Profit-sharing Contract Research Articles

Analyzing Financial Synergy Through Leland's (2007) Framework and Ensuring Shariah Compliance in Sukuk Issuance

The objective of this study is to determine whether issuing sukuk as part of separate financing of a project would increase the value of business. This study adopts Leland Framework (2007) to measure the impact of several variables in separate financing to the value of the firm. The findings revealed that changes in maturity period, tax rate, interest rate and standard deviation can bring similar or different effects depending on each variable. It can be concluded that the separate financing using hypothetical sukuk issuance has a positive effect on the firm. This is visible from the value of the change in optimally levered firm as well as firm value in this paper which both are positive. This shows that the variables above have an impact on the optimal capital structure as well as the results of structured financing. This study further proposes to modify Leland’s model (2007) by using a stochastic model rather than a static one, considering that some sukuk use a profit-sharing contract.

Application of Business Ethics By Shirkah Contract: A Case Study of Indonesian Farmer Tradition

Economists argue that positivism refers to science and economic activities should be value-free. This means that the norm variable is not included as a variable that has an important meaning for both output and production input. This is not the case with Islamic economics, which firmly states that economic activity is bound to value or is not value-free. This research aims to show evidence of shirkah or profit-sharing contracts and to dissect how elements of values and ethics accompany the business activities of Indonesian farming communities. The method used is a qualitative approach with case study techniques. Literature studies are also used to strengthen the validation and triangulation stages. This research shows that Shirkah contracts are found in agricultural activities in various regions in Indonesia, including those known as maro (50:50), mertelu (1:3), etc. Shirkah, as one of the contracts in Sharia finance, is an actual implementation of enforcing norms and ethics. The Shirkah contract manages the risks inherent in all business cycles, both during profits and losses, which is typical in all sectors. Shirkah contracts systematically work and control competition and business risks with an ethical and normative approach. The Shirkah contract also suppresses economic injustice and unequal distribution of resources and business profits. The domino effect of the values of the sharia contract is not only limited to production-sharing agreements between sharecroppers and land owners but also spreads to the spirit values of sale and purchase (Murabaha) and rental (ijarah) agreements and includes broad implications for all aspects life. Farmers and cultivators are actively involved in upholding the values of justice, risk sharing, and togetherness in facing the cycle of profit and loss that automatically occurs as a lifestyle. Musharaka, Morals-ethics, Risk management, Way of life

Comparing three contract types to optimize profits in service firm – digital service platform relationships

PurposeThe importance of service firms cooperating with digital platforms is widely acknowledged. The authors study three contractual relationships (fixed-cost, cost-sharing, and profit-sharing) between service firms (specifically hotels) and digital platforms in a highly fragmented service supply chain to examine which of these contract types optimizes profits.Design/methodology/approachThe authors extend prior models analyzing the optimal expected total profit from the travel service firm (hotel)–digital platform relationship, providing new insights into each contract type’s ability to coordinate decentralized systems and optimize profits for both parties.FindingsThis study finds that fixed cost contracts cannot coordinate the decentralized system. Cost-sharing contracts can coordinate the decentralized system but only allow one channel profit split. In contrast, profit-sharing contracts may not always perfectly coordinate the decentralized system but support alternative profit allocations. Practically, both profit-sharing and cost-sharing contracts are preferable to fixed-cost contracts.Practical implicationsThe paper includes implications for travel service firm managers to consider when structuring contracts with digital platforms to focus on profit optimization. Profit-sharing contracts are most preferable when cost and revenue data are fully shared between parties, while cost-sharing contracts are preferable over fixed-cost contracts.Originality/valueThis study extends prior investigations into the utility of different contract types on the optimal profit of a travel service firm (hotel)-digital platform provider relationship. The research fills a gap in the literature concerning the contracts used in these relationship types.

Blockchain adoption and contract coordination of poverty alleviation supply chain considering altruistic preference

This study discusses blockchain adoption strategy and coordination of a poverty alleviation supply chain (PASC) consisting of one retailer with altruistic preference and one farmer cooperative. Four decentralized models are considered, including scenario AN (with altruistic preference and without blockchain), scenario AB (with altruistic preference and with blockchain), scenario DN (without altruistic preference and without blockchain), and scenario DB (without altruistic preference and with blockchain). We solve the game models in these four scenarios based on backward induction and obtain the optimal solutions. Additionally, two centralized models, namely scenario CN (without blockchain) and scenario CB (with blockchain), are used as benchmarks for coordinating the PASC. Through comparative analysis, we find that (1) the retailer does not necessarily benefit from blockchain adoption. The retailer has an incentive to adopt blockchain when the fixed and unit operating costs of blockchain adoption are low. Interestingly, even when the unit operating cost of blockchain adoption is high, the retailer can still increase its profits by adopting blockchain when consumers’ acceptance level of agricultural products is low. (2) Under certain conditions, blockchain adoption can lead to a win–win situation for the retailer and the farmer cooperative. (3) The retailer’s altruistic preference increases the profits of the farmer cooperative and the PASC, but at the cost of reducing its own profits. (4) The two proposed contracts, the altruistic preference joint two-part tariff contract and the altruistic preference joint profit-sharing contract, can effectively coordinate the PASC. (5) Three extensions illustrate that the findings regarding the retailer’s blockchain adoption strategy remain robust under strict conditions.

The Sale Services, Bundling and Jointly Advertising Strategies under Profit Sharing Contract in Closed-Loop Competitive Supply Chain

The Sale Services, Bundling and Jointly Advertising Strategies under Profit Sharing Contract in Closed-Loop Competitive Supply Chain

Key Success Factors in the Trust Metaphor Framework for Profit Sharing Contracts: A Literature Review

This research aims to explore key success factors in profit-sharing-based contracts. Profit-sharing-based contracts such as mudharabah and musharakah carried out by Islamic banks are the core of financing in Islamic banks because they are directly related to the productive sector. The impact of this type of financing is greater for the industrial world than that of buying and selling-based financing. However, the facts show that there has been a decrease in the performance of the percentage of profit-sharing-based financing during the 2019-2022 period, and conversely, buying and selling-based financing has increased. In addition, the total operating profit from profit-sharing-based financing has also decreased during the 2019-2022 period. Mudharabah financing is mainly carried out on the basis of trust that arises between the owner of the funds (shahibul maal) and the business manager (mudharib). This study uses a qualitative approach with a literature review in order to gain a comprehensive understanding of the key success factors in profit-sharing-based financing contracts. Key success factors that are deepened based on the trust metaphor include knowledge of the rights and obligations of mudharib and shahibul maal, honest reporting, monitoring, and guarantees. In fulfilling the Trust, each party is required to have adequate knowledge of their rights and obligations in mudharabah and musharakah contracts. The honest and adequate presentation of financial information is disclosed by mudharib with reference to relevant Sharia accounting standards such as PSAK 101, PSAK 105, and PSAK 106. This disclosure is a form of mudharib's responsibility to shahibul maal. Regular monitoring can be carried out by shahibul maal actively or passively. Guarantees can be applied in sharing-based financing contracts other than guarantees provided by mudharib. This study produces theoretical contributions to science in the field of Sharia accounting and practice, especially for practitioners in the Sharia banking industry.

An inventory model of e-marketplace with a promotional program

PurposeThe rapidly growing e-commerce industry with its special characteristics brings new challenges to the optimization of the supply chain and inventory management. This study aims to investigate the inventory-related optimization of an e-marketplace official store that works on a business-to-customer system when cashback promotion is used to attract more customers. Also, it proposes a new inventory model to maximize the e-commerce profit by optimizing the cashback amount and delivery period.Design/methodology/approachThe proposed model assumes that customer demand is a function of price and delivery time and that price is affected by the cashback amount. The e-commerce operator has a profit-sharing contract with an e-payment company that facilitates the payment. E-commerce also builds collaboration under a cost-sharing contract with a supplier to ensure product delivery. A mathematical model is developed and the related theories are investigated. A numerical example illustrates the validity of the model and a sensitivity analysis is carried out to give useful insights.FindingsA new inventory model for an e-market system has been introduced which shows the impact of a cashback promotion on the e-commerce business. This study shows that managers can optimize the cashback amount and its delivery time to get the maximum profit. In certain cases, the manager may set a high cashback amount (e.g. 100%) to attract customers to place more orders.Originality/valueThis study presents a new inventory model for today’s fast-growing e-commerce business; therefore, the results contribute to the understanding of promotion program practices and inventory management and provide insights to develop efficient e-commerce managerial decisions.Graphical abstract

Recycling channel design and coordination in a reverse supply chain with customer green preference

This study investigates the selection of recycling mode and the coordination mechanism in a reverse supply chain (RSC) that consists of one remanufacturer, one traditional recycler, and one smart recycler. We characterize the collection cost differences between traditional recycling and smart recycling, and the scrap rate of used products by smart recycling. We consider three recycling modes with recycling pricing competition, conditional on whether the remanufacturer collaborates with the traditional recycler, with the smart recycler, or with both recyclers. We show that the optimal recycling channel strategy for the remanufacturer is to enroll both the traditional recycler and the smart recycler, and the competition between these two recyclers exerts some non-trial implications on the firms’ equilibrium pricing strategy and profitability. By comparing the equilibrium outcomes with a centralized system, we further develop two coordination contracts: a two-part tariff contract and a transfer price combined with a profit-sharing contract, both of which can effectively mitigate double marginalization and improve the supply chain’s overall performance. Our findings provide useful guidance for the design of recycling channels, and for the coordination of RSC members to achieve Pareto improvement.

Bioremediation in Upstream Oil and Gas Enterprises: Indonesian Environmental Law Perspectives

There have been changes in environmental management since the enactment of Law Number 11 of 2020 on Job Creation, particularly in bioremediation─upstream oil and gas Enterprises. It is intriguing since the process includes natural way of cleansing tainted oil in the water without harming the ecosystem. The study aims to examine the implementation of bioremediation in upstream oil and gas activities under Indonesian environmental law. The study also employed a normative juridical or doctrinal approach. According to the findings, bioremediation is being carried out under a profit-sharing contract with SKK Migas (Special Working Unit for Upstream Oil and Natural Gas Business Activities) acting as the implementing agency. The legal relationship position of an oil and natural gas mining company, specifically in bioremediation, is in the government and corporate accountability to carry out the program, referring to production sharing contracts─cooperation contracts and applicable statutory provisions. To summarize, all parties, including national and regional governments, communities, and oil and gas companies, must implement ecologically friendly protection such as bioremediation

The Practice of Sharing Production from Cattle from a Sharia Economic Law Perspective

The problems studied in this research are regarding the practice of sharing cattle and livestock results in the community in Limpomajang sub-district, Majauleng sub-district, and Wajo Regency. The purpose of this research is to find out how profit-sharing contracts (mudharabah) are practiced in the community and to find out the perspective of Sharia economic law regarding the system used. In this research, the method used is field research with a normative approach; and the data analysis used is the Miles and Huberman model of data analysis. The informants in this research are people who keep cattle and who own cattle in Limpomajang Village. The results of the research show that in the practice of sharing cattle products from a Sharia economic law perspective in the community, there are no elements of gharar and dharar contained in this collaboration because the cooperation implemented is based on the principles of trust and kinship. The cattle owner (shahibul mal) bears the costs of medicine and rope, and the cattle breeder (mudharib) is responsible for looking after the cattle entrusted to him. The principles applied are based on the principles of trust and kinship as well as the pleasure of both parties. Apart from that, mutual trust and a spirit of mutual assistance are also the main foundations for the community to implement this kind of cooperation agreement.

Analisis Penerapan Bagi Hasil Dalam Sistem Paro Pada Masyarakat Peternak Sapi di Kabupaten Asahan

Animal husbandry is one of the important sectors that builds the economy of cattle farmers in Asahan Regency. In addition, it is relatively easy to maintain. However, not all people are able to raise cattle due to the lack of capital to buy cows and limited time to manage pet cows. This condition has led to the emergence of a profit-sharing system in Asahan Regency. The purpose of this research is to analyse the implementation of the profit-sharing system in Asahan Regency. The research method used is descriptive qualitative. The results of the study explain that the profit sharing of the paro system in Asahan Regency is carried out with the agreement of both parties with the aim of mutual benefit and in its application is able to help the community's income. The paro system with 50:50 profit sharing is able to boost people's income in fulfilling their daily needs. Although this system is very beneficial for both capital owners and cattle farmers, there are often discrepancies in the profit-sharing contract that lead to misunderstandings. Therefore, it is necessary to improve and supervise the profit sharing system in Asahan Regency in order to establish good cooperation between capital owners and cattle farmers.

Shareholder or Investment Account Holder Interest: Which One Does Management of Islamic Banks Pay Attention to?

Governance and performance studies are often viewed from the perspective of shareholders, including in Islamic banks. However, the Investment Account Holders (IAH) are equally important stakeholders. Profit-sharing contracts, the absence of representation in the Annual General Meeting, and larger fund amount place the IAH at greater risk. In reality, the impact of governance should also prioritize protecting their interests. This study examines the effect of implementing corporate governance on the performance of Islamic banks from the perspective of shareholders and IAHs. This study tabulates data from the annual reports of 14 Indonesian Islamic banks. This research has found that Islamic bank governance has no effect on performance from the perspective of IAHs. On the other hand, governance can significantly influence performance from a shareholder perspective. From the perspective of stakeholder theory, these findings explain that Islamic banks have not made IAHs the main party to pay attention to. Business policies and strategies that are overseen by corporate governance have not had an impact on wider stakeholders. The IAHs in Islamic banks should also be categorized as key stakeholders.

Profit-Sharing Contract of the Fresh Agricultural Products Supply Chain under Community Group Purchase Mode Considering Freshness Preservation Efforts

This article constructed a four-level fresh agricultural product (FAP) supply chain with a two-stage pricing strategy under a “community group purchase (CGP) platform + direct procurement from the FAP supplier” sales model. We investigate the influence of the CGP agency’s participation in the control strategy of FAP freshness preservation efforts on the profits of supply chain stakeholders. This article discusses the effects of the FAP supplier profit-sharing ratio, the CGP agency profit-sharing ratio, and consumers’ sensitivity to FAP freshness on the supply chain stakeholders’ freshness preservation efforts. Moreover, based on the fairness preference theory, this article designed a profit-sharing contract that involves the Nash bargaining game between the FAP supplier and the CGP agency as the supply chain coordination mechanism. Modeling results revealed that: (1) The CGP agency’s freshness preservation efforts increased total supply chain profits. (2) The FAP supplier profit-sharing ratio, CGP agency profit-sharing ratio, and consumers’ sensitivity to FAP freshness have a positive correlation to the profits of the FAP supply chain and promote the coordination of the supply chain. (3) Considering fairness preferences, with the increase in FAP suppliers’ business negotiating ability, their freshness preservation efforts and fairness utility both increased gradually, while the fairness utility of the CGP agency gradually decreased.

Exploring Moral Hazard and Adverse Selection in Profit Sharing Contract

Purpose: The aim of this study is to review relevant articles on the problem of adverse selection and moral hazard in profit-sharing contracts in Islamic Banks. Adverse selection and moral hazard problems are problems that occur in profit-sharing contracts, so they impact the low porti on of this contract financing compared to margin-based and fee-based contracts. Theoretical framework: The profit sharing contract in an Islamic bank has two potential problems, namely adverse selection and moral hazard that arise due to asymmetric information. Asymmetric information can occur due to limited information owned by Islamic banks as owners of funds (shahibul maal) regarding the business to be run by customers (mudharib). This asymmetric information mainly causes the agency problem. If an agent is negligent in making decisions with negative consequences and does not want to take responsibility for his actions, this can be classified as a moral hazard. Moral hazard can be in the form of self-interest, side effects, fraud, opportunism, and the behaviour of agents who commit willful mistakes, negligence and breach of contract. Meanwhile, adverse selection arises when the principal cannot observe the agent's characteristics because of asymmetric information before the contract is signed. Design/methodology/approach: The study uses a qualitative approach by reviewing previous articles relevant to the discussion. The study is aligned with the practices that occur in profit-sharing contracts. Furthermore, discussions are deepened through forum group discussions with experts and practitioners in Islamic banks. Findings: The results show that the conflicts in profit-sharing contracts include principal-agent conflicts and principal-principal conflicts due to adverse selection and moral hazards. The study results reveal that signalling and screening measures can be applied to overcome adverse selection problems while monitoring actions and switching to debt contracts can overcome moral hazard problems. Research, Practical & Social implication: The study has implications for Islamic banks to draw up a clear and complete profit-sharing contract with the mudharib to reduce the moral hazard committed by the mudharib. In this case, Islamic banks can also ask the mudharib to submit comprehensive financial reports regarding their financial performance. Islamic banks must also pay attention to signalling and screening efforts to prevent adverse selection. Originality/value: The value of the study provides a new literacy regarding the potential for agency conflict in the form of moral hazard and adverse selection that will be faced by Islamic banks when applying profit-sharing contracts with other parties as managers (mudharib).

Blockchain-Driven Supply Chain’s Financing and Coordination Strategy under Nash Bargaining Scheme

Blockchain-driven supply chain finance (SCF) has become an emerging supply chain financing mode. Compared with the traditional SCF mode, blockchain-driven SCF can shorten the transaction process and provide real trade data that cannot be tampered with, thereby improving the efficiency of capital operation. This article explores the financing and coordination problems of a blockchain-driven supply chain. Based on the three most common supply chain contracts (revenue-sharing contract, profit-sharing contract, and two-part tariff contract), we construct a comparative model of bank credit financing (BCF) and blockchain-driven SCF, discuss the optimal decision-making strategy of the supply chain, and quantitatively analyze the performance of supply chain under each mode. The results show the following: (i) there is a threshold for the usage rate of the blockchain-driven SCF platform; (ii) only when the platform usage rate is lower than the threshold, the blockchain-driven SCF mode which benefits both manufacturer and retailer is a better choice; (iii) the above results always hold if supply chain contracts can coordinate the supply chain in terms of quantity decisions; (iv) the blockchain-driven SCF mode is more efficient for supply chains which are less capital-constrained. This article provides a decision basis for the selection of supply chain financing channels and provides an idea for future research on blockchain-driven SCF.

Research on Green Closed-Loop Supply Chain Considering Manufacturer’s Fairness Concerns and Sales Effort

To reduce resource loss and environmental pollution, green CLSC has become a hot issue that manufacturing enterprises pay attention to. In green CLSC, manufacturers would pay attention to the fairness of profit distribution when making sales efforts. Therefore, this paper studies a green closed-loop supply chain (CLSC) considering manufacturer sales efforts and fairness concerns. Then, the centralized model and decentralized model are built and analyzed. Afterward, a profit-sharing contract between members is designed to coordinate the supply chain. We made the following observations: (1) The manufacturers’ fairness concerns would reduce product green degree, sales effort and recycling rate of used products, which is not conducive to the sustainable development of the green closed-loop supply chain. (2) When the manufacturers’ fairness concerns are gradually strengthened, the optimal decisions would deviate even more from the optimal equilibrium results. (3) When the coefficient of fairness concerns and the ratio of profit-sharing satisfy a certain range, Pareto improvement can be effectively realized.

Optimal Recycling Channel Selection of Power Battery Closed-Loop Supply Chain Considering Corporate Social Responsibility in China

With economic development and societal progress, the supply chain should not only focus on profitability, but also environmental protection, as well as undertake corresponding corporate social responsibility (CSR). The operational decisions of the closed-loop supply chain (CLSC) in the power battery industry should rather consider the impact of CSR. Thus, this paper studies the optimal recycling channel selection and coordination of CLSC in the power battery industry under the consideration of CSR efforts and uncertain demand. By considering the CSR efforts taken by the manufacturer, decentralized and coordination decision-making models under different recycling modes (including manufacturer recycling, retailer recycling and third-party recycling) are constructed to analyze the optimal decision of CLSC. After that, the models were validated through numerical and sensitivity analysis, followed by discussion and management insights. It is found that when consumers are sensitive to the level of CSR effort, CSR effort has a positive impact on the profits of participants in CLSC. Additionally, the coordination decision-making model always outperforms the decentralized decision-making model under the same recycling mode, so reasonable profit-sharing contracts are developed to ensure the implementation of coordination decision-making. Moreover, transfer price plays different roles in different decision situations and recycling modes, while recycling cost is critical to the overall profit of the supply chain and influences the choice of recycling channel.

THE SECTORAL FINANCING DIVERSIFICATION AND THE PROFITABILITY OF ISLAMIC BANKING IN INDONESIA

This study investigates the influence of sectoral financing concentration on the profitability of Islamic banking in Indonesia. The data is aggregated by Indonesian Islamic banks from January 2015 to June 2021. Islamic banks are divided into two, namely Islamic commercial banks and Islamic window banks. The study used Autoregressive distributed lag (ARDL) and Panel Mean Group (PMG). The results showed that sectoral financing concentration increased the profitability of Islamic commercial banks while diversification of sectoral financing boosted the profitability of Islamic window banks. In addition, this study also showed that size and inefficiency negatively affected the profitability of Islamic commercial banks and window banks. This result implies that the right sectoral financing policy for Islamic commercial banks is financing concentration. This strategy implies that Islamic commercial banks must build competitiveness in certain sectors of the economy. For this reason, there is a need to increase the skills of the worker to build a competitive advantage in the sector that is the focus of financing. In comparison, sectoral financing diversification is more applicable for Islamic window banks. To support this diversification strategy, banks must conduct good supervision in the financing, especially sectoral financing based on profit-sharing contracts.

ANALYSIS OF THE CHARACTERISTICS OF FINANCIAL RISK IN CONTRACT WITH THE PRINCIPLE OF PROFIT-SHARING IN SHARIA BANKING

Risk is a loss born as a result of a specific condition. Islamic banking, a financial institution that bases its operational activities on Islamic law, cannot be separated from risks. This risk can threaten operational continuity, the worst consequence of which can be closure because it cannot operate. Mudharabah and musyarakah contracts are contracts with the principle of profit-sharing. At the beginning of the operation of Islamic banking were the mainstay products to eliminate the interest system practiced in conventional banking. Musyarakah and musyarabah contracts are very strategic products to help advance the people's economy by distributing funds for the trade and industry sectors. Lately, musyarakah and mudharabah contracts have not become the leading service. Banking services are more on consumptive contracts such as murabahah, ijarah, Qardh, and others. The high-risk character attached to the profit-sharing contract triggers the unpopularity of this contract in Islamic banking services. This paper is intended to describe the characteristics of contract risk with the principle of profit-sharing and the identification of potential risks that accompany it. Therefore, it makes it easier for interested parties to undertake risk management efforts. In contrast, they continue to ensure whether these efforts run according to sharia.

Blockchain digital technology empowers E-commerce supply chain sustainable value co-creation decision and coordination considering online consumer reviews

From the perspective of value co-creation, this study adopted Stackelberg game theory to construct traditional e-commerce supply chain and BOCR technology e-commerce supply chain, their optimal decisions and profits are solved under decentralized and centralized decision-making. We anatomized the influence of key factors and compared different models. Then we proposed the investment decision condition, cost-sharing and profit-sharing contract to achieve coordination, then validated conclusions via numerical simulation. Findings: When the producer’s attention to consumer value increases, under decentralized decision-making, optimal sales price and service level decrease, the producer’s optimal profit increases, while the e-commerce platform’s optimal profit will first increase, then decrease; under centralized decision-making, optimal sales price decreases, and optimal service level and overall optimal profit increase. Under decentralized decision-making, in the traditional e-commerce supply chain, optimal decisions and profits first increase, then decrease with increased misrepresentation in favorable product ratings; in the BOCR technology e-commerce supply chain, members can optimize costs and increase profits by extracting more valuable information. The optimal sales price and service level show different size relationships with production cost changes. When investment costs meet specific conditions, using BOCR technology can make members more profitable. The cost-sharing and profit-sharing contract enables e-commerce coordination.