Page 69 - FREN-C2021 PROCEEDINGS

DETERMINANTS OF FIRMS’ EFFICIENCY: EVIDENCE FROM
NONFINANCIAL SHARIAH-COMPLIANT FIRMS IN MALAYSIA

1*,
Norfatini Mohd Jam Nurul Fitrah Pazilah, Nur Zulaikha Zainol, Nur Husnina Hanafi, Irdhina Nasuha Abdul
Razak, Abdul Hafiz Yusof & Norhisam Bulot

1 Faculty of Business and Management, Universiti Teknologi MARA Cawangan Perlis, Kampus Arau, 02600 Arau Perlis,
Malaysia

* Corresponding author: norfatinimohdjam@gmail.com

Abstract
The main objective of this study is to investigate the determinants of firm’s efficiency for consumer
product firms listed as shariah-compliant firms in Malaysia. The use of non-financial shariah-
compliant firms to analyse the determinants of a firm’s efficiency and the use of variable selection
techniques are the unique contribution of this present research. The data for the final sample consists of
30 firms. The study is conducted using panel data analysis techniques to identify the key determinants
of a firm’s efficiency. The study finds that the efficiency of these firms is significantly affected by the
level of the firm’s profitability. Surprisingly, this research found that there is no significant relationship
between board independence and their level of efficiency. Although this paper provides empirical
evidence, several areas need to be refined with future empirical research. First, this paper uses only a
limited number of firms in the analysis. The inclusion of a larger number of firms might lead to a new
set of findings and conclusions. Second, this paper has not taken into consideration the effect of using
different data analysis techniques (such as GMM). Future studies might want to explore the use of
other techniques in analyzing the data.

Keywords: Efficiency, Variable Selection, Shariah-compliant, non-financial firms, Board Independence

Introduction
The main aim of this paper is to investigate factors affecting the efficiency of shariah-compliant firms
listed under the consumer products sector. Efficiency is not a measure of success in the marketplace
but is rather a measure of operational excellence or productivity (Sampieri, 2005). Efficiency refers to
a peak production level that uses the least amount of inputs to reach the maximum output level. It
involves the process of reducing the number of unnecessary resources, including personal time and
energy that is required to generate given output. A thorough understanding of working capital
management is important to ensure that a firm operates effectively and efficiently. This proposed study
may be contributing to the existing literature by examining a new population and sample. Previous
studies have been conducted on a sample of firms from different countries and sectors. A major
shortcoming of those studies is that they generally restrict their analysis to conventional companies.
Consequently, we know a little about the applicability of those findings on shariah-compliant firms.
Our study is different from the previous studies in that we utilize a dataset of shariah-compliant firms
listed under the consumer products sector. We argue that due to the nature of the firms (shariah
compliant) the findings of the previous studies cannot be generalized to this sample of firms. This
study will enable us to know whether the nature of the firms (shariah-compliant firms) would affect
the working capital of the firms. This paper is organized into several subsections. First, we presented
and discuss the methods. Next, the analysis and results are presented along with the discussions.
Finally, conclusions and suggestions for future research are provided.

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