Determinants of Systematic Risk : Empirical Evidence from Shariah Compliants Firms Listed on Bursa Malaysia

  • Mohamad Nizam Jaafar Arshad Ayub Graduate Business School , Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia
  • Amirul Afif Muhamat Faculty of Business Management, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia
  • Mohd Faizal Basri Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, Tanjong Malim, Perak Malaysia
  • Sharifah Faigah Syed Alwi Arshad Ayub Graduate Business School , Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia
Keywords: Shariah, Systematic risk, Islamic capital market, panel data, fixed effect model

Abstract

This paper is aimed at advancing empirical indications on micro variable factors determining systematic risk in Shariah complaints firms listed on Bursa Malaysia.  This paper also attempts to identify whether the Shariah compliant firms are showing the same micro variables factors that determine systemic risk.  The systematic issues have become the main concern to many related parties such as policy makers, investors and stakeholders as systematic risk is unable to be removed through diversification. Shariah compliant firms have their own unique systematic risk owing to their difference in business philosophy. A hypothesis between the relationship of the firms-specific micro variable factors and systemic risk are established on foregoing studies and theoretical framework respectively, and analyzed using the Fixed Effects Model tested on the data from 80 listed companies covering a period from 2009 to 2018. The results show that leverage and growth are the most significant factors of the systematic risk of Shariah compliant firms. Therefore, high leverage and growth firms are considered to be high risk for investment in Malaysia capital market.

References

Beaver, W. and Manegold, J. (1975). The association between market-determined and accounting-determined measures of systematic risk: Some Further Evidence. Journal of Financial and Quantitative analysis, 231-284.

Biase and D‘Apolito. (2012). The determinants of systematic risk in the Italian banking system: A cross-sectional time series analysis, International Journal of Economics and Finance, 4(22), 152-164.

Bildersee, J. (1975). The association between a market-determined measure of risk and alternative measures of risk. The Accounting Review, 81-98.

Bolster, Paul J. and Janjigian, V. (1991). Dividend policy and valuation effects of the tax reform Act of 1996, National Tax Journal, 44(4), Part 2, 511-518.

Borde, S.F. (1998), Risk diversity across restaurants, Cornell and Hotel Quarterly and Restaurant Administration Quarterly, 39 (6), 64-69.

Bowman, R.G. (1979). The theoretical relationship between systematic risk and financial (accounting) variables, Journal of Finance, 34(3), 617-630.

Breen, J., and Lerner, M. (1973). Corporate financial strategies and market measures of risk and return. The Journal of Finance, 28(2), 339–351.

Chen, N. F., Roll, R. and Ross, S. A. (1986). Economic forces and the stock market, Journal ofBusiness, 59, 383-403.

Chiou, C. C., & Su, R. K. (2007). On the relation of systematic risk and accounting variables. Managerial Finance , 33 (8), 517-533.

De Jong, D.V. and Collins, D.W. (1985), Explanations for the instability of equity beta: Risk free rate changes and leverage effects, Journal of Financial and Quantitative Analysis 20, 73-94.

Eldomiaty, I.T., Mariam H. Al Dhahery, and Shukri, Muna A. (2009). The fundamental determinants of systematic risk and financial transparency in the DFM General Indux, Middle Eastern Finance and Economics, 5, 62-74.

Graham, Benjamin and Dodd, David L. (1951).Security Analysis: Principles and Techniques, third edition (McGraw-Hill Book Co, New York).

Gu, Z. and Kim, H.(1998). Casino firms' risk features and their beta determinants. Progress in Tourism and Hospitality Research, 4, 357-365.

Gu, Z. and Kim, H. (2002). Determinants of restaurant systematic risk: A re examination. The Journal of Hospitality Financial Management, 10 (1),1–13.

Gujarati, Damodar N. and Porter, Dawn C. (2009). Basic Econometrics. fifth edition (McGrew-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020).

Hong, G., and Sarkar, S. (2007). Equity systemic risk (Beta) and its determinants. Contemporary Accounting research, 24(2), 423-466.

Hooy, C. W., & Lee, C. H. (2012). Determinants of systematic financial risk exposures of airlines in North America, Europe and Asia. Journal of Air Transport Management , 34, 31-35.

Iqball, Muhammad Junaid and Shah, A. (2011). Determinants of systemic risk, The Journal of Commerce,4(1), 47-56.

Hamada, R. S. (1972). The effect of the firm’s capital structure on the systematic risk of common stocks. The Journal of Finance, 27(2), 435-452.

Husin, N., & Wong, M. F. (2016). The Effects of Credit Rating Announcements on Stock Performance in Malaysia. Specialty Journal of Accounting and Economics , 2 (1), 77-90.

Ibrahim, K., & Haron, R. (2016). Examining Systematic Risk on Malaysian Firms: Panel Data Evidence. Journal of Global Business and Social Entrepreneurship , 1 (2), 26-30.
Ismail, A. G. (2010). Money, Islamic Banks and The Real Economy. Singapore: Cengage Learning Asia Pte Ltd.
Khan, Ather Azim and Iqbal, K. (2012). Dividend policy and stock prices, SAICON, Lahore:COMSATS Institute of Information Technology.

Kim, H., Z., Gu and Mattila, A.S. (2002). Hotel real estate investment trusts’ risk features and beta determinants. Journal of Hospitality and Tourism Research, 26(2), 138–154.

Kumar V., Rahman A., Ali A.,(2015) The Determinants of Systematic Risk: Empirical Evidence from Pakistan’s Banking Sector. Journal of The Global Management Journal for Academic & Corporate Studies, vol 1 142-150
Lee, C., and Brewer, E. (1985). The association between bank stock market-based risk measures and the financial characteristics of the firm: A pooled cross-section time series approach. Federal Reserve Bank of Chicago Proceedings, 285-315.

Lee, J.S. and Jang, S.C.S. (2007). The systematic risk determinants of the US airline industry, Tourism Management, 28, 434-442.

Lev, B. and Kunitzky, S. (1974). On the association between smoothing measures and the risk of common stock,Accounting Review, 259-270.

Logue, L. and Merville, J. (1972). Financial policy and market expectations, Financial Management 1(3), 37-44.

Ludvigsona S. C. and Ng, S. (2007). The empirical risk–return relation: A factor analysis approach. Journal of Financial Economics, 83, 171–222.

Malkiel, B. (2003). The efficient market hypothesis and its critics. CEPS, Working Paper, 91.

Mandelker, G.N. and Rhee, S.G. (1984). The impact of degrees of operating and financial leverage on systematic risk of common stock, Journal of Financial and Quantitative Analysis 19, 45-58.

Mear, R. and Firth, M. (1988). Risk perceptions of financial analysts and the use of market and accounting data, Accounting and Business Research, 18(72), 335-340.

Rafique, M. 2012. Factors affecting dividend payout: evidence from listed non-financial firms of Karachi Stock Exchange, Business Management Dynamics, 1(11), 76-92.

Ramadan, Zeyad S. (2012). Does leverage always mean risk? Evidence from ASE, International Journal of Economics and Finance, 4 (12), 150-158.

Rowe, T. and Kim, J. (2010). Analyzing the relationship between systematic risk and financial variables in the casino industry. UNLV Gaming and Research Journal, 12(2), 47-58.

Schemer, P. S. and Mathison, T. J. (1996). Investment strategies for REIT investors. Real Estate Review, 26(I), 5-10.

Tellis, G. and Johnson, J. (2007). The value of quality, Marketing Science, 26(6), 758-773.

Titman, S. and Wessels, R. (1988). The determinants of capital structure choic
Published
2020-05-13
How to Cite
Jaafar, M. N., Muhamat, A. A., Basri, M. F., & Syed Alwi, S. F. (2020). Determinants of Systematic Risk : Empirical Evidence from Shariah Compliants Firms Listed on Bursa Malaysia. International Business Education Journal, 13(1), 71-82. Retrieved from https://ejournal.upsi.edu.my/index.php/IBEJ/article/view/3413