Journal of Indonesian economy and business

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Journal of Indonesian economy and business Volume 30, Number 2, May 2015

Challenge-Stress and Hindrance-Stress in the Southeast Asian Hotel Sector Kamaazura Abu Bakar, Ahmad Munir Mohd Salleh, Mohd Shaladdin Muda, Azlinzuraini Ahmad and Ruzita Manshor Information and Knowledge of Public Sector Decision Makers: Experimental Research in the Context of a Local Government Hospital in Indonesia Icuk Rangga Bawono, Abdul Halim and Beverley R.Lord The Technology Readiness or Social Presence, Which One Could Explain the Technology Acceptance Better? An Investigation on Virtual Communities Said Jubran and Sumiyana Financial Depth and Financial Access in Indonesia Sigit Setiawan The Power of Product Leadership in Generating Customers' Intentions to Buy: The Case of Dagadu MS Eric Santosa Does Ecoefficency Reduce the Cost of Equity Capital? Empirical Evidence from Indonesia Lisa Alviani and Mahfud Sholihin Book Review: The Business Solution to Poverty: Designing Products & Services for Three Billion New Customers Rika Fatimah PL

ISSN 2085-8272

CONTENTS

Challenge-Stress and Hindrance-Stress in the Southeast Asian Hotel Sector Kamaazura Abu Bakar, Ahmad Munir Mohd Salleh, Mohd Shaladdin Muda, Azlinzuraini Ahmad and Ruzita Manshor ............................................................................. 101 – 112 Information and Knowledge of Public Sector Decision Makers: Experimental Research in the Context of a Local Government Hospital in Indonesia Icuk Rangga Bawono, Abdul Halim and Beverley R. Lord................................................... 113 – 119 The Technology Readiness or Social Presence, Which One Could Explain the Technology Acceptance Better? An Investigation on Virtual Communities Said Jubran and Sumiyana ..................................................................................................... 120 – 138 Financial Depth and Financial Access in Indonesia Sigit Setiawan .......................................................................................................................... 139 – 158 The Power of Product Leadership in Generating Customers’ Intentions to Buy: The Case of Dagadu Markus Surkamta Eric Santosa.............................................................................................. 159 – 172 Does Eco-efficiency Reduce the Cost of Equity Capital? Empirical Evidence from Indonesia Lisa Alviani and Mahfud Sholihin ......................................................................................... 172 – 182 Book Review: The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers Rika Fatimah Panjaitan Lanovara ......................................................................................... 183 – 186 About the Authors .................................................................................................................. 187 – 189 Index ........................................................................................................................................ 190 – 190 Previous Abstracts of Journal of Indonesian Economy and Business Volume 30, Number 1, 2015 ...................................................................................................................... 191 – 193

Eddy Junarsin, Ph.D.

Universitas Gadjah Mada

Fuad Rakhman, Ph.D. Akhmad Akbar Susamto, Ph.D.

Universitas Gadjah Mada Universitas Gadjah Mada

Prof. Wihana Kirana Jaya, Ph.D. B. Raksaka Mahi, Ph.D. Prof. Djoko Susanto, Ph.D. Prof. Sukmawati Sukamulja, Ph.D. Sekar Mayang Sari, Ph.D. Deden Dinar Iskandar, Ph.D. Prof. John Malcolm Dowling, Ph.D. Prof. Mohamat Sabri Hassan, Ph.D. Prof. Stein Kristiansen, Ph.D. Prof. Pacha Malyadri, Ph.D. Prof. Jae Il Kim, Ph.D. Daniel Suryadarma, Ph.D. Arianto Patunru, Ph.D. Isaac Marcelin, Ph.D. Prof. Shenghui Tong, Ph.D. Prof. Thomas Cleff, Ph.D. Arif Daryanto, Ph.D. Bayu Sutikno, Ph.D. Prof. Mudrajad Kuncoro, Ph.D. Prof. Lincolin Arsyad, Ph.D. Prof. Jogiyanto Mustakini, Ph.D. Muhammad Edhie Purnawan, Ph.D. Prof. Indra Wijaya Kusuma, Ph.D. Prof. Eduardus Tandelilin, Ph.D. Didi Achjari, Ph.D. Ertambang Nahartyo, Ph.D. Hargo Utomo, Ph.D. Mamduh M. Hanafi, Ph.D. Kusdhianto Setiawan, Ph.D. Prof. Tri Widodo, Ph.D. Nurul Indarti, Ph.D. Prof. Indra Bastian, Ph.D. Jessica Dunn, Ph.D.

Universitas Gadjah Mada Universitas Indonesia Sekolah Tinggi Ilmu Ekonomi YKPN Universitas Atma Jaya Yogyakarta Universitas Trisakti Universitas Diponegoro University of Hawaii at Manoa, U.S. Universiti Kebangsaaan Malaysia, Malaysia University of Agder, Norway Osmania University, India Seoul National University, Korea Australian National University, Australia Australian National University, Australia University of Maryland Eastern Shore, U.S. Central University of Finance and Economics, China Pforzheim University, Germany Institut Pertanian Bogor Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Universitas Gadjah Mada Murray State University, U.S.

Journal of Indonesian Economy and Business Volume 30, Number 2, 2015, 101 – 112

CHALLENGE-STRESS AND HINDRANCE-STRESS IN THE SOUTHEAST ASIAN HOTEL SECTOR Kamaazura Abu Bakar IKIP International College ([email protected]) Ahmad Munir Mohd Salleh Universiti Malaysia Terengganu ([email protected]) Mohd Shaladdin Muda Universiti Malaysia Terengganu ([email protected]) Azlinzuraini Ahmad Universiti Malaysia Terengganu ( [email protected])

Ruzita Manshor Kolej Antarabangsa IKIP ([email protected])

ABSTRACT The hospitality industry is an entity that is continuously determined by varying new demands and the needs of its customers. This ever-changing and complex working environment has caused and become a source of stress for the hospitality industries’ workforce. Workplace stress is increasing from year to year and has become a focus of research interest in recent years. Responding to the demands of management who require a more precise understanding of the issues of workplace stress, researchers have conducted studies on a total of 115 respondents from a 3 star-hotel and a 4 star-hotel. The personnel involved came from the food and beverage departments, room services and the front offices, whose daily routines involved direct face to face serving activities and fulfilling their customers’ demands. Using the Statistical Package for Social Science (SPSS) version 19.0 and AMOS version 18.0, the results of Exploratory Data Analysis (EFA) and Confirmatory Data Analysis (CFA) have confirmed that there are two stress factors, namely challenge stress and hindrance stress. Both of these stress factors have a significantly negative relation to one another. Understanding these dimensions in detail can help the hospitality organizations to be well prepared for the task of motivating their employees. Keywords: challenge-stress, hindrance-stress, service, Southeast Asia, hotel INTRODUCTION Southeast Asia is among the regions in Asia that drastically increased their tourism industry with a 9.9 percent growth in tourist arrivals in the year 2013, and further growth is expected in 2014. Malaysia and Indonesia were among the Southeast Asian members that received higher

tourist numbers, which are also expected to grow from year to year (The Jakarta Globe, 2013; World Travel and Tourism Council, 2014). In order to ensure the sustainability of this sector, stress issues have become a continuous fenomena that need to be highlighted in this industry. Workplace stress is an issue that causes boredom

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and dissatisfaction among employees (Poon, 2003; Blaug, Kenyon, & Lehi, 2007; Srikhum, 2013). Cooper & Cartwright (1994) explained that stress at work will also lead to increased financial costs in business and industry (O'Neill & Davis, 2011; Cooper & Cartwright, 1994). Among the possible economic costs that will burden the industry are an increase in staff medical expenses, low morale and a lack of commitment among workers (Management Service, 2006). According to Steers & Rhodes (1978) cited by Ivancevich (1985), the total annual cost of absenteeism from work in the United States was in the order of USD8.5 to USD26 billion. The costs incurred as a result of stress in the workplace were expected to increase from year to year. The United Kingdom also reported that the cost of absenteeism in that country was between £10 and £12 billion a year, averaging to a value of £434 per employee (Management Service, 2006). Therefore, the need to reduce stress is very vital to the longterm survival of the hospitality industries as stress may increase their operational costs. The potential loss of profit is very high if these work related stresses are not confined by prudent management strategies. In the hospitality industry, frontline staff are highly vulnerable to stress. They are the group of workers that are directly involved with 'customer-oriented work' which means that their positions demand constant interaction with both parties i.e. the customer and the organization (Dewettinck & Buyens, 2005: 422). Stress is said to be a reaction to weak individual capabilities and the work environment. Stress will manifest itself when the required task is beyond the capability of an individual, or the individual concerned does not have the right tools to handle the job situation (Jamal & Baba, 2000). Jamal & Baba (2000) also defined job stress as a natural consequence of human interaction with their work environment or situations that threaten them. This definition by Jamal & Baba has been further refined by Greenberg (2005), who said that stress was an emotional and physiological reaction that occurred in response to the impact

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of internal and external demands of the work environment (Greenberg, 2005). However, the said impact will not be the same for one individual compared to another, because stress is a dynamic phenomenon. Individuals who experience stress will be confronted with opportunities, necessities and resources related to their individual intention, but the results are not conclusive (Robbins & Judge, 2007). STRESS IN SERVICE According to Greenberg (2005), human service occupations will face high levels of stress and be susceptible to emotional exhaustion, such as in a situation where employees feel depressed and powerless. In the hotel sector, emotional exhaustion is influenced by various factors including facial expression procedures that must be followed. According to Samad (2009) and Aziz (2008), employees must smile for hours on end in serving the needs of customers. However, stress does not necessarily prevail only in a negative form, but it is also present in a positive form (Robbins & Judge, 2007). Based on Tuten & Neidermeyer (2004), a moderate amount of stress will benefit employees and the organization. This beneficial stress is known as positive stress or as challenge stress. It will actually provoke the employees’ self-esteem to a point where they will feel the need to excel in their working environment. Stress is beneficial when it is within the acceptance and competence of each individual employee, but it will turn unproductive when the stress level is too high and beyond the optimum stress limit that can be handled by the employees. The negative stress or hindrance stress is more focused on the negative aspects of stress that prevents workers from reaching their goal. The examples of hindrance stress include organizational politics, inflexible bureaucracy, job demands, and job ambiguity, excessive anxiety and frustration (Robbins & Judge, 2007; Cavanaugh et al., 1998, Cavanaugh et al., 2000). Hindrance stress will exist and employees will demonstrate poor performance (Hellriegel & Slocum, 2004: 121; Robbins & Judge, 2007:

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339). But this condition will only appear when the working environment received aggregate stress levels that exceed the tolerance level. This will lead to job dissatisfaction, depression and anger among the workers (Cavanaugh et al. 2000; Greenglass, Burke, & Moore, 2003). Due to the working environment, the hospitality industries’ workers are customarily burdened with various difficulties in regard to the hindrance stress. This statement is supported by Karatepe & Sokmen (2006) who said hotel workers were often faced with a conflict of roles and role ambiguity leading to hindrance stress. When there was no proper written procedure, employees often felt reluctant to react to various customers’ complaints and this would eventually make the employees feel uncertain of how to interact with their customers (Dewettinck & Buyens, 2005: 423). Doing monotonous day-to-day tasks is considered the normal, essential routine in the service industry. For example, the method for how to greet customers has not changed at all over time. The recurrence of the same tasks will make employees feel displeased with their work. This conclusion was supported by Hoynala (2009) and Mullins (2005), who stated that repeating the same job every day without any variety in the work activities would create “worn-out” workers. A large number of customers all wanting to be served at the same time will also create a dilemma as it will put excessive constraints on the skills and abilities of the employees (Dewettinck & Buyens, 2005: 422). A lack of autonomy in work situations will also add to the existing stress levels. All these shortfalls are explicit examples of hindrance stress. According to Johnson & Woods (2008), hospitality workers also performed various tasks like managing the diversity of client needs and office management. On occasions, they are required to perform these unrelated tasks in a very limited time frame and without adequate training. This will also contributed to the hindrance stress among workers (Mullins, 2005; Karatepe & Kilic, 2007; Karatepe & Uludag, 2008; Dean & Rainnie, 2004).

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Training is a critical factor to fortify employees’ work aptitudes because it can improve their customer interaction competence and enhance their ability to manage routine tasks. Work simulation training can cultivate a more positive employee attitude when confronted with a stressful situation (Dean & Rainnie, 2004; Karatepe, Babakus, & Yavas, 2012). Simultaneously, employees also need to find a balance between work and family, even though most of their time is spent at work (Karatepe & Kilic, 2007; Karatepe & Sökmen, 2006). It would be prudent to consider that employees who experience hindrance stress will eventually contribute to achieving less than normal (Stevens & Higgins 2002). This situation will certainly weaken the customer service orientation and further undermine the sustainability of the organization in the highly competitive hospitality industry. STRESS IMPACT IN HOSPITALITY INDUSTRY Too much stress is injurious to the individual and institution involved. However, if the root cause of the stress can be dealt with, in accordance with the different ability levels of each individual, it would be transformed into a great achievement booster (Pisik 1992; Cavanaugh et al., 2000; Lepine et al., 2005). As stated earlier, hindrance stress contributed to a high degree of employees work dissatisfaction (Jones, Chonko, Rangarajan, & Roberts, 2007) and it would manifest itself in an increase in the employees desire to leave the organization (Jones et al., 2007; Mohr & Puck, 2007; Golbasi, Kelleci, & Dogan, 2008). These views have been throughly studied by Nadiri & Tanova (2010), who concluded that job satisfaction had a significant positive relationship with job performance. Dewettinck & Buyens (2005) have proved that hindrance stress can affect the quality of services as well as the labors productivity. Other scholars also argued that continuous exposure to stress will reduce the performance of employees in the workplace (Sharpley et al., 1996; Aryee, Zhou, Sun, & Lo, 2009; O'Neill & Davis, 2011). When an individual is confronted with a lower

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threshold of stressor in comparison to his or her ability to manage it, then that individual will feel satisfied and happy. This condition is called challenge stress or eustress, which literally means good stress. It is a situation where the stress agent becomes a motivational catalyst and a positive personal development tool for such individuals (Sen, 2008; Cavanhaugh et al., 2000; Lepine et al., 2005; O'Neill & Davis, 2011). Gill (2008) believed that employees who had a positive outlook, such as a high regard towards their organization, would feel more satisfied in their jobs. This feeling would be manifest in a reduction in the employees’ intention to resign from their job. Through high job satisfaction, higher levels of commitment among employees can be generated, thus reducing the turnover rate (AlBattat & Mat Som, 2013; Günlu et al., 2010; Silverthorne, 2004). Based on the research above, it is clear that a systematic understanding of the various stress levels is able to help the hotel sector to establish a more effective work enviroment and enhance positive outcomes (Sneed, 1988). Managers should be aware that the creation of more of the challenging stress should be prioritized. This can be achieved through organizational justice. The importance of organizational justice and its impact in the hospitality sector is enormous, because it also affects the quality of service through the employees’ performances (Nadiri & Tanova, 2010). RESEARCH INSTRUMENT Researchers found that the stress instrument that was developed by Cavanaugh et al. (2000), identified as the Challenge and Hindrance Self Reported Stress Related Measures (CHS) was an appropriate instrument for measuring stress. Cavanaugh and his colleagues had developed a stress measurement method that could assess the two types of stress, i.e. challenge stress (eustres) and hindrance stress (distress), as discussed in the previous reviews. For the purpose of developing the CHS, Cavanaugh et al. (2000) adapted the three existing instruments from the Job Demand and Worker Health (Caplan et al., 1993), Stress

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Diagnostic Survey (SDS) (Ivancevich & Matteson, 1983), and Job Stress Index (JSI) (Sandman, 1992). Cavanaugh et al. (2000) examined each selected item and categorized it according to its appropriate stress type, whether it was a challenge, hindrance or both. Based on the individual definitions of challenge stress and hindrance stress, Cavanaugh et al., (2000) could identify appropriate items which could be separated into their respective category. As such, Cavanaugh et al. (2000) could identify six (6) items that could be categorized as a challenge stress, five (5) items that could be classified as hindrance stress while the other five (5) items were listed as other stress. Other items that were not related to stress were dropped as the focus of their research was to measure the challenge stress and hindrance stress. Challenge stresses’ indicating factors include demands of work, the workload, time constraints, job accountability and job intricacy. The gauging factor for hindrance stresses include inflexible bureaucracy, imprecise roles, roles and interpersonal conflict, task disturbance and any internal politics of the organization (Cavanaugh et al., 2000; Lepine, et al., 2005). In a test conducted on 10,000 top-level managers in the United States, the study found that these instruments had a high consistency of α = 0.87 and α = 0.75. The stress model loading factor was between 0.60 and 0.87 for each item. This result proved that each item was relevant (Cavanaugh et al., 2000). Among the studies that used CHS was Raja & Abbas (2012) but this study only used five items from challenge stress and hindrance stress respectively. As a result, the validity of that study was low. A total of 10 items measuring stress-challenge and stresshindrance were used and distributed to 300 respondents and 255 questionnaires were returned and the author found that both types of stress were independent of multicollinearity. Past studies have found that the two types of stress are different and have different effects on employees’ behaviors (Raja & Abbas, 2012; Lepine et al., 2005; Cavanaugh et al., 2000). Hindrance stress posed a risk while challenge

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stress could expand innovative and creative behavior. Cavanaugh et al. (2000) also found out that challenge stress reacted positively, while hindrance stress responded negatively in relation to job satisfaction.

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Table 3. Mean and Standard Deviation Value Descriptive Statistics Items

Mean

Std. Deviation

Analysis N

CS1

3.23

1.415

115

CS2

2.31

1.119

115

ANALYSIS RESULT

CS3

2.93

1.145

115

Researchers have found that Cavanaugh’s (2000) instrument can be applied to the perspective of Asian studies. Through the EFA analysis that had been conducted, it showed that stress was divided into two factors, namely the dimension of challenge stress (CS) and the dimension of hindrance stress (HS) (refer to Table 2). Table 5 also shows that all the items of these two variables are normal. Using AMOS, skewness and kurtosis values of between 2 and -2, as suggested by Tabachnick & Fidell (2007), are achieved.

CS4

2.89

1.160

115

CS5

2.98

1.214

115

CS6

2.90

1.185

115

HS1

5.10

1.127

115

HS2

5.24

1.121

115

HS3

5.18

1.167

115

HS4

5.24

1.129

115

HS5

5.10

1.068

115

Results showed that the fitness indexes were satisfactory and fulfilled the fitness index suggested in the TLI = 0.992, CFI = 0.929, RMSEA = 0.039, GFI = 0.990 and AGFI = 0.891.

This study also showed that the correlation value = -0.77. This proved that both stress factors were different (value 0.1). In contrast, the H3 of research model 2 was supported positively and significantly (H2: β2 = 0.33, p < 0.01) and supported previous studies (Liu et al., 2010;

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Sanchez & Hueros, 2010; Sun & Zhang, 2003). In the technology readiness model, individuals usually perceive technology as mandatory, so they do not consider the ease of use and the technology’s efficiency as important attributes when assessing the usefulness of new technology. In the social presence model, individuals

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perceive technology to be a voluntary use thing. In that situation, the ease of use and the technology’s efficiency are not considered as important properties in assessing the usefulness of new technologies. Individuals are usually motivated to use the technology regardless of its additional efforts or costs.

Table 4. The Results of the Constructs of the Validity and Reliability Analysis Construct

N. of Items

Factor Loading

Confirmatory Factor Analysis

Composite Reliability

Social Presence

4

0.81 0.83 0.80 0.85

0.82

0.82

Optimism

5

0.80 0.90 0.71 0.54 0.51

0.69

0.93

Innovativeness

2

0.90 0.59

0.74

0.81

Discomfort

3

0.53 0.87 0.50

0.63

0.67

Insecurity

4

0.52 0.64 0.88 0.85

0.72

0.82

Perceived Usefulness

6

0.80 0.82 0.86 0.86 0.85 0.72

0.82

0.96

Perceived Ease of use

5

0.77 0.79 0.80 0.82 0.82

0.80

0.93

Perceived Compatibility

5

0.68 0.78 0.80 0.55 0.67

0.70

0.88

Knowledge Sharing Intention

3

0.66 0.94 0.82

0.81

0.91

Source: Summary of Statistical Output

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Table 5. Goodness of Fit Model Cut-off Standards

Research Model 1* TR-C-TAM

Research Model 2 SP-C-TAM

Limit close to small

962.147

408.776

P

≥ 0.05

0.000

0.000

CMIN/DF

≤ 2.00

2.096

1.937

RMSEA

≤ 0.08

0.060

0.055

GFI

≥ 0.90

0.836

0.892

AGFI

≥ 0.90

0.799

0.859

TLI

≥ 0.95

0.906

0.950

CFI

≥ 0.95

0.906

0.950

Criteria Chi-Square

Notes: *Adopted from Hung & Cheng (2013); TRI-C-TAM: Technology Readiness Concept – Technology Acceptance Model; SP-C-TAM: Social Presence Concept – Technology Acceptance Model. Source: Summary of Statistical Output

Table 6. Research Models’ Causality Examinations Hypotheses H1 (+) H2 (+) H3 (+) H4 (+) H5a (+) H5b (+) H5c (+) H6a (+) H6b (+) H6c (+) H7a (-) H7b (-) H7c (-) H8a (-) H8b (-) H8c (-) H9a (+) H9b (+) H10 (+)

Causality Relationship PU → KSI PEU → KSI PEU → PU C → KSI OPT → PU OPT → PEU OPT → C INN → PU INN → PEU INN → C DIS → PU DIS → PEU DIS → C INS → PU INS → PEU INS → C SP → PU SP → PEU C → PU

Research Model 1 TRI-C-TAM Coefficient C.R 0.43*** 6.100 0.26*** 4.238 0.08 1.019 0.12*** 1.958 0.25*** 3.318 0.16 1.927 0.06 0.703 0.63*** 5.578 0.66*** -2.442 0.73*** 6.631 0.04 0.430 -0.30*** -2.442 -0.08 -0.678 -0.08 -0.897 0.28*** 2.589 0.01 0.119 -

-

Research Model 2 SP-C-TAM Coefficient C.R 0.54*** 7.446 0.26*** 3.981 0.33*** 4.115 0.32*** 6.147 0.41*** 6.379 0.37*** 4.116

Note: SP=Social Presence, OPT=Optimism, INN=Innovativeness, DIS=Discomfort, INS= Insecurity, C=Compatibility, PU= Perceived Usefulness, PEU=Perceived Ease of Use, KSI= Knowledge Sharing Intention Source: Summary of Statistical Output

Hypothesis H4 of research model 1 which stated that the compatibility affected the knowledge sharing intentions, was supported (H4: β4 = 0.12, p < 0.05). In research model 2, H10 which stated that the compatibility affected the perceived usefulness was also supported positively and significantly (H10: β10 = 0.37, p
1. Thereby, the assessment of validity is pleased from component 1 only, which points to the indicators, since their loading factor >that most indicators i.e. Product Leadership1 (PL1), Product Leadership2(PL2), Product Leader-

ship3(PL3), Product Leadership4(PL4), Perceived Value1(PV1), Perceived Value2(PV2), Perceived Value3(PV3), Perceived Quality1(PQ1), Perceived Quality2(PQ2), Perceived Quality3(PQ3), Perceived Quality4(PQ4), Perceived Quality5(PQ5), behavioral belief2 (b2), behavioral belief3(b3), outcome evaluation1 (ev1), outcome evaluation2(ev2), outcome evaluation3(ev3), Normative Belief1 (NB1), Normative Belief2(NB2), Normative Belief3(NB3), Motivation to Comply1 (MC1), Motivation to Comply2 (MC2), Motivation to Comply3 (MC3), Intention to Buy2 (IB2), Intention to Buy3(IB3), Intention to Buy4(IB4)were valid indicators, since their loading factors were>0.5 (Gozali, 2008),But with the exception of Perceived Value4(PV4) and Intention to Buy1 (IB1) which were< 0.5. However, according to Ferdinand’s basis, the PV4 still included a valid indicator, since Ferdinand (2002) only required 0.4 as the border line. A different situation exists for IB1, with a loading factor of< 0.4 which must cause it to be rejected. Test of Reliability. The Cronbach’s alpha analysis was exercised by employing SPSS 16.0. The result showed that most variables were reliable, indicated by the Cronbach’s alpha score > 0.6 (Ghozali, 2008) (Table 2). An exception is

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Table 1. Test of KMO, Bartlett’s Test, Variance Explained and Factor Loading

PV, PQ, Ab, SN, IB, Variables Bartlett’s Test App Chi-sq df Signif 58.039 6 0.000

Variance Explained Comp Eigen val % Var 1 1.917 47.035

Factor Loading Item Komp 1 PL1 0.622 PL2 0.624 PL3 0.857 PL4 0.638

Var

KMO

PL

0.594

PV

0.672

52.342

6

0.000

1

1.925

48.131

PV1 PV2 PV3 PV4

0.799 0.779 0.674 0.476

PQ

0.688

112.456

10

0.000

1

2.472

49.448

PQ1 PQ2 PQ3 PQ4 PQ5

0.712 0.783 0.707 0.670 0.636

Ab

0.702

433.079

15

0.000

1

4.010

66.838

b1 b2 b3 ev1 ev2 ev3

0.802 0.794 0.853 0.772 0.823 0.859

SN

0.667

469.648

15

0.000

1

3.997

66.615

NB1 NB2 NB3 MC1 MC2 MC3

0.806 0.882 0.793 0.798 0.856 0.756

IB

0.605

36.174

6

0.000

1

1.728

43.199

IB1 IB2 IB3 IB4

0.349 0.680 0.753 0.759

Source: data analysis

the IB variable (in which the IB1 had already been dismissed) as its Cronbach’s alpha score < 0.6. However, it was assumed to be reliable since its score was close to 0.6.

structural equation modelwas employed (Hair,et al., 1995).

The Structural Equation Model. The model had one initial independent variable (PL) and five dependent variables (PV, PQ, Ab, SN, IB) of which four were treated as independent variables to some extent as well. Since the purpose of the study was to understand the relationship between the one initial independent variable (PL) and the primary dependent variables (PV, PQ), likewise among the four dependent variables, separately and simultaneously, a

Variables indicators

Table 2. Test of Reliability

PL, PV, PQ, Ab, SN, and IB Variables

PL PV PQ Ab

SN

IB

Cronbach’s Alpha PL1, PL2, PL3, PL4 0.614 PV1, PV2, PV3, PV4 0.606 PQ1, PQ2, PQ3, PQ4, PQ5 0.738 b (b1, b2, b3) 0.813 ev (ev1, ev2, ev3) 0.816 b+ev 0.900 NB1, NB2, NB3 0.851 MC1, MC2, MC3 0.824 NB + MC 0.898 IB2, IB3, IB4 0.594

Source: Analysis Data

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An initial structural equation model was drawn by connecting all the variables as hypothesized. This model was not thoroughly appropriate to what was expected, since all the indicators, i.e. Chi-Square/Prob, Cmin/df, GFI, AGFI, TLI, RMSEA, did not meet the criteria. Consequently, a modified model was generated by connecting e1 ↔ e2, e3 ↔ e4, z1 ↔ z2, and z3 ↔ z4. This modified model seemingly produced better scores than before (Table 3, Figure 2).

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(Cmin/df, GFI, and TLI) equal the requirements. It meant that the model’s data were in accordance with the structural parameters. As a consequence, the model was worthy of use. Evaluation of Assumptions. The evaluation of normality was first carried out, employing a univariate test (Ferdinand, 2002; Ghozali, 2008). It scrutinized the skewness value to see whether its critical ratio (c.r) values were less than or equal to ± 2.58. As a matter of fact, all the c.r values were less than ± 2.58. This indicated that univariately the data distribution was normal. To check further, a multivariate test was also carried

Table 3 denotes that although not all the model’s indicators meet the criteria, some

Table 3. The Second Indicators Resulted from Modification of the Model Indicators Chi-square/Prob Cmin/df GFI AGFI TLI RMSEA

Initial Scores 258.151/0.000 7.823 0.727 0.544 0.750 0.263

Second Scores 55.754/0.002 1.923 0.901 0.813 0.966 0.097

Thresthold 29.588/p>0.05 ≤5 High ≥ 0,9 ≥ 0,9 0.05 to 0.08

Justification Not meet the criterion Meet the criterion Meet the criterion Not meet the criterion Meet the criterion Not meet the criterion

Source: Data Analysis

3,07

chi-square = 55,754 prob = ,002 CMIN/DF = 1,923 GFI = ,901 AGFI = ,813 TLI = ,966 RMSEA = ,097

Z1 1,73

1

3,60 ,50

PL

PV

620,42 ,67

5,96

Z3 1

5,14

PQ

2,52

Ab

b

,01Z5

5,45

Z2 e3

,57 1

1 NB

,51 e4 1

MC

,05 ,05

292,68

SN

,02

,25

1

e1

-,2 ,28

,05 ev 3,35

1 4,45

-,39

,05

IB

1 1044,21 Z4

Figure 2. Modified Model of the Initial Structural Equation Model

1

e2

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out. The result of the data analysis showed that the multivariate critical value was13.687. It was more than the 2.58 required. As a result, the normality test needed a bootstrap analysis. A Bollen-Stine bootstrap analysis illustrated the following, (a) the model fitted better in 446 bootstrap samples, (b) it fitted equally well in 0 bootstrap samples, (c) it fittedbadly, or failed to fit in 54 bootstrap samples, (d) testing of the null hypothesis showed that the model was correct, Bollen-Stine bootstrap p = 0.110. As a matter of fact, the probability resulted (p = 0.110) indicated that the model was not rejected. Therefore, although multivariately the data’s distribution were abnormal, it was worthy of use. The next evaluation of assumption was about the outliers which was carried out by a univariate test or a multivariate test (Ferdinand, 2002). The univariate test was successfully exercised by firstly converting the data to Z-scores, in which they should be less than ± 3.0 (Hair, et al.,1995). The result indicated that some variables such as PL1, PV1, NB3, and IB2 were more than ± 3.0 which points to outliers. To check further, it required a multivariate outliers test. It demonstrated, by determining the Chi-square value which subsequently could be used as the upper limit, which could be calculated by searching on aChi-square table, whose degree of freedom was equal to the amount of variables employed, which were 10, under the degree of significance (p) = 0.001. The Chi-square value found was

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29.588. In fact, all the scores for Mahalanobis distance were less than 29.588, except for the numbers 53, 29, and 33 which inevitably suggested outliers. However, because of no specific reason to dismiss these, the outliers were likely worth using(Ferdinand, 2002). Further evaluation of assumption was for multicollinearity and singularity. According to the Amos output, the determinant of the sample covariance matrix was equal to162,084,353. The value is more than zero. As a consequence, it belonged to no multicollinearity and singularity categories. Test of Hypotheses. The regression weights output indicated that the influence of PL on PV and PQ were significant. Likewise, for the influence of PQ on Ab and SN. In addition, it was so for the case of the influence of Ab and SN on IB, and the influence of PQ on SN. Conversely, the influence of PV on SN was not significant (p = 0.214) (Table 4). The result showed that all the hypotheses proposed were supported by the empirical data, except for H4. Discussion. The appropriateness of the empirical data with the hypotheses i.e. product leadership influences perceived value and perceived quality, was in accordance with the theory and facts. In other words, it was pertinent to the theory that (a) the perceived value and the perceived quality were relevant to the product’s superiority (Hopkin, 2011a; Kalypso, 2011), (b) the superior products were characterized by their

Table 4. Regression Weights: (Group number 1 - Default model)

PV PQ Ab Ab SN SN IB IB

← ← ← ← ← ← ← ←

Source: Amos output

Estimate of Parameter

Standard Error

Critical Ratio

PL

0.505

0.093

5,435

***

PL

0.666

0.112

5,951

***

PQ

5,138

1,271

4,042

***

PV

5,961

1,565

3,808

***

PV

2,522

2,031

1,242

0.214

PQ

5,449

1,649

3,304

***

SN

0.016

0.006

2,676

0.007

Ab

0.013

0.007

2,036

0.042

Probability

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distinctiveness, which offered a superior value as well (Cravens, 2000), (c) a company’s strategy to provide excellent features inevitably made a large contribution to the perceived value or the perceived quality (Kotler, 2000; Kotler & Keller, 2006). As a consequence, customers positively appreciate the value and the quality presented. Meanwhile, some other hypotheses such as (a) perceived value influences attitude, (b) perceived quality influences attitude, and (c) perceived quality influences the subjective norm, were all positively supported by the empirical data, and were appropriate to some factors which are, firstly, the overall evaluation of the customers’ values and the product quality offered was positively appreciated by the customers (Peter & Olson, 2002), secondly, a favourable response supported by knowledge, direct experience and other related information, obviously generated customers’ positive attitudes (Schiffman & Kanuk, 2000),thirdly, the customers’ conviction of other people’s perception about the quality offered, increased their perception as well about the same product (Ajzen, 1991). Conversely, the hypothesis which stated perceived value influences the subjective norm, was not supported by the empirical data. It might be scrutinized as follows, since the subjective norm exemplified the customers’ perception about other peoples’ thoughts of what he/she should do (Ajzen, 1991), while the different ways a consumer looks at an object generates a distinct perception (Kotler, 2000), thereby, a particular customer might not follow what other people suggest. As a result, whatever meaningfulness a product has for one person, it might be ignored by others. Whereas the hypotheses of attitude influence the intention to buy, and the subjective norm influences the intention to buy, were both supported by the empirical data. This can be explained by the intention to buy, while being determined by attitude (Fishbein & Ajzen, 1975), and likewise shaped by the subjective norm, obviously suggests that whatever happens to the attitude or the subjective norm, the intention to buy apparently also follows, and the

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alteration of intention to buy was in accordance with the change in them. IMPLICATION While product leadership denotes a high customer value, the result of the study highlights the important role of the superiority and the distinctiveness of the products offered. The significant influence of product leadership on perceived value or perceived quality puts products whose customer value is both superior and distinctive, in a strategic position. This is likely to not only burden the marketing department, but also other departments such as R & D and the production department, which should be more active in submitting information about competitors and the markets’ preferences. Even with the cooperation of other departments to get what the market wants for the future customers’ values so the company can plan its products, this is absolutely necessary. Therefore, all parts of the company should prioritize the company’s concerns, which include a sense of belonging, and high levels of participation and cooperation. The significant influence of perceived quality on attitude or the subjective norm, and the significant influence of perceived quality on attitude, gives signals that they are in truth a logical consequence of the consumers’ perceptions of both the quality and the value of particular products. A favourable perception of products inevitably generates a favourable attitude and a favourable subjective norm as well. Therefore, the marketing department should cautiously examine the market, particularly to competitors actions in the market, and should take such observations into account. The communication strategy to be used should be selected depending on a precise market understanding. The establishment of the intention to buy through attitude and the subjective norm gives a signal that marketers should be seriously aware of when examining customers, whether individually or collectively. While probing in a collective way could be carried out in various ways, such as by brand development and brand equity formulation (Santosa, 2013), the individual way could be applied using customer inti-

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REFERENCES

Hunger, J.D. and T.L. Wheelen, 2001.Strategic Management. Diterjemahkan oleh Julianto Agung. Yogyakarta: Penerbit Andi. Kalypso, 2011. Capabilities, Services, Productleadership, Transformation. Available at: http:kalypso.com, capabilities, services, product-leadership-transformation accessed at May 22, 2011.

Ajzen, I,1991. The Theory of Planned Behavior, Organizational Behavior and Human Decision Processes.50. 179-211.

Kotler, P, 2000.Marketing Management. The Millennium Edition. Upper Saddle River, NJ: Prentice-Hall, Inc.

Ajzen, I, and M. Fishbein, 1980.Understanding Attitudes and Predicting Social Behavior.Englewood Cliffs, NJ: Prentice Hall.

Kotler, Pand K.L, Keller, 2006.Marketing Management.. 12th ed. Upper Saddle River. New Jersey: Pearson Education Inc.

Cannon, J.P., W.D. Perreault Jr, and F.J. McCarthy, 2008.Basic Marketing: A Global Managerial Approach. Diterjemahkan oleh Afia R Fitriati dan Ria Cahyani. Jakarta: Penerbit Salemba Empat.

MISC, 2014. In Pursuit of Customer Intimacy and Operational Excellence. Available at: http://www.miscmagazine.com/in-pursuitof-customer-intimacy-and-operationalexcellence/ accessed at May 8, 2014.`

Cooper, D.R.. and P.S. Schindler, 2008.Business Research Methods. Boston: McGrawHill/Irwin. Cravens, D.W, 2000. Strategic Marketing. 6th ed. Boston: Irwin-McGraw-Hill.

Peter, J.P. and J.C, Olson, 2002.Consumer Behaviourand Marketing Strategy.6th ed. New York: McGraw-Hill Company. Santosa, E, 2011.Pengaruh Product Leadership, Service Excellence, dan Customer Intimacy Terhadap Brand Equity dan Dampaknya Terhadap Customer Loyalty.Unpublished. ______, 2013. Can Product Leadership be a Predictor of Customer Loyalty? The Case of the Influence of Product Leadership, Service Support Excellence, and Customer Intimacy to Brand Equity and the Effect of Brand Equity to Customer’s Loyalty, Junal Internasional Ekonomi dan Bisnis (JIEB) UGM, 28.3.

macy techniques (Santosa, 2011). Both contribute to forming a brand image (Kotler & Keller, 2006) which in turn can apparently generate favourable customers’ attitudes and favourable subjective norms.

Ferdinand, A, 2002. Structural Equation Modeling Dalam Penelitian Manajemen. Semarang: BP Undip. Fishbein, M and I. Ajzen. (1975). Belief, Attitude, Intention, and Behavior: An Introduction to Theory and Research. Reading, MA: Adisson-Wesley. Ghozali, I, 2005.Model Persamaan Struktural: Konsep dan Aplikasi dengan Program Amos Ver 5.0. Semarang: BP Undip. Ghozali, I. 2008. Model Persamaan Struktural: Konsep dan Aplikasi dengan Program Amos Ver 16.0. Semarang: BP Undip. Hair, et al., 1998.Multivariate Data Analysis. New Jersey: Prentice Hall. Hopkin, M.R, 2011a.Product-leadership. Available at: http:leadonpurposeblog.com accessed January 24, 2011. Hopkin, M.R, 2011a.Product-leadership. Available at: http:leadonpurposeblog.com accessed January 24, 2011. Hopkin, M.R., 2011b. Five-rules-for-executiveproduct-leadership. Available at: http: leadonpurposeblog.com accessed July 9, 2011.

Schiffman, L.G.and L.L, Kanuk, 2000, Consumer Behavior. 7th ed. London: PrenticeHall International Ltd. Thompson, A.A, et al., 2010. Crafting and Executing Strategy: The Quest for Competitive Advantage, 17th ed. Boston: McGrawHill Irwin. Trieha, Utroq , 2014. Branding ‘Dagadu’, Inspirasi Tumbuhnya Bisnis Penjualan Kaos Oblong Khas Daerah. Available at: http://ensiklo.com/. Accessed at June 5, 2015. Wirausaha Online, 2014. Belajar Dari Kisah Sukses Kaos Dagadu. Available at: http:// menjadiwirausaha.com/. Accessed at June 5, 2015.

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APPENDIX

Observation number

Mahalanobis d-squared

p1

p2

82 3 1 53 29 33 80 78 5 35 57 42 58 89 40 73 39 54 96 94 25 85 52 31 12 97 48 72 86 6 18 100 98 41 65 62 63 8 84 95 76 64 67 74 9 27 36 19 44

36,968 34,887 34,389 33,980 30,264 29,879 28,646 22,322 20,677 20,200 20,056 18,793 17,679 17,147 16,696 16,198 14,771 14,284 14,192 13,767 13,727 13,698 12,808 12,674 11,855 11,382 11,033 10,732 10,685 10,410 10,004 9,986 9,905 9,761 9,658 9,561 9,443 9,230 8,968 8,727 8,671 8,661 8,600 8,455 8,397 8,396 8,119 7,919 7,632

0.000 0.000 0.000 0.000 0.001 0.001 0.001 0.014 0.023 0.027 0.029 0.043 0.061 0.071 0.081 0.094 0.141 0.160 0.164 0.184 0.186 0.187 0.235 0.242 0.295 0.329 0.355 0.379 0.383 0.405 0.440 0.442 0.449 0.462 0.471 0.480 0.491 0.510 0.535 0.558 0.564 0.565 0.570 0.585 0.590 0.590 0.617 0.637 0.665

0.006 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.001 0.000 0.000 0.001 0.007 0.011 0.015 0.025 0.236 0.336 0.282 0.378 0.304 0.234 0.582 0.561 0.864 0.944 0.972 0.985 0.979 0.989 0.997 0.995 0.994 0.995 0.995 0.994 0.994 0.997 0.999 0.999 0.999 0.999 0.998 0.999 0.998 0.997 0.999 1.000 1.000

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Observation number

Mahalanobis d-squared

p1

p2

46 20 91 2 34 92 71 45 30 23 51 59 56 87 10 37 61 26 32 38 17 55 15 16 90 49 7 83 66 75 11 14 24 50 13 43 60 68 77 47 79 28 4 70 81 22 99 88 93 69 21

7,532 7,458 7,427 7,276 7,143 7,131 7,028 6,862 6,776 6,726 6,722 6,675 6,652 6,624 6,620 6,614 6,552 6,537 6,254 6,208 6,065 5,641 5,562 5,391 5,288 5,262 5,218 5,046 4,939 4,862 4,774 4,303 4,161 4,102 3,953 3,783 3,551 3,265 3,225 3,186 3,143 2,988 2,814 2,702 2,702 2,561 2,359 2,124 1,837 1,782 1,706

0.674 0.682 0.685 0.699 0.712 0.713 0.723 0.738 0.746 0.751 0.751 0.756 0.758 0.760 0.761 0.761 0.767 0.768 0.793 0.797 0.810 0.844 0.851 0.864 0.871 0.873 0.876 0.888 0.895 0.900 0.906 0.933 0.940 0.943 0.949 0.957 0.965 0.974 0.976 0.977 0.978 0.982 0.985 0.988 0.988 0.990 0.993 0.995 0.997 0.998 0.998

1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.999 0.999 0.998 0.996 0.995 0.991 0.997 0.996 0.997 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.999 0.999 0.999 0.998 0.978 0.830

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Sample Covariances (Group number 1)

PL PQ PV SN Ab ev b MC NB IB

PL

PQ

PV

SN

Ab

ev

b

MC

NB

IB

3,597 2,394 1,816 28,072 35,096 1,466 1,808 1,206 1,439 0.577

6,048 2,942 40,374 48,612 2,133 2,396 1,902 1,899 1,704

3,988 26,086 38,888 1,657 1,914 1,188 1,181 1,166

1,329,980 655,620 29,538 33,980 62,124 70,686 30,156

1,102,000 50,484 55,860 30,872 33,768 25,318

2,598 2,352 1,401 1,531 1,291

3,080 1,616 1,774 1,114

3,416 2,915 1,560

4,322 1,624

4,174

Condition number = 42,205,720 Eigenvalues 1,895,573 553,892 4,937 3,488 1,942 1,8290.9080.4530.1370.045 Determinant of sample covariance matrix = 162,084,353

Journal of Indonesian Economy and Business Volume 30, Number 2, 2015, 173 – 182

DOES ECO-EFFICENCY REDUCE THE COST OF EQUITY CAPITAL? EMPIRICAL EVIDENCE FROM INDONESIA Lisa Alviani Directorate of Taxation Ministry of Finance, Republic of Indonesia ([email protected]) Mahfud Sholihin Faculty of Economics and Business Universitas Gadjah Mada ([email protected])

ABSTRACT The objective of this study is to examine the effect of eco-efficiency on the cost of equity capital. The study hypothesizes that the implementation of eco-efficiency reduces the cost of equity capital. Using manufacturing companies listed on the Indonesian Stock Exchange for the period 2010-2012 as data, and controlling for beta, company size, Book to Market ratio, and leverage; the study finds that the implementation of eco-efficiency may reduce the cost of equity capital. The findings suggest that companies should implement ecoefficency. Keywords: cost of equity capital; eco-efficiency; ISO 14001; environmental accounting

INTRODUCTION The World Business Council for Sustainable Development (WBCSD) defines eco-efficiency as the provision of goods and services at competitive prices that satisfy the needs and improve the quality of human life, as well as progressively reduce the impact on the environment and reduce the intensity of resource usage to a minimum (WBCSD, 2000). Bran et al. (2011) suggested that reducing water consumption, energy consumption, and the amount of waste generated would reduce the costs incurred by a company. Reduction in water consumption and waste that are accompanied by stability or improvements in production will increase efficiency and improve the environmental performance of a company. Several studies have investigated the ecoefficiency concept and its influence on companies that implement it. Guenster et al. (2006) found that eco-efficiency had a positive effect on the economic performance and value of companies in the United States. Likewise, research conducted by Sinkin et al. (2008) revealed that increasing the effectiveness of

business processes and simultaneously reducing the environmental impact increased the value of US companies. Al-Najjar and Anfimiadou (2012) conducted a study in the UK and found that companies with eco-efficiency benefited from it over their competitors who did not employ it, and also enjoyed better access to capital, which therefore increased their value. Previous research examining eco-efficiency had been more oriented towards investigating the benefits of eco-efficiency that increased the value of the firm. Hansen and Mowen (2007) argued that one of the advantages of implementing eco-efficiency was that the company which implement it would have a lower cost of capital. However, this proposition, to the best of our knowledge, has never been tested empirically, particularly in developing countries. Therefore, the objective of this study is to examine the effect of eco-efficiency on the cost of equity capital for companies listed on the Indonesian Stock Exchange. This study differs from previous research related to ecoefficency because this study was

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conducted in a developing country, namely Indonesia. Indonesia was chosen because it is a country with a relatively poor environmental performance, ranked 112th out of 178 in the World, and whose environmental performance index was 44.36 on a scale of 100 in 2013 (Yale University, 2014). In addition, Indonesia's capital market is one that is still developing and investors have not been fully able to respond to disclosures made by companies in their annual reports (Utami, 2005). We selected manufacturing companies as our samples because data from Greenpeace Indonesia indicated that waste from the manufacturing sector was now out of control, causing long-term damage to human health and the environment (Greenpeace Indonesia, 2012). Another reason why we selected manufacturing companies was because the sector accounts for the largest contribution to Indonesia’s Gross Domestic Product (GDP). Manufacturing accounts for 23.94 % of the total GDP in Indonesia (BPS, 2013). Using a sample of manufacturing companies listed on the Indonesian Stock Exchange from 2010 to 2012, this study provides evidence that eco-efficiency is able to lower the cost of equity capital. That is, companies that implement ecoefficiency have a lower cost of equity capital than companies that do not implement it. The next part of this study will be the literature review and the development of the hypothesis. After that, the method will be presented, followed by the results of the research. This article closes with conclusions, limitations, and suggestions for future research. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT The Concept of Eco-efficiency WBCSD (2000) explains that eco-efficiency is a business concept because eco-efficiency talks about the language of business, i.e. ecoefficiency will generate good business by increasing production efficiency. The aims of eco-efficiency are: (1) To reduce the consumption of natural resources, including minimizing the use of energy, raw materials,

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water, and soil; (2) to reduce the negative impacts of business on the environment, including minimizing pollution of the air and water, reducing waste, and reduce the spread of toxic substances; (3) to increase the value of products or services by providing more benefits to consumers related to the functionality, flexibility, and shape of the products, and to provide goods or services desired by the consumers. This means consumers will have the same benefits but with fewer raw materials and resources. The concept of eco-efficiency has also been highlighted by Bran et al. (2011) who suggested that it was the improved efficiency and environmental performance of the company. This efficiency resulted from increased production stability and was accompanied by cost reduction results from reduced water consumption, energy consumption, and a reduction in the amount of waste generated by companies. According to Hansen and Mowen (2007), eco-efficiency meant that organizations could produce more profitable goods and services while at the same time reducing their negative environmental impact, resource consumption, and costs. Further they added that eco-efficiency had implications for the increase in efficiency which came from improved environmental performance. According to them, there were several causes and incentives for the efficient use of natural resources, including : (1) Customers want products that are cleaner, that is products that are produced without harming the environment; (2) employees prefer to work in a company that is environmentally responsible so this will result in greater productivity; (3) a company acting responsibly towards the environment tends to obtain external benefits, such as lower costs of capital and insurance; (4) good environmental performance can generate significant social benefits; (5) focusing on improving the environmental performance creates a desire in managers to innovate and explore new opportunities; (6) a reduction in environmental costs can create a competitive advantage. Eco-efficiency can be measured in several ways. The WBCSD (2000) measures eco-

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efficiency by dividing the value of the product or service by the environmental impacts. The value of the product is the quantity of products or services produced and the environmental impact is the consumption of energy, raw materials and water, as well as greenhouse gas emissions produced by the company. Sarkis and Talluri (2004) introduced a model for eco-efficiency measurement that compared energy usage with energy inputs (raw materials), labor inputs, sulfur emissions, nitrogen emissions, and carbon dioxide emissions, with the following formula: Ek =

UEk EN k + Lk + SOk + NOk + COk

Ek is the value of efficiency, UEk is usable energy, ENk is energy inputs (raw materials), Lk is labor inputs, SOk is sulfur emissions, NOk is nitrogen emissions, and COk is carbon dioxide emissions. In addition to measures used by the WBCSD (2000) and Sarkis and Talluri (2004), Sinkin et al. (2008) provided an alternative eco-efficiency assessment that was straight forward. They used the acquisition of ISO 14001 certification for assessing whether eco-efficiency was carried out by the company. Sinkin et al. (2008) used this valuation because the objectives of ecoefficiency corresponded to the objectives of ISO 14001. This measurement was the same as the one used by Marshall and Brown (2003) and AlNajjar and Anfimiadou (2012). Eco-efficiency and Legitimacy Theory The legitimacy theory states that an organization or company must ensure that their operations are carried out in accordance with the norms upheld by society. In addition, the organization must determine whether their activities will be accepted by society or other external parties (Deegan and Rankin, 1996). Dowling and Pfeffer (1975) in Ghozali and Chariri (2007) suggested that the legitimacy theory was very useful to an organization because it could be used to analyze organizational behavior. The legitimacy theory states that a company will not

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have legitimacy if the activities that it carries out are not appropriate or they differ from the prevailing values in the community. This difference is called the legitimacy gap. A legitimacy gap can affect the performance of a company. Therefore, the gap must be reduced by identifying and reducing the activities that differ from the community's values . Based on the legitimacy theory, it can be argued there is a likely relationship between eco-efficiency and the cost of equity capital. That is, companies with better eco-efficiency face less legal risks because the legitimacy gap between the company and the community's values is small (Waddock and Graves, 1997 in El-Ghoul et al., 2011), hence, reducing the cost of equity capital. This is consistent with Feldman et al. (1997) who argued that a company having good environmental performance will also experience a small legitimacy gap, thus reducing the risk that must be accepted by the investor (Feldman et al., 1997 in El-Ghoul et al., 2011). Meanwhile, companies that have a poor environmental performance will make investors want high returns to compensate for the risk that they take. This causes the company's cost of equity capital to increase (Heinkel et al, 2001). Previous relevant studies and hypothesis Much research on eco-efficiency and its effects has been carried out. In their research, Guenster et al. (2006) found that eco-efficiency had a positive effect on the economic performance of companies in the United States. In their study, eco-efficiency was measured using the values developed by Innovest Strategic Value Advisors. Data from Innovest Strategic Value Advisors used more than 60 quantitative and qualitative criteria to measure ecoefficiency. The results of the study by Guenster et al. (2006) stated that companies with ecoefficiency had a higher Return on Assets (RoA) and market value. Sinkin et al. (2008) showed that increasing the effectiveness of business processes and simultaneously reducing the environmental impact would increase the value of the US companies. They used ISO 14001 as a proxy to

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measure the eco-efficiency of the company. Companies that acquired the ISO 14001 certification were given the value of 1, while companies that did not receive the ISO 14001 certification were those companies without ecoefficiency and they were given the value of 0. The results showed that companies with ecoefficiency had a higher value compared to companies without eco-efficiency. Al-Najjar and Anfimiadou (2012) obtained similar results to those obtained by Sinkin et al. (2008). The difference between the research by Al-Najjar and Anfimiadou (2012) and the research conducted by Sinkin et al. (2008) was the samples. Al-Najjar and Anfimiadou (2012) conducted their study in the UK. Measurements of eco-efficiency in their research used only the ISO 14001 requirements. Companies that obtained ISO 14001 were those with ecoefficiency. The results of these studies showed that eco-efficiency increased the value of the firms. In addition to research on eco-efficiency and its effect on company value, previous research related to this study is research into the cost of equity capital. For example, Botosan (1997) investigated the effect of disclosure on the cost of equity capital. The results showed that the more voluntary disclosure there was, the lower the cost of equity capital. This was due to voluntary disclosure reducing information asymmetry. Subsequent research was conducted by El-Ghoul et al. (2011). They argued that a company with a higher value in terms of Corporate Social Responsibility (CSR) had a lower cost of equity capital. That is, investments made to improve employee relations, environmental policies, and better product strategies, would reduce the cost of equity capital. Their research took its sample from companies in the United States. The cost of equity capital was measured using a version of the Ohlson Model (1995) which had been modified by Botosan (1997). Mangena et al. (2012) found that the disclosure of intellectual capital negatively affected the cost of equity capital. A company with a higher level of disclosure of intellectual capital had a lower cost of equity capital than a

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company with a low level of disclosure of intellectual capital. Disclosure of intellectual capital would reduce information asymmetry and thus lower the company's cost of equity capital. Mangena et al. (2012) used a Price-earnings Growth Model to measure the cost of equity capital. This study used a sample of companies in the UK. There has been research on the cost of equity capital in Indonesia, such as that carried out by Utami (2005). This study found that earnings management had a positive effect on the cost of equity capital. Utami (2005) used the Ohlson Model (1995) which had been adapted to the data available in Indonesia for measuring the cost of equity capital of the country’s manufacturing companies. Research on investor attitudes towards environmental disclosure had been conducted by Jacobs et al. (2008). They suggested that investors responded differently to the disclosure of environmental information. Investors tended to respond to the company's announcement of environmental awards and third party certification rather than to the company's own disclosures regarding the environment. Given those studies, we hypothesize: Ha1: The implementation of eco-efficiency has a negative effect on the company's cost of equity capital. RESEARCH METHOD Variables and their Measurements In this study, the independent variable was eco-efficiency and the dependent variable was the cost of equity capital. Based on research by Botosan (1997) and Mangena et al. (2010), this study incorporates: The risk sensitivity of the stock (BETA) which was measured using weekly stock returns data; company size (SIZE) which was measured using market capitalization; Book to Market ratio (BtM) which was calculated by dividing the book value by the market value; and the level of corporate debt (LEV) which was calculated using the total debt divided by the total assets as control variables.

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Consistent with the research conducted by Marshall and Brown (2003), Sinkin et al., (2008), and Al-Najjar and Anfimiadou (2012), eco-efficiency in this study was measured using ISO14001 which is a standard that is used to recognize a company's environmental management system. A company that was ISO 14001 certified was deemed to be a company with ecoefficiency and coded 1, while companies that were not ISO 14001 certified were ones without eco-efficiency and coded 0. The dependent variable in this study was the cost of equity capital. Cost of equity capital is the portion needed to satisfy the investors or the minimum rate of return on capital, which must be produced by the company in excess of the funds that have been invested. Following previous studies in Indonesia (Utami, 2005), we used the Ohlson model (1995) which had been modified using the Formula : r = (Bt + Xt+1 – Pt) / Pt r is the cost of equity capital, Bt is the book value per share period t, Xt +1 is the earnings per share in period t +1, and Pt is the stock price at period t. The Ohlson Model (1995) used forecast earnings per share which are calculated by analyzing the assessed earnings per share in period t +1. In Indonesia, such data were not available, so Utami (2005) used a random walk model for estimating earnings per share in period t +1. The basis for using the random walk model was the study conducted by Rini (2002) and Qizam (2001). Those studies concluded that the behavior of profits in Indonesia followed the random walk model. Sample The sample of this study was manufacturing companies listed on the Indonesian Stock Exchange during the period from 2010 to 2012. Samples were taken from all the companies listed on the Indonesian Stock Exchange using the purposive sampling method. Selected samples had the following criteria:

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a. It was a manufacturing company whose shares were listed on the Indonesian Stock Exchange in 2012. b. It published an Annual Report during the study period (2010 to 2012) which included financial statements. c. It had a fiscal year that ended on the 31st of December. d. It had not been delisted from the Stock Exchange during the period of the study (2010 to 2012). e. It had a positive equity value during the study period (2010 to 2012). The data were taken from the companies’ financial reports published by the Indonesian Capital Market Directory. Market capitalization value, the book value per share, and the stock price were obtained from the IDX Fact Book. To test the hypothesis we used the following model; CoEit = α + β 1 ECO it + β 2 BETAit +

β 3SIZEit + β 4 BTM it + β 5 LEVit + e it where : CoEit : Cost of equity of company in period t, measured by book value per share period t plus earnings per share in period t+1 minus stock price at period t and then divided by stock price at period t, ECOit : Eco-efficiency of company i in period t, measured by a dummy variable set to 1if a company had ISO 14001 and 0 without it, BETAit : Sensitivity to the market share of company i in period t, measured using weekly stock return data, SIZEit : Size of company i in period t, measured using natural log of assets, BMTit : Book to Market ratio of company i in period t, LEVit : Leverage of company i in period t, measured as the ratio of total debt to total assets), and : Error estimate eit

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Results and Discussions Using predefined criteria, this study yielded data from 64 companies (see table 1). Hence we had a pool of 192 firms-year data. Table 1. Number of Sample No.

Criteria

Amount

1

Manufacturing companies whose shares are listed on the Stock Exchange in 2012.

118

2

Manufacturing companies that published Annual Reports during the study period (2010-2012) and include financial statements.

77

3

Companies with a financial year ending 31st of December.

77

4

Companies that were not delisted from the Stock Exchange during the study period (2010-2012).

71

5

Companies with positive equity value during the study period (2010-2012).

64

The final amount of the sample

64

The results of the descriptive statistics for dependent, independent, and control variables 1 are presented in Table 2. The eco-efficiency variable is a dummy variable and it is measured by the acquisition of ISO 14001 certification. Companies that have an ISO 14001 certificate have a value of 1 and are deemed to be companies with eco-efficiency, while companies that are not ISO 14001 certified have a value of 0 and are deemed to be companies without eco-efficiency. Descriptive analysis for the eco-efficiency variable was indicated by the frequency of occurrence of the value 1 or 0. Table 3 shows the number of companies which had acquired ISO 14001 certification during the period 2010-2012. Prior to the regression test, the classical 2 assumption test was carried out. The results 1

2

Utami (2005 ) suggested that the negative sign in the CoE meant investors got a negative return , or it can be said investors bore losses on the investments that they made . This is because the company's book value plus the profit estimation was smaller than the company's stock price. In analyzing data we use a Pooled Least Square model (PLS) instead of a Fixed Effect Model (FEM) or Random Effect Model (REM) with the assumption that the constant between periods are the same and the unobserved effects are ignored.

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showed that the classical assumptions were not violated. The regression test results are displayed in Table 4. Table 4 shows that eco-efficiency has a coefficient value of -0.119 with a significance level of 0.026. These results indicate that ecoefficiency had a significant negative effect on the cost of equity capital. This means that ecoefficiency implemented by companies helped the companies in reducing their cost of equity capital. With regards to control variables, table 4 shows that only one control variable, that is the BtM ratio, significantly affected the cost of equity capital with a coefficient of 0.693 and a significance level of 0.000. The other control variables, i.e. risk sensitivity of the stock, company size, and the level of corporate debt do not significantly affect the cost of equity capital. This is different to the findings of Botosan (1997) and Mangena et al. (2010) who found that the risk sensitivity of the stock, the company’s size, and the level of corporate debt significantly affected the cost of equity capital. DISCUSSION The results of this study indicated that the independent variable, eco-efficiency, proxied using the acquisition of ISO 14001 environmental management certification, had a significantly negative effect on the cost of equity capital. The results demonstrated empirically that one of the benefits of eco-efficiency is that a company can gain a lower cost of equity capital. This supports the argument made by Hansen and Mowen (2007). The results of this study are consistent with previous studies showing that eco-efficiency has a positive effect on the market value of the company (Guenster et al., 2006; Sinkin et al., 2008; Al-Najjar and Anfimiadou, 2012). The increased value of the company, as measured using its stock price, will lower the cost of equity capital. By way of these results, it can be proved that eco-efficiency negatively affects the cost of equity capital for manufacturing companies in Indonesia.

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Table 2. Descriptive Statistics of Variables Studied Minimum BtM Beta LnSize Lev CoE N = 192

Maximum

Average

2.93 196.15 12.64 0.88 4.49

1.02 2.23 6.86 0.47 0.11

0.01 -15.20 3.22 0.04 -1.28

Standard Deviation 25% Quartile 75% Quartile 0.71 14.62 2.18 0.19 0.81

0.3883 0.00 5.47 0.32 -0.56

1.5575 1.19 7.87 0.63 0.53

Table 3. Number of Companies with and without ISO 14001 Certification 2010 ISO 14001 18

No ISO 14001 46

2011 ISO 14001 21

2012

No ISO 14001 43

ISO 14001 26

No ISO 14001 38

Table 4. Regression Results Variable (Constant) ECO BtM Beta LnSize Lev F-test Sig. R EMBED Equation.3 Adjusted R EMBED Equation.3

Unstandardized Coefficients -0.555 -0.198 0.785 -0.001 -0.013 0.043

The results of this study demonstrated that good environmental performance, which is reflected by the acquisition of ISO 14001, may reduce the risk borne by the investor. Investors respond to the disclosure of a company's ISO 14001 Environmental Management certification and they are more likely to invest in companies with such certification. The more investors there are and the higher the stock prices are, the lower the cost of equity capital for companies with eco-efficiency is likely to be, as compared to those without it. This is consistent with the findings of Jacobs et al. (2008) who stated that investors respond to the announcements by companies regarding environmental awards and certifications issued by third parties. The results of this study are quite surprising because investors in the Indonesian Stock Exchange, which is,

Standardized Coefficients -0.116 0.687 -0.014 -0.036 0.010

t -2.351 -2.174 11.429 -0.281 -0.575 0.209

Sig. 0.020 0.031 0.000 0.779 0.566 0.834 50.609 0.000 0.576 0.565

in fact, still a developing capital market, are capable of responding to the disclosure of the ISO 14001 Environmental Management certification which results in a cost of equity capital that is lower for companies that implement ecoefficiency. CONCLUSIONS, SUGGESTIONS

LIMITATIONS

AND

The primary objective of this study was to examine the effect of eco-efficiency on the cost of equity capital for companies listed on the Indonesian Stock Exchange. The results demonstrated empirically that eco-efficiency, as measured by the acquisition of ISO 14001 Environmental Management certification, and having this certification has a significant negative effect on the company's cost of equity capital. This

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means that companies that implement ecoefficiency had a cost of equity capital lower than companies without eco-efficiency. These results are consistent with the argument by Hansen and Mowen (2007) which stated that one of the benefits of eco-efficiency was that a company could gain a lower cost of equity capital. Therefore, based on the findings we suggest that companies should implement the eco-efficiency paradigm as this may reduce their costs of equity capital. The results of this study indicate that investors evaluate companies which, because of ecoefficiency, are expected to pose low environmental risks and so are more trusted by those investors as they look to make their investments. This reduces the cost of equity capital for companies compared to those without eco-efficiency. In addition, the results of this study indicate that investors in Indonesia are able to respond to the disclosure of ISO 14001 Environmental Management certification. These results are consistent with the findings of Jacobs et al. (2008) which stated that investors respond to company announcements regarding environmental awards and certification from third parties. Nevertheless, this study has limitations which must be borne in mind when interpreting the results and which can become considerations for subsequent research in order to obtain better findings. These limitations include the following. First, this study only used the acquisition of ISO 14001 Environmental Management certification to measure eco-efficiency in terms of its effect on the cost of equity capital. Future studies could be validated by using other tools to measure eco-efficiency. Second, this study only examined the effect of eco-efficiency on the cost of equity capital, instead of examining the influence of the cost of capital in a comprehensive way. Future studies could develop this research by incorporating other types of cost of capital. Third, the cost of equity capital was measured using a modified version of the Ohlson Model (1995). Future studies could test this study by using a different measure of the cost of equity. Fourth, the data used by this study were only from the financial reporting period 2010-2012. This was due to limitations of the data obtained

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from the Indonesian Stock Exchange. Future studies could use data from longer periods. Fifth, the financial statement data used in this study had not been prepared in accordance with International Financial Reporting Standards (IFRS). Future studies could conduct the test using data from financial statements that are already IFRS compliant. Regardless of these limitations, this study has provided preliminary evidence that the application of eco-efficiency can lower the cost of equity capital. REFERENCES Al-Najjar, B., & Anfimiadou, A. (2011). Environmental Policies and Firm Value. Business Strategy and the Environment, Vol. 21, 49-59. BPS (Badan Pusat Statistik): Pendapatan Domestik Bruto. (2013). Available at: http://www.bps.go.id/brs_file/pdb_05feb13. pdf accessed November 24, 2013. Bran, F., Radulescu, C. V., & Ioan, I. (2011). Measures of Environmental Performance. Review of International Comparative Management , 893-900. Botosan, C. (1997). Disclosure Level and The Cost of Equity Capital. The Accounting Review, Vol. 40, No.1 : 223-349. Clarkson, P. M., Overell, M. B., & Chapple, L. (2011). Environmental Reporting and its Relation to Corporate Environmental Performance. Abacus: A Journal of Accounting, Finance, and Business Study, Vol. 47, 2760. Deegan, C., & Rankin, M. (1996). Do Australian Companies Report Environmental News Objectively?: An Analysis of Environmental Disclosures by Firms Prosecuted Successfully by The Environmental Protection Authority. Accounting, Auditing & Accountability Journal, Vol. 9, No. 2: 50-67. De Francia, J. Canon & C. Garces-Ayerbe. (2006). ISO 14001 Environmental Certification: A Sign Valued by Market?. Springer: Spain. Drake, P. P. (2011). Dividend Valuation Models. Available at: http://educ.jmu.edu/~drakepp/ FIN362/resources/dvm.pdf. Accessed Januari 15, 2014,

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Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2010). Multinational Business Finance. Boston: Pearson Education, Inc. BIBLIOGRAPHY \l 1057 El-Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does Corporate Social Responsibility Affect the Cost of Capital? Journal of Banking & Finance, Vol. 25, 2388-2406. Environmental Performance Index and Pilot Trend Environmental Performance Index.(2012). in http://www.epi.yale.edu/. Accessed Monday, 6 Januari 2014. Fact Book 2011.pdf. Available at: http://www. idx.co.id/. Accessed Friday, 15 November 2013. Fact Book 2012.pdf. Available at: http://www. idx.co.id/. Accessed Friday, 15 November 2013. Fact Book 2013.pdf. Available at: http://www. idx.co.id/. Accessed Friday, 15 November 2013. Ghozali, I. and Chariri, A. (2007). Teori Akuntansi. Semarang: Badan Penerbit Universitas Diponegoro. BIBLIOGRAPHY \l 1057 Guenster, N., Derwall, J., Bauer, R., Koedijk, K. (2006). The Economic Value of Corporate Ecoefficiency. Rotterdam: Erasmus University. Gujarati, D. N., dan D. C. Porter. (2009). Basic econometrics international edition (5th Ed). New York: McGraw-Hill Companies. Hansen, D. R., & Mowen, M. M. (2007). Managerial Accounting. Mason: South-Western Cengage Learning. Irawan, R. & Murhadi, W. R. (2012). Analisis Pengaruh Three Factor Model dan Persentase Kepemilikan Asing Terhadap Tingkat Return di Bursa Efek Indonesia. Available at: http://www.academia.edu/3173848. Accessed Thursday, 9 Januari 2014. Jacobs, W. B., Singhal, R. V., Subramanian, R. (2008). The Economic Value of Corporate Eco-efficiency. Atlanta: Georgia Institute of Technology. Mangena, M., Pike, R. Li, J. (2010). Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence. Edinburgh: The Institute of Chartered Accountants of Scotland.

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BIBLIOGRAPHY \l 1057 Mardiyah, A. A. (2002). Pengaruh Informasi Asimetri dan Disclosure terhadap Cost of Capital. The Indonesian Journal of Accounting Research , 229-256. Marshall, R., & Brown, D. (2003). Corporate Environmental Reporting: What's in a Metric? Business Strategy and The Environment, Vol. 12, 87-106. BIBLIOGRAPHY \l 1057 Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance, and The Theory of Investment. The American Economic Review , 261-297. BIBLIOGRAPHY \l 1057 Rini, W. (2002). Pengaruh Model Mekanik, Ukuran Perusahaan, dan Rasio Ungkitan pada Ketepatan Prakiraan Laba. Paper presented in Simposium Nasional Akuntansi 5. Semarang. BIBLIOGRAPHY \l 1057 Saha, A. K., & Akter, S. (2013). Relationship Between Environmental Reporting in Corporate Annual Report & Corporate Profitability in Bangladesh. Global Conference on Business and Finance Proceedings , 75-86. BIBLIOGRAPHY \l 1057 Sarkis, J., & Talluri, S. (2004). Eco-efficiency Measurement Using Data Envelopment Analysis: Research and Practitioner Issues. Journal of Environmental Assessment Policy and Management , Vol. 6, No. 1: 91–123. BIBLIOGRAPHY \l 1057 Sekaran, U., & Bougie, R. (2010). Research Method for Business. United Kingdom: John Wiley & Son. Setyorini, C. T., & Ishak, Z. (2012). Corporate Social and Environmental Reporting: A Case of Mimetic Isomorphism. American International Journal of Contemporary Research , Vol. 2, No. 5: 11-17. BIBLIOGRAPHY \l 1057 Sinkin, C., Wright, C. J., & Burnett, R. D. (2008). Eco-efficiency and Firm Value. Journal of Accounting and Public Policy, Vol. 27 , 167-176. Sistem Manajemen Lingkungan - Persyaratan dan Panduan Penggunaan.pdf. Available at: http://www.sni.go.id/. Accessed Friday, 18 Oktober 2013. Suryaningsih, Ika. 2011. Pengaruh Kinerja Lingkungan Berbasis ISO 14001 dan Pengungkapan Informasi Lingkungan Sukarela

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terhadap Kinerja Ekonomi (Studi Empiris Perusahaan Pertambangan dan Energi yang Tercatat di Bursa Efek Indonesia). Unpublished Undergraduate Thesis. FEB UGM. Yogyakarta Sutrisno. (2005). Manajemen Keuangan Teori, Konsep, dan Aplikasi. Yogyakarta: Ekonisia. BIBLIOGRAPHY \l 1057 BIBLIOGRAPHY \l 1057 BIBLIOGRAPHY \l 1057 Utami, W. (2005). Pengaruh Manajemen Laba terhadap Biaya Modal Ekuitas

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(Studi pada Perusahaan Publik Sektor Manufaktur). Paper presented at Simposium Nasional Akuntansi VIII, Solo. BIBLIOGRAPHY \l 1057 Weston, J. F., & Brigham, E. F. (1972). Managerial Finance 4th edition. San Diego: Harcourt Brace. World Business Council for Sustainable Development Report. (2000). Ecoefficiency: Creating More Value with Less Impact. Available at: http//www.wbcsd.org.

Journal of Indonesian Economy and Business Volume 30, Number 2, 2015, 183 – 186

Book Review: THE BUSINESS SOLUTION TO POVERTY: DESIGNING PRODUCTS & SERVICES FOR THREE BILLION NEW CUSTOMERS Rika Fatimah Panjaitan Lanovara Faculty of Economics and Business Universitas Gadjah Mada ([email protected])

Business, in the hands of Paul Polak (winner of the world’s “27 Brave Thinkers” award along with Steve Jobs & Barack Obama) and Mal Warwick (founder and chairman of MalWarwickDonordigital, and one of three partners in One World Football Project LLC), is beautifully described, not only as conventional commercial activities but also a movement to act in a global perspective. Making or intending to make profits is the nature of business. Profit is another word in business for generating more money than you spent. In contrast, poverty is like a different side of the coin for business. As Polak & Warwick said “Poor people themselves tell us that the main reason they are poor is that they don’t have enough money”. Before opening the book, and only having read the title, the reader should instantly be provoked to think ‘how come?’ Even more of a contradiction is the sub-title of “…designing products and services for three billion new customers” so the next question is ‘who are these new customers? The poor? They don’t have money? Doing business for those who don’t have money? This is how Polak & Warwick successfully play around with the reader’s attention from the very beginning, even before the reader opens the first page of the book! Flawless story telling is how this book is presented, both with its clear description of the ‘cast’ and the ‘scene’. Polak & Warwick, the authors, initiate personal moments of truth for their readers through a story of how business can be a powerful way of solving the issue of poverty. The preface of the book is by indicated

reader as one of the cast in the story. Entrepreneur or investor, executive at a major transnational corporation, eyewitness to severe poverty, development practitioner, designer of products and services, teacher or student in a graduate or undergraduate course, philanthropist or impact investor, concerned citizen, and those who simply want a better understanding of what life is like in poor countries are the ‘cast’ that will play their own parts in the book. Next, after the introduction of the cast, three major ‘scenes’ (parts of the book) are “Only Business Can End Poverty”; “Zero-Based Design and the Bottom Billions”, and “Opportunities Abound”. Researchers, policy makers, and the common reader can literally drown in the first scene. Industry players, innovators, and investors would be likely to pass over the first scene and jump into the second and third scenes. The first scene can be referred to as where the ideas of the business power movement are illustrated. Here, for a book reviewer who comes from one of the poor countries (as referred to in this book), is daring how developed countries, such as where the authors come from, felt the need to describe what ‘poor’ is really like. Apart of the Global South having richer resources such as its diversity in cultures, strong community values, local wisdom, rich in natural resources, and other things compared to those in the Global North (the “West”), the authors’ efforts seem to try to influence readers on how those ‘other rich’ step aside. Furthermore, it also clearly shows how the authors set the boundaries by having the sub-topic of “The Poor are Very Different from

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You and Me”. How is this, if in the United States, the author clearly expresses “…where virtually all the ‘poor’ live in homes with running water, electricity, indoor plumbing, and refrigerators, and many own cars, color TV sets, smart phones,…”? How the authors bring the new jargon of the ‘Global South’ as a term that transcends geography and refers to the generally less-developed, low income countries typically classified as ‘developing nations’, ‘underdeveloped countries’, and ‘emerging nations’….”. How the authors aim for the 2.7 billion who live on $2 as the new customers. Locations given for these ‘new’ customers are concentrated in just four areas. First is the Indian subcontinent (including India, Pakistan, Bangladesh, Nepal, Bhutan, and Sri Lanka) with an estimated 900 million poor people. Next with 700 million more is Southeast Asia (Myanmar, Vietnam, Laos, Cambodia, Thailand, Malaysia, Indonesia, Papua New Guinea, and the Philippines). Another 500 million in sub-Saharan African countries and 300 million in China make the sum of the four areas 2.4 billion new customers, while the rest are distributed around the globe. It is a global approach in redefining poor people. The value of this book is in how the authors describe the one who should be the problem solver is most of the time the problem maker, “…a nightmare of clashing bureaucratic and political agendas, and the nominal subjects of their (governments) concerns, the poor, are usually forgotten”. Moreover, in the first scene of this book is a significant portrayal of Indonesia nowadays, as a warning for what might also be happening in other developing countries. A wake up call for “An Once Upon A Time” in Indonesia’s current situation is well portrayed in Chapter 3. It seems Indonesia is now in ‘a fairy tale story’ and the hope is, it will urgently wake up and catch up to the situation nowadays. Most of the things that the author uses for illustration are based on a global empirical base or namely ‘the past is history it already happened’ and ironically ‘is now happening’ under the current new government. Empirically, classical efforts that have been tried by governments, philanthropists and stakeholder-centered management

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(companies that operate in a socially and environmentally responsible manner) for over a decade have not had much success in solving the poverty issues, as indicated by the fact that there are more poor people today, about 2.7 billion, compared to 60 years ago when there were about 2.6 billion. Most conventional approaches did everything but help poor people get out of poverty. Four reasons for the failure to improve the lot of the poor are now being seen in Indonesia. These four are the ideas for an economic method, community development, microcredit, and social enterprise. Economic methods can be seen as indirect methods by making improvements around the poor but not for the poor themselves. Economic development seems to consider that if GDP is growing, then building infrastructure, transferring massive amounts of foreign aid, and exporting rich-nation goods and services will eventually improve things for the poor. Community development, as run by NGOs, mostly faces fund raising problems and programs on offer to the poor still treat poor people as objects of pity rather than to lift up the poor from inside-out of each individual poor person to dignity. Microcredit practices tend to be misused, the poor who apply for loans do so not to use them to build up their businesses, but for consumption spending. Social enterprises operate in a small and scattered manner, therefore are unable to make a significant impact to end or reduce poverty. Having portrayed all the above in the first scene of the book, it then roles out hope that a new approach described in the second scene might provide Indonesia and other Global South nations with a solution to their poverty. In the perspective of industrial management, what the authors bring is not an innovative way. The authors were too optimistic in using ‘designing products and services’ as the sub-title of the book. The lack of a technical approach, variability and production processes are discussed in detail. Even though the authors claim to see industrial management in the perspective of its social aspect, the ‘design’ process is not presented as one would have expected. Moreover, the authors also suggest that measurement is a

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less significant activity for SMEs to conduct, when such measurement processes are done with a view to ‘cost’ rather than ‘investment for continuous improvement’. One of the important aspects in designing new products or services is measurement. Some progress or failure or impact is needed to control, as well as monitor, as continuous feedback for improvement. Failure to execute measurement is like walking on water — no ‘foot print’ is left for anyone to follow! However, in proposing a new approach to implement business solutions to poverty, the zero-design based approach, the authors explicitly refer to measurement through repeated pilot tests which are needed to close the gap between the new products and services designed for prospective customers. Especially, the new customers are those whose buying power as an expensive matter for them. In addition, the authors perspectives of businesses which can stand on their own to solve global poverty is a contradiction, since humans are generally regarded as social creatures. It is natural for humans to seek a group rather than try to survive alone. Even though the authors demonstrate that the zerodesign based approach should be successful if done in collaboration with the poor directly, but without collaboration with governments, philanthropists and stakeholder-centered management. If the zero-design based approach can project success to solve global poverty, logically how about if it was then expanded for collaboration not only with the poor, but also with all elements in society? Should that not have a greater impact and produce a sustainable solution to poverty? Despite minor improvements in this book, how the new perspective of marketing and brand awareness for poor people is surely an innovative point of view. Conventional marketing and brand awareness is aimed mostly at wealthy people. Rarely are efforts made to grab the attention of poor people, because their buying power is limited or non-existent. However, when the authors describe how the bottom pyramid of markets work, where sellers aim for new customers who need to be handled differently from conventional ones, the zero-design based

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approach splits into six aspects. The first is about the company’s goal, meaning conventional business practices need to be let go of, and start to listen to the new customers. Next is designing for scale by aiming not for 10, 50 or a 100 sales per month, but 100 million per month. The third aspect is designing for a generous profit margin. The margin can be referred to as a good ratio of debt to equity; positive cash flow or a good amount of free cash flow. Next is pursuing ruthless affordability by fulfilling customers’ needs by investing in the cheapest and easiest production processes for the products and services. The fifth aspect of zero-design is designing for lastmile distribution by having the employees decentralized to bring the products and services as close to the remote areas where the poor live as possible. The last one is incorporating inspirational branding. In other words, to forget conventional branding awareness and move to a local and cultural approach. The cultural approach includes such things as folk-songs, theatre performances in the local language, customary local colours and logos, and other similar ideas. The reason to apply this cultural approach is because many of the poor are illiterate, with no means of communication such as the internet, telephone, television or other means, and insufficient infrastructure to link to outsiders, many of whom may not speak the indigenous language. I would like to recommend this book to policy makers, researchers, young entrepreneurs, future investors and government staff. Especially for those who live in the global south, it is a valuable contribution by Polak & Warwick to share the awareness that developing countries can be developed more quickly if business can be utilized as a movement to overcome poverty. It would be ideal if the Global South themselves realized that not only the power of business, but also the human factor (almost three billion people), with local wisdom and natural resources which can all be used to move out poverty once and forever. Especially for Indonesia, it’s a wake up call from ‘the once upon a time’ moment. Learning from the global empirical evidence and not implementing the ‘same failure’ in the

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future, should strategically place Indonesia as one of the significant players in Business Power Movement for Poverty!

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About the Authors

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ABOUT THE AUTHORS

Kamaazura Abu Bakar is a business and management lecturer at IKIP International College, Kuantan, Malaysia and has more than 10 years lecturing experience in business management, international business, entrepreneurship and marketing. She graduated from University Malaysia Terengganu (UMT) with her Ph.D, University Utara Malaysia (UUM) with her Masters Degree in Business Administration (MBA) and her Bachelor Degree in International Business Management (BIBM). She actively seeks opportunities and has publishes several articles in local and international journals. Mohd Shaladdin bin Muda is a Professor at University Malaysia Terengganu (UMT) and a Dean at the School of Maritime Business and Management, UMT. He is a Ph.D holder from the University of Lancaster, United Kingdom, has a Master of Business Administration degree (MBA) from the University of Southern New Hampshire and a Bachelor of Business Administration (BBA) degree from Indiana State University. His current teaching expertise is in operational management, human resources management and strategic management. Ahmad Munir bin Dato’ Mohd Salleh (Embat) is an Associate Professor at University Malaysia Terengganu (UMT). He graduated from University Malaysia Terengganu with his Ph.D, obtained his Master in Administration (Edu.) from University Putra Malaysia (UPM) and a Bachelor of Business Administration (Finance) degree from Southern Illinois University, in the United States. His current position is Deputy Chairman of the MBA

programme at University Malaysia Terengganu. Azlinzuraini binti Ahmad has almost 14 years of experience in teaching Human Resources Management and business subjects at University Malaysia Terengganu (UMT). She obtained her Doctorate of Philosophy from the University of Leeds and also graduated from University Putra Malaysia (UPM) with her Masters and Bachelors Degrees of Science (Agribusiness). Currently, she is actively supervising final year projects, for master’s and Ph.D students. To date she has published articles on national and international conference proceedings and has been involved in publishing the Business and Management Series Vol. 1 as the editor. Ruzita binti Manshor is a management lecturer at the Faculty of Business Management, IKIP International College, Kuantan, Malaysia. She finished her undergraduate programme in Business Studies and earned her Master of Management degree from University Utara Malaysia (UUM). Her main research interest is in organizational behaviour and leadership. Icuk Rangga Bawono is a lecturer at the Department of Accounting, Faculty of Economics and Business, Universitas Jenderal Soedirman (FEB UNSOED). He earned his Bachelors Degree in Accounting and Law from Universitas Jenderal Soedirman, and he finished his Masters Degree in Accounting from Universitas Gadjah Mada and Masters Degree in Law from Universitas Jenderal Soedirman. He pursues his Ph.D at Universitas Gadjah Mada. He specializes in public sector and

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local government financial management and has become a consultant at the Ministry of Finance and the Ministry of Home Affairs, Republic of Indonesia. He also publishes books and journal articles on local governments’ financial management. Abdul Halim is a Professor at the Department of Accounting, Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM). He earned his bachelor’s degree from Universitas Gadjah Mada, and he finished his master’s degree from Murray State University, Kentucky, USA and his Ph.D at Universitas Gadjah Mada. He earned his professorship from Universitas Gadjah Mada. Professor Halim specializes in local government financial management and has become an expert staff member at the Ministry of Finance, Republic of Indonesia. He also publishes books and journal articles on local governments’ financial management. Beverley R. Lord is an Associate Professor in the Department of Accounting and Information Systems, University of Canterbury, New Zealand. She earned her Bachelors and Masters of Commerce Degrees at the University of Canterbury, and her Ph.D at the University of Waikato, New Zealand. She researches and publishes book, journal and conference papers on management accounting, in particular on new management accounting techniques, management accounting in service and not-for-profit organizations, accounting history, accounting education, and accounting in various cultures. Said Jubran got his M.Acc., from the Master of Applied Accounting Program, Faculty of Economics, Universitas Gadjah Mada, Yogyakarta, Indonesia. He had also become Sumiyana’s assistant while they researched (i) Accounting Fundamentals and Variations of Stock Price: Methodological Refinement with a Recursive Simultaneous Model (2013), (ii) Accounting Funda-

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mentals and Variations of Stock Prices: Forward Looking Inducement (2011), and (iii) Accounting Fundamentals and Variations of Stock Prices: Factoring in the Investment Scalability (2010). He focuses his interests on behavioral research into information systems and technology. His hobbies are traveling, climbing, reading, and writing. His contact email: [email protected] Sumiyana is a lecturer in the Accounting Department, Faculty of Economics and Business (FEB), UGM. He was awarded his accounting doctoral degree from UGM (2011). Accounting theory, market-based accounting research, and technological information systems are his interests. He wrote some articles, the last three of them are (i) Accounting Fundamentals and Variations of Stock Price: Methodological Refinement with a Recursive Simultaneous Model (2013), (ii) Accounting Fundamentals and Variations of Stock Prices: Forward Looking Inducement (2011), (iii) Is There Insider Trading? An Examination of Merger and Acquisition Announcements in the Indonesian Stock Market (2010) (coauthored with Bambang Riyanto), (iv) Accounting Fundamentals and Variations of Stock Prices: Factoring in the Investment Scalability (2010), and (v) Assymetric Price Reaction: Evidence from Emerging Capital Market (2009) (co-authored with Slamet Sugiri). Additionally, he conducts social work – Gadjah Mada’s tri dharma motto – as an adviser for rural urban development. He also serves as a member of the board of directors in two state-owned companies in Yogyakarta. During his spare time, he also runs his personal business of cattlehusbandry in accordance with his hobby. His contact email: [email protected] Sigit Setiawan is a senior researcher at the Fiscal Policy Agency, Ministry of Finance. He completed his bachelor’s degree from Bandung Institute of Technology, and his master’s degree from Atmajaya University.

2015

About the Authors

He has published and contributed articles for several books and also written some journal articles covering international economics issues, such as economic integration, trade liberalization, and comparative studies on financial development and specific national budget issues. He has significant experience in various economic integration and trade liberalization negotiation meetings and events from 20072011, when he was assigned as a member of the Indonesian Coordinating Team on Trade in Services (TKBJ). Markus Surkamta Eric Santosa is a lecturer of Unisbank Semarang and lives in Sleman, DIY. He graduated from CSU, NSW, Australia (MBA) in 1994, and from UGM (Ph.D) in 2004. In 2013 he got his professorship. Lisa Alviani is working in Directorate of Taxation, Ministry of Finance. She graduated from UGM in 2014. Mahfud Sholihin is an Associate Professor at the Accounting Department, Faculty of Economics and Business UGM. He earned his PhD from Bradford University, UK. His research interests are Management and Behavioral Accounting, and Business and Accounting Professional Ethics. Some of his works have been published in British Accounting Review, Accounting and Business Research, Financial Accountability

189

and Management Journal, and Journal of Applied Accounting Research. Rika Fatimah Panjaitan Lanovara took a Bachelors Degree in Industrial Engineering in 2000. She holds a Masters Degree in Science (2002) as best graduates in the field of Quality and Productivity Improvement, a Ph.D in Philosophy (2008) and was awarded a Post-Doctoral Fellowship (2008-2009) in the same field at the Faculty of Science and Technology, Universiti Kebangsaan Malaysia. Her expertise is in such fields as quality & productivity improvement; customer satisfaction & loyalty measurement; fuzzy system in service; index development of service quality & social index. Recently, her book was published by Penerbit Universiti Kebangsaan Malaysia (UKM) entitled ‘Institusi Keluarga di Malaysia: Peranan dan Kualiti’ (2015). Her professional expertise has being recognized through her appointment as Expert Consultant for Disnakertrans, DIY (2015-now). She has also been appointed as an expert team member for the Center for Food & Nutrition Studies, UGM (2015-now). She is also the director & founder of Dashboard for Excellence Quality & Productivity Improvement (DEQPI), Faculty of Economics & Business, UGM (2014-now).

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Journal of Indonesian Economy and Business

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INDEX

accountability, 113

intention to buy, 159, 160, 163, 168

banking, 139, 142, 144, 148, 151, 153, 154, 155, 156, 157

ISO 14001, 173, 175, 176, 177, 178, 179, 180, 181

budget allocation plan, 113 capital markets, 139 challenge-stress, 101, 107, 108 communications medium, 120, 121, 123, 125, 134, 135 compatibility, 120, 121, 122, 123, 124, 125, 127, 128, 129, 131, 132, 133, 134 cost of equity capital, 173, 174, 175, 176, 177, 178, 179, 180

knowledgeable, 113, 116, 117, 118 online learning, 120, 121, 123, 134 perceived quality, 159, 160, 161, 162, 163, 167, 168 perceived value, 159, 160, 161, 162, 163, 167, 168 performance measurement, 113, 114, 116, 117 product leadership, 159, 160, 161, 167, 168 public sector, 113, 114, 115, 116, 118 service, 101, 102, 103, 104, 107, 109, 110, 111

decision makers, 113, 115, 116, 118

social presence, 120, 121, 122, 123, 125, 126, 127, 129, 130, 132, 133, 134, 135

ecoefficiency, 173, 174, 175, 176, 177, 178, 179, 180

Southeast Asia, 101, 107, 108

economic planning, 139

technology readiness, 120, 121, 122, 124, 127, 129, 130, 132, 133, 134

environmental accounting, 173 financial sector, 139, 140, 142, 154, 155 hindrance-stress, 101, 108 hotel, 101, 102, 103, 104, 107, 108, 109, 110, 111

unknowledgeable, 113, 114, 116, 117, 118 virtual community, 120, 121, 122, 124, 125, 126, 127, 132, 134, 135

2015

Previous Abstracts

191

PREVIOUS ABSTRACTS JOURNAL OF INDONESIAN ECONOMY AND BUSINESS VOLUME 30, NUMBER 1, JANUARY 2015

THE RELATIONSHIP BETWEEN PRODUCT DIVERSITY AND THE PERFORMANCE OF CREDIT UNIONS AND BADAN USAHA KREDIT PEDESAAN IN YOGYAKARTA SPECIAL PROVINCE Stephanus Eri Kusuma and Wihana Kirana Jaya ABSTRACT This study analyzes the relationship between product diversity and the performance of microfinance institutions (MFIs), especially Credit Unions (CUs) and Badan Usaha Kredit Pedesaan (BUKPs) in Yogyakarta. It employs a binary logistic regression method in its analysis and utilizes annual pooled cross section data from 16 CUs and 34 BUKPs in Yogyakarta from 2011. The result indicated that there was a direct negative relationship between the levels of saving–loan product diversity and the scale of outreach and also between the levels of saving–loan product diversity and depth of outreach. It also suggested an indirect negative relationship between the levels of saving–loan product diversity and staff productivity and also between the levels of saving– loan product diversity and self-sufficiency. Keywords: product diversity, performance, microfinance institutions, CUs, BUKPs

CUSTOMERS’ PERCEPTIONS OF SERVICE QUALITY DIMENSIONS IN THE INDONESIAN BANKING INDUSTRY: AN EMPIRICAL STUDY Ananda Sabil Hussein and Raditha Hapsari ABSTRACT This study aims to investigate the dimensions of hierarchical service quality in the area of the banking sector as well as to determine its relationships with other constructs, namely corporate image and customer loyalty. One hundred and eleven respondents participated in this study. Partial Least Squares were employed to analyse the data. The inner and outer model evaluations showed that the proposed model was robust. This study found that the interaction quality, outcome quality and physical quality were the dimensions of service quality which were formed in the hierarchical model. In addition, this study indicated that service quality was a robust determinant of corporate image and customer loyalty in the banking sector. Similar to service quality, corporate image was also found to be an essential predictor of customer loyalty as well as the mediator between service quality and customer loyalty. To enhance the understanding of service quality in the banking sector, further studies might add additional constructs such as brand engagement, perceived value, and customer experience. Keywords: service quality, image, loyalty, bank

COMPETENCY, ENTREPRENEUR CHARACTERISTIC AND BUSINESS PERFORMANCE: STUDY OF THE PEMPEK BUSINESS IN PALEMBANG Fransiska Soejono, Anastasia Sri Mendari, and Micheline Rinamurti ABSTRACT The purpose of this study was to examine empirically the effects of entrepreneurial competencies and characteristics on business performance. Previous studies found that competencies and entrepreneurial characteristics significantly influenced business performance. A quantitative method was used and 122 respondents were involved as the sample in this study, who were pempek business owners in Palembang, South

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Journal of Indonesian Economy and Business

May

Sumatra. The results indicated an effect from entrepreneurial competencies on business performance. It was also found that the entrepreneurs’ characteristics (owners’ ages) significantly affected the businesses’ performance. This implication requires some sort of course or program for the entrepreneurs to improve their competence to direct the owners to gain better business performance. The growing age of the business owners requires equal insights to ensure age does not stop the owners from improving their business’ performance. Keywords: competency, characteristics, performance, age, entrepreneur

ANALYSIS OF MARKET TIMING TOWARD LEVERAGE OF NON-FINANCIAL COMPANIES IN INDONESIA Vera Pipin Wulandari and Kusdhianto Setiawan ABSTRACT This study aimed to examine the effect of market timing on leverage on non-financial companies in Indonesia. Market timing was tested on the hot and cold market conditions. Hot and cold markets are determined by the monthly market to book ratio. A hot (cold) market occurs when the average market to book ratio of a particular month is above (below) the value of the moving average of the monthly market to book ratio. This study also aimed to test whether non-financial companies in Indonesia persistently applied leverage policies. This study used two research models. The first model was a panel data with a sample size of 77 nonfinancial companies listed on the Indonesian Stock Exchange from 2002-2013.The second model was a cross section data with a sample size of 157 non-financial companies that conducted their IPO in Indonesia from 2003-2013. The dependent variable in both the research models was leveraget (levt). The independent variables were markett and leveraget-1 (levt–1). The control variables were profitabilityt-1 (proft-1); and sizet-1. The results of this study indicated that market timing affected the leverage of non-financial companies listed on the Indonesian Stock Exchange. However, market timing did not affect the leverage of non-financial companies that had their IPO in Indonesia. The non-financial companies in Indonesia were not persistently applying a leverage policy. The capital structure of non-financial companies in Indonesia changed because of the influence of variable profitability and size (which supports the pecking order and trade off theory). Keywords: market timing theory, leverage, hot and cold market, market to book ratio

FACTORS INFLUENCING THE SUCCESS OF PERFORMANCE MEASUREMENT: EVIDENCE FROM LOCAL GOVERNMENT Herlina Primarisanti and Rusdi Akbar ABSTRACT There were only a few government institutions in Indonesia capable of preparing good accountability reports. Based on the survey conducted in the Special District of Yogyakarta, the study aimed to empirically examine the influencing factors in the development of the measurement system of performance, performance accountability and the use of performance information. Additionally, it also tried to interpret and to explain empirical evidence in the perspective of the institutional theory. The institutional theory was used to find out the extent to which the development of the measurement system of the performance, the performance accountability and the use of the performance information was influenced because of the presence of coercive, mimetic and normative isomorphism phenomena. The study used mixed methods that combined quantitative and qualitative study approaches simultaneously and a sequential explanatory strategy. It used Partial Least Square (PLS) analysis to test the hypotheses. It gave evidence that training, incentives and authority in decision making had significant impacts on the development of the measurement of the performance, the performance accountability and the use of the performance information. It contributed to the understanding of the influencing factors of the development of the measurement system of the performance, the performance accountability and the use of the performance information in order to improve the measurement system of the performance of government institutions. Keywords: performance measurement system, performance accountability, the used of performance information and mixed methods.

2015

Previous Abstracts

193

INFANT HEALTH PRODUCTION FUNCTION: ROLE OF PRENATAL CARE Heni Wahyuni ABSTRACT This article reviews the economic concept of the health production function regarding the determinants of infant health and the results of previous empirical studies on the role of prenatal care in infant health production. The review will include a brief explanation about the health production function, followed by how the concept applies to infant health, explaining the derivation of the infant health production function, and finally the previous empirical studies on the role of prenatal care in infant health production. Grossman’s model on the demand for health and the framework of the infant health production function of Rosenzweig and Schultz explain that the following important factors will influence infant health and the demand for maternal medical care: age, wage/income, education, and knowledge. Furthermore, given that an infant inherits its health capital stock from its mother, there may be biological factors (e.g., a specific health endowment) that may be keys to determining infant health. In terms of the role of prenatal care, the review summaries that there is strong evidence that prenatal care does affect infant health. However, it is difficult to isolate the causal effect between the two without controlling for endogeneity, such as via a natural experiment. It is possible that there are unobserved heterogeneous factors of mothers that can affect prenatal care and infant health. Many studies have attempted to estimate the infant health production function, taking into account these selection biases. The merits and critiques of existing methods have also been discussed in the previously mentioned studies, which have mostly been conducted in relation to developed countries and have very rarely been conducted for the developing countries’ context. The findings of this review state that studies into this topic should consider many important aspects, such as selectivity bias, the determinants of infant health as stated in theory and previous empirical studies, and the need to use an appropriate measurement of adequate prenatal care, especially for the case of developing countries. Keywords: health production function, infant health production function, Grossman model, prenatal care

JOURNAL OF INDONESIAN ECONOMY AND BUSINESS (JIEB) GUIDELINES FOR CONTRIBUTORS

Please read carefully. The Journal only accepts manuscripts that meet the JIEB's format and style. Any manuscript written in different format will NOT be reviewed.

Note that both original research articles and review articles may or may not contain persuasive arguments justifying for policy recommendations and act as a decisionmaking tool for target audiences.

CORRESPONDENCE Due to the need for correspondence, all authors' personal contacts are required. Please provide e-mail address, phone/mobile number, and office/home address in a separate document. The Journal accepts the following types of research manuscripts: Original research article. An original research article presents original empirical findings that have not been published anywhere earlier. Replication/refutation findings are also welcome. Details, particularly in research methods, description of the results, and/or discussion/conclusion are required to make sure that readers (and referees) have sufficient information to comprehend and benefit from the work. Review article. A review paper may not offer empirical results, but should extend discussion of papers published and data acquired in a specific area. The article may include theoretical reviews, historical perspectives, or summaries of development in fast-moving realms in business and economics. The salient objective of the review article is to provide a concise summary of a particular field in a manner understandable to all readers. Book review. A book review summarizes and critiques academic books published by scholars in the fields of economics and business. The book review must show its relevance with Indonesia.

FORMAT All manuscripts should be typed on one side of good quality A4 papers and be doublespaced, except for indented direct quotations. All manuscripts have to be written concisely according to research subject and method, usually between 20-30 pages. Margins (left, right, top and bottom) should be at least one inch. To assure a blind review, authors should not identify themselves directly or indirectly in their papers. A cover page should include the title of the paper, the name(s) of author(s), position and affiliation, any acknowledgment, and footnote indicating whether the author(s) would be willing to share data. A manuscript should be sent along with a cd/file. All pages, including tables, appendices and references, should be serially numbered. Spell out numbers from one to ten, except when used in tables and lists, or mathematical, statistical, scientific or technical units and quantities, such as distance, weight and measure. For instance, four days; 5 kilometers; 25 years. All others numbers are expressed numerically. It is generally required that numbers be in written form. For example: It is approximately ten years... Percentage and Decimal Fraction, for nontechnical purpose, use percent in text; for technical purpose, uses % symbol.

Keywords, four keywords must be provided at the end of the abstract such that they would be easier to locate in the index. ABSTRACT An abstract, with 100-300 words length, should be presented on a separate page immediately preceding the text of the manuscript. An abstract should be relatively nonmathematical, and provides the details about the paper’s purposes, research methods and findings as well as its contributions. Neither the author’s name nor his/her affiliation should appear on the abstract page.

scripts or more by one author (Andoyo, 1991, 1993).  To avoid ambiguity, do not use “P”,”pp”, or “page” before the page number but use colon: for example: (Andoyo, 1991: 121).  If there are more than one reference written by the same author and in a same issue, use suffix a, b, and so forth after year in a citation; example: (Andoyo, 1991a) or (Andoyo, 1991a; Hutabarat 1992b).  If an author’s name is mentioned in a text, it is unnecessary to be mentioned again in reference, example: “Andoyo (1991: 121) said ..."  A quotation that refers to institutional work should use acronym or abbreviation; example: (Komite SAK-IAI, PSAK28, 1997).

TABLES AND FIGURES Authors should pay attention to the following format and style: 1. When submitted for review, all tables and figures (graphs) should be written on separate pages at the end of manuscript. Each table or figure should be numerically numbered and fully titled, which refer to the contents of the table or figure. 2. References for each graph should be mentioned in manuscript without any exception. 3. Graphs should be easily interpreted without referring to the text.

REFERENCES Each manuscript should include references which contain referred texts. Each entry should contain all required data. Use the following format: 1. To assure the validity of the references, make sure that the references provide adequate information (e.g., volume, number, page, publisher, city, URL address and accessed date)

4. Lines that refer to sources and notes should be included in the text.

2. For any non-English articles, please write down the translation of the article in brackets [ ] after the original article’s title. Note that the original article should be written in italic.

Equations, equations should be numerically numbered in parentheses with align-right margin.

3. Arrange references alphabetically according to last/family name of the first author or institution. 4. Use initial name for author's first name.

DOCUMENTATION

5. Issue year should be placed after author’s name

Manuscripts should be cited in a “author-year system.” Authors should mention the pages of the referred manuscripts.

6. Manuscript’s title should not be shortened

 In text, manuscripts should be cited with this way: last/family name and year in a parenthesis; example: (Andoyo, 1991), for two authors (Andoyo & Hutabarat, 1992), more than two authors (Andoyo et al., 1993), two manu-

7. If there are two or more manuscripts by the same author referred in the article, arrange chronologically according to the year of issue. Two or more manuscripts by the same author should be distinguished with a letter (a, b, c, etc.) immediately preceding date.

Examples of entries are as follows: For Periodical Issues: Blum, T. C., D. L. Field, and J. S. Goodman, 1994. “Organization-Level Determinant of Women in Management”. The Academy of Management Journal, 37 (4), 467-498. Palmer, R. J., T. Schimidt, and J. JordanWagner, 1996. “Corporate Procurement Cards; The Reengineered Future for NonInventory Purchasing and Payables”. Journal of Cost Management, 10 (3), 19 – 32.

[Liberalization: Banking Political Economy during the New Order Era]”, Unpublished Dissertation, Post-Graduate Programme. Yogyakarta: UGM. For internet source(s) with author’s name Chain, P., 1997. “Same or Different?: A Comparison of the Beliefs Australian and Chinese University Students Hold about Learning’s Proceedings of AARE Conference”, Swinburne University. Available at: http://www. swin.edu.au/aare/97pap/CHAN97058.html

For Books/Monographs: Fabozzi, F., and I. Pollack, eds., 1987. The Handbook of Fixed Income Securities. 2nd ed. Homewood, IL: Dow Jones-Irwin. Kahneman, D., P, Slovic, and A. Tversky, eds., 1992. Judgment Under Uncertainty: Heuristic and Biases. Cambridge, United Kingdom: Cambridge University Press.

For internet source(s) without author’s name Please write the organization's/company’s name, as shown below: StatSoft, Inc., 1997. Electronic Statistic Textbook, Tulsa OK., StatSoft Online. Available at: http://www.statsoft.com/textbook/ stathome.html, accessed on May 27th, 2000.

For articles in collective works: Brunner, K. and A. H. Meltzer, 1990. “Money Supply” in: B. M. Friedman dan F. H. Hahn, Handbook of Monetary Economics, 1, 357 – 396. Amsterdam: North-Holland. (For magazines, non-published papers, dissertations/theses, seminar papers, etc., follow the aforementioned guidelines). Sukarman, W., 2003. “Liberalisasi: EkonomiPolitik Perbankan Masa Orde Baru

Footnote, Footnote cannot be used as a reference. It should be used only for broad information that may distract reading continuity if included in a text. Footnote should be typed single-spaced and numerically numbered with an Arabic superscript numeric, and should be placed at the end of the text.