PPD1041, SEM1, 23/24

TABLE OF CONTENTS

CHAPTER 3 METHODOLOGY................................................................................2
3.0 Introduction 2
3.1 Data Description 2
3 .1. 1 Secondary Data 2
3 .1 .2 Population 3
3 .1 .3 Sample3
3.2 Conceptual Framework 4
3.3 Hypothesis 5
3 .3 .1 Dependent Variable 5
CHAPTER 4 RESULTS AND DISCUSSION 6
4.0 Introduction 6
4.1 Multicollinearity Test 7
4.2 Descriptive Statistics 8
LIST OF TABLES
Tables 1 Multicollinearity test (Shariah compliant
firms)...........................................7

Tables 2 Multicollinearity test (Non-Shariah compliant

firms)...................................7

Tables 3 Descriptive statistics (Shariah compliant firms)...........................................8

LIST OF FIGURES

Figure 1 Relation between dependent variable, independent variable and controlled

Variable……………………………………………………………………………..4

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CHAPTER 3 METHODOLOGY

3.0 Introduction
In this chapter, the research design, conceptual framework and the description
of the dependent, independent and controlled variables will be explained. The data
description on how does the data are collected to be used in this study will also be
explained in this chapter. Besides that, this chapter also consist the description of the
statistical analysis that tested in this study. The statistical analysis that involve in this
study is Pearson Correlation Coefficient analysis, Multicollinearity test, panel data
analysis, Breusch and Pagan Lagrangian Multiplier and Hausman test. In addition, the
method of analysis that is Stata 11 will be explained through this chapter.

3.1 Data Description

3.1.1 Secondary Data
To examine the impact of working capital management on profitability of
Shariah-compliant and non-Shariah compliant of trading and services sector in
Malaysia, the secondary data were obtained. The secondary data that used in this study
was obtained from DataStream database. Besides that, the financial data of the firm
that were used to derive the variable that used as dependent variable, independent
variables and controlled variables were obtained from official web page of Bursa
Malaysia.

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3.1.2 Population
The target population in this study is all the stock listed under trading and
services sector in Bursa Malaysia for the year of 2011 until 2015. All of the stock
listed under trading and services sector can give the real situation of how does the
trading and services goes in the industry on Malaysia.

3.1.3 Sample
In order to determine the impact of working capital management on
profitability of Shariah-compliant and non-Shariah compliant on trading and services
firms listed in Malaysia, the study used choose hundreds firms in trading and services
sector randomly from Bursa Malaysia where the firms selected was equally distributed
with fifty Shariah-compliant firms and another fifty of non-Shariah compliant firms.
The study period ranged from 2011 to 2015. Thus, the panel data sets of 500
observations were obtained for the analysis.

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3.2 Conceptual Framework

Figure 1: Relation between dependent variable, independent variable and controlled
Variables

The figure above shows how the dependent variable that is return on assets affected by
the independent variable; average receivable period, inventory turnover period,
average payment period, and current ratio by controlling for debt ratio as well as firm
size.

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3.3 Hypothesis

In line with the objectives of this study, the hypothesis was formed as below:

H1 : There is a significant relationship between ARP with ROA

H2 : There is a significant relationship between ITP with ROA

H3 : There is a significant relationship between APP with ROA

H4 : There is a significant relationship between CR with ROA

H5 : There is a significant relationship between DR with ROA

H6 : There is a significant relationship between FS with ROA

3.3 Variables of Study

3.3.1 Independent Variable

3.3.1.1 Return on Assets (ROA)

Return on assets were used as an indicator to measure the profitability that
used in this study. Return on assets can give better understand on the efficiency of
firm’s management on using their assets to generates earnings (Padachi, 2006). Return
on assets will be examined in this study to see how it reacts towards the components
of working capital management. Enqvist, Graham and Nikkinen (2014) set the return
on assets as a dependent variable to measure the profitability on their study of the
impact of working capital management on firm profitability in different business cycle
on Finland. The higher the return on assets, the better the management on firm’s
working capital. The return on assets calculated as follows.

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CHAPTER 4 RESULTS AND DISCUSSION

4.0 Introduction
The objective of this research is to study the impact of working capital
management on profitability of Shariah compliant and non-Shariah compliant of
trading and services firms listed in Bursa Malaysia for the year of 2010 to 2015.
Return on asset (ROA) was used as the indicator of the profitability of the firm which
act as dependent variable and the independent variables was represent by the account
receivable period (ARP), inventory turnover period (ITP), account payable period
(APP), current ratio (CR), debt ratio (DR), firm size (FS), and sales growth (SG).

This chapter included the running test that is carried out by using Stata Data
Analysis that is the Multicollinearity test, descriptive statistic, Pearson Correlation
Coefficient, panel data analysis which consist of pooled OLS, fixed effect and random
effect. Breusch and Pagan Multiplier test and Hausman test are used to determine the
most appropriate model.

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4.1 Multicollinearity Test

Diagnostic checking is carried out to identify whether there is any
multicollinearity existed where the independent variables is not significant to
dependent variable and all the independent variables are highly interrelated to one
another.

Table 1: Multicollinearity test (Shariah compliant firms)

Mean VIF 1.23

Based on Table 1, the mean for VIF (Variance Inflation Factor) is 1.23, which
is less than 10. This indicates that there is no multicollinearity problem existed.

Table 2: Multicollinearity test (Non-Shariah compliant firms)

Mean VIF 1.15

Based on Table 2, the mean for VIF is 1.15, which is less than 10. This shows
that there is no multicollinearity problem existed.

Both of the tests above clearly shows that there is no multicollinearity problem
existed in the analysis which means that all the independent variables use in the
analysis is not related to each other.

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4.2 Descriptive Statistics

Table 3: Descriptive statistics (Shariah compliant firms)

Variable Mean Std. Dev Min. Max.

roa 0.8220782 0.6542875 0.102059 5.52634
arp 141.9545 225.9831 0.2694981 2888.683
itp 90.6988 189.493 -520.1053 1705.704
app 117.3567 426.1718 -242.5484 4896.498
cr 2.396574 2.208115 0.4456253 16.40813
dr 0.3763959 0.1674795 0.0010955 0.8849809
fs 1.74952 0.1272489 1.469085 2.08798
N=250 n=50 T=5

Table 5 shows the result of descriptive statistic of Malaysian Shariah

compliant of services and trading firms listed in Bursa Malaysia which included mean,
standard deviation, minimum and maximum value of dependent and independent
variables. The sample included 50 Shariah compliant of trading and services firms
listed in Bursa Malaysia for the year of 2010 to 2015.

Return on assets (ROA) which act as dependent variable indicates the

profitability of the firms records the mean as much as 0.8220. This means that
Malaysian Shariah compliant of services and trading firms listed in Bursa Malaysia
for the year 2010 to 2015 generate an average return on asset as much as 82.20% with
minimum profitability of 10.20% and maximum profitability of 500%. The standard
deviation recorded is 0.6542 indicates that the ROA can deviate from the average
value of both sides by 65.42%.