing comprehension, search
skill, and communication skill.
Companies apply anticipatory learning results competence in supporting various innovational creativity
which establish the quality of compete (Garvin, 1991). The anticipatory learning which is implemented
due the development of the environment, by adapting the development and control of the vast developing
technology, the programs in experiments in creating new products relevant towards the client’s wish
with the beneficial relation are pivotal to be established. The learning of organization appears as the
process of creation, achievement, sharing and implementing knowledge to gain transformation with
innovation towards the whole maximum work and the quality of compete (Chinowsky, 2006). The ability
to increase the learning from entrepreneurial level can increase the efficiency and ability in innovating
inside the industry, with the strong tendency towards good learning and team work (Dodgson, 1994).
The company must apply the anticipatory learning activity in a continuous level in order to increase the
competence. The anticipatory program appears as the development and control of the new vast evolving
technology, so the program can become experimental and resulting new products as requested by the
market and creating new team working. The implementation of the anticipatory learning can be done by
creating local gathering, seminar, community establishment, and team work which supports the
development of entrepreneurial capability such as : self knowledge, increase the ability of imagination,
practical knowledge, inventing comprehension, search skill, and communication skill.
A business man is a person who possesses the will and ability to create and innovate. They have the
ability in creating different items creatively and innovatively. The creative and innovative ability is
applied by the will in starting a business, starting new activities, the ability and will to search for chances,
handling risks and develop new ideas. Businessmen are dedicated as the owner or manager who must
have investment, the ability of managing, supervising, enjoying, and handling risks. Thus, entrepreneurs
must have basic principals such as a clear vision and goal, a strong ability and commitment, financial aid,
time, energy, and mind. Those elements are still not enough if not with the knowledge of the entrepreneur
capability such as: self knowledge, imagination, ideas that does not reflect the past, practical knowledge
such as: technical practice, design, processing, inventorying, marketing and administration, the ability in
inventing, creating and imagining (search skill), and social relation to communicate with others
(communication skill). The company without innovation cannot compete and survive towards the more
difficult condition of the world’s competition. The transformation needs and triggers the company to
continuously innovate and create the products that are requested by the clients. The value of creativity
and innovation is the element of originality, thus an innovative entrepreneur is a person who creatively
believe in better innovation. Creative entrepreneurs cannot be satisfied easily, even though the facts of
good process, imagination inside the work, they tend to think differently than others. Creative and
innovative entrepreneurs always orient themselves as innovative individuals.
Creative industry that cannot adapt towards the transformation must creatively adapt towards it. The
vast evolving technology forces the company to adapt towards it, by innovating and fulfilling the client’s
needs. The creativity in innovating is always oriented towards the increase of productivity, which by
resulting effectiveness and affiances production and resulting the quality and quantity of the products.
The entrepreneurial process of creative industry can be successful by having the soul and mind of the
entrepreneur. They are affected by the skills, ability, and competence. The entrepreneur should be able to
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manage, supervise, enjoy and handle the risks. Those elements are still not enough if not with the
knowledge of the entrepreneur capability such as: self knowledge, imagination, ideas that does not reflect
the past, practical knowledge such as: technical practice, design, processing, inventorying, marketing and
administration, the ability in inventing, creating and imagining (search skill), and social relation to
communicate with others (communication skill). Businessmen are dedicated as the owner or manager
who must have investment, the ability of managing, supervising, enjoying, and handling risks. Thus,
entrepreneurs must have basic principals such as a clear vision and goal, a strong ability and
commitment, financial aid, time, energy, and mind. Those elements are still not enough if not with the
knowledge of the entrepreneur capability such as: self knowledge, imagination, ideas that does not reflect
the past, practical knowledge such as: technical practice, design, processing, inventorying, marketing and
administration, the ability in inventing, creating and imagining (search skill), and social relation to
communicate with others (communication skill). With the ability, an entrepreneur may be able to manage
the business in good hands. The good understanding of the business, and control of the practical field in
increasing the quantity and quality of the products, affects the growth of the production. The increase of
production affects the quantity and increase of the gross and market share. Ultimately the entrepreneur
capability becomes better and increases the work of the whole company.
4. Conclusion
The creativity capability of the creative individual innovation company can be developed by the
relationship networking between the main Triple Helix elements (Intellectuals, government, business)
also by implementing the anticipatory learning continuously. On the other hand the role of the
government in guiding and communicating, understanding the local policy, central law which should be
more specialized in its implementation in order to increase the creative business. It appears similar with
the innovation implementation increase of the creative industry individuals is necessarily needed for the
Triple Helix also in the anticipatory learning. This research is only focused on the creative industries. The
data sampling from the handmade sector, fashion, and Information technology is only limited in six local
regencies, with the sample of 122 respondents, which affects the still not perfect research this may be
appearing. In the coming future, the research is expected to add more other variables which can affect the
entrepreneur capability and the work of the creative industry, also can be more focused on specific fields
in order to achieve better and more perfect results.
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Appendixes
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Change Management in the Higher Education Landscape: A Case of the Transition
Process at a South African University
Renitha Rampersad, Vaneshree Govender
Durban University of Technology, South Africa
renithar@dut.ac.za
Abstract: The South African Higher Education system in the post-apartheid period had to respond to the
various discriminatory practices that existed during the apartheid era. This entailed responding to
inequalities in the education system at various levels. With respect to Higher Education there was an
imperative to serve society that was based on the principles of equality, equity and inclusivity. One such
response was to merge higher education institutions such as ML Sultan Technikon and Technikon Natal to
form the Durban Institute of Technology now referred to as the Durban University of Technology (DUT).
This paper is concerned with the process of change in the Higher Education context and examines a South
African case study. The paper begins with a review of literature on the South African Higher Education
system in the post-apartheid period, and change management in higher education institutions during this
time. The theoretical analysis is followed by a case study of the transition process at the Durban
University of Technology in South Africa. The merger process revealed numerous challenges one of which
was the human resource issue that underpinned the merger of staff between the two technikons which
differed in practice. The rationale for this study was that staff at the merged institution experienced
alienation; mistrust and a lack of shared purpose. The study was conducted within a quantitative
paradigm which enabled an evaluation of the role of internal communication in a higher education setting
during the transition process. The sample population was 400 administrative and academic staff from
across the seven campuses. Staff were assessed via a survey questionnaire. The data was analyzed using
SPSS. The study found that living and coping with change in the work environment is a fact of life for
organisations and individuals. The success of any change programme depends on the organisation’s
ability to communicate effectively with its employees; therefore internal communication plays a pivotal
role in any change programme.
Keywords: Change management, higher education, internal communication, mergers
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The Influence of Audit Committee Efektivity toward Earning Management Practices
Dista Amalia Arifah, Wahyu Agung Isriyani
Islamic University of Sultan Agung, Indonesia
distaamalia@unissula.ac.id
Abstract: Earning Management practices caused a lot of money scandals toward big companies, like
enron scandals. To overcome those impact, stakeholder parties asked monitoring focus on management
and operational company activities. Audit committee played important role in the monitoring company
process. Audit committee had to make sure that company activity and management business on the right
track. So that, earning management practices could be minimized and investor obtained reliable
information about the company. The purpose of this study was to examine whether Audit Committee Size,
Meeting Frequence, Audit Committee Independence and Audit Committee Financial Expertise influenced
earning management practices. Earning management was proxied by discretionary accruals. This
research used manufactures company annual report as population. Using a purposive sampling method,
143 companies data were selected as samples. Three years companies annual report, during 2011 to
2013 are used as secondary data. The data was analyzed by multiple regression. The results indicated
that 125 data, about 87,4% companies sample proper based on Bapepam rules. Those data were free
from outliers and met the classic assumption criteria. Other result showed that Audit committee size,
Meeting Frequence and Financial Expertise did not have any influence toward earning management.
While, Audit Committee Independence had influence.
Keywords: audit committee, corporate governance, earnings management
1. Introduction
Background of Problems: Earnings management companies issue have started to develop since the
financial crisis that occurred in 1997. Earnings management increasingly attracted attention since
accounting scandals committed by Enron and Big 5 Accounting Office, Arthur Anderson appeared. The
scandal eventually led to other cases were also carried out by high-profile companies such as Worldcom,
HealthSouth, and Tyco (Rani, 2011). In Indonesia also happened several cases of earnings management,
such as PT Kimia Farma inflated (overstated) corporate profits in the 2001 financial statements. This case
caused imposition sanctions on PT Kimia Farma auditor, because audit risk failed to detect the presence
of profit bubbles, although it has been doing the appropriate audit procedures SPAP (Generally Accepted
Accounting Standards). In other case, Indofarma company did earning management practices. They
presented net profit overstated by manipulating inventories higher than before. So that, sales in that year
had understated. According to Palestine (2009) earnings management can be interpreted as an
management act that affected the earning report and provided wrong economic benefits for the company,
so that in the future it will be very annoying and even harmful to the company. Company Efforts or
certain parties to change, information manipulate, even earnings management actions that could lead
financial statements no longer reflect the fundamental value, the financial statements should be serve as a
communications management media with external parties or between the company and its stakeholders
(Subhan, 2011).
Earnings management practices could be prevented by apply the corporate governance mechanism
(Pujiningsih, 2011). Corporate governance mechanism consists of commissioners, independent directors,
board of directors, and audit committees. Some audit committee characteristics are used as performance
parameters, namely the audit committee independence, the audit committee expertise (financial
expertise), the frequency of audit committee meetings, also the size of audit committee. Independence
was needed to gave internal auditor performance value, to overcame external auditor conflict also to gave
objectivity and external auditor independence value. Audit committee size connected to audit committee
total member. Audit committee financial expertise was needed, because this matter related to audit
committee objective which were examined and watched out financial reporting process. While audit
committee total meeting frequency was to measure audit committee diligence level (IKAI 2004 in Rani
2011). The existence of some audit committee characteristics which was connected to each other,
hopefully could enhanced audit committee performance and effectivity, so that could overcame earning
management practices in the company. Research on the effectiveness of the audit committee have been
carried out. Several previous studies proved the relevance of audit quality with earnings management
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practices. Lin (2006) in Putri and Laksito (2011) provided evidence that size of audit committee negative
significantly affected on earnings management practices, measured by whether the company did
restatements or not.
Research conducted Rahman (2006), quoted in Putri and Laksito (2011), indicated that the audit
committee has not have a central role in preventing earnings management insident. This things showed
that the formation of an audit committee in listed companies have not been able to achieve its objectives.
Pamudji dan Trihartati (2010) successfully tested on the effect of the independence and effectiveness of
audit committee on earnings management. The results indicated that the audit committee independence
effect on earnings management. But, on the expertise of the audit committee, the frequency of audit
committee meetings, reputable auditors, and external financing had no effect on earnings management.
The study differs from Gradiyanto (2012) which stated that the frequency of audit committee meetings
have a significant effect on earnings management. In contrast to research conducted by Prastiti (2013),
this study showed no effect between audit committee characteristics on earnings management. The
results of the studies were still diverse, this research intended to re-examine according to Pamudji and
Trihartati (2010). But there were several differences with the previous research studies, which were (1)
the time commitment of the audit committee as an independent variable was omitted (2) (2) size of audit
committee was added as independence variable, because Putri and Laksito (2011) also Suaryana founded
that size of audit committee influenced earning management practices and (3) differences in the time of
study, namely the year 2011 to 2013.
Hypotheses Formulation
Size of Audit Committee Affected on Earnings Management: In Indonesia, Good Corporate
Governance guideline explained that one company should be had at least three audit committee member,
which independence commissioner as the head and two member external that had financial and
accounting background (Anggarini, 2010). Yang and Khrisnan (2005) in Putri and Laksito (2011) prooved
success that there was negative relation between size of audit committee and earning management. The
result showed that the bigger size of audit committee thus financial reporting quality could be quarantee.
So that, the size of audit committee could minimize earning management practice on the company.
H1: size of the audit committee affected negatively on Earning Management
Audit Committee Frequency Meeting Affected on Earnings Management: Effectiveness the role of the
audit committee in carried out oversight the financial reporting process and internal controls required
regular meetings (McMullen and Raghunandan, 1996) in Anggarini (2010). Bapepam (2004) and the
Forum for Corporate Governance in Indonesia (FCGI) required audit committee to hold meetings three to
four times in a year. Frequency of these meetings should be clearly structured and well controlled by the
chairman of the committee. Beasley et al. (2004) in Pamudji and Trihartati (2010) found that the
company's audit committee who made mistakes in financial reporting had frequency less than audit
committee who had no mistakes in financial reporting. Therefore, this study examined the relationship
between the frequency of audit committee meetings with earnings management.
H2: The frequency of audit committee meetings affected negatively on Earning Management
Audit Committee Independence Affected on Earnings Management: In the Idx rules and corporate
governance policies on the effective audit committee formed said that, audit committee consist of less
than three majority independence member, which was one independence commissioner and at least two
outside member. Audit committee member was required came from independence external company,
must be consist of independence persons and did not involve with management daily activities, also had
enough experience to run monitoring function effectively. Several studies have been conducted to prove
the effect of audit committee independence on earnings management. Xie et al. (2003) in Pamudji and
Trihartati (2010) states that the audit committee independence is negatively related to fraud in the
financial statements. This is also supported by Ebrahim (2007) in Gradiyanto (2012) proved that there is
a negative correlation between the occurrence of earnings management with audit committee which
composed of independent members.
H3: The independence of audit committee affected negatively on Earning Management
Audit Committee Skills Affected on Earnings Management: Securities and Exchange Commission
required that each audit committee must consist of at least one member who has a financial expert.
Financial expertise was important for the audit committee because the primary function of the audit
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committee was to oversee the company's financial reporting process (Pamudji and Trihartati, 2010). Xie
et al. (2003) and Choi et al. (2004) in Pamudji and Trihartati (2010) stated that audit committee members
were independence commissioners which had financial skill were effective parties to minimized earning
management.
H4: Audit committee expertise affected negatively on Earning Management
3. Methodology
Population and Sample: Population in this study was manufacturing companies listed in Indonesia Stock
Exchange in 2011-2013. The samples in this study were done by using purposive sampling method, with
the following criteria: (1) .The company published financial report and annual report for the ended
period December 31, during 2011 - 2013. (2) .The companies were manufacturing companies listed in
Stock Exchange and its shares are traded during 2011-2013. (3) .The company had the relevant data
concerning this research, such as regarding the independence, audit committee backgrounds members,
frequency of meetings between the audit committee, the size, and other data needed to detect association
with earnings management
Definitions of Operational Variables
1.Dependent Variable
Earning Management: Measurement of earnings management was done by calculating discretionary
accruals as a proxy for earnings management. So far only the aggregate accrual-based model that was
generally accepted as a model that provided the most powerful results in detecting earnings management
(Sulistyanto, 2008) in Pamudji and Trihartati (2010). Model Jones (1991) modified by Dechow et al.
(1995) was used as aggregate accrual-based model. This model was used because it was considered the
most powerful tool for detecting earnings management.
2. Independent Variables
a.Size of Audit Committee: Based on Circular Letter of the Board of Directors of the Jakarta Stock
Exchange No. SE-008 / BEJ / 12-2001 dated December 7, 2001 and audit committee guideline formed by
BAPEPAM about audit committee member, explained that audit committee should had more than three
members, include the chief. So that, audit committee could had meeting and discussion each other
(Anggarini, 2010). This variable was measured based on audit committee total member, the formula as
followed :
ACSIZE = number of audit committee members
b. The frequency of audit committee meetings should be conducted at least 4 times a year, had
mentioned in audit committee guideline, in order to discussed financial reporting with external
audit. This variable was measured based on total audit committee meeting frequency in related
year. The formula as followed (Gradiyanto, 2012) :
ACMEET = number of audit committee meeting frequency
Audit Committee Independence: Audit committee Independence was a condition which audit
committee member should be recognized as an independence party or free from any obligation to the
company recorded (Putri and Laksito, 2011). Audit committee independence was eligible to Bapepam No.
Kep-29 / PM / 2004, as followed:
1. Insider person who did not give audit and nonaudit service also consultant to company.
2. It was not a management executive
3. Did not have shares either directly or indirectly
4. Did not have a family relationship with board commissioners and board of directors
5. Did not have a business relationship, directly or indirectly related to the business of the company
Audit Committee Independence Measurement in this study used percentage audit committee
independence member as indicator toward total audit committee member. The formula as followed :
ACIND = (total members – non independence total member) / (total members) x 100%
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Audit Committee Expertise: Accountant expert or financial management expert was someone who
experienced in accounting or financial fields, certified public accountant or comparable expertise or Chief
Executive Officer (CEO) or others senior officer who had oversee responsible in financial monitoring
(Abbott et al (2004) in Pamudji and Trihartati (2010)). Based on these statements, financial expertise in
this study was measured by percentage the number of audit committee members who had an accounting
or financial background or had held important positions in finance within the organization, the way the
calculation by formula (Gradiyanto, 2012) as followed:
ACEXP = (number of audit committee members with expertise) / (number of members) x 100%
Techniques Analysis: This research used multiple regression analysis. Multiple regression analysis was
used to test the effect of the independent variable on the dependent variable. Multiple regression models
were developed to test the hypotheses that have been formulated in this study are:
DACCi,t = β0 + β1 ACSIZE + β2 ACMEET + β3 ACINDEP + β4 ACCOMP + β5 BIG4 + β6 FINANC + e
where Is:
DACC: Directionary Accruals as a proxy for earnings management
ACSIZE: audit committee size
ACMEET: Number of meetings (frequency) among the members of the audit committee within one year
ACINDEP: Audit Committee Independence Member
Accomp: Audit Committee Skills Members in Finance
BIG4: Auditors Reputation
FINANCQ: The need for external financing
E: Residual of error
To test this hypothesis test used the coefficient of determination (R2), simultaneous significance test (F
test), and the individual parameter significance test (t test).
4. Findings and Discussion
Discussion: The results of this study simultaneously succeeded in proving that the audit committee size,
audit committee independent and audit committee meetings influenced on earnings management.
Audit Committee Size Effect: Based on the test results showed that the size of the audit committee
obtained no significant effect on earnings management actions. It was consistent with previous studies
conducted by Anggarini (2010) and Rani (2011) which stated that audit committee size on earnings
management there was no influenced. However, this study did not support Laksito and Putri (2011) also
Suaryana (2005) which stated that audit committee size influenced earnings management. In this study
some companies fixed indicated in earnings management practices. This matter indicated that audit
committee in sample companies lack of monitoring or tight oversee on financial report internal audit. In
other word, minimal requirement audit committee member did not quarantee effective monitoring
(Gradiyanto, 2012).
Audit Committee Frequency Meeting Effect: The results showed a significant relationship but in a
positive direction. Therefore, this research can be said that the frequency of meetings held by the audit
committee has no effect on earnings management practices. The results of this study are consistent with
Trihartati and Pamudji (2010), Rani (2011), also Putri and Laksito (2011) which stated that there is no
influence of the frequency of audit committee meetings on earnings management. But Gradiyanto (2012)
did not support the result, he stated that there is a significant influence between the frequency of audit
committee meetings with earnings management practices. From these results it can be concluded that the
members of the audit committee that meets at least four times a year was not able to reduce fraud in the
financial reporting process. It could be explained that management and external parties rarely to present
on audit committee meeting. Moreover Sharma et al (2009) in Putri and Laksito (2011) explained that
audit committee meeting only a ceremonial also prosentage of attendance changes frequently so that,
audit committee meeting was not effevtive.
Influence of the Independent Audit Committee: Based on test results obtained that the independent
audit committee significantly had effect on earnings management practices. This result consistent with
Pamudji and Trihartati (2010). From the significant influence result showed that independence audit
committee was enough mechanism to prevent earning management practices. Pamudji and Trihartati
(20100 explained independence audit committee was the most important thing that audit committee
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member should had. Audit committee performance became effective if the member had independence in
attitude and opini. However, the results of this study did not support Putri and Laksito (2011) which
stated that there was no influence of independent audit committee with earnings management. Anthony
(2007) in Putri and Laksito explained the independence of the audit committee might not affect earnings
management as long as the audit committee got benefit from the company, they woud be difficult to
achieve independence.
Influence of the Audit Committee Expertise: From the significant influence result showed that
independence audit committee was enough mechanism to prevent earning management practices.
Pamudji and Trihartati (20100 explained independence audit committee was the most important thing
that audit committee member should had. Audit committee performance became effective if the member
had independence in attitude and opini. However, the result supported Pamudji and Trihartati (2010)
also Putri and Laksito (2011). These results indicated that companies that have audit committee with
great competence in finance or accounting did not tend to have lower earnings management. The number
of audit committee with accounting economy education background seem less to ensure audit committee
performance and better oversight to management. Khomsiyah (2005) in Pamudji and Trihartati (2010)
stated that based on the facts, this was due to the fact that the establishment of an audit committee with
expertise in accounting and finance was only based on the applicable regulations. The role of the audit
committee was very important in monitoring the company's financial reporting. Characteristics of an
effective audit committee was expected to prevent the occurrence of earnings management in the
company. However, it was not supported by existing research, between audit committee characteristics
such as the size of the audit committee, meeting frequency, independence, and competence of the audit
committee, only audit committee independence which had significant effect on the earnings management
practices prevention.
The size of the audit committee has not been able to make an effective contribution to the company's
financial reporting. The audit committee frequency meeting members, despite being as required by
Bapepam, but still there were companies that are likely to carry earnings management. Audit committee
member who had accounting and finance expertise also could not guarrante that they had better
performance and control on earning management practices. While audit committee independence had
significant influence showed that audit committee independence could prevented enough on earning
management. In this condition, audit committee independence was needed for analyzing finance matters,
so that could prevented earning management. From the explanation can be concluded that the existence
of an audit committee characteristics such as the size of the audit committee, the frequency of meetings,
independence, and audit committee members competence in this study can not fully prevent the practice
of earnings management in the company.
5. Conclusion and Implications of Research
From the analysis of the data from the previous chapter, it can be concluded as follows:
1. The size of the audit committee did not have a significant effect on earnings management.
2. The meeting of the audit committee did not have a significant negative earnings management but have
a positive effect.
3. The audit committee independent had a significant negative effect on earnings management.
4. The audit committee competence did not have a significant effect on earnings management.
Suggestion: Advice can be given with regard to the results of this study were as follows:
1. Companies managements need to give special attention to the phenomenon of earnings management in
relation to the implementation of corporate governance.
2. Securities and Exchange Commission need to control for the fulfillment of corporate governance at
each company would gave investors calm.
Researchers Limitations and Future Research Agenda: Limitations of this study include:
Model accrual Jones had not been able to separate the components of non-discretionary accruals and
discretionary accruals appropriately. So there was a possibility of error classification of non discretionary
accruals and discretionary accruals.
Agenda for future research are:
Earnings management measurement had to be more accurate, eg per industry. So that the characteristics
of different industries that could affected earnings management could be incorporated into the
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measurement model. By developing a model each industry could also identify differences in the pattern of
earnings management in each industry.
References
Anggarini, Tifani Vota. 2010. The Influence Audit Committee Characteristics on Financial Distress.
Semarang: FEB Thesis, University of Diponegoro
Gradiyanto, Andrean. 2012. Audit Committee Effect on Earnings Management Practices. Semarang: FEB
Thesis, University of Diponegoro
Palestine, Halima Statila. 2009. Analysis of Effect of Ownership Structure, Corporate Governance Practices
and Bonus Compensation for Profit Management. http://google.com. Accessed March 20, 2014
Pamudji, Sugeng and Aprillya Trihartati. 2010. Effect of Audit Committee Independence and Effectiveness
of the Profit Management. Journal of Accounting Unnes vol 2 No. 1. Accessed March 7, 2014
Prastiti, Anindyah. 2013. Effect of Characteristics of the Board of Commissioners and the Audit Committee
of the Profit Management. Diponegoro Journal of Accounting Vol 2 # 4
Pujiningsih, Andiany Indra. 2011. Effect of Ownership Structure, Company Size, Practice of Corporate
Governance, and Compensation Bonus on Earnings Management. Semarang: FEB Thesis,
University of Diponegoro
Putri, Destika Maharani and Herry Laksito. 2011. Audit Committee Characteristics Effect on Earnings
Management. http://google.com. Accessed March 20, 2014
Rani, Prawita Mandhega. 2011. Performance Audit Committee Effect on Earnings Management (Using
Earnings restatements as a proxy of Profit Management). Semarang: FEB Thesis, University of
Diponegoro
Suaryana, Agung. 2005. Audit Committee Effect on the Quality of Earnings. http://google.com. Accessed
March 20, 2014
Subhan. 2011. Effect of Good Corporate Governance and Financial Leverage on Earnings Management in
Banking Companies Listed on the Stock Exchange. http://google.com. Accessed March 20, 2014
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The Improvement of Organizational Citizenship Behavior (OCB) Affected By
Transactional Leadership Style
Abdul Hakim, Asnur
Sultan Agung Islamic University (UNISSULA), Semarang, Indonesia
ahakim_gholib@yahoo.com
Abstract: The purpose of this research is to examine the improvement of organizational citizenship
behavior (OCB) which is influenced by the transactional leadership style through teacher trust and
motivation to work in the state high school in Wawotobi. Data are collected by distributing
questionnaires to the respondents of all state high school teachers in Wawotobi. Samples of this research
are 82 high schools teachers in Wawotobi. This research uses descriptive analysis to determine the
characteristics of respondents and distinguish respondents for each indicator variable. The instrument
used to test the correlation among variables is SEM methods and analyzed by PLS (Partial Least Square).
The results show that: (1) trust has a significant positive effect on organizational citizenship behavior
(OCB) (2) work motivation has a significant positive effect on organizational citizenship behavior (OCB)
(3) transactional leadership style has a significant positive effect on trust (4) transactional leadership
styles has a significant positive effect on work motivation(5) transactional leadership styles does not have
significant positive effect on organizational citizenship behavior (OCB).
Keywords: Organizational Citizenship Behavior (OCB), Transactional Leadership Style, Trust, Work
Motivation
1. Introduction
Human activities, collectively, are always in need of leadership to create a planned and systematic
business. Similarly, it happens within organization consisting of a group of people who work together to
achieve certain goal, it is important for leaders as central driving of the organization seek to know the
desire of employees or members. A teacher who has Organizational Citizenship Behavior (OCB) is highly
influenced by the role of the school principal, so that, this research may contribute to the theory of
Organizational Citizenship Behavior (OCB). According to Robbins (2006), Organizational Citizenship
Behavior (OCB) is a behavioral choice that is not part of the formal labor obligations of employees, but to
support the functioning of the organization effectively. A school principal and teachers
with Organizational Citizenship Behavior (OCB) will exhibit a high assist voluntarily outside their duty or
obligation.
Trust in leaders has a positive correlation with various outcomes such as organizational
behavior, performance and satisfaction of members. It is known that trust is a decisive importance factor
of satisfaction with the leader because it comes from the affective state (e.g. admiration for leaders) and
cognitive state (e.g. leaders have high confidence because of the ability or attributes), not derived from
the behavior observed by leadership (Conger et.al, 2000: 34 Untung & Bagus, 2007). Trust can be
interpreted as wishes to rely on the others and hope that the other parties reply if the parties cooperate
with. The ability to compete is important for leader in order to gain trust between leaders and employees
in an organization because employees is not possible to build trust against their leader unless they
believe that the leader is able to fulfill his leadership role.
Motivation is a set of attitudes and values that influence individuals to achieve specific things in
accordance with individual goals. There are 3 sources of motivation, those are; the possibility to evolve,
type of work, and whether they feel proud to be part of the company they work for (sense of
belonging). Besides, there are several aspects that influence employee motivation, such as; a sense of
security in work, fair and competitive salary, a pleasant working environment, high performance reward
and fair treatment from management (Riva, 2009). According to Fuad Mas'ud (2004), motivation is a
driving force in a person to act, to be able to carry out tasks and work well. Motivation is the driving
forces of one's heart to do or achieve purposes. Motivation can also be regarded as a plan or desire for
success and avoid failure of life. In other words, motivation is a process to achieve a goal. A transactional
leadership is a style of leadership that emphasis group to be adherence to the leader because of the
reward if successful or sanctions if fails. In other words, people come to work or carry out the rules
because they want to get a reward or because they are afraid of sanctions or punitive action by their
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leaders for failing to carry out the task. This form of reward or sanction is expressly provided in the
agreement or transaction between leaders and members.
Alan M. Barnett (2003) reveals that transactional leadership is hypothesized to occur when there is a
simple exchange of one thing with another. Moreover, Burns (1978) argues that transactional leadership
occurs when someone takes the initiative to make contact with other for the purpose of exchanging
value. In this connection, the leader and the employees exchange services to meet the needs and personal
goals (independent). Based on the explanation above, the purpose of this research is 1) to analyze the
effect of trust on Organizational Citizenship Behavior (OCB); 2) to analyze the effect of motivation to work
on Organizational Citizenship Behavior (OCB); 3) to analyze the effects of transactional leadership style
on the trust; 4) to analyze the effects of transactional leadership style on work motivation; 5) to analyze
the effects of transactional leadership style on Organizational Citizenship Behavior (OCB).
2. Literature Review
Organizational Citizenship Behavior (OCB): The term Organizational Citizenship Behavior (OCB) is
created by Organ at the beginning of the 1980s. However, Bernard (1936); in Budiharjo (2004), uses
similar concepts Organizational Citizenship Behavior (OCB) and call it as a willingness to cooperate. In
1964, Katz uses similar concepts and refers to it as an innovative and spontaneous
behavior. Organizational Citizenship Behavior (OCB) may improve the effectiveness of team-work, such as
improving coordination and allowing team members to adapt more effectively to the changing
environment. This benefit is advantageous in multidisciplinary teams where there are a variety of
characters. On in - role style, it is usually associated with rewards and sanctions (punishment), while in
the extra-role, it is usually free of reward and behavior by individuals that is not organized in reward and
it will be accepted and there is no additional incentive provided when individuals behave extra-
role (Morrison , 1994 and Dyne et al, 1994).
Understanding Organizational Citizenship Behavior (OCB) is actually re-conceptual explanation of the
nature of citizenship as a political philosophy (Dyne et al., 1994). According to Katz (1964), in Konvsky
and Pugh, (1994), one of the behaviors that support the effectiveness of the organization is Organizational
Citizenship Behavior (OCB). When employee feels good on organizational treatment, they will respond and
improve job performance exceeds the minimum demand by helping others and the organization, on the
contrary if the organization sees employees in the short term, they will respond by simply doing the jobs
as they are and minimize citizenship behavior (Dyne and Ang , 1998). While according to Organ
(1988), Organizational Citizenship Behavior (OCB) is the behavior of employees who exceed their formal
duties and contribute to the effectiveness of the organization, which is implicated in four dimensions:
1) sportsmanship; 2) Civic Virtue; 3) Conscientiousness; 4) Altruism.
Trust: Mayer et al. (1995) defines trust as a willingness to grant others to do the desires based on the
hope that it will take certain actions to them, regardless of ability to control the other parties.
Doney et al. (1998) defines trust as something expected from honesty and cooperative behavior based on
mutual shared norms and the same values. Das and Teng (1998) define trust as a stage to which an
individual believes to put a positive attitude toward the good desire and the reliability of others to believe
in changing circumstances and risk. Bhattacharya et al. (1998) defines trust as the condition in an
environment of uncertainty and risk, trust reflects an aspect of the possibility that is a hope. According to
Shaw (1997), there are four elements that are necessary to measure the level of trust in teams or
organizations. The objective to do measurement in exhibiting trust level is to determine the current level
of existing trust (currently exist) on a team or an organization which include: 1) The delegation of
authority; 2) Working collaboratively; 3) being open-minded to change; 4) freedom to express ideas.
The findings of Mayer and Gavin (2005) show that several levels (top management) are positively related
to the performance, the ability also has a positive relationship with Organizational
Citizenship Behavior (OCB). In a research of workers in China, in the state-owned company conducted by
Wong et al. (2006), show that trust in the organization is positively related to organizational
Citizenship Behavior (OCB). A recent research by Singh and Srivastava (2009) reveal that interpersonal
trust is positively related to organizational Citizenship Behavior (OCB). It is implied that the development
at the level of interpersonal trust may be used as one of the strategies to motivate employees and
improve the performance of individuals and organizations (Hassan, Masoodul; Semerciöz, Fatih,
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2010). Rubin, S. et al.(2010) find that trust is positively related to organizational Citizenship
Behavior (OCB). Therefore, the hypothesis proposed is as follows:
H1: There is an effect of trust on organizational citizenship behavior (OCB).
Work Motivation: Gibson (1997) states that motivation is a concept that describes the forces that exist
within the employees who initiate and direct behavior. According to Robbins (2006), motivation is a
process that acts on the intensity, direction, and duration of ongoing individual efforts towards the
achievement of targets. The keys contained in the definition above are intensity, purpose and
perseverance. The intensity is related to how hard someone tries. This is the element that receives the
most attention of motivation. Intensity level should also be directed earnestly to desired direction in
order to produce expected results. While the persistence of someone employee is a measure of how long a
person can maintain his efforts in achieving the goal. One's motivation to work depends on the receipt
of reward and punishment that will be experienced later (Arep Isaac & Cape Hendri, 2003) as a
strengthening factor to be used by a leader to improve or maintain individual-specific response. So,
according to this theory, people's motivation to work depends on the award received and the result of
what is going to happen later. This theory states that the behavior of a future is shaped by the result of the
current behavior.
The concept of motivation is often emphasized in the literature stimuli that arise from someone either
from within himself (motivation intrinsic), or from outside himself (extrinsic motivation). Intrinsic
factors are internal factors associated with satisfaction, such as; success in achieving something in career,
the recognition obtained from institutions, the nature of the work performed, in career advancement, and
the professional and intellectual growth experienced by someone. According to Kinman et al. (2001), the
elements of intrinsic motivation are: (1) interest on the job; (2) The desire to evolve; (3) Happy at
work; (4) Enjoy the work. Conversely, sometimes employees are not satisfied with their work. The
emergence of dissatisfaction is generally attributed to extrinsic factors or external source such as
organizational policies, administrative services, and supervision of the supervisor, relationships with co-
workers, working conditions, salary earned, and peace in the workplace (Cooke, 1999). According
Kinman et al. (2001), the elements of extrinsic motivation including: (1) competition, (2) evaluation, (3)
status, (4) Money and other awards, (5) Avoiding punishment from managers. Motivation of someone is
originated from the need, desire and urge to act to achieve the needs and goals. This indicates how strong
encouragement, effort, intensity, and willingness to sacrifice for the attainment of the objectives are. In
this case the stronger the encouragement or motivation, the higher the
Organizational Citizenship Behavior (OCB) will be. The research by David J. (2000) explains that there is a
positive influence of work motivation toward Organizational Citizenship Behavior (OCB). Furthermore,
the research conducted by Kim Sangmook (2006) finds that the higher the perceived motivation of
employees is, the higher the level of Organizational Citizenship Behavior (OCB) will be. Therefore, the
hypothesis proposed is as follows:
H2: There is an effect of work motivation on organizational citizenship behavior (OCB).
Transactional Leadership Style: According to Yukl (2000) transactional leadership is an affecting
process that emphasizes on the relationship of transactions, bargaining and economic exchanges between
leaders and employees. A transactional leader puts more emphasis on rewards to motivate
employees. Gibson et al. (1996) defines transactional leadership as the ability to identify the leader and
the employees’ desire to help to achieve a higher level of achievement by providing a satisfying reward.
According to Burns (1978), on transactional leadership, the relationship between leaders and employees
are based on a series of bargaining between them. Clearly, the characteristics of transactional leadership
are contingent reward and management by - exception. Contingent reward could be in the form giving
reward of leadership because the task has been carried out; this reward is usually in the form of a bonus
or increase in income or facilities. It is intended to reward and praise for the employees to his efforts. In
addition, leaders usually have transactions with employees by focusing on aspects of the mistakes made
by them, delaying decisions or avoiding issues that may influence the occurrence of errors. Meanwhile,
management by - exception emphasizes on management function as a control. Leaders only see and
evaluate whether there is an error to be corrected, and also, provide intervention if the standard is not
met by subordinates (employees). Practically, in management by - exception, leaders delegate
responsibility to subordinates and follow up by giving whether subordinates can be commended for
encouragement and also the prize if the report made by them meets the standards. According
Bycio et al. (1995), transactional leadership is a leadership style in which a leader focuses on attention to
interpersonal transactions between leaders and employees involving the exchange relationship. The
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exchange is based on an agreement on the classification of targets, work standards, assignments, and
awards.
In transactional leadership leader and employees act as a principal bargaining chip in a process that
involves the exchange of rewards and punishment. The main idea of transactional approach is the
presence of an exchange; the leader wishes to what the followers possess and leaders, in return, will give
what the followers want. Thus, transactional leaders motivate subordinates to act in accordance with
expectations through the establishment of reward and punishment. Transactional leadership has three
dimensions which include: (a) Remuneration (contingent reward); (b) Active, leaders supervise and look
for irregularities on various rules and standards, and take corrective action; (C) Passive, leader intervenes
only when the standard is not achieved (Pounder, 2001). According to Podsakoff et al. (1984), the
components of transactional leadership are contingent reward, as an example, a leader praises employees
when they do a better job at above average, and, contingent punishment, for example, leader shows
displeasure when employees work under the established standards. Gillespie, Nicole A; Mann, Leon
(2004) find that transactional leadership is positively related to trust. Rubin, S. et al. (2010) finds that
contingent reward is significant and positive on trust but contingent punishment is not. Therefore, the
hypothesis proposed is as follows:
H3: There is an effect of transactional leadership style on trust.
According to Bass (1985, 1990), a transactional leader motivates employees by way of
exchange remuneration for work or task which has been implemented, for example, with awards, raise
wages to the employees who do high performance. But otherwise, he will give a penalty (punishment) to
employees who have underperformance or are in below the target. According to Bass (1990)
and Hughes, et al. (2002) contingent reward (Transactional leadership), will affect the motivation of
employees and influence the performance of and employees satisfaction. Exchange
about contingent reward is based on agreement on the tasks that must be implemented. Transactional
leader always encourage his employees to achieve a level of performance that has been agreed. Therefore
the hypothesis proposed is as the following:
H4: There is an effect of transactional leadership style on work motivation.
Finding by Vigoda (2006) shows that there is a significant and negative correlation of transactional
leadership and Organizational Citizenship Behavior (OCB), there is a significant and positive correlation of
transformational leadership with Organizational Citizenship Behavior (OCB). Moreover, a research by
Rubin, S. et al. (2010) figures out that the transactional leadership has a significant and positive
correlation with Organizational Citizenship Behavior (OCB). Khan, Naveed R et al. (2013) concludes that
the transactional leadership has a significant and positive correlation on Organizational Citizenship
Behavior (OCB). However, the findings by Ali et al. (2013) concludes that
the contingent reward and management by - exception active (transactional leadership dimensions) has a
significant and positive correlation with Organizational Citizenship Behavior (OCB), but management by -
exception passive (transactional leadership dimensions) has no significant correlation with the
dimensions of Organizational Citizenship Behavior (OCB). Therefore, the next hypothesis proposed is as
follows:
H 5: There is an effect of transactional leadership style on organizational citizenship
behavior (OCB).
3. Methodology
This research is an explanatory quantitative approach, because this research describes the correlations of
the variables through hypothesis testing and, generally, the data is presented in the form of figures and
calculated by statistical tests. The population in this research is all high school teachers in the State High
School of Wawotobi, consisting of 82 respondents. In details, 54 respondents are from SMA Negeri 1
Wawotobi and 28 respondents are from SMAN 2 Wawotobi.
Research Variables and Measurement: Independent variable in this research is transactional
leadership style (X1) with indicators: 1) rewards (contingent reward); 2) punishment (contingent
punishment); 3) supervision; 4) take corrective action; 5) intervention. Measurements are accomplished
by the use of Likert scale of 1-5 where 1 shows strongly disagree attribute levels, while 5 shows strongly
agree intervals and is given a score or value. The intervening variable in this research is the trust (Y1)
with indicators of: 1) the delegation of authority; 2) working collaboratively; 3) open to change; 4) free to
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express ideas. Measurements are accomplished with the use of Likert scale of 1-5 where 1 shows strongly
disagree attribute levels, while 5 shows strongly agree intervals and is given a score or value. The next
intervening variable in this research is the work motivation (Y2) with indicators of: 1) interest in the
work; 2) the desire to evolve; 3) happy on the job; 4) enjoy the work. Measurements are accomplished
with the use of Likert scale of 1-5 where 1 shows strongly disagree attribute levels, while 5 shows
strongly agree intervals and is given a score or value. The dependent variable in this research is
organizational citizenship behavior (Y 3) with indicators
of: 1) sportsmanship; 2) civic virtue; 3) conscientiousnees; 4) altruism. Measurements are accomplished
with the use of Likert scale of 1-5 where 1 shows strongly disagree attribute levels, while 5 shows
strongly agree intervals and is given a score or value.
Data Analysis: The analysis technique in this research uses the concept of Structural Equation Model
(SEM) with a Partial Least Square (PLS) program. Analysis of Partial Least Square (PLS) is a powerful
analytical method because it does not have to assume the data with a particular measurement, it can be
applied to all data scale, and it does not require a lot of assumptions and sample size. This research uses
Smart PLS program assistance (Ghozali, 2011).
4. Findings
The results of the PLS analysis in this research include confirmatory factor analysis for construct with the
indicator of reflection to examine the validity of each indicator and the reliability of the construct in
which the validity of the criteria are measured by Convergent and Discriminant Validity. While, reliability
construct is measured by the Composite Reliability. In details, it is figured out below:
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Test on Validity
Table 1: Results For Outer Loadings
Indicator
Loading Value
T Statistics
Criteria
Transactional Leadership Style
X.1.1
0.760
11.191
Valid
X.1.2
0.699
5.717
Valid
X.1.3
0.782
9.296
Valid
X.1.4
0.678
8.109
Valid
X.1. 5
0.636
5.950
Valid
Trust
Y.1.1
0.543
3.186
Valid
Y.1.2
0.714
6.576
Valid
Y.1.3
0.690
6.190
Valid
Y.1.4
0.647
5.148
Valid
Work Motivation
Y. 2 .1
0.768
10.574
Valid
Y. 2 .2
0.605
5.101
Valid
Y. 2 .3
0.809
12.080
Valid
Y. 2 .4
0.668
5.128
Valid
Organizational Citizenship Behavior
(OCB)
Y. 3 .1
0.656
5.332
Valid
Y. 3 .2
0.713
7.958
Valid
Y. 3 .3
0.691
6.849
Valid
Y. 3 .4
0.786
18.382
Valid
Source: PLS Data Output, 2014
Test on Reliability
Table 2: Composite Reliability
Variables
Composite Reliability
Criteria
Transactional Leadership Style
0.837
0.70
Trust
0.745
0.70
Work Motivation
0.807
0.70
Organizational Citizenship Behavior (OCB)
0.805
0.70
Source: PLS data processed, 2014
Test on Structural Model (Inner Model)
Table 3: Result for the inner weight
Original sample
estimate
Mean of
subsamples
Standard
deviation
T-
Statistic
Transactional -> Trust
0.539
0.546
0.093
5.785
Transactional -> Work
Motivation
0.331
0.344
0.101
3.280
Transactional -> OCB
0.087
0.074
0.129
0.673
Trust -> OCB
0.483
0.476
0.119
4.056
Work motivation -> OCB
0.185
0.208
0.090
2.051
Source: Data processed of PLS, 2014
Table 4: R. Square
R-Square
Transactional Leadership Style
Trust
0.291
Work Motivation
0.110
Organizational Citizenship Behavior (OCB)
0.391
Source: Data processed of PLS, 2014
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Discussion
Hypothesis I: Table 3 shows that the correlation of the variables of trust and organizational citizenship
behavior (OCB) is explained by the value of t statistics of 4.056. This value is greater than t-table of 1.99
(α=0.05 and df =78) or t-statistic (4.056)>T-table (1.99). The hypothesis test result shows that the
correlation of trust and organizational citizenship behavior (OCB) is significant. The first hypothesis
proposed in this research is "there is an effect of trust on the organizational citizenship behavior (OCB)".
Therefore, this hypothesis is supported. The value of the original sample estimate shows a positive value
of 0.483 which indicates a positive direction of the correlation of trust and organizational citizenship
behavior (OCB) with a coefficient level of 48.3%. Based on the loading factor as found in Table 1, it shows
that the highest loading factor values for the variables is in the second indicator of trust that is on
working together collaboratively by 0.714. In addition, the variable of organizational citizenship
behavior (OCB) has the highest loading factor values on the fourth indicator that is altruism by 0.786. The
highest loading factor value of each indicator show how strong the correlation of indicators to variable
is. The meaning of that value is if a teacher does a collaborative cooperation with other colleagues who
then will exhibit more help to fellow teachers voluntarily and outside duty and obligation, so that,
Teaching and learning process effectiveness in school can run well. The results of this research support
the previous research conducted by Wong et al. (2006) and Rubin, S. et al. (2010) who conduct a research
on the correlation of trust and organizational citizenship behavior (OCB) which states that the trust is
positively related to organizational citizenship behavior (OCB).
Hypothesis II: Table 3 shows that the correlation of the variables of work motivation and organizational
citizenship behavior (OCB) has the value of t statistics of 2.051. This value is greater than t table 1.99
(α=0.05 and df=78) or t-statistic (2.051)>T-table (1.99). Hypothesis test result shows that the correlation
of work motivation on the organizational citizenship behavior (OCB) is significant. The second hypothesis
proposed in this research is "there is an effect of motivation to work on organizational citizenship
behavior (OCB)". Therefore, this hypothesis is supported. The value of the original sample Estimate shows
a positive value of 0.185 which indicates the positive direction of the correlation of work motivation
and organizational citizenship behavior (OCB) with coefficient of 18.5%. Based on the loading factor as
found in Table 1, it shows that the highest loading factor values for the variables of work motivation is in
the third indicator that is pleased to work at 0.809. As for the variable of organizational citizenship
behavior (OCB), the highest loading factor value is on the fourth indicator that is altruism by 0.786. The
highest loading factor value of each of indicator shows how strong the correlation of indicators and
variable is. The meaning of the value is if an employee is happy in a job, he will be happy to help other
fellow teachers voluntarily although not the duties and obligations. The results of this research supports
the previous research conducted by David J (2000), it is found that there is a positive influence of work
motivation on Organizational Citizenship Behavior (OCB). Moreover, it also strengthens the research
conducted by Kim Sangmook (2006) which finds that the higher the perceived motivation of employees
is, the higher the level of Organizational Citizenship Behavior (OCB) will be.
Hypothesis III: Table 3 shows that the correlation of transactional leadership style and trust variable has
t-statistics value about 5.785.The value is greater than t table 1.99 (α=0.05 and df=78) or t-statistics
(5.785)> t-table (1.99). The result of hypothesis test shows that the correlation of transactional
leadership style toward trust has a significant effect. The third hypothesis proposed in this research is
“there is an effect of transactional leadership style toward trust”. Therefore, this hypothesis is supported.
Original sample estimate value shows positive value of 0.539 that indicates to have positive direction of
the correlation of transactional leadership style and trust with coefficient of 53.9%. Based on loading
factor value as elaborated on table 1, the value indicates that the highest loading factor value for variable
of transactional leadership style can be found on third indicator that is supervision at 0.782. While the
highest loading factor value of trust variable can be found on second indicator that is work collectively at
0.714. The highest loading factor value of each indicator indicates how strong the correlation of those two
indicators toward variable is. It means, if a leader controls employees’ duties, the leader will strengthen
employees to collaborate each other for achieving goals targeted. This research result supports the
previous one conducted by Gillespie, Nicole A; Mann, Leon (2004). They discover that transactional
leadership has positive correlation on trust. Besides, it strengthens Rubin, S. et al.’s research (2010)
which finds that contingent reward is significant and positive toward trust. But, contingent punishment is
not significant on trust.
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Hypothesis IV: Table 3 indicates that the correlation of transactional leadership style and work
motivation has t statistics value of 3.280. This value is greater than t table1.99 (α=0.05 and df=78) or t-
statistic (3.280)> t-table (1.99). This hypothesis test results that transactional leadership style and work
motivation has significant effect. Therefore, Fourth hypothesis proposed in this research that “there is an
effect of transactional leadership style toward career motivation” is supported. Original sample estimate
value indicates positive value of 0.331 which directs to positive correlation of transactional leadership
style and work motivation with coefficient of 33.1%. Based on loading factor value as elaborated on table
1, the highest loading factor value for variable of transactional leadership style is on third indicator,
controlling at 0.782. Meanwhile, for work motivation variable, it has highest loading factor value on third
indicator, pleased to work at 0.809. The highest loading factor value of each indicator indicates how
strong the correlation of those indicators and variable is. It means, whether principle as leader controls
duties of teachers, the principle will improve motivation of teachers of state senior high school in
Wawotobi, so that they will feel fun for doing school duties assigned by their principle. The principle
always motivates teaching staffs to achieve the goals by describing their roles and duties. Giving rewards
to motivate teachers is really needed. As leader, a principle should be able to identify what teachers want
and how to help them to improve their achievement to be better by giving appropriate rewards. Besides
that, leader communicates to his employees by focusing on their mistakes, declining decision, or eluding
the possible causes of the mistakes. Moreover, leader delegates responsibility to employees in order to
take action whether they can get rewards or punishment after finishing their duties. Thereby, principle
should motivate teachers in order to work well. This research results strengthens the previous one
conducted by Bass (1990) and Hughes, et al.(2002) which describes that contingent reward (transactional
leadership)will affect employee’s motivation. Then, it will affect their work Pleasants.
Hypothesis V: Table 3 indicates that the correlation of transactional leadership style and organizational
citizenship behavior (OCB) has t-statistic value of 0.673. This value is less than t table 1.99 (α=0.05 and
df=78) or t-statistic (0.673) < t-table (1.99). The hypothesis test results that transactional leadership style
and organizational citizenship behavior (OCB) do not have any significant effect. Therefore, the fifth
hypothesis proposed in this research that “there is an effect of transactional leadership style toward
organizational citizenship behavior (OCB)” is not supported. Original sample estimate value shows
positive value of 0.087 that indicates a positive correlation of transactional leadership style and
organizational citizenship behavior (OCB) with coefficient of 8.7%. This research result contradicts with
the previous one conducted by Khan, Naveed R. et al. (2013) which concludes that transactional
leadership has positive correlation on Organizational Citizenship Behavior (OCB). Besides that, it
contradicts with previous research conducted by Vigoda (2006) which concludes that there is a negative
correlation of transactional leadership and Organizational Citizenship Behavior (OCB). Based on loading
factor value elaborated on table 1, it indicates that the lowest value of loading factor for variable of
transactional leadership style can be found on fourth indicator, doing intervention at 0.636. While for
variable of organizational citizenship behavior (OCB), it has the lowest loading factor value on first
indicator, Sportsmanship of 0.656. The lowest loading factor value of each indicator indicates that
principle still does not believe employees’ (teachers of state senior high school in Wawotobi) work result.
It indicates that the principle still needs intervention to prepare teaching administration besides learning
activity conducted by teachers. When principle casts a lot with teachers to finish teaching complements,
teachers will feel their sincerity is reduced. Rewards (contingent reward), Punishment (contingent
punishment), monitoring, and correction of principle for teachers who cannot do their duties well do not
affect their organizational citizenship behavior (OCB) improvement. Thereby, teachers of state senior
high school in Wawotobi must do their duties and help their colleagues’ works although they are not their
main responsibility. They do the duties merely for their students in order that learning process can run
effectively.
5. Conclusion
To answer problems in this research as elaborated above, the results of this research can be concluded as
follow:
1. There is an effect of trust on organizational citizenship behavior (OCB). It means that the better or
the higher the trust is, the better or the higher the organizational citizenship behavior (OCB) of
teachers of state senior high school in Wawotobi will be.
2. There is an effect of work motivation on organizational citizenship behavior (OCB).It means that
the better or the higher the work motivation is, the better or the higher the organizational
citizenship behavior (OCB) of teachers of state senior high school in Wawotobi will be.
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3. There is an effect of transactional leadership style on trust. It means that the better or the higher
the transactional leadership style is, the better or the higher the trust of teachers of state senior
high school in Wawotobi will be.
4. There is an effect of transactional leadership style on work motivation. It means that the better or
the higher the transactional leadership style is, the better or the higher the work motivation of
teachers of state senior high school in Wawotobi will be.
5. There is no effect of transactional leadership style and organizational citizenship behavior (OCB). It
means that the better or the higher the transactional leadership style is, it does not improve
organizational citizenship behavior (OCB) of teachers of state senior high school in Wawotobi.
Managerial implication: Managerial implications given in this research are:
1. Transactional leadership side needs to be improved through giving intervention to teachers who
cannot finish their duties well in order that learning process can run effectively.
2. Trust needs to be improved in order that teachers are facilitated to collaborate with colleagues, so
that, their duties can be well-finished.
3. Work motivation of teachers needs to be improved to develop their qualities to achieve better
education qualities by feeling fun with their duties.
4. Organizational citizenship behavior (OCB) needs to improve sportsmanship through altruism, so
that, attitude of teachers gets changed to be better.
Limitations of Research
1. What respondents have answered on open questions is not suitable with real condition.
2. Transactional leadership style is not significant to organizational citizenship behavior (OCB).
Therefore, the next research related to this research results is needed.
Future Research Agenda
1. Based on R-square value of each construct, the next research should add other variables such as
professionalism and Islamic career attitude.
2. There are limited answers given by respondents through questionnaire in this research. For the
next research is suggested to use qualitative approach through direct interview to respondents in
order to get more information in the field of research. This research also can be conducted in other
region.
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Entrepreneurial and Relationship Marketing toward Innovation and the Impact on
Business Performance on Small Industries of Wearing Apparel in West Java
Sambudi Hamali, Yuyus Suryana, Nury Effendi, Yudi Azis
Bina Nusantara University, Jakarta, Indonesia
University of Padjadjaran, Bandung, Indonesia
sambudihamali@gmail.com
Abstract: The purpose of this paper is to examine the concept of entrepreneurial marketing, relationship
marketing, innovation, and to propose a conceptual model of entrepreneurial and relationship marketing
to innovation and the impact on business performance of wearing apparel small industy in West Java. The
approach of this paper is a dimensional approach, conducting an assessment of the dimensions of the
variables contained in entrepreneurial marketing, relationship marketing and innovation. A conceptual
model of the entrepreneurial and relationship marketing created increasing innovations, and the impact
on business performance. Academic implications of this paper in exploring the concept of entrepreneurial
and relationship marketing increasing innovation and their impact on business performance of wearing
apparel small industy in West Java. The practical implication will give some ideas and practical
suggestions in the decision to implement its entrepreneurial marketing, relationship marketing and
innovation. Original contribution of this paper is the establishment of a conceptual model of the
dimensions of entrepreneurial and relationship marketing can increase innovation, and the types of
innovations that can be applicable in increasing business performance of wearing apparel small industy
in West Java.
Keywords: Entrepreneurial marketing, Relationship marketing, Innovation, Business performance, Wearing
apparel small industy
1. Introduction
Background: Micro and Small Industry (MSI) is an important and strategic strengths to accelerate
regional development. This sector is shown to contribute significantly to the GDP (Gross Domestic
Product) and employment in Indonesia. In addition, MSI has an important position in terms of the
distribution of public welfare in the region and reduce the income gap. Results of Micro and Small
Industry Survey in 2014 nationally, there are 354.5064 micro and small industries, including wearing
apparel industry are 354 583 (10:12%) (Sub Direktorat Statistik Industri Kecil dan Rumah Tangga, 2015).
The wearing apparel industry, as part of fashion industry, is the leading industry in West Java as stated by
Regulation of Ministry of Industry No. 139/M-IND/PER/12/2011. Based on data from Badan Pusat
Statistik (BPS), performance on wearing apparel industries in West Java as a follows.
Table 1.1: Total Business Unit, Employment and Value Added (Market Price)
Wearing Apparel Industries in West Java Year 2007 - 2011
Year
Business
Unit
% Growth
Employment
%
Growth
Value Added (Market
Price) (Millions Rp)
%
Growth
2007
732
222.528
7.561.549
2008
663
-9,4%
201.140
-9,6%
7.052.472
-6,7%
2009
619
-6,6%
209.178
4,0%
12.201.089
73,0%
2010
755
22,0%
249.601
19,3%
17.065.282
39,9%
2011
722
-4,4%
273.394
9,5%
17.943.571
5,1%
Source: Jawa Barat in Figures Year 2012, Year 2013 and Year 2014 (Processed Data)
Table 1.2: Value of Goods Produced Wearing Apparel Industries in Indonesia and West Java
Year 2008 – 2011
Year
Value of goods produced
Market Share
Indonesia (Billion Rp)
Jabar (Billion Rp)
2008
35.779
9.965
27,85%
2009
36.292
12.271
33,81%
2010
42.684
21.067
49,36%
2011
47.985
22.987
47,90%
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Source: Indonesian Statistics Year 2011, Year 2012 and Year 2014
Jawa Barat in Figures Year 2012, Year 2013 and Year 2014 (Processed Data)
From these table shows that, the growth performance of the wearing apparel industries in West Java
experienced fluctuating from year to year, both in terms of number of business units, total employment,
value-added and market share. Based on preliminary survey, constraints in wearing apparel small
industry in West Java consist of capital, marketing and high costs in production. Marketing process in
small and medium enterprises is characterized by haphazard, informal, loose, unstructured, spontaneous,
reactive (Gilmore et al., 2001:6), more creative, alternative, instinctive actions (O’Dwyer et al (2009) in
Resnick et al., 2011:38). According to Egan (2011: 90) production cost constraints can be overcome with
relationship marketing (RM). Moreover, innovation can also reduce the cost of production units (OECD
Oslo Manual, 2005: 19). While marketing constraints on small and medium enterprises can be overcome
with an entrepreneurial approach to marketing called entrepreneurial marketing (EM) (Kraus, et al,
2010: 20). According Chaston and Mangles (1999: 36) entrepreneurial-relationship style firm that
operates in a market where customers working in partnership with suppliers to develop new products or
innovative services.
Research Zontanos & Anderson (2004: 228), shows that the EM has relationship with RM, they create
value and the effect on innovation. The combination of entrepreneurial and RM, making SMEs can assess
opportunities and develop, innovative products / services that will allow them to sustain their continued
growth through, in essence, delivering value added services. (Reynolds et. Al, 2002: 19). Entrepreneurial
– relationship style firm reach sales growth rate of 5.6 and achieve higher revenue growth (Chaston and
Mangles, 1999: 38). EM, RM and innovation have an influence on business performance (Kocak &
Abimbola (2009:448), Becherer et al (2012:8-9), Sin et.al (2002:669-670), Gummesson (2008:258), Yau
et al (2000:1113), Tse et al. (2004:1167), Lin, Peng, dan Kao (2008:761-762), Baker & Sinkula
(2009:454), Gunday et al (2011:29), Hassan et al. (2013:257)). EM is a concept that was developed nearly
thirty years ago, but unfortunately there is no unifying theory. There is no generally accepted definition
for EM (IONITĂ, 2012:132) and no generally accepted quantitative measurement (dimension), e.g. Bjerke
and Hultman (2002:186) four of dimension, Morris et al. (2002:5) seven of dimension, Jones and Rowley
(2009:9) fifteen of dimension, Schmid (2012:3) seven of dimension and Mort et al. (2012:558) four of
dimension. From this, there are still gaps for further studies of EM, in accordance with the
recommendations given by Uslay & Teach (2008:73) about the priority of the research on EM research
priority at the primary level associated with the development of the general theory (defining and capture
key constructs of EM).
Similar with EM, recent studies of RM have shown that there is heterogeneity in the literature regarding
the definition of RM and identification of its components, therefore more research is needed in this area
(Sohail, 2012: 236). Moreover there is no generally accepted measurement dimension for RM (Egan
(2011: 34). From the description, there are still gaps for further studies of RM, as according to Egan
(2011: 34) RM can be investigated further to establish the best definition of a suitable and encouraging
marketers to constantly reviewing their business strategies in the light of changing relationships.
Adoption cumulative types of innovation from time to time have positively affect organizational
performance (Damanpour, et al, 2009: 667). However, research Varis and Littunen (2010: 128) indicates
that none of the types of innovation were found to have a positive relationship with the profitability of the
company. In addition, the results of the study Lin and Chen (2007: 115) shows that innovation has a weak
relationship with the sales company.
Formulation of the Problem: Based on the description above, the formulation of the problem in this
research is
1. Which dimensions of any of entrepreneurial marketing, relationship marketing and innovation can be
applied to the small industries of wearing apparel in West Java,
2. How does the conceptual model of entrepreneurial and relationship marketing toward innovation and
their impact on business performance on small industries of wearing apparel in West Java.
Research Purposes: This research aims to:
1. Knowing the dimensions of entrepreneurial marketing, relationship marketing and innovation can be
applied to the small industries of wearing apparel in West Java,
2. Propose a conceptual model of entrepreneurial and relationship marketing toward innovation and its
impact on business performance on small industries of wearing apparel in West Java.
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2. Literature Review
Entrepreneurial Marketing: Entrepreneurial marketing (EM) is merging the two disciplines, marketing
and entrepreneurship, this case arises because of an awareness of the importance of entrepreneurship
and innovation to marketing, and marketing for successful entrepreneurship. The emphasis is adapting
form of marketing that are suitable for small and medium enterprises (SMEs) and recognizing the
important role of entrepreneurs in any marketing activities (Stokes, 2000:47). There are four different
approaches to defining the EM (IONITĂ, 2012:146), first focused on the commonalties between
“marketing and entrepreneurship”, is “EM is proactive identification and exploitation of opportunities for
acquiring and retaining profitable customers through innovative approaches to risk management, resource
leveraging and value creation." (Morris et al., 2002:5). The second approach is “entrepreneurship in
marketing”, is “EM is distinguished by a set of strategies for opportunity creation, customer intimacy based
innovative products, adaptive resource enhancement and legitimacy for the emerging firm and its products.”
(Mort et al., 2012:558) and definition of Bjerke dan Hultman (2002:15) is “EM is marketing of small firms
growing through entrepreneurship.” The third approach is “marketing in entrepreneurship”,
“EM is an organizational function and a set of processes for creating, communicating and delivering value to
customers and for managing customer relationships in ways that benefit the organization and its
stakeholders, and that is characterized by innovativeness, risk-taking, proactiveness, and may be performed
without resources currently controlled.” (Kraus et al., 2010:28)
And the fourth approach is the combination of marketing and entrepreneurship creates something
distinctive, something new, is “EM as a set of processes of creating, communicating and delivering value,
guided by effectual logic and used in highly uncertain business environments.” (IONITĂ, 2012:147). Morris
et al. (2002:5) develop seven underlying dimensions of EM: proactiveness, calculated risk-taking,
innovativeness, opportunity focus, resource leveraging, costumer intensity, and value creation.
Dimensions of Morris, et al. is supported by researchers, including Miles & Darroch (2006:490), Becherer
et al. (2008:45-47), Morrish & Deacon (2011:117), Hacioglua et al. (2012:874), Becherer et al. (2012:8-9),
Al-Manasra et al. (2013:92), Rezvani et al. (2013:299-301). Mort et al., (2012:558) identify the four key
strategies of EM: opportunity creation; customer intimacy based innovative products; resource
enhancement; and legitimacy. Overall, they find that building legitimacy is a fundamental EM strategy and
as a critical dimension of EM bringing through enhanced performance outcomes. Legitimacy is gaining
acceptance and trust. In this paper, we adopt dimensions of Morris et al. (2002) and Mort et al. (2012),
because this is relating to the formulation of the problem and the object of this study
Relationship Marketing: Relationship marketing (RM) is one of the oldest approaches to marketing, and
is a broad topic, and many researchers have approached it from different perspectives (Gilaninia et al,
2011:788). According to Sin et al (2002: 656-657) RM as a paradigm that emerged in marketing will
continue to grow until the key dimensions have been identified and operationalized. Harker (1999: 14)
conducted a review of the definition of RM, this is done to find out what the researchers perceived as a
key conceptualization of their definition. From the results of the review, Harker divide seven "conceptual
category" derived from RM literature, which is the basis for defining the relationship marketing. There
are different approaches to defining the RM. “RM refers to all marketing activities directed toward
establishing, developing, and maintaining successful relational exchanges” (Morgan & Hunt, 1994:22).
From their research that the Commitment and Trust in addition to an important variable in the
relationship marketing but also a key mediating variables between the five variables predecessor:
Relationship Termination Costs, Relationship Benefits, Shared Values, Communication, and Opportunistic
Behavior. According to Sin et al (2002:657-658) “RM is viewed as a philosophy of doing business
successfully or as a distinct organizational culture/value that puts the buyer-seller relationship at the centre
of the firm’s strategic or operational thinking.” Definition Sin et al. further emphasize the relationship
marketing as a philosophy and culture of the organization, it is not just activities like Morgan & Hunt
mentioned. Dimensions of Sin, et al (2002: 658) base on dimension of Callaghan et al.(1995); Morgan and
Hunt (1994); Wilson (1995) and Yau et al. (2000), is called "relationship marketing orientation (RMO)",
where the RMO is a multi-dimensional construct that contains six components: trust, bonding,
communication, shared values, empathy and reciprocity. Dimensions of Sin, et al. (2002) is supported by
Sin, et al. (2005: 187) and Hau & Ngo (2012: 224).
Thorough definition of relationship marketing by Grönroos (2004: 101) “the process of identifying and
establishing, maintaining, and enhancing, and when necessary also terminating relationships with
customers and other stakeholders, at a profit, so that the objectives of all parties involved are met; and this is
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done by a mutual exchange and fulfillment of promises.” Definition of Grönroos (2004) are common to the
entire marketing. He gradually expand the definition of which includes the relationship to the many
stakeholders, governments and competitors. Even he also points to the need to break away in the
relationship and the results achieved through fulfillment and promised reciprocal exchange. According to
Gummesson (2008: 5) relationship marketing is "Interaction in networks of relationships.” Furthermore,
the concept into a Total Marketing kerelasian (Gummesson, 2008: 40) “Interaction in networks of
relationships, recognizing that marketing is embedded in the total management of the networks of the
selling organization, and its nano, market and mega relationships. It is directed to long-term win–win
relationships with individual customers, and value is co-created between the parties involved. It transcends
the boundaries between specialist functions and disciplines.” Definition Gummesson (2008) broadens the
30R approach, the definition does not only rely on the relationship, but further to the network and
mutually beneficial interaction, value added creation among actors (customers and other stakeholders).
Base on the definitions above, relating to the formulation of the problem and the object of this paper, we
adopt dimension of Morgan and Hunt (1994) and Sin, et al (2002).
Innovation: Innovation is the lifeblood of the organization and determine in a company. The company's
ability to innovate can help dominate the market today or develop new markets, which contribute to
sustainable industry leadership, so that innovation is an important strategy for the company (Datta, et al,
2013). Traditional arguments about innovation has centered around two schools of thought, i.e Social
deterministic schools and Individualistic school, Whereas what ‘drives’ innovation has tended to divide
into two schools of thought: the market-based view and the resource-based view (Trott, 2005: 21). Varis
& Littunen (2010: 130) divides the two types of innovation (1) Based on the object changes, innovation
consists of product innovation, process innovation, market innovation and organizational innovation, and
(2) Based on the extent of change, which is on basis of their “newness or radicalness”. Peter F. Drucker
(2006) defines innovation “as changing the value and satisfaction obtained from resources by the
consumer.” According to OECD Oslo Manual (2005:46) “innovation is the implementation of a new or
significantly improved product (good or service), or process, a new marketing method, or a new
organisational method in business practices, workplace organisation or external relations.” There are
four dimensions of innovation is product innovation, process innovation, marketing innovation and
organizational innovation (OECD Oslo Manual, 2005: 47). This was reiterated in the OECD Innovation
Strategy (OECD, 2010: 20). The dimensions of the OECD Oslo Manual was supported by Hassan, et al
(2013: 252) and Gunday, et al (2011: 18). Their research shown an effect of inovation on the performance
of marketing innovation and financial performance. In this paper we adopt the definition and dimensions
of innovation suggested by OECD (2005).
Business Performance: The concept of business performance (Venkatraman & Ramanujam, 1986: 803-
804) is narrowly centered on the use of simple outcome based on financial indicators that are assumed to
reflect the fulfillment of the economic goals of the firm, this concept refers to the financial performance
such as market growth, profitability, earnings per share. While the broad concept of business
performance, in addition to financial performance indicators also include performance indicators of
operational (i.e., nonfinancial). Best (2009: 66) classifies performance into two groups: internal
performance (financial) and external performance (marketing).
Linking between Variables: The effect of EM on innovation and business performance (Kocak &
Abimbola (2009), Zontanos & Anderson (2004), Hadiyati (2009:190), Hacioglua, et al (2012), Ndubisi &
Iftikhar (2012:231), Becherer, et al (2012:8-9). The effect of RM on innovation and business performance
(Zontanos & Anderson (2004), Hanna, et al (1995), Sin et.al (2002), Yau et al (2000), Tse et al. (2004),
Hau & Ngo (2012).The effect of innovation on business performance (Lin, Peng, dan Kao (2008), Vincent,
et al. (2004), Hassan, et al (2013: 252) and Gunday, et al (2011: 18)).
Model of Conceptual: Based on discussion above, to face the challenges of marketing, high production
costs and fluctuations in business performance of small apparel industry in West Java, can be overcome
with EM, RM approach and innovation. In this paper, the dimensions of EM are six dimensions of Morris
et al (2002): proactiveness, calculated risk-taking, opportunity focus, resource leveraging, costumer
intensity, and value creation and one dimension of Mort et al (2012), that is legitimacy. The dimensions of
RM are two dimensions of Morgan & Hunt (1994): commitment, and trust, and four dimension of Sin et al
(2002): bonding, communication, reciprocity and empathy. We adopt the dimensions of innovation
suggested by OECD (2005), i.e., product, process, marketing and organizational innovation. Finally, the
dimensions of business performance we adopt Best (2009) : growth in sales volume, customer retention
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(marketing performance) and sales revenue, gross profit percentage, net profit before taxes, Return on
Assets (financial performance). Furthermore, the conceptual model can be seen in the picture below.
Figure 1: Conceptual Model
3. Conclusion and Limitations
Small industrial of wearing apparel in West Java experience fluctuations in business performance, and
constraints in their business, including capital, marketing and high costs in production. Fluctuations in
business performance can be overcome with the entrepreneurial and relationship marketing approach
and innovation. Production cost constraints can be overcome with relationship marketing and innovation.
While marketing constraints can be overcome with an entrepreneurial approach to marketing called
entrepreneurial marketing. Academic implications of this paper in exploring the concept of
entrepreneurial and relationship marketing increasing innovation and their impact on business
performance of wearing apparel small industy in West Java. The practical implication will give some ideas
and practical suggestions in the decision to implement its entrepreneurial marketing, relationship
marketing and innovation. This paper is limited to conceptual models, it is necessary to quantitatively test
in order to know the extent to which the strength of the model established.
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Credit Risk Influence on Systemic Risk in Indonesia Banking System
Alfiana, Erni Tisnawati Sule, Sutisna, Dian Masyita
Padjadjaran University, Bandung, Indonesia
alfi.ana65@yahoo.co.id
Abstract: Credit risk, inviting bank failure (Gonzalez and Hermosillo, 1999), is a source of financial
instability (Hauban, Kakes and Shinasi, 2004), which is a systemic risk (Kaufman and Scot, 2003; Adrian
and Brunermeir, 2011; ECB, 2010; Billio, Getmansky, Lo and Pelizzon, 2012), however the application
credit risk for systemic risk detection is limited. The purpose of this paper is to determine credit risk
influence on systemic risk with regression. After applying some proxy systemic risk, in the present of/
absence of one month lag, credit risk significantly influences on systemic risk using proxy of (1) ratio of
slowdown in credit to asset growths, (2) credit reduction, (3) asset reduction, (4) ratio of credit to asset
reductions with α = 5% and 10%. In conclusion, credit risk influences on systemic risk of 4,02% - 14,88%
in Indonesian Banking System 2007-2014, while other variables influence the rest. The paper expectedly
contributes to bankers in Indonesian banks and central bank in managing credit risk in order to reduce
systemic risk.
Keywords: Financial Stability, Systemic Risk, Credit Risk, Credit Reduction, Asset reduction
1. Introduction
Financial crisis of 2007-2009 has created renewed interest in systemic risk (Billio, Getmansky, Lo and
Pelizzon, 2011), which had been underestimated across the board. We were faced with the unthinkable
when a number of very large institutions failed, despite their previous reputation for balance sheet
strength and leadership in risk management (Caruana, 2010). Markeloff, Warner and Wollin (2012)
suggest the annual output of researcher publication showing focus and attention to systemic risk topic
(see figure 1).
Figure 1: The Annual Output of Publication in The Field of Systemic Risk to The Financial System
for The Period 1998-2011
Publication
year
Source : Markeloff, Warner and Wollin (2012)
Figure 2 : Frequency of Banking Crises
Source : Laeven and Valencia (2012,2013)
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Laeven and Valencia (2012,2013) exhibit frequency of banking crises 1970-2011 (see figure 2) and table
1 show banking crisis outcome (1970-2011). Indonesia has more serious problem than other countries,
because it ranks number 1 of 137 countries in a fiscal cost, number 8 in an increased public debt, and
number 16 in an output loss. Thus, it is reasonable to study systemic risk in Indonesia banking.
Table 1 : Banking Crises Outcomes (1970-2011)
Country
Start
End
Output
loss
Fiscal
Cost
Peak
Liquidity
Liquidity
Support
Peak
NPLs
Increase
in public
debt
Monetary
expansion
Indonesia
1997
2001
69.0
56.8
23.1
17,2
32.5
67.6
4.5
All
2 Year
23.0
6.8
20.1
9.6
25.0
12.1
1.7
Advanced
3 Year
32.9
3.8
11.5
5.7
4.0
21.4
8.3
Emerging
2 Year
26.0
10.0
22.3
11.1
30.0
9.1
1.3
Developing
1 Year
1.6
10.0
22.6
12.3
37.5
10.9
1.2
Source : : Laeven and Valencia (2012)
Systemic risk has synonymous terms. Demirguc Kunt and Detra giache (1998) termed banking crisis,
Acharya (2009) termed financial crisis systemic, Gramlich, Miller, Oet and Ong (2010) termed systemic
banking risk, Mums and Bijlsma (2011), Laeven and Valencia (2012), Oet, Blanco, Gramlich and Ong
(2013), Hosni (2014) termed systemic banking crisis, Li, Wang and He (2013), Kane (2002), Acharya
(2009), Busuioc-Witowschi and Cuza(2010) termed banking systemic risk. Systemic risk is not clearly
defined yet and it is an ambiguous term (Kaufman dan Scott 2003). It is non-uniform term (Schuler,
2002). The term has different meaning for different people, because it is difficult to define and quantify
the term (IMF, 2009). To date, no single definition of the term is widely accepted (Billio, Getsmansky, Lo,
dan Pellizon, 2012: 537). It is causing a lot of systemic risk proxy. In previous studies, Gonzales and
Hermosillo (1999), Evan, Leone, Gill and Hilbers (2000), Hauben, Kakes and Schinasi (2004), Schinasi
(2005), Blancher et al (2013) suggested that there is relationship between systemic risk and credit risk,
which is positive (Gonzales and Hermosillo, 1999), negative (Oet, Bianco, Gramlich, Ong, 2013), and both
(Cikak and Slaeck, 2007; Ponghosyan and Cihak, 2009). The purpose of this study is to determine credit
risk influence on systemic risk and direction relationship in Indonesian banking system 2007-2014.
Research object is systemic risk derived from credit risk in Indonesian banking industry. Research period
ranged from 2007 to 2014. This study applied Explanative Research methodology with type study of
verificative research. Proposed problem formulation is as follow:
1. How does credit risk influence systemic risk with proxy of credit reduction? What about one month
lag?
2. How does credit risk influence systemic risk with proxy of asset reduction? What about one month
lag?
3. How does credit risk influence systemic risk with proxy of slowdown in credit growth? What
about one month lag?
4. How does credit risk influence systemic risk with proxy of slowdown in asset growth? What about
one month lag?
5. How does credit risk influence systemic risk with proxy of ratio of credit to asset reduction? What
about one month lag?
6. How does credit risk influence systemic risk with proxy of ratio of slowdown credit to asset
growth? What about one month lag?
This study expectedly contributes to bankers and central bank in managing credit risk in order to reduce
systemic risk because Indonesia does not have the law of financial system safety net to anticipate banking
crisis with systemic impact.
2. Literature Review
There is systemic risk definition related with proxy systemic risk used :
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Table 2 : Definition of Systemic Risk and Its Interpretation
No
Authors
Definition of Systemic Risk
Proxy of
systemic risk
in this study
***
1.
Mishkin (1995)
systemic risk as “the likelihood of a sudden, usually unexpected, event that disrupts
information in financial markets, making them unable to effectively channel funds
to those parties with the most productive investment opportunities”
(1), (3)
2
G10 (2001)
“Systemic financial risk is the risk that an event will trigger a loss of economic value
or confidence in, and attendant increases in uncertainly about, a substantial portion
of the financial system that is serious enough to quite probably have significant
adverse effects on the real economy”
(1), (2), (3),
(4), (5), (6)
3
Kaufman and Scot
(2003)
“Systemic risk refers to the risk or probability of breakdowns in an entire system,
as opposed to breakdowns in individual parts or components, and is evidenced by
comovements (correlation) among most or all the parts. Thus, systemic risk in
banking is evidenced by high correlation and clustering of bank failures in a single
country, in a number of countries, or throughout the world”
(1), (2), (3),
(4), (5), (6)
4
Adrian and
Brunermeir
(2008, 2009)
“the risk that institutional distress spreads widely and distorts the supply of credit
and capital to the real economy”.
(1), (3), (5),
(6)
5
Adrian dan
Brunermeir
(2008, 2011)
“The risk that the intermediation capacity of the entire financial system is impaired,
with potentially adverse consequences for the supply of credit to the real economy”
(1), (3), (5),
(6)
6
Smaghi (2009)
“it is the risk that the failure and distress of a significant part of the financial sector
reduces the availability of credit, which in turn may adversely affect the real
economy”.
(1), (3), (5),
(6)
7
Acharya,
Pedersen,
Philippon, and
Richardson
(2009a)
“As widespread failures of financial institutions or freezing up of capital markets
that can substantially reduce the supply of such critical intermediation”
(1), (3), (5),
(6)
8
Acharya,
Pedersen,
Philippon, and
Richardson
(2009a) in
Eujffinger (2009)
“[The risk] of widespread failures of financial institutions or freezing up of capital
markets that can substantially reduce the supply of such intermediated capital to
the real economy”.
(1), (3), (5),
(6)
9
Acharya,
Pedersen,
Philippon, and
Richardson
(2010a)
“Systemic risk can be broadly thought of as the failure of a significant part of the
financial sector – one large institution or many smaller ones – leading to a
reduction in credit availability that has the potential to adversely affect the real
economy”.
(1), (3), (5),
(6)
10
The Financial
Stability Board
(FSB) and the
International
Monetary Fund
(IMF) (2009)
“a risk of disruption to financial services that (i) is caused by an impairment of all
or parts of the financial system and (ii) has the potential to have serious negative
consequences for the real economy.”
1), (2), (3), (4),
(5 ), (6)
11
Engle,Jondeau,
Rockinger (2012)
“Systemic risk may be defned as the propensity of a fnancial institution to be
undercapitalized when the fnancial system as a whole is undercapitalized”
(1), (2), (3),
(4), (5), (6)
12
Laeven and
Valencia (2008)
“Systemic banking crisis, defined a country’s corporate and financial sectors
experience a large number of defaults and financial institutions and corporations
face great difficulties repaying contracts on time.” As a result, non-performing loans
increase sharply and all or most of the aggregate banking system capital is
exhausted. This situation may be accompanied by depressed asset prices (such as
equity and real estate prices) on the heels of run-ups before the crisis, sharp
increases in real interest rates, and a slowdown or reversal in capital flows. In some
cases, the crisis is triggered by depositor runs on banks, though in most cases it is a
general realization that systemically important financial institutions are in
distress.”
(1), (2), (3),
(4), (5), (6)
Sources : compiled by authors
*** (1) Credit reduction; (2) Asset reduction; (3) credit growth, (4) asset growth ; (5) Ratio of credit to
asset reduction; (6) Ratio of slowdown in credit to asset growth,
In banking terminology, credit risk is defined as the risk that a borrower will default on its debts by failing
to make required loan repayments or otherwise meet its contractual obligations and Bank for
International Settlements (BIS, 1999) stated that Credit risk is most simply defined as the potential that a
bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal
of credit risk management is to maximise a bank's risk-adjusted rate of return by maintaining credit risk
exposure within acceptable parameters. Evans, Leone, Gill and Hilbers (2000) used Non Performing Loan
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for proxy credit risk as micro-prudential indicator. Sudrarajan, Enoch, Jose, Hilber, Krueger, Moretti and
Slack (2002) used nonperforming loans to total gross loans ratio as financial soundness indicators.
Hauben, Kakes and Schinasi (2004),Schinasi (2005) used credit risk for sources of financial instability,
which is systemic risk (Kaufman and scot, 2003; Adrian and Brunermeir, 2008, 2011; ECB, 2010; Billio,
Getmansky , Lo and Pelizzon, 2012). In general, Indicator credit risk is ratio nonperforming loangs to total
gross loans .
Relationship and Influence between Credit Risk and Systemic Risk: Credit risk, inviting bank failure
(Gonzalez and Hermosillo, 1999), is a source of financial instability (Hauban, Kakes and Shinasi, 2004),
which is a systemic risk (Kaufman and Scot, 2003; Adrian and Brunermeir, 2011; ECB, 2010; Billio,
Getmansky, Lo and Pelizzon, 2012), and should be monitored and mitigated during each systemic phase
(Blancher et al., 2013). ). According to study by Evan, Leone, Gill, Hilbers (2000), non-performing loans
are aggregate microprudential indicators for financial stability surveillance. Sundararajan, Enoch, Jose,
Hilber, Krueger, Moretti and S lack (2002) used ratio of nonperforming loans to total gross loans as
financial soundness indicators. Hence, there is relationship between systemic risk and credit risk. In
previous studies, Gonzales and Hermosillo (1999), Evan,Leone, Gill and Hilbers (2000), Hauben, Kakes
and Schinasi (2004), Schinasi (2005), Blancher et al (2013) suggested that there is relationship between
systemic risk and credit risk, which is positive (Gonzales and Hermosillo, 1999), negative (Oet, Bianco,
Gramlich, Ong, 2013), and both (Cikak and Slaeck, 2007; Ponghosyan and Cihak, 2009).
3. Methodology
This study applies Explanative research method with research type of verificative research using linear
regression. Data on proxy of systemic risk and credit risk are collected from Indonesia Banking Statistics
December 2007-November 2014.
Relationship Model
Relationship created between credit risk and systemic risk is as follow
SYSTEMIC RISK = f (CREDIT RISK) ………. (1)
SYSTEMIC RISK = bo + b1 CREDIT RISK …….... (2)
where
n (∑ CREDIT RISK SYSTEMIC RISK) – (∑ CREDIT RISK) (∑SYSTEMIC RISK)
b1 = ----------------------------------------------------------------------------------------------------- ..…….. (3)
n (∑ CREDIT RISK2) – (∑ CREDIT RISK)2
∑ SYSTEMIC RISK – b1 (∑ CREDIT RISK)
b0 = ------------------------------------------------------- ……… (4)
n
Corelation (r)
Correlation is as follow
n (∑ CREDIT RISK SYSTEMIC RISK) – (∑ CREDIT RISK) (∑SYSTEMIC RISK)
r = ------------------------------------------------------------------------------------------------------------ …… (5)
(n (∑ CREDIT RISK2) – (∑ CREDIT RISK)2 )½ (n (∑ SYSTEMIC RISK2) – (∑ SYSTEMIC RISK)2) ½
Determinant coefficient (R)
R = r2 …..….. (6)
Proxy SYSTEMIC RISK :
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Credit Reduction = CREDIT n+1 - CREDIT n ……….. (7)
Asset Reduction = ASSET n+1 - ASSET n …...…. (8)
CREDIT n+1 - CREDIT n
Credit Growth = ------------------------------------- .…….. (9)
CREDIT n
ASSET n+1 - ASSET n
Asset Growth = ------------------------------------- …...…. (10)
ASSET n
CREDIT n+1 - CREDIT n
Rasio of Credit to Asset Reduction = -------------------------------------- ………. (11)
ASSET n+1 - ASSET n
CREDIT n+1 - CREDIT n
----------------------------------
CREDIT n
Ratio of Slowdown in Credit to Asset Growth = -------------------------------------------- ….…… (12)
ASSET n+1 - ASSET n
------------------------------
ASSET
Sources : Tabel 2 and interpretation authors
Proxy Credit Risk
Non Performing Loans
CREDIT RISK = ---------------------------------- ………. (13)
Total gross Loans
Sources : Sundrarajan, Enoch, Jose, Hilber, Kruger, Moretti, Slack (2002) Morttinen et al (2005),
Bank
Indonesia (2011)
4. Results and Discussion
Following some proxy systemic risk, the result presents in table 3 and 4. Table 3 described relationship
and influences between credit risk and systemic risk. There are not significant influences between credit
risk and systemic risk using proxy credit growth and asset growth.
Table 3 : Relationship , Influence , Significance and Equation Model between Credit Risk and
Systemic Risk
No
PROXY SYSTEMIC RISK
r
R
Sig
bo
b1
Significance
1
Credit Reduction
0,306
0,094
0,004
62.007,067
5,759
-10.063.113,540
-29,135
***
2
Asset Reduction
0,210
0,040
0,052
84754,16
3,819
-1.464.655,010
-1,9476
****
3
Credit Growth
0,102
0,010
0,357
0,011
1,867
0,182
0,357
*
4
Asset Growth
0,004
0,000
0,965
0,013
1,919
-0,010
-0,043
*
5
Ratio of Credit to Asset
Reduction
0,224
0,052
0,040
-3,8075
-1,323
203,004
2,0816
***
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6
Ratio of Slowdown in
Credit to Asset Growth
0,230
0,053
0,034
-8,066
-1,436
408,203
-2,145
***
*No sig, ** sig 0.01, *** sig 0,05, **** sig 0,10
Sources : Calculation by Authors
There are significant influences between credit risk and systemic risk using proxy ratio of credit to asset
growth, ratio of credit to asset reduction and credit reduction with significant level 5% , but using asset
reduction, significant level is 10%. Credit risk influences on systemic risk of 4,02% - 9,40%. It is
significant influences between credit risk and systemic risk using proxy ratio of credit to asset growth ,
ratio of credit to asset reduction and credit reduction with significant level 5% , but using asset
reduction, significant level is 10%. Credit risk influences on systemic risk of 4,02% - 9,40%.
Relationship between credit risk and systemic risk using proxy credit and asset reduction are negative,
while else relationships are positive. Table 4 described relationship and influences between credit risk
and systemic risk with one month lag. Influences between credit risk and systemic risk using proxy credt
growth and asset growth is not significant. Influences between credit risk and systemic risk using credit
reduction, and between credit risk and systemic risk using proxy ratio of slowdown in credit to asset
growth and ratio of credit to asset reduction are significant with significance of 1% and 10%, respectively.
But, if using asset reduction, significance is 5%. Credit risk influences on systemic risk at 4.30% - 14.88%.
Relationship between credit risk and systemic risk using proxy credit reduction, credit growth, asset
growth are negative, while else relationships are positive.
Table 4: Relationship , Influence , Significance and Equation Model between Credit Risk and
Systemic Risk in The Presence of One-Month Lag
No
PROXY SYSTEMIC RISK
r
R
Sig
bo
b1
Significance
1
Credit Reduction
0,3858
0.1488
0,0003
69.935,410
6,633
- 1.342,020
- 37.642
**
2
Asset Reduction
0,3059
0,0936
0,0049
103,14142
47,445
2,126,233.02
- 2,892
***
3
Credit Growth
0,0018
0,0035
0,8663
0,016
2.883
- 0.033
- 0,168
*
4
Asset Growth
0,1431
0,0020
0,1960
0,020
3.123
- 0.294
- 1.301
*
5
Ratio of Credit to Asset
Reduction
0,2073
0,0430
0,0599
- 3,382
-1,158
188,327
0,059
****
6
Ratio of Slowdown in
Credit to Asset Growth
0,2132
0,0454
0,0528
-7,2117
-1,2658
378,5142
1,964
****
*No sig, ** sig 0.01, *** sig 0,05, **** sig 0,10
Sources : Calculation by Authors
In conclusion, this study is in accordance with Gonzales and Hermosillo (1999), Oet, Bianco, Gramlich,
Ong (2013) , Cikak and Slaeck (2007), Ponghosyan and Cihak (2009) that positive and negative
relationship between credit risk and systemic risk depend on proxy of systemic risk used. Credit risk
influences on systemic risk at 4,02% - 14,88% in Indonesian Banking System 2007-2014, while other
variables influence the rest. Credit risk variable can be used to detect systemic risk. Credit risk variable
can be used as early warning indicator for systemic risk in Indonesian banking system.
Recommendations: A lot of variables influence systemic risk, among other, credit risk, which can be
used as early warning indicator for systemic risk in Indonesian banking system. This study expectedly
contributes to bankers and central bank in managing credit risk in order to reduce systemic risk, because
Indonesia does not have the law of financial system safety net to anticipate banking crisis with systemic
impact.
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Perception and Expectation of Marketing Mix on Customer Satisfaction and Confidence in
Consumer Finance Branch Mandala Multifinance Poleang, Shouteast Sulawesi Province
Wuryanti K., Usman Nur U.
Sultan Agung Islamic University (UNISSULA), Semarang, Indonesia
wuryanti@unissula.ac.id
Abstract: The development of technology and the increasing quality of financial institutions and banking
services as a competitor of Mandala Multifinance Company Poleang branch makes the affiliation share of
Mandala Multifinance becomes smaller because customers’ trust decrease. In this regard, the researcher
wants to know the cause of the decline in enterprise application data fluctuating of Mandala financing
Multifinance Poleang branch. This research samples customer of Mandala Multifinance company of
Poleang branch by using purposive sampling method with the number of respondents of 100 people by
using the program Partial Least Square (PLS) to determine the relationship between the variables that
affect customer trust. The results show that customer expectations affect positively but not significantly
to customer satisfaction, while the marketing mix has a significant positive effect on customer satisfaction
and customer satisfaction has a significant positive effect on customer trust.
Keywords: Customer expectations, marketing mix, customer satisfaction and customer trust
1. Introduction
Today, the company is dealt with increasing competition conditions in the business openness. These
conditions require companies to be more innovative and creative by offering something that is worth
more than competitors. This is what is demanded by the market focus and target to compete. In general,
the company strives to meet customer expectations, by building trust in a long-term relationship between
the company and its customers. This relationship should be increased from time to time such as service,
quality products, and so on. Thus, the presence of negative perceptions of the company will change
customer perceptions, which, in turn, can directly change the perception of satisfaction and commitment
to use the products offered by the company in its target market. One of the efforts made by the company
in marketing is the marketing strategy (Marketing Mix). The marketing strategy has an important role for
the success of the company. Therefore, the marketing strategies should be able to provide a clear and
regular description about what is done by the company and use every opportunity in several target
markets. The type of marketing strategies used in this study is the marketing mix. Marketing mix is a set
of tactical marketing tool that can be applied and combined by company to produce the desired response
in the target market. The marketing mix strategy is a strategy that can include product, price, promotion
and distribution channels. Furthermore, Downey & Erickson (2008: 230) explains that "the strategic
marketing strategy plans to integrate all activities and business resource logically to meet the needs of
customers and generate profits.”
A satisfied customer is a customer who gets value from the manufacturer or provider. This value is
derived from the product, service, system or something related to emotion. If a customer says that the
value is a quality product, then the satisfaction occurs when he gets a quality product. If the value is
concerned with the convenience, it will be fulfilled if the service is comfortable. If the value of the
customers is a low price, then the customers will be satisfied with the manufacturer, which provide the
most competitive prices. The value of these customers can be created by marketing company attributes
that can be elements of stimuli for the companies to influence customers in the purchase of the products.
Mandala Multifinance Poleang branch as a financial service company will not be possible to avoid the
reality of the financial services industry competition which is increasing lately. The competition in finance
services sector is very tight. Besides competing products, the rate to service both from fellow finance
companies, as well as banking institutions are also increasing. Therefore, Mandala Multifinance
companies are expected to do something that can attract potential customers to be a good customer in the
context of the marketing mix as well as in customer service.
In terms of customer service, in accordance with the vision of "customer satisfaction", Mandala
Multifinance company applies installment pickup system, so that, customers no longer need to arrive at
the office. Moreover, it is aimed to achieve the process of disbursement which is in accordance with the
slogan of the company "sehari kelar (all clear within a day)". Here, the employees work very fast in
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serving the needs of customers, so that, their accidental need can be resolved quickly. In addition, the
company also opens the service of customers’ complaints which are less satisfied with the services
provided by employees of the company. From the implementation of the marketing mix in the context of
the product, this company has the main product that is new motorcycle financing and financing cash. If
viewed from the implementation of the elements of the marketing mix related to interest rate (price),
Mandala Multifinance applies interest at 4% higher than the interest rate applied by other financial or
banking institutions. When viewed from the implementation strategy of place, Mandala Multifinance
distributes its products through its marketing employees. In addition, Mandala Multifinance Company
also has a strategic office location that is on a roadside shaft, so that; it easily supports the distribution
channel. Besides that, Mandala Multifinance also takes apart in the exhibition on the football field in
Boepinang to strengthen their promotion in order to expand the network.
Because of the increasing competition in the world of the financial and banking institutions, then, it has to
be determined appropriate steps regarding the marketing mix and customers’ expectations which aims to
create customers’ satisfaction and trust in Mandala Multifinance Company Poleang Branch. The research
on customers’ expectations and the implementation of the marketing mix related with loyalty and
satisfaction as an intervening is conducted by Hatane Samuel (2006). It results that customer’s
expectations significantly influence satisfaction while marketing mix also significantly affects
satisfaction. The research on “the Effect of Handling Complaints toward Health Care Trust Patients at
General Hospital in Panembahan Senopati, Bantul” shows that satisfaction does not significantly affect the
trust. While research on Patient Satisfaction, Trust and Commitment: Mediator Service Quality and Its
Impact on Loyalty conducted by Rahayu et.al (2013) shows that the quality of service has a positive and
significant effect on patient satisfaction; and the patient trust and commitment significantly affect patient
loyalty. However, patient satisfaction has no significant effect on patient loyalty. In addition, patients'
trust and commitment positively are influenced by patient satisfaction.
2. Literature Review
Customer Expectation: Customer expectation is customer confidence before trying or buying a product
that is used as a reference standard in the performance of a product. Customer expectations are formed
and based on a range of factors including past shopping experience, opinions, friends and relatives, as
well as information and appointments of company and its competitor (Fandy Tjiptono, 1994;
150). According to Fandy Tjiptono (1993; 223) there are some major causes of non-fulfillment of
customer expectations which include: Customers miscommunication with the desired services and
misinterpreted signal (price, positioning, etc.), Miscommunication on words of mouth recommendation,
poor corporate employee performance, and Miscommunication provided by competitors. Customer
expectations evolve over time, in line with the amount of information (non experimental
information) received by customers and the increasing experience of the customer. In turn, all of this will
affect the perceived level of customer satisfaction. Quality service is one of the factors of customer
expectations. It has several elements as follows:
- Tangible (It is something real and supports operational services such as physical facilities,
employee performance, equipment and supplies used)
- Reliability (It is the ability of managers or services in creating, providing services in accordance
with what has been promised, such as: accuracy in pricing, keeping a record of accuracy has been
achieved, being on time).
- Responsiveness (It is the willingness of managers or service to help customers, including responses
to the needs and desires of customers, such as answering customer questions, provide services
quickly, giving customer the purchase bill, etc).
- Competence (It is a guarantee of manager knowledge (competence) regarding services provided
and the ability to create confidence in customers such as: knowledge of personal contact, and
listening to customer needs).
- Empathy (It is a caring attitude, attention, understanding of the manager or services to the needs
and desires of customers, such as recognizing the long and loyal customers).
Marketing Mix: The marketing program includes marketing actions that can affect the demand for the
product such as change in price, modify advertising campaigns, design special promotions, and determine
distribution channel selection and so forth. In its implementation, a variety of marketing programs is
often integrated or implemented jointly, and sometimes marketing manager must choose the “best”
marketing program because of resource constraints. The marketing strategy is a strategy to serve the
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market or segment targeted by an entrepreneur. Therefore, the marketing strategy is a combination of
marketing mix that will be applied by the employer to serve the market. The marketing mix should be
well-arranged, so that, it will be able to serve as an appropriate weapon in comparison in the market
against competitors. Therefore, the weapon must be adjusted to market conditions and the conditions of
competition faced such as; product, price, promotion, and distribution channels. Utami (2008) states that
marketing mix is a combination of product, price, promotion and distribution elements, or better known
as the 4P to be sold to customers who become the target market; Product (A product will be associated
with several things such as: quality, brand, packaging, durability); Price (There are three parties that must
be considered to determine pricing policy by a company; they are a customer, personal and competitors. ;
Location (The location is a very important factor in the marketing mix, the precise location of a company
will be successful if compared with others which are not although they sell the same product and have the
same settings); Promotion (Promotion mix is a combination of several elements of the promotion, such as
advertising, sales promotion, personal selling, and publicity)
Customer Satisfaction: Actually, the concept of customer satisfaction is still abstract. Achievement of
satisfaction can be a simple process, as well as complex and intricate. In this case, the role of each
individual in the service encounter is very important and affects the satisfaction formed. In order to
determine the level of customer satisfaction, it is necessary to understand the causes of
satisfaction. Customers do not like being disappointed more on services rather than goods, even though
they rarely complain. One reason is because they are also involved in the creation process services. In
general, customer satisfaction is determined by whether or not fulfilled the expectations of
customers. The general definition refers to the paradigm of expectancy disconfirmation. Under this
paradigm, the customer sets up an expectation and this will be a standard to assess the actual
performance of a product or service. According to Zulian Yamit (2005: 75), traditionally, customers mean
people who buy and use the products. In a company engaged in the service, customers are people who
use services. In the health scope, customer is defined as a customer. Kotler and Keller (2007) defines
customer satisfaction is:
"Customer satisfaction is the level of a person's felt state resulting from Comparing a product's perceived
performance (or outcome) in relation to the person's expectation".
From the explanation above, it can be concluded that "satisfaction is a person's perception of expectations
and performance or results perceived".
Trust: Trust is a major recipe in a mutually beneficial relationship either in person or business. Therefore,
trust is very important both for personal and business purposes. Morgan and Hunt (1994) in Akbar
Muhammad Muzahid, et. al (2009: 26) defines trust as a condition in which one of the parties involved in
the process of exchange trust with the reliability and integrity of the other party. In other words, a trust
arises because there is a belief that the parties involved in the exchange will provide consistent quality,
honest, and responsible. This belief will lead to better relations between the parties involved in the
exchange. According to Mayer et al in Mula Joseph, et.al (2010: 2) there are three factors that shape a
person's trust in the others, they are: (a) Ability (Ability refers to the competence and characteristics of
sellers/organizations in influencing or authorizing specific region), (b) Kindness (Benevolence, Kindness
is the ability of sellers to provide mutual benefits between themselves and customers. Profits achieved by
the seller can be maximized, but also by keeping high customer satisfaction), (c)Integrity (relates to how
the behavior or habit of sellers in running their businesses. The information provided to customers is
completely in accordance with the facts whether it is true or not. Moreover, qualities of products or
services sold are also related to trust), Based on the above definition, it can be explained that:
"Trust is a belief in which one of the parties involved in the exchange has the reliability and integrity that can
deliver positive results. Trust is the most important variable in building long-term relationships between one
party to another.
Conseptual Framework and Hypothesis
The framework of the problems in this research can be described as follows:
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Figure 1.1 Conseptual Framework
Research Hypothesis: Referring to empirical studies and theories described previously as references and
basis of reasoning in order to facilitate researcher in explaining the correlation among variables, then it is
outlined the pattern of influence among variables constructed in this study as follows:
The correlation of Customer expectation and Customer Satisfaction: Referring to the theory
proposed by Fandy Tjiptono (1993; 223) which states that the expectation of customers is believed to
have played a large role in determining the quality of products (goods and services) and customer
satisfaction. Basically, there is a close relationship between the determination of quality and customer
satisfaction. This has been proven by research conducted by Hatane Samuel (2006) which states that
there is a direct positive influence between customer expectations of customer satisfaction.Based on the
opinions and research results mentioned above, the hypothesis proposed in this study is as follows:
H 1: Customer expectations has a positive and significant effect on customer satisfaction in Mandala
Multifinance Company-Poleang Branch
The correlation of Marketing Mix and Customer Satisfaction: Referring to the research conducted by
Sembiring at.al (2012), it is found a positive effect of marketing mix to customer satisfactionBased on the
opinions and research results mentioned above, the hypothesis proposed in this study is:
H 2: The implementation of the marketing mix has a positive and significant effect on customer satisfaction
in Mandala Multifinance Company- Poleang Branch
The correlation of Customer Satisfaction and Customer Trust: Referring to the theory of satisfaction
and trust adopted from the theory of Mayer et.al. in Mula Joseph, et.al (2010), it is stated that a
satisfaction has a positive correlation with the level of customer trust in services. This has been shown in
the research conducted by Patawayati et.al, (2013) which suggests that the higher the customer
satisfaction is, the higher the customer trust will be. Based on the opinions and research results
mentioned above, the hypothesis proposed in this study is:
H 3: Customer satisfaction has a positive and significant effect on customer confidence in Mandala
Multifinance Company Poleang Branch
3. Methodology
This type of research is explanatory research. This research needs to obtain the truth about
something based on the consideration that the research is to test specific hypotheses for the purpose of
proving the truth. This research is conducted to prove a causal relationship among customer
expectations, marketing mix, customer satisfaction and customer trust. Population, According to Sugiono
(2002) is a generalization region that has object/subject of quality and specific characteristics established
by researcher to study and draw conclusions. In this research, the population is all customers of Mandala
Multifinance in Poleang Branch. Sample is part of the population whose characteristics are about to be
investigated and considered to represent the entire population. Sampling method used in this research is
purposive sampling. It is the sampling technique based on considerations of certain conditions which are
deemed to have a close relationship with the characteristics or the nature of the population. According to
Sekaran (1992: 235) purposive sampling shows that the information (data) is taken from a specific target
with criteria that it has become a customer for 1 year, 1 month transactions and able to communicate
well. The samples are taken by accidental sampling, in which samples are selected based on the findings
in the field which are eligible. Sample size refers to the approach of Slovin formula (Widayat, 2004: 105).
Customer
expectation (X1)
The implementation
of marketing mix (X2)
Customer
satisfaction (Y1)
Customer trust
(Y2)
H1
H2
H3
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Moreover, analysis technique used in this study is the concept of Structural Equation Model (SEM) with a
program of Partial Least Square (PLS) for its analysis
Analysis and Discussion: From the data containing 100 respondents qualified to analyze further, it can
be found out from: Gender, Age, Latest Education, Occupation and The Length of being customer on
Mandala Multifinance in Poleang Branch. The characteristic of respondents based on their gender shows
that 66 people (66%) of them are men, while the rest is women (34%). Men take domination because
psychologically they are braver to take decision of a chance. This is so what happens in Mandala
Multifinance Poleang Branch, it has more men who takes finance. The characteristic of respondents based
on their age, shows that 17 (17%) of them are16-25 years old, 47 people (47%) of them are 26-35 years
old, 30 people (30%) of them are 36-45 years old, and 6 people (6%) of them are more than 45 years old.
Therefore, it can be concluded that most of them are 26-35 years old, which statistically shows 47%. This
proves that the customers who take financial help in Mandala Multifinance Poleang Branch are in the
productive age where their spirit of work is still high and supported with their strong stamina. These all
reflect that they have income to pay the finance.
The characteristic of respondents based on their latest education, shows that 7 people (7%) of them have
latest education of elementary school, 75 people (75%) of them have latest educational background of
Senior High School, 10 people (10%) of them have latest educational background of D3, 8 people of them
have latest educational background of S1. This shows that most of their latest educational background is
senior high school (75%) which can describes good enough of intellectual level to take decision in
choosing finance. The characteristic of respondents based on their occupation, shows that 46 people
(46%) of them are entrepreneur, 13 people (13%) of them are farmer/laborer, 29 people (29%) of them
are wiraswasta (running their private business), 12 people (12%) of them are government employees.
The respondents are dominated by those whose occupation is entrepreneur. This shows that most of the
finance they take is for their additional capital. The characteristic of respondents based on their length of
being customers at Mandala Mulifinance shows that 64 people (64%) of them has been customers for 12-
24 months and 36 people (36%) of them has been customers for 25-36 months. This shows that the
service of Mandala Multifinance has been served since long time and can be assessed by the customers.
Mandala Multifinance is also an alternative of finance for people beside banks etc.
Hypotheses Test
Table 1: Result For Outer Loadings
Original
sample
estimate
mean of
subsamples
Standard
deviation
T-Statistic
Expectation of
Customer
X1
0.892
0.892
0.017
51.676
X2
0.783
0.786
0.022
34.934
X3
0.908
0.909
0.013
71.530
Marketing Mix
X21
0.887
0.888
0.018
50.491
X22
0.928
0.927
0.019
47.941
X23
0.867
0.866
0.022
39.443
X24
0.640
0.643
0.058
10.979
Customer Satisfaction
Y11
0.887
0.887
0.019
46.657
X12
0.883
0.886
0.017
52.142
Customer Trust
Y21
0.779
0.779
0.028
27.361
Y22
0.878
0.880
0.028
31.332
Y23
0.910
0.912
0.014
63.245
The result of data analysis shows that the loading factor value of each construct is more than 0.70, so that,
each construct has good reliability. The structural model is evaluated by using R- Square for dependent
construct of T test and parameter coefficient of structural track. The analysis result on PLS model by
considering R- Square value of each latent variable can be seen on the table 5.0 below:
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Table 2: Results of Inner Weights
original
sample
estimate
mean of
subsamples
Standard
deviation
T-
Statistic
Expectation-
>Satisfaction
0.071
0.051
0.133
0.533
Satisfaction -> Marketing
Mix
0.882
0.906
0.135
6.537
Satisfaction of ->Trust
0.940
0.946
0.016
60.167
Source: Data calculated on the appendix.
The table above shows the results of inner weights where among the three correlations tested, it is
acquired that T-count value of satisfaction towards the trust value is 60.167 then the correlation value
between marketing mix and satisfaction is 6.537. Moreover, the correlation value between customer
expectation and customer satisfaction is 0.533; this means that it is not significant because the value is
lower than t-table (0.980).
Structural Equation Model: To find out Structural Equation Model, the result of data analysis in this
study will show a diagram which describes the hypothesis of regression parameter and its significant
statistic. Therefore, it can be seen from the figure below:
Figure 2: diagram of correlation between effect and hypothesis of parameter value
Based on the test result of PLS toward the first hypothesis, namely the effect of the Customers’
expectation toward the customers’ satisfaction, the test shows that the value of t-statistic is 0.533. The
above results indicate that the value of the t-statistic is smaller than the value of the t-table (1.980), which
means that hypothesis (H0) is supported or (H1) is not supported at the level of error of 10%. So, there is
a positive result but it’s not significant to the variable of the Customers’ Satisfaction toward the variable
of the Customers’ Expectations on the finance company of Mandala Multifinance-Poleang Branch. This is
caused by the high expectations of customers toward the products and services that affect the level of
customers’ satisfaction. Therefore, it can be concluded that the higher the expectations of customers is,
the lower the level of satisfaction will be. Based on the test results of the PLS toward the second
hypothesis, namely the Effect of Marketing Mix toward customers’ satisfaction, the results show that the
value of t-statistics is 6.537. The above results indicate that the value of t-statistics is greater than the
value of t-table (1.980), which means that the hypothesis (Ho) is not supported or (H2) is supported at
the level of error of 10%. So, there is a positive and significant effect of marketing mix toward the
variables of the customers’ satisfaction on finance companies of Mandala Multifinance, Poleang Branch.
Thus, it can be concluded that the marketing mix applied by finance companies Mandala multifinance
either of the product, the price (interest rate), promotion or distribution, has a strong effect on the level of
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the customers’ satisfaction. Based on the test results of the PLS toward the third hypothesis about the
effect of the customers’ satisfaction on the customers’ trust. The testing results gain that the value of t-
statistics is 60.167, the above results indicate that the value of t-statistics is greater than the value of t-
table (1.980) which means that the hypothesis (Ho) is not supported or (H3) is supported at the level of
error of 10%. Therefore, there is a positive and significant effect of the customers’ satisfaction toward the
Customers’ trust on the finance company of Mandala Multifinance Poleang Branch. In conclusion, the
satisfaction felt by customers in Mandala Multi-Finance Company - Poleang Branch is good in terms of the
performance in accordance with customer expectations and feelings of pleasure which are perceived by
the customers to have a strong effect on the customers’ trust.
4. Conclusion
The conclusions of this research are as follows:
1. In testing the customers’ expectation toward their satisfaction, it shows positive effect but
insignificant. It implies a sense that the high customers’ expectations will reduce the level of the
customers’ satisfaction in Mandala Multifinace company-Poleang branch.
2. In testing the marketing mix toward the customers’ satisfaction, it has a positive and significant
effect, giving a sense that the better the marketing mix applied by finance Mandala Multifinance
Company - Poleang branch is, the higher the customers’ satisfaction will be.
3. In testing the customers’ satisfaction toward the customers’ trust, it results in a positive and
significant effect, giving a sense that the higher the customers’ satisfaction is, the better the
customers’ trust in Mandala Multi-finance company - Poleang branch will be.
The managerial implications of this research are as follows:
1. The Finance company of Mandala Multi-finance – Poleang branch can develop the customers’
satisfaction with a particular attention to the marketing mix in interest rates, products and
promotions because the results obtained show that most customers still consider the interest rates
applied by the company are still too high so that the company need to review the interest rates
applied to the detriment of the company for not having regard to the interest rates applied by
other finance companies by considering the facilities and level of service provided. In addition, the
products offered by the Finance Company of Mandala Multi-finance still do not meet the customers’
demand, particularly in terms of the quantity of products. Therefore, the company must provide
additional products and pay attention to the availability of more varied stocks in accordance with
the needs of customers. Besides, the promotion systems applied by finance company of Mandala
Multi-finance - Poleang branch are already effective but still need to be improved, just like a
sponsor in a certain event.
2. The finance company of Mandala Multi-finance Poleang branch can develop the customers’ trust
with regard to the customers’ satisfaction in terms of the better performance in accordance with
the expectations of customers and the customers-perceived sense of excitement over into the
customers of finance company of Mandala Multi-finance Poleang Branch because the results of the
study show that there are some customers who think that the performance of the employees of
Mandala Multi-finance are still not optimal and there are some customers who do not feel happy
with the system adopted by the Finance company of Mandala Multi-finance especially dealing with
the employees in providing services to clients who have not paid the installment yet.
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The Relationship between Environmental Management, Environmental Performance,
and Company Performance at Small-Medium Enterprises
Budhi Cahyono
Sultan Agung Islamic University, Semarang Indonesia
budhicahyono@yahoo.com
Abstract: Environmental issues are relevant to study along with the development of industrial activities,
especially in Indonesia. Indonesia as a part of Southeast Asian countries will be the destination of
industrial activities because this region is claimed to be low-cost industrial area (Rao, 2004), where 70%
of industrial activity will be focused on South-East Asia. Industrial activities will cause environmental
problems, such as pollutions of air, land, noise, and water, as the impacts of poor environment. This
phenomenon is very essential to study, especially on the aspects of environmental management. The first
objective of the study is designed to investigate the relationship between environment initiative,
employee involvement, and supplier integration to the environmental performance. The second objective
of the study is designed to investigate the relationship between environmental and company
performances. This study also aims to investigate the impacts of independent variable on the dependent
variable that are mediated by intervening variable of environment performance. This investigation uses
trimmed model as the ending model of path analysis. The participant of this study consisted of 85
companies where operations at Semarang municipality. All of the variables were measured with four
indicators. The data were collected from primary and secondary data. The primary data were obtained
from respondent interviews and focus group discussions. The secondary data were obtained from
statistics center bureau, journals, text books, and precedence research. The data analysis used path
analysis followed by multiple regressions. The results of the study showed that, first: the independent
variables of environmental initiative and employee involvement had significant influence to the
environmental performance. Second, supplier integration had the influence to the company performance.
Third, environmental management had significant influence to the company performance. At last, the
results of trimmed model showed that environmental performance was as the mediating variables of the
relationship between environment initiative, employee involvement and company performance.
Keywords: Environment Initiative, Employee Involvement, Supplier Integration, Environmental
Performance, and Company Performance
1. Intorduction
The emergence of environmental issues was reinforced by of Rao (2004) that the manufacturing
operations, up to 70 % would be operate in the Southeast Asia since it was considered as a cheaper
production house. Pollution as the environmental impacts at various stages of production and
consumption activities will become interesting phenomena to study. The concept of Greening supply chain
management proposed by Rao (2002) had integrated the environmental initiatives to the environmental
performance and the supply chain environmental management to the economic performance. While in
the study on greening production, environmental responsibility requires employee involvement and
supplier integration in the creation of clean production. The employee involvement has direct impacts on
greening production (Rao, 2004). This study examines that environmental management is important
concepts to the performance of environment and company. The concepts of environmental management
are the combination of study conducted by Rao (2002, 2004), and will focus on variables of
environmental initiatives, employee involvement, and supplier integration. Environment initiative is the
company management initiative to improve the performance of company environment, complaint
rectification, and competitive advantage, Rao (2004). The relationship between the performance of
company and environment has become dispute among researchers that it is very much interesting and
unique to study in depth. This study merely focused on industrial centers. Industrial centers are industrial
grouping based on their similar activities and products in specific location. In the study of environmental
managerial encouragement and proactive environmental management (Cahyono, 2006), the results were
not significantly effective for policy-making, due to highly heterogeneous respondents of all types of
manufacturing. This study will merely focus on the industrial centers.
Different views appeared due to the influence of environmental and company performance. Research
conducted by Naffzinger (2003) stated that efforts on environmental fields has the influence to the
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company performance, regardless to the indicators of profit, revenue, and operational efficiency. Freeman
(1994) in his research found that environmental initiatives have negative impacts to the company
performance. Based on findings, the environmental issues still need to be followed up, especially in the
environmental management of small and medium enterprises. Management is focused on how
environmental management system is able to improve the environmental performance and ultimately
influence the improvement of company performance, based on the variable of environmental initiatives,
employee involvement and supplier integration.
2. Literature Review
Environment Management System (EMS): Hussey (2003) say that Environmental Management Systems
(EMS) is a formal package consisting of procedures and policies that describes how organization manages
the potential of environmental impacts. EMS is a structured approach related to the environmental
management issues and provides the basis for complaints and company performance guarantees. While
the Environment Protection Agency (EPA), Begerson (2005) defines EMS as the ongoing cycle
encompassing planning, implementation, supervision, and repair processes and actions that bind
organization to integrate business and environmental purposes. The defined concepts of EMS suggested
that environmental management should be integrated with business management organization.
Environmental management is the responsibility of all employees in creating a healthy and safe
environment. Bergeson (2005) stated that there are four driving force in the development and
implementation of EMS. First, the demands of certification require reports and procedures in preparing
and reporting the required information. Management should pay attention to the performance standards
in managing the company. Second, the innovation needs upon fuels to the development of EMS. Company
continuously thinks about the new and better ways to achieve more sustainable development,
competition, and prosperity. Design and implementation of EMS is part of innovation process and
instrument to save the company resources and to maximize the pollution prevention. Third, incentives
are provided for companies to the development and implementation of EMS. Fourth, the demand of
changes is to the ways of managing business.
The implementation of EMS may influence the improvements of environmental performance, particularly
on fouling reduction, pollution prevention, and organizational efficiency. EMS models have continuously
improvement cycles based on the process of plan, do, check, and act. EMS is based on the approach of ISO
14001 which has five major components:
1. Environmental policy, a written commitment from the top management that provides guidance to
organization as a whole. Ideally, the establishment of policies involves the employee substantial
inputs. After adopting, all employees are given information related to the policies, precautions, how
policy affects all employees, and what their responsibilities are to the company.
2. Planning, that the company shows the process of implementation and evaluation, identification and
testing of various environmental aspects and impacts, identifies needs, sets priorities, develops the
goals and targets, and describes the relationship between program and the objective achievement
in details.
3. Implementation and operation, is by involving resources, delegation of responsibility, task exposure
that should be done, ensuring that all employees have the understanding upon EMS. Internal and
external communications are extremely needed to monitor, supported by documentation, control
and operational supervision of EMS.
4. Monitoring and corrective action, done by organization in auditing or evaluating performance.
Auditing can be done by the internal organization or external parties. The problems found in the
implementation of EMS will be identified and documented to determine the required corrective
actions, which is then documented and reported.
5. Management review is done periodically by the top management to overall implementation of EMS
and the determination of subsequent implementation. Review may include the review of policies,
environmental aspects and impacts, rules, objectives and performance. All of these changes can be
made based on the consideration of review results.
In the era of proactive environmental management started in 1990s, the companies began to think about
the anticipations of environmental impacts to the operation of company by measuring the efforts to
reduce waste and pollution related to the emergence of various environmental regulations by finding
positive efforts in order to achieve the superiority of business through total quality environmental
management (TQEM). At this stage, company undertakes efforts upon the pollution prevention and
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exploration to create new opportunities in the development of green products, green process, and green
technology.
The Relationship between Environmental Initiatives, Employee Involvement, Supplier Integration
and Environmental Performance: The study conducted by Rao (2004) testing of the variables
influencing the greening production. There are five variables which are closely related to greening
production: company social responsibility, Total Quality Environmental Management (TQEM), supplier
integration, employee involvement, and clean production. This study was conducted in Southeast Asia by
with the objects of the existing companies in Malaysia, Indonesia, Thailand, and the Philippines. There
were 52 respondents with the number of indicators of 64. The result showed that the employee
involvement had direct and significant influence to greening production, in addition to the variables of
cleaner production. TQEM had indirect influence to greening production, through the variables of
employee involvement, supplier integration, and cleaner production. While the company environmental
responsibility variables influenced TQEM and worker involvement. The research results conducted by
Cahyono (2007) in the manufacturing industry in Center Java, indicated that 34.7 % of respondents did
not understand, and 21.1 % were not aware to the various government regulations concerning on
environment. Besides, there are differences in the various environmental management practices among
large and medium company related to the enforcement of environmental management, proactive
environmental management, and environmental management performance. This study involved
respondents of 51 big companies and 92 medium companies. The observed Industry groups included:
furniture, wood processing, cigarettes, clothing, textiles, medical equipment, fertilizer, mining, batik, dried
fish, plastic, and mori blaco companies. The results also indicated positive and significant influence
related to the enforcement of environmental and proactive environmental managements to the
environmental performance.
Hypothesis 1: The better the environmental initiatives, employee involvement, and supplier integration,
will improve the environmental performance.
The Relationship between Environmental Initiatives, Employee Involvement, Supplier Integration
and Corporate Performance: Cahyono and Sulistyo (2002) investigated the quality of environmental
management and competitive advantage to the company performance as the moderating variable. The
population in this study is the manufacturing companies that are susceptible to the environment in the
province of Center Java, such as: gas, chemical, plastic, fodder, timber, textiles, garments, food and
beverages, and pharmaceuticals companies. The results showed that the respond rate was 28%. The
company active involvement in the formation of environmental regulations is very low (67 % had never
been involved). Approximately 60 % of respondents also stated that they never followed or received
counseling about EIA (Environmental Impact Analysis) extension. The other results indicated that the
quality of environmental management had no significant influence to the competitive advantage. The
second result, after the quality of environmental management interacted with the company performance
significantly influenced the competitive advantage.
Hypothesis 2: The better the environmental initiatives, employee involvement, and supplier integration
will improve the company performance.
The Relationship between Environmental and Company Performances: Freeman (1994) in his
research found that environmental initiatives had negative impact to company performance. However, in
the other study conducted by Porter and Linde (1995), Ahmed et al. (1998), found that environmental
stewardship can proactively create long-term benefits. In his research, Clelland et al., (2000) presented
evidence that the pollution prevention practices and waste minimization will be able to achieve the
operational efficiency. This research results were supported by the study conducted by Ahmed et. al.,
(2003) who found positive relationship between the improvement efforts of company environment and
operational efficiency. Naffziger study (2003) was motivated by the desire to protect and preserve the
natural environment. Initiatives to create green comes in many business organizations. Business
organizations are expected to be more environmentally responsible than the previous time. Various
traditional beliefs stated that environmental activities had negative impact to the company performance,
such as sales and profit growth. However Bandley (1993) stated that there were indications that the
implementation of proactive environmental management would influence long-term economic benefits.
The research results conducted by Naffziger (2003), suggested that the conceptualization of
environmental concern, environmental effort and the company performance were closely related. The
improvement of environmental concerns will improve the environmental effort, and also the company
performance. Ashrof (1993) concluded that the environmental effort is positively related to the company
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performance, in addition to profit, revenue and operational efficiency indicators. Other results indicated
that the companies concerning on high top management had better environmental efforts than the
companies with low environmental concern. Furthermore, the companies with high environmental
concerns tend to have better company performance, especially in profit and operational efficiency.
Hypothesis 3: Better Environmental performance will improve the company performance.
Research Design: Based on the research problem, and the literature review described, this study was
designed to integrate the variables of environmental initiative, employee involvement, supplier
integration, environmental, and company performances as described in the following Research
Framework (Figure 2).
Figure 2: Research Framework
3. Methodology
This study used an analytical descriptive approach focusing on deep identification of the influence of
company environmental management through environmental initiative dimensions, employee
involvement, and supplier integration to the environmental and company performances. Methods and
techniques used in this study is the combination of literature study, respondent observation, and in-depth
interviews with the structured company management. The variables of study include: environmental
initiatives, employee involvement, supplier integration, environmental, and company performance. The
indicators of environmental initiatives are: the efforts to use friendly environmentally raw materials, to
reduce waste, pollutions of water, air and sound, and to use cleaner technologies. The indicators of
Employee involvement are: the guarantee of employee involvement, training, task clarity, and
involvement standards. The population of this study was all the in operation of small and medium
companies of Semarang and clustered in the industrial centers. The industrial centers used as the objects
of this study include: processing centers of fish (smoked fish, salted fish and fermented small fish or
shrimp), tofu and tempeh, batik, and garment. The sampling technique used cluster sampling, which is a
sampling technique with the characteristics of heterogeneity among groups and within a group, and then
some groups are selected to investigate (Sekaran, 2003).
The primary data in this study is very dominant, which consists of data collected through directly in-
depth interviews with the leaders or managers of the company due to the company performance,
environmental management, and performance. The instruments used to obtain the primary data are
questionnaires consisting of quantitative and qualitative questions in order to gather the valid and
complete data. The secondary data of this study were obtained from second hand related to the topic of
this study. The secondary data sources were obtained from the Center of Statistics Bureau (CSB) of
Semarang in figures, literature reviews. The analysis used in this study is the qualitative and quantitative
analysis. The qualitative analysis is intended to examine a variety of variables to obtain the
comprehensive information of environmental management in the industrial centers. The quantitative
analysis is intended to determine the relationship between the variables in the research models. The
analysis used in this study was path analysis.
Environmental
Initiative
Employee
Involvement
Supplier
Integration
Environmental
Performance
Company
Performance
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4. Results and Discussion
Table 2 showed the picture of the industrial centers in Semarang, which are grouped into seven centers,
the centers of tofu, tempeh, batik, garment, salted, smoked fish, and fermented small fish or shrimps. The
dominant companies in this study are from the industrial centers of smoked fish by 42 %, tofu by14 %
and fermented small fish or shrimps by 11%. While the industrial centers of tempeh, batik, garment are
by 8 %, and the salted fish by 9 %. The largest Production value is the industrial centers of tempeh with
153,600 kg of tempeh, and smoked fish which used raw materials of 98,700 kg per day. Smoked fish
industry is a major industry in Semarang since sufficient numbers of raw materials (tuna, fish pee) are
available. The smoked fish centers are mostly located in the north of Semarang (Bandarharjo,
Mangunharjo, and Tawang Mas). Tofu Centers are mostly located in Jomblang while tempeh centers are
mostly in Krobokan. Tofu centers are also located in Lamper Lor, and Sekayu. Batik centers are mostly
located in Bukit Kencana Jaya while fermented small fish or shrimp centers are mostly located in Tawang
Mas and Mangunharjo. Garment centers are mostly located in Kauman and Sendangguwo.
The Value of Mean and Deviation Standard: The research results showed that the value of mean upon
the respondents' answers to four indicators of environmental initiative variables showed value of below
3, which were, 2.553. It meant that the environmental initiative activities undertaken by the industrial
centers in Semarang had not properly and seriously implemented, since the value was still below the
average. However, the indicators of attempts to use friendly environmentally raw materials and to reduce
waste showed the results of good, meaning that the industrial centers have the desire or willingness to
use raw materials that are environmentally friendly and to reduce waste due to the initial efforts of
environmental improvement. The average value of the respondents' answers to the employee
involvement variables was 2.435 and is still below the average value of three, meaning that the employee
involvement in the centers of small and medium industries in Semarang was still not optimal. The lack of
employee involvement was indicated by the absence of employee involvement standards and guarantee.
While the employee task clarity related to the environmental quality improvement had been there,
although it was not completely implemented. The employee trainings had actually been done, either by
the company management, colleges, or city government of Bapedalda, Semarang. Due to the answers of
respondents, the average value of environmental performance variable was 2.812, meaning that the value
is still below the average of three. These findings indicated that the environmental performance of
industrial centers in Semarang was not optimal yet, meaning that the efforts undertaken by the industrial
centers had not completely reduce the pollutions, waste, people's complaints, and consumption.
Validity and Reliability Test Results: The results of validity test were conducted by correlating
indicators with each of the variables. Furthermore, to determine the validity of indicator, it was
determined by the significance correlation value. Based on the significance value, it could be concluded
that all research indicators were considered valid, because it had the significance value of < 0.05.
Meanwhile, the reliability test was conducted by looking at the value of Cronbach's alpha (α). In this
research showed that the value of α for each variable was as follows: the environmental Initiative = 0.771,
supplier Integration = 0.830, Employee Involvement = 0.621, environmental performance = 0.773 and
company performance = 0.664.
Table 1: Regression Analysis Result
Path Analysis Results: Based on the calculation results of multiple regression showed that the variables
of environmental initiative had significant influence to the environmental performance (t = 5.563 and
12.177
1.604
7.592
,000
,416
,075
,571
5.563
,000
,289
,142
,188
2.039
,045
-1.216
,193
-,585
-6.307
,000
(Constant)
IL
KK
IS
Model
1
B
Std. Error
Un-standardized
Coefficients
Beta
Standardized
Coefficients
t
Sig.
Dependent Variable: KL
a.
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sign. 0.000), but had no directly influence the company performance. The employee involvement
variables had significant influence to the environmental performance (t = 2,039 sign. 0.045), but had no
direct influence to company performance. The supplier integration variables had no significantly
influence to the environmental performance, but had direct influence to company performance (t = 9.041
sign. 0,000). The further Relationship that the environmental performance variables had significant
influence to company performance (t = 2,748 sign. 0.007).
Trimmed Model: Based on the results of trimmed model, then the previous research model and that
demonstrated the relationship between the variables changed as presented in Figure 3. The changes
occur as the environmental performance variables mediated the relationship between environmental
initiatives, employee involvement, and company performance while the supplier integration had direct
influence to company performance.
Figure 3: Results of Trimmed Model
The next step, in path analysis is to examine the model validity. The validity of analysis results depends
on whether or not it meets the underlying assumptions. Once trimmed model is acknowledged, then we
can determined the coefficient of total determination. The calculation of total determination based on the
value of R square of two multiple regression equations. The first equation results the value of R2 equal to
0.456 and the second equation resulted the value of R2 equal to 0.593. The second is based on both values
of R2 that the coefficient of total determination can be formulated as follows:
R2m = 1 - P2e1 x P2e2 ................. P2ep
R2m = 1 - (0.456)2 X (0.593)2
R2m = 0.9269
Meaning that the variety of data can be explained by this model which is equal to 92.69% or in other
words, the information available in the data of 92.69 % can be explained by this model. The other 7.31%
is explained by the other variables (that is not available in this model) and error.
Discussion: The lack of environmental management implementations occurring in the industrial centers
of Semarang showed that environmental issues had not become the focus of businessmen. The company
goals still focus on how to obtain the highest profits instead of environmental concerns that have not
become part of the company strategies. This condition is supported by respondents’ responses to several
variables of this study which average values were less than three with a 5 point Likert scale. The Lack of
awareness upon the environmental issues will certainly bring the long term greater risks, such as poor air
quality, greater waste water, and people’s complaints as the influences of company activities.
Environmental initiative and employee involvement Variables had no direct influence to the company
performance, but were mediated by the environmental performance. These findings meant that the
environmental performance as the intervening variable in the relationship between environmental
initiative and employee involvement to the company performance. Or in other words that the company
performance can be obtained if it is preceded by the environmental performance. Environmental
initiative and employee involvement Variables had significant influence to the environmental
performance variables. However, environmental initiative variable had greater influence. These findings
indicated that the creation of environmental performance is strongly influenced by the environmental
initiative. Environmental initiative was measured by four indicators, such as the efforts to use
Environmental
initiatives
Employee
involvement
Environmental
performance
-0.036 (0.726)
0,263 (0,007)
0.188 (0.045)
0.571 (0.000)
-6.307 (0.000)
0.869 (0.000)
Supplier
integration
Company
performance
-0.246 (0.003)
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environmentally friendly raw materials, reducing waste, pollutions of water, air, and noise, and the efforts
to use clean technology. The most dominant indicator variable (which had large loading values) was the
indicator of: Efforts to use of environmentally friendly materials, to reduce waste efforts, to guarantee
employee involvement, employee involvement standards.
From the employee involvement variable, there were two indicators that had dominant influences, the
employee involvement guarantee and employee involvement standard. Employee involvement guarantee
basically indicated the presence or absence of guarantees granted to employees upon the creation of
clean company environment. Employees though that their primary task activities focused on the
production of goods demanded by the company, whereas the environmental issues were problems arisen
from the impacts of production activities. This condition certainly required the company polices to offer
greater roles to the employees and of course with the consequences. The other policies may be given by
other companies to attract employees which especially are assigned in the field of environmental hygiene.
The employee would actually have double roles, in the field of production, and responsibility to the
environment. The next finding is that supplier integration had direct influence to the company
performance. Meaning that supplier integration was not only related to environmental issues but also
more significantly to the formation of cooperation between company and suppliers. If the cooperation
with suppliers got better either by selecting suppliers with environmental criteria, enforcing suppliers,
creating the environmental management system, and informing the importance of cleaner production,
they will improve the company performance.
Other findings showed that environmental performance had a significant influence to the company
performance. It means that the better the environmental performance, it will improve the company
performance. These findings indicated that that the company performance can be a good predictor to the
company performance. The implication is that environmental performance can be one of the promotional
strategies of companies in the industrial competitive environment. The indicators of environmental
performance that had high loading factors are: indicators of reduced pollution, and reduced people's
complaints. Both indicators which had dominant influence tend to have direct relationship with the
society, such as pollutions and people's complaints. It means that the environmental performance will
influence the company performance if the company is able to create some efforts to reduce pollutions
(water, air, and noise) and to minimize complaints from the surrounding industrial center communities.
5. Conclusion
Based on the research results and discussion, it can be conclude that the environmental management
practices in the industrial centers of Semarang are still not optimally implemented, related to
environmental initiatives, employee involvement, supplier integration, environmental and company
performance. Environmental performance variables mediate the relationship between initiative
environmental variables, employee involvement and company performance. Supplier integration
variables directly influence the company performance. Various data that can be explained by the model is
equal to 92.69 % or in other words, the information available in the data of 92.69 % can be explained by
the model. The other 7.31% is explained by the other variables (which is not available in the model) and
error. The suggestions recommended after conducting the study on environmental management are: it is
necessary to improve the roles of company (centers) to the environmental management focusing on the
improvement of center roles of environmental initiative variables through the efforts in reduction of
water, air, and noise pollutions. It is also necessary to have to use clean technology. In addition, it is
necessary to improve the center roles through the involvement of variable emphasizing on the needs of
trainings for employees to create clean production and the quality of environment.
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Entrepreneurial and Market Orientation towards Innovation and Marketing Mix Strategy,
and their Impact on Business Performance on the Florist Business in Dki Jakarta
Province
Cecep Hidayat, Yuyus Suryana, Faisal Afiff, M. Fani Cahyandito
University of Padjadjaran, Bandung, Indonesia
Bina Nusantara University, Jakarta, Indonesia
ceceph1267@gmail.com
Abstract: This literature study aims to examine the concept of entrepreneurial and market orientation,
innovation and marketing mix strategy, and propose a conceptual model of entrepreneurial and market
orientation towards innovation and marketing mix strategy and their impacts on business performance
on The Florist Business in DKI Jakarta Province. The approach of this paper is a multidimensional
approach, conducting an assessment of the dimensions of the variables contained in entrepreneurial,
market orientation, innovation, and marketing mix strategy and their impacts on business performance. A
conceptual model of the entrepreneurial and market orientation created increasing innovations,
marketing mix strategy, and the impact on business performance. Academic implications of this paper in
exploring the concept of entrepreneurial and market orientation increasing innovation and marketing
mix strategy and their impact on business performance of florist business in DKI Jakarta Province. The
practical implication will give some ideas and practical suggestions in the decision to implement its
entrepreneurial and market orientation, innovation and marketing mix strategy. The original
contribution of this paper is the establishment of a conceptual model of the dimensions of
entrepreneurial and market orientation can increase innovation and marketing mix strategy, and the
types of innovations and marketing mix strategy that can be applied to increase business performance of
florist business in DKI Jakarta Province.
Keywords: Entrepreneurial Orientation, Market Orientation, Innovation, Marketing Mix Strategy, Business
Performance, Florist Business
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Improvement of Human Resources Performance through Empowering Leadership,
Intrinsic Motivation, Training and Employee Wellbeing
Mutamimah dan Haryana
Sultan Agung Islamic University, Semarang
tatikmut@yahoo.com
Abstract: The purpose of this study to analyze the improvement of human resources performance
through empowering leadership, training, intrinsic motivation, and employee wellbeing. The population
in this study are all the employee of Food Security Extension and Extension Pekalongan many as 134
people. The sampling technique using census techniques, so that all members of the population sampled.
Statistical analysis using regression analysis. The results showed that empowering leadership, training
and employee welbeing have positive and significant effect on intrinsic motivation. Empowering
leadership, training, and employee welbeing have positive and significant impact on the human resources
performance. Intrinsic motivation as variables that weakened the influence of empowering leadership on
human resources performance. However, the intrinsic motivation as a variable that reinforces influence
of training on the human resources performance. Intrinsic motivation as a variable that weaken the
influence of employee wellbeing on the human resources performance.
Keyword: empowering leadership, intrinsic motivation, employee welbeing and human resources
performance
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Effect of Islamic Based Leadership Style to Motivate Creativity of Syariah Bank Employee
Muhammad Tafsir, Roziana Bt Shaari, Azlineer Bt Sarip
University Teknologi Malaysia
tafsirmuhammad@yahoo.co.id
Abstract: In deep views of Islamic region, the understanding of creativity must always be based on the
principle of God and sincerity. Becauseit is a fundamental principle for Muslim people to build
potentialcreativity.Al Quran gives a signal by godliness in order to human thinking smart and critical,
acting creative for finding greatness of God by Its verses. These paper discuseshow effect of Islamic based
leadership style to influence creativity of employee for improvement of performance in reaching of
company target. This research uses the quantitative method with questioner test to 150 respondents of
Syariah Bank employees in Makassar. Research methodology focuses on aspects of national transform
leadership style and combines with principle style of Islamic leadership. Results show that style of Islamic
leadership gives the effect to the increase of employee creativity ability. It indicates from results of
correlation test using SPSS which value of its correlation 0.86. It means that enhancement of employee
creativity caused by style of Islamic leadership which gives a significant relation to the good employee
passion. Adoption of Islamic based leadership style has a faith to contract the religion psychology
between a leadership and employee. It means a Muslim leadership should attempt to give the best trust
for supervising, protecting and managing as well as give a paragon with wisdom. In fact this style of
Islamic based leadership as a head is able to perform the good emotion relation to servant.
Keyword: Islamic based leadership style, employee creativity, performance, emotion relation
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Analysis the Effectiveness of Cocoa Distribution Channel in the Province of Aceh,
Indonesia
Syafruddin Chan, Rulfah M Daud, Fauziah Aida Fitrie
Syiah Kuala University, Banda Aceh, Indonesia
syafruddin.chan@gmail.com
Abstract: Cocoa today become one of the leading commodities, especially for the export market, both
nationally and at the provincial level, in the Province of Aceh. At least when the indicator to be seen is the
existence the increase in production, export volume and the number of farmers involved. To be able to
take advantage of market opportunities and to increase the income of farmers in the midst of increasing
competition, it is necessary the measures the problems faced by farmers. As far as the author concern,
there are at least three (3) major problems associated with the marketing of cocoa in Aceh, namely: a. The
low quality of the product b. Low productivity c. The low level of prices received by farmers. The problem
of low levels of prices received by farmers, which was the focus of study in this study, associated with the
efficiency of cocoa distribution from the farmer to the wholesalers and exporters. From the results of the
pre survey in Pidie Jaya district, it is known that the presence of long chain trading system that must be
passed from the traders, wholesalers, to the exporter, causing a big price difference to the reception
margins at farm level producers and traders involved in the marketing supply chain of cocoa in Pidie Jaya.
The findings in this study was in the distribution of traditional marketing channel, farmers can only sell
cocoa at the price of only Rp 27,000 / kg. While prices received by farmers in the partnership scheme
was higher at Rp 28,500 / Kg. Thus farmers receive additional income of Rp 1500 per Kg. If we looked the
percentage of price, as the portion value received by garmers was also increased by 5.5%. Meanwhile,
share prices paid to farmers, compared to the total highest price received by the exporter also increased
from 83.7% to 86.4%.
Keywords: Cocoa Quality, Productivity, Level Price, Farmer, Gatherer, Margin, Distribution Marketing
1. Introduction
Background Research: Cocoa today become one of the leading commodity, especially for the export
market, both at national and the provincial level, in the Province of Aceh . At least when the indicator seen
is the existence of the increase in production, export volume and the number of farmers involved.
However, the development of cocoa in Indonesia still encounter many problems and obstacles, especially
if cocoa bean is seen as a commodity exports that are largely produced by farmers. In the future because
of income growth, population growth and the effect of trade liberalization, the world demand for cocoa is
expected to increase. To be able to take advantage of market opportunities as well as to increase the
income of farmers in the midst of increasing competition, it is necessary to measures the problems faced
by farmers.
Research Purposes: The purpose of this study is as follows:
1. Knowing the large margin received by each party involved in the marketing process of cocoa in Aceh
Province, starting from the farmer as a producer to the exporter level. 2. Knowing the influence of
intermediaries, sales volume, product quality, and the mode of payment of the price of cocoa at the farm
level.
2. Literature Review
Definition and Significance of Distribution Channels: Decisions regarding the distribution channels in
marketing is one of the most critical decisions faced by the management. The selected channel will affect
the whole other marketing decisions. Distribution channels are agencies or institutions that have
activities to deliver goods or services from producer to consumer. (Arlina, 2004)
Factors Affecting Distribution Channel Selection: According Arlina 2004, manufacturers must
consider various factors that are influenced the choice of distribution channel. Selection of effective
distribution channels will be able to boost sales expected, so the survival of the company can be assured.
Such factors include among others:
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1. Market Considerations. 2. Product consideration. 3. Company consideration and 4. Intermediaries
Consideration
Several market factors that must be considered are: a) consumer or industrial markets.If the market
is in the form of the industrial market, the retailer rarely or never used this channel. If the market is in the
form of consumer and industrial markets, the company will use more than one channel. b) The number of
potential buyers.If a relatively small number of consumers in the market, then the company can conduct
direct sales to end users. c) The geographic market concentration. Geographically, the market can be
divided into several concentrations such as the textile industry, paper industry, and so on. For areas that
have a concentration high population density, the company can use industrial distributors. d) The
number of orders. The volume of sales of a company will greatly affect the channel used. If the volume
purchased by industrial users is not so large, or relatively small, then the company can use industrial
distributors.
Agricultural Business Administration: Business administration is a business activity in which there is
the flow of goods and services from the point of production to the point of the consumer. Production is
the creation of customer satisfaction, by making the usefulness of goods and services. Satisfaction is
formed of a productive process which is classified into the usefulness of the product, place, time and
ownership. Khol and Uhl (2002).
Channel Trading System: Different channel trading system will provide different benefits to each of the
institutions involved in the activities of the trading system. The actual channel is a series of institutions
trading system that performs all the functions to distribute the product and its ownership status from
producers to the consumers. Manufacturers have a major role in producing goods and often do most
marketing activities, while distributing commodities in appropriate time, place and form to the customer
wants. (Kotler 2002).
Margin Trading System: Margin trading system is defined as the difference in price paid by consumers
to the prices received by farmers or producers . It also can be expressed as the value of services of the
implementation of business administration from the producers to the final consumers. Activities to move
goods from point to point consumers manufacturers require both physical and material expenses.
Expenditure should be made to distribute commodities from producers to consumers called business
administration costs. Margin trading system illustrates the difference in prices at the consumer level (Pr)
with prices at the producer level (Pf). Each marketing agencies perform different marketing functions
causing price difference from one institution to another to the final consumer. The more marketing
agencies involved the greater the difference between producer prices and the price at consumer level.
(Hammond and Dahl 2007).
Figure 1: Distribution Line Pattern Cocoa
Source: Dervish Ali, 2011
Based on the conception proposed by Azzaino above, the study of the analysis of the margin trading
system is only directed at:
1. Percentage of price received by farmers from the price of the export price
2. The portion of the costs incurred by the agency business administration
3. The portion of profits earned by each institution in the trading system
Research Paradigm: The research paradigm used is as follows:
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Figure 2: Research Paradigm
3. Methodology
Location and Object of The Research: Locations of research conducted in Pidie Jaya by selecting one
village in each there district which were Bandar Dua, Bandar Baru, Jangka Buya, Meurah Dua, Meureudu,
Pante Raja, Trienggadeng and Ulim.
Population and Sampling: The population was the farmers and middleman of cocoa in Pidie Jaya.
Sampling was carried out by using a convenience sampling technique, a technique of random sampling
done by selecting a predetermined location. The samples also take into account the level of accessibility of
the respondents, as many respondents who have the plantation away from residential areas, so it was
rather difficult to be accessed.
Data Analysis Methods: Data analysis method used in this research were the analysis of the margin
trading system. Analysis of margin trading system is done by looking at the relationship between the cost
of business administration and profit of middlemen. Design of the research using mixed method
approach, combining quantitative and qualitative research simultaneously (concurrent procedures). The
method used for the quantitative research design is survey by distributing questionnaires. Whereas
qualitative research designs using interviews. This approach is employed to obtain comprehensive and
complementary data.
4. Results and Discussion
Cocoa Production Overview: Indonesia is known as one of the world's largest cocoa producer along
with the Ivory Coast, Ghana and Malaysia. But when talking about the quality of Indonesian cocoa is still
below than that other cocoa producers. In addition the Indonesian cocoa is not fermented. Low quality of
Indonesian cocoa is also caused by high levels of dirt and a lot of contaminated insects, fungi and
mycotoxins, and weak flavor. The low-quality cocoa is particularly produced by small farmers
(smallholder) in Sulawesi and Sumatra, including Aceh. In the global market, it is known as an
unfermented cocoa.
Cocoa Description in Pidie Jaya: In the province of Aceh, Pidie Jaya Districts is one of the largest
producer of cocoa beans, along with several other districts such as Southeast Aceh , Aceh Tamiang and
Biureuen. The amount of production of cocoa beans from Pidie Jaya region is because of the natural
carrying capacity, including land, which does have high suitability for this type of cocoa plantation crops.
One indicator of the suitability of land that is often used to look at the suitability of the land and the type
of cocoa crop is the slope of land. The slope of land is something "given", and can not be changed,
although it can be manipulated for example by terracing. However, to build terassering need funds and
technology. Another consideration that for the flat land (slope <8%) has been largely used for wetland.
Cocoa crop, if any, are on flat land also mostly located in the yard area farmers with relatively small area.
Thus the land for cocoa classification is based primarily on the nature of the land slope. Based on the
steepness slope of the land it be conducted four classes of land:
1. Very suitable (S1), the slope of the land <8%
2. Appropriate (S2), which is the slope of the land between 8-15%
3. In accordance marginal (S3), which is the land that has a slope of 15 to 45%.
4. Not applicable (N), ie land slope > 45%.
Cultivation of cocoa in Pidie Jaya is still done traditionally with productivity before the conflict was 700-
800 kg / ha, but during the conflict and its aftermath as well as an attack CPB (Cocoa Fruit Borer) land
productivity in cocoa is reported to be living half, although the latter continues to improve productivity
levels, but not yet to the level before the conflict in mid-1990s. The quality of cocoa beans produced also
still relatively low, not just because of the CPB disease, but also because of postharvest treatments that
have not reached the standard stage. In Pidie Jaya, cocoa is an important commodities. Of the 19 major
commodities, cocoa area occupies most extensive land, the most widely cultivated by smallholders and
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accounted for the highest annual income. Cocoa is cultivated in seven of the eight districts, namely Bandar
Baru, Trienggadeng, Meureudu, Ulim, Bandar Dua, Pantai Raja, and Meurah Dua. By paying attention to
these conditions, it is appropriate that the commodity was developed and enhanced economic role in this
region. Moreover, rainfall and land suitability support for high yielding.
Cocoa Produce (TM): The area of cocoa produce usually was not far from the settlement in the yard and
in the small hills in the countryside. Its area is adjacent to the rice fields, with relatively gentle topography
to slightly wavy. On average holdings covering 1.0 s.d. 1.5 ha per farmer. Plants cultivated in the 1980s
and 1990s in the form of several government projects such as P2WK, PRPTE, P2RT and OECF. Planting
material of Plantation Office and some of the local. Crop conditions are generally quite fertile, height of 4-
5 m with a population of relatively intact. Maintenance pruning plants in particular has been done by
almost all respondents, but the frequency is very diverse. Most do so is limited to disposal of water
shoots, but non of them doing with a frequency of 3-4 times per year. The performance of cocoa plants is
quite lush, many branches overlap and overhanging. By such maintenance and treatment the cocoa fruit
rot disease (Phytophthora palmivora), especially during the rainy season is quite heavy and diseases
reported horsetail, especially in rural sub-districts Kayee Jatoe and Bandar Baru
Household Welfare Condition of Cocoa Farmers: In agriculture, the components that were most
responsible for the welfare of farmers is land. The more land owned by farmers and land increasingly
Suber, the more prosperous farming family who owns the land. Prosperous farmers means, the
production pf cocoa can meet the needs of the family for a month plus any saving. However, if production
can only meet the needs of the family, without saving, then it can be said the family is almost prosper. But
when the results of its cocoa plantations can only meet the needs of his family is less than 100%, then it is
considered not prosperous family. Bapeda of Pidie Jaya (2010), in a study mentioned cocoa farming
community can be grouped into three levels, namely: "Prosperity", "Medium", and "Poor". Although these
levels are not entirely constructed by cocoa farm income, but the level of welfare is also associated with
extensive cocoa plantations owned. The farmers who are at the level of "prosperous" generally have a
minimum of two hectares of cocoa plantations, while farmers who are at the level of “medium” only has
about one hectare cocoa farm. Meanwhile, farmers who are at the level of "poor" his cocoa plantation area
less than one hectare. The minimum estimate for cocoa to achieve various levels, namely Survive (family
farmers do not starve or equivalent poverty line), Production Plantation (farmers maintain the the plant
so that it can produce), Reproduction Economy (farmers can rejuvenate plant and economic life is up,
about 25 years), and the Economic Social Reproduction (farmers can prosper family) are different for the
condition of intensively reared garden with the one that are not maintained intensively. As shown in
Table 5.10, to achieve various levels, cocoa fields intensively reared can be more efficient in the use of
land resources.
Table 4.1: Minimum Size Estimation Cocoa Plantation to Achieve Survive Level
Level
Intensive(Ha)
Non Intensive (Ha)
Survive
0,914
2,088
Production
1,068
2,276
Economic Reproduction
1,159
2,689
Social
EconomicReproduction
2,030
5,136
Source: BAPPEDA Pidie Jaya, 2013
Cocoa Marketing Channels: Commodity marketing channels for cocoa beans in Pidie Jaya, which is
known today is composed of two types, namely the traditional channel and partnerships channel.
Traditional channels are channels that are formed following the marketing dynamics that occur from time
to time, following the law of supply and demand. Forms of distribution channels is a standard form,
ranging from farmers to traders, wholesalers and exporters. Partnerships channel is a channel of
distribution which is a modification of the traditional distribution channels. This channel has a shorter
stages, so the margins are absorbed along the channel is also smaller. As a result, the margin that can be
enjoyed by each player along marketing channel is also greater than the traditional channels.
Traditional Marketing Channels: In traditional channels, exporters are price setters, because the price
of cocoa at the farm level refers to the price determined by the exporter thus exporters is the reference
market
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Figure 5: Traditional Distribution Channels of Cocoa Commodities in Pidie Jaya
Based on the world cocoa price, exporter and then position themselves to wholesalers as a determinant of
the purchase price and quality in Cocoa. While at the level of the underlying distribution, the purchase
price is determined by both the merchant wholesalers and traders are invariably subordinate to the price
at the farm level. High and low prices are determined based on the moisture content, the size of the seed,
the content of impurities, the integrity of the seed, and odor / aroma..
Farmers (Cocoa producers): Prior to the sale, first seek information from market prices in Beureunun
and other farmers who have sold their bean. Selling price farmers to traders range between Rp 27,000, -
up to Rp 27,500, - per kg depending on the quality of its cocoa. How to sales, the goods received at the
merchant with the cost of unloading and transporting borne by farmers, while the unloading costs borne
by the buyer. Payments made in cash or later than about 1 to 2 days after the transaction.
Small Traders: Small traders gatherers and obtain raw materials of cocoa both from farmers and also
from his own garden. Cocoa received by they merchants at merchant places, delivery costs borne by
farmers while unloading costs borne by the merchant. Used sacks of Cocoa container is returned to the
farmers.
Exporter: Exporters gain Cocoa beans from wholesalers in Pidie Jaya. The price negotiated by phone and
or by delivery of a example. The goods were received at the exporter place so the delivery cost are borne
by wholesalers. Payment done between 2 to 3 days after the transaction and paid in cash or through bank
accounts. In the process of buying and selling cocoa, quality has always been one of the determinants for
pricing agreed by both parties. Quality indicators typically include the amount of moisture that is still
contained in cocoa beans, the amount of dirt that is still attached, conditions cocoa bean itself whether is
still containing the fungus, as well as the size of the seed. Indicators of cocoa quality and relation with
price cuts can be seen in the following table.
Table 4.2: Quality Indicators and Discounts
Cocoa Beans
Standard
Quality
Cocoa Bean
Sample
Pieces
Water Content
10%
18%
8%
Dirt
5%
10%
5%
Moldy seeds
3%
10%
7%
Number of seeds
110 pieces
120 pieces
9%
Total Pieces
29%
Channel Partnership: Partnership is done by Cocoa Cooperative Pidie Jaya (Kopka Jaya), which also has
cooperation with Ventura Indonesian Cocoa based in Medan, North Sumatra. Partnership model that is
built is to follow the same model that has been done by previous partner Amajaro. Because Amajaro was
no longer in partnership business with the cocoa farmers in Pidie Jaya, then this n empty role taken by
Kopka Jaya. Kopka Jaya aware, a model partnership involving farmers will not succeed if it is not
supported by good market access. Because all cocoa bean collected from farmers, later when it come to
be sold and they can not find the right buyer who wants a binding long-term contracts with price and
quality agreed upon, then the chances of success of this partnership will be small. Therefore Kopka Jaya
invite Ventura Indonesian Cacao to join and support Kopka Jaya, especially in the area to market the
bean.
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Figure 6: Commodity Distribution Channels Cocoa Partnership in Pidie Jaya
In the marketing cooperation between farmers and exporters, the exporter bias receive dry cocoa
purchases. Cocoa farmers sold in dried form to Cocoa Cooperative Pidie Jaya (KOPKA JAYA), weighing
activities and delivery to the plant is done by appointed officers and administrators come from farmer
groups. Furthermore, logs processed at the processing plant, after the packaged processed products
ready for delivery to the exporter. Determination of the selling price of cocoa farmers Kopka members
and non-members through the mechanism of purchases through a partnership. To reduce the negative
impact of the power of monopsony, regulation of the rights and obligations of farmers and KOPKA JAYA
contained in the MOU / agreement cocoa marketing cooperative partnership between KOPKA JAYA Pidie
Jaya with chairman of farmer groups, as follows:
1. The obligation of farmers / farmer groups
a. Sending non-fermented dry cocoa plant to KOPKA JAYA Pidie Jaya
b. Cocoa sell to the KOPKA JAYA
c. Receiving payments from KOPKA JAYA sales
d. Pay the cost of processing
e. Entitled to receive a loan of fertilizer and transport costs from KOPKA JAYA to exporters
2. Obligations KOPKA JAYA Pidie Jaya
a. Setting a 10 percent yield
b. Buying Cocoa with provisions Beureunun market price plus a premium price (between Rp 1500, - up to
USD 2000, - higher than the market price Beureunun)
c. Make a payment of 2 to 3 days after pricing
3. Obligations Cacao Ventura
a. Cocoa receive appropriate predefined quality
b. Weighing in at factory
c. Doing Cocoa processing plant
d. Other tasks deemed necessary
Cocoa Marketing Efficiency
Traditional Channels
Market participants from traditional channels include cocoa farmers as producers, traders, wholesalers
and exporters. Regarding the marketing margin of each actor can be seen in the table above.
a. Traders.
Collector to pay for the cost of unloading (usually done by family labor), mixing cocoa beans using family
labor. Cost of sales done by a family consisting of unloading and delivery using the motor alone. The total
cost of marketing middlemen Rp 500 / kg average sales price of Rp 29,000, - and the profit margin of Rp
1500, - per kilogram (4.5%).
b. Wholesalers.
Wholesalers pay for the cost of unloading (done by the employees), if were hired Rp 500, - per kg,
handling activities such as sorting the results of using the seed size sieve machine. Furthermore, the
activity of rafting. During the treatment process proceeds until ready to sell about 0.5 percent shrinkage
occurs.
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Table IV.2: Margin Analysis on Traditional distribution Channels.
No
Description
Rp/Kg
Share Price
(%)
1
Xxporter
a. Selling Price
32,250
100.0
b. Marketing margins
-Cost Marketing
750
2.3
-Margin Advantages
750
2.3
c. Purchase Price
30,750
92.5
2
Wholesalers Beureunun
a. Selling Price
30,750
92.5
b. Marketing margins
-Cost Marketing
500
1.5
-Margin Advantages
1,250
3.8
c. Purchase Price
29,000
3
traders Gatherer
a. Selling Price
29,000
87.2
b. Marketing margins
-Cost Marketing
500
1.5
-Margin Advantages
1,500
4.5
c. Purchase Price
27,000
83.7
4
Farmers
27,000
83.7
Exporter: Exporters to pay the cost of unloading (using force employees). At the level of exporters
conducted intensive treatment outcome by following SLI quality standards and adapted to market
demand or importer. Marketing costs exporters reached USD 750, - per kilogram of cocoa beans,
consisting of the cost of processing according desired quality importers, shipping to the port of Belawan,
administrative costs, and procurement sack. The average selling price of USD 32 250, - per kilogram and
the profit margin of Rp 750, - per kilogram of cocoa beans (2.3%).
Channel Partnership: In this marketing channel, market participants consisted of farmers as producers,
KOPKA JAYA, and Exporter. Regarding the marketing margin each market participants can be seen in the
following table:
Table 4.3: Cocoa Commodity Marketing Margin Analysis on Marketing Channel Partnership
No
Description
Rp/Kg
Share Price (%)
1
exporter
32,500
100.0
a. Selling Price
-
b. Marketing margins
750
2.3
-Cost Marketing
750
2.3
-Margin Advantages
31,000
93.9
c. Purchase Price
-
2
-
Kopka Jaya
31,000
93.9
a. Selling Price
-
b. Marketing margins
750
2.3
-Cost Marketing
1,500
4.5
-Margin Advantages
28,500
86.4
c. Purchase Price
4
Farmers
28,500
86.4
Analysis of Farmers' Income Growth: With traditional marketing distribution can sell cocoa farmers
only Rp 27,000 / kg. While the pattern of prices received by farmers partnership higher at USD 28,500 /
Kg. Thus farmers receive additional income of $ 1500 per Kg her. Or if you look percentage increase is
5.5%. Meanwhile, when seen share prices paid to farmers, compared to the total received by the exporter
highest price also increased from 83.7% to 86.4%.
Table 4.4: Analysis of Farmers' Income Growth
Item Traditional Partnerships
Price (Rp) 27.000 28.500
Additional Income - 1500
Increase (%)n - 5,50%
Share of Price 83,70% 86,40%
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Mediated Partnership Model (MOTRAMED): Referring to the successful implementation of the
commodity MOTRAMED coffee, this model is recommended for cocoa development in Pidie Jaya. In this
model of quality improvement and marketing is one package, because based on the experience of the
introduction of quality improvement technology without being followed with price improvement will be
difficult to be adopted by farmers. This model is made as simple as possible in order to be understood and
applied by the parties involved. MOTRAMED goal line with the objectives of partnership as set out in PP
44/1997 that increase revenue, business continuity, improve the quality of partner groups, increase in
the scale of business, as well as foster and enhance the ability of self-help groups efforts. 4 MOTRAMED
concept can be seen in the following figure:
Figure 7: Motramed Concept With 4 Player
With this concept it is expected that cocoa yield of being harvested by farmers in Pidie Jaya will increase
along with the increasing productivity of the cocoa plantation. Increasing the amount of cocoa beans
produced must also be accompanied by an increase in the quality of cocoa beans, so as to meet the
expectations of buyers who want a super quality cocoa products and are willing to pay a higher price.
5. Conclusion and Recommenadation
1. The distribution system involving the partner can provide greater profits for farmers, so that the
government's aim to improve the welfare of farmers can be achieved if the distribution channel with this
partnership system can be adopted and replicated elsewhere. This an Evident by adopting this system
farmers selling price is higher than the tarditional marketing system. Thus the income received of course
also be higher.
2. To increase the degree of success, in the early stages the Motramed system should be used. Each
player in this partnership distribution system accompanied by a mediator who also serves as a
consultant to ensure all parties involved have sufficient and adequate knowledge to be able to understand
how to work under Motramed.
3. In contrast to the previously existing Motramed concept, in developing cocoa industry in Pidie Jaya, the
author tends to involve the cooperative as an arm of the exporter. Cooperative function is not only to
ensure the continuity of cocoa beans that can be supplied to exporters, but more importantly the training
function to increase the knowledge of cocoa farmers, both associated with the pest, as well as techniques
to duplicate the results can be carried out and monitored properly.
4. With thigher price would be paid by the buyer, it will apply the concept of trickle-down effect, flowing
profits from the wholesalers, traders and also the most importantly of course the farmers.
Recommendation
1.To improve the quality of concept of partnership distribution system which is currently being run by
Kopka Jaya, with the support of VCI, in order to increase the quality and quantity of cocoa beans produced
in the future
2. The next step is to replicate this Motramed 4 player model to other production area in Aceh. Thus
consistently Aceh will be able to supply quality cocoa with sufficient quantities and done in a sustainable
manner.
References
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Padang, West Sumatra
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3.BAPPEDA Pidie Jaya. (2010). Plantation Development Studies Pidie Jaya, Pidie Jaya BAPPEDA
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fistulosum L), Andalas University in Padang, West Sumatra
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Literacy, London, 1987
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Advantage Through Business Partnership Development of Horticulture. Forum agro-economic
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The Role of Marketing Environment Audit in Marketing Performance through Index Of
Services Marketing Excellence (ISME) in Bandung Stars Hotel
Likewati W.O., Kartini, D., Ariawati, R., Sari D.
Padjadjaran University , Bandung Indonesia
likewatiwaode@yahoo.co.id
Abstract: The purpose of this paper is to explain the marketing performance of Stars hotel in bandung
city– Indonesia through variables Marketing environment Audit in which their effects are mediated
through variable Services Marketing Audit known as Index of services marketing excellence ISME, (Berry,
Conant and Parasuraman, 1991). The Population in this study consist of 73 hotels with various stars i.e 3
star hotels, 4 and 5 in the city Hotel in Bandung. From this population 30 stars hotels ware collected
ramdomly in which 15 of them are 3- stars hotel, 11 are 4- stars hotel and 5 are 5- stars hotels. Other than
that, some informan were interviewed to formed a qualitative aspect of this study. To analyzed the
quantitative data we used Partial Least Squares, using SmartPLS-2 and Maxqda-11 to anlyzed the
qualitative data. The results of the study show that the influence of marketing audit services (ISME) to the
hotel's marketing performance is not significant, Both variable in marketing environment audit
significanly affect the marketing performance, but Macro Environment audit is not significantly affect the
ISME, whereas task environment audit significantly affect the ISME. Thus there is no indirect effect of
Marketing Environment to the marketing Performance.
Keyword: Marketing audit, marketing performance, Marketing Environment. ISME
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Financial Performance: Current Assets, Debt to Equity Ratio, Return on Assets, and
Growth towards Dividend Payout Ratio
LeniSusanti
Padjadjaran University, Bandung Indonesia
STIE STAN Indonesia Mandiri, Bandung Indonesia
Abstract: The research is aimed to investigate the effect of financial performance of the company through
the current ratio, debt to equity ratio,return on equity, and growth towards the dividend payout ratio
ofboth simultaneously and partially, on consumer goods industry sector companies listed in Indonesia
Stock Exchange. Secondary data is used and collected based on time series and cross section from 2010
until 2013, among 15 public company as unit observation.The ordinary least squares method of
regression was employed in carrying out this analysis and come to the conclusion that simultaneously,
current asset, debt to equity ratio, return on equity and growth have significant influence toward the
dividend payout ratio. Partially, the current assets has positive and no significant effect toward the
dividend payout ratio, the debt to equity ratio has negative and no significant effect towards the dividend
payout ratio, the return on equity has positive and significant effect towards the dividend payout ratio.
The growth has negative and significant effect towards the dividend payout ratio.
Keywords: current ratio, debt to equity ratio, return on equity, growth, dividend payout ratio
1. Introduction
Dividend policy is one of the controversial issues in modern corporate finance, since Lintner (1956)
suggests the results of research on the distribution of dividends and try to convey the dividend models.
Followed by the work of Miller & Modigliani (1961), who stated there was no effect of dividend policy on
firm value. To this day, a lot of research on dividend policy relating to different aspects. Dividend policy is
a matter of whether the profit made by the company to be distributed to shareholders as a dividend or
profit earned will be retained in the form of retained earnings (Gitman&Zutter, 2012). Too many factors
into consideration a company's dividend policy, so it is difficult to conclude which is the most dominant
factor affecting the company's dividend policy. The existing literature on the dividend payout ratio, in
generally did not mention the level of dividend payments that will maximize shareholder wealth.
Therefore, there is still a gap to examine what factors need to be considered by the company in its
dividend policy. Although many factors can affect the dividend payout ratio, but in this study will only
discuss the financial factors that are measured by using elements of the company's financial performance
which is generally used as the basis for analysis. The financial performance of the company is able to give
a good overview to management and investors regarding the growth and development of the company, as
well as the company's financial condition at a particular period. Financial performance can be measured
through financial ratios, because of financial ratios are necessary analytical tools to measure the
condition and efficiency of the company's operations to achieve company goals. By looking at the
importance of financial ratio information, it is necessary to find the answer whether the current ratio,
debt to equity ratio, return on equity and growth has influence toward the dividend payout ratio.Thus it
attracted for researchers to determine the effect of current ratio, debt to equity ratio, return on equity
and growth toward the dividend payout ratio in the consumer goods industry sector companies listed on
the Indonesia Stock Exchange Period 2010-2013.
Consumer goods industry sector is a sector that is attractive to be used as the unit of observationin this
study. According to data of the ministry of industry, in 2013 the manufacturing industry grew 7.1%
despite various negative factors emerge as rising gas prices, electricity tariff, minimum wage workers, the
infrastructure is not reliable, as well as the weakening of the exchange rate, still does not interfere with
the growth of this sector. Most of the components forming manufacturing index came from consumer
goods industry (44%), basic industries (27%), and various industries (27%). Fuethermore, the durability
of the manufacturing sector mainly supported the consumer goods sector which grew 28%. This increase
is the second highest increase of ten sectors that exist. Consumer goods sector performance is also higher
than the other two sectors namely various industry sectors and basic industries that are part
manufacturing index. The shares of this company will be an option because they offer the potential
increase. Therefore, it is important to understand the factors that influence the dividend policy is proxy
by the dividend payout ratio through financial performance factors are represented by current ratio, debt
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to equity ratio, return on equity, and growth. The rest of this paper should containreview of literature on
this subject, explains the research methodology in the next section, discuss the results of the research,
make conclusions and recommendations on the basis of results.
2. Literature Review
The theoretical principles underlying the dividend policy of firms can be described either in terms of
dividend irrelevance or dividend relevance theory. Miller &Modigliani (1961) irrelevance theory forms
the foundational bedrock of modern corporate finance theory. Miller & Modigliani argued that dividend
policy is irrelevant for the cost of capital and the value of the firms in a world without taxes or transaction
cost. They showed that when investors can create any income pattern by selling and buying shares, the
expected return required to induce them to hold firm's shares will be invariant to the way the firm
packages its dividend payments and new issues of shares. Dividend policy aims at defining the dividend
payout ratio, the type of dividend to be paid and the way of maintaining dividend stability. Paying
dividends is important to shareholders since it constitutes a return on their investment in the company.
Dividend is the share of profits distributed to shareholders. Dividend paid to shareholders depends on the
policy of each company, thus requiring a more serious consideration of the management company. The
more retained earnings, the less amount of profit allocated to dividend payment. Thus the dividend
payout ratio is the percentage of income (cash dividend) which will be paid to shareholders.
Dividend policy plays an important role in determining the value of the company. Therefore companies
should consider both factors in making decisions dividend. Rozeff (1982) states that insider ownership
(percentage of shares held by insiders), the average rate of revenue growth, the forecast value line for the
average rate of growth of income, the beta coefficient, and the number of holders of ordinary shares
(stock) effect on dividend payout ratio. Amidu&Abor (2006) results show positive relationships between
dividend payout ratio and profitability, cash flow and tax.The result show negative association between
dividend payout and risk, institutional holding, growth and market to book value. However, the
significant variables in the results are profitability, cash flow, sale growth and market to book value. Malik
et.al (2013), found that liquidity, leverage, earning per share, and size are positively related to dividend,
whereas growth and profitability are found to be insignificant determinant of dividend policy. The results
from probit model estimation reveal that earning per share, company profitability, and size increase the
probability of companies to pay dividend, whereas growth opportunities decrease the probability of
paying dividends. Kania& Bacon (2005) stated that the ROE, sales growth, beta, CR, DTA, insider
ownership, institutional ownership and capital spending has a significant negative effect to dividend
payout ratio while the variable EPS which has a significant positive effect.
Adelegan (2003) stated that the dividend yield and dividend payout ratio was higher in companies with
more debt. Higher levels of dividends increase the levels of leverage. It appears that managers in
corporations with higher levels of leverage separate the dividend policies from funding policies.
Therefore, they pay dividends without taking account of the level of leverage. This is probably because
there is compressed competition among corporations which distribute dividends to attract investors
despite their increased debt. Al-Malkawi (2007) examined the determinants of corporate dividend policy
in Jordan. The result the proportion of stocks held by insiders and the state significantly affected the
amount of dividends paid. Size, age, and profitability of the firm seem to be determinant factors of
corporate dividend policy in Jordan. Al-Kuwari (2009) investigates the determinants of dividend policies
for firms listed on Gulf Cooperation Council (GCC) country stock exchanges. The impact of government
ownership, free cash flow, firm size, growth rate, growth opportunity, business risk, and firm profitability
on dividend payout ratios. Result dividend payments related strongly and directly to government
ownership, firm size and firm profitability, but negatively to the leverage ratio. Some other considerations
that affect the company's decision to take a policy for dividends to shareholders, including through
financial ratios of the company (Kania& Bacon, 2005; Al-Malkawi, 2007; Al-Kuwari, 2009).
Financial ratios have been used extensively for modeling purposes by practitioners and researchers.
Stakeholders require a financial ratios to analyzethe financial statements to evaluate company
performance.Generally, the liquidity ratio is the first concern of a financial analyst. These ratios measure
the ability of a company to pay off its short-term liabilities when they fall due.The level of liquidity of a
company is measured by using a current ratio and acid-test (Quick) ratio (Gitman&Zutter, 2012: 71). In
this study, liquidityproxied by the current ratio, calculated by current assets divided current liabilities.
Second, the leverage ratio shows the amount of funds received from the lender, this ratio shows the
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company's ability to meet long-term obligations, proxied by debt to equity ratio. Third, the profitability
ratio indicates a company's ability to generate profits, proxied by return on equity. This ratio indicates a
measure a corporation's profitability by revealing how much profit a company generates with the money
shareholders have invested. Return on equity illustrate the efficiency of the company in managing assets
to generate profits. By analyzing return on equity we are not only able to determine the amount of income
derived from capital investments that we spend, but also can find out more about the quality of the
income obtained from the company. And finally, the growth ratio measures the amount of a company's
ability to maintain its position within the scope of the overall economy and in their own industry sector.
The growth rate of the company also includes the one that should be considered in determining the level
of dividend payout ratio. In this study, using a proxy asset growth. Therefore, a model designed in this
study is as a representation of the company's financial performance and then can be used to take the
company's dividend policy.
3. Methodology
Research Design: Our study is causality research in nature that we want to investigate the effect of
financial performance of the company through the current ratio, debt to equity ratio, return on equity and
growth towards the dividend payout ratio in context of consumer goods industry sector companies,
which is based on secondary data collected from annual reports of the firm.
Population and Sampling: Our population is consumer goods industry sector companies listed in the
Indonesia Stock Exchange. The sampling method is a judgment sampling, i.e. sample selection based on
certain criteria. These criteria are the consumer goods industry sector companies whose share are always
listed and actively traded on Indonesia Stock Exchange during the years 2010- 2013, always presenting
financial information, all the companies mentioned above should be qualified in earning profits during
the period 2010 to 2013 consecutively and paid dividends during the observation period, have the data
which is necessary to measure the variables used in study, such as data on dividend payout ratio, current
asset, debt to equity ratio, return on equity, and assets growth.From 34 consumer goods industry sector
companies, selected 15 companies. This research uses secondary data for the period 2010-2013, obtained
from the Indonesian Capital Market Directory.
Research Variables and Operational Definition
Dependent Variable: Dividend Payout Ratio as a dependent variable, defined as the dividend per share
divided by earning per share (Gitman, 2003:570).
Independent Variable
Current Ratio: The current ratio as a proxy of liquidity is a major consideration in many dividend policy.
Current Ratio, which equal to current assets divided by current liabilities (Kanwal& Kapoor, 2008; Ahmed
&Javid, 2009). The higher current ratio indicates the higher ability of the company to payall short-term
liabilities. Cash dividends will be distributed only with cash,so if the cash in bank shortage may restrict
the distribution of dividends. The higher current ratio shows companies more liquid. If the company is
liquid, indicating the company effective in managing cash and other short-term assets, because most of
the company’s capitalis embedded in the form of cash or cash equivalents, so this isa greater opportunity
to distribute cash dividends.Based on the statement, there is a positive relationship between current ratio
and dividend payout ratio(Amidu&Abor 2006, DeAngelo et al, 2004).Thus the hypothesis can be
formulated as follows:
Hypothesis 1: Current Ratio has positive significant affects towards the dividend payout ratio
Debt to Equity Ratio: Debt to Equity Ratio, is the ratio between total liabilities (current liabilities and
long term debt) and its own capital. Debt to equity ratio describes the ability of the company to pay all of
its obligations, indicated by how much a part of equity used to pay debts. Therefore, the lower debt to
equity ratio indicates the higher ability of company to pay all liabilities. The higher proportion of debt in
capital structure indicates the highera number of obligations. Increasing the debt will affect the size of net
income available to shareholders including dividends to be received, because the interest payments
would take precedence than distribute dividends(Sutrisno, 2009). Therefore, the higher debt to equity
ratio indicates the smaller ability of company to pay dividends, because companies have to prioritize
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paying the interest and the loan (Faccio et al., 2001; Gugler&Yortoglu, 2003; Al-Malkawi, 2005).Thus the
hypothesis can be formulated as follows:
Hypothesis 2:Debt to Equity Ratio has negative significant affects towards the dividend payout ratio.
Return on Equity: Return on equity measures how much net income can be generated from the
investments made by shareholders. Return on equity as a proxy for profitability is the company's ability
to earn income. Companies that have a large profit with a stable net income will be able to get a larger
cash flow and therefore the company could pay bigger dividends (Mehta, 2012). Profitability positive
effect on dividend policy (Ahmed &Javid, 2009; Thanatawee, 2011). High return on equity reflects the
company’s efficiency in using its own capital to produce high profits for the company itself. This ratio
indicates management’s success in maximizing the rate of greater return for the shareholder. The higher
return on equity of a company, the better its the performance, so that there will be more and more
investors who are interested to invest their funds in the company. If the higher net income indicates the
higher dividend will be distributed to investors.Thus the hypothesis can be formulated as follows:
Hypothesis 3: Return on equity has a positive significant affects towards the dividend payout ratio
Growth: Growth, proxy by asset growth, the year-on-year percentage change in total assets. Firms with a
rafid rate of growth will require greater funding to funds this expansion. Therefore, firms prefer to
withhold earnings than pay dividends (Chang & Rhee, 1990). Consequently, firms with higher growth
opportunities are likely to retain a greater portion of their earning, resulting in lower dividend payout
ratio (Rozeff, 1982; Alli et al., 1993; Mohammed et al., 2006). Wahyudi and Baidori (2008) founds the
large increase in the growth of total assets may lead to a decrease in dividend payments to shareholders,
due to the growth in total assets will be financed from internal funding in the form of retained earnings.
Thus, the higher growth in total assets led to the payment of dividends decreased. Thus the hypothesis
can be formulated as follows:
Hypothesis 4: Growth has negative significant affect towards the dividend payout ratio.
All variables used in this study are defined in Table 1 along with the expected sign.
Table 1: Variables with their symbols and expectation
Variables
Symbols
Description
Expectation
Dividend Payout
DPR
Dividend per share/Earning per share
Current ratio
CR
Current assets/Current Liabilities
+
Debt to Equity Ratio
DER
total liabilities (current liabilities and long
term debt)/Equity
-
Return on Equity
ROE
Net Income/ Net worth (equity)
+
Growth
GRO
Total Assetst –Total assetst-1/Total Assetst-1
-
Computed by author.
Models and Data Analysis: Data analysis methods used in this research is multiple linear regression,
which aims to test and analyze the influence of independent variables on the dependent variable.
Processed by the program Statistical Package for Social Science (SPSS). The formula used is as follows:
Where,
DPR = Dividend Payout Ratio as dependent variable
α = constant
β1 – β4 = Coefficient of the independent variable
whereas CR, DER, ROE, GRO represent current ratio, debt to equity ratio, return on equity and growth and
all these variables are independent variables.
To ensure that the data obtained deserve to be treated with multiple linear regression, then we do a test
of classical assumptions, by using the normality, multicollinearity, heteroscedasticity and
autocorrelation. Furthermore, we doa F-test and t-test. F test is a test of the regression coefficients
simultaneously, to see the effect of all independent variables on the dependent variable. T test is used to
determine whether the independent variables (current ratio, debt to equity ratio, return on equity and
growth) partially significant effect on the dependent variable (dividend payout ratio). Finally, the
calculated coefficient of determination, to measure how far the ability of the model to explain variations
in the dependent variable.
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4. Results and Discussion
The research is aimed to investigate the effect of financial performance of the company through the
current ratio, debt to equity ratio, return on equity, and growth towards the dividend payout ratio of both
simultaneously and partially. The population in this study is the consumer goods industry sector
companies listed on the Indonesia Stock Exchange (IDX) during the period 2010 to 2013.From 34
consumer goods industry sector companies, but only 15 companies that meet the requirements to be
sampled.
Table2.Consumer goods industry sector companies as a sample
No.
Nama Perusahaan
Kode
1.
PT. Delta Djakarta Tbk
DLTA
2.
PT. Indofood CBP SuksesMakmurTbk
ICBP
3.
PT. Indofood SuksesMakmurTbk
INDF
4.
PT. Multi Bintang Indonesia Tbk
MLBI
5.
PT. Mayora Indah Tbk
MYOR
6.
PT. Darya VariaLaboratoriaTbk
DVLA
7.
PT. Kimia Farma (Persero) Tbk
KAEF
8.
PT. Kalbe FarmaTbk
KLBF
9.
PT. Merck Indonesia Tbk
MERK
10.
PT. Taisho Pharmaceutical Indonesia Tbk
SQBB
11.
PT. Tempo Scan PasificTbk
TSPC
12.
PT. GudangGaramTbk
GGRM
13.
PT. Handjaya Mandala SampoernaTbk
HMSP
14.
PT. Mandom Indonesia Tbk
TCID
15.
PT. Unilever Indonesia Tbk
UNVR
Source: Indonesia Stock Exchange
Descriptive Statistics: Table 3 provides a summary of the descriptive statistics of all variables for the 15
listed consumer goods industry sector companies for a period of four years from year 2010–2013 with a
total of 60 observations. The table reports the mean, standard deviation, number of observations,
minimum and maximum of all variables to give an overall description of data used and to serve as data
screening tool to spot unreasonable figure.
Table 3: Descriptive Statistic
N
Minimum
Maximum
Mean
Std. Deviation
CR
60
.58
11.74
3.3920
2.24381
DER
60
.10
2.49
.6648
.56303
ROE
60
.09
1.37
.3748
.33656
Growth
60
-.53
1.22
.1781
.25939
DPR
60
.08
1.72
.5534
.35437
Valid N (listwise)
60
Result reported in Table 3 Descriptive statistics overall sample data in the period of 2010 to 2013 as
many as 60 data. The average value of the current ratio, debt to equity ratio, return on equity and
dividend payout ratio where the standard deviation value is smaller than the average value, then it shows
that the current ratio, debt to equity ratio, return on equity in this study have distribution with spread
evenly. The growthvariables, shows the standard deviation value is greater than the average value then it
shows that the growth of data in this study did not have distribution with spread evenly.
Corellation Analysis: Correlation analysis is to discuss the relationship between the variable current
ratio, debt to equity ratio, return on equity and growth toward dividend payout ratio.
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Table 4. Correlations
CR
DER
ROE
Growth
DPR
CR
Pearson Correlation
1
-.660**
-.436**
-.097
.023
Sig. (2-tailed)
.000
.000
.460
.861
N
60
60
60
60
60
DER
Pearson Correlation
-.660**
1
.692**
.033
.182
Sig. (2-tailed)
.000
.000
.800
.165
N
60
60
60
60
60
ROE
Pearson Correlation
-.436**
.692**
1
.011
.536**
Sig. (2-tailed)
.000
.000
.936
.000
N
60
60
60
60
60
Growth
Pearson Correlation
-.097
.033
.011
1
-.469**
Sig. (2-tailed)
.460
.800
.936
.000
N
60
60
60
60
60
DPR
Pearson Correlation
.023
.182
.536**
-.469**
1
Sig. (2-tailed)
.861
.165
.000
.000
N
60
60
60
60
60
**. Correlation is significant at the 0.01 level (2-tailed).
Computing by author using SPSS.
Resultsreported in Table 4 indicate that the correlation between the current ratio toward the dividend
payout ratio, debt to equity ratio toward dividend payout ratio, growth toward dividend payout ratio
included into the category of very low, each of which has a correlation coefficient of 0.023, 0.182, -0.469.
Then to the relationship between return on equity toward dividend payout ratio is included in the
medium category (0.536).
Classical Asummption Test
The Normality Test: The normality assumption assumes that the errors of prediction are normally
distributed. In this study, normality test used a P-P plot (probability-probability plot or percent-percent
plot). P-P plot is a probability plot for assessing how closely two data sets agree, which plots the two
cumulative distribution functions against each other.
Figure 1. Normal P-P Plot
Computed by author using SPSS
Result reported in Figure 1 indicate the plot of the data (depicted by dots) is to follow the diagonal line, so
it can be concluded that the residual variable data distribution is normal.
The Multicollinearity Test: Multicollinearity refers to the situation in which independent variables are
highly correlated; resulting in a paradoxical effect, whereby the regression model fits the data well, but
none of the independent variables has a significant impact in predicting the dependent variable (Gujarati,
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2004). Among several ways of multicollinearitytests, Pearson coefficient of correlation between variables
and Variance Inflation Factor (VIF) are used detectany problem.
Table5: Variance Inflation Factor (VIF) of the explanatory variables
Model
Collinearity Statistics
Tolerance
VIF
1
(Constant)
CR
.559
1.790
DER
.363
2.757
ROE
.520
1.923
Growth
.989
1.011
a. Dependent Variable: DPR
Table 5 shows that the four independent variables do not occur multicollinearity because VIF <10. Thus,
the four independent variables that can be used to predict the dividend payout ratio during the
observation period.
The Heteroscedasticity Test: The heteroscedasticityaims to test whether the regression model occurs
inequality variance of the residuals of the observations to other observations. If the variance of the
residuals of the observations to other observation constant, then called homocedastisitas. To detect the
presence or absence of heteroscedasticity is to look at the graphs plot the predicted value of the
dependent variable is ZPRED with residual SRESID. Detection of the presence or absence of
heteroscedasticity can be done by looking at whether there is a certain pattern in sccaterplot graph
between SRESOD and ZPRED where Y is the Y axis that has been predicted, and the X axis is the residual
(Yprediction – Yactual) who has in studentized.
Figure 2.heteroscedasticity test
Computed by author using SPSS
Figure 2 shows that the dots dispersed and scattered above and below the number 0 on the axis Y. It can
be concluded that there is no heteroscedasticity in regression models, so it deserves a regression model
used to predict the dividend payout ratio.
The Autocorrelation Model: The autocorrelation of random process describes the correlation between
values of the process at different times, as a function of two times or of the time lag. In this study used the
durbin-watson test.
Table6. Durbin-Watson Value-Model Summaryb
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
Durbin-
Watson
1
.767a
.588
.558
.23553
1.719
a. Predictors: (Constant), Growth, ROE, CR, DER
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Based on the results obtained autocorrelation test DW value of 1.719, this value will then be compared
with the value of du and dl the Durbin-Watson tables. The amount of DW-table values du = 1.68891 and
value dl = 1.47965, 4 - du = 2.31109 and 4 - dl = 2.52035. Waston Durbin test value is above the value of
du and below the value of 4 - du. It can be concluded that this study there was no indication of symptoms
autocorrelation.
Regression Results Analysis: The data in this study was analyzed by using multiple linear regression
model in order to determine contribution of independent variables (current ratio, debt to equity ratio,
return on equity and growth) to predict dividend payout ratio as the dependent variable. The results of
multiple linear regression calculation can be seen in Table 7.
Table7: Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
B
Std. Error
Beta
1
(Constant)
.367
.109
CR
.026
.018
.165
DER
-.143
.090
-.228
ROE
.811
.126
.770
Growth
-.620
.119
-.454
Dependent Variable: DPR
Computed by author using SPSS
Based on Table 7, the regression model is formed as follows:
Simultaneous Test (Test-F)
Table8. F-Test Result
ANOVAa
Model
Sum of Squares
Df
Mean Square
F
Sig.
1
Regression
4.358
4
1.089
19.640
.000b
Residual
3.051
55
.055
Total
7.409
59
a. Dependent Variable: DPR
b. Predictors: (Constant), Growth, ROE, CR, DER
Computed by author using SPSS
F-test is used to determine the effects of current asset, debt to equity ratio, return on equity, and growth
towards the dividend payout ratio with simultaneously. According table 9, the influence significance test
of CR, DER, ROE and GRO simultaneously towards the dividend payout ratio, with the F statistic, it was
obtained Fcount 19.640 and the error probability (p) = 0.000. It shows that the p value (0.000 <
significance level 0.05), so it can be concluded that the variable current asset, debt to equity ratio, return
on equity and growth simultaneously gave significant effects towards the dividend payout ratio.
Partially Test (t-Test): To test whether all independent variables were entered has a significant
influence on the dependent variable individually, then it needs to be tested by t-test. The t test results are
as follows:
b. Dependent Variable: DPR
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Table9. t-Test Result
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
T
Sig.
B
Std. Error
Beta
1
(Constant)
.367
.109
3.358
.001
CR
.026
.018
.165
1.425
.160
DER
-.143
.090
-.228
-1.584
.119
ROE
.811
.126
.770
6.421
.000
Growth
-.620
.119
-.454
-5.211
.000
a. Dependent Variable: DPR
Computed by authors using SPSS
From the results of the calculation in Table 9, current asset regression coefficient is 0.026 (positive).
Coefficient significance test is tcount = 1,425 with error probability (p) = 0.160. It shows that the p value
(1.425) > 0.05, so it can be concluded that partially, the current assets has positive and unsignificant
effect towards the dividend payout ratio. Debt to equity ratio regression coefficient is -0.143 (negative).
Coefficient significance test is tcount = -1.584 with error probability (p) = 0.119. It shows that the p value
(0.119) > 0.05, so it can be concluded that partially, the debt to equity ratio has negative and unsignificant
effect towards the dividend payout ratio. Return on equity regression coefficient is 0.811 (positive).
Coefficient significance test is tcount = 6.421 with error probability (p) = 0.000. It shows that the p value
(0.000) < 0.05, so it can be concluded that partially, the return on equity has positive and significant effect
towards the dividend payout ratio. Growth regression coefficient is -0.620 (negative). Coefficient
significance test is tcount = -5.211 with error probability (p) = 0.000. It shows that the p value (0.000) <
0.05, so it can be concluded that partially, the growth has negative and significant effect towards the
dividend payout ratio.
The Coefficient of Determination
Tabel 10. The Coefficient of Determinantion
Model
R
R Square
Adjusted R
Square
Std. Error of the
Estimate
1
.767a
.588
.558
.23553
a. Predictors: (Constant), Growth, ROE, CR, DER
Computed by author using SPSS
It could also been found that coefficient of determination (adjusted R2) is 0.558, which means that about
55.8% of the variation in the dividend payout ratio is explained by the current asset, debt to equity ratio,
return on equity and growth. While the remaining 44.2% is explained by other variables outside the
model.
5. Conclusion
So many studies have been conducted on determinants factor of dividend payout ratio and have different
findings about the determinants of dividend payout ratio. The question of our study was to investigate the
effect of current asset, debt to equity ratio, return on equity and growth towards dividend payout ratio in
context of consumer goods industry sector companies listed in the Indonesia Stock Exchange period
2010-2013. Multiple linear regression analysis model is used to estimate the regression equation. The
results show the current assets has positive and no significant effect towards the dividend payout ratio,
the debt to equity ratio has negative and no significant effect towards the dividend payout ratio, the
return on equity has positive and significant effect towards the dividend payout ratio and the growth has
negative and significant effect towards the dividend payout ratio. The results suggest that, return on
equity and growth is an important variable in predicting future dividend payout ratio, because both
variables significantly affect the dividend payout ratio in the consumer goods company. Return on equity
plays an important role in determining the dividend payout ratio of the companies, because the
companies is willing to pay a higher amount of dividend if the return on equity increased. Companies that
have a large profit with net income more stable will be able to get a larger cash flow and therefore the
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company may pay a dividend that is greater as well. High ROE reflects the company’s efficiency in using
its own capital to produce high profits for the company itself. This ratio indicates management’s success
in maximizing the rate of greater return for the shareholder. The higher the ROE of a company, the better
its the performance, so that there will be more and more investors who are interested to invest their
funds in the company. Furthermore, asset growth as the year-on-year percentage change in total assets.
If a firm is growing rapidly, the more is the need for funds to finance the expansion, and the more likely
the firm is to retain earning rather than to pay them as dividends, consequently, firms with higher growth
opportunities are likely to retain a greater portion of their earning, resulting in lower dividend payout
ratio.
Recommendations: Following from these findings, it would be useful to also consider the following
directions for future research: increasing the number of samples and the extended period of study, adding
other variables outside the model of this study, such as business risk, tax, and insider ownership.
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A Conceptual Model of Resonant Leadership
Dian Alfia Purwandari
University of Padjadjaran & Jakarta State University
dian.alfia@gmail.com
Abstract: The purpose of this paper is to build the conceptual model about the relationship between
resonant leadership styles and competencies. The conceptual model resonant leadership styles create by
various reviews from experts on leadership, which based on the conceptual point of view and empirical
facts. This paper based on thematic reading of resonant leadership and psychological field. Focus of the
review in on resonant leadership and competencies definition, Conceptual model development in process,
component of resonant leadership and competencies. According to the results of this study, leadership
style can motivated or disturb the employee competencies. It depends on the leader approach to their
employee. A leader need to drawing near with their employee so he can bring a positive atmosphere in
the environment. A good leader needs to encourage the good attitude among his employee beside an
excellent job performance. In order to provide the success of such approach, leader needs to develop
hope, compassion and mindfulness trough mind, body, heart and spirit. Hence, the purpose of resonant
leadership is bringing a resonance at work and mobilizing positive attitudes around the leader
Keyword: Resonant leadership, leadership style, competencies, Paper type: Conceptual Paper
1. Introduction
Leadership has been a major issue on several years, many researcher try to find a good and effective
concept to implement. The world is changing and leadership is changing to. In this age of teamwork,
people have to responsible to developing themselves. Organization today face change in societies,
market, costumers, competitions and technology around the globe are forcing to clarify their value,
develop new strategy and learn new ways of operating. Organization need to lithe while facing the global
change, it is distressing for people going through of it. Most of company to facing the global change, they
demand employee to have a specific ability that known as competency model. Leader need to put
themselves in situation and environment where they develop their skill and perspective. Most of the
ability of organization member was driver with technical skill, IQ and emotional Intelligent. Emotional
intelligent become more important for accomplish a job at all levels (Goleman, 2011 : 8). It is necessary to
guide by a great leader to improve employee ability. A Great leader able to mobilize members of
organization they lead. The great leader possess four essential skill which are ability to engage other in
share meaning; distinctive and compelling voice; a sense of integrity and ability to grasp context and
hardness. Hardness is just the perseverance and toughness that enable people to emerge from
devastating circumstances without losing hope (Bennis & Thomas, 2011: 111).
The first challenge of a leader is to understand and control the emotions by aligning themselves with the
aim that can be controlled and focused. To facilitate this need, a leader needs to use emotional intelligent-
based approach in order to provide an echo or a positive impact on the work environment. Competence
can be improved with the behavioral approach is considered appropriate leadership style is resonant
leadership. It is in line with the results of the study Safrudin (2011) said that the competence of teachers
is influenced by supervising principals based on humanity. Leadership based on resonant leadership
styles according to Boyatzis and McKee, (2005: 5) have harmony with those who are around. This paper
will relate definition of resonant leadership and competency base on thematic reading. Focus of the
review in on resonant leadership and competencies definition, Conceptual model development in process,
component of resonant leadership and competencies. This method was used to accomplish conceptual
model on competence and resonant leadership.
Discussion
a. Resonant Leadership: Human resources today is an important asset. They were as an intangible asset
known as human capital. The value of human capital measured by the personal competency which suit
with the organization purposes. Improved performance of the organization with the strength on member
requires coordination of a leader who has the leadership and motivation to change and result oriented
reflecting a common goal. (Daft, 2011: 5). Daft provides four of influance leadership types,
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transformational Leadership which brings about changes in the subordinate and the organization,
transactional leadership that facilitates the change between leaders and subordinates, charismatic
leadership is a leader who can inspire and motivate othersdoing things, and coalitional Leadership
associated with cooperation support the achievement of organizational goals (Daft, 2011: 320-326).
Learning organization needs Learning Leadership which is a combination of relational theory and
leadership level 5 is transformational and servant leadership (White et al., 1996: 104). Level 5 leader
blend the paradoxical combination of deep personal humility with intensprofesional will. This is a rare
combination, but this is a nesecery requirement for transforming an organization forom good to great.
(Collins, 2011: 116). The challenge of learning organization is the diversity of individual needs, the
leader must be able to describe the learning, equitable, eliminating employee fear of change, and
supervision (White et al, 1996: 117).
In the school-based management, principal as a leader of the organization must be able to apply humane
leadership style, the skills of corporations, motivate other and lead the effective and appropriate situation
also motivating teachers and other workers (Mulyasa, 2009: 127). leadership that using heart at, will
lead with emotional impact and improve quality of the organization member. Emotions and actions have
an impact on the subordinate leaders. Emotional approach at subordinate will imbue, pasionate and
improve employee enthusiasm at work also encourage employee motivation and commitment. A positive
emotion from the leader will improve subordinate skill (Goleman et al, 2009 : 9). Leader with harmony
will have the ability to think, feel and interpret the organizational goals with the members of the
organization. Daft (2006: 470) illustrates that good leadership will increase the effectiveness of the
organization's work, it is necessary for a leader who is able to lead its members in accordance with the
organization's goals with emotion and personal goals. Positive leadership which spread a good echo at
organization environment based on emotional intelligent. Resonant Leadership is leadership style that is
based on the pattern of Emotional Intelligent, because according to Taner & Aysen (2013: 595) resonant
leadership is the ability to understand and manage them, other people who have a mutually dependent
relationship between one with the other. This resonant leadership introduced by Boyatzis and McKee,
resonant leadership is the leader that has been able to develop emotional intelligence is the ability on
self-awareness, self-management, social awareness, and relationship management. Resonant leader
moves on the basis of mental awareness, not only the desire or impulse alone (Boyatzis and McKee, 2010:
7).
A leader whom are used emotional intelligent to lead their employee are able to transfer their expertise
and knowledge also empowering those around them. A leader will succeed make changes into the
pattern of resonant leadership if someone maintains emotional intelligence through mindfulness, hope,
and compassion. Resonant Leadership is a leadership style that accommodates Emotional Intelligence
with an emphasis on the ability of the leader to understand the emotions themselves, weaknesses and
shortcomings and constraints that exist in themselves. In addition, resonant leaders are able to control
his emotions, flexible and able to adapt to the social environment to have empathy, interest in the
components of the organization, work together and have a responsible attitude (Taner & Aysen, 2013:
595). Resonant Leadership is a leadership style approach to emotion, empathy and personal views which
are positive and able to facilitate members in achieving organizational goals. It’s a flexible and
responsible approach to maintain employee ability. Resonant leadership include visionary, coaching,
facilitative and democratic approach whereas dissonant style include peace setting and commanding
(Boyatzis and McKee , 2005: 143). According to Boyatzis and McKee (2010: 143), Resonant leadership is
the ability to really aware of what is happening within yourself; body, mind, heart and soul, and to give
full attention to what is happening in the surrounding environment.
A first element of resonant leadership is mindfulness. Mindfulness causes someone to recognize the
negative impact of power and always align themselves to the values espoused. Mindfulness is also an
effort to use the entire existing guidelines of the emotional, physical, social, by being open to constantly
learning, especially learning of condor. Mindfulness is a living in a state of full conscious awareness of
one’s whole self, other people and their environment. Its mean, a leader need to be a wake, a ware and
constantly attending to himself and to his environment ( McKee et al, 2006 : 2). It also intentional
awareness of what is unfolding the present moment and incorporate an element of non-judgment to
facilitate wider acceptance of its use (Dhiman, 2009 ; 58). Mindfulness relates to performance by
individual ability to be aware of the environment and ability to focus the present situation rather than
distracted by anxiety which can offset individual motivation an ability to focus on the job (Shao &
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Skarlicki, 2009 : 196). Mindfulness can be representing by 5 factors, the factor has effectively reduced
stress, anxiety, depression and disorder of eating which are; (Caldwell, et al, 2010: 434)
1. Attending to sensation, perception, thought and feeling;
2. Labeling the external experiences with word;
3. Acting with awareness;
4. Non-judging; and
5. Nonreactivity.
Trough mindfulness, a leader can learn to refer and attend on environment want, it also can steer a leader
on the right direction when making a decision. Look carefully at environment by reflect themselves by
knowing his strength and weakness. According to McKee et al (2006 :2-3) mindfulness can develop
trough Self-awareness and feasible vision. If self-awareness can developed by reflecting and attending to
self and other every decision, visible vision had to lay on optimistic outlook, coupled with believe than we
can, knowing the impact of environmental also seek organization goal. Self-awareness is about knowing
yourself, that need to look up for the strength and weakness by reflection and attending to self and other.
Strength and weakness at a leader and be a good approach but it also can be a problem to other. Self-
Awareness means having understanding of emotions, strength, weakness, needs, and drives. It made
people critical to a situation or full of hope. People with a high self-awareness will recognize their feeling
and need affect them and environment also his job performance, and his stress (Goleman D. , 2011:7-11).
A leader need make judgment that need fast calls which need high capability need to look deeper on
themselves. A who have good self-awareness its suit to be a leader. Boyatzis and McKee explained that
consciousness is not an easy thing in leadership, so awareness necessary of tranquility, understanding the
environment in a way to communicate and stay focused and committed.
Low level of commitment reflects the lack of individual responsibility in performing their duties. Question
the same commitment to the question of responsibility, thus, the size of a commitment is related to the
delegation of authority. In this concept of leadership faced with the commitment to entrust the duties and
responsibilities to subordinates. Hope is a positive emotional tone in the form of open-minded, creative,
has a great interest to their work and is motivated to do whatever is needed to achieve the goals of
individuals and groups. Hope can also be seen in a dream that existed at the leader, optimism over the
ability to make changes and always see the future as something that is realistic and achievable Boyatzis
and McKee (2010: 189-196). The second element of resonant leadership is hope. Hope can be transmitted
by leader if the leader has a dream and became inspire. The leader also needs to be optimistic and believe
on their ability to make change. Last, a leader must see the desired future as a realistic condition (McKee
et al, 2006 :4). A leader who can maintain optimistic an upbeat attitudes in daily activities and generate
positive feeling in other are able to create an environment of trust, comfort and fairness (Goleman, 2002 :
47). When people feel connected and safe, the cerebral cortex of the brain will be respond by becoming
involved, it lead to the best performance. The leaders need to cultivate the connection (C-State) and avoid
the fear (F-State), when people are optimistic and happy. The positive effect for people working in a good
environment, it promotes a sense of well-being and optimism. A leader needs to manage themselve and
the network. It building strong operational relationship that support the performance of the team
(M.Kerfoot, 2011:95).
Compassion is an action that is based on empathy and attention by being open to others to develop
curiosity based on assumptions that are positive for the environment. Concern can be seen from the
understanding and empathy for the feelings and experiences of others, awareness of others and the
ability to act on the attention and empathy. Compassion is a natural reaction, which start by curiosity
about other people, what motivated them, and how the world actually running. It will work if a leader
involved with other, charring about them, respect and give the real empathy. The compassion can be
develop by understanding of other feeling and experiment, caring for other and willingness to do the real
empathy, McKee et al (2006 : 5). Resonant Leadership requires patience and communicative approach
and a strong foundation of emotional intelligence. Boyatzis and McKee (2010: 17-42). Patience is the
main condition in the resonant leadership, because a leader must understand the environment, the need
for patience in doing so great. Patience in the lead will provide a very strong impact on the organization's
members. Because of the patience of a leader will motivate members of the organization is more positive
than vice versa. Leaders who do not have the patience and regard other people cannot move faster than
the leaders tend to move on their own, while the team works together to have assumed leadership does
not want to listen to a given input, such leaders will close the door of communication with the
environment, causing reluctance that this leader not able to capture the emotional reality of the
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environment so he stuck with the sacrifice syndrome where each job is tough, real and requires all efforts
that lead to dissonant leadership
Resonant Leadership cannot be done with a short time; it takes time, effort, planning and strategies to
create and maintain healthy working relationships and norms that encourage effectiveness (Boyatzis and
McKee, 2010: 26). However, resonant leadership that relies on awareness of the company environment
and objectives, expectations and concerns are based on positive values, upholding respect and
compassion. Application of resonant leadership will have a positive impact on members of the
organization, because the resonant leaders have been able to organize their own emotions and being able
to read each individual and groups with very accurate. Consciously, resonant leaders will align
themselves with the people around him, focusing on common ground to build a sense of community and
create a climate that is able to capture the passion, energy and desire to move together in a positive
direction.
b. Competence: Competence is a key factor to leverage employee achievement. Competencies are
defined as the cognitive, affective, behavioral and motivational characteristic or dispositions of a person
which enable to perform well in specific situation. This competencies are use to cope with increasingly
complex situation, make decision and solve both on organization and individual problem. People
empowering their competencies can come up with creative new solution. A competency is the capability
of applying or using knowledge, skills, abilities, behaviors, and personal characteristics to successfully
perform critical work tasks, specific functions, or operate in a given role or position (ennis, 2008 :2).
Competencies is an individual characteristic which can be measured and cluster into superior, average or
between effective or ineffective performance (Vanthanophas, 2007 :5). Competence can be a specific
individual characteristic which influence each other between affective and superior performance criteria
on a situation (Spencer and Spencer, 1993 : 9). In contrast to Spencer and Spencer, Botyazis (2007: 8)
competence is the ability or skill. Competence consists of components that are interconnected but distinct
from the behavior of components organized and concepts such behavior that can be called with the
"intent" or intentions.
Spencer and Spencer classify individual competence with effective or superior group; Boyatzis clarify his
view that competence is a skill as Intent or individual intentions between components which
interconnected each other. It does not need to be grouped between the affective or superior. Boyatzis
opinion supported by Tobias (2006: 5) that competence can be described as Knowledge and skill
(cognitive), individual value and behavior (affective) and motivation as intent. If Tobias stressed the
competence on the individual characteristics that are in line with the opinion of Boyatzis, Ennis on her
research emphasizes that competence is the ability to apply or using knowledge, skills, behavior and
characteristics of the individual to be able to complete a important task, specific function, or use the rules
or specific position (Ennis, 2008: 4-5). More specific, Ennis stated that the individual characteristics
should be used to complete the task, or implementing regulations at a certain position in an organization.
Competencies can be motives, behaviors, skills, emission from individual ability or regulation in social
institutions, knowledge and experience and use. (Vanthanophas, 2007: 6). Competence can be defined as
an individual characteristic which consists of knowledge, skills, abilities and behavior that encourage or
motivate the individual in performing their duties within the organization. Competence can be used to
integrate the trend going in the era of globalization and existing business strategies by leveraging human
capital possessed. Individual competencies can describe the individual's ability or what can be done by
someone (Vanthanophas, 2007). Competence will also improve creativity members of the organization,
because the creativity of employees is something that is needed in the smooth and effective performance
in achieving the goals of an organization. In decision making, creativity is needed.
2. Conclusion
Leadership style can motivated or disturb the employee competencies. It depends on the leader approach
to their employee. A leader need to drawing near with their employee so he can bring a positive
atmosphere in the environment. It lead on resonant leadership which gave a positif impact to the
enviroment. This positive impact depant on the mindfulness of the leader. Reflection the leader self-
awarness can gave a good point of view abaut enviroment need. The optimistic character on hope is
contagious to the enviroment, so it could be a triger to develop personal ability on the employee. The
leader compassion will dig deeper his employee competency and maintain it trough emphaty and caring.
Resonant leadership will encourage the good attitude among his employee beside an excellent job
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performance. The ability on cognitive and affective will develop with a leader help who has compassion
and hope with the enviroment.
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The Impact of Consumer Animosity and Consumer Ethnocentrism on Intention to
Purchase Foreign Products: The Case of Chinese Branded Household Appliances in
Vietnamese Market
Nguyen ThiHuongGiang, Nguyen DinhKhoi
International University - Vietnam National University HCMC
ndkhoi3107@gmail.com
Abstract: Vietnam-China bilateral relationship has been worsened due to the recent conflicts on both
economic and political affairs. The current controversy incident regarding the East Sea issue has sharply
deteriorated the relationship. At this critical time when the effects of consumers’ attitude toward Chinese
products could not be overlooked, the empirical study aims to investigate the impacts of Consumer
Animosity and Consumer Ethnocentrism on Purchase Intention of Chinese branded merchandise with the
moderating role of Consumer Judgment. Household appliance category is chosen due to the dominance of
Chinese brands in Vietnam market. In addition to assessing Animosity effect on Purchase Intention, the
research intends to examine its antecedences, including Perceived Economic Hardship and Normative
Influences as well as their effects on Animosity. Structural Equation Modeling was used to test the
proposed model, analyzing the data from a sample of 349 consumers with diverse backgrounds. The
results have demonstrated that only Perceived economic hardship manifest a significant impacts on
Animosity. Meanwhile, Animosity and Ethnocentrism have negative relationships with both Chinese
branded household appliances Judgment and Purchase Intention. Overall, the study provides practical
discussion and recommendations for the Vietnamese household appliances industry as well as direction
for further researches
Keyword: Consumer behaviors, Consumer Animosity, Consumer Ethnocentrism, Economic hardship,
Normative Influences, Vietnam
1. Introduction
In the contemporary society, international trade has become increasingly popular. Many enterprises
choose to expand their markets to other countries, searching for more growth opportunities (Tragos,
1998). Thanks to the advancement in technology and many recent free trade agreements, the
geographical and cultural gap has been shortened (Marchant and Ward, 2003). The international trade
creates considerable opportunities and challenges for multinational organizations. There are foreseeable
benefits of a shift to a new market. Firstly, the cost is substantially reduced. By applying standardized
marketing strategies with minor adjustments or locating the factory at places where low labor costs are
available, the company can make their product even more competitive. Furthermore, exporting a product
is crucial when it has reached maturity or decline stage in its life cycle in the internal market (Jaffe and
Nabelzahli, 2001). Turning to the other side of the argument, there is one greatest drawback to be
mentioned. This refers as barriers to free trade, which is divided into two main kinds: tariff and non-tariff
barriers. While import tariffs have been reduced substantially, non-tariff barriers still exist. In preceding
consumer researches, one of these is called animosity and ethnocentrism (Klein et al., 1998).
Ethnocentrism can be defined as a tendency to buy domestic products and avoid buying foreign products.
Animosity is a feeling in consumers toward a country that lead to the denial of choosing that country’s
commodity.
For many decades and even centuries, China and Vietnam has had the bilateral relationship in
international business. Vietnam imports a tremendous number of Chinese products for domestic
distribution and usage. As a matter of facts, China remained Vietnamese largest trade partner. In the first
ten months of 2013, Chinese import market reached 30.37billion of US dollar, which is almost 28.5% of
Vietnam’s total import value of this year. In addition, Vietnamese trade deficit with China soared to 19.6
billion and continued to increase to 21.6 billion in November and stopped at 23.7 billion at the end of
2013 (Nguyen, 2014). According to this article Chinese products are absolutely attractive due to its
competitive prices. Chinese primary commodities that frequently come to Vietnam are chemical products,
labor-intensive goods such as clothing, toys, as well as household appliances. Nonetheless, not long ago
has China made a declaration on the ownership of the East Sea, also known as South China Seacalled by
the government (Vietnamnet, 2014). In spite of the issue in controversy, it has provoked other countries
which also share the sovereignty of and have benefits in the East Sea. Relevantcountries have expressed
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their hatred toward China, including Vietnam (BBCNews, 2014). As a consequence, Vietnamese
consumers have negative attitudes toward “Made in China” products, thus being reluctant to buy them
(Phan, 2014).
It can be seen that the disagreement over China’s claims on the East Sea are the main source that enhance
patriotic attitude and antipathy toward China, thus resulting in the hesitation to buy Chinese commodity.
Having been mentioned above, these emotional factors are called animosity and ethnocentrism and have
been adopted in earlier studies as a construct for predicting consumer behaviors in different countries
(Klein et al., 1998; Ettenson and Klein, 2005; Shoham et al., 2006). Within Vietnamese context, household
appliances are chosen as a product to be examined in this study. There are numerous reasons for
choosing this kind of products. First of all, this is a common and basic range of products that is widely
used in majority of households in Ho Chi Minh City.This reality enables us to conduct the survey on a
larger scale and get much information from different points of view. Moreover, China has been well-
known for this category because of reasonable prices and acceptable quality. There are several Chinese
brands currently being available in Vietnam market, such as Haier, Midea, TLC and many other
unbranded Chinese products. In recent years, Chinese branded household devices account for 40% of
assortment displays in several electronic retailers in Vietnam. With that being said, Chinese company has
held a huge market shares in this division (Huong, 2014).
Although being commonly used, consumers really care about the brand and origin of the household
appliances, not only because of quality and price, but also because of the effect of the “Anti-China
campaign”. Moreover, as mentioned above, the survey can be conducted on a wider range, with
respondents of different backgrounds. Under such circumstances, household appliances are indeed
appropriate products for this study for minimum response bias (Hong, 2008). Although a large body of
researches on Animosity and Ethnocentrism has been conducted in many different contexts and
countries, with different modifications, there remain several issues to be addressed in Vietnamese
contexts. First of all, there are quite a few studies on Vietnamese consumer behaviors toward purchasing
Chinese merchandises and Vietnamese attitudes toward Chinese branded products. Secondly, due to the
recent issues between Vietnam and China, the study on this topic would be necessary and beneficial for
researchers and industry practicians. For that reason, it is necessary to analyze consumers’ behaviors and
attitudes at this moment, where the issue of the two countries’ bilateral relationship has become more
intense.
Research Model and Hypotheses
Theoretical Background
Social Identity Theory: proposed thepsychological state of human beings in which they categorize
themselves into the “in-group” and others in “out-group” (Turner, 1987). The social in-groups then define
and demonstrate the traits of their distinctive identity and the appropriateness of their behaviors (Goar,
2007). By adjusting their acts accordingly, they can enhance their own image and self-esteem. To
maintain their self-established group, they favor their groups, as well as reject the others (Hewstone et al.,
2002; Verlegh, 2007).
Realistic Group Conflicts Theory: reported all individuals who considered themselves as in-group
perceived that the out-group could threaten their survival (Levine and Campbell, 1972). These perceived
harms obviously strengthen the “feeling of membership, common identity, solidarity and cohesiveness
within a group” (Huang et al, 2010, p 913), and reinforce the feeling of animosity to the others groups as a
consequence (Correll and Park, 2005). These two theories are appropriate to apply to the context of
Vietnam as this country has witnessed several evidences identical to the theory. As a country with high
level of solidarity, Vietnamese people consider themselves as in-group. The perceived threat from China
aggressive action has enhanced these attribute, and increased anger toward the country. ‘Made in China’
products has now been boycotted in Vietnamese markets as a result of these perceived threats that China
caused to Vietnam. Therefore, these theories are proposed in order to identify the two predecessors of
Animosity factor as well as Animosity itself.
Economic Hardship: Economic hardship factor has been defined as the perceived incapability to gain
living basics, to meet financial obligations, to acquire growth in finances by reducing expense or
increasing income, and to believe in a brighter future in term of financial affairs (Barrera et al., 2001). The
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combinationof Social Identity Theory and Realistic Group Conflict Theoryinferredthat the threat from the
outsiders reinforce the fear of suffering from financial deprivation of the “in-group”. Consequently, the
natives in the group would in turn express their hatred toward any objects belonging to the country
which cause the perceived threats to them (Grant, 1991; Schmitt et al.; 2003). In Klein’s well-knownpaper
in 1998, the Chineseconsumers refused to purchase Japanese products, remembering the dreadful
memories of economic hardship caused by the Japanese occupation in the past. Under similar
circumstances, the first hypothesisin this study is proposed:
H1: Economic hardship positively affects Vietnamese Consumer Animosity toward China.
Normative Influences: Normative influence has appeared in various preceding researches on wide
ranges of consumers’ behaviors (Cohen and Golden, 1972; Bearden et al., 1989; Huang et al., 2010).
Deutsch and Gerard (1955) defined normative influence in term of “the motivation to blend in with a
group’s norms, characteristics and attributes” (Huang et al., 2010, p. 914). Another alternative definition
by Burnkrant and Cousineau (1975)indicates normative influences as the impulse to adjust one’s
behavior to meet others’ expectation. Consumer studies divided Normative Influences into two
categories: value expressive and utilitarian influences. On the one hand, value expressive reflects
individual’s desire to improve their image and self-esteem by referring to a group and generate
motivation to adopt a behavior of another because that behavior satisfies their surrounding references
(Park and Lessig, 1977, Price et al., 1987). On the other hand, utilitarian influences indicate the attempt to
conformwith the reference group’s standard to achieve reward and avoid punishment (Park and Lessig,
1977; Bearden and Etzel 1982; Price et al. 1987). To sum up, external influences from surroundings can
alter a person behaviors, either to enhance themselves or to evade discipline.
Thanks to the correlation to people’s mindset,the well-established concept of Normative Influence has
been employed in several consumers’ studies as a construct to measure their behaviors, such as their
judgment and evaluation (Kassarjian and Robertson, 1981) or their decision making process (Deutsch
and Gerard, 1955). Regarding buying behaviors, normative influence was proved to correlate conspicuous
consumption (Schroeder, 1996), the style of purchasing behavior with an attempt to demonstrate wealth
and high social status (Eastman et al.,1999; O’Cass and McEwen. 2004). In other words, consumers paid
more attention to their relevant reference when making any purchasing decision. In addition, Realistic
Group Conflicts Theory suggests that the threat from the outsiders enhancesthe identity and solidarity
within the in-group and consequently results in the hostility to outer group that is perceived to cause the
threat. Moreover, individuals’ judgment, evaluation and actions are usually influenced by the group they
belong to, in order to keep themselves away from socially unacceptable thinking and actions (Wooten and
Reed, 2004). Based on thesescientific reasoning, the second hypothesis is formulated:
H2: Normative Influence positively affects Vietnamese Consumer Animosity to China.
Animosity: Consumer animosity is an important construct that was taken into consideration when
measuring and predicting consumer behaviors in several previous researches (Klein et al., 1998; Nijsen
and Douglas, 2004; Riefler and Diamantopoulos, 2007). As our review of the academic literatures, most of
them adopted Klein’s prevalent definition of Animosity (1998, p.90), which is: “the remnant of antipathy
related to previous ongoing political, military, economic or diplomatic events will cause a direct negative
effect on consumers’ purchase behavior in the international markets”. Another definition from Averill
(1982, as cited by Abraham, V., 2013, p.2) quoted that:
“Animosity is a strong emotion of dislike and hatred stemming from past or present military, political or
economic aggression and actions either between nations or peoples that are perceived to be unjustifiable or
as going against what is socially acceptable”.
Two scholars’ definitions on animosity are considerably alike regarding to the primary meanings. Hence,
animosity can be understood as people negative feelings toward a country due to its aggressive actions in
several aspects. Animosity is divided into two main factors according to the causes. They are war
animosity, which is the reaction to war provocative activities, and economic animosity, which is likely to
result from trade disagreement or economic dominance from another stronger country (Klein and Morris,
1996; Hinck et al., 2004). In the context of this research, war animosity is given more attention as China
has done numerous actions that aggravated Vietnam’s government and Vietnamese people.
Notwithstanding that Russell and Russell (2006) have placed special emphasis on the restriction of
animosity definition to the past important events, ongoing incidents can actually trigger animosity
(Tabassi et al, 2012).
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Past researches on Country-of-Origin reported that consumers focused on the origin of the products as a
source to evaluate that product. In consumers’ perception, reputation of the country name could be much
more reliable than other sources of information (Hong and Wyer, 1990). Furthermore, two psychological
theories mentioned in previous sections should be taken into consideration. While Social Identity Theory
indicates that people would support their in-group and be favorable of it to any other “out-group”,
Realistic Group Conflict Theory anticipates the fear of sufferings and losses caused by an out-group create
negative bias toward these aliens, and bad assessment toward their items (Sherif and Sherif, 1979). In
consequence, any threat from the foreign counterparts negatively influences product judgment and
purchase intention (Ettenson and Klein, 2005; Shoham et al, 2006; Verlegh, 2007). Although Klein denied
the negative effect of animosity on quality judgment, Shoham (2006) found that this relationship exists.
Therefore, this paper proposed the two following hypotheses:
H3: Vietnamese Consumer Animosity to China negatively affects Chinese Product Judgment.
H5: Vietnamese Consumer Animosity to China negatively affects Intention to Purchase China goods.
Ethnocentrism: Another unique construct that is applied in this paper is consumer ethnocentrism.
Consumer Ethnocentrism has been presented widely in multiple marketing papers (Klein et al., 1998;
Pecotich and Rosenthal, 2001; Balabanis and Diamnatopoulos, 2004). Obviously, different authors have
their own ways of defining ethnocentrism. One original definition of ethnocentrism is “the view of things
in which one’s own group is the center of everything, and all others are scaled and rated with reference to it”
(Sumner, 1906, p. 13). Shimp and Sharma (1987, p.280-9) defined ethnocentrism with respect to
consumer viewpoint, being“a belief held by consumers on the appropriateness and indeed morality of
purchasing foreign-made products”.Implication can be made that consumers would favor any cultures that
are similar to their own, whereas reject any that is conflicting to their own culture (Adorno et al., 1950).
To measure consumer ethnocentrism, Consumer Ethnocentric Tendencies Scale (from now preferred as
CETSCALE) are applied. CETSCALE has been used in several studies with different contexts, from China,
Russia to Czech Republic (Balabani et al, 2001, Klein and Ettenson, 2006). Most findings are the inverse
links of the CETSCALE score and consumers’ behavior, such as products judgment, willingness or
intention to buy foreign products. The higher the score, the more ethnocentric consumer would be, and
the more they would dislike the foreign products (Shimp and Sharma, 1987). Upon our review of previous
academic literature, in ethnocentric consumers’ perspective, buying products manufactured in other
countries causes harm to their own economy, and increase unemployment rate. Hence, theyboycott these
products (Evanschitzky et al., 2008). Consequently, the construct has a negative causal relationship with
consumers’ behaviors on the purchase and usage of foreign products, similar to the reflection of the
CETSCALE score (Olsen et al, 1993; Marcoux et al., 1997; Shoham and Brenic, 2003). This is a solid
theoretical foundation for two next hypotheses:
H4: Consumer Ethnocentrism negatively affects Chinese Product Judgment.
H6: Consumer Ethnocentrism negatively affects Intention to purchase Chinese products.
The Distinction between consumer ethnocentrism and consumer animosity: Both of them are
unique constructs and contain several differences. The essential point to mention is the context in which
these construct can be applied. While Ethnocentrism can be applied in all country and culture, Animosity
is context-specific (Klein et al., 1998; Abraham, V., 2013). However, both constructs can be applied in
Vietnam, where Chinese government’sunreasonable action has aroused hostilityamongst Vietnamese
people. Through the review of earlier papers, this study figures out the inconsistent hypothesis and
findings among different researches. The majority the animosity studies stated out that animosity would
increase the level of ethnocentrism (Klein et al., 1998; Nijssen and Douglass, 2004). LeVine and Campbell
(1972) said that the warlike behaviors from another country would lead to negative attitude to objects
related to that country, hence reinforcing ethnocentrism. Shankarmahesh (2006) also pointed out this
relationship as “animosity might be generalized to consumer ethnocentrism. Nonetheless, some other
papers proposed and confirmed the inverse relationship of Ethnocentrism to Animosity (Akdogan et al.,
2012). Therefore, this research wants to examine whether the former hypothesis exist in Vietnamese
context.
H7: Consumer Animosity to China positively affects Consumer Ethnocentrism
Product Judgment and Intention to purchase Chinese household Appliances: Product judgment
regards to the attitude of consumers toward the objects or the products (Rezvani et al., 2012). When
products are taken into consideration, the evaluation is influenced by both cognitive and affective
perspectives. However, emotions often prevail over thinking and reasoning when it comes to purchasing
behaviors. In other word, consumers use their emotion to make buying decision since emotions could
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lead to both mental and behavioral responses (Hansen, 2005). Animosity could result in foreign product
underestimation as mentioned (Ettenson and Klein, 2005, Shoham, 2006). Purchase intention has
received special attention in recent marketing studies. The simplest definition of “what we think we will
buy” is from the paper byPark (2002). Purchase intention can also be defined as the “the decision to act or
psychological action that shows the individual’s behaviors according to the products” (X.Wang and Yang,
2008). Moreover, purchase intention and attitude are not alike in that attitude is the evaluation of
products while intention is the process of self-motivation to perform the purchasing action of individual
(Ramadania et al., 2014).
Ramadania (2014) has mentioned the essential relationship between product judgment, through
consumer attitudes, and purchasing behaviors. If judgment did not have such vital role in the final step of
purchasing and owning the product, marketers and scholars would not pay intensive attention to it
(Javalgy et al., 2005). In spite of Fishbein’s declaration that the attitude toward goods did not strongly
affect the behavior to purchase them (Fishbein and Aizen., 1975), numerous researches have confirmed
this relationship (Peter and Olson, 2010). Furthermore, Minor and Mowen (2002) stated that the actual
behavior consists of all other behavior “to own, use and dispense” the products (Ramadania, 2014).
Therefore, emotional influences such as judgment and feelings really do affect the willingness to
purchase, as well as the willingness to use and dispense a product. Previous researches on Animosity and
Ethnocentrism has also established the relationship of the factors and Purchase intention, in which
Product judgment play a role of a mediator (Nguyen T.D. et al., 2008; Huang et al., 2010). From the result
of these studies, it is reasonable to propose the last hypothesis:
H8: Chinese Product Judgment positively affects Intention to Purchase Chinese Product.
Research Model: The proposed research model based on the hypotheses is as follow:
Figure 1: Proposed Model (Klein et al., 1998, Huang et al., 2010)
3. Methodology
Instrument development: The proposed model of this study consists of 6 constructs, each was
measured carefully by multiple items adopted from previous paper. Economic hardship factor was
adopted from Barrera et al. (2001). Normative Influences were adapted from Bearden et al. (1989).
Consumer Ethnocentrism was constructed based on the research of Shrimp and Sharma (1987).
Animosity was built according to the study of Klein et al. (1998) and Klein (2002). Lastly, Product
Judgment and Purchase Intention were adapted from Klein et al. (1998), who credited Darling and Arnold
(1988), Darling and Wood (1990), Wood and Darling (1993) and Han (1988) for using their
questionnaire references. The questions are modified according to Vietnamese context and examined by
20 consumers in a pilot test to detect weaknesses before the primary fieldwork. All questions are 5 point
Likert-scale multiple choices, from strongly disagree to strongly agree. The questionnaire was attached in
the appendix.
Sampling and Data collection: Consumers with following criteria will be investigated:
Consumer who is more than 18 years old.
Consumer who lives in Ho Chi Minh City for at least 3 years.
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Consumer who has intention to purchase household products within 6 months
To specify the appropriate sample size, a formula designed by Tabachnick and Fidell (1996) is used to
calculate the necessary number of respondents based on the number of items in the questionnaire. The
formula is as follow:
Y= 8X+50
With Y as the necessary number of respondents and X as the number of items in the questionnaire.
The questionnaire contains a total of 32 items. As in the formula, the appropriate target sample should be
equal or more than 306.
Table 1: Sample profile
Number
Percent
Gender
Male
136
39%
Female
213
61%
Age
18-24
136
39%
25-30
117
33.5%
31-45
79
22.6%
> 45
17
4.9%
Educational level
High school Level
47
13.5%
College Level
83
23.8%
Bachelor Level
211
60.5%
Master/Doctor Level
8
2.3%
Product Usage
Experience
None
128
36.7%
Few (1-3 products)
153
43.8%
Many (more than 3)
68
19.5%
In the respondent profile, there are 136 male and 213 female, which account for 39% and 61%
respectively. As household appliances are ordinary products, there is no restriction on age beside the
aforementioned criterion. There are four groups of age in this survey: 18-24, 25-30, 30-45, and more than
45. Explicitly, the range of 18-24 seizes the highest percentage, 39%, which is followed closely by 25-30
categories, 33.5%. In contrast, the range 30-45 has only account for one-fifth of the total. Most of our
respondents lie in Bachelor level, which is more than 60%. College level comes in the second places with
much lower percentage, 23%. Regarding Chinese Household appliances product usage experience,
respondents who have owned and used these products occupy a large proportion, approximately 63%.
On the other hands, individuals who have never owned a Chinese appliance are nearly one-third of the
total respondents.
Data analysis and Finding: This study appliesprocedural tests, utilizing 2 statistical softwares, SPSS 20
and AMOS 20. First of all, the reliability of the data set is tested and the exploratory factor analysis is run
to examine the data grouping. After that, confirmatory factor analysis(CFA) is used for validity and model
fitness testing and lastly, structural equation modeling (SEM) is utilized to test the proposed hypotheses.
In the reliability test, alpha value must be higher than 0.7, showing the internal consistency of the data
(Table 2). In the Exploratory factor analysis, item loadings should be higher than 0.5. Items with low
loadings and cross loadings should be deleted. In this study, the deleted items are PJ5 and ETH6 (Table 3).
For the next step, this paper uses confirmatory factor analysis to test the reliability and validity of the
data. The usually tested validity consists ofConvergent Validity and Discriminant Validity. While
convergent validity indicates how each items represent for its factor, Discriminant Validity demonstrate
the distinctiveness between the factors. Table 4demonstrates the standardized factor loadings, Average
Variance Extracted (AVE), and Composite Reliability (CR)of the factors. Although Bagozzi and Yi (1988)
suggested that CR must be higher than 0.7 and AVE must be higher than 0.5 so that convergent validity
can be achieved, Fornell and Larcker (1981)shown evidence that ifAVE is less than 0.5 and the composite
reliability is higher than 0.6, convergent validity of the construct is still assured. Noticeably, that data
meets the requirements of the convergent validity test (Table 4). With the discriminant validity, the
square root of AVE should be larger than the its correlation coefficients with other factor (Fornell and
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Larcker, 1981), and this validity is also achieved in this study (Table 5). For the model fitness, it is obvious
that all required threshold is satisfied (Table 6). Structural Equation Modeling confirms that all
hypotheses areapproved, except for the hypothesis between Normative Influences and Animosity (Table
7).
Table 2: Cronbach’s alpha value
Variable
Cronbach’s alpha
Number of items
Normative Influence
0.735
5
Economic Hardship
0.890
6
Animosity
0.758
4
Ethnocentrism
0.795
6
Product Judgment
0.789
5
Purchase Intention
0.860
5
Table 3: Exploratory Factor Analysis Pattern Matrix
Pattern Matrix
Factor
1
2
3
4
5
6
H2
.835
H1
.793
H4
.777
H5
.765
H3
.758
H6
.655
PI2
.824
PI1
.783
PI4
.744
PI3
.722
PI5
.601
ETH3
.725
ETH5
.698
ETH2
.683
ETH1
.595
ETH4
.568
PJ2
.772
PJ1
.755
PJ3
.727
PJ4
.607
NI3
.679
NI4
.633
NI1
.566
NI2
.562
NI5
.558
A5
.778
A2
.654
A3
.649
A4
.570
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Table 4: Convergent Validity-CFA
Factor
Items
Item loadings
AVE
CR
Economic Hardship
H1
.725
0.565
0.886
H2
.757
H3
.792
H4
.785
H5
.792
H6
.649
Normative Influence
N3
.640
.432
.690
N4
.779
N5
.529
Animosity
A4
.994
.615
.741
A5
.791
Ethnocentrism
ETH3
.752
.521
.765
ETH4
.759
ETH5
.650
Product Judgment
PJ1
.795
.507
.804
PJ2
.726
PJ3
.688
PJ4
.630
Purchase Intention
PI1
.639
.607
.859
PI2
.747
PI3
.865
PI4
.844
Table 5: Discriminant Validity-CFA
NI
H
PI
ETH
PJ
A
0.657
-0.050
0.752
-0.057
-0.198
0.779
0.083
0.191
-0.444
0.722
0.144
0.128
0.328
-0.250
0.712
0.026
0.211
-0.426
0.325
-0.285
0.784
Table 6: Model fitness-CFA
CMIN/df
GFI
TLI
CFI
RMSEA
Criterion
<2
>0.9
>0.9
>0.9
<0.05
Score
1.841
0.902
0.937
0.938
0.049
Table 7: Hypothesis testing-SEM
Hypothesis
p-value
Structural Equation
Modeling
H1: Economic hardship -> Animosity
.005**
Supported
H2: Normative Influences -> Animosity
.516
Not Supported
H3: Animosity -> Product judgment
.003**
Supported
H4: Ethnocentrism -> Product Judgment
.017*
Supported
H5: Animosity -> Purchase Intention
***
Supported
H6: Ethnocentrism -> Purchase Intention
***
Supported
H7: Animosity -> Ethnocentrism
***
Supported
H8: Product judgment -> Purchase
Intention
.006**
Supported
Discussion: First of all, among the two independent antecedences of Animosity, only Economic Hardship
has significant impact. The situation is identical to Huang et al. (2010). Given some recent development,
Vietnam is still a developing country at the moment. Obviously, the perceived hardship therefore exists in
Vietnamese people’ minds. This threat of financial deprivation is strengthened as people believed that
China and its action are the cause. This is the reason why hypothesisH1“Economic hardship positively
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affects Vietnamese Consumer Animosity toward China”is approved with a very good significant value. In
contrast, Normative Influences do not have considerable impacts like Economic hardship. In Vietnamese
situation, people do pay attention to surrounding public eyes, but to some extent only. Regarding to the
feeling toward China and the purchasing behavior of Chinese products, reference groups have marginal
effects. Meanwhile, all other hypotheses from the original models of Klein et al. in 1998 with two added
hypotheses adapted from later literature are all supported. The results is similar to that of previous
researchers (Witkowski, 2000; Klein at al., 2002; Nijsen and Douglas, 2004; Russell, 2004).
Both hypotheses H3-“Vietnamese Consumer Animosity to China negatively affects Chinese Product
Judgment” andH4 –“Consumer Ethnocentrism negatively affects Chinese Product Judgment” are supported.
This indicates that both antipathy toward China and the feeling of Ethnocentrism affect the assessment of
Chinese products. Two constructs affect differently, but both result in Chinese product underestimation.
While animosity leads to the underrating of objects related to its sources, ethnocentric consumers value
domestic products much more than foreign countries’ one. Noticeably, the hypothesis that is denied in
paper of Klein et al. (1998), H3, is justified in this study. This current result is identical to Shoham’s study
in 2006, previously mentioned in the review of literature. Likewise, hypotheses H5-“Vietnamese Consumer
Animosity to China negatively affects Intention to Purchase China goods” and H6 –“Consumer Ethnocentrism
negatively affects Intention to purchase Chinese products” aresubstantiated by their significant values,
indicating the direct negative relationship of Animosity and Ethnocentrism on intention to purchase
Chinese products. In other words, these two psychological factors play a crucial and dominant role in
Vietnamese consumers’ intention when it comes to purchasingChinese household appliances. The
hypothesis H7- “Consumer Animosity to China positively affects Consumer Ethnocentrism” is robustly
supported. The feeling of antipathy could be generalized into ethnocentrism. Vietnamese consumers who
express their hatred toward China due to the political and economic issues will reject Chinese household
appliances and use Vietnamese products instead. This served as a brief explanation for this hypothesis.
Lastly, hypothesis H8 –“Chinese Product Judgment positively affects Intention to Purchase Chinese Product”
is confirmed as significant. Clearly, the judgment of one product is positively related to the intention to
buy and own them. The better the judgment is, the higher the intention would be.
Recommendation and Direction for Further Study
For Chinese Electronic Household appliances suppliers: First of all, Chinese organization should
recognize the high level of Animosity existing in the mindset of Vietnamese consumers and learn how to
deal with them. The primary strategy is to run an in-depth marketing research to measure the levels of
animosity. In therecommended marketing research, demographics and geographic information should be
included as the perception of animosity may vary among different backgrounds and regions. For example,
people in rural and urban areas may have diverse viewpoints regarding animosity toward China and
purchasing behavior of its products. With detailed information, they can tailor their strategies to reduce
such impacts and thus increase market shares and profits. Animosity is considered to be a threat to an
international firmthat originatesfrom a country that has controversial issue in political, economic or
military aspects with the export countries. Being aware of this, marketing managers are required to
develop special plans to deal with this potential hazard. When it comes to animosity and
ethnocentrism,ordinary methods of marketing such as advertisement and promotion may be ineffective.
Marketers could consider the followingthoughtful insights given by this research or relevantstudies.
The first strategy is to directly address the animosity issues. This should be combined with intensive
public relation and communication tools in the attempt to change consumers’ perception and prejudice.
The communication campaign should emphasize that the products and the brand does not involved with
the current incident. Since the diplomatic issues are recent, the strategy could become even more
effective (Klein et al., 1998). In addition, the effects of Economic Hardship on Animosity should not be
overlooked. Perceived deprivation transforms into Animosity toward China as Vietnamese citizen believe
that China is a main cause of East Sea’s instability. Manufacturers could use the same methodto inform
consumers that using Chinese electronic household appliances cause no harm to Vietnamese economy
and society. By doing so, manufacturers can also reduce the bias of Chinese products in ethnocentric
consumers. Another fruitful strategy is that Chinese manufacturer should consider moving to and
manufacture household appliances in Vietnam.The process enables the producer to create hybrid
products. This kind of product provides marketers with the flexibility incoping with the effects of
consumer animosity related to product origin (Leven and Jasper, 1996). In fact, many Chinese household
appliances suppliers have invested their own factory in Vietnam. However, their marketing activities do
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not take advantages of this reality. Marketers should alter the brand name by placing the term “made in
Vietnam”.Hence, the company can utilize consumer Ethnocentrism to gain more sales and capture more
market shares. Last but not least, marketers working for these enterprises can segment their target
consumers into groups with distinctive attributes that do not strongly harbor animosity toward China.
Although the majority of Vietnamese consumers hold hostility toward China, the level of animosity
actually differs. Therefore, spotting out a group of consumers whose levels of animosity are not high
enough for them to abandon Chinese appliances and adjust marketing strategies to meet their
desires is another plausible strategy that should be taken into consideration.
For Vietnamese Electronic Household Appliance Manufacturers: For local marketing managers, this
study gives suggestions on brand positioning strategies. As Ethnocentrism can be transferred into bias
toward foreign products, this can be utilized as a “powerful weapon” to fight in the arena where
international trade continuously increases. Vietnamese products quality is incomparable to that of
developed countries in consumers’ mindset (Nguyen & Nguyen, 2004). Thus, instead of focusing only on
product attributes, a strategy that emphasizes ethnocentric attitudes in purchasing the product shines.
Local managers should take advantages of ethnocentrism to increase market shares and profit. “Buy
Vietnamese” is a very suitable strategy to be used.
For Vietnamese retailers: Most of the electronic household appliances move to intermediary retailers
before getting into consumers hands. Therefore, the findings of this study are beneficial to the retailer
practitioners. Being aware of the effects of Animosity on consumers, the mangers should carefully
consider whether to import Chinese branded household appliances and to put it on sales. If the necessity
of importing Chinese branded products is in place, the brand names and the suppliers should be taken
into thorough consideration. The retailers should choose hybrid appliances that are manufactured in
Vietnam in order to utilize consumer’s Ethnocentrism while minimizing the impacts of Animosity. They
can implement some previously mentioned strategies to promote their products in cooperation with the
manufacturers. Chinese branded appliances has a big advantage on price and an acceptable quality, which
they should emphasize on their advertising. In addition, they should highlight that the products is
manufactured in Vietnam, therefore deemphasizing the brand real origin as well as triggering
ethnocentric belief. If the demand for Chinese branded household products is not high, the retailers
should choose Vietnamese brands for the above reason. Ethnocentrism could be exploited to enhance
sales and profit.
Theoretical Implication: The study confirms the Animosity model for foreign product purchase in a
context when there are recent controversial issues. While preceding research concentrates on past events
as a source of Animosity, this paper proves that on-going events can still trigger Animosity. Animosity and
Ethnocentrism affects purchase intention directly and indirectly, through Product Judgment. Moreover, a
hypothesis between Animosity and Product Judgment, earlier denied by Klein (1998), is justified in this
study. This research also investigates the antecedences of Animosity, which previous papers lack. The
findings can contribute humbly to the academic field of Animosity and Consumer behaviors.
Suggestion for Further Study: Although the research put best effort in covering all aspects regarding to
Animosity model, there are some limitations which are need to be clarified. Further study should consider
these drawbacks to have a fuller understanding of Animosity in Vietnamese context. Firstly, it is
conducted within Ho Chi Minh City only. As a result, its finding can only be applied to Ho Chi Minh City.
There are many differences among distinctive regions. For instance, there is a big gap in consumer
behaviors between the rural and the urban area. To fully understand the effect of Animosity and
Ethnocentrism to purchase intention in Vietnam, multi-regional research should be carried out. Secondly,
the research is centered on Chinese branded household appliances. Other researches could try a new
category of products to see if the findings differ. Thirdly, the research finds no relationship between
Normative Influences and Animosity. Nonetheless, this study infers that Vietnam possess a collectivism
culture. Thus, this research suggests further researches should spend times on design a better set of
questionnaires and pretest the model to see if the proposed hypothesis really exist. Lastly, the research
exercises only in quantitative method. The results might not be interesting enough. However, due to the
shortage of time, labor and budget, qualitative research cannot be implemented. Later study can conduct
qualitative methods (focus group and in-depth interview, to name a few) to contribute more attractive
findings.
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The Benefits of Financial Ratios’ as the Indicators of Future Bankruptcy on the Economic
Crisis
Setia Mulyawan
Padjadjaran University, Bandung-Indonesia
Islamic State University Sunan Gunung Djati, Bandung-Indonesia
mail2setia@gmail.com
Abstract: It is proved that financial ratios can predict future bankruptcy even on high uncertainty
conditions such as an economic crisis. The research indicates that the accuracy of prediction is more
increasing in line with a coming bankruptcy. The result of the research shows that four years before a
corporate becomes bankrupt there have been significant differences of financial ratios between bankrupt
company and sustained one. The ratios of liquidity, profitability, activity, and return on investment of
sustained company are higher; while the leverage ratio is lower. The dominant influencing financial ratios
toward a bankruptcy are liquidity and leverage ratios. The research finds that from ten tested ratios,
Current Asset to current liabilities and total liabilities to total asset are the dominant financial ratios.
Keywords: bankruptcy, financial ratios, prediction models
1. Introduction
Financial ratios are believed to be used to predict the company in the future. Empirical evidence of the
benefits of financial ratios to predict bankruptcy obtained from several studies such as Pankoff and Virgil
(1970), Sinkey (1975) which proves that the financial ratios proved accurate in setting the bank rating
(Whalen and Thomson, 1988). In Indonesia, Machfoedz (1994) and Surifah (1999) through his research
has also obtained the conclusion that the beneficial financial ratios to predict earnings growth and bank
failures. To prove that the financial ratios can be used to predict corporate bankruptcy, the other
researchers such as; Beaver (1966), Altman (1968), Dambolena and Khoury (1980), Thomson (1991),
Zain (1994), Surifah (2000), and Avianti (2000) lead to the conclusion that the financial ratios useful for
predicting corporate bankruptcy. In 1997-1998 Indonesia's economic crisis that affects up to 2002. This
study is intended to determine the benefits of financial ratios to predict bankruptcy in the business
environment of high uncertainty. The purposes of this study are: (1) Is there a difference in the average
financial ratios of bankrupt companies with companies not bankrupt; (2) Is the financial ratios can be
used as a tool for predicting bankruptcy; and (3) Financial ratios are most influential to the bankruptcy of
the company.
2. Literature Review
Financial ratios are believed to be used to predict the state of the company in the future. Empirical
evidence about the benefits of financial ratios to predict bankruptcy has been demonstrated through
several studies. Some experts who have done research on this, among others; Pankoff and Virgil (1970),
as well as Sinkey (1975) which proves that the financial ratios proved to be accurate in preparing the
bank rating (Whalen and Thomson, 1988). In Indonesia, Machfoedz (1994) and Surifah (1999) through
his research has also obtained the conclusion that the beneficial financial ratios to predict earnings
growth and bank failures. Moreover, to prove that the financial ratios can be used to predict corporate
bankruptcy, other researchers such as; Beaver (1966), Altman (1968), Dambolena and Khoury (1980),
Thomson (1991), Zain (1994), Surifah (2000), and Avianti (2000) through his research has obtained the
conclusion that the beneficial financial ratios to predict bankruptcy of a company. Evidence of the
reliability of financial ratios in predicting bankruptcy of the company, among others, it is shown by the
results of research Adnan and Taufiq (2001) who analyzed the accuracy Altman method in predicting the
occurrence of liquidation of banks in Indonesia. The results of this study indicate that a Z-score liquidated
banks is much smaller than the value of the Z-score of the banks are not liquidated. The results of this
study concluded that Altman method can be used to predict the likelihood of liquidation on banking
institutions.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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3. Methodology
To answer the first purposes of research used univariate analysis to determine the difference of average
between the two groups. To know the second purposes of the study used logistic regression models. The
method used is the Backward-Stepwise (Wald) with a statistical model as follows:
p
=
1
1 + e –(βo+ β1+...+ βoXn)
where Is:
p = probability of bankruptcy
e = the natural logarithm
βo = constant
βi = logistic regression coefficient
xi = financial ratios
To answer the third purposes of this research used Backward-Stepwise Logistic Regression using
financial ratios for five years (1997-2001).
4. Results and Discussions
The difference of average Financial Ratios (1997-2001): The results of the normality test of data and
different test to the financial ratios (1997-2001) are presented in the Table 1. Normality test results
indicate that the p-value for all financial ratios tested were below 0.05. Based on this result, the entire
financial ratios were tested using the Mann Whitney U statistical summary of different test results are
presented in the Table 2. Different test results using the Mann Whitney U test statistics as presented in
Table 2 show that 9 of financial ratios to obtain p-value less than 0.05, which means that there are
differences in average financial ratios of Current Assets to Current Liabilities, Quick Assets to Current
Liabilities, Gross profit to Sales, Net Income to Sales, Sales to Total Assets, Sales to Fixed Assets, Earnings
Before Interest and Taxes to Total Assets, Net Income to Total Assets and Total Liabilities to Total Assets
of the bankrupt company with a company that does not bankrupt. The ratio of Cost of Goods Sold to
Inventory does show non-significant difference indicated by the p-value greater than 0.05.
Table 1: Results of Normality Test
Num
Financial Ratios
Var.
Kolmogorov-Smirnov (a)
Result
Stat.
db
p-value
1
Current Assets to Current Liabilities
x1
.252
200
.000
Sig.
2
Quick Assets to Current Liabilities
x2
.249
200
.000
Sig.
3
Gross Profit to Sales
x3
.235
200
.000
Sig.
4
Net Income to Sales
x4
.290
200
.000
Sig.
5
Cost of Goods Sold to Inventory
x5
.256
200
.000
Sig.
6
Sales to Total Assets
x6
.137
200
.000
Sig.
7
Sales to Fixed Assets
x7
.288
200
.000
Sig.
8
Earning Before Interest and Taxes
to Total Assets
x8
.160
200
.000
Sig.
9
Net Income to Total Assets
x9
.182
200
.000
Sig.
10
Total Liabilities to Total Assets
x10
.186
200
.000
Sig.
Source: Research Data Processing, 2014
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Table 2: Results of Different Test (1997-2001)
Num
Financial Ratios
Var.
Result of Test
Result
Test *)
Stat.
p-value
1
Current Assets to Current Liabilities
x1
MW-U
1955.0
.000
Sig.
2
Quick Assets to Current Liabilities
x2
MW-U
1928.0
.000
Sig.
3
Gross Profit to Sales
x3
MW-U
3458.0
.000
Sig.
4
Net Income to Sales
x4
MW-U
2682.0
.000
Sig.
5
Cost of Goods Sold to Inventory
x5
MW-U
4750.0
.541
Non-
Sig.
6
Sales to Total Assets
x6
MW-U
3926.0
.009
Sig.
7
Sales to Fixed Assets
x7
MW-U
3779.0
.003
Sig.
8
Earnings Before Interest and Taxes
to Total Assets
x8
MW-U
2305.0
.000
Sig.
9
Net Income to Total Assets
x9
MW-U
2561.0
.000
Sig.
10
Total Liabilities to Total Assets
x10
MW-U
1656.0
.000
Sig.
Table 3 show that 9 financial ratios differed significantly between bankrupt companies with companies
sustained. Financial ratios of liquidity, profitability, activity, and Return on Investment from companies
that are not bankrupt greater than the bankrupt companies. While the leverage ratio (Total Liabilities to
Total Assets) companies that sustained smaller than the bankrupt companies. Resume different test
results of financial ratios studied are presented in the Table 4. Table 4 show that before the bankruptcy, a
growing number of financial ratios that differ between bankrupt companies with companies sustaine
Table 3: Comparison of Average Financial Ratios (1997-2001)
Num
Financial Ratios
Var.
Average
Sustained
< / >
Bankrupt
1
Current Assets to Current Liabilities
x1
1,512201
>
0,477415
2
Quick Assets to Current Liabilities
x2
1,015383
>
0,297805
3
Gross Profit to Sales
x3
0,275181
>
0,171593
4
Net Income to Sales
x4
-0,15214
>
-0,6237
5
Sales to Total Assets
x6
0,781001
>
0,662808
6
Sales to Fixed Assets
x7
3,030421
>
2,676434
7
Earnings Before Interest and Taxes
to Total Assets
x8
-0,0287
>
-0,20905
8
Net Income to Total Assets
x9
-0,03145
>
-0,19275
9
Total Liabilities to Total Assets
x10
0,7671
<
1,30047
Source: Results of Research Data Processing, 2014
The Results of Overall Logistic Regression Test (1997-2001): The results of logistic regression
calculation of the financial ratios for 5 years (1997-2001) shows that the function of the logistic
regression equation is as follows:
1 10
( 1,765 1,025X 2,686X )
1
p1e
In which:
p = The probability of bankruptcy
X1 = Current Asset to Current Liabilities (CACL)
X10 = Total Liabilities to Total Assets (TLTA)
The accuracy of the logistic regression model (for 5 years) can be identified by cross-checking the results
of model predictions with data from observations/sample. Test models done by entering each value of the
variable x from the sample data to the model above. Using a cut-off value of 0.5 obtained cross-check the
results of the performance of the model as presented in Table 5.
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Table 4: Summary Results Test of Difference
Table 5: Performance of Logistic Regression Models (1997-2001)
Observe
Prediction
Accuracy (%)
Sustained
Bankrupt
Sustained
79
21
79,00
Bankrupt
26
74
74,00
% overall
76,50
Source: Results of Research Data Processing, 2014
Table 5 shows that the 100 non-bankrupt company data, there are 79 corporate data (79.00%) which
classified correctly by the model, while the data of 100 bankrupt companies are corporate data 74
(74.00%) were classified correctly by the model. So the overall the percentage of companies that are
classified correctly by the logistic regression model simultaneously is 76.50%.
Table 6: Resume Financial Ratios Influential Toward Bankruptcy
Num.
Year
Year
Before
Bankrupt
Var.
Financial Ratios
Group
1
1997
5
-
-
-
2
1998
4
X2
Quick Assets to Current
Liabilities (QACL)
Liquidity
X3
Gross Profit to Sales (GPS)
Profitability
3
1999
3
X1
Current Assets to Current
Liabilities (CACL)
Liquidity
X3
Gross Profit to Sales (GPS)
Profitability
4
2000
2
X8
Earnings Before Interest and
Taxes to Total Assets
(EBITTA)
ROI
5
2001
1
X10
Total Liabilities to Total
Assets (TLTA)
Leverage
6
Overall
-
X1
Current Asset to Current
Liabilities (CACL)
Liquidity
X10
Total Liabilities to Total
Assets (TLTA)
Leverage
Num
Financial Ratios
Var
Years
1997
1998
1999
2000
2001
Overall
1
Current Assets to
Current Liabilities
x1
X
√
√
√
√
√
2
Quick Assets to
Current Liabilities
x2
X
√
√
√
√
√
3
Gross Profit to Sales
x3
X
√
√
√
√
√
4
Net Income to Sales
x4
X
x
√
√
√
√
5
Cost of Goods Sold to
Inventory
x5
X
x
X
x
x
√
6
Sales to Total Assets
x6
X
x
X
x
√
x
7
Sales to Fixed Assets
x7
X
x
X
x
x
√
8
Earnings Before Interest
and Taxes to Total Assets
x8
X
x
√
√
√
√
9
Net Income to
Total Assets
x9
X
x
√
√
√
√
10
Total Liabilities to
Total Assets
x10
X
√
√
√
√
√
Source: Results of Research Data Processing, 2014
x = non-significant
√ = significant
Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Source: Results of Research Data Processing, 2014
Financial Ratios Dominant Influence the Company Bankruptcy: To determine financial ratios
dominant influence the bankruptcy using logistic regression analysis of all financial ratio data for 5 years
with the enter method. By using logistic regression method, model is obtained as follows:
1 2 3 4 5 6 7 8 9 10
( 0,883 2,191X 1,486X 1,866X 0,485X 0,019X 0,320X 0,041X 1,412X 2,007X 2,280X )
1
p1e
Table 7: Testing Logistic Regression Coefficients By Individual (Phase I)
Hypothesis
Wald
Db
p-value
Results
H0 :
00
H0 :
00
.788
1
.375
Non-Sig
H0 :
10
H0 :
10
3.881
1
.049
Sig
H0 :
20
H0 :
20
1.309
1
.253
Non-Sig
H0 :
30
H0 :
30
2.879
1
.090
Non-Sig
H0 :
40
H0 :
40
.791
1
.374
Non-Sig
H0 :
50
H0 :
50
.497
1
.481
Non-Sig
H0 :
60
H0 :
60
.370
1
.543
Non-Sig
H0 :
70
H0 :
70
.923
1
.337
Non-Sig
H0 :
80
H0 :
80
.212
1
.645
Non-Sig
H0 :
90
H0 :
90
.423
1
.515
Non-Sig
H0 :
10 0
H0 :
10 0
6.288
1
.012
Sig
Source: Results of Research Data Processing, 2014
Model fit test was conducted to determine the suitability of the results of the model predictions with data
from observations using the Hosmer-Lameshow test statistics. Under this test values obtained significant
opportunities to match the model of 0.198. Hosmer-value opportunities significance Lameshow more
than 0.05 means that the model is fit to have a fit between the observed data with data from model
predictions. On this basis it can be stated that in overalls declared fit models. After testing in overalls
further testing individually for regression coefficients using the Wald test statistic. Test results using the
Wald test statistics are presented in the table 7. Table 7 shows the result that the financial ratios that
significantly in determining bankruptcy is a financial ratio X1 (Current Assets to Current Liabilities) and
X10 (Total Liabilities to Total Assets). While other financial ratios revealed no significant influence.
Because they logistic regression model involving all financial ratios still involve variables are not
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significant financial ratios, then before examined the performance of the model, first look for the best
regression model for logistic regression models simultaneously this. To find the best logistic regression
model reached by using backward through the Wald test statistic. Backward method that reduces the
model by eliminating variables that are not significant. The result of this process produces a logistic
regression model as follows:
1 10
( 1,765 1,025X 2,686X )
1
p1e
The probability of significance for the above model fit using the Hosmer-Lameshow test statistic obtained
for 0.320. With the probability of significance over 0.05 model fit the above model declared fit to the data.
Significance test results for individual regression coefficients on the new model are shown in the
following table 8.
Tabel 8: Testing Logistic Regression Coefficients By Individual (Phase II)
Hipotesis
Wald
Db
p-value
Result
H0 :
00
H0 :
00
7.874
1
.005
Sig.
H0 :
10
H0 :
10
14.560
1
.000
Sig.
H0 :
20
H0 :
20
4.794
1
.029
Sig.
Source: Results of Research Data Processing, 2014
Table 8 shows that the value of the significance of individual test results to a new logistic regression
model resulted in significant testing. This is evident from the significance probability value less than 0.05.
Logistic regression model above shows a significant effect of X1 and X10 towards bankruptcy. Based on the
best regression model formed as above, can be explained that:
1) There is a significant influence of financial ratios Current Assets to Current Liabilities (X1) to
bankruptcy. Based on the magnitude of the regression coefficients for X1, it means that any
increase in the value of financial ratios for the unit then the chances of the company entered
bankruptcy category will decrease (negative sign) of e1,025 = 2.787, and;
2) There is a significant effect of financial ratios Total Liabilities to Total Assets (X10) to bankruptcy.
Based on the magnitude of the regression coefficient for the X10, it means that any increase in the
value of financial ratios for the unit then the chances of the company entered bankruptcy category
will increase by e2,686 = 14.673.
5. Conclusion and Recommendations
1) There are significant differences between the financial ratios of the company insolvent with a
company that is not insolvent. Financial ratios of liquidity, profitability, activity, and return on
investment of companies which are not insolvent proved greater than the company insolvent.
While the leverage ratio (total liabilities to total assets) companies which are not insolvent is
smaller than the company insolvent. The results of this study also indicate that the closer
bankruptcy, more and more financial ratios that show significant differences between the company
insolvent with a company that is not insolvent.
2) Financial ratios proved to be utilized as a tool for predicting bankruptcy of the company, including
the circumstances that a relatively high degree of uncertainty as the economic crisis. The results of
this study showed that the overall level of predictive validity (simultaneously for 5 years) of
76.50% (overall). While the test results each year is known that the predicted rate established by
the logistic regression model for a period of 4, 3, 2, and 1 year prior to bankruptcy turned out to be
even greater, namely: 77.50%, 80.00%, 92.50%, and 92.50%. Whereas in 1997 or 5 years before
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the bankruptcy, not obtained an adequate model. In other words, financial ratios 5 years prior to
the bankruptcy can not be used as a predictive tool for bankruptcy.
3) Financial ratios dominant influence on the bankruptcy of the company is the ratio of liquidity and
leverage. The results of this study prove that from 10 financial ratios tested, there are two financial
ratios of the most dominant in shaping the bankruptcy models, namely Current Assets to Current
Liabilities and Total Liabilities to Total Assets.
Recommendations
1) There is evidence that financial ratios have reliability in predicting bankruptcy can be a valuable
reference for financial policy makers. Financial ratios can be used as an early warning tool (early
warning system) in anticipation of bankruptcy in the future;
2) The model of predictions are generated in this study were tested in companies that research
sample. Therefore, it is possible to have a prediction accuracy rate is too high. Therefore, it is
suggested that other researchers to test it on other companies that are not sampled in this study,
and testing was conducted for a period of time that will come.
3) This study focuses only on 10 types of financial ratios calculation basis balance sheet and income
statement. For it to other researchers suggested that developing a type of financial ratios are
examined, including financial ratios include the basic calculation of the cash flow and market value
(stock);
4) For investors, financial ratios can be valuable information in making investment decisions. If the
state of the company has been showing a state where a low level of liquidity or high leverage, then
this situation can mean "warning" that investors shift their investment immediately, because
liquidity is low and or high leverage can be an indication of impending bankruptcy.
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Memprediksi Potensi Kebangkrutan dengan Pendekatan Altman, Kasus pada Perusahaan di
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Machfoedz Mas’ud & Payamta, 1999, “Evaluasi Kinerja Perusahaan Perbankan Sebelum dan Sesudah
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Machfoedz Mas’ud, (1994), “Financial Ratio Analysis and The Prediction of Earning Changes in Indonesia”,
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Pankoff and Virgil (1970), “On The Usefullness of Financial Statement Information” The Accounting
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Proceedings of 4th International Conference on Management, Finance & Entrepreneurship
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Neoclassical Growth Model: Application to the Analysis of Human Capital For Regional
Development
Aulia A. Abdhy
Padjadjaran University
abdhy_aulia@yahoo.com
Abstract: Human resource development has a strategic significance for the development progress of a
nation. Countries that succeed in its national development, it gives great attention to human resource
development. Some studies suggest the importance of externalities and Human Resources factors to spur
economic growth. Indications of human resources play a role in smoothing the process of technology
transfer and creation, the idea that high investment in human capital is a prerequisite that must be done
in advance, in the process of economic growth, to support investment in physical capital. This paper aims
to discuss the Neoclassical growth model provides a basis for understanding the differences between the
interregional growth related factors that affected of different growth in economic development.
Keywords: Human resource development, economic growth, Neoclassical growth model
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The Role of External and Internal Factors in the Accuracy of Predicting Financial Distress
Pramudena Marti Sri
Padjadjaran University, Bandung Indonesia
dena_pramu@yahoo.com
Abstract: The purpose of this paper is to predict financial distress explored how the proposed by experts.
As we know that the Financial Distress is an early predictor in assessing the financial performance of the
company, for this prediction in need of external and internal analysis of the company. The methodology of
this research is the study of literature and secondary data. This paper is expected to provide a
comprehensive picture of the company's financial performance through the prediction of financial
distress that has been widely used some previous researchers. The results of this study will be a
contribution to the development of literature and provide a comparison of the application of financial
distress prediction model that has been done so create a model of financial distress research using
external and internal analysis. The results of this study will also provide an explanation that there has
been no study of financial distress by using external and internal factors simultaneously and integrated.
Keywords: Fianancial distress, financial performance of the company, external and internal factors
1. Introduction
Financial distress is a condition in which the company faced financial difficulties Financial distress
problems occur when the company can not meet its obligations, especially in terms of debt payments
(Ross, et al, 1999). Financial distress is the stage of the financial downturn that occurred prior to the
bankruptcy or liquidation. If this is not resolved soon will have a major impact on companies such as loss
of confidence of stakeholders, and even the company will undergo bankruptcy (Plat and Plat., 2002). So
important to analyze the condition of a company is in a healthy state or experiencing financial difficulties
(financial distress), so a lot of research done to analyze observing and researching about the company's
financial performanceAnalysis of the financial statements can be one tool to predict financial distress
(Rayenda, 2007). Through the financial statements of financial ratios can predict whether or not the
financial distress. Many factors led to the bankruptcy of the company, in principle, can be classified into 2
(two), namely internal and external factors. Internal factors are the causes that arise from the company
include financial and non-financial factors. The reasons for the details concerning the financial field,
namely; a) the existence of debt is too large so as to provide a heavy burden for the company remains; b)
the existence of short-term liabilities that are too big in the assets lancer; c) the slow collection of
accounts receivable or the number of bad-debt. ; d) errors in dividend policy; e) insufficient funds
shrinkage. While the Non Financial is; a) There is an error on the founders, among others, the error in the
selection of the company's position, the error in the determination of the resulting product, the error in
the determination of the company; b) The organizational structure of the company is not good; c) errors
in the selection of corporate leaders .; d) the existence of managerial incompetence, namely errors in
menerapan operational policies, excessive expansion.
External factors are factors that are beyond the control of the company and outside the company, among
others, the intense competition, reduced demand for the products produced, the lower the price changes
in the macro economy as well as inflation, SBI interest rate and balance of payments.
The existence of the shareholders and the management role is essential in determining the profits that
will be obtained. This means that every manufacturing company is required to be able to cope with the
situation so that it can perform management functions with good management in order to be ahead of the
competition (Noegler, 2006), A manager must competence in taking decisions and should carefully
consider the nature and cost of of the source of funds that will be selected, since each source of these
funds have different financial consequences. Meanwhile, when the company decided to obtain additional
funds on activities, necessary preliminary analysis whether the company is in good health or in financial
distress, the companies need to analyze internal and external. Dun &Brodsteet (1991) describes the
factors that cause business failure in the form of financial factors, factors of experience, negligence,
disaster and fraud, corporate governance and macroeconomic factors.
Platt and Platt (2002), states that when a decline in the financial condition continuously, the company is
experiencing financial distress is a condition prior to the bankruptcy, which means the failure of a
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business, According to Brigham and Daves (2003), financial difficulties occur over a series of errors,
decision-making less precise and weaknesses interconnected to contribute directly or indirectly to the
management and supervision of a lack of effort the company's financial condition resulting in less use in
accordance with what is needed. According Wruck (1990) when operating cash flows are not sufficient to
meet its current liabilities such as accounts payable or interest costs, the company in financial difficulty or
in financial distress call. Financial distress can occur from the difficulties of liquidation (short-term),
which is the lightest financial distress to the declaration of bankruptcy, which is the most severe financial
distress (Brahmin, 2007). To minimize the occurrence of bankruptcy of the company, management must
monitor the financial condition and financial statement analysis (Ramadhani and Lukviamrman, 2009).
Financial statement analysis is an important tool to obtain information about the company's financial
condition. Financial analysis has two main tools that can be used are: analysis of the ratio (ratio analysis)
and analysis of cash flow (cash flow analysis) (Palepu and Healy, 2008: 5-1) The second is an analytical
tool used by management to menanalisis company's financial condition, if the financial condition of
decreased financial management should be careful because these conditions can lead to financial distress.
Much research has been done in analyzing the influence of financial factors which often also called the
fundamentals of the financial distress, some studies use financial ratios to predict financial distress of a
company include Altman (1968) with Multiple Diskriminant Analysis, Altman et al, (1977) using financial
ratios such as earnings before interest and taxes / total assets, market value of equity / book value of
debt, retained earnings / total assets, working capital / total assets, sales / total assets (Altman et al, 1995
). So even Zavgren (1983), using financial ratios well in predicting financial distress company, the ratio
used in the form of Average inventories / net sales, Average recievable / average inventories, Long-term
debt / (total assets - short-term debt, net sales / (fixed assets + working capital, Operational earnings /
(total assets - Short-term debt, Quick assets / current debts, Quick assets / total assets (Zavgren, 1985).
Deakin (1972) using Cash / current debts, Cash / sales, cash / total assets Cash flow / total debts, Current
assets / current debts, Current assets / sales, Current assets / total assets, net income / total assets, Quick
assets / current debts, Quick assets / sales, Quick assets / total assets, Working capital / total assets,
Working Cpital / Sales, Total Debt / Total assetss (Deakin 1977). While Oldson (1980), using financial
ratios such Change in income / sum of the absolute value of net income for two years, Current debts /
current assets, Log (total assets, / GNP price index level Net income / total assets, Owners' equity,
positive or negative, Positive or negative earnings, Working capital / total assets, total debt / total assets
(Zahra Poorzamani1, AzitaJahanshad 2013) in line with researchers -peneliti the Brahmins (2007),
Alifiah, et al (2012), Almilia and Kritijadi (2003), and Platt and Platt (2002), also using a variable in
predicting the company's financial ratios.
Although the analysis of the usual symptoms of bankruptcy by using financial ratio analysis, but some
researchers tried to analyze the use of the study on reputation management, actually study this theory is
the upper echelon theory put forward by Hamrick and Moson (1984) that the characteristics possessed
by top management ( Top Management Team) has a direct influence on the performance of the company
as a whole, the characteristics in the form of reputation management intent owned by top management.
This theory is supported by D'Aveni (1990), that the reputation management has influence in bringing
the company out of crisis, management has a good reputation will have a good financial planning strategy
anyway. Reputation manjemen peak is social capital owned by manajamen peak with a certificate of
expertise in a particular field, the background of which are owned and activities of managers in a
particular field (board membership). Hamrick and mason (1984) mengatkan that social capital dimikili
by top management can affect creditors in the event of negotiations on corporate debt or influence
investors in making investment decisions.
Andrade and Kaplan (1977) and Asquith et al, (1994) also agree about the lack of conversation manager
manages the company will affect the ability of managers to manage the accuracy of the financial strategy
and choice of profitable investment projects (under-investment problem). Kor (2003) also states that the
reputation management has positive influence on financial performance. A lot of support for this esellon
Upper tori like Juan and Lee (2011) Kuersten and linden (2011), Ongen et al, (2011) stated that they
affect the company's reputation management. Research management and company reputation is built on
a variety of characteristics ranging from social responsibility, human resource practices are good and
honest financial reporting so as to create a healthy company (Becchetti et al., 2007; Desai et al., 2006;
Chum, 2005 ; Chalmers and Godfrey, 2004; Cox et al., 2004, Herrington, 2003; Weaver et al., 1999;
Fambrun and Shanley, 1990; Bhagat and Black, 2002) examined the link between the ability of managers
to manage risk with corporate governance proksinya is reputation management, they found that the audit
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committee, and directors who have the education and knowledge related to financial management is able
to hedge better than those who did not have the education and knowledge in the field of financial
management. While other studies have different opinions about the upper echelon theory before, namely
research and SumiyanaAini (2008), GatotNazir Ahmad (2014) in his research found that manajmen
reputation is measured with an educational background as well as directors and komisasris background
and work experience has a negative relationship with financial distress. Assessment morbidly regardless
reputation management with pengeloalaanpeneilaian against the company itself, with a reputation for
good management will affect the company's financial management which will affect also the value of the
company as a whole, this is in accordance with the opinion of Niksokelainen and Weight (2007) states
that the reputation good management reflects the corporate governance (Coporate Governance) are good
also.
Agency theory (Jensen and Meckling (1976) is due to the asymmetry of information that resulted in a gap
between managers and owners of companies that allow moral hazard, so there will be a cost agency, the
condition that caused the company to choose external sources (debt and shares) (Myers and Majluf,
1984) Asimerti information occurs because the management has more information than the
shareholders. As such, the management may think that the stock price is currently overvalued (too
expensive) so that management will issue new shares at a price that is more expensive than it should be.
Then between debt holders and shareholders. The shareholders will control the manager through the
bonding mechanism and controlling debt holders while controlling shareholder with a legal bond called
ovenant. From the point of view of the theory of accounting, earnings management is determined by the
motivation of corporate managers. Different motivations will produce a different amount of earnings
management, such as between a manager who also serves as shareholders and managers are not as
shareholders. This is in accordance with the system of management of the company in two criteria: (1)
the company is led by the manager and the owner (owner-manager) (2) The company is led by managers
and non-owners (non-owner-manager).
Two criteria will influence policy and decision-making to the accounting method on ownership by
management tends to affect earnings management action (Boediono, 2005), but the management of the
company also affect the value of the company. In cooperate governance (GCG) is a set of processes,
customs, policies, rules, and institutions that affect the direction, management, and control of a company
or corporation. corporate governance also includes the relationships among stakeholders (stakeholders)
involved and destination management companies. The main parties in the governance of the company are
the shareholders, management, and board of directors. Other stakeholders including employees,
suppliers, customers, banks and other creditors, regulators, the environment, and the wider community.
Corporate governance is a subject that has many aspects. One of the main topics in corporate governance
is a matter of accountability and responsibility mandate, in particular the implementation of guidelines
and mechanisms to ensure good behavior and protect the interests of shareholders.
The problem arises because the corporate Governace the separation between ownership and control of
the company. Corporate governance is needed to reduce the agency problem between owners and
managers (Macey and O'Hara, 2003). In agency theory to explain (Jensen and Meckling (1976) that the
management will make a decision to increase the size of the company through investment in order for
them to enjoy the compensation based on the amount of assets they manage, meaning that management
will make business decisions that benefit their position because they are in possession of information
which is more than owners. This condition according to which said Eisenhardt, 1989) that there are three
basic assumptions of human nature in order to explain the agency theory, namely: (1) humans are
generally selfish, (2) humans have limited thinking about the future perception, and (3) humans always
avoid risks (Eisenhardt, 1989). Based on the assumption that human nature as human managers will
most likely act on opportunistic nature, namely prioritizing personal interests (Harris, 2004).
The power to manage the company derived from ownership and the owner should be able to run its
power in accordance with the value of their investments (Sukamulja, 2004), managerial ownership and
institutional ownership are two main corporate governance mechanisms that help control agency
problems. Because often Controlling shareholder and management control decisions are taken, the
greater the proportion of ownership in the company management, the management tends to be more
active in the interests of shareholders in particular is himself. The number of large managerial stock
ownership should have a higher performance, because the agency cost reduced. Stiglitz, 1985; Shleiffer
and Vishny, 1986 saying that cooperate to improve governance is to have one or more large shareholders
and Vishny, 1998 found that there is a big influence of managerial ownership on firm performance.
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Based on the research results Emrinaldi (2007), that with the increase in managerial ownership it will be
able to encourage lower potential financial difficulties. In line with the opinion of Hanifa, Purwanto
(2013), also conducted research whose results stating the results of descriptive statistics indicate that the
average institutional ownership in distressed financial firms are smaller than the average non-financial
institutional ownership in distressed firms.
Besides the internal factors mentioned above, there are external factors that influence the occurrence of
financial distress, namely macroeconomic factors. Many companies are experiencing performance
degradation caused by macroeconomic conditions. Subrime subprime crisis (2008), the US led to rising
tinggkat SBI rate which increased deposits, which in turn results in a high interest rate credit, so investing
in a company be decreased. Domestic investment decreased resulting in increased reliance on domestic
business overseas investors, which means that an increase in the current flow of dollars into the country.
The decline of the rupiah against the US dollar will lead to inflation, rising inflation is a relatively negative
signal for investors, high inflation caused a decline in the profitability of a company that will reduce the
distribution of dividends and causing public confidence to invest will be reduced, this will have an impact
on funding activities of the company which will eventually happen lambant financial distress and ended
in bankruptcy company. Research on the impact of macro-economic changes in the company carried out
by Nam et al, (2008) compared the accuracy of prediction of bankruptcy in companies listed on the Korea
Stock Exchange in the event of a crisis of 2008. Finding that the macro-economic variables showed
superior performance showing signs of financial distress.
Foster (1986), lays out four things that encourage ratio analysis, namely: (1) control the magnitude of the
effect of the differences between companies or between time, (2) makes the data more statistical tools to
meet the assumptions used, (3) investigating related theories with financial ratios, and (4) examine the
empirical relationship between financial ratios and estimates or predictions yariabel- certain variables
(financial distress). Based on the theory and the gap of the above phenomenon, this study examines the
related financial distress isue manufacturing company in Indonesia, which is a fundamental influence on
the profitability of financial distress, the influence of the educational background of directors and
commissioners (EDU), pengalman work toward financial distress, the effect of magnitude Ownership to
financial distrenss and Inflation Effect on financial distress.
The first research issue is a fundamental influence on the financial distress. Many studies have been
conducted to analyze the influence of financial factors which often also called the fundamental factors,
some studies use financial ratios to predict financial distress of a company include Altman (1968) in his
research shows that the financial ratios can be made use of for predict the failure or bankruptcy of a
company with bankruptcy prediction accuracy rate of 94% and 95% correct in his research, and Platt and
Platt (2002), also using a variable in predicting the company's financial ratios.
The second issue in this study is the use of internal non-financial assessment form upper echelon theory
with the study of reputation management by measuring the educational background of Directors (Pend)
and background work experience Directors (PENGL).
The third issue in this research is to do a study of corporate governance through the Effect of Managerial
Ownership on the prediction of financial distress. There are important structures in corporate
governance including Parker et al (2005) says that the replacement of the company's leadership,
ownership by the managerial and pihal internal or external (blockholder) must have a minimum of 5% of
outstanding shares. Morck et al. (1988) find evidence that Tobin's Q (enterprise value) increases and then
decreases in line with the increase in managerial ownership.
Issues to four in this study is how the external factors as causes of financial distress. Bernhart and
Rosenstein 1998 expressed an external mechanism such as the market can control the company in
addressing the company's performance. Francis & Desai (2005) agreed that the life cycle of the company,
financial performance degradation may occur due to internal and external factors and Sheuppe (2005)
added decline in financial performance are often called by financial distress can be experienced by
various companies besarmaupun small. Research conducted by Bhattachacharjee and Jie Han (2010)
results that the macro-economic variables have an impact on financial ditress. Of the many types of
research described there are 3 things that have been researched in isolation, the first study of financial
internal financial distress both research financial and non-financial internal distress third external
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analysis in the form of macro-economic shocks in the form of inflation. However, no studies using internal
and external factors the company simultaneously in predicting financial distress a company
2. Review of Provious Works
In a study of financial distress of many researchers use analyzer of different financial ratios such as
Altman (1968) by Altman et al MDA model (1977) using financial ratios such as earnings before interest
and taxes / total assets, market value of equity / book value of debt, retained earnings / total assets,
working capital / total assets, sales / total assets (Altman et al, 1995). So even Zavgren (1983), using
financial ratios well in predicting financial distress company that uses the form Average ratio of
inventories / net sales, Average recievable / average inventories, Long-term debt / (total assets - short-
term debt, net sales / (fixed assets working capital, Operational earnings / (total assets - Short-term debt,
Quick assets / current debts, Quick assets / total assets (Zavgren, 1985).
Deakin (1972) using Cash / current debts, Cash / sales, cash / total assets, cash flow / total debts, Current
assets / current debts, Current assets / sales, Current assets / total assets, net income / total assets, Quick
assets / current debts, Quick assets / sales, Quick assets / total assets, Working capital / total assets,
Working Cpital / Sales, Total Debt / Total assetss (Deakin 1977). While Oldson (1980), using financial
ratios such Change in income / sum of the absolute value of net income for two years, Current debts /
current assets, Log (total assets, / GNP price index level Net income / total assets, Owners' positive or
negative equity, Positive or negative earnings, Working capital / total assets, total debt / total assets
(Zahra Poorzamani1, AzitaJahanshad 2013; brahmins (2007).
According to Foster (1994) there are two types of approaches that can be used, namely: univariate
models of distress prediction that uses two key assumptions in the model's prediction, namely:
(a) the difference between the variable distribution of entities in financial distress and non
distress.
(b) different variables that can be developed for the purpose of financial distress prediction. Another
approach is multivariate models of distress prediction that uses the dependent variable in the form of
groups such as the bankrupt and non-bankrupt group or the possibility of bankruptcy.
Usually this approach using financial ratios for the test.A growing issue in this approach include the
variables that should be included in the prediction model and the model that should be used. Analysis of
financial difficulties greatly aid in the decision to take a stand against companies that are experiencing
financial difficulties, so a lot of research trying to develop an early warning system of financial distress by
using the ratio-ratio in the financial statements. The use of ratio-financial ratio to distinguish companies
that are categorized as healthy and unhealthy has been going on since 1930, Aksoy and Ugurlu (2006)
concluded that Winakor and Smith (1935); Ramser and foster (193); Merwin (1942) and Hickman (1958)
conducted studies that lead to the conclusion that corporate bankruptcies have different financial ratios
significantly compared with existing enterprise operates. Other major initiators associated with
bankruptcy research firm (financial distress) is Beaver (1996) which presents the approach of a single
variable (univariate) from discriminant analysis which was later expanded to approach multiple variables
(multivariate). Furthermore, Altman (1968), which uses multi-discriminant analysis (MDA) to classify
financial ratios and financial difficulties develop forecasting models. Altman's model is used in
penelitiaanDeakin (1972) Blum (1974), Altman (1973), Altman and Loris (1972), Altman and McGogh
(1974), Libby (1975), Haldeman and Narayanan (1977). Gordon Springate in 1978, For nearly two
decades, discriminant analysis has become the main method in predicting financial distress / bankruptcy
of the company, until late 1980s emerged the use of new methods in the prediction that the logarithmic
regression began to emphasize its use for prediction of financial distress or bankruptcy .
Ohlson (1980) used logic models (multiple logistic regression) to build a model to predict the probability
of bankruptcy in bankruptcy. Ohlson in research claims that his research is a very important discovery
model. This important discovery was shown from research models that take into account the viewpoint of
the financial statements when a company issues to the public. It aims to control whether the company
went bankrupt before or after the date of issuance of the financial statements. Ohlson claimed that
previous models do not explicitly consider the problem of time the financial statements. This model uses
the data cross action financial ratio, the logit model because this ignores the dynamic character of the
financial ratios. Logit model belongs to the class of static models. Static model is a class of models that
require all companies that fail within a certain period of the same process. Where in the logit analysis,
determination of distress and non-distress company uses only one year of observation company or also
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called as a single period models. This model is supported by Elliot and Kennedy (1988), Kennedy (1992),
Lecte (1999), Louviere et al (2000).
Fundamentals of Corporate Finance in the form of Financial Ratios: Ross, et al. (2006: 78) states that
in order to compare the performance of companies of different sizes is to calculate and compare the
financial ratio, which is calculated from the relationship of a company's financial information and are
used for comparison purposes. Calculating Financial Ratios is one source of information to obtain a
picture of the financial condition of the company. Financial Fundamentals is an indicator of the
performance of the Vendor which tcerminbesarn financial ratio, the performance of the company's
fundamental financial analysis can help in identifying the strengths and weaknesses of corporate finance
(White and Sond, 2003). Definition of "Ratio" is a tool that is expressed in Arithmetical terms that can be
used to explain the relationship between the two kinds of financial data, One way to analyze the
relationships of the various items in the financial statements. Results and analysis is the basis to be able
to Interpret financial condition and results of operations of the company.
Fundamentals of Corporate Finance in the form of Financial Ratios: Ross, et al. (2006: 78) states that
in order to compare the performance of companies of different sizes is to calculate and compare the
financial ratio, which is calculated from the relationship of a company's financial information and are
used for comparison purposes. Calculating Financial Ratios is one source of information to obtain a
picture of the financial condition of the company. Financial Fundamentals is an indicator of the
performance of the Vendor which tcerminbesarn financial ratio, the performance of the company's
fundamental financial analysis can help in identifying the strengths and weaknesses of corporate finance
(White and Sond, 2003). Definition of "Ratio" is a tool that is expressed in Arithmetical terms that can be
used to explain the relationship between the two kinds of financial data, One way to analyze the
relationships of the various items in the financial statements. Results and analysis is the basis to be able
to Interpret financial condition and results of operations of the company.
Upper Echelon: Upper Echelon Theory is a theory that considers the concept of top management as the
primary decision makerstrategij within the organization (Hambrick and Mason, 1984). Decisions taken
top managers will have an immediate impact on organizational outcomes, because its what top managers
do and how they do will affect organizational outcomes ((Finkelstein and Hambrick, 1996) The main
basis of this reasoning is the executive experience, values and personality greatly affect their
interpretation of the situation at hand and influence their choice. The lack of conversation manager
manages the company has the same role with the decline in the com pany's fundamentals preformance
this leads to financial distress, in line with the research Cor (2003) states that the effect on performance
management reputation keunagan and reputation management company that better reflects good
corporate governance as well (Nikoskelainen and Wright (2007).
Reputation management is one of reputation management proxy lately become a center of attention of
investors, stock market analysts and regurator. Reputation management in view of the many root
management is an important asset to the company as proposed by Batchelor (1999), Bromley (1993),
Broulillard (1983), Caminiti (1992), Fomrun (1996), Hail (1992), Holmes (1995) ,Sobol, et.al (1992),
Weigelt and Camerer (1988). In research GatotNazir Ahmad (2014) also expressed the opinion of
Bromley (1993), Fombrun and Tranley (1990), Brouillard (1983) Sobol et al, (1992).
Corporate Governance: The problem arises because the corporate Governace the separation between
ownership and control of the company. This separation is based on agency theory that in this case the
management tends to increase person al gain rather than the company's goals. In addition to having good
financial performance the company is also expected to have good governance. In agency theory to explain
(Jensen and Meckling (1976) that the management will make a decision to increase the size of the
company through investment in order for them to enjoy the compensation based on the amount of assets
they manage, meaning that management will make business decisions that benefit their position because
they are in charge of a number of shares. Wahyudi and Pawestri (2006) explains that managerial
ownership that align the interests of management and shareholders will benefit directly from the
decisions taken and suffer losses as a consequence of making the wrong decision. The statement states
that the greater the proportion of ownership in the company management, the management tends to be
more active in the interests of shareholders in particular is himself. The number of large managerial stock
ownership should have a higher performance, because the agency cost reduced. So that the problem will
disappear keagenen assumed if a manager is also as an owner. (Jansen and Meckling, 1976) In this study
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management ownership is measured by proxy Diyah and Erman (2009) in accordance with the
percentage of stockholders' proportionate share of the management who actively participate in the
decision-making companies (directors and commissioners)
Macro Condition: As causes of financial distress is also the external factors of the company, Many
economic downturn caused the company macro conditions, when the economy in Amerikskrisisi States in
2008 due to rising subprime mortgage interest rates SBI impact on the increase in deposits, which in turn
result in high interest rate credit, so investing in the economy declined. Domestic investment decreased
resulting in increased reliance on domes tic business overseas investors, which means that an increase in
the current flow of dollars into the country. The decline of the rupiah against the US dollar will lead to
inflation, rising inflation is a relatively negative signal for investors, high inflation caused a decline in the
profitability of a company that will lower the dividend resulting public trust to invest will be reduced, this
will have an impact on funding lambant corporate activities will eventually happen Financial Distress
ended in bankruptcy
Introduction: Based on the analysis of previous studies, and analyzes the literature that has been
discussed, the analysis of financial distress by using internal factors and external companies will help the
analysis, and scientists to increase the input of theory and based on the phenomenon that occurs in the
economy, making many companies who experience financial distress, so many studies done using a
variety of variables that the results can be used as input for the company and as a contribution to the
theory and practitioners, as well as information for investors to invest their money as capital in the
company if the company healthy and able to provide the expected returns or not. Besides, with the study
of government can oversee a business, in order to take action to protect the economy, industry, workers
and society in general.
Reference
Abid,F., Zouari,A.2002. predicting Corporate Financial Distress: A New Neural Networks Approach.
Finance India, XVI, No2june 2002: 6001-612.
Aggarwal,V. Taffler,R.2007. Comparing The Performance of Market-Based and Accounting –Based.
Bankruptcy Prediction Models.The European Financial management Association annual
Meeting, Vienna, 2007.Working Paper.
Ahmad,G.N.2013. Analysis of Financial Distress in Indonesian Stock Exchange. Review Integrative of
Business Economics Research,2,No. 2, July: 521-533.
Aksoy, Ugurlu.2005. prediction of corporate Financial Distress in an Emerging Market: The Case of
Turkey. Journal of Economics 113: 277-295.
Altman,E.I. 1968.Financial Ratios, Discriminant Analysis and The Prediction of Corpotare Bankruptcy.
Journal of Financce: 589-609.
---------.,R.Haldeman,P. Narayana. 1977. Zeta Analysys A New Model to Identify Bankruptcy Risk of
Corporations. Journal of Banking and Finance, June: 29-54.
Altman,E.1.2000. Predicting Financial Distress of Companies: Revisiting the Z Score and Zeta* Models.
Working Paper SSRN: 105-131.
Andrade,G., Kaplan,S. 1997. How Costly is Financial (not economic) distress? Evidence from Highly
Leveraged Transaction that become Distressed. Journal of Finance 53: 1443-1493.
Beaver, W. 1968.Alternative Financial Ratios as Predictions of Failure. Journal of Accounting Research, 4:
71-111.
Campbell,J.Y.Hilscher,J. Szilagyi,J. 2010. Predicting Financial Distress and the Performance of Distresseed
Stocks. Department of Economics, Littouer Center 213, Harvard University, Cambridge
MA.Working Paper.
Kaplan,S., Stein,J. 1993. The Evolution of Buyout Pricing and Financing Structure in The 1980s. The
Quarterly Journal of Economics: 313-357.
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Knowledge Management System Role in Stock Investment Behaviour
Didi Sundiman, Ali Kesuma
Universitas Darwan Ali
sundiman.didi@gmail.com
Abstract: It is important to develop the KM cycle with clear and detailed description of how people
memory is put into use in order to generate value for individuals or groups in the practice area especially
for stock investment. Knowledge creation widens the spectrum of potential choices in decision making by
providing new knowledge. Decision making is situated in rational decision-making models that are used
to identify and evaluate alternatives by processing the information and knowledge collected to date. The
major phases in the knowledge management cycle, encompassing the capture, creation, codification,
sharing, accessing, application, and reuse of knowledge involved within and between the investment
decisions.
Keywords: Knowledge Management, Behavioural Finance, Stock Investment
1. Introduction
Knowledge management (KM) has been growing in importance and popularity as a research topic and
business initiative since the mid-1990s. Knowledge management as an organizational innovation has
been with us for more than a decade. As a discipline, it has reached a state of maturity where we can now
discern the principles, practices, and tools that make it unique. Moreover, by having knowledge
(intellectual resources), people can understand how to exploit and develop its traditional resources
better than its competitors can, even if some or all of those traditional resources are not unique. In the
early 1960s, Drucker was the first to coin the term knowledge worker (Drucker, 1964). Senge (1990)
focused on theme organizational learning as one process that can learn from past experiences stored in
corporate memory systems. Barton-Leonard (1995) documented the case of Chapparal Steel as a
knowledge management success story. Nonaka and Takeuchi (1995) studied how knowledge is produced,
used, and diffused within organizations and how such knowledge contributed to the diffusion of
innovation. The knowledge-based economics era at the recent time sets off paradigm shift that we need
new concept of strategic management related to each theoretical and practical approaches. To face the
new competition era as compared to the former age, basically, knowledge and objective of the strategic
change is much more needed by the managers in their decision making process (Vicente-Lorente and
Zuniga-Vicente, 2008).
Behavioral finance is a relatively new but rapidly expanding field that seeks to afford explanations for
people’s economic decisions by combining behavioral and cognitive psychological theory with
conventional economics and finance. The early behavioral finance research focused on finding,
understanding, and documenting the behaviors of investors and managers, and their effect onmarkets.
The beginning of this psychologically based financial analysis coincided with the start of many empirical
findings.Later studies cut to the potential root of the problem and examined the behavior and decisions of
market participants. Barber and Odean (2000) find that individual investors are loss averse, exhibit the
disposition effect (Grinblatt and Han, 2005), trade too much, biased self-attribution and overconfidence
(Chui et al., 2010). Evidence also shows that even professionals such as analysts behave in ways
consistent with psychological view of human behavior (Hilary and Menzly, 2006).
Nowdaysthere are many investors are miscalibrated by underestimating stock variances or by
overestimating the precision of their knowledge. The fundamental premise in emotional finance is that
knowledge of the subtle and complex way our feelings determine psychic reality may help people
understand better how asset valuations and investment decisions are made, and how markets may
occasionally break down. MacGregor et al. (1999), using multiple regression analysis with perceived risk
as the dependent variable, find that 98 percent of an expert’s risk perception is attributable to three
indicators: worry, volatility, and knowledge. Goszczynska and Guewa-Lesny (2000) develop three risk
dimensions for more than 60 percent of the total variance. Oneof the three factor labeled “familiarity of
risk” incorporates risk indicators such as controllability, knowledge, and accessibility of
information.Simon (1987) also considers the availability of knowledge and the quality of knowledge to be
critical determinants to the decision-making process. Korniotis and Kumar (2009) conjecture that older
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investors would accumulate greater knowledge about the fundamental principles of investing because of
their greater investment experience.
Knowledge Management role to Behavioural Science: Peng et al. (2013) develop knowledge
management research to give a scientific way for knowledge management, Peng et al. offers knowledge
services during all states in knowledge management theory, including knowledge’s creation, storage,
organizing and sharing. Knowledge creation and storage,knowledge is created either through
exploitation, exploration or codification (Chua, 2004). Users exploit knowledge by managing the course
resources from many useful resource. Explored knowledge during discovery and experimentation could
be recorded. Documentation and integration of knowledge promote knowledge codification. Knowledge
acquisition, ubiquitous knowledge Different from traditional face-to-face communication, user of
knowledge could use all kinds of intelligent digital mobile terminals to connect cloud knowledge services
by many website so investors could acquire knowledge in this world everywhere in any time. Cloud
services bring ubiquitous knowledge to people.
Knowledge integration and organization, user had all the files are well organized. User could organize all
their files by themselves. But in group, all the users should develop systems and the group can access the
group knowledge. Knowledge transfer and sharing, Knowledge sharing is an important way to transfer
knowledge from one part or individual in the organization to other parts. This process accumulates and
refines the group knowledge by storing new knowledge. Sharing knowledge bridges the gap of
communication between group members and enhances the activity and performance of members and the
whole organization. Andersson et al. (2009) shows that the forecasting performance of football experts
and laypeople varies. For simple tasks, they tend to predict equally well, partly because laypeople might
use well-adapted heuristics. Once the prediction tasks become more complex, the experts may take
advantage of their domain-specific knowledge and produce forecasts that excel those of the laypeople.
Knowledge Creation in Financial Behaviour: In fact, Forbes and Kara (2010) contend that individual
investors’ self-confidence mediates how investment financial knowledge influences investors’ investment
efficacy. Overconfidence may also affect the impact of information on individuals’ investment behavior.
Abreu and Mendes(2012) State the more often individual investors invest in information, the more they
trade in financial products. Abreu and Mendes results also confirm previous findings that overconfident
investors, who show a better than average bias, trade more frequently. The strong and positive
relationship between investment in information and intensity of trading in financial assets is sensitive to
the sources of information used by investors, and that this influence is different for overconfident and
non-overconfident investors. Abreu and Mendes confirms the positive correlation between actual
knowledge and portfolio turnover. Söderberg and Wester (2012) said citizens who have more knowledge
and are more interested in a specific topic will have a risk perception that is more similar to experts in the
field; that is, they would not be the first to act rashly. Because the effects of knowledge on behaviour have
been previously discussed in the literature
Knowledge acquisition and integration in Financial Behaviour: There are many factors can explain
the variation in actual portfolio and trading choices. Dorn and Huberman (2005) state that risk aversion
is the single most significant determinant of both portfolio diversification and turnover, investors who
report being more risk tolerant hold a smaller amount diversified portfolios and trade more aggressively.
Less knowledgeable investors also tend to churn poorly diversified portfolios. The effect of perceived
knowledge on portfolio choice is less clear cut, investors who think themselves knowledgable about
financial securities indeed hold better diversified portfolios, but those who think themselvesmore
knowledgable than the average investor churn their portfolios more. Hilgert and Hogartt, (2003) article
explores the connection between knowledge and behaviour—what consumers know and what they do—
focusing on four financial management activities. In this study, the correlation between sources of
financial knowledge and financial practices was found to be significant.
Individuals make flawed and biased decisions and that one solution to this problem is to increase
knowledge and make lay people less emotional and more literate on matters of risk. Pixley (2010) said
although knowledge are not fully controllable, behavioural finance provesconclusively that knowledge
are involved in decisions, its early tendency to focus on biases and errors in probability gave little spaceto
the problem that it is not possible to predict the future. It highlighted decision-making in the short-run
too much. The ‘bias’towards ‘over-confidence’ among experts is a very useful finding,and includes
opinions about a grim future. Knowledgeable investors who make informed choices are essential to
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develop effective and efficient marketplace. In classical economics, informed investors provide the checks
and balances that keep dishonest sellers out of the market. For example, buyers who know the full range
of mortgage interest rates and terms in the marketplace, who understand how their credit-risk profile
and personal situation fit with those rates and terms, and, consequently, who can define which
investment is best for them make it difficult for unfair or deceptive investors to gain a position in the
marketplace. Evidence of a positive link between financial knowledge and financial behaviour, and how a
lack of basic financial literacy among investors has also been documented Gerardi et al. (2010). Söderberg
and Wester (2012)conclude that investors think it is important to have knowledge of the field of finance
that perceive such high risks that they decide to buy and sell all their investments or completely change
bank. Instead of informing all citizens about general consumer protection in a financial crisis situation, it
might make more sense to identify the group that is most likely to act rashly and direct relevant financial
knowledge more specifically toward it. This finding is an important argument of the requirement for the
improvement of financial knowledge programs.
Knowledge transfer in Financial Behaviour: Stock market experts seem to be very confident of their
knowledge and skills irrespective of positive or negative economic conditions. The results collected in,
Zaleskiewicz (2011) research disclosed that the financial analysts were more confident than the amateurs
when making both the stock market and the exchange market forecasts. In addition, the variations in
confidence were much greater than changes in accuracy and even if the difference in accuracy was not
significant, the confidence level among the experts was still higher. These outcomes are in contrast with
the assumption that making judgments during a financial crisis decreases confidence. Most efficient
market models of capital markets presumedmarket place were either consist ofand controlled by rational
traders who, by definition, prized securities based on the net present value of future earnings flows
discounted by the investment’s risk characteristics, Bromiley and James-Wade (2003). Rational in this
usage refers to an economics sense of rationality in which actors choose from all available alternatives the
one that maximize expected value or utility. Finally, these models assumed markets were in equilibrium,
meaning no trader could act individually to improve his expected returns above an expected market
return.
Thus, the dominant finance models assumed rational investors competed in an efficient marketwhere
information transfers extremely quickly. All market participants will have ability to gain full knowledge of
publicly available information. These conditions lead to a probability that no rules could exist that would
provide above average risk-adjusted returns. Within the capital asset pricing model, the assumptions lead
to the prediction that risk, measured by beta, would provide the primary, if not only, explanation for
systematic differences in stock returns, Bromiley and James-Wade (2003). A clear distinction must be
made between information, which is basic, and true knowledge assets, which can only arise within the
framework of an intelligent system. Today’s investment environment is more complex because we now
need to attend daily to the increase in the number of subjective knowledge items. Knowledge
management represents one response to the challenge of trying to manage this complex system,
information-overloaded investment environment. Simon (1976) first offered bounded rationality theory
as a limited or constrained rationality to explain human decision making behaviour. When challenged
with a highly complex world, the mind constructs a simple mental model of reality and tries to work
within that model. It is important to develop the KM cycle with clear and detailed description of how
people memory is put into use in order to generate value for individuals or groups in the practice area
especiallyfor stock investment. Knowledge creation widens the spectrum of potential choices in decision
making by providing new knowledge.Decision making is situated in rational decision-making models that
are used to identify and evaluate alternatives by processing the information and knowledge collected to
date. Effective knowledge management necessitates user to recognize, generate, acquire, diffuse, and
capture the benefits of knowledge that deliver a strategic advantage to the Investor.
Summary and Proposition: Financial knowledge were found to be statistically significant for particular
financial practices, Hilgert (2003). The relationships between specific financial knowledge scores and the
corresponding financial practices indexes were statistically significant. Knowing investment and financial
stuff was correlated with having higher index scores for credit management, saving, and investment
practices respectively. This pattern may indicate that increases in knowledge and experience can lead to
improvements in financial practices, one way to increase knowledge is to gain experience. This research
describes how the major phases involved in the knowledge management cycle, encompassing the capture,
creation, codification, sharing, accessing, application, and reuse of knowledge within and between the
investmentbehaviour. This more representative view put forward investors ought to recognize market
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inefficiencies and develop best practices that enable effective knowledge creation, storage, organizing and
sharing and transfer, thereby empowering their profit and competitive advantage.
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