The Influence Of Return On Assets And Firm Size

To Sukuk Rating,
Evidence From Indonesia and Malaysia Stock Exchange
Achmad FAUZI
Faculty Of Economic Universitas Negeri Jakarta,Indonesia
FauziFEUNJ@gmail.com

Sisca SARTIKA
Faculty Of Economic Universitas Negeri Jakarta,Indonesia
Sisca27005@gmail.com

Erika TAKIDAH
Faculty Of Economic Universitas Negeri Jakarta,Indonesia
erikatakidah@unj.ac.id

Abstract
The purpose of this research was to determine the Effect of Return On Assets
And Firm Size To Sukuk Rating. The sample is company Listed In Indonesia Stock
Exchange And Malaysia Stock Exchange. Rating Sukuk is the dependent variable, in
this research and was measured by a scoring technique based on Pefindo's rating
and RAM ratings. For the independent variable in this research, Return On Assets is
measured by net income divided by total assets and the Firm Size is measured by the
natural logarithm of total assets. While the sampling method used was saturated
sampling which is an overall 30 sample choose. Thus research used logical ordinal
regression to test the hypothesis with the SPSS computer program. The research
result shows that Firm Size has significant positive influence toward Sukuk rating,
seen from the result of parameter estimation with significant value 0,009 (<0,05)
while Return On Assets have no significant influence toward Sukuk rating, seen
from the value of 0,759 (>0,05)

Keywords: Return On Assets, Firm Size, Sukuk Rate

INTRODUCTION
The Islamic capital market has now become an alternative investment option for those who
want investment activities following sharia. One of the traded securities is Sukuk. Sukuk are known
as sharia bonds, which in principle are similar to conventional bonds, with differences including the
use of the concept of margin and profit-sharing as a substitute for interest, the existence of a
supporting transaction in the form of several assets that are the basis for Sukuk issuance.
In Indonesia in recent years, it has been shown that the circulation of Sukuk from year to year
has increased. As with the news on sindonews.com, the public's interest in Retail State Sukuk is also
getting better. This can be seen from the nominal amount of issuance which has increased every year
from IDR 5.5 trillion in 2009 to IDR 31.5 trillion in 2016 issuance.
But behind the increasing interest in Sukuk, several risks need to be considered. One of the
risks that must be borne is the default risk or risk of default on the principal and profit-sharing (Heri
Sudarsono, 2013). To reduce this risk, information from third parties is needed as a provider of
information about the financial performance, management, business and conditions of the issuer.
This information can usually be seen through bond ratings. The bond rating results reflect the ability
of bonds to meet their obligations (Jaka E. Cahyono, 2004). The higher the rating of a bond or
Sukuk, the less likely the Sukuk issuer company fails to fulfill its obligations. This Sukuk rating is
issued by rating agencies.
PT PEFINDO is a rating agency recognized by Bank Indonesia and has issued the highest
Sukuk rating. Based on the site provided by PT. PEFINDO, the methodology used in ranking
financial institutions uses valuations based on industry risk and business and financial risks. From
this, it can be seen as for the factors that influence Sukuk rankings to include profitability, asset
quality, company size, ROA and company growth.
Profitability is the company's ability to make a profit. Gina Mardiah et al. (2016) stated that
the results of research on profitability affected Sukuk ratings.
The next factor that influences Sukuk ranking is ROA, ROA affects Sukuk rating. ROA is a
measure that shows the extent to which preference debt and shares are used in the company's capital
structure. Research by Hengki Junius Sihombing and Eka Nuriai Rachmawati with the title "Factors
that influence bond ratings on Companies listed on the Indonesia Stock Exchange. Where the results
of his research concluded that ROA is one of the factors that influence the ranking of Sukuk.
This is in line with the news on danpac.co.id where Pefindo maintains the idA + rating for PT
Summarecon Agung Tbk for its products, namely sustainable bonds 1 which was published in 2013
and maintains the idA + (sy) rating for its Sukuk Ijarah products, which is 2013 Sustainable Sukuk.
Pefindo said he was holding a negative outlook to anticipate the possibility that the company's ROA
would not improve in the coming quarters. So it can be said that if the ROA level improves, the
ranking will improve, and vice versa. Gina Mardiah et al (2016) also stated that ROA affects Sukuk
ratings.
 Furthermore, the size of the company also affects the ranking of Sukuk. company great a risk
of bankruptcy or failure is lower when compared with small companies. As with the case of PT Tiga
Pilar Sejahtera Food Tbk, Pefindo established a credit watch rating with negative implications from
November 2017 to February 2018 due to a decrease in the amount of net profit from Rp 345.06
billion to Rp 173.48 billion and a decrease in net sales. Aspects that experience a decline are
benchmarks that affect the size of a company. Then it can be concluded if the company has
decreased the size of the company also has an impact on the decline in Sukuk ratings issued by the
company
Damayanti's research and JVM Mulyadi (20) gave the conclusion that the size of the
company affected Sukuk ratings. Galih Estu Pranono et al (2017) stated that the size of the company
did not affect Sukuk ratings. But it is different from the research of Amelia Damayanti and Mulyadi
which states that it influences the rating of bonds / Sukuk.
The next factor is liquidity, liquidity is the company's ability to fulfill its financial obligations
that must be fulfilled immediately. Gina Mardiah et al (2016) state the fact that low liquidity affects
the ranking of corporate Sukuk. Mohamed Abulgasem at all (2015) in research entitled The
Influence of Corporate Governance, Financial Ratios, and Sukuk Structure on Sukuk Rating in
Malaysia pointed out that Sukuk ratings are influenced by corporate governance, financial
performance, and corporate structure.
Previously, research on Sukuk in Malaysia had been done by Essia Ries Ahmed et al (2004)
and Nor Balkish Zakaria et al (2012) were the results of the two studies stated that the low risk of
default was influenced by Sukuk ratings. This means that research on Sukuk ratings needs to be
done.
Based on previous research, it can be seen that there is a research gap that is the difference in
results between these studies. This encourages further analysis of the factors that influence Sukuk
ratings. In this study, the thing that distinguishes from previous research is the population and
sample selected. If in previous studies more samples were taken from certain company sectors, this
study took a population of all sectors of companies that issue Sukuk both in Indonesia and in
Malaysia.

THEORETICAL FRAMEWORK
1. Sukuk Rating
1.1 Definition of Sukuk

According to Heri Sudarsono in the book of the Bank and Islamic finance institutions:
"Sukuk is known as Islamic bonds. Sukuk shows ownership of assets, where claims in Sukuk are
not claims against cash but are claims of ownership of a set of assets (a poo of assets). So, Sukuk
in principle is similar to conventional bonds, with the main differences including the use of the
concept of margin and profit-sharing as a substitute for interest, the existence of an underlying
transaction in the form of a number of assets that are the basis for Sukuk issuance, and the
 existence of contracts or agreements between parties compiled based on sharia principles. Also,
Sukuk must be free from usury, gharar, and gambling. "(Sudarsono, 2013).

1.2 Differentiation about Sukuk and obligation

Differences Sukuk with conventional bonds can be seen in Table 2.1 as follows:
Description Sukuk Bond

Basic principles Joint ownership of an Debts and claims between the

asset/rewards of the issuer and the investor
asset/service/ project / specific
investment

Use of Funds The use of funds only for Not limited to business
business activities which are activities that do not conflict
not contrary to Islamic with Islamic principles
principles.

Yields For the result, fee or ujrah, Interest/coupon, Capital Gains

margin
underlying Asset Need No need
Related parties Obligor, SPV, Investor, Obligor / Issuer, Investor
Trustee
Use of Results Publishing Should accordance with sharia Free
Investor Sharia, Conventional Conventional
Price Market Price Market Price
Table 1 Differentation sukuk and Conventional Bond

1.3 Types of Sukuk

Sukuk types according to AAOFI (Accounting and Auditing Organization for Islamic Financial
Institutions) have forty types of Sukuk. Even though at present, only four types of Sukuk are
famous, namely :
a. Sukuk Ijarah
b. Sukuk Mudharabah
c. Musharakah Sukuk
d. Sukuk Istishna
1.4 Sukuk Rating
 According to Jaka E. Cahyono, The results of the bond rating reflect the ability of
bonds to meet their obligations. The higher the rating of a bond, the smaller it is possible
that the bond in the future fails to fulfill its obligations (Cahyono, 2004)
2. Return On Assets (ROA)
One part of the Profitability Ratio is ROA. One of the objectives of using Profitability
ratios is to measure the extent to which companies produce effective profits. According
to Barad Karnida, ROA is a ratio that shows the ability of capital planted as a whole to
produce average profits. (Karnida & Purwebgtyas, 2013) .

ROA Formulation can be written using the following calculation;

Net Income
ROA :
Total Asset

3. Firm Size
According to Said Kelana and Chandra Wijaya (2005: 274), generally, size can be
proxied by total assets (Log assets or LN assets).

RESEARCH METHODOLOGY
The method used in this research is quantitative. The data used in this research is
secondary data. Collection of secondary data on research sourced indirectly through
intermediary media (obtained and recorded by other parties). The method of data collection
in this study uses the documentation method, which is to obtain data from documents such
as annual financial reports, obligated ratings and a complete list of corporate Sukuk
obtained from :
1. Indonesian Stock Exchange
2. Malaysian Stock Exchange
3. PT PEFINDO (Securities Rating in Indonesia)
4. RAM rating
The population used in this study is 2017 Sukuk issuing companies listed on the
Indonesia and Stock Exchanges in Malaysia and rated by PT Pefindo and RAM Rating.
And there are 31 samples used for this study. The data analysis technique used in this
study is ordinal logistic regression
RESULT AND DISCUSSION
Analisi Regresi Logistik Ordinal

Table 1. Test of Parameter Estimates

Table 2 Test of Parameter Estimates

Based on the table above shows that the estimated value of the ROA variable is 0.037,
meaning that if the increase in 1 unit of ROA will increase the Odd ratio (exp 0.037) =
1.037693 the outcome in the Sukuk ranking. Likewise with the Company Size variable
Value estimate Company Size variable of 0.652 means that if the increase in 1
Company Size unit will decrease Odd ratio (exp 0.652) = 1.919376 outcomes at Sukuk
 rating. However, in the significant table that meets the requirements (sig. <0.05), only
the Company Size variable is a significant value of 0.009 smaller than 0.005. It can be
concluded that only company size (X2) influences Sukuk rank
a. Test of Hypothesis 1
Based on the results of Test Parameter Estimates table IV.9 shows that the variable
coefficient value of company size is 0.652 with a significant value of 0.009 (<0.05).
Thus, the second hypothesis which states that the size of the company influences the
ranking of Sukuk is accepted.
b. Test of Hypothesis 2
Based on the results of the Test Parameter Estimates table IV.9 shows that the
variable coefficient of ROA is 0.037 with a significant value of 0.759 (> 0.05). Thus,
the second hypothesis which states that ROA affects the ranking of Sukuk is rejected
c. Uji Koefisien Determinasi (Pseudo R-Square)

Pseudo R-Square
Cox and Snell ,264

Nagelkerke ,272

McFadden ,089

Link function: Logit.

Table 3Test of Pseudo R Square

Source: SPSS v.24.0 output
  Based on table 3 the results of Nagelkerke are as much as 0.272 which means
explaining Sukuk ranking variations which can be explained by the independent variable
namely company size and ROA of 27.2%. While 72.8% can be explained by other variables
as examples of profitability, liquidity, asset quality, and company growth.

DISCUSSION
1. Effect of Company Size on Sukuk Rating
Based on the results of the research that has been conducted, it shows that the size of the
company has a significant effect on Sukuk ratings. This shows that the greater the wealth or
assets owned by the company, the more they will have the ability to pay off obligations in
the future.
The size of the company affects the level of Sukuk ranking. The results of this study
support the research conducted by (Ameilia and Mulyadi), (Ethics, Dyah, and Titi, 2015) and
(Hengki and Eka, 2015) which state that the size of the company influences the Sukuk
ranking
2. Effect of ROA on Sukuk Rating
Based on the results of the research that has been conducted, it shows that ROA does
not have a significant effect on Sukuk ratings. This shows that the size of the company's
ROA will not affect the Sukuk ranking.
Company ROA does not influence Sukuk ratings. The results of this study support
the research conducted (Ethics, Dyah, and Titi, 2015) and (Hengki and Eka, 2015)
which state that ROA has no significant effect on Sukuk ratings.

CONCLUSION
1. The company size that is proxied by the logarithm of the normal total assets (Ln) of
total assets has a positive and significant effect on the rating of Sukuk. This shows if the
total assets of a large company will increase the Sukuk rating, and vice versa if the total
assets of a company are low, it will lower the Sukuk rating.

2. ROA that is proxied by net income divided by Total assets in this study has no
significant effect on Sukuk ratings. This shows that the magnitude of the ROA ratio will
not affect the high or low level of Sukuk ratings obtained by the company

RECOMMENDATION
Based on the research stated above, the researcher gives some suggestions that might be
useful, including :
1. The research period only observes one period, it is expected that the next researcher
adds the research period so that the results are better.
2. It is expected that the next researcher can develop this research by adding other
variables which are factors for consideration of Sukuk ratings.
3. The sample used in this study is also limited to companies listed on the Indonesian
Stock Exchange and Bursa Malaysia Stock Exchange and companies rated by PT
Pefindo and RAM Rating. For further research, it is recommended to use more rating
agencies so that the samples used will also increase. . .
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