Page 74 - FREN-C2021 PROCEEDINGS

Table 5. Diagnostic Tests for Static Model
P-values of the tests

VIF H SC Strategy
1.09 0.0000 0.0120 Random effects GLS regression
model with cluster option
Notes: (1) VIF: variance inflation factors, (2) H: heteroskedasticity & (3) SC: serial correlation

Considering the various diagnostic tests that have been conducted and the remedial procedure
undertaken, this paper may say that there is enough evidence to conclude that the examined statistical
test satisfies the key assumptions of linear regression. As shown in Table 6, the results of the regression
results suggest that return on equity (the proxy for profitability) is the only variable found to have a
significant positive relationship with the efficiency of the firms. Consistent with the findings of the
previous studies that any firms that wish to increase their level of efficiency need to pay attention to
the level of profitability generated by the firms (Isola et al., 2020). Consistent with the previous study
such as (Makhlouf et al., 2017), the results also suggest that board independence does not appear to be
significantly related to efficiency. The insignificant relationship between board independence and
efficiency may be attributed to the use of a different proxy for board independence. In addition to that,
return on equity seems to have the greatest influence on the level of working capital, which is explained
by the highest t-value of 2.55.

Table 6. Regression Results
Board Independence 16.2739
(0.98)
Return on Equity 6.5840** (2.55)

Constant -2.3704
(-0.45)
N 180.0000
r2_o 0.0505
p 0.0034
chi2 11.3646
Notes (1) t statistics in parentheses, (2)* p < 0.1, ** p < 0.05, *** p < 0.01

Conclusion
This paper has examined the determinants of efficiency for shariah-compliant firms listed under the
consumer products sector. The result suggests that return on equity is the only variable found to have a
statistically significant with the efficiency of the firms. Although this paper has provided us with
empirical evidence, several areas need to be improved with future empirical research. First, this paper
did not provide any sectoral analysis on the level of working capital. Future research should explore
whether industry classification would have any effect on the level of working capital and its relationship
with the selected determinants. Second, this paper utilizes Stata command vselect in determining the
optimal model. A future researcher might want to explore other techniques in determining the optimal
model. Lastly, this paper only investigated a limited number of independent variables, because of that
there could be incomplete representations of explanations in the use of proxies or the presence of other
variables influencing the performance determinants of all companies. We suggested for another author
use another variable that was not included in this research.

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