Malaysian Securities Research Articles

Revised Malaysian Shariah Screening: Its Impact on Islamic Capital Market

Shariah Advisory Council (SAC) of Securities Commission (SC) formulated a new revised Shariah screening methodology of two-tier quantitative assessment for activity-based screening benchmarks and the newly- formulated financial ratio benchmarks, while the qualitative assessment remains the same. The revised methodology is an effort to expand the Islamic capital market’s (ICM) international reach which is in line with the SC objectives. The objective of this paper is to examine the impact of the recent announcement of new changes in the Shariah screening methodology by the Malaysian Securities Commission on the share prices of the affected companies and Islamic capital market. We use an event study method to see if the changes have a significant reaction from the market, specifically, from investors and fund managers. On the announcement date, that is, on 29 November 2013, 158 non-Shariah compliant stocks were removed from the previous list of Shariah compliant stock that was issued in May 2013 and 16 stocks were added to the approved list. Out of 158 non-Shariah compliant stocks, only 137 stocks are available for the analysis. For the new Shariah compliant stocks, only 16 stocks are included in the sample. We find an immediate but short lived negative impact on the stock returns towards the deletion, but none towards the addition of new stocks to the Shariah index. However, the announcement has no significant impact on the overall return of the FBM Emas Shariah index.

Solid Fuel from Oil Palm Biomass Residues and Municipal Solid Waste by Hydrothermal Treatment for Electrical Power Generation in Malaysia: A Review

Malaysia generated 156,665 gigawatt-hours (GWh) of electricity in 2016 of which the biggest share of 48.4% was sourced from coal and coke. Malaysia coal consumption was met by 90.5% of imported coal due to high demand from the power sector. Malaysia also has a vast biomass resource that is currently under-utilised for electricity generation. This paper reviews the potential of oil palm residues and municipal solid waste (MSW) for alternative coal replacement employing hydrothermal treatment (HTT). In 2017, about 51.19 million tonnes (Mt) of oil palm waste was available with 888.33 peta-joule (PJ) energy potential to generate 88.03 terawatt-hours (TWh) electricity from oil palm fronds (OPF) and oil palm trunks (OPT), empty fruit bunch (EFB), mesocarp fibre (MF), palm kernel shell (PKS) and palm oil mill effluent (POME). Meanwhile, the MSW energy potential and electricity generation potential was estimated at 86.50 PJ/year and 8.57 TWh/year, respectively. HTT with washing co-treatment eliminates the use of drying for converting range of biomass and MSW into clean solid fuel known as hydrochar. The hydrochar increased in caloric value with lower moisture, Potassium (K) and Chlorine (Cl) contents. These value-added fuels can be used as coal alternative and reduce dependency on imported coal for energy security in Malaysia.

Constitutional Principles in Relation to the Rights of Migrant Workers to Social Security in Malaysia: Adopting the Human Rights Approach

Enactment of the social security laws in Malaysia does not take into consideration the Malaysian Constitution’s constitutional principles. Likewise, the Constitution itself does not specify the provisioning of social security rights. Nevertheless, two provisions are particularly relevant for the recognition of fundamental rights to the migrant workers in Malaysia: firstly, equality of treatment and secondly, prohibition of slavery and forced labour. The concept of equality as enshrined in Article 8 of the Malaysian Federal Constitution states that all persons are equal before the law. Furthermore, Article 6 of the Constitution prohibits any form of slavery and forced labour. Hence, any form of discrimination, slavery, and forced labour to migrant workers cannot be tolerated. First, this paper aims to examine the basic principles of human rights framework in relation to migrant workers. Next, this paper seeks to analyse these constitutional principles in the light of Malaysian social security laws. Due to the lack of constitutional provisioning on social security in Malaysian Constitution, this paper also examines the experience from the South African Constitution because social security in the country has been constitutionally protected. Lastly, the possibility of implementing the same constitutional principles in Malaysian Constitution will be observed by adopting the human rights approach.

IPO prospectus: Exploring the expectation gap on Intellectual Capital information

This study explores the preparers' and users' views on the decision usefulness of intellectual capital (IC) information in the prospectuses of firms undergoing listing for the first time ('IPO firms') in the Malaysian securities market. In addition, the categories of IC information (i.e., external, internal and human capital) in relation to specific industry sectors are considered. Questionnaire survey forms were distributed to 126 respondents who comprised preparers and users of initial public offering (IPO) prospectuses. Both parties considered IC information as useful for decision-making and external capital was considered the most important category of disclosure. Preparers were willing to supply IC information in the prospectus and users indicated that they intended to use it for decision-making. However, there was a major mismatch in the supply and demand of IC information by category in IPO issues in some industry sectors suggesting the existence of an information asymmetry gap between preparers and users.

Managing Food Security in Malaysia: A Resource-Based View (RBV) Analysis

This study was carried out in a case study approach with intended research focus of examining the impact of the intangible resources and tangible resources on the growth of the seed industry in Malaysia. The strategic management of food security in Malaysia became the main concern in this study. It is clear that food security has become an important focus and widely debated issue built on four dimensions; food availability, food stability, food accessibility and food utilization. In the Resource-Based View (RBV) perspective, the focus has been directed towards business start-up as a resource acquisition process, where the availability of unique resources is presumed to promote industry development. The findings revealed that a focus on both tangible and intangible resource development that includes, funds, land, technology, a skilled workforce, policy and brands reputation is likely to generate the most growth within the seed industry. In addition, firms with valuable resources stand a better chance of growth but due to some limitations, government supports are needed, particularly on intangible resources. The resource-based view (RBV) of the firm suggests that positive competitive outcomes are largely attributable to an organizations’ idiosyncratic resources. Hence, this study will help to link and identify the capabilities of both tangible and intangible resouces to fullfill RBV requirements in order to develop more effective support system for seed industry in Malaysia.

Energy Security in Malaysia: a Quantitative Analysis

This paper examines the security of energy supply in Malaysia. Analytical framework was used to quantify and assess the progress of energy security of Malaysia in four different categories namely Availability, Applicability, Affordability and Acceptability of energy resources. Key metrics include the documentation of energy reserves, energy access, and CO2 emissions from year 2005 to 2015. Relevant energy security indicators for Malaysia were identified using high quality historical data from World Bank and Energy Commission.The evaluation findings show that Malaysia has experienced a significant improvement in Applicability dimension, while Availability and Acceptability aspects of energy security only registered slight improvements. On the other hand, Affordability dimension has suffered a slight decline. This study suggests that diversifying energy sources, efficient utilization of energy and reducing carbon content of energy could be enhanced to improve energy security level in Malaysia.Energy security indicator; Energy policy; Malaysia, Security of supply

An empirical investigation into the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of IPO management earnings forecasts

PurposeIslam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts.Design/methodology/approachThis study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression.FindingsThe initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts.Practical implicationsThe findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market.Originality/valueThe present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.

Resilience, adaptation and expected support for food security among the Malaysian east coast poor households

PurposeSustainable food security at the household level is one of the emerging issues for all nations. It is expected that the patterns of household resilience factors and adaptation practices have a strong linkage with household food security. The purpose of this paper is to seek an effective technique of adaptation for food security and the required types of support for adaptation to food insecurity among the poor and low-income households in Malaysia.Design/methodology/approachThis study was based on primary data that were collected in July-October 2012 through a questionnaire survey among 460 poor and low-income households from the Pahang, Kelantan, and Terengganu states of Malaysia. The samples were selected from E-Kasih poor household database based on a two-stage cluster random sampling technique. The study considered household food security as household food availability and food accessibility, and ran ordinal regressions to find out the linkages of household food security with household resilience factors, adaptation practices, and expected support for adaptation to food security.FindingsThe study concludes that several resilience factors and adaptation practices were statistically significant to household food security, and several external supports were statistically and significantly needed to ensure household food security. Therefore, to ensure sustainable household food security in Malaysia, the food security programs need to be integrated with sustainable development goals (SDGs) and climatic changes adaptation programs, and the involvement of relevant stakeholders are crucial.Originality/valueThis study is a pioneer work based on primary data that empirically measured the linkages of household food security with household resilience factors, adaptation practices, and expected support for adaptation to food security in Malaysia. This study also discussed some issues related to the climate change linkage, which would help future climate change research. The findings of the study will be beneficial for all the stakeholders, including policy makers related to the food security and climate change adaptation.

Contra trading in Bursa Malaysia Securities Berhad: a Sharīʿah and legal appraisal

Purpose The purpose of this paper is to analyze the practice of contra trading in Bursa Malaysia Securities Berhad. Through a critical examination of the practice, it aims to discuss the issues from the angles of Sharīʿah and Malaysian common law. Design/methodology/approach The paper uses a qualitative research methodology. The information on the practice of contra trading is obtained through the Bursa Malaysia Securities Berhad’s website and literature as well as series of meetings and discussions held with Bursa Malaysia Securities Berhad. In comprehending and dissecting the Sharīʿah and legal issues, classical along with contemporary Sharīʿah literature including local and international Sharīʿah advisory bodies’ resolutions and standards have been referred to. The Sharīʿah analysis of these issues is further supported by reference to the statute and by-laws of Bursa Malaysia Securities Berhad as well as other related legal literature. Findings This paper finds that contra trading involves a real sale and purchase of shares; the shares are not taken into the possession of the contra trader, neither physically nor constructively; the liability of shares is not transferred to the contra trader; though the practice of profiting in contra trading may contradict the prohibition on profiting without bearing liability, the permissibility of contra trading could still be argued from the contextual approach of public interest (maṣlaḥah) and needs (hājah); and contra trading is not gambling. Research limitations/implications This paper is limited in its analysis to only Sharīʿah and legal perspectives. It does not cover a thorough empirical and quantitative investigation that would measure the extent of the public needs for contra trading and the real benefits that contra trading brings about to the society in the long run. Such studies will further demonstrate whether contra trading deserves a relaxation from the strict Sharīʿah ruling thus affirming the issue of permissibility of contra trading. Moving forward, this paper recommends ways to address the predicaments faced in the contra trading practices as well important research areas that could be taken up in future. Originality/value This paper provides an in-depth investigation of the practice of contra trading at the Bursa Malaysia Securities Berhad from the angles of Sharīʿah and common law.

Political connections, institutional investors monitoring and stock price synchronicity

PurposeThe purpose of this paper is to examine the association between politically connected (POLCON) firms and stock price synchronicity, and whether this association can be attenuated by institutional investors.Design/methodology/approachThis paper uses an ordinary least square regression model to examine the association between POLCON firms and stock price synchronicity; institutional ownership and stock price synchronicity; the moderating role of institutional ownership on the association between POLCON firms and stock price synchronicity; institutional domiciles and stock price synchronicity; and the moderating role of institutional domiciles on the association between POLCON firms and stock price synchronicity.FindingsThe result shows that POLCON firms are positively associated with stock price synchronicity. Further, the author also finds that institutional monitoring, through higher ownership by local institutional investors is associated with lower stock price synchronicity. In addition, this study documents evidence that institutional investors, particularly local institutional investors can improve stock price informativeness in POLCON firms.Research limitations/implicationsThe results suggest that POLCON firms are plagued by severe agency problems, resulting in limited flow of firm-specific information to the capital markets. However, the author shows that POLCON firm’s agency problems can be attenuated through effective monitoring by institutional investors. Further, institutional domiciles are shown to be significantly associated with stock price synchronocity. However, effective monitoring is largely driven by local institutional investors, in line with the geographical proximity theory.Practical implicationsThe results suggest that regulators should increase their surveillance and monitoring effort, particularly on firms with close ties to the government. In particular, POLCON firms should be required to be more transparent in their corporate dealings. Additionally, auditors should intensify their audit efforts on POLCON firm to provide more reliable financial information to minority shareholders, investors and analysts. Finally, institutional investors should be incentivized by the Malaysian Securities Commission, via, the code of governance to play an effective monitoring role in Malaysian firms.Originality/valueThis study reveals that POLCON firms’ severe agency problems can be alleviated by effective institutional monitoring. Further result identifies institutional domiciles as a significant factor in influencing monitoring effectiveness in POLCON firms. This paper provides insights into the dynamic interaction between political connections, institutional monitoring, firm governance and capital markets behavior of an emerging market.

Commodity Futures: A Maqasid Al-Shariah Based Analysis

This paper aims to analyse Malaysian Crude Palm Oil futures (FCPO) in light of the maqasid alShariah. The Shariah Advisory Council of the Malaysian Securities Commission (SAC) resolves that FCPO is permissible as it is in accordance with Shariah principles. The maqasid al-Shariah is the objectives and wisdom (hikmah) as prescribed by the Shariah in all its rulings to preserve the benefits of, and prevent harm to, human wellbeing. It can be categorized into three broad categories, namely daruriyyah (necessity), hajiyyah (requirement) and tahsiniyyah (embellishments). The approaches used in this study are document analysis and interviews. This study found that FCPO does not fulfil the categories of daruriyyah (necessity) and hajiyyah in the maqasid al-Shariah. Thus, it is suggested that FCPO should promote maqasid al-Shariah in its holistic direction. The legality of a financial contract is judged from the contract (aqd) aspect and equally important is on its economic and social impacts to the society.

Climate Change: A Review of Its Nexus with Rice Sector and Food Security in Malaysia

Climate change is a global problem wherein not a single country can escape from its externalities. Malaysia has been no exception to these externalities as future climate scenario indicates a worrying trend. Thus, future development of Malaysian rice sector would expect to encounter multiple challenges ahead, which includes the diverse alterations of the earth as the climate is warming, limited arable land as well as social and economic transition. This study is therefore aimed to unravel the nexus between rice sector, food security and climate change. In order to review the nexus, this study relied on literature research. This study is of the opinion that even though the agricultural sector is no longer a major contributor to the national economy, but in the context of paddy or rice, the concern on the impacts of climate change should be acknowledged beyond the economic perspectives and point of views. In fact, future consideration and direction of this sector should take into account the importance of paddy crop to rural small-scale farmers’ livelihoods and the role of rice in ensuring the stability and continuance of staple food supply for the country. If climate change dampens the government’s initiatives to increase rice selfsufficiency level (SSL) in the future, the national food security will certainly be at risk. In addition, the livelihood of farmers will be affected, especially the small scaled as paddy cultivation is their only source of income. Hence, the intervention policy by the government in the future should give due emphasize to strategies that are focused on enhancing the adaptation capacity of paddy farmers to alleviate their vulnerabilities to climate change.

Development of Sustainability Assessment Framework in Hydropower sector

Nowadays, Malaysian demand in energy sector was drastically increase due to technological developments. Since, hydropower is one of potential renewable energy source in Malaysia. The largest electricity utility company, Tenaga Nasional Berhad was provide an electricity to more than seven million people via independent suppliers in peninsular Malaysia and Sabah by intended a potential sustainable hydropower system. In order to increasingly the power capacity from current use, 1882 MW to more than 3000 MW by years 2020. In this study, the environmental issues and also the penalty to the responsible company especially on Tenaga Nasional Berhad (TNB) towards their project or business are one of the problems. Other than that, every project or business has to prepare a sustainability statement or sustainability report as vital to Bursa Malaysia Securities Berhad under their listing requirements. Next, the sustainability performance on their project cannot be determined to achieve the key performance indicators (KPI) satisfaction from Government, stakeholder or any responsible agencies. This study presents an exhaustive review of these studies and suggests a direction for future developments. Sustainability Assessment framework or self-assessment is decidedly as a significant framework to assist towards sustainability reporting and to produce a Sustainability index for Hydropower sector using a mathematical model study. The results reveal that, the quantitative measurement from Sustainability Assessment framework to Systematic Sustainability Asssesment tool can be produce. In doing so, it is possible to improve the performance of the project especially in hydropower planner.

Sukuk issuance and information asymmetry: Why do firms issue sukuk?

This study investigates the factors that promote a bank borrower to issue sukuk rather than conventional debt security in Malaysia and Indonesia from 2000 to 2014. First, our empirical results show that a bank borrower is likely to approach the sukuk market as the funding size grows and if the firm is valued highly. Second, we find that under high information asymmetry, a firm with a high stock price and large funding demand prefers sukuk issuance to conventional debt. We conclude that firms use the sukuk market as an intermediate funding market when the funding demand is too large to borrow from banks and the information asymmetry is too high for them to approach the conventional debt market.

An Overview of Cyber Security in Malaysia

An Overview of Cyber Security in Malaysia

Computer Security Issues in Online Banking: An Assessment from the Context of Usable Security

Today's online banking is a convenient mode of finance management. Despite the ease of doing online banking, there are people that still sceptical in utilizing it due to perception and its security. This paper highlights the subject of online banking security in Malaysia, especially from the perspective of the end-users. The study is done by assessing human computer interaction, usability and security. An online survey utilising 137 participants was previously conducted to gain preliminary insights on security issues of online banking in Malaysia. Following from those results, 37 participants were interviewed to gauge deeper understanding about end-users perception on online banking within the context of usable security. The results suggested that most of the end-users are continuingly experiencing significant difficulties especially in relation to the technical terminologies, security features and other technical issues. Although the security features are provided to provide a shield or protection, users are still incapable to cope with the technical aspects of such implementation.

The effect of white collar crime announcement on stock price performance

Purpose The purpose of this paper is to investigate the connection between ethics and profitability by examining the association between published reports on white-collar crime and the share-price performance of the Malaysian-listed companies. This study aims to examine the role of white-collar crime in Malaysian-listed companies on its stock-price reaction. Design/methodology/approach Following prior research, even study methodology is used to exploit the stock-price reaction on the white-collar crime announcement. The daily bases of average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) with an event window of 90 days prior to and after the announcements are determined. This study uses public announcement data of white-collar crimes from Malaysian Securities Commission from 1996 to 2013. Findings The finding indicates that an announcement of a white-collar crime has a negative abnormal return on the share price. As a result, the market does not react efficiently toward the information released regarding the incidence of a white-collar crime. Practical implications This study contributes to the managerial decision theory, where managers should be able to see a definite connection between unethical behavior and their firm’s stock. The stockholders and policymakers should find this information important in pressing for greater corporate and managerial accountability. Originality/value Unlike prior research, this paper investigates the stock-price performance due to white-collar crime announcement in the Malaysian context by using complete data set of announcement from 1996 to 2013.

Detecting fraudulent financial reporting using financial ratio

Purpose The main aim of this study is to analyse the financial ratio (i.e. financial leverage, profitability, asset composition, liquidity and capital turnover ratio) in detecting fraudulent financial reporting (FFR). Design/methodology/approach The logit model was used to identify firms that are related to FFR. The sample firms that engage in fraudulent reporting were obtained from the media centre of Bursa Malaysia. The firms were selected based on their contravention of the Listing Requirements of Bursa Malaysia Securities Berhad. The data cover a period of seven years from 2007 to 2013. Findings The results suggest that financial leverage, asset composition, profitability and capital turnover were significant predictors of FFR. Practical implications The findings of this study may assist investors in making decision for their investments. Originality/value This study describes firms that breach the Listing Requirements of Bursa Malaysia Securities Berhad using the financial ratio.

Climate change and food security of the Malaysian east coast poor: a path modeling approach

Purpose – The purpose of this paper is to examine the direct and indirect impacts of climatic changes as well as the effects of non-climatic factors on household food security in Malaysia. Design/methodology/approach – The study is based on primary data collected in the months of July – October, 2012 through a questionnaire survey on 460 low-income households from East Coast Economic Region (ECER) of the country. The samples were selected from E-Kasih poor household database, based on cluster random sampling technique. The statistical estimation was done through two-stage formative path measurement model by using non-parametric bootstrap procedure under Smart PLS. Findings – This study finds that household food insecurity ECER – Malaysia is not only related to social and economic factors, but also statistically significantly linked to the direct and indirect impacts of climatic factors. The policy implications of the study suggest that design of food security programs must be integrated with climatic change adaptation programs. Originality/value – The government and other relevant agencies should jointly develop appropriate policies for poverty alleviation, household-level food security, and adaptation with climatic changes in Malaysia.

Non-compliance of licence holders towards disclosure based regulation in Malaysian securities markets

Purpose The purpose of this paper is to examine non-compliance of licence holders towards disclosure-based regulation in Malaysian securities markets in relation to the implementation of the disclosure-based regulation. Design/methodology/approach This survey was conducted among 107 principal and representative licensees registered with the Securities Commission of Malaysia. They consist of licensed dealers, investment advisers and fund managers. The majority of the respondents were capital markets and services representative licensees, while only 17 respondents were capital markets and services licensees. Findings The survey indicates that non-compliance occurs because of lack of ethical values and orientation of the players in the industry. In addition, non-compliance was also reported to occur due to lack of understanding of law and regulations, inefficient company’s surveillance, control and internal monitoring programmes and weaknesses in the implementation and enforcement of law. Other reasons include greed (wanting to be rich quickly), selective application of the law, complicity between offenders and regulators, slow judicial processes and high legal cost for victims to pursue compensation. Practical implications As the enforcement agency, Securities Commission should further enhance efforts to monitor and enforce the law of capital markets. On the other hand, the courts have to impose fines on criminals based on the extent of the losses investors have suffered by investors and on the effects of the crime on market stability. More importantly, ethics training should be carried out to license holders by the relevant bodies and agencies in the securities market. Originality/value This paper provides measures on how to curb the unethical behaviour by carrying out ethics training and introducing new rules and regulations for the industry.