Page 54 - FREN-C2021 PROCEEDINGS

study will differ from previous studies in that we utilize a dataset of shariah-compliant firms. We
argue that due to the nature of the company (shariah complaint), the findings of the previous studies
cannot be generalized to this sample of firms. The second contribution is the use of variable selection
techniques. The analysis of the previous literature (see for example (Beretta, 2019) (Mohamad, 2019)
(Bikker, 2018)) suggest that decision with regards to the profitability is the consequence of many
factors. The variables in the models are selected based on their significance in a specific theory,
policy, or both. But as researchers disagree on what is the most important, it is usually only partial
overlap among the variables considered in different empirical papers. Therefore, it is very important
to investigate which of the independent variables suggested in the literature emerge as the most
significant determinants of profitability. In this study, we contend that the determinants of profitability
for the sample firms will be different due to their unique firm and country-specific characteristics,
hence, empirical findings from other research cannot be generalized to this study sample. In addition
to that, the robustness of the results of the previous studies needs to be examined against evidence
from other research and countries such as Malaysia. In this study, Stata command vselect will be used
to determine which variable should be included or excluded from the model.

Methods
Target Population and Data Collection Procedure
The target population for the research was all shariah-compliant firms listed under the consumer
products sector on Bursa Malaysia. Financial data of the selected samples are extracted from the
published annual reports obtained from Bursa Malaysia’s website and online databases such as
DataStream and Eikon. For each of the review periods, the information on the sample’s financial data
is extracted as of each financial year-end. Subsequently, the financial ratios of all the variables
(dependent and independent variables) are computed using the identified formulas. The final sample
consists of 40 firms.

Model Specification
This study aims to investigate the factors affecting the working capital of shariah-compliant forms
listed under the consumer products sector This paper specifies and estimates the following baseline
regression model for all firms.

PROF = β + β SIZE it + β LIQ + β LEV + β EFF + ε (1)
3
it
it
1
0
2
it
it
it
4

The detailed definition for each independent variable is provided in Table 1.

Table 1. Variable definition
Variable type Variable Measures
Dependent variables
Profitability (PROF) Return on Equity (ROE) Net Income/Total Equity

Independent Variables
SIZE Total Asset Log of Total Asset

Liquidity (LIQ) Quick Ratio (QR) (Current Assets – Inventory)/Current Liability
Current Ratio (CR) Current Assets/ Current Liability

Leverage (LEV) Debt Equity (DE) Total Liability/Total Equity

Efficiency (EFF) Fixed Asset Turnover Sales/Average Fixed Asset
(FATO) Net Operating Profit After Tax/Total Invested
Return on invested capital Capital
(ROIC)

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