Page 70 - FREN-C2021 PROCEEDINGS
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Literature Review
               Many studies have been conducted in different countries to investigate the determinants of efficiency
               in all firms. To remain consistent with the previous studies, measures of the dependent variable and
               specific determinants of efficiency were taken from the previous studies. The following sub-sections
               are the explanation of the variables included and analysed in this paper.

               Dependent Variable: Efficiency
               The efficiency ratio is typically used to analyse how well a company uses its assets and liabilities
               internally. An efficiency ratio can calculate cash turnover (CTO), inventory turnover (ITO), working
               capital  turnover  (WCTO),  fixed  asset  turnover  (FATO),  and  total  asset  turnover  (TATO).  The
               dependent  variable  means  the  main  problem  that  was  identified  by  the  researcher  to  help  the
               researcher  to  measure  the  dependent  variable  and  other  independent  variables  that influenced  the
               variable. As a result, for this study fixed asset turnover will be used to represent the efficiency of a
               firm. Fixed asset turnover is a measurement of how effectively the firm uses its plant and equipment.
               Higher  of  this  ratio  numbers  means  that  the  company  manage  their  assets  to  generate  revenue  so
               higher profit can be earned by the company. FATO is calculated by dividing the net sales and net fixed
               assets.  Higher  this  ratio  means  the  company  can  manage  their  fixed  asset  to  generate  revenue,  so
               higher profit can be earned by the company (Sunjoko & Arilyn, 2016).
               FATO = (Net sales / Net fixed asset)

               Independent Variable:

               Board Composition:
               Board  composition  is  a  significant  mechanism  to  ensure  board  effectiveness.  The  board's
               independence  could  help  to  reduce  information  asymmetry  and  improve  financial  reporting
               transparency (Allini et al., 2016). An independent board is composed of professionals who do not
               involve in management affairs and do not have an ownership interest in the company. They have the
               integrity to protect their reputation. The Green Book of the transformation policy emphasises that a
               board must have a balance of directors to ensure that no individual or small group of directors dominates
               the board. The higher of two directors, or one-third of the board, must be independent. According to
               previous research found that Board independence was found to have a positive relationship with firm
               efficiency, implying that the presence of independent directors contributes significantly to evaluating
               the strategies affecting efficiency (Smriti & Das, 2021). Board size is the second mechanism that paid
               the  attention  of  researchers.  Previous  research  found  a  positive  impact  of  board  size  on  firm
               performance.  A  larger  board  of  directors  has  more  expert  knowledge  and  can  thus  make  more
               effective strategic decisions, allowing the company to maximise its profits (Rahman & Saima, 2018).

               Profitability:
               Profitability  is  the  company’s  ability  to  earn  profits  through  all  of  its  resources  and  capabilities
               (Purnama & Nurdiniah, 2019). Profitability provides important information to third parties because if
               profitability is high, it can be determined that the company's performance is good, and vice versa, if
               profitability is low, a company's performance can be considered poor. The profitability of any firm can
               be  measured  by  using  different  ratios  such  as  gross  profit  margin  (GPM),  operating  profit  margin
               (OPM), net profit margin (NPM), return on assets (ROA) and return on equity (ROE). Following the
               previous researchers by (Isola et al., 2020) Firms' financial performance will be measured using return
               on equity. The findings show that there is a significant and positive relationship between ROE and
               efficiency.  In  essence,  the  Return  on  Equity  ratio  calculates  the  rate  of  return  that  a  company's
               common stock owners earn on their shareholdings. Rising ROE indicates that a company is good at
               generating  shareholder  value  because  it  knows  how  to  wisely  reinvest  its  earnings  to  boost
               productivity and profits. A declining ROE, on the other hand, indicates that management makes bad
               decisions about reinvesting capital in inefficient assets. Specifically in this research, return on equity
               is calculated by dividing the firm’s net income and the average total equity of the firm. Net margin


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