7th Gcbss - Proceeding - Full Papers

Proceedings of the
7th Global Conference on Business and Social Sciences on

"Contemporary Issues in Management and Social Sciences Research"
(CIMSSR – 2018)
August 20th to 21st, 2018
Colombo Sri Lanka
Global Academy of Training and Research

(GATR)
Kuala Lumpur, Malaysia
Editors:
Abd Rahim Muhammad
Gabriel A. Moens
Danture Wikramasinghe
Ahmad Fauzi Abdul Hamid
7th GCBSS © 2018 Global Academy of Training & Research (GATR) Enterprise. All rights reserved.
Proceedings of the 7th Global Conference on Business and Social Sciences on
"Contemporary Issues in Management and Social Sciences Research"
(CIMSSR – 2018) Colombo Sri Lanka
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Pusat Kebangsaan ISBN- Library Negara Malaysia

ISBN: 978-967-13147-0-8
Acknowledgment
Welcome to proceeding of the 7th Global Conference on Business and Social Sciences 2018, with the theme of "
Contemporary Issues in Management and Social Sciences Research ".
It was pleasure to edit the conference proceeding which contains all accepted abstracts that were presented and
considered for publication at the 7th GCBSS, held on 20th and 21st August, 2018 in Colombo Sri Lanka in cooperation
with international and national universities, institutes and publishers, namely, Cairo University (Egypt), Kalasalingam
University (India), Brawijaya University (Indonesia), Asia Pacific Institute of Dispute Management (Australia),
Elsevier (UK), Inderscience (Switzerland) and UPM Press (Malaysia).
7th GCBSS received a great number of abstracts for presentation, many of which high-quality scholarly works. As a
result, the selection panel had to make decisions with considerable care. We are highly grateful to the authors for their
enthusiasm, and to the reviewers for their painstaking work. Some of the accepted papers were selected for publishing
in the Polish Journal of Management Studies (ISI & Scopus), Pertanika Journal of Social Sciences and Humanities
(ISI & Scopus), International Journal of Economics and Management (Scopus), and in GATR Journals: Global Journal
of Business Social Sciences Review (GJBSSR), Accounting and Finance Review (AFR), Journal of Business and
Economics Review (JBER), Journal of Finance and Banking Review (JFBR), and Journal of Management and
Marketing Review (JMMR) and all full paper publications are sponsored by Global Academy of Training & Research
(GATR), the leading organizer of this conference.
The conference provided a platform for sharing novel ideas and inspiring research outcomes of the academics from
different countries, including the USA, UK, Australia, UAE, Poland, Latvia, The Netherland, Newzeland, South
Africa, Malaysia, Iran, India, Indonesia, Iraq, Georgia, Pakistan, Philippine, Sri Lanka, Saudi Arabia, Austria,
Thailand, Vietnam, Hungary, China, Taiwan, Nigeria, Italy, Norway, Lebanon, Mauritius, Slovakia, Japan, Korea,
Czech Republic and Morocco. It was also attended by three prominent keynote speakers: Professor Danture
Wickramasinghe, University of Glasgow, UK and Professor Gabriël A. Moens, Curtin University, Australia and
Professor Bjoren Willy Aamo, University of Norland, Norway, we are grateful to them for their invaluable
contribution.
We hope this conference will contribute to meaningful paradigm shifts in business and social sciences research, in
general, and the delegates’ career development, in particular. Finally, we would like to thank everybody who
contributed in many ways to the success of the conference, especially to session chairs and the members on organizing
committee.
We wish to see you all in 8th GCBSS in Kuala Lumpur Malaysia.
7th Global Conference on Business and Social Sciences
Conference Homepage: http://gcbss.org/cimssr2018/index.html
August 20th to 21th, 2018
Cinnamon Grand Hotel, Colombo Sri Lanka
Table of Contents
No Paper ID Title
1. CIMSSR-00312 The Effect of Incentive System on Job Performance Case: Public sector organizations
in UAE
2. CIMSSR-00313 The Mediation Role of Motivation on the association between Incentive System and
Job Performance in UAE
3. CIMSSR-00297 The Influence of Recruitment Process on Developing Organizational Performance

Case: UAE organizations
4. CIMSSR-00306 Capital Structure and Firm Performance of the Manufacturing Firms Listed in the
Indonesia Stock Exchange (BEI): Does Market Power Matter?
5. CIMSSR-00240 Determinants Of Fraud: How Corporate Governance Mechanism Affect Corporate

Fraud?
6. CIMSSR-00362 Japanese Primary School English: The Evolving Curriculum that Never Seems
Complete
7. CIMSSR-00254 Debt Constraint And Debt Facilitate Expropriation To Performance: Asset Utilization
Efficiency As Moderating
8. CIMSSR-00247 Analysis of Implementation of COSO-ERM Framework with moderation Philosophy

of Khalifatullah Fil Ard and Role of Elements of Higher Education Governance to
Financial Performance of Higher Education in East Java Indonesia
9. CIMSSR-00381 Consumer Protection In Cloud Environments: Which Law(S) Applies To Data In The
Clouds?
10. CIMSSR-00378 Factors Affecting Entrepreeurs’ Choice of Business Incubator – A Study of Indian
Technology Entrepreneurs
Conference Home page: http://gcbss.org/cimssr2018/index.html
11. CIMSSR-00204 Regulating the sex trade: A comparative study between the legal frameworks of the sex
trade adopted in selected countries.
12. CIMSSR-00212 The role of government to care relationship among ethnic in Indonesia ( study case :
post-conflict between Dayak Tribes and Madura Tribe in Sampit Kotawaringin Timur
Central of Kalimantan Indonesia)
13. CIMSSR-00211 Factors of Cement Mining Conflict in Rembang Central Java Indonesia; the Stages of
Conflict then Emerged to Social Movements
14. CIMSSR-00427 Silence to Sexual Violence in Myanmar: Women Leadership and Blind Politics
15. CIMSSR-00387 Crowdfunding, the way forward
16. CIMSSR-00380 Antecedents and Consequences of Transformational Leadership Implementation:

Evidence from Furniture Businesses in Thailand
17. CIMSSR-00393 A Theoretical Investigation Of The Relation Between HRM Practices And Firm
Performance in Thailand 4.0
18. CIMSSR-00465 Microfinance Institutions’ Competition Case Study Northern region of Thailand
19. CIMSSR-00466 Promote Entrepreneur On Micro Small And Medium Business
Conference Home page: http://gcbss.org/cimssr2018/index.html
The Effect of Incentive System on Job Performance Case: Public

sector organizations in UAE
Rashid ahmed khamis al naqbi

Universiti Tun Hussein Onn Malaysia, Malaysia
ABSTRACT
Today, developing the incentives system is essential to improve the performance of employees. Many
organizations in UAE are not implementing effective incentive system which is reflected negatively in the
output received from employees. The aim of this research is to study the effect of incentives system on job
performance in public sector organizations in UAE. The outcome of this research will validate whether
incentives have a potential effect on enhancing job performance in the public sector. To fulfil the objective
of the research as well as to obtain real and reliable data, a research study was conducted at Economic
Development Department (EDD) in Al Sharjah. The research method used to test this relationship is
quantitative analysis. The result of this study approves the adopting effective incentives system in the form
of rewards and recognition influences the performance of employees significantly. Thus, the researcher
recommends public organizations in UAE to focus on the latest approaches used to motivate employees for
showing high degree of skills and knowledge in their performance, where monetary and non-monetary
incentives are essentials factors that determine the outcome from employees.
Type of Paper: Empirical
Keywords: Incentives system, employee’s performance, Non-monetary incentives, Monetary incentives
__________________________________________________________________________________
1. Introduction
Incentive is a motivation instrument that could stimulate employee outcome and boost employee
performance. There are different types of incentive - monetary as cash payment and non-monetary, which
could be tangible rewords (like dinner invitations, vacation trips, etc.); and intangible rewords like public
praise (Huang & Lai, 2014).
An incentive system is associated with motivation theory (Hezekiah et al., 2014). With incentives,
different individuals respond differently and as such, it is important for management to identify the various
motivational factors in order to motivate as many employees as possible in developing the right attitudes
and enhancing their productivity which ultimately contributes to the performance of employees. According
to Safat (2012), the management strategy should therefore ensure that the appropriate inventive factors are
placed in the right place, in the right way to provide maximum performance from the employees (Gibbons,
2006). In commenting on incentive-linked performance, states that even though monetary payments may
7th GCBSS © 2018. Global Academy of Training & Research (GATR) Enterprise. All rights reserved. 1
be adequate, there are some forms of non-monetary incentive that can be more effective than cash in
planning long-term employee motivation systems in the majority of sectors and job scopes (Gibbons, 2006).
Numerous qualitative studies have reported that motivation and incentives have an effect on expatriate
employees in terms of employee performance, employee satisfaction and organisational performance
(Agwa & Salem, 2015). In order to develop an environment where employees constantly have the
motivation to improve the way they work, managers need to know and appreciate the manner in which
motivation works, (Sekhar, Patwardhan, & Singh, 2013). A recent survey on the employee in UAE private
sector organizations by ASC (Arabian Supply Chain) reported that only 28% of the workforce in UAE feels
that they are highly motivated through incentives, while 28% feels that they are motivated. The monetary
incentives were the topmost motivation factor (62%) with most of the UAE employees who participated in
this claiming that the high salary and other benefit were the greatest motivation factor. Another factor,
namely work-life stability was also one of the most motivating factors (Bayte.com, 2016; ASC staff (2015).
1.1 The aim of this study
The aim of this research is to validate whether incentives have a potential effect on motivating employee
and enhance job performance in public sector in UAE. This research study hopes to determine whether most
of the public employees in the above-mentioned organizations are motivated by the financial and non-
financial incentives and are encouraged towards greater work performance. Thus, this research will show
to what extent incentives are used in the UAE’s public service sector. To fulfil the objective of the research
as well as to obtain real and reliable data, a research study was conducted at the Economic Development
Department (EDD) in Al Sharjah.
2. Methodology
This research adopted a quantitative approach to assess the effect of the incentive system in public sector
in UAE on employee’s performance, the quantitative approach is used identify the degree of effect of
incentives system in two dimensions (intrinsic and extrinsic) on employees’ performance. For this purpose,
a simple linear regression is used to test this relationship.
2.1 Issues of incentives in UAE
Numerous qualitative studies have reported that incentives have an effect on expatriate employees in
terms of employee performance, employee satisfaction and organisational performance (Agwa & Salem,
2015). In order to develop an environment where employees constantly have the motivation to improve the
way they work, managers need to know and appreciate the manner in which motivation works, (Sekhar,
Patwardhan, & Singh, 2013).
There is a lack of knowledge about quantitative analysis of the impact of incentive factors on employee
performance in the public sector organisations in UAE. The quantitative method gives a clear description
of the relationships (Abeyasekera, 2005), which help the management to direct their plan and resources for
effective planning.
It is found that few studies used quantitative assessment for the incentive methods that might increase
the employees’ performance in UAE; there is a need to measure the monetary and non-monetary factors
that might effectively motivate the employees of the UAE public sector.
Due to the lack of research in this area, additional research needs to be done obtain better understanding
of implementing effective incentive systems at less cost but with higher affect to motivate the workforce
towards achieving better job performance in public sector organisations in the UAE. Likewise, this study
will be very useful for the UAE as it will add empirical evidence about the employees’ performance and the
effect of current incentive systems in the public sector in the UAE.
2.2 The concept of incentives
Incentive system is an important motivation tools that can influence employee satisfaction, and it can
use a non-monetary and intangible approach or monetary and tangible approach Incentives have been
defined and employed in various working fields in different ways. For example; in the health care industry,
incentives are defined are defined as “An available means to apply with intention to influence the
willingness of physicians and nurses to exert and maintain an effort towards attaining organisational goals”
(Mathauer & Imhoff, 2006). In light of the above, incentive can be defined in different ways depending on
the context and situation. On the other hand, the core concept of those definitions is around tangible or
intangible compensation, explicit or implicit ways to influence individuals or groups of people to put in
more time and effort to achieve personal as well as organisational goals. Thus, iincentives are classified to
two types:
1. Non-monetary incentives
Richard (2014) defined the non-monetary incentive as the flexible work hours, training programmes,
loyal work environment, and breaks. Hezekiah et al., (2014) classified the intangible as Social Rewards,
Informal Recognition, Verbal Recognition, Office get-together, Use of company facilities, also Meaningful
work, Job Rotation, Special Assignment, Training & Development (Hezekiah et al., 2014). Sending an
employee, a formal letter of thanks is also another form of moral incentive while another form of such an
incentive could be the act of making the employee an honorary employee in the firm (Assaf, 1999).
Hasan (2002) stated that there is a relationship between moral incentives and the internal and external
environments of the firm, namely, supervision, leadership, fellowship, working conditions of light,
ventilation, noise, heat, interior decorations and participation in decision making. concluded, therefore, that
positive moral incentives raise the spirit of the individuals: such as job enrichment, holidays, health
insurance, the appropriate positions, nature of supervision, sense of belonging, stability, job security,
involvement in decision-making, promotion, belief and confidence in the organisation’s objectives, system
proposals, listing in honour panel, social harmony, literary and moral standing. On the contrary, negative
moral incentives involve negligent acts, such as shame and blame.
2. Monetary Incentives
Monetary incentive can be classified into direct compensation such as Basic Salary, Commission, and
Bonus; indirect compensation includes Insurance, Profit Sharing, Retirement Plans, Overtime pay, Travel
Expenses and Subsidised, other incentives include treats such as Free Meals, beverages, coffee break,
Picnics, Birthday treats. Awards include Plaques or Trophies, Certificates, Letter of Appreciation and others
such as Decorations (Hezekiah et al., 2014).
Financial incentives can be in several forms: cash paid to employees in a lump sum in regular (monthly
or weekly) instalments, or in other forms which constitute extra income to an employee. This is the
traditional and oldest form of financial incentive and intended to motivate the employee to respond with
extra effort in meeting the organisational goal.
Lawzi (1995) defined financial incentives as a set cash payment which meet the human needs of
employees, and motivate them to do their best, and raise the level of their competences such as prompt
payment of salary, bonuses, allowances, profit sharing, and other rewards in cash.
3. The concept of employee’s performance
In organisation performance, employee performance is one of the most significant factors. Ensuring
employees deliver the best output by working to their full potential to help the organisation reach its goals
is a Herculean task for a manager (Maduka & Okafor, 2014).
Cascio, (2006) defined performance of employees as the level of accomplishment of the task at the work
place that forms the basis of an employee’s job. According to Stannack (1996), the majority of scholars
utilise the term “performance” to describe the various measurements of efficiency in transactions, input,
and output.
The most common policy adopted by managers to increase the effectiveness of performance is
motivating employees through incentives. Hence, incentives help an organisation reach its goals faster
because employees tend to work towards it as a result of incentives. The age-old technique of carrot-and-
stick does not work in today’s environment and managers need to revolutionise the way they motivate
people and get the desired output and reward employees (Forson, 2012).
Much evidence exists to indicate that in a competitive labour market, retaining a productive employee
can be a big challenge as organisations engage in head-hunting for exceptional individuals from other
organisations. An employee with a vision for growth requires to be shown a clear path of his chances of
progression in the organisation, apart from the economic benefits they will be getting during the process.
Non availability of skilled employees results in absence of knowledge, skills and experience which will
have a deep impact on the organisation economically (Omollo, 2015).
4. The relationships between incentives and employee’s performance
One of the key queries in organisational research is how ways can be found to encourage employees to
show high performance. An incentive can be viewed as a reward prior to and to spur performance, designed
to trigger a specific and desirable behaviour (Cooke et al., 2011). There are many forms of incentives,
ranging from financial to the reputational. Offering financial incentives (e.g., bonus plans or stock options)
is a typical approach to enhance individual performance.
Organisations must constantly provide their employees with incentives to show greater flexibility in
doing the work, give quick responses propose viable solutions to complex problems which enhance their
performance of doing the tasks required from them (Spink, 2000). Thus, applying effective incentives
inducements offered in advance, for the purpose of enhancing performance, while rewards are commonly
awarded following successful performance (Patten, 1977).
Koonmee (2010) discussed the Development of Organisational Justice in Incentive Allocation of the
Thai Public Sector by making a comparison of the roles of distributive and procedural justice in national
personnel’s attitudinal outcomes (incentive satisfaction and job performance). He discovered that
distributive justice and procedural justice played more crucial roles in the prediction of incentive satisfaction
and job performance in 2008 compared to 2006.
Other scholars like Berger and Berger (2015); Sajuyigbe (2013) reported that employees prefer to have
monetary incentives to return a good job performance. While Kube (2006) argued that monetary incentives
are effective during the short term period and noting the long-term period whereas non-monetary incentives
give significant and consistent performance.
Based on the findings from previous literatures and studies, this study tested the following hypothesis
using empirical evidences in quantitative analysis after collecting data from respondents in Economic
Development Department (EDD) in Al Sharjah:
There is a positive relationship between incentive systems and employees’ performance.
3. Results and Discussions
A simple linear regression is achieved as the main analysis used in examining the relationship between
incentives systems and employee’s performance as defined in the following hypothesis:
H1: There is a causal and statistical relationship between incentives systems and employee’s
performance.
H0: There is no causal and statistical relationship between incentives system and employee’s
performance.
The regression model of between incentives system and employee’s performance is shown in
Figure 1.
Incentives system Employee’s Performance

(Independent) (Dependent)
Figure 1: Regression Model between incentives and employee’s performance

The test of this relationship is summarized in three outputs tables (Models summary table, ANOVA
output, and table of regression coefficients).
3.1 Model Summary of Simple Linear Regression
Table 1. Simple linear regression output between incentives and employee’s performance
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .702a .493 .491 .42891
a. Predictors: (Constant), Incentives
As shown in Table1, the output of model summary reveals the extent of variance and correlation between
the pair of variables (incentive system and employee’s performance). It is found that R (correlation
coefficient) = 0.702, this outcome indicates a good degree of correlation between incentives and employee’s
performance in the regression model. Reading the magnitude of R2 = 0.493 shows that 49.30% of the change
in employee’s performance is explained by the variance in incentive system. In other words, the value of
employee’s performance is explained 49.30% because of the effect of incentives. Therefore, the level of
regression model fit is very well between incentive system and employee’s performance.
3.1.1 ANOVA Output
The data in the ANOVA Table 2 reports the degree of model fitness with the data collected from the
respondents to test the relationship between incentives and employee’s performance.
The conclusion about significant correlation between incentives and employee’s performance is made
through comparing the value of probability (ρ) to examine whether this correlation is significant. It is found
that the association between incentives system and employee’s performance, thus this study concluded the
null hypothesis is rejected and therefore accept the alternative hypothesis. In other words, the regression
model predicts the association between incentives and employee’s performance very well. Additionally, the
value of F = 239.789, F must > 1 in order to accept the correlation between incentives and employee’s
performance is not mainly because of chance or other probable reasons. Based on this finding, it is
concluded that incentives system influence employee’s performance and a regression relationship between
these two variables does exist.
Table 2. ANOVA output between incentives system and employee’s performance
Model Sum of Squares df Mean Square F Sig.

Regression 44.113 1 44.113 239.789 .000b
1 Residual 45.439 247 .184
Total 89.552 248
a. Dependent Variable: Employee Performance
b. Predictors: (Constant), Incentives
3.1.2 The Regression Coefficients
The last table used to examine the regression strength between incentives and employee’s performance
is coefficients table which is necessary to provides essential information about the degree of correlation
between these two variables and how significant this relationship.
Table 3. Coefficients of Regression between incentives system and employee’s performance
Unstandardized Coefficients Standardized Coefficients

Model t Sig.
B Std. Error Beta
(Constant) 1.073 .154 6.955 .000
1
Incentives .680 .044 .702 15.485 .000
The following regression equation explains the relationship between incentives and employee’s
performance:
Employee’s performance = 1.073 + 0.680* Incentives + 0.154
It is evident that the relationship between incentives system and employee’s performance is significant
and high, Sig. = 0.000, and unstandardized coefficient (B) = 0.680 is positive and high. Therefore,
employee’s performance is positively predicted by the variance in the magnitude of incentives system.
4. Conclusions
This study shows that incentives system is an effective tool that effect on employee performance, as
well, motivate is a factor of human behaviour and in management motivation can be utilized to lead
employees to meet the organisational goals. The data analysis proved that there is a significant relation
between incentives in the form of rewards and recognition, and better work performance. This research
revealed that public employees in UAE are motivated by the financial and non-financial incentives and are
encouraged and motivated towards greater work performance. Thus, It is recommended that public
organizations in UAE should focus on the latest approaches of incentives used to enhance the performance
of employees for showing high degree of skills and knowledge in their work, where monetary and non-
monetary incentives are essentials factors that determine the outcome from employees.
References
Abeyasekera, S. (2005). Quantitative analysis approaches to qualitative data: why, when and how? Methods in
Development Research: Combining Qualitative and Quantitative Approaches, 97–106. Retrieved from
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w
Agwa, H. A., & Salem, I. (2015). A Study of Factors Motivating Expatriates in the United Arab Emirates.
International Proceedings of Management and Economy, 84.
Assaf, A. (1999). Managerial Behavior in Contemporary Organizations. Amman: Dar. Zahran.
Atkinson, JW; Birch, D. (1970). The Dynamics of Action. New York: John Wiley, 14.
Berger, A.L. & Berger, D. R. (2015). The Compensation Handbook, Sixth Edition: A State-of-the-Art Guide to
Compensation Strategy and Design, (6th ed.). New York: McGraw-Hill.
Hasan, R. (2002). Behavior of the Organizations.
Hezekiah, F., Ayodotun, I., & Maxwell, O. (2014). Incentives Packages and Employees’ Attitudes to Work: A Study
of Selected Government Parastatals in Ogun State, South-West, Nigeria. International Journal of Research in
Business and Social Science, 3(1), 63–74.
Lawzi M. (1995). Individuals’ Attitudes Working in Public Institutions in Jordan towards Job Incentives.
Humanities Studies, 22, 759–785.
Richard, B. (2014). The Effect of Motivation on Employees’ Performance: Empirical Evidence. From the Brong
Ahafo Education Directorate.
Sekhar, C., Patwardhan, M., & Singh, R. K. (2013). A literature review on motivation. Global Business
Perspectives, 1(4), 471–487.
The Mediation Role of Motivation on the association between

Incentive System and Job Performance in UAE
Rashid Ahmed khamis al naqbi

Universiti Tun Hussein Onn Malaysia, Malaysia
ABSTRACT
Motivation is an essential factor that enhances the intention of employees to show better performance, while
effective incentives can play a significant role in motivate employees and develop job performance as well.
The aim of this study is to examine the mediation relationship between incentives system, job performance
and motivation. The research method is based on quantitatively analysis and the structured questioner’s
data. The place of study is public sector organisations in the UAE. The result of this study showed that
motivation plays a mediation role on the association between incentives system and job performance. The
recommendations of this study indicates that public organisations in the UAE could improve the
performance of employees significantly if they adopted a dual reward system based on financial and non-
financial incentives and are adopted periodic encouraging approaches to motivate employees and let them
show greater skills and knowledge in doing their work.
Keywords: Incentives systems, Job performance, Motivations.
__________________________________________________________________________________
1. Introduction
Incentive is a motivation instrument that could stimulate employee motivation and boost employee
performance. There are different types of incentive - monetary as cash payment and non-monetary, which
could be tangible rewords and intangible rewords which are based on appreciations (Huang & Lai, 2014).
Motivation in psychology is the state that raises behavior of individual in certain circumstances and
continues until it ends to a certain point and where reaching a point that satisfies individuals desire to
succeed (Condly et al., 2008).
An incentive system is associated with motivation theory (Hezekiah et al., 2014). With incentives,
different individuals respond differently and as such, it is important for management to identify the various
motivational factors in order to motivate as many employees as possible in developing the right attitudes
and enhancing their productivity which ultimately contributes to the organisation’s overall productivity.
Even though monetary payments may be adequate, there are some forms of non-monetary incentive that
can be more effective than cash in planning long-term employee motivation systems in the majority of
sectors and job scopes (Gibbons, 2006).
The management strategy should therefore ensure that the appropriate motivational factors are placed in
the right place, in the right way to provide maximum motivation to the employees and reflected on the
performance of employees (Dar et al., 2014).
A vast body of literature has investigated and still investigates the relationships between
motivation, incentives and job performance. Even if there is still some reluctance to address this issue,
there is an agreement on the fact that incentives are not always enhancing efforts of organizations to improve
the performance without motivation. There is however a less important but fast growing literature
concerning the links between motivation, incentives, and job performance in the public sector. This study
will be very useful for UAE organizations as it will add new empirical evidence about the employees’
motivations and the effect of current incentive systems in the public sector in UAE.
1.1 The aim of this study
This study attempts to provide better understanding on the elements of motivations and its main methods
by examining the mediating impact of motivation on the association between incentive systems and job
performance in public sector organisations in the UAE.
Due to the lack of research in this area in UAE, additional research needs to be done obtain better
understanding of implementing effective motivation and incentive systems at less cost but with higher affect
to motivate the workforce towards achieving better job performance in public sector organisations in the
UAE.
2. Methodology
This research used a quantitative approach to assess the effect of the incentive system in public sector in
UAE on the job performance, and to identify the mediating effect of employees’ motivation in two
dimensions (intrinsic and extrinsic) on the relationship between the incentive systems (monetary and
tangible and non-monetary and intangible), and employees’ performance.
2.1 The concept of incentives
One of the key queries in organisational research is how ways can be found to encourage employees to
show high performance. An incentive can be viewed as a reward prior to and to spur performance, designed
to trigger a specific and desirable behaviour (Kube, 2006).
Incentive system is an important motivation tools that can influence employee satisfaction, and it can
use a non-monetary and intangible approach or monetary and tangible approach Incentives have been
defined and employed in various working fields in different ways. For example; in the health care industry,
incentives are defined are defined as “An available means to apply with intention to influence the
willingness of physicians and nurses to exert and maintain an effort towards attaining organisational goals”
(Mathauer & Imhoff, 2006).
In light of the above, incentive can be defined in different ways depending on the context and situation.
On the other hand, the core concept of those definitions is around tangible or intangible compensation,
explicit or implicit ways to influence individuals or groups of people to put in more time and effort to
achieve personal as well as organisational goals.
Incentives are classified to two types: Non-monetary and intangible approaches and Monetary and
tangible approaches. The purpose of monetary incentives is to reward associates for excellent job
performance through money. Monetary incentives include profit sharing, project bonuses, stock options and
warrants, scheduled bonuses (e.g., Christmas and performance-linked), and additional paid vacation time.
Traditionally, these have helped maintain a positive motivational environment for associates. Monetary
incentives can be diverse while having a similar effect on associates. One example of monetary incentives
is mutual funds provided through company pension plans or insurance programs. Because it has been
suggested that associates, depending on their age have different needs pertaining to incentives, traditional
incentive packages are being replaced with alternatives to attract younger associates. On the other hand, the
purpose of non-monetary benefits is to reward excellent job performance through opportunities. Non-
monetary incentives include flexible work hours, training, pleasant work environment, and sabbaticals
(Guzman et al., 2007).
There are many forms of incentives, ranging from financial to the reputational. Offering financial
incentives (e.g., bonus plans or stock options) is a typical approach to enhance individual motivation and
performance. Organisations must constantly provide their employees with motivation to show greater
flexibility, give quick responses propose viable solutions to complex problems (Hezekiah et al., 2014).
Maslow’s Need Hierarchy Theory has been proved to be the most effective over the last few decades.
Maslow introduced the Pyramid of Need (see Figure-1, which has five stages of needs categorised in order
and starting with the Physiological needs represented by food, drinks and other basic human needs for the
self-organisation of the human body, in the lowest level in the pyramid, the next level, is the Needs of
Security such as basic protection from the environment, stability and explain ability of daily life. Social
needs, the needs of a human being for family, friends, and to be in a social group are another level. Needs
of Self-esteem, is higher than the previous, and it is directly associated with the individual such as the
reputation, prestige, success in every sense (Maslow, 1943).
This theory introduces the human needs as a linear process. An individual will not attempt to achieve
the next stage, as long as the previous stage is not satisfied. Once this need is satisfied, the individual will
be motivated to achieve the next and so on, up to the highest stage of “self-actualisation”. However, this
stage might never be reached, and it is difficult to assume that all human beings behave in a strict line as
assumed in the theory as admitted by Maslow (Maslow, 1943). The Need Hierarchy Theory has
been heavily criticised as being inflexible and linear and it fails to explain how the different levels
can be distinguished.
Figure 1. Maslow's Pyramid of Needs (Maslow, 1943)
2.2 The concept of motivation
Motivation results from combinations of whole elements that control and drive the individual towards
the thought of the moment (Rabby, 2001). Motivation directly relates to employee performance that
improves the organisation performance and as a catalyser for the workforce to improve the organisation
performance or to finalise them in the best possible way. An organisation is run by people who contribute
to achieve organisation goals. The direct financial rewards stimulate the employee performance effectively,
therefore the management personnel’s task is to motivate their employees to work as per the plans to
improve the organisation’s performance (Panagiotakopoulos, 2013). The final level is Self-Actualisation
which represents the absolute highest of what a specific individual can reach in life (Viorel et al., 2009).
The definition of motivation in relation to employee performance can be simply described as the factors,
elements, or eagerness which prompt employees to take on and complete job goals and tasks and be the
justification why employees act and behave in a particular way which could be influenced (Barney &
Steven, 2010).
The difference between extrinsic and intrinsic was first popularised by Herzberg in 1959, when he
separated work rewards into the two different categories (Kanungo & Hartwick, 1987).
1. Extrinsic and Intrinsic motivation
When a person is extrinsically motivated he/she is driven to perform his/her task because it results in
some separate consequence (Deci & Ryan, 2008). For a person to be extrinsically motivated then an
instrumentality between an activity and some separate reward is needed. This means that motivation comes
not from the activity itself, but rather from the extrinsic consequences that the activity lea to (Gagné & Deci,
2005). In essence “the clearest examples of extrinsically motivated behaviours are those performed to obtain
a tangible reward or to avoid a punishment” (Deci & Ryan, 2008, p. 15). The tangible rewards here can
either be of a financial, material or a social character, all having a common originating environment.
When a person is intrinsically motivated je/she is motivated to perform his /her task because the activity
in itself is interesting and spontaneously satisfying (Deci & Ryan, 2008). “One who derives pleasure from
the task itself or experiences a sense of competence or self-determination is said to be intrinsically
motivated” (Buelens et al., 2010, p. 227). Intrinsic motivation is derived from a psychological reward that
originates from within and not as a result of external forces (Buelens et al., 2010). Specifically, it can be
said that any motivation, which originates from the individual’s positive reaction to qualities of the task
itself, is intrinsic as shown in Figure-2.
Intrinsic motivation can be felt as interest, involvement, curiosity, satisfaction or positive challenge.
When people are motivated because the activity is valued for its own sake and seems to be self-sustained
they are said to be intrinsically motivated (Calder & Staw, 1975b). However, the other definition of
motivation concentrates on the administrator or mediator of the reward as opposed to focusing on the
relation between the activity and the reward. Making a definition of the extrinsic and intrinsic motivations
is a challenge, (Kanungo & Hartwick, 1987).
Figure 2. Intrinsic and extrinsic motivation
Even without discussing the definition there could still be contentious points and experiments have
indicated that researchers still disagree on how to categorise various rewards (Kanungo & Hartwick, 1987).
It is important to consider these disagreements when making comparisons of different researchers’
conclusions, as their empirical studies could have relied rely on different definitions of what constitutes
intrinsic and extrinsic rewards.
The intrinsic motivation is the strongest motivation director for the intention and relationship between
the skills and strategic goals, was only positive for the employees, therefore the organisations must be
focused (Dysvik & Kuvaas, 2010). Also, there is significant impact between the job stress, flexibility of
working time, and the culture of the working environment (Barney & Steven, 2010). The successful
organisation must associate the employee’s strength and motivations and actions based on the external
changes and claim instantly to show the organisation’s value. According to the literature, numerous
frameworks based on theory of motivation are used by the researchers with only few dimensions of
motivation.
2. Main issues of motivations in business world
Looking at businesses today, and the problems confronting them, most tasks seem to be heuristic in
nature. This applies to the top management level as well, as it is common today that the complexity level of
tasks is increasing at all levels. McKinsey and colleagues supported this in their 2005 estimate that only
30% of job growth in the US comes from algorithmic jobs, while 70 % comes from heuristic work (Johnson
et al., 2005). This significant shift in the west from blue collar industrial workers, faced with relatively
simple tasks, to sophisticated knowledge workers, faced with more complex tasks, is not just a temporary
change and it can be expected that this significant development will continue (Pink, 2010). This shift has
also resulted in heavier reliance on teamwork, as cooperation among team members benefits from the
advantages of people’s different skills and perspectives to enable the creation of the best and most
innovative solutions (Kohn, 1999).
The current scenario sees business managers having to lead people facing increasingly complex heuristic
tasks where team abilities are able to offer creative, work, driven by curiosity and a thirst for a challenge.
The challenge now is to find a way to benefit from these traits and skills. As presented in this paper; intrinsic
motivation encourages these required behaviours, to recap; when intrinsically motivated “people are
interested in what they are doing, and they display curiosity, explore novel stimuli, and work to master
optimal challenges” (Deci & Ryan, 2008, p. 15). Hence, the emphasis is on managers who should do what
they can to develop an intrinsically motivated workforce and stop the reliance on contingent extrinsic
rewards, which might foster motivation.
3. The concept of Job performance
Job Performance is one of the most significant factors. Ensuring employees deliver the best output by
working to their full potential to help the organisation reach its goals is a Herculean task for a manager
(Maduka and Okafor, 2014). Cascio, (2006) defines performance as the level of accomplishment of the task
at the work place that forms the basis of an employee’s job. According to Stannack (1996), the majority of
scholars utilise the term “performance” to describe the various measurements of efficiency in transactions,
input, and output.
The most common policy adopted by managers to increase the effectiveness of performance is
motivating employees. Hence, motivation helps an organisation reach its goals faster because employees
tend to work towards it as a result of motivation. The age-old technique of carrot-and-stick does not work
in today’s environment and managers need to revolutionise the way they motivate people and get the desired
output and reward employees (Forson, 2012).
Much evidence exists to indicate that in a competitive labour market, retaining a productive employee
can be a big challenge as organisations engage in head-hunting for exceptional individuals from other
organisations. An employee with a vision for growth requires to be shown a clear path of his chances of
progression in the organisation, apart from the economic benefits they will be getting during the process.
Non availability of skilled employees results in absence of knowledge, skills and experience which will
have a deep impact on the organisation economically (Omollo, Oloko, 2015). In next section, the analysis
will show how job performance is influenced by both effects on incentives and motivation.
4. The mediation role of motivation between incentive systems and job performance
Although many incentive and motivation theories exist, the characteristics identifying the effectiveness
of incentive and motivation are consistent in the literature, for example the study of motivation comprises
hundreds of scholarly works (Kurose, 2013), each trying to use previous theories to find motivation and
investment methods that affect the employee performance in different working environments for different
organisational objectives and goals. The theoretical framework of this I study is designed based on the
literature and theory as illustrated in Figure 3.
Employees’ Motivation
H3 Intrinsic Motivation
Extrinsic Motivation
H1
Incentive System
Non-monetary and Intangible H2

approaches Employees’ Performance
Monetary and Tangible

approaches
Figure 3. Research framework of the study
The mediation analysis in this section is based on Baron and Kenny’s (1986) framework for mediation
analysis which has become a standard part of the consumer researcher’s toolkit: an independent variable IV
affects some mediator M that in turn affects some dependent variable DV (IV: independent variable, M:
Mediator, DV: Dependent variable).
Baron and Kenny proposed a series of three regressions, showing: IV affects M; IV affects DV; and
when IV and M are included in the same regression, there is a significant partial effect of M and the partial
(direct) effect of IV on DV that is less than the effect of IV on DV without controlling for M.
To test mediation, one should estimate the three following regression equations: first, regressing the
mediator on the independent variable; second, regressing the dependent variable on the independent
variable; and third, regressing the dependent variable on both the independent variable and on the mediator
as shown in Figure-3. The following analysis shows the result of these two steps:
Step One: Simple Linear Regression test (Incentives system and Job performance)
This test is done using a Simple Linear Regression between incentives system (independent) and job
performance (dependent). As mentioned above, in order to have a mediation effect, the first predictor
(incentives system) should have a significant correlation beta (ρ≤0.000) with job performance in order to
proceed to step two. The following tables show the result of this test
Table 1. Model Summary of Simple Linear Regression output between Incentives system and Job performance.
1 .702a .493 .491 .42891
a. Predictors: (Constant), Incentives_system
The R2 = 0.493 is high, that is mean incentives system predicted 71.50% of job performance (dependent)
which is statistically accepted, and the degree of correlation between these two variables is high as well
(R=0.702).
The next table shows the regression coefficients in particular non-standardized beta (B) which should be
significant in order to predict job performance from incentives system.
Table 2 Coefficients of regression 1

Standardized
Unstandardized Coefficients
Model Coefficients t Sig.
B Std. Error Beta
(Constant) 1.073 .154 6.955 .000
1
Incentives system .680 .044 .702 15.485 .000
Based on the output of coefficients table, it is found that B = 0.680 and it is significant (ρ= 0.000, ρ≤0.05).
Thus, job performance has a significant correlation with incentives system. Therefore, the mediation test
proceeds to step two.
Step Two: Multiple Linear Regression test (Incentives system, Motivations, and job performance).
In the multiple regression test, the study can identify whether Motivations mediate the relationship
between job performance and incentives system. As shown in the model summary table 3, the magnitude
of R2 = 0.589 has increased after inserting the mediator in the regression relationship job performance, the
correlation degree is increased also R= 0.767.
Table 3: Model Summary of Simple Linear Regression output between Incentives system, Motivations, and Job
performance.
1 .767a .589 .585 .38697
a. Predictors: (Constant), Motivations, Incentives system
The Table 4 of coefficients reveals that the non-standard regression coefficient beta (B) is significant for
both the predictor (incentives system) and the mediator (motivations). Where, beta (B1) for incentives
system is decreased after inserting the mediator in the regression model. Therefore, the mediator has made
a significant effect on the regression between incentives system and job performance. In addition to that
beta of incentives system should be smaller in absolute value than the original mediation effect, which is
already found from the result, non-standard regression coefficient (B1) of incentives system in step one test
= 0.680., where B2 in step two = 0.475.
The conclusion from that results of mediation test reveals that motivations partially mediate the
relationship between incentives system and job performance because the correlation between incentives
system (independent) and the job performance (dependent) is decreased and significant due to the effect of
mediator (motivations), and all three correlations between independent, mediator, and dependent are
statically significant (ρ≤0.05), thus, a partial mediation effect does exist in the mediation model (Judd and
Kenny, 1981; Pearl, 2001; Hayes, 2013; Sobel, 1982).
Table 4: Coefficients of regression 2

Standardized
Unstandardized Coefficients
Model Coefficients t Sig.
B Std. Error Beta
(Constant) .330 .170 1.938 .054
1 Incentives system .475 .048 .491 9.912 .000
Motivations .416 .055 .375 7.579 .000
4. Conclusions
The result from data analysis proved that there is a significant relation between incentives in the form of
rewards and recognition, and better work performance and this relationship is mediated by motivation. This
study showed that employees are motivated by the financial and non-financial incentives and are encouraged
and motivated towards greater work performance.
The recommendations of this study indicate that public organisations in the UAE could improve the
performance of employees significantly if they adopted a dual reward system based on financial and non-
financial incentives and are adopted periodic encouraging approaches to motivate employees and let them
show greater skills and knowledge in doing their work.
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The Influence of Recruitment Process on Developing Organizational

Performance Case: UAE organizations
Omar Ibrahim Ali Jafar Ahmad Alansari, Prof Dr Rosman Bin Md Yusoff, Dr. Fadillah
Binti Ismail
Universiti Tun Hussein Onn Malaysia
ABSTRACT
A Recruitment and selection process has strong influential on the performance of organizations though the
effective selection of qualified applicants for new jobs. It becomes one of the basic functions of large and
medium organization in today's business world. Organizations in UAE Have faced many issues with regard
to the recruitment of employees (local and international) which is negatively impacting organizational
performance. The aim of this study is to examine the relationship between recruitment processes and
organizational performance. The result of this study provides empirical evidence that recruitment processes
affect organizational performance. It is recommended that public and large organizations in U.A.E should
pay more focus on the whole recruitment process in order to select only qualified employees who contribute
to the overall performance of organizations and hire skilled staff who have strong knowledge about their
work.
Type of Paper: Empirical/Review
Keywords: Recruitment Process, Organizational Performance

__________________________________________________________________________________
2. Introduction
The United Arab Emirates points towards diverse business environments. Recruiting qualified job
applicants becomes a vital process in U.A.E because several large organizations in this country have
difficulty in collecting skilled employees who can satisfy their managers and shows high level of
performance which is reflected on the productivity of local organizations in U.A.E (Sayera, 2014).
Using the formal and the informal recruitment and selection procedures for Human Resource
Management has dramatically increased in United Arab Emirates (UAE) organizations. Along the last few
years, organizations of UAE faced some difficulties in understanding how to define recruitment and
selection procedures. It is found that organizations in U.A.E considerably recruited employees using some
successful methods but not all these methods are professional of recruiting qualified employees.
Additionally, companies in U.A.E are facing obstacles related to high costs of doing the recruitment process
through external resources because most companies are lacking expertise in recruitment of employees or
unqualified HR managers (Al Tunaiji, 2011).
In addition to that UAE nationals might suffer from expatriate’s resistance through the recruitment
process. Expatriate employees resist to the successful integration of national workers into the private sector,
particularly when successful integration leads to the replacement of the expatriates themselves (Ali & Nur,
2015). Therefore, recruitment process becomes a crucial factor that is opposed by old staff, the recruitment
department in most of local and international companies working in U.A.E failed to solve this issue.
2. Purpose of the Study
This study assumes that inefficient recruitment and selection of employees is one of the man problems
that hinder the development of organizations because recruitment process affects organizational
performance in a direct relationship. To investigate this problem this study conducted a survey in Fujairah
National Group (FNG) in U.A.E to investigate the effect of recruitment process on organizational
performance.
3. Literature Review
3.1 The concept of Recruitment and Selection Process
Recruitment is a program of generating and producing a pool of qualified candidates apply for
employment to an organization (Bratton et al., 2007). This proposes that applicants with qualifications and
experience most closely linked to job specifications that may ultimately be selected. When the cost of a
mistake in recruitment is high, organizations become concerned. Armstrong (2010) stated that the aim of
recruitment is to get, at a minimum cost, a number of appropriate and qualified candidates to satisfy the
organization needs.
Recruitment considered as a fundamental role and function of human resource management, it indicates
the comprehensive program of choosing, attracting, acquiring, and appointing sufficient candidates for jobs
(both temporary and permanent) in the organization. Furthermore, recruitment process could indicate the
programs concerned in selecting persons for unpaid posts, such as the unpaid trainee role or the voluntary
role. Managers, human resource generalists and recruitment specialists might be authorized to carry out
recruitment; however, in some conditions, the employment public-sector agencies, commercial recruitment,
or the specialist in search consultancies are usually utilized to conduct some of the program parts. The
internet based technologies to support and assist the whole aspects of recruitment have become very
common (Sulich, 2015).
Recruitment and selection process considered as a very vital and important activity, as one of the human
resource management functions; it is positively influence the organization performance particularly in
realizing its eventual and ultimate goals and targets (Costello, 2006).
Recruitment and selection process could play a pivotal role in moulding and shaping the performance,
effectiveness and validation of an organization, if the organizations of work have the ability to obtain and
acquire workers having relevant skills, knowledge and efficiency as well as they could accurately predict
their future abilities. Moreover, Recruitment and selection plays a very important role in ensuring workers
performance and in the positive organizational outcomes. Furthermore, it is often claimed that selecting
workers occurs not only to add to a workforce or to replace the departing employees but also it aims to put
in place qualified and adequate workers who can perform at a high level as well as prove their commitment
(Ballantyne, 2009).
This study defines the recruitment process as a process that includes a wide range of operations; such as
candidate sourcing, screening, interview scheduling and logistics, offer execution, system compliance, and
HRIS (human resources information systems) data entry. Recruitment is the process of identifying and
attracting a group of potential candidates from within and outside the organization to evaluate for
employment. Selection is the process of choosing the most suitable person out of all applicants.
3.2 The concept of Organizational Performance
Organizational performance encompasses the actual results or output of an organization as measured

versus its intended outcomes (for example, goals and objectives) (Boselie & Boon, 2005).
According to Richard et al. (2009) organizational performance consists of three specific areas of
organization outcomes: (1) product market performance of products (i.e. market share, sales); (2) financial
performance (i.e. return on the assets, profits, return on the investment); and (3) return of shareholder
(economic value added, total shareholder return).
In recent years, many scholars in management science have endeavoured to explain precisely the
organizational performance concept because the performance concept is measured in multiple dimensions
(Richard et al., 2009):
Organizational performance comprises the actual output (outcome) of an organization as measured
against its intended (expected) outputs (objectives and goals). In general, organization performance includes
the identification of outcomes that organization aims to achieve, also the plans to achieve those outcomes,
and carrying out those goals and plans, then determining whether the measured outcomes were achieved or
not (Msanze, 2013)
Generally, the organizational performance concept is based upon the view that the organization is a
voluntary association of productive and gainful assets, including human, capital resources and physical, in
order to achieve a shared purpose (Barney, 2001). Those who are providing the assets will only commit
them to the company so long as they feel satisfied with the value they receive in exchange relative to
alternative usage of the assets. As a consequence, creation of value is the essence of performance. as long
as the value created by using the contributed assets is equal to or greater than the value expected by those
contributing the assets, then the assets would continue to be made available to the organization and the
organization will continue to be existed (Simon, 1976).
Figure 1: The levels of performance evaluation in the organization (Sims, 2002)

In this assessment the performance of workforce is evaluated, it refers to the assessment of job
performance of employees. The Figure 1 shows the levels of performance evaluation in the organization.
Anees (2013) stated that the conceptualization of organizational performance depends on the skills and
behavior of employees to satisfy the customers. In order to ensure that an organization needs to work hard
on the employees to maintain their social and ethical behavior as the employees are connected to the
customers by phone. Organization performance concept is to listen to the customers as much as you can to
actually find out the need of the customers. He concluded different ways or concepts in an organization
which can be adopted to improve the organizational performance,
Structure drives behavior: Organizational structure includes particular procedures and policies which are
followed by the employees when they perform their day to day activities. Furthermore, it includes the targets
or goals set by the organization’s management for the organizational population to achieve. The actual
workflows that employees are encouraged and motivated towards their goals and targets.
Causes and effects are not actually related in space and time, while looking forward to the organizational
decision making it is necessary considering the delay in time decision was made and in the time outcome
was seen in most cases and this takes some months or years.
No single true answer: In an organization, decision making some few answers to the question is
obviously better than the others but there is no one certain right answer, sometimes we thought that our
answer was the best one but in fact it is not. So, in the organization decision making the right answer today
can be proved wrong tomorrow.
Behaviors will become worse before they get better: when we learn new things our behavior
effectiveness will decrease before the new skills or ability is eligible to provide the improvements as
required. Therefore, once again it’s a delay between learning the new skills and effectively using it when
needed.
4. Research Methodology and Population
The methodology used in this study is a quantitative approach based on causal (explanatory) and
correlation research strategy. Quantitative research is subjective by observation and empirical data, which
means that quantitative approach, is mainly concerned with evaluating the cause and effect of specific
phenomena and then uses the collected data by empirical observation methods.
The data collected then are analysed using statistical methods. This study was conducted Fujairah
National Group (FNG) which is a large organization located in U.AE. The type business of this organization
is mixed between financial construction, buildings, and energy. The core objective of involvement is to
ensure the compliance of investment and strict adherence to investment policies. The study population
consists of 4150 individuals represent employees and managers in FNG and working in U.A.E.
5. The relationship between recruitment process and organization performance
Recruitment and selection plays a very important role in moulding an organisations performance and
effectiveness, if the work corporations have the ability to get skilled and qualified workers and could make
an exact prediction about their future capabilities. Furthermore, Recruitment and selection has a very
significant and important role in assuring the individuals performance and the affirmative organisational
outcomes. It is commonly said that individuals selecting occurs not only to change the departing employees
or adding to the workforce but also aims to put in the right place highly performed and committed workers
(Ballantyne, 2009). The following studies show the relationship between recruitment process and
organizational performance.
Sulich (2015) examine the impact of recruitment and selection on performance of public water utilities
in Tanzania. Both correlation and descriptive research designs were used. The study targeted a total
population of 1355 employees in public water utilities. A sample size of 417 employees was selected. Data
was collected using questionnaires to employees and face to face interview with line managers. Descriptive
statistic used included frequency, means, standard deviation, percentages and tables while inferential used
ANVOVA. The results of the study revealed a statistically significant relationship between recruitment and
selection to organisational performance of public water utilities.
Saddam et al. (2015) reviewed the role of Strategic Human Resource Management (SHRM) practices in
oil and gas related firms in Iraq. Specifically, this study attempted to review the relationship between
recruiting and selection practices and firm performance in oil and gas sector. Search was depended on test
hypotheses on the theoretical analysis in the study of the relationship between recruitment and
organizational performance in the Iraqi oil and gas sector. The result of the study found a strong relationship
between recruitment and selection and firm performance of oil and gas sector in Iraq; effective recruitment
and selection practices lead to positive increase in organizational performance.
Ntiamoah et al. (2014) evaluated the impact of recruitment and selection tool on performance of the
Ghana Revenue Authority in the Greater Accra region. Data were collected by structured questionnaire.
Total 160 respondents were chosen from the district offices of the Ghana Revenue Authority in Greater
Accra region of Ghana by convenience sampling technique. The condition was that all of the respondents
were working in different positions of selected district in Ghana except the human resource department.
Data were analysed by using software SPSS-20.0 version by adopting the statistical techniques, correlation
and regression. The results of the study showed that recruitment and selection practices are directly related
to the organizational performance.
Gondal & Nauman (2016) examined the impact of Recruitment and Selection program on Perceived
Organizational Performance and Perceived Market Performance in the telecom sector of Pakistan. Data was
collected from 155 employees working in five telecom sector companies of Pakistan i.e Mobilink, Telenor,
Zong, Warid and Ufone. Statistical tools Descriptive Statistics, Cronbach Alpha, and Regression were used
to analyse data. Results of the study demonstrated that recruitment and selection program was positively
related with perceived organizational performance and perceived market performance.
Ekwoaba et al. (2015) examined the impact of recruitment and selection criteria on performance using
Fidelity Bank Plc, Lagos Nigeria as focal point. The analyses of 130 valid responses obtained through a
questionnaire that was administered to randomly selected respondents. The result of the study revealed that
recruitment and selection criteria have significant effect on organization’s performance; the more objective
the recruitment and selection criteria, the better the organization’s performance.
Adeyemi Sunday et al. (2012) assessed the impact of recruitment and selection on organizational
performance. It was to find out the recruitment and selection policy or practice, the impact of recruitment
and selection program, the challenges associated with the recruitment and selection practice and ways to
help improve human resource planning and development. The study obtained information from twenty (20)
respondents from staff of Access Bank, through the use of questionnaire. The results of the study indicated
that, advertising of job vacancies to general public, use of employment agent(s) and employee referrals are
mostly the mode for recruiting potential employees, it was also realized that the method used in the
recruiting and selection program was very effective and moreover helped to improve employee
performance.
Based on the findings from previous studies, this study asserted that recruitment and selection program
are important practices for human resource management, and are crucial in affecting organizational success.
Recruitment and selection of employees to a greater extent determines the performance of an organization
and it is of great importance if organizations want to achieve their goals. Therefore, the following hypothesis
will be tested in the survey and analysis in in this study:
There is a causal relationship between recruitment process and organizational performance.
5.1 Regression analysis between recruitment process and organizational performance
The test of the following hypothesis is made using Simple Linear Regression, ANOVA, and finally
checking Residual Plots for Regression Analysis:
H1: recruitment process affects organizational performance through a causal and statistical relationship.
H0 (Null Hypothesis): There is not causal and statistical relationship between recruitment process and
organizational performance.
The aim of this test is to examine the significance of casual and statistical relationship between these
two variables. Thus, either alternative hypothesis (H1) or null hypothesis (H0) is true (valid).
Figure 2: Regression model between recruitment process and organizational performance
The Model Summary of Simple Linear Regression
The model summary provides information about correlation coefficient (R) and coefficient of
determination (R2) for the regression model.
Table 1: Model Summary of Simple Linear Regression output between Recruitment process and Organizational
performance.
1 .495a .245 .243 .49185
a. Predictors: (Constant), Recruitment Process

b. Dependent Variable: Organizational Performance
Reading the values of R and R2 indicates how well the model predicts the observation on the variance
and variability between recruitment process and organizational performance. The correlation coefficient R
= 0.495 indicates a high degree of correlation (very strong) between recruitment process and organizational
performance.
The "R Square" column informs the degree of variation in the dependent variable (Organizational
performance) can be explained by the independent variable (Recruitment process). Reading the value of R2
= 0.245 suggests that (24.50%) of the variance in Organizational performance can be explained and
interpreted by the variance in Recruitment process. The remaining variance in Organizational performance
which is equal (75.50%) is presumed to be due to random variability not related to recruitment process.
The ANOVA Output
Examining the significance of (ρ-value) in regression model is important to inspect the degree of data fit
with regression equation. In other words if Sig. ≤ 0.05 then the null-hypothesis H0 is rejected (untrue), and
the alternative hypothesis H1 is true.
Table 2: ANOVA Output
Model Sum of Squares df Mean Square F Sig.
Regression 28.528 1 28.528 117.925 .000b
1 Residual 88.057 364 .242
Total 116.585 365
a. Dependent Variable: Organizational Performance

b. Predictors: (Constant), Recruitment Process
Reading the data in ANOVA output table shows that the Sig. ≤ 0.05. Thus, the regression model predicts
the dependent variable significantly well (i.e., a good fit for the data is obtained).
Moreover, F ratio = 117.925, F ≥ 1.0. Therefore, the variation between Recruitment process and
Organizational performance is not by chance (ρ = 0.000). In an ANOVA, the F-ratio is the statistic used to
test the hypothesis that the effects are real: in other words, that the means are significantly different from
one another. Thus F-value obtained from ANOVA output table indicates a significant correlation between
Recruitment process and Organizational performance.
Regression Coefficients
The coefficients table provides the necessary information to predict Organizational performance from
Recruitment process, as well as determine whether Recruitment process contributes significantly to the
regression model in a statistical association (by checking the "Sig." column) in the following table.
Table 3: Coefficients of regression
Model Unstandardized Coefficients Standardized Coefficients t Sig.
β Std. Error Beta
(Constant) .905 .222 4.082 .000

1
Recruitment Process .624 .057 .495 10.859 .000
a. Dependent Variable: Organizational Performance
The regression equation of this model as follow:
Y (dependent variable) = B+ B1 * X1 (independent variable)
Organizational performance = 0.905 + 0.624 * Recruitment process + 0.222
Figure 3: Normal distribution of residuals

Reading the data in coefficient table shows that B (unstandardized regression coefficient) is statistically
significant (B= 0.624, ρ ≤ 0.000). Therefore, Organizational performance is predicted by the change in
Recruitment process, giving that the Sig. = 0.000. In other words, Recruitment process affects
Organizational performance through a positive and casual relationship. Accordingly, the null hypothesis
(H0) is rejected (untrue) and the alternative hypothesis (H1) is true. In addition to that, examining the plot
of residual (errors) confirms this result. As shown in the following figure, most of residuals are centered on
zero, and throughout the range of fitted values of residuals, the residual values are not distributed
systematically. Thus, the centered distribution of residuals suggests a good degree of association between
recruitment processes affects organizational performance.
6. Conclusion
It is assumed that recruitment and selection process has strong influential on the performance of
organizations though effective selection of qualified applicants for new jobs. Thus, the leaders of large and
medium organization should understand the recruitment process very well and look to identify exactly
vacant position needed, and who is the right job applicant could fill it. Arguments have been given that the
under qualified employees may not perform positions effectively their job due to lack of knowledge and
competencies. Whereas, the over qualified employees are experienced less job satisfaction due to their
higher qualification than a desired level for a given job. The findings from analysis in this study revealed
that recruitment process affects Organizational performance in a causal and statistical relationship.
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Capital Structure and Firm Performance of the Manufacturing

Firms Listed In the Indonesia Stock Exchange (Idx): Does Market
Power Matter?
Anwar Azazi
(Department of Management, Faculty of Economics and Business, Tanjungpura University, Indonesia).
ABSTRACT
The aim of this study is to investigate the effect of capital structure on firm performance of the
manufacturing companies listed on the Indonesia Stock Exchange (Bursa Efek Indonesia) with market
power as mediating variable. Some 37 companies are selected using the purposive sampling method for the
period 2011-2016 for which firms were continuously registered in LQ45 index. LQ45 Index is LQ45 is a
stock market index for the Indonesia Stock Exchange (IDX) consists of 45 most liquid stocks traded on the
IDX. To keep the sufficiency of observation, panel data is utilized with the total number observation
accounting for 185 firm-years data. Capital structure and firm performance is measured by DAR and ROA
respectively, while market power is measured by two methods: the Boone Indicator and Barrier to Entry.
Data are then analyzed using the multiple regression models. Results of study point out that capital structure
affects significantly but non-linear on firm performance in all models. Effect of Market power (product
market competition) on firm performance is also significantly non linear or U-shaped, mainly when
measured by the Boone Indicator. However it is no longer significant when Barrier to Entry is used to
measure market power. Firm size behaves similar to that of capital structure, whilst firm growth and age
are both insignificant in relation to firm profitability.
Keywords: Capital structure, firm performance, market power, U-shaped relationship, OLS panel data
__________________________________________________________________________________
1. Introduction
Capital structure refers to the firm's financial framework which consists of the debt and equity used to
finance the firm. The analysis of capital structure and firm performance of firms is an important topic in
financial litterature (Dogan, 2013), but its relationship with firm performance is still a controversial subject
among scholars and managers for more than four decades. The seminal paper of Modigliani Miller (1958)
provided groundbreaking fondation and has inspired other financial researchers such as Abor (2005),
Matarirano and Fatoki (2010), Fosu (2013). and Quang and Xin (2014) to understand deeper theories about
it. Moreover, the relationship between capital structure and firm performance yields some conflicting
theories such as Modigliani-Miller Irrelevance theory (1958), the Trade-off theory (M-M, 1963), Agency
Cost theory (Jensen and Meckling, 1976; Myers, 1977), and the Pecking Order theory (Myers and Majlufs,
1984). Recent development of financial theories suggest that market power or product market competition
has a profound effect in expalining the link between capital structure and performance as put forward by
the limited liability effect of debt theory (Brander & Lewis, 1986) in addition to the disciplining effect of
debt (Jensen, 1986) who all suggest a positive effect of leverage on performance. Market power means
control of a firm over price or volume of production. In operational terms, market power implies a firm's
monopolistic, oligopolistic or competitive power. However, according to Myers (2001) possible under-
investment problems are also associated with debt by Myers (1977) and stakeholder reactions to leverage
(Maksimovic & Titman, 1991) suggest negative effects. Extensions of these theories (Chevalier &
Scharfstein, 1996; Dasgupta & Titman, 1998) suggest that leverage opens up opportunities for rivalry
predation in concentrated product markets, thus conditioning the performance effect of leverage on the
degree of competition in the product market. The Indonesian experience offers an opportunity to gain new
insight. Distinct from the U.S., Indonesian features a highly concentrated and pyramidal ownership structure
of fims and a less robust regulatory and legal environment (Husnan, 1999), overly concentrated product
markets (Setiawan, 2014), These attributes suggest distinctively severe agency costs of equity and product
market predation. Although, most existing studies concentrated on developed countries, very few research
papers studying capital structure-performance in relation to competition or market power effect in Indonesia
(Utary and Setyadi, 2014). This paper addresses this gap. This paper seeks to address three questions: (1)
Does the impact of capital structure on firm performance in the manufacturing industry in emerging market
(Indonesia)? (2) To what extent does this relationship hold or vary across alternative measures of
competition? (3) To what extent do the effects of leverage on performance and its interaction with
competition moderate the leverage-performace of the firms? This paper contributes to the existing literature
in the following ways. First, by focusing on Indonesian manufacturing firms, the paper provides firsthand
developing country evidence of the interaction effect of leverage and competition on performance. It also r
provides evidence from a potentially highly predatory environment with severe agency costs of equity in
emerging market. To the author's knowledge, this issue has not been previously addressed. Second, this
study adopts a new measure of competition, the Boone indicator (Boone, 2008), which estimates the extent
to which firms suffer lost earnings (or market share) as a result of being inefficient. The Boone indicator
helps address potential setbacks in concentration indexes used in all previous studies (Chevalier, 1995;
Kovenock & Phillips, 1997; Campello, 2006).
The remaining sections of the paper are organized as follows. In Section 2 some basic theoretical and
empirical notions and hypothesis development are briefly discussed. The data to be used in the empirical
analysis are described in the third section. Section 4 is concerned with shape of capital structure and firm
performance interrelationship. In the final section some concluding remarks are offered.
2. Literature review and hypothesis development
2.1 The influence of leverage on firm performance
Under the assumption of perfect market, Modigliani and Miller (1958) in their seminal paper asserts that
firm’s value is unaffected by the way that it is financed, e.g. whether the firm is financed by debt or equity.
However, if the absence of taxes is relaxed, the fact that companies can benefit from the so called tax shield
can be taken into account (Mwangi, Muathe and Kosimbei, 2014). Due to the tax deductibility of the interest
paid on the debt, increasing debt will increase firm value due to the benefits obtained from the tax shield.
Abor (2005) and Mollik (2005) found that leverage and performance are positively correlated. Myers (1984,
Chittenden et al. (1996), Wald (1999) Tian and Zeitun (2007) ad Hassan et al. (2014) found that profitability
has a negative effect on debt ratio in different models of analysis.
Hypothesis 1: capital structure has a negative influence on firm performance.
The balance between agency costs of equity and debt, put forward by Jensen & Meckling (1976) tends
to overweigh the latter, given the equity culture and the agency problems associated with indonesian firms,
as well as the regulatory environment within which these firms operate. Furthermore, any increased
monitoring necessitated by debt financing (Jensen & Meckling, 1976), though costly, might be expected to
reinforce the discipline that comes with leverage (Harris & Raviv, 1990; Jensen, 1986). Moreover, the
relatively suboptimal regulatory environment in Indonesia is expected to reinforce the strategic advantage
(limited liability effect) of leverage suggested by Brander & Lewis (1986). Thus, leverage is expected to
produce a positive effect on firm performance. This effect is, however, expected to decrease at very high
levels of leverage given the likely debt overhang problems emphasized in Myers (1984). Besides these
arguments with respect to capital structure decisions, one could also engage in a product market competition
(market power) perspective to examine the influence of leverage on firm performance. Pandey (2004) stated
that relationship between capital structure and market power could be non linear. He contended that a firm
in an oligopolistic condition sustains its aggressive production and high-income strategy by employing
higher level of debt in order to increase shareholers’ wealth. But in adverse market conditions, their limited
liability status provides protection to shareholders against the risk-taking production decision and it is the
lenders that would suffer. Thus, a firm's debt level will increase as it gains market power. On the other hand,
as debt increases, there are significant costs in terms of increased probability of bankruptcy and financial
distress. They would resort to predatory price behavior and lead their rivals to bankruptcy. This argument
suggests a negative relationship between capital structure and market power. These conflicting effects point
to the possibility of a nonlinear relationship between capital structure and market power. As a disciplining
mechanism for managers, Jensen (1986) predicts that more-profitable firms will employ higher debt and
will pursue a highoutput strategy. This also leads to a non-linear relationship (quadratic—U-shaped)
between capital structure and profitability. This expectation leads to the first hypothesis:
H2: Leverage has a nonlinear positive effect on firm performance.
To the extent that predatory incentives may be driven by rival firms' levels of leverage (Campello, 2006;
Chevalier, 1995), a related composite hypothesis that the effects of leverage may be competitor-driven is
formulated:
H3: High leverage is associated with high firm performance which increases (decreases) with product
market competition (concentration).
Control variables consists of three ratios: firm size, growth and firm age. Size is very important because
larger firms are known have more capacities and resources hence enjoying economies of scale, qualified
personnel and they are diversified to resist economic shocks. It is expected that firm size is positively related
to profitability.. Growth. Jensen and Meckling (1976) and Myers (1997) argue that firms may invest in
unnecessarily risky projects in order to reduce the returns to the firm’s creditors. This strategy may be
particularly costly for firms in growth industries that have a wider range of future investments to choose
from and therefore growth firms may use less long-term debt. Firm age. A priori, it’s uncertain what is the
expected relationship between firm age and profitability. Coad et al (2013) found evidence of both positive
and negative relationship between firm age and profitability. The older the firm the more experienced and
resilient it becomes. The market shocks and challenges that they have endured give them an added
advantage in terms of profitability, sales growth and stability. On other hand firm performance deteriorates
with age as older firms experience inertia in profitability. Thus, firm age is expected to affect negatively on
firm performance.
3. Data and methodology
3.1 Sample
The data is extracted from various Indonesia Stock Exchange publications such as JSX Directory Hand
Books published every year by the Indonesian Capital Market Authority. The period of study extends from
2011-2016 comprising the manufacturing companies listed on the Jakarta Stock Exchange (Bursa Efek
Indonesia or BEI) and part of LQ45 Index. LQ45 Index is one of some indices provided by BEI composing
of 45 most liquid firms which are selected based-on some criteria and renewal every six month. The
purposive sampling technique (Sakaran, 2003) is employed to collect data. Only the firms staying in every
semester and must have complete data to measure variables which are selected as sampel. From this criteria,
37 manufacturing firms meet my sample criteria with a total observation of 148 firm-year.
3.2. Variables
Dependent variables is proxied by Return On Assets (ROA), measured as income after tax divided by its
total assets (Fosu, 2013; Ajmali et al., 2014). Capital structure or leverage is a main independent variables
which is defined as a ratio of Total debt to total assets. Market power or competition can be measured by
different ways. First, the Boone Indicators (BI) as a new indicator to measure market power or competition
and second Barrier-to-Entry (BTE). Following Fosu (2013), the Boone indicator the main variable for
market power, is measured by estimating the following regression:

Where, V ROAit is the variable profit (measured as sales revenue less cost of goods sold of firm i in
industry j divided by its total assets; lnMcij is the natural logarithm of the marginal cost (approximated by
cost of goods sold divided by sales revenue) of firm i in industry j (Fosu, 2013; Tofu , 2014); and t is the
time-varying parameter, the absolute value of which measures competition. The sign of the coefficients is
expected to be negative. The higher the absolute value of the coefficients (βt), the higher is the level of
competition in the industry. Barriers to entry (BTE): low barrier to entry in an industry indicates higher
product market competition of such an industry. To compute the barriers to entry, is used fixed assets and
intangible assets divided by total assets. In the absence of intangible assets, only are fixed assets calculated.
As with other previous studies, some control variables are used such as: Firm size. Following Titman and
Wessels (1988), our measure of size is the natural logarithm of net sales. I think that net sales is a better
proxy for size, because many firms attempt to keep their reported size of asset as small as possible, e.g., by
using lease contracts. Growth. Growth (GA) is measured as one plus annual change in total assets. Firm
age. The number of years in natural logarihmic after IPO was used as a proxy to firm age in this study (Coad
et al, 2013).
1. 3.3 Empirical Model Specification
2. This research utilizes three models of analysis:
3. ROAi ,t =  + 1 DARi ,t −1 +  2 Com j ,t −1 +  3 Size − i ,t −1 +  4 Growthi ,t −1 +  5 Agei ,t −1 +  i ,t −t (1)
4. ROAi ,t =  +  1 DARi ,t −1 +  2 DARi2,t −1 +  3 Com j ,t −1 +  4 Sizei ,t −1 + +  5 Growthi ,t −1 +  6 Agei ,t −1 +  i ,t −1

(2)
Equation 2 is intended to examine whether capital structure has U-shaped in relation to firm
performance. In order to capture the effect of competition, equation (3) is rewritten to include the interaction
of leverage and product market competition as shown below:
5. ROA =  +  DAR +  DAR 2 +  Com +  Size +  DAR * Com +  Gowth +  Age +  (3)
i ,t 1 i , t −1 2 i , t −1 3 j , t −1 4 i , t −1 5 i , t −1 j , t −1 6 i , t −1 7 i , t −1 i , t −1
where ROA i;t is return on assets of firm i at time t; α is the constant term; λi represents firm-specific
effects; DARi,t-1 is lagged leverage of firm i at time t; Capital structure variable is measured by squaring
lagged leverage (DAR2i;t-1); and εi;t is the error term. The lagged value of leverage helps address any
possible reverse causality between leverage and performance. Also, the inclusion of the squared lagged
leverage takes account of the possible nonlinear effect of leverage on performance. The study used panel
estimation technique in analyzing independent variables to the dependent variables (Baltagi, 2013).
4. Data Analysis and Discussions
4.1. Descriptive statistics and correlation between variables
The following descriptive statistics is presented to imply behaviour of firm’s financial variables under
investigation.
Table 1.1 Descriptive statistics and correlation matrix
Descriptive statistics Correlation matrix

Std. DAR
N Min Max Mean ROA DAR BI BTE SizeS Growth
Dev 2
ROA 148 - .9000 .0995 .1331 1
.1169
DAR 148 .1500 1.8300 .5222 .2629 - 1
.229*
**
DAR2 148 .0225 3.3489 .3413 .4126 - .935** 1
.183* *
*
BI 148 .5214 19.677 7.6534 4.8148 .319* -.159* - 1
1 ** .181*
*
BTE 148 .0411 .9444 .4044 .22087 -.126 .001 .059 -.005 1
SizeS 148 6.762 13.387 9.8886 1.8897 .310* -.105 - .417* - 1
4 6 ** .146* ** .034*
Growth 148 - .5962 .0377 .12613 -.013 -.060 -.046 .248* -.010 -.036 1
.3341 **
Firm 148 5 34 19.878 5.2189 -.058 .067 .064 - .064* .157* -.115
age 4 .171*
*
***. Correlation is significant at the 0.01 level (2-tailed); **. Correlation is significant at the 0.05 level (2-tailed); *
Correlation is significant at the 0.10 level (2-tailed).
It can be seen from Table 1.1 that capital structure proxied by DAR on average is 52,22 percent, while
average DAR2 is 34,13 percent. The Boone Indicator (BI) and Barrier-to-Entry (BTE) points out different
results, 7.65 and 0.4044 respectively. Average firm size and growth in sales of the company is 9.88 or 3.77
percent. Average firm age is 19.88 years ranging from 5-34 years. While ROA was 9,95 percent on
average with standard deviation reaches 13.31 percent, implying that firm’s profitability is relatively
volatile. Interrelationship among variables shows that capital structure, DAR and DAR2, are both correlated
to the profitability. BI (BTE) is found to have a positive (negative) and significant (insignificant) relation
to firm profitability. Size, also point out a positive and very significant correlation with profitability. Market
power correlates negatively and significantly with DAR and DAR2. Negative but insignificant correlation
is found to exist between BTE and profitability which highlights that high competition can not enhance the
capability of firm to increase its profitability. Market power (the Bonne Indicator) has a negative and
significant correlation with firm age, implying that older firms are facing less competition compared with
younger firms. In contrast, BTE corresponds positively and significant to firm age.
4.2. Impact of Capital Structure on Firm Performance
Table 2 provides evidence that effect of capital structure on firm performance in various equation
models. The different between model 1 and model 2 is only in variabel measurement for market power or
product market competition. In model 1 market power is proxied by the Boone Indicator (BI), whilst model
2 considers Barrier-to-entry (BTE) as market power. In Panel B for model 3 and model 4, the effect of
capital structure is examined with the assumption that thare exists a non-linear (quadratic) relationship
between capital structure and firm profitability. This result bears out the findings obtained by Kovenock &
Phillips (1997), Fosu (2013) and Utary and Santoso (2014). For model 5 dan model 6 as presented in Panel
C, the effect of capital structure on firm’s profitability is the tested by incorporing the interaction effect
between market power or competition In all models, as presented in Panel A, B and C, capital structure
affects negatively and significantly on firm performance mainly in model 1, 2, 3 and 6, but it is very
significant in model 5. The magnitude of coefficients in all models, except for model 1 and 2, was relatively
large. Negative effect of capital structure on firm profitability in both models supports the under-investment
(asset substitution) of Myers, 1977, Pecking Order Theory of Capital Structure (Myers, 1984), and Free
Cash Flows Theory of Jensen (1986). My result is also supported by agency conflict arising from different
interest between shareholders and debt holders by as identified by Jensen & Meckling (1976). Futhermore,
results shows that DAR2 affects positively and significanty on firm’s profitability. There is an indication
that listed manufacturing firms in Indonesia employed high leverage in order to reduce agency costs arising
from shareholders-manager conflict. In this respect, the benefits of leverage have been attributed to the
discipline that comes with leverage through interest payment pre-commitments (Jensen, 1986), Grossman
& Hart’s threat of bankruptcy (Abor, 2005), and the informational content of debt (Harris & Raviv, 1990).
Hence, higher leverage has the potential to reduce costs and enhance performance. Market power measured
by the Bonne Indicator in all equations affects positively and significantly on firm’s performance. From the
table we can observe that coefficient value of the Boone Indicator is small, implying that competition
among the manufacturing firms, at least for the period 2011- 2016 is less severe. It might due to the market
structure in manufacturing sector in indonesia which is mostly dominated by a few big players or
oligopolistic market structure (Setiawan 2014). When measured by Barrier-to-Entry (BTE), market power
or competition coefficient signs, in all cases, are similar to the theory prediction. BTE impacts negatively
and significantly on firm performance for model 4 and model 6, except for model 2.
Tabel 2. Effect of Capital Structure on Firm Performance of The Manufacturing Companies Belong to LQ45 Index
Listed in Indonesia Stock Exchange (2011-2016)
Panel A Panel B Panel C

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
(Constant) .018 (.102)# .072 9#(.103) .061#(.104) .126#(.106) .040#(.109) .122#(.107
)
DAR -.088**(.039) -.098**(.039) - - -.219(.142) -
.275**(.109) .302***(.111 .282**(.12
) 6)
DAR2 .128*(.070) .140**(.071) .114(.074) .131*(.076
)
BI .006**(.003) .006**.002 .009*(.006)
BTE -.066(.047) -.081*(.047) -
.079*(.047
)
Firm Size .015**(.006) .021***(.006) .006**(.006) .023***(.006 .016***(.006 .023***(.0
) ) 06)
DAR*BI -.006*(.010)
DAR*BTE .000(.002)
Sales growth -.079(.084) -.026(.082) -.084(.083) -.030(.081) -.085(.084) -.023(.084)
Firm age -.020(.032) -.035(.031) -.021(.031) -.036(.031) -.024(.032) -.039(.032)
R Square .177 .156 .196 .178 .198 .179

Adjusted R2 .148 .126 .162 .144 .158 .138
F Change 6.091(.000) 5.246(.000) 5.724(.000) 5.106(.000) 4.938(.000) 4.366(.000
(Prob.) )
D-W Stat 1.112 1.061 1.088 1.036 1.083 1.033
***. Correlation is significant at the 0.01 level (2-tailed); **. Correlation is significant at the 0.05 level (2-tailed); *
Correlation is significant at the 0.10 level (2-tailed); # Figures in bracket is standard error
Firm size has the positive coeficients in all models which is in line with the theory prediction. Its
influences toward firm performance is very significant in all models. This result corraborates Dogan’s
finding in Turkey (2013). The interaction effect of competition and capital structure in influencing firm
performance is negative and marginally significant as the competition variable is measured by the Boone
Indicator, as presented in model 5. This negative relationship between capital structure and market structure
indicates the existence of high brankuptcy costs and severe information assymetric in the manufacturing
firms in Indonesia. This results bears out the empirical findings by Titman & Wessels (1988) and others
reseachers. I found positive relationship between firm size and firm profitability which is similar to result
obtained by Nunes et al (2008). Sales growth and firm age are not significant in realtion to firm performance
in all econometric models, indicating that both variables do not affect the financial performance of
manufacturing firms belonging to LQ45 Index.
5. Concluding remarks
The findings of this paper show a significant negative effect of leverage on firm performance. However,
the effect of capital structure is non-linear but remains significantly positive on firm performance. It is also
found that the interaction effect of leverage and competition on firm performance is negative, especially
when competition (market power) is measured by the Boone Indicator. It turns out to be positive and non
significant if it is proxied by Barrier-to Entry (BTE). The findings imply that competition do not enhance
the benefits of leverage to create high profit. The direct negative and significant effects and U-shaped
(sausauge) relationship of capital structure –firm performance reported in this paper due to the interplay of
agency costs, costs of external financing and the interest/tax shield in the manufacturing industry in
Indonesia.
Refferences
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Determinants Of Fraud: How Corporate Governance Mechanism

Affect Corporate Fraud?
Fitri Ismiyanti, Putu Anom Mahadwartha
Airlangga University, Indonesia
ABSTRACT
This research aims to examine factors that can affect fraud on financial reports which can encourage the
emergence of corruption committed by management as the one who manage the company. This study uses
the banks as the research sample because the banking industry is a highly regulated industry that is obliged
to report its financial statement and be accountable to Bank Indonesia. However, there are still frequent
fraudulent in their financial statement. Good corporate governance mechanisms are indicated to be able to
reduce external factors that trigger fraud in financial statements. Thus, this research will focus on testing
the factors that may affect fraud in financial statements which leads to management corruption. The data
used in this research are financial statements supported by data obtained through questionnaires for
implementation of corporate governance variable. The method used in this research is logistic regression.
The mechanism of corporate governance that will be tested in this research is using the length of financial
director’s governing period, number of board of commissioners’ meeting, auditor type, managerial
ownership, and independent commissioner. The result of this research showed that number of board of
commissioners and managerial ownership variables are a mechanism that can be used to minimize fraud in
financial statement. While the number of independent commissioners, number of board of commissioners’
meetings, number of main director’s governing period, the largest share ownership, and auditor type can
not be used as a mechanism that can minimize fraud in financial statements.
Keywords: fraud, governing period, commissioner, auditor, ownership

__________________________________________________________________________________
1. Introduction
Financial fraud (fraud) is a deliberate act done by someone to manipulate and cheat on financial
statements for personal or group interests. Fraud is a deliberate embezzlement behavior that aims to hide
the facts on financial statements. The embezzlement meant in this study is the undertaken behavior by
altering the company's assets or property unfairly (Bashin, 2015).
Banking industry is a highly regulated industry because all transactions carried out must be reported to
Bank Indonesia. However, based on statistical data of Center for Reporting and Financial Transaction
Analysis (Pusat Pelaporan dan Analisis Transaksi Keuangan-PPATK); until 2009, banking industry is the
largest contributor to the Suspicious Financial Transactions Report, which is as much as 78,8% from 24,392
cases or equivalent to 19,242 cases.
The embezzlement carried out from 2007 to 2010 was 15,097 cases with a total state loss of IDR 86.76
billion. The internal fraud found largely indicates the weakness of banking internal control system (Ames,
et al. 2012). Good corporate governance is indicated to be able to hamper triggering factors of fraud. Jensen
(1993), Beasley (1996) and Uzun et al. (2004) found that firms with a high percentage of independent
commissioners have lower fraud rates. Chen et al. (2005), Bashin (2015) and Ozili (2015) found that the
number of board meetings have a positive effect on fraud. The length of main director’s governing period
and managerial ownership has an influence on the probability of corporate fraud (Beasley, 1996). Zhang
(2005) found that the largest shareholders have a negative influence on corporate scandals. A study
conducted by Perols (2008) indicates that the presence of Big 4 auditors is one of the dominant variables in
fraud detection within the organization.
Some of the studies above showed that corporate governance has an influence on fraud. The bigger the
number of board of commissioners in the company, then the supervisory function will be less centralized
and it will provide the gap for fraud. The greater the proportion of independent commissioners, the greater
independent scrutiny will be and that may minimize the possibility of fraud. The number of board meetings
can be an indicator of supervisory activities performed by board of commissioners. The more often board
of commissioners’ meetings get, it shows higher supervision by the board of commissioners, thus the
probability of fraud will decrease. The length of director’s governing period determines the experience he
has in managing the company. The longer his governing period gets, the more experience and knowledge
the company will have, and fraud will less likely to occur (Bashin, 2015). Managerial ownership can align
shareholder and management interests, thereby decreasing the probability of fraud. The largest shareholder
can reduce the probability of fraud because the largest shareholder can help the board of commissioners to
oversee the company's operations. The probability of fraud can also be reduced by the presence of qualified
auditors. Auditors can assist companies in detecting the occurrence of fraud in their financial statements.
The better the quality of the auditor, the more reliable the audit results will be and the higher their
independence level will get (Jensen, 1993; Beasley, 1996; Uzun et al., 2004).
In a previous study, Chen et al. (2006) examined all companies listed on the Chinese stock exchange
market for five years and is associated with The Security Law issued by the China Securities and Regulatory
Commission (CSRC). The independent variables (corporate governance variables) tested, among others are
the proportion of independent commissioners, the size of board of directors, the number of commissioners'
meetings, the length of director’s governing period, CEO duality, the proportion of share ownership owned
by business entity, the proportion of share ownership owned by individual shareholder, foreign ownership,
the proportion of share ownership owned by the largest shareholder, auditor type, company growth rate,
corporate loss, leverage, and rate of return. This study used a dummy variable approach that is worth the
value of 1 if the auditor is one of the ten largest auditors based on market share in China for auditor quality
variables. This is because independent auditing is still fairly new in China.
This study uses dummy to differentiate companies that are categorized as doing an internal fraud. In
accordance with Bank Indonesia Circular Letter no. 9/12/DPNP dated May 30, 2007 stating that the
regulations of internal fraud disclosure are only addressed to commercial banks in Indonesia, thus the
sample used in this study covers all commercial banks in Indonesia. The purpose of this study is to examine
the effect of corporate governance variables, including the number of boards of commissioners, independent
commissioners, the number of board meetings, the length of president director’s governing period,
managerial ownership, the largest share ownership, and auditor type against fraud on the financial
statements. In all banks as research samples, there is no CEO duality, thus this variable is not included in
the research model. Most of the firms studied do not present shares ownership clearly, thus individual
ownership, legal ownership, foreign ownership and Herfindahl index variables that measure the ownership
concentration of the ten largest shareholders cannot be included in the research model. In this research, the
writer produced the quality of auditors by using dummy variables that is worth of 1 if the auditor is an
accounting firm that is affiliated with the Big 4 accounting firms and worth of 0 if the auditor is an
accounting firm that is not affiliated with the Big 4 accounting firms.
Based on the background of the existence of fraud in the financial statements, this research will test and
answer the question: what are the determinants affecting fraud in the financial statements and managerial
corruption?
2. Literature Review on Fraud
Hall (2001: 135) defines fraud as a deliberate embezzlement, untruth in reporting company assets or
manipulation of financial data. Research performed by Chen et al. (2006), Bashin (2015) and Ozili (2015)
define fraud as a fault and discrepancy of financial disclosure, takeover of assets that harm minority
investors, corruption of corporate officials and securities firms officials, as well as stock market
manipulation. This refers to the provisions issued by CSRC (China Securities and Regulatory Commission).
This study defines fraud according to the definition of internal fraud on SE BI No. 9/12/DPNP dated
May 30, 2007, which is irregularities or fraud committed by the management, permanent and non permanent
employees related to the work process and banks’ operational activities which significantly affect banks’
financial condition. The significant effect on banks’ financial condition is defined where the impact of that
deviation is more than IDR 100,000,000 (one hundred million rupiah). One of the mechanisms to disclose
fraud is through a whistleblowing system which allows every employee to report to the president director
in case he/she finds any deviation performed by other employee. After that, the head of internal audit will
respond to the report. Fraud can also be found from the investigation performed by internal audit and
external auditor (accounting firms and Bank Indonesia). The scope of internal audit is all aspects and
elements of the bank. The findings of internal audit will be submitted to the board of directors and board
of commissioners with a copy to audit committee. Internal audits also coordinate with external auditors.
Bank also establishes Internal Supervisory Unit (SPI/Satuan Pengawas Intern) or Internal Audit Unit
(SKAI/Satuan Kerja Audit Intern), Risk Management Work Unit and Compliance Unit to supervise all its
operational activities.
Fraud can be caused by internal and external factors. Internal factor as mentioned is the factor from
within the individual perpetrator itself; namely greed and need. External factors as mentioned are factors
from outside the individual perpetrator and is associated with the organization; namely the opportunity and
the unfolding of previous fraud; as well as the non existence of clear sanctions for perpetrators caught before
(Ditama Binbangkum, 2008).
The ACFE (Association of Certified Fraud Examiners) classifies fraud in three types or typologies based
on deeds:
1. Deviation upon assets
Deviation upon assets includes the misuse or theft upon asset or property that belongs to a company or
other party. This is the easiest type of fraud to be detected because its character is intangible or can be
measured or calculated.
2. False statements or misstatements
False or misstatement statements include actions taken by an officer or an executive of a company or
government agency to cover the actual financial condition by performing a financial engineering in
presenting financial statements in order to gain profit.
3. Corruption
Often, this type of fraud cannot be detected because all parties were working together and enjoying the
benefits. These include the abuse of one’s authority or conflicts of interest, bribery, illegal acceptance, and
economic extortion.
6. 2.8. The Effect of Board of Commissioners Numbers on Fraud
The principles of good corporate governance introduced by OECD consist of transparency,

independence, accountability, responsibility, and fairness. The principle of accountability states that board
of commissioners is responsible for oversighting and is obliged to advise the board of directors on managing
the company. The number of boards of commissioners can influence the creation of accountability
principles in the company. This is related to effectiveness of supervision performed by board of
commissioners.
The Board of Commissioners has the duty and responsibility to supervise the management; which is the
Board of Directors and give advice to the Board of Directors. According to Board Manual published by PT
Surveyor Indonesia, commissioners may conduct supervision in various ways, namely requesting written
information from Board of Directors regarding company’s issues, visiting the work unit, responding to
directors; periodic reports, and assigning audit committees to perform tasks supervision. The number of
boards of commissioners may affect the effectiveness of such supervisory activities.
Jensen (1993) found that firms with a lartge number of board of commissioner will have less effective
supervision. Beasley (1996) found that the number of boards positively affects company's fraud. These
results indicate the greater the number of boards of commissioners gets, the greater the fraud probability
will be. This is because as the number gets bigger, it will be harder for them to coordinate, thus the
supervisory function will be less effective.
Research conducted by Jensen (1993) found that the larger the number of boards gets, the supervisory
function would be less effective. Yermack (1996) proves that small boards are more effective than large
boards of commissioners. Vafeas (1999) found a significant negative influence of the number of boards on
corporate value. This indicates that the larger the board of commissioners gets, the company's value will
decrease.
Some of the above studies indicate a positive influence of the number of commissioners on fraud. This
influence means with the growing number on board of commissioners, the possibility of fraud will be higher.
The increasing number of board of commissioners will make it harder to centralized supervisory function,
and make it more difficult to conduct coordination on supervisory activities (Nasution and Setiawan, 2007).
H1: The number of board of commissioners has a negative effect on fraud
2.9. The Effect of Independent Commissioners on Fraud
One of the principles of good corporate governance is independence. Companies must be managed
independently so that each company's organs will not dominate each other and cannot be interfered by
others. Such independence is to avoid the possibility of conflict of interest arising due to the largest
shareholder. A company is required to have at least one independent commissioner, who came from outside
the company and has no business relationship with the company or its affiliates. In accordance with Bank
Indonesia Regulation (PBI No. 8/14/PBI/2006) on the Implementation of Good Corporate Governance for
Commercial Banks, the bank must have an independent commissioner who is a member of board of
commissioners and he/she have no financial relation, management relation, ownership and/or families
relation with other board of commissioner’s members, directors and/or controlling shareholders or any other
relationships that may affect his/her ability to act independently.
An independent commissioner acts as a counterweight during the decision making activity taken by
board of commissioners so that the decisions taken are independent and impartial to certain parties. Fama
and Jensen (1983) stated that supervisory activity performed by independent commissioners has a purpose
to signal the public about the reputation of effective supervisory activity within the company.
Independent commissioners have monitoring role upon the possibility of fraud in financial statements
disclosure by managers (Bashin, 2015). The larger and more competent the proportion of independent
commissioners, it can reduce the tendency of deception within the company. It can also be applied to fraud.
The larger and competent independent commissioner, the probability of fraud is reduced because of the
existence of better supervision.
Rosenstein and Wyatt (1990) found that the percentage of outside directors can increase firm value.
Beasley (1996) also found that outside director improves the effectiveness of supervision as indicated by
the significant negative influence of outside director proportion on fraud. Uzun et al. (2004) examined the
effect of outside director proportion on the probability of fraud occurring within the firm. The study found
that the outside director had a significant negative effect on the probability of fraud occurring within the
company.
Chen et al., (2006) found that the percentage of outside directors has a significant negative effect on the
occurrence of fraud, which means that the greater the proportion of the outside director gets, the smaller the
probability of fraud will be. Chen et al., (2006) and Ozili (2015) also tested the effect of independent
commissioners proportion on earnings management. The result of the research showed that the proportion
of independent commissioners has a negative and significant influence on earnings management.
The results of these studies indicate that independent commissioner have an effect on the opposite
direction with the occurrence of fraud within the company. The lower the percentage of independent
commissioners on the board of commissioners gets, the more likely fraud will occurs. This is due to the
effectiveness of supervisory function performed by independent commissioners. Independence of
independent commissioners is caused by their lack of personal interest upon the company, thus there is no
impulse to take actions that may leads to fraud.
7. H2: Independent commissioners have a negative effect on fraud
2.10. The Effect of Board of Commissioners’ Meetings Amount on Fraud
The principle of accountability requires the creation of an effective supervisory system based on the
division of powers between commissioners, directors and shareholders, which includes monitoring,
evaluation and control upon the management. Meeting held by board of commissioners is one of the
reflection upon accountability principle. Monitoring, controlling, and evaluation upon management can be
done through board of commissioners meeting. This is performed to ensure that management acts in the
interests of shareholders.
According to Bank Indonesia Circular No. 9/12/DPNP, the board of commissioners conduct regular
meetings with directors at least four times a year and conducts meetings of committees which are under the
board of commissioners. Board of commissioners discuss issues that are considered important in influencing
the company. The frequent meetings of commissioners in a year indicate an increase in alertness and
supervision.
Vafeas (1999) found that the more frequent board meetings are, it can increase profitability. Frequent
meetings served as a high surveillance to improve performance, resulting in increase on profitability. While
Chen et al. (2006) found that the number of board of commissioners' meetings indicates the board of
commissioners’ activities. The more frequent board of commissioners holds meetings indicating that
supervisory activities become more stringent.
Board of Commissioners meetings are held to oversee the policies taken by the board of directors and
their implementation. Vafeas (1999) found that the more frequent board meetings held, it will increase
profitability. Frequent meetings held are an an indication of increase in supervisory activities at the
company.
Chen et al. (2006) found that fraud-related companies have more number of board meetings in a year
than firms that do not engage in fraud. In the multivariate test performed in that research, they also found
that the number of board meetings in a year has a significant positive effect on the occurrence of fraud
within the company.
The studies mentioned above indicate that the number of board of commissioners’ meetings has a
positive influence on the occurrence of fraud. The more frequent commissioners meetings held, the greater
the tendency of fraud within the company will be. The indication of any activity or decision being question
or suspected will make board of commissioners further increase their supervision on the company. One way
to increase supervision and control over corporate management performed by directors is to hold frequent
board of commissioners meetings.
8. H3: The number of board of commissioners mettings has a negative effect on fraud
2.11. The Effect of the Length of President Director’s Governing Period on Fraud
The main director plays an important role in the success of the company. Letter from Bank Indonesia
no. 9/12/DPNP obliged that the president director has to come from an independent party to the controlling
shareholder. It is intended so that any decision taken will not be impartial to certain parties so as not to harm
minority shareholders.
The principle of responsibility requires the existence management responsibility, management control,
as well as responsibility to the company and its shareholders. This principle is manifested with the
realization that responsibility is a consequence from owning an authority and the realization of social
responsibility, avoiding the abuse of power, becoming professional and upholding ethics, as well as keeping
a healthy business. The president director must be able to be responsible for his leadership and does not
abuse the mandated power. This principle should be reflected as long as he governs, so that it lowers the
probability of fraud. The president director is responsible for the overall company management and oversees
several directors who have the executive function in the company.
Chen et al. (2006) and Ozili (2015) found that the length of president director’s governing period had a
significant negative effect on the existence of fraud within the company. This means that the length of
president director’s governing period has a negative relationship with the possibility of fraud within the
company. Negative relationship indicates that the shorter his governing period is, the more likely fraud will
occur. This is due to limited amount of knowledge owned regarding the company itself, thus it creates the
gap for fraud to exist.
Beasley (1996) found that the length of president director’s governing period had no effect on fraud
within the company. Parker et al., (2002) found that a change of president director is an indication of the
company's poor survival. Based on succession-crisis theory, a change of president director may be
disruptive because it can lead to lower organizational morale and increase uncertainty and conflict.
Ozili (2015) found that companies involved in the fraud have shorter length on its president director’s
governing period than companies that do not involved in fraud. The results of the research found that the
length of president director’s governing period has a significant negative effect on the occurrence on the
occurrence of fraud within the company. This result means that the longer the president director govern, the
lower probability of fraud will get.
Some of the results of those research indicate that the length of president director’s governing period has
a negative influence on the possibility of fraud within the company. The opposite direction shows that the
shorter their governing period gets, the more likely the fraud will occurs. This possibility can be attributed
to the short governing period will make president director’s knowledge regarding the company fewer than
those who govern longer (Chen et al., 2006). This will creates gaps for fraud to exist.
9. H4: The length of president director’s governing period has a negative effect on fraud
10.
11. 2.12. The Effect of Managerial Ownership on Fraud
Ownership structure has quite an influence on company performance. Managerial

ownership refers share ownership that belongs to management namely board of commissioners
and directors who are actively involved in decision-making within the company. Managerial
ownership aims to avoid any conflict of interest arises between shareholders and management.
Shareholders want an increase in corporate value, while management has its own interests in the
company, such as self-enrichment and others. Managerial ownership also aims to reduce agency
costs that will arise. This is because the management that owns shares in the company will have
the same interests as other shareholders, which is the increase of company value.
Managerial ownership can also encourage the creation of fairness principles within the
company. The principle states that all stakeholders should get fair treatment from the company.
Between management and shareholders, there might be an information asymmetry that may harm
shareholders. The largest shareholder interests can also make management to be more likely taking
largest shareholder sides. This will harm the interests of minority shareholders. Managerial
ownership can avoid such decisions or management behavior that only take sides with the largest
shareholders.
Vafeas (1999) found that managerial ownership had a significant positive effect on
company performance. The study showed that the management who also owns shares have the
motivation to improve company's performance. If company’s performance is increasing, then the
company value will increase as well and this is be beneficial for shareholders, including the
management who owns shares. Other studies also found that managerial ownership has a
significant negative effect on earnings management. This suggests that managerial ownership may
reduce the motivation for profit manipulation. Management will tend to be motivated to improve
performance rather than simply manipulating company profits.
12. Jensen and Meckling (1976) explained that an increase in managerial ownership
can encourage managers to create optimum corporate performance and motivate managers to act
cautiously. This can be caused by a sense of ownership of the company with the existence of their
own ownership. If there is a decision that harms shareholders, then the management also bear the
loss. This is in accordance with the results of research performed by Vafeas (1999) who found that
the share ownership by company’s own management and employees have a significant positive
effect on company performance. This shows that the greater the proportion of managerial
ownership gets, the better company's performance will be.
13. Saleh et al., (2005) found that managerial ownership had a significant negative
effect on earnings management. This is in line with the results of research conducted by Warfield
et al., (1995) who also found that managerial ownership has a negative effect on earnings
management. This suggests that the greater the managerial ownership gets, the practice of profit
manipulation will be reduced. Management who owns shares in the company will tend to work for
the shares that they owned, in which profit manipulation will affect his/her own managerial
ownership.
14. Some of research results presented above indicate that managerial ownership
negatively affect the probability of fraud. This can be due to the motivation to not harm themselves
as a shareholder of the company. In the event where fraud occurs, then as a shareholder, managers
will also be impaired either directly or indirectly. The existence of fraud will reduce the company’s
value in public eyes and will have a bad impact in the long run. The direct effects would be that
fraud can have a bad impact on company’s financial state, such as reducing availability of current
assets that are used to pay company’s debt.
15. H5: Managerial ownership has a negative effect on fraud
16. 2.13. The Effect of Largest Ownership on Fraud
One of the principles in good corporate governance is accountability that contains authorities that must
be owned by board of commissioners and directors as well as their obligations to shareholders and other
stakeholders. The board of directors is responsible for the success in managing the company, the board of
commissioners is responsible for the success of supervisory activities, and shareholders are responsible for
the success in constructing the company’s management.
The largest shareholder oversees the company’s management by attending company meetings and so
forth. The largest shareholder can also demand transparent and reasonable corporate management, so that
the company can be well managed. The participation of largest shareholder’s to realizing good corporate
governance plays a role in the realization of accountability principles.
Ownership structure can trigger agency costs. When the ownership structure of a company is well
diverse, it will generate agency costs due to a conflict of interest between outside shareholders and the
company’s management (Jensen and Meckling, 1976). In a concentrated company ownership structure, the
agency problem that occurs is between the largest shareholder and minority shareholders. The largest
shareholder usually has considerable power in the company, thus the largest shareholder can either hamper
or encourage the existence of fraud within the company.
Zhang (2005) found that the largest share proportion had a significant negative effect on the existence
of scandal within the company. This means that the greater shares proportion owned by largest shareholder
gets, the lesser probability of a scandal will be. This is because the largest shareholders will also oversee
the company’s operational activities, thus the possibility of mismanagement by the management will be
reduced.
Zhang (2005) examined the influence of largest share proportion on the probability of scandal. The study
found that the largest share proportion had a significant negative effect on the probability of scandal within
the company. This shows that the bigger the proportion of largest shareholder have, the less likely scandal
within the company will occurs.
Parker et al., (2002) found that blockholder ownership had a significant negative effect on the likelihood
of bankruptcy. The results indicate that the owners of blockholder shares tend to protect the company.
Univariate test performed by Chen et al., (2006) showed that companies that do not engage in fraud have a
higher largest share percentage than companies involved fraud. Chen et al., (2006) also found a significant
negative impact of the largest ownership on earnings management. This result means greater the largest
ownership gets, the less likely earning management practices will be performed.
Some of these studies indicate that the largest share ownership negatively affects the probability of fraud
within the company. A great percentage of shares owned by the largest shareholders will then caused them
to have more control over the company. The largest shareholders have a considerable great ammount of
interest in the company, thus they tend to protect the company from fraud. If there is a fraud within the
company, then the reputation of the company will be bad in public eyes and it can adversely affect the
company's financial state as well as how this will adversely affect the company's continuity in the short and
long term.
H6: Largest shareholder has a negative effect on fraud
17. 2.14. The Effect of Auditor Type on Fraud
18. In the principle of corporate governance disclosure, informations regarding the company should be
disclosed in a timely and accurate manner. The disclousure is meant so that shareholders and public know
what state is the company in. The disclousureness mentioned means that companies are required to submit
an audited financial statements prepared by external auditors to the public and authorized agencies on a
regular basis. External auditors also help to present an objective information for the public.
19. Perols (2008) found a significant positive effect of the Big 4 auditor on fraud detection. This
indicates that if the company uses an audit services from the Big 4 accounting firms, then the probability of
fraud will decrease. Big 4 auditors can detect the case of fraud within the company early.
20. Lee et al., (2007) found that Big 4 auditors had higher auditing quality than other auditors. Perols
(2008) also found that audits performed by Big 4 auditors have a significant positive effect on the fraud
detection within the company. Chen et al., (2006) and Law (2010) found that the type of auditor does not
affect the occurrence of fraud.
21. Auditor type negatively affects earnings management. This is in accordance with Zhou and Elder
(2001) who found that firms audited by Big 5 auditors tend not to performed such earnings management
before IPOs than firms audited by non-Big 5 auditors. These results are due to auditors quality that can
detect earning management earlier than others (Widyaningdyah, 2001).
22. Some of these studies indicate that the type of auditor has a negative influence on the probability
of fraud within the company. Negative influence indicates that if the company is audited by good quality
auditors like Big 4, the probability of fraud is reduced. The purpose of audit performed is to reduce the
information dissonance between managers and shareholders. Auditors will audit the financial statements
prepared by the management, thus they can help in detecting the occurrence of fraud within companies
earlier. A trusted and qualified auditor will hamper fraud within the company.
23. H7: Auditor type has a negative effect on fraud
24.
25.
26. 3. Research Method
The model for analysis used in this research is logistic regression by using equations as follows:
FRAUDi,t = β0 + β 1 SIZEi,t + β 2 INDEPi,t + β 3 MEETi,t + β 4 CEOTENi,t + β 5 KEPMANi,t + β 6
TOPi,t + β 7 AUDITORi,t + e
Notes:
FRAUDi,t = Dummy variable which worth of 1 if internal fraud exists on company i at year t,
or else worth of 0
SIZEi,t = The number of board of commissioners on company i at year t
INDEPi,t = The percentage of independent commissioners on company i at year t
MEETi,t = The number of board of commissioners meetings in a year on company i
at year t
CEOTENi,t = The length of president director’s governing period (in years) on company i at year
t
KEPMANi,t = The percentage of managerial ownership on company i at year t
TOPi,t = The percentage of shares owned by largest shareholder on company i at year t
AUDITORi,t = Dummy variable which worth of 1 if company i at year t was audited by
auditor that is affiliated with Big 4 accounting firms, namely Deloitte Touche Tohmatsu, Pricewaterhouse
Cooper (PWC), Ernst & Young, and KPMG, or else worth of 0
The population in this research are all banks listed on the Indonesia Stock Exchange. The sample in this
research is determined by purposive sampling method, which is a method that determines sample by setting
up certain limitation or consideration. This study determines the sample with criteria as follows samples are
listed on the Indonesia Stock Exchange in 2000-2012, and samples have complete data regarding the
existence of internal fraud, number of boards of commissioners, percentage of independent commissioners,
number of board of commissioners meetings in a year, the length of president director’s governing period,
percentage of shares owned by directors and commissioners, percentage of largest ownership, and auditor
type used by the company. This research uses eight variables, which are:
a. Fraud is a dummy variable with the value of 1 on company i at year t if there is an existence of internal
fraud based on SE BI No.9/12/DPNP dated at 30 May 2007, or else it will have a value of 0 (Chen et
al., 2006; Zhang, 2005).
b. The number of board of commissioners on company i at year t measured from the total of board of
commissioners on company i at year t.
c. Independent commissioners on company i at year t measured as follows:
The number of independent commissionersi ,t
27. Independent Commissionersi ,t = x100
Total all board of commissionersi ,t
d. The number of board of commissioners meetings. The research of Kaplan and Minton (2006) measured
the number of board of commissioners meetings on company i at year t based on the number of meetings
held in a year.
e. The length of president director’s governing period. Based on research performed by Beasley (1996)
and Chen et al. (2006), the length of president director’s governing period on company i at year t is
measured by the number of his governing period in years.
f. Managerial ownership is measured as follows:
28. ManagerialOwnershipi ,t = 
Stocks owned by directors and commissionersi.t
x100
Total Company Stocksi ,t
g. Largest ownership used proxy from Chen et al., (2006) and Zhang (2005), the share proportion of
largest ownership is measured as follows:
Stocks owned by l arg est shareholderi ,t
29. L arg est Ownershipi ,t = x100
Total Stocksi.t
h. Auditor type uses proxy from Zhou and Elder (2001), Perols (2008), auditor type was set as dummy
variable with the value of 1 if company i at year t is audited by big 4 auditors of accounting firms that
are affiliated with Big 4, namely Deloitte Touche Tohmatsu, Pricewaterhouse Cooper (PWC), Ernst &
Young, and KPMG; or else it will has the value of 0.
4.1. Descriptive Statistics
This research examined 77 observations. Out of all observations, 29 observations of them are classified
as companies with the absence of internal fraud and the rest 57 observations are classified as companies
that have experienced internal fraud. From all observations , 23 observations were not audited by Big 4
auditors and the rest of them which is 63 companies were audited by Big 4 auditors. Table 1 below is the
descriptive statistics table of this research.
Table 1 Descriptive Statistics
N Minimum Maximum Rata-rata Standard

Deviation
FRAUD 77 0.00 1.00 0.6623 0.47601
SIZE 77 2.00 9.00 5.3506 1.81199
INDEP 77 50.00 75.00 56.1805 7.18267
MEET 77 3.00 51.00 16.0909 13.03253
CEOTEN 77 0.08 14.00 3.5839 3.20946
KEPMAN 77 0.0000 1.6100 0.254683 0.4460203
TOP 77 15.419 99.996 57.2717 18.585025
AUDIT 77 0.00 1.00 0.7662 0.42600
4.2. Model Analysis and Hypothesis Testing
30. This resaearch uses logistic regression analysis to obtain regression model and hypothesis testing.
Hypothesis test is carried out by logistic regression analysis to know the influence of each independent
variable upon dependent variable. Regression results are shown in Table 2.
31.
Table 2 The Result of Fraud Logistic Regression
B S.E. Wald Df Sig. Exp(B)
SIZE 0.586 0.236 6.176 1 0.013 1.797
INDEP -0.013 0.052 0.064 1 0.800 0.987
MEET 0.044 0.034 1.635 1 0.201 1.045
CEOTEN 0.029 0.113 0.065 1 0.799 1.029
KEPMAN -1.804 0.885 4.158 1 0.041 0.165
TOP 0.023 0.021 1.246 1 0.264 1.023
AUDIT -0.901 0.815 1.221 1 0.269 0.406
Constant -2.833 3.354 0.713 1 0.398 0.059
In contrast to multiple linear regression, the coefficient of logistic regression cannot be interpreted
directly. According to Chaniago (2009), the logistic regression coefficient shows changes in logit as a result
of the change of one unit of independent variables. In the logit model, it developed a measurement known
as odds ratio. The SPSS output on Exp (B) column shows the odds ratios of each variable.
Based on the Exp (B) column model, the following are interpretations of those odds ratio:
Companies with the number of board of commissioners more than one have fraud probability of 1,797
times compared to those companies with smaller number of board of commissioners (one person) or firms
with bigger number of boards of commissioners have higher fraud probabilities.
Companies with the percentage of independent commissioners greater than 1% have a fraud probability
of 0.987 times compared those companies with smaller number of independent commissioners (1%) or
firms with a larger percentage of independent commissioners have lower fraud probabilities.
Companies with number of commissioners meetings more than once a year have a fraud probability of
1,045 times than those compannies with smaller number of commissioner meetings (once per year) or
companies with larger number of board of commissioners meetings have higher fraud probabilities.
Companines with the president director’s governing period of more than a year have fraud probability
of 1,029 times than those with shother governing period (one-year) or firms with longer president director’s
governing period have higher probability of fraud.
Companies with managerial ownership greater than 1% have probability of fraud probability 0.165 times
compared to those with smaller managerial ownership (1%) or firms with greater managerial ownership
have lower fraud probabilities.
Companies with the largest shareholder have share percentage greater 1% have a fraud probability of
1,023 times compared to those with its largest ownership has less than 1% or firms with the greater share
percentage of largest ownership have higher fraud probability.
Companies audited by accounting firms that are affiliated with the Big 4 auditors have fraud probability
of 0.406 times than companies that are audited by Big 4 auditors non-affiliated accounting firms or firms
audited by accounting firms that are affiliated with Big 4 auditors have lower fraud probabilities.
Table 3 Classification Table
Observation Prediction
FRAUD
% of correct
NO FRAUD FRAUD prediction
FRAUD NO FRAUD 19 7 63.7
FRAUD 3 48 91.6
Total Percentage 85.0
On Table 3 Overall percentage of the classification table shows that regression model built is able to
classify in the appraisal value of Y (fraud) as much as 85%. Logistic regression results found that the number
of boards of commissioners statistically has a significant positive effect on fraud, which means the greater
the number of board of commissioners, the more likely fraud will occur. This result is in line with Beasley's
(1996) research which stated that the number of boards has a positive significant effect on fraud and
Yermack (1996) which proved that smaller boards are more effective than large board of commissioners.
When the number of board of commissioners gets bigger their performance will be more ineffective (Jensen,
1993). This is because the greater the number board of commissioners gets, it will be harder and more
complicated for them to coordinate, and this will provide a gap for management and employees to conduct
fraud. The increase in board of commissioners can also lead to a more complicated decision-making process
in terms of supervisory activities, as it requires more coordination. Vafeas (1999) also indicates that a greater
number of board of commissioners negatively impact company's performance. The negative impact on
performance also showed that the greater number of board of commissioners will reduce their effectiveness.
Statically, independent commissioners have no significant effect on fraud. These results contradict
Beasley (1996), Uzun et al., (2004), Ozili (2015), and Chen et al., (2006) who found that independent
commissioners had a significant negative effect on fraud. This is due to the addition of an independent
commissioner intended to comply with Bank Indonesia regulations which require every bank to have an
independent commissioner of at least 30% of the total board of commissioners. Gideon (2005) described
that the addition of an independent commissioner were simply being done to meet regulatory requirements;
while the largest shareholder and founder of the company still play an important role; thus the performance
of independent commissioners tends to decline. Siregar and Utama (2006) also argued upon the possibility
of appointing an independent commissioner only for the sake of meeting regulatory; instead of to enforce
good corporate governance within the company. The newly appointed independent commissioners to
comply with BI regulations have not been effective in performing their duties, thus the addition of an
independent commissioner has no effect on the probability of fraud.
The number of board of commissioners meetings has no significant effect on the probability of fraud.
This result does not support the research of Vafeas (1999), and Chen et al., (2006). However, this result
supports the research of Johnson et al., (2005) who did not find the effect of the number of board meetings
on fraud. Bhagat (2003) explains that the involvement of senior managers in board of commissioners'
meetings can influence the decisions taken by the board of commissioners. This can make board of
commissioners’ supervision to be less effective or ineffective.
Statistically, the length of president director’s governing period does not have a significant effect on
fraud. This result does not support the research of Parker et al., (2002) and Chen et al., (2006). However,
this result is consistent with Beasley's (1996), Uzun et al., (2004), Johnson et al., (2005), and Cornett et al.,
(2006) studies that found no effect of the length of president director’s governing period on fraud. The result
showed that president director does not reduce effectiveness in fraud monitoring. The length of president
director’s governing period cannot affect fraud. This due to the reason that president director replacement
is never due to fraud cases within the company, but more onto the company's performance compared to its
industry (Kaplan and Minton, 2006). Shareholders tend to pay attention to company's performance against
the industry as long as that president director governs. If the company's performance is worse than the
industry average during certain periods, then shareholders will consider replacing the president director.
The tendency of shareholders to see company’s performance against its industry has caused the president
director paying more attention to company's performance against its industry rather than fraud cases.
The statistical results of logistic regression also show that managerial ownership has a significant
negative effect on fraud. The increase on managerial ownership can reduce the probability of fraud. This
result supports the research of Vafeas (1999), Warfield et al., (1995), and Saleh et al., (2005). This result
proves that an increase in managerial ownership can encourage managers to create optimum corporate
performance and motivate managers to act cautiously (Jensen and Meckling, 1976). If the manager acts
cautiously, then there may be a decrease in the probability of fraud. Managers are encouraged to create a
good corporate image for their own shares. In case there is fraud happening, the image of the company will
be worsened in public’s eyes and it may decrease company’s value. The consequences will also be bear by
manager as a shareholder, thus he will be motivated to hampers fraud from taking place.
The largest ownership variable statistically has no negative effect on fraud. The result is contrary to
Zhang (2005) who found that the largest ownership has a negative influence on the existence of financial
scandal. The result of this research also does not support Parker et al., (2002). However, this result supports
the research of Chen et al., (2006) who did not find the largest ownership effect on fraud. The lack of
influence means supervision carried out by the largest shareholder is not effective. This is because
supervisory activity was carried out by one party only. If shares ownership is scattered to several
shareholdings, then the supervisory activity carried out can be more effective. This is because there will be
a lot of parties supervising, thus it will be more objective and effective.
Auditor type has no significant effect on fraud. The result of this research is in accordance with the
research of Chen et al., (2006) and Law (2010) which found no significant influence of auditor type on
fraud. This result is because the environment in which the auditor operates is so competitive that the non-
Big 4 auditors (accounting firms that are not affiliated with the Big 4 auditors) are also encouraged to
improve their audit quality to be able to compete with auditors who are affiliated with Big 4 (Law, 2010).
In Indonesia the auditor market is quite competitive. This is evidenced by the number of accounting firms
in Indonesia, thus to get clients’ trust and good reputation, accounting firms compete to provide the best
service. However, the result of this research does not support the research of Zhou and Elder (2001), Lee et
al., (2007), Widyaningdyah (2001), and Perols (2008).
This research attempts to examine determinants that influence fraud on financial statements which leads
to managerial corruption at the firm. The results of this research found that the variables number of the
board of commissioners and managerial ownership are a mechanism that can be used to minimize fraud on
financial statements. While the number of independent commissioners, the number of board of
commissioners meetings, the length of president director’s governing period, the largest share ownership,
and auditor type cannot be used as a mechanism that can minimize fraud on financial statements. In
accordance with the results of this research in Table 3, corporate governance mechanism can be used to
reduce fraud of financial statements (which at the corporate level is called as managerial corruption) by
85%.
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Japanese Primary School English: The Evolving Curriculum that

Never Seems Complete
Harry Carley
Matsuyama University, Japan
ABSTRACT
Japanese English education at the primary school level has been in a continuous state of evolution since the
early 1980's. At that time, Japan was enjoying economic boom times known as the 'bubble economy'. The
country's economic approach was being modeled by many other nations worldwide. Internationalization
became a key buzz word for many sectors of commerce and even down to the most basic levels of the
educational system in Japan. The Japanese government was being called on more and more to take a
stronger leadership role on the global stage. A lack of English speaking abilities by high ranking Japanese
government officials involved with world diplomacy and other areas held back any great progress on the
part of Japan as a whole. The need for a broader spectrum of language study beyond Japanese was quite
apparent.
The branch of government in Japan that overseas education known as MEXT (Ministry of
Education, Culture, Sports, Science and Technology) foresaw the urgency to implement an English
language text at the primary school level. Young people that grew up learning English or any number of
other languages in addition to Japanese could become a valuable asset to the country as a whole. In the
beginning though classes were only sporadically given to the primary school students. Sometimes as little
as once a semester or once a month. Later it was decided that lessons would be given on a more rigorous
schedule for the 5th and 6th grade students. They began to receive lessons on average of once a week. The
lessons were not formal in nature and were titled ‘English activities’. These sessions included singing songs,
playing games, and occasionally role playing such as going shopping or asking directions. Since student
class size could and still does extend to as many as 40 students, one on one or close supervision of student
progress was marginal at best. The government approved text at this time was known as the ‘Eigo Note’
and consisted of two levels, one for the 5th and another for the 6th grade. This text came with a Japanese
only teacher’s manual, a compact disc of songs and chants, and some colored cards that could be used for
activities or various games. The debate of whether a text was even necessary went on for years and the
eventual push for publication lasted even longer. The Eigo Note was only used for one year when it was
replaced by similar texts for the 5th and 6th grades entitled ‘Hi Friends’. The 'Hi Friends' books followed a
similar pattern of attempting to generate English language interest through the use of games, songs, chants,
and various activities in a educational yet fun and interesting manner for the young learners. This has been
the government policy now for roughly the past ten years.
With the introduction of the latest texts though the 5th and 6th grade learners will use books entitled
'We Can'. The texts for the 5th and 6th grades will be made up of 9 units with eight different sections to a
unit. These sections consist of 'let's listen', 'let's watch and think', 'let's play', let's chant', let's sing', 'jingle'
and finally 'activity'. There is no fixed order of which to introduce the sections so instructors are allowed
discretion and as to what and when to teach it. A common complaint among native English instructors is
the lack of material and the lack of cohesion between units. Topics seem to have been randomly selected.
Additionally, the teacher's manuals for the new texts will again be only printed in Japanese. This last
inclusion has been a area of contention since a textbook was first introduced.
As it began with the 5th and 6th grades, MEXT is now continuing this policy implementation with the
introduction of textbooks at the 3rd & 4th grade levels beginning in April of 2020. The next stage of texts
will be entitled 'Let's Try' for the 3rd and 4th grade levels. Currently, school districts, schools and teachers
are in a transitional phase as they shift to differing texts and an expanded curriculum that will soon include
four levels of students instead of two. The 3rd & 4th grades will have lessons similar to the prior format
with structured English activities that are not graded. The 5th and 6th graders on the other hand, will begin
formal lessons that are more structured and will be graded. Many inside and outside of educational circles
fear that these lessons will become nothing more than junior high school English prep classes. Junior high
school English classes are geared toward entrance into senior high school while senior high schools main
aim is toward passing the English portion of university entrance examinations. Whether the English classes
at the primary school level will also trend in that direction has caused some educators to become hesitant
of what is yet to come.
On a positive note, English lessons in Japanese primary schools have advanced considerably since the
1980's. Prior to the introduction of a formal text English lessons were at best hit and miss. Most often ALT's
(Assistant Language Teacher's) who were prominently unlicensed foreigners with English language
abilities were paired with licensed Japanese teachers of English (JTE's) who were most often the homeroom
teacher with poor English skills. This instructional policy was referred to as 'team teaching'.
Unfortunately, similar to an actual sports team the role of each teacher as a teammate differed drastically
from school to school and also classroom to classroom. The additional of a text added an area of stability
from which to form some basis of actual lessons that progressed in natural steps. Which member of the
'team' will teach which part of the text is often decided between the respective ALT's and JTE's at each
school.
The down side to a text being introduced is that it has fundamental flaws in regards to teaching English
language at the primary school level. Some of the major areas for improvement to be considered are the
infrequency of lessons which will actually become 40 minutes twice a week for 5th and 6th graders from
2020, the lack of outside reinforcement regarding English, and a shortage of foreign and Japanese teachers
who have been trained with fundamental language learning pedagogy. It would not be surprising if there
were further revisions to the basic textbooks utilized in schools. These changes though will not negate the
core obstacles that hinder Japanese individuals from acquiring even the basics of English language
achievement and comprehension. Japan’s future role on the global stage is linked to primary school
education in core subjects such as science and math, and to also clarify these points with a language that is
widely understood throughout the world, such as English.
Debt Constraint and Debt Facilitate Expropriation to Performance:

Asset Utilization Efficiency as Moderating
Putu Anom Mahadwartha1*, Fitri Ismiyanti2
1
Faculty of Business and Economics, University of Surabaya, Raya Kalirungkut, 60297, Surabaya, Indonesia
2
Faculty of Economics and Business, Airlangga University, Airlangga no.4, 60286, Surabaya, Indonesia
ABSTRACT
This research purpose is to test debt constraint expropriation (DCE) and debt facilitates expropriation (DFE)
condition when a firm has higher or lower asset utilization. The use of debt in debt constraint expropriation
(DCE) condition has a significant positive effect on firm’s market performance and it is higher for firm
with high asset utilization efficiency than firm with low asset utilization efficiency. The use of debt in debt
facilitate expropriation (DFE) condition has positive non-significant effect on the firm’s market
performance and it is higher for firm with low asset utilization efficiency compared to firm with high asset
utilization efficiency. This research uses moderated regression analysis (MRA) to examine the hypotheses,
to test the moderating effect to the model, and Wald coefficient test to get the strength differences effect
between moderating variable. The uses of debt in debt facilitate expropriation (DFE) condition has a
negative effect on the firm’s market performance. The use of debt in debt constraint expropriation (DCE)
condition has a significant positive effect on firm’s market performance and it is higher for firm with high
asset utilization efficiency than firm with low asset utilization efficiency. This research contributes on rules
of debt to firm’s motivation of transferring wealth among shareholders and debtholders, vice versa.
Keywords: debt, expropriation, asset utilization, performance

__________________________________________________________________________________
Introduction
Ismiyanti and Mahadwartha (2008) classify debt based on its effect on expropriation into two types,
namely debt-constraint expropriation (DCE) and debt-facilitate expropriation (DFE). Ismiyanti and
Mahadwartha (2008) is the first research introduced term of DCE and DFE. The use of debt will inhibit
expropriation because the supervision of creditors is focused on the firm's ability to pay debts. On the other
side, the use of debt can also facilitate expropriation for managers and shareholders. They are able to find
ways to move business risk to lender through dysfunction of free cash flow and debt so that shareholder can
do cash expropriation as personal gain and creditors will bear all costs. This research facilitates Ismiyanti
and Mahadwartha (2008) arguments and results to support the hypotheses and filling the gap of assets
utilization issue on DCE and DFE.
Similar results were found in studies of the negative effect of debt to performance (DFE) while
performance proxy with ROE. DFE conditions described with high use of debt and high free cash flow as
well. Uniquely, the use of debt in debt constraint expropriation (DCE) condition will affect positively firm’
financial performance (Ismiyanti and Mahadwartha, 2008). This indicates that the level of debt has different
impact on firm performance. In addition, productivity of the firm can also moderate the relationship of debt
and performance. The use of debt policy can be used as an investment in assets to increase asset utilization
efficiency therefore has an impact on firm’ performance; and also facilitating managers in expropriation
(Claessens et al., 1999). Therefore, this research examines DCE and DFE condition when firm has higher
or lower asset utilization. Researches are quite a few to discuss and examine the moderating effect of asset
utilization on DCE and DFE conditions. Hopefully, the result will imply as insight on managers and or
major shareholders’ perquisites on minority expenses.
Expropriation is defined as a process of using power over the supervision and control to maximize each
owns welfare by distributing the wealth of others who are less powerful (Claessens et al., 1999). Potential
expropriation practices in the agency relationship is very high. Agency conflict is not entirely an act of
expropriation, but expropriation is a deliberate practice that occurs in the agency problems.
Cheng et al. (2010) argued that creditors’ control of performance and firm's ability to pay debt while,
Ismiyanti and Mahadwartha (2008) argued that the high internal ownership in a firm will control manager’s
act of expropriation and is expected to protect the interests of creditors. If the manager also owns the firm,
then goals to achieve prosperity is not merely the prosperity as a manager, but also as shareholders. Other
reason that may impede practices of expropriation is due to the role of reputation. In this case, the reputation
associated with two different objects, the reputation of the manager in the labor market (Fama and Jensen,
1983) and the firm's reputation in the loan market (Malitz, 1989). If a manager has a track record of
expropriation issues, for example on the shareholders in a certain firm, then the other firm will reluctant to
hire. While regarding firm's reputation, if the debt-holders have found an expropriation, in which case it
will indeed generate huge profits in an instant for firm, but a huge loss for the firm in the future. It will be
difficult for firm with a bad reputation to get funding source for future investment. If creditor is finally
willing to grant a loan, then cost of debt will incur very high as a compensation for poor corporate reputation
in the loan market.
The ownership structure of firm in Indonesia is generally concentrated. The size of the majority
shareholding provides the power for shareholders to be involved in firm through voting rights as influencer
for business decision. Thus, it will give pressure to management to carry out his duties as an agent;
especially in making investment decision that generate profit for the firm (La Porta et al., 1997; Keasey et
al. 1998; Sin-Huei Ng., 2015). Thus, with the concentration ownership structure, expropriation practices in
debt can be inhibited. With the existence of debt, it will affect tendency towards the use of free cash flow
by the manager, thus trigger the expropriation practices that do not benefited shareholders. The existence
of substantial funds, either from cash flow or debt, could result in appearance of manager’s opportunist
behaviour.
Debt and asset utilization are factors that can affect firm’s performance. According to agency theory
firm with debt financing will have higher performance because management monitoring mechanism by
creditor. With the existence of such surveillance, managers can maximize performance with efficient assets
utilization. Research on wealth expropriation hypothesis by Kim et al. (1977) was retested by Malitz (1989).
Malitz (1989) examined the role of the firm's reputation in the loan market if the firm is proven to have an
intentional expropriation practice to creditors. The result showed that firm's value increases along with the
increase in shareholder value and a bit of loss on the creditors’ wealth. However, the study focuses on the
effects of the firm's reputation on the cost of debt in the future. The study reveals that with the bad reputation
related to the expropriation practices, it will have an impact on firm' difficulty in obtaining debt in the future
or they will be charged with a very high interest.
Utilization of the firm's assets has a role in moderating the relationship between debt and market
performance (market-based performance). Firm with low asset utilization efficiency is said to have a
stronger effect in moderating the negative impact of the use of debt to the market performance compared to
firm with high asset utilization efficiency (Jermias, 2008). Ismiyanti and Mahadwartha (2008) tested debt
with the classification of the impact on expropriation, which is debt constraint expropriation (DCE) and
debt facilitate expropriation (DFE) on the effect to financial performance (ROE). The results suggested both
of these classifications have different impacts on financial performance. DCE is expressed by high free cash
flow and low debt positively affects financial performance, while DFE expressed by high free cash flow
and high debt has the opposite effect. Therefore, this study has four hypotheses, which are:
H1: The use of debt in debt constraint expropriation (DCE) has a positive effect on firm performance.
H2: The use of debt in debt facilitates expropriation (DFE) has a negative affect the firm's performance.
H3: The use of debt in debt constraint expropriation (DCE) has a higher positive effect on the firm’
performance in high asset utilization efficiency compared to low asset utilization efficiency.
H4: The use of debt in debt facilitates expropriation (DFE) has a lower negative effect on the firm’
performance in high asset utilization efficiency compared to low asset utilization efficiency.
The following is research framework:
Figure1. Research Framework
3. Research Method
This research uses 88 manufacturing firms listed in Indonesia Stock Exchange from 2012-2016.
While based on their impact on expropriation, debt is divided into two conditions (Ismiyanti and
Mahadwartha, 2008), debt-constraint expropriation (DCE) and debt-facilitate expropriation (DFE). The
classification calculated using firm's free cash flow and debt ratio as shown in Table 1. High and low
categories are divided using median value. Firm with debt and free cash flow above median considered as
high, while lower than the median considered as low.
Table 1. The Classification of DCE and DFE (Ismiyanti & Mahadwartha, 2008)
Free Cash Flow Debt (Debt/TA) Category
High Free Cash Flow Low Debt Ratio DCE
High Free Cash Flow High Debt Ratio DFE
FCF = (AKO – PM –NWC) /Total Equity

Notes:
FCF = free cash flow
AKO = operational cash flow; cash inflow – cash outflow from operational activity
PM = capital expenditure; net fixed asset on the year t – NFAt-1
NWC = net working capital; current assets – current liabilities
DEBT = (Short term liabilities + Long term liabilities)/Total Asset
Market to book ratio = Market value of the firm /Book Value of Total Asset
Asset Utilization Efficiency (AUE) = Total Sales/Total Asset
This research uses one independent variable, debt in a state of debt constraint expropriation (DCE) and
debt facilitate expropriation (DFE); one dependent variable of market based performance (MBP); and one
moderating variable asset utilization efficiency (AUE). AUE measured using a dummy variable with a value
of 1 for firm with high AUE and 0 for firm with low AUE. The statistical model is divided into two types
of regression. First, this research uses ordinary least square estimation method to test the effect of debt in
DCE and DFE on the firm’s performance. Second, using moderated regression analysis to examine the
impact of moderating variable AUE to the effect of debt (DCE and DFE) on firm’s performance. The study
also uses Wald test to determine the strength of moderating effect on the effect of debt on firm's
performance. The regression equation also controlled for fixed effect within years. Both models performed
with four equations as follows:
Model 1: MBPiDCE = α+β11DEBTiDCE+εiDCE
Model 2: MBPiDCE = α+β21DEBTiDCE+β22AUEiDCE+β23DEBTiDCE*AUEiDCE+εiDCE
Model 3: MBPiDFE = α+β31DEBTiDFE+εiDFE
Model 4: MBPiDFE = α+β41DEBTiDFE+β42AUEiDFE+β43DEBTiDFE*AUEiDFE+εiDFE
Notes: α = intercept; βi = regression coefficient; ε = error term
Table 2. Hypotheses Testing

Research Hypothesis Coefficient
H1 The use of debt in debt constraint expropriation (DCE) has a positive effect on firm performance.
β11>0
H2 The use of debt in debt facilitate expropriation (DFE) has a negative effect the firm's performance.
β31<0
H3 The use of debt in debt constraint expropriation (DCE) has a higher positive effect on the firm’
performance in those with high asset utilization efficiency compared to the firm with low asset utilization
efficiency. β21>0
β21+β23>0
β21+β23>β21
H4 The use of debt in debt facilitate expropriation (DFE) has a lower negative effect on the firm’
performance in those with high asset utilization efficiency compared to the firm with low asset utilization
efficiency. β41<0
β41+β43<0
β41+β43<β41
4. Result
4.1 Model Analysis and Hypotheses Testing
Table 3 shows the coefficient and significance probability from the t-test of each regression. Based on
Table 5, before moderation, the coefficient of debt ratio shows the value of 1.275. It is claimed that the use
of debt in DCE condition has a significant positive effect on the firm market performance. Thus H0 is
rejected and H1 is not rejected. Meanwhile coefficient of debt ratio shows the value of -1.043 on DFE. It is
claimed that use of debt in DFE condition has a significant negative effect on the firm market performance.
Thus H0 is rejected and H1 is not rejected.
Table 3. Regression Result

Variables Before Moderation After Moderation
DCE DFE DCE DFE
Coefficient Coefficient Coefficient Coefficient
Debt 1.275 ** -1.043 *** 0.174 *** 0.092
AUE 0.521 *** 0.130 **
Debt*AUE 0.114 *** -0.374 ***
D2011 0.450 ** 0.165 ***
D2012 0.324 ** 0.382 *
D2013 0.231 *** 0.140 ***
D2014 0.076 * 0.031 **
R2 0.048 0.063 0.642 0.206
***) 1%sig; **) 5% sig; *) 10% sig
Wald test used to compare the effect of moderating between high AUE and low AUE on the effect of
debt in DCE and DFE conditions to firm market performance. Wald test result showed that after moderated
by asset utilization efficiency, the use of debt in DCE conditions is significantly positive on firm market
performance and it is higher for firm with high AUE compared to firm with low AUE. Thus H0 is rejected
and H1 is not rejected. Based on the result, coefficient test showed that after moderated by asset utilization
efficiency, use of debt in DFE conditions has a negative but insignificant effect to firm market performance
and it is higher for firm with low AUE compared to firm with high AUE. Thus H0 is accepted and H1 is
rejected.
Table 4. Wald Result (except for H1 and H2 using t-test)

Hypotheses Coefficient Wald Result
H1 β11>0 1.275>0 **
H2 β31<0 -1.043<0 ***

H3 β21>0
β21+β23>0
β21+β23>β21 0.174>0
0.174+0.114>0
0.174+0.114>0.174 ***
**
**
H4 β41<0
β41+β43<0
β41+β43<β41 0.092<0
0.092-0.374<0
0.092-0.374<0.092
**
*
***) 1% sig; **) 5% sig; *) 10% sig
5. Discussion
Before the interaction with asset utilization efficiency, the use of debt in DCE condition has a positive
significant effect on firm market performance. Debt is said to inhibit the practice of expropriation (DCE)
because in this situation it is assumed that firm is able to manage a high FCF allocated for reinvestment,
payment of dividends, debt repayments, tax savings, effective monitoring from creditor, firm are in mature
phase, implementation of good corporate governance, and lower liquidity risk with high FCF. In addition,
low debt ratios reflect small cost of debt, thus the possibility for a firm to have financial distress is low. In
DCE, it will be easy for the firm to have access to external funding, because creditors prefer firms with low
debt ratios. The result also suggests that firm in DCE attract investors and it will lead to increase the firm
value.
Before the interaction with asset utilization efficiency, the use of debt in DFE condition has a negative
significant effect on the firm’s market performance. Debt is said to facilitate the practice of expropriation
(DFE) because in this condition it is assumed that firm is unable to manage a high FCF allocated for
reinvestment, payment of dividends, and debt repayments. This study suggest high debt is used to meet debt
obligations that should be funded by high FCF instead, thus the existence of debt will trigger manager’s
opportunist behavior upon firm FCF. If there is too much debt then the benefits of debt will not compensate
the disadvantage.
After the interaction with asset utilization efficiency, debt coefficient and its moderating variables
indicate that the effect of moderation is high on the effect of debt to firm performance under DCE condition.
The use of debt in DCE condition has a positive significant impact on the firm market performance. DCE
describe high FCF, whereas firm that have high asset utilization efficiency in general are firm under mature
phase. Thus, firm have high liquidity and higher dividend pay-out ratio compared to firm with low asset
utilization efficiency.
Debt in DCE condition describe low debt ratio, where firm with high asset utilization efficiency tend to
use cost leadership strategy that has a principle to keep their costs as low as possible, including the cost of
debt. In addition, the overuse of debts is more likely to lead to financial distress. For firm that is on mature
phase, the use of debt is no longer interpreted as leverage, because in this phase, firms tend to rely on
retained earnings and stocks as their funding.
6. Conclusion
The use of debt in debt constraint expropriation (DCE) condition has a positive effect on the firm’s
market performance. This is due to the liquidity factor, investment opportunities, the efficiency of
managers’ performance and the high access to external funding sources, the implementation of good
corporate governance, as well as the cost of debt and low bankruptcy risk. This will attract investors and
increase firm’s market performance. The use of debt in debt facilitates expropriation (DFE) condition has a
negative effect on the firm’s market performance.
References
Cheng, Y.S., Liu, Y.P., & Chien, C.Y. (2010), Capital Structure and Firm Value in China: a Panel Threshold
Regression Analysis. African Journal of Business Management, 4 (12), 2500-2507.
Claessens, S., Djankova, S., Fan, J., & Lang, L. (1999). Expropriation of minority shareholders: evidence from East
Asia. Policy Research Working Paper 2088 The World Bank.
Fama, E.F., & Jensen, M.C. (1983). The Separation of Ownership from Control. Journal of Law and Economics, 26
(2), 301-325.
Ismiyanti, F., & Mahadwartha. P.A. (2008). Does Debt Affect Firm Financial Performance? The Role of Corporate
Governance in Indonesia. Jurnal Riset Akuntansi Indonesia, 11, 1-22.
Jermias, J. (2008). The Relative Influence of Competitive Intensity and Business Strategy on the Relationship between
Financial Leverage and Performance. The British Accounting Review, 40, 71-86
Keasey, K., Thompson, S., & Wright, M. (1998). Corporate Governance: Economic, Management and Financial
Issues. Managerial Auditing Journal, 13 (6), 390-391
Kim, E.H., McConnell, J.J., & Greenwood, P.R. (1977). Capital Structure Re-arrangements and Me-first Rules in an
Efficient Capital Market. Journal of Finance, 32 (3), 789-810.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W. (1997). Legal Determinants of External Finance.
Journal of Finance, 52 (3), 1131-1150.
Malitz, I.B. (1989). A Re-examination of the Wealth Expropriation Hypothesis: The Case of Captive Finance
Subsidiary. Journal of Finance, 44(4), 1039-1047
Sin-Huei Ng. (2015). Exploring the relationship between “other block-holders” and the performance of family-
controlled corporations in Malaysia. Asia-Pacific Journal of Business Administration, 7(2), 117-139.
Analysis of Implementation of COSO-ERM Framework with

moderation Philosophy of Khalifatullah Fil Ard and Role of
Elements of Higher Education Governance to Financial
Performance of Higher Education in East Java Indonesia
Nurhayati, Muslich Anshori, Tarjo

Economics and Business Faculty, Department of Accounting, University of Airlangga, Surabaya, Indonesia
ABSTRACT
This research explains empirically analysis of implementation effect of the COSO Framework based on
Enterprise Risk Management (ERM) 2004 on performance with the moderation Philosophy of Khalifatullah
Fiil Ard (Islamic Leadership) and the role of governance element to the financial performance of university
in East Java. The background of this research is the inconsistent results of previous research and the
phenomenon of low accountability in universities and the low internal control function that existed based
on the final report of Supervision, Control and Development (WASDALBIN) for the period of 2016 shows
that private universities whose institutions have not been accredited are still 52%. Data collection
techniques used survey methods and data analysis techniques using Structural Equation Modeling (SEM)
PLS. The results of research show that ERM proved to have significant influence on financial performance.
Implications of further research is to expand the object of research, the influence on non-financial
performance as well as the use of experimental research methods
Keywords: COSO-ERM Framework, Khalifatullah Fill Ard (Islamic Leadership) Philosophy, Roles of
Element of Higher Education Governance and Financial Performance.
__________________________________________________________________________________
1. Introduction
This research explains empirically the effect of implementation of COSO Enterprise Risk Management
(ERM) Framework 2004 with Philosophy of Khalifatullah Fiil Ard (Islamic Leadership) moderation and
roles of governance element on university financial performance in East Java. The backgrounds of this study
are; First, the inconsistent results of research related to the COSO 1992 framework compared to COSO
2004 framework. Second, there are only a few studies discussed the effects of COSO framework on
performance with inconsistent results, while based on one of missions of COSO establishment adopted by
one of the council members in 2008 was to improve organizational and governmental performance
(Landsittel & Rittenberg, 2010). Third, during a long period from 1985 to the 2000s, the developing
empirical research only leads to private sector organizations with a research theme related to how to
minimize fraudulent financial statements. In fact, based on the mission and goals of the establishment of
COSO, it is not only for private sector organizations but also educational institutions. Fourth, there is no
research related to ERM implementation which providing sharia perspective by using khalifatullah fiil ard
(Islamic Leadership) philosophy which should be embedded in the soul of a leader in carrying out his duties
and functions especially in Universities. There are many universities that do not have accreditation status
according to the accreditation report in 2016 that 59% universities consisting of 190 private universities in
East Java having accredited from total 322 private universities (Jawa Pos, January 2017). The final report
of Supervision, Control and Development (WASDALBIN) for the period of 2016 shows that private
universities whose institutions have not been accredited are 52%. This phenomenon indicates the low
accountability of universities both in terms of financial and non-financial aspect, as well as the low function
of internal control functions that exists (Nurhayati, 2016). The results of the findings of Wasdalbin
Coordination of Private Higher Education Region VII (Kopertis Wilayah VII) in 2016 also concluded that
289 universities have established the SPMI Team (91%), yet the establishment of SPMI Team or the Internal
Quality Assurance System does not counterbalance with the quality of higher completely. It is proven that
as many as 161 private universities (50.15%) established SPMI Team as a formality, in the sense that not it
has not applied the cycle in the form of determination, implementation, evaluation, control and continuous
improvement of Standard yet. Internal Quality Assurance System is a crucial element that can guarantee the
quality of an institution and it should be balanced with the cycle of all round quality assurance of higher
education.
Based on the research gap and supported by the phenomenon of declining performance of universities
and supported by the findings of Wasdalbin, then the researcher is motivated to conduct a research to explain
the effect of implementation of COSO-ERM framework on the performance of universities in East Java.
Nurhayati (2016) in a study using a qualitative research paradigm states that the implementation of the
COSO concept and Khalifatullah Fiil Ard (Islamic Leadership) Philosophy through sharia forensic
accounting can prevent and detect the fraud at universities. Ahmadova (2016) suggests that Islamic internal
control in non-Islamic environment is also required and used as a tool to manage risk in companies in Japan.
The philosophy of khalifatullah fiil ard (leadership of Islam) and the involvement and leadership roles in
this study are the variables that are assumed strengthening the COSO-ERM relationship with the
performance as stated by Ballantyne (2013) that ERM adoption will give implications for performance when
executive leadership and integration of organizational culture are involved. These results provide insight to
risk-based internal control for organizations and leaders as they determine the most effective ways to
manage future risks. Fan (2014) states that the effect of the diversity or demography of the board member
will be positively correlated with the performance especially for the board of directors with financial
expertise to moderate the implementation of ERM relationship and the value/performance of the company.
It is also supported by Mensah (2015) that the relationship of ERM with performance will be positively
correlated if the roles and presence of CRO (Chift Risk Officer), AC (Audit Commite) and TM (Top
Manager) within a company exist. Based on that fact, the research problems are:
Does Enterprise Risk Management affect financial performance?
Does Khalifatullah Fill Ard philosophy strengthen the relationship of Enterprise Risk Management with
financial performance?
Does the role of the Higher Education Governance Element strengthen the relationship of Enterprise
Risk Management with financial performance?
Stewardship Theory (ST), The stewardship theory in this research serves as the grand theory which is
the main foundation in explaining the management capability and the quality of internal control of the
organization, in this case is Higher Education and its effect on the achievement of organization objectives
measured through financial and non-financial performance. Donaldson and Davis (1991) suggests that the
stewardship theory is the part of agency theory which illustrates a situation where the management is not
motivated by individual goals but rather, the main target for the sake of the organization.
Theory of Islamic Leadership. Essentially, every man is a leader and everyone will be held accountable
for his leadership. Man as a minimum leader must be able to lead himself. Within an organizational
environment, there must be a leader who is obeyed and respected by his subordinates. Even Antonio (2007:
19) says that almost all the theory of leadership has already practiced by The Prophet Muhammad (PBUH).
Many leadership theories proposed by the leadership experts, to some extent are found in the personality
and leadership of Prophet Muhammad (PBUH).
COSO Concept Some researchers interpret the concept of COSO as an Internal-Integrated Control
Framework defining the internal control as "a process, influenced by entities of the board of directors,
management, and other personnel, designed to provide reasonable assurance about achievement of goals in
the following categories: 1) effectiveness and efficiency of operations 2) reliability of financial reporting 3)
compliance with applicable laws and regulations. These three objectives are directly related to the five
integrated components of internal control, namely control environment, risk assessment, control procedures,
information and communication, and monitoring D'Aquila (2013).
3. Research Methodology
The type of this research from its objectives is explanatory since the main purpose of this study is to
explain why an event occurs then build, elaborate and add some explanation based on the theory (Nueman,
2011, p. 40). The data collection techniques used in this research is secondary data documentation and
survey using questionnaires. Secondary data sources include institutional accreditation forms and
institutional financial statements. Survey is a method of collecting the primary data obtained directly from
the source, Indriantoro and Supomo (2016). Data analysis technique in this study used Structural Equation
Modeling (SEM) and the data was processed using Smart PLS 3.0 software applications. SEM is one type
of multivariate analyses in social science which is the application of statistical methods to analyze several
research variables simultaneously (Sholihin and Ratmono, 2013: 4).
4. Results
The results show that implementation of Enterprise Risk Management can affect financial performance.
Enterprise Risk Management is an integrated risk-based internal control framework that gives a positive
impact on the financial performance of universities. The research also provides empirical evidence that the
aspect of Islamic values of a leader which is khalifatullah fiil ard (Islamic leadership), cannot strengthen the
relationship of ERM and financial performance. It is because the research sample used by the universities
comes from diverse across religions, so it provides different perceptions between the sample of answers
from Islamic Universities and Non-Islamic Universities. The number of selected samples of Islamic
Universities is only 12 or (12%) out of 104 Universities in total.
Similarly, the effects of moderation of roles of university governance element cannot strengthen the
relationship of ERM and financial performance. It is due to several things, that is; the majority of data
distribution of Higher Education is the Private University Accredited C as many as 61 or 60% of the selected
research object of 104. The results of analysis of WASDALBIN KOPERTIS Region VII of EAST JAVA
states that 91% of private universities have established SPMI for formality intention only and it is not
accompanied by the cycle of management, control and quality assurance of higher education as a whole.
(1)
5. Discussion
The findings of this study imply that an effective internal control tool positively affects the financial
performance of universities in East Java, that is the COSO ERM 2004 risk-based internal control framework
using the relatively new research instrument, COSO 2013, that has not been implemented on all internal
control components thoroughly by previous research. The practical implications of the research are able to
provide input for the management of Universities in East Java, especially the Chief/Head/Director of
Internal Control Unit or Quality Assurance Agency to adopt the ERM Framework to the Institute as a risk-
based internal control tool that gives a positive effect on financial performance.
The theoretical implications of the research are stewardship theory as the main foundation to describe
the management ability and quality of internal control of organization (Higher Education) giving influences
to the achievement of goal through financial performance. Donaldson and Davis (1991) argue that the
Stewardship theory which is part of agency theory illustrates a situation where the management is not
motivated by individual goals but rather, the main outcome for the sake of the institution. It means that the
Achievement of the concept assuming that the interests of management and principal are convergence,
meaning both aspect have the same goal. Madison (2014) stated that the integration of agency theory and
Stewardship theory is empirically proven to influence organizational performance.
6. Conclusion and Future Research
Implementation of the ERM framework provides a positive response to the improvement of the financial
performance of Universities. It means, risk-based internal control (ERM) is an internal control tool that is
needed by the University to overcome or address the phenomenon that the Internal Quality Assurance
System of Higher Education in East Java is not accompanied by the cycle of quality assurance of higher
education as a whole. This research model extends the previous research model in testing the effect of
implementation of ERM on Financial Performance by involving the variable of khalifatullah fiil ard
philosophy moderation and the Roles of Higher Education Governance Elements. The results also show
that moderation of KFA and PUTKPT variables has no significant effect. KFA variable fails to moderate
since the research samples used by Universities comes from diverse religions, giving different perceptions
between the sample of answers coming from Islamic universities and non-Islamic universities. Similarly,
the effects of moderation of roles of university governance element cannot strengthen the relationship of
ERM and financial performance. It is due to several things, that is; the majority of data distribution of Higher
Education is the Private University Accredited C as many as 61 or 60% of the selected research object of
104. It is also supported by the results of analysis of WASDALBIN KOPERTIS Region VII of EAST
JAVA that 91% of private universities have established SPMI for formality intention only and it is not
accompanied by the cycle of management, control and quality assurance of higher education as a whole.
In order to improve the results of the research in a more complex manner, it is suggested for the future
research to use mixed method approach to explore deeper by applying quantitative approach and qualitative
approach. So that the measurement scale which is based on perception can be improved by adjusting
qualitative measurement data of all variables. It is also to differentiate the research object of Islamic
University and Non-Islamic University. So, it can distinguish the results of research from the two different
research objects. In order to provide a broader scope of research, it is suggested that the future research will
add some factors of non-financial performance as well as other factors on to the Variables Moderation
PUTKPT. Hence, it is not only assessed to the extent of the roles and involvement of Governance Elements
in the Higher Education governance, but also the factors of ability and structure, Diversity, and
compensation that influence the financial performance.
References
Ahmadova, M. (2016). Islamic Internal Control In Non-Islamic Environment: A Necessity For Japanese Companies.
Academy of Accounting and Financial Studies Journal, 20(1).
Antonio, M. S. (2007). Muhammad SAW The Super Leader Super Manager. Jakarta: Tazkia Publishing &
Prohetic Leadership dan Management Center.
Ballantyne, R. (2013). An Empirical Investigation Into The Association between Enterprise Risk Management
and Firm Financial Performance. Lawrence Technological University, Dissertation Publishing Proquest, 3557261.
D'Aquila, J. (2013). COSO's Internal Control Integrated Framework Updating the Original Concepts for Today's
Environment. The CPA Journal, 83(10), 22-29.
Donaldson, L. dan Davis, J. H. (1991). Stewardship Theory or Agency Theory: CEO Governance and Shareholder
ReturnsAustralian Journal of Management, 16(1).
Fan, X. (2014). Enterprise Risk Management, Board Demographics, and Firm Performance. The University
of Texas, ProQuest Dissertations Publishing 3639652.
Indriantoro, N. dan Supomo, B. (2016). Metodologi Penenelitian Bisnis Untuk Akuntansi dan Manajemen.
BPFE Yogyakarta.
Landsittel, D. L. dan Rittenberg, L. E. (2010). COSO: Working with the Academic Community Accounting
Horizons American Accounting Association, 24(3), 455- 469.
Madison, K. J. (2014). Agency Theory and Stewardship Theory Integrated, Expanded, and Bounded by Context:
An Empirical Investigation of Structure, Behavior, and Performance within Family Firms. University of Tennessee,
Knoxville, Dissertation Doctor of Philosophy.
Mensah, G. K. (2015). Enterprise Risk Management: Factors associated with effective ImplementationCapella
University, ProQuest Dissertations Publishing 3745481.
Nueman, W. L. (2011). Social Research Methods: Qualitative and Quantitative Approaches (Seventh
edition ed.). Allyn & Bacon: Person education.
Nurhayati. (2016). Revealing and Building the COSO Concept and Khalifatullah Fiil Ard Philosophy to Prevent
and Detect the Occurence of Fraud Through Forensic Accounting. Procedia - Social and Behavioral Sciences, 219,
541-547.
Rittenberg, L. (2013). Updated COSO framework clarifies, broadens application: Larry Rittenberg, former COSO
chair and author of a new book on the 2013 Internal Control-Integrated Framework, weighs in on the updates (Vol.
70, pp. 13): Institute of Internal Auditors, Inc.
Consumer Protection In Cloud Environments: Which Law(S)

Applies To Data In The Clouds?
Manique Cooray
Faculty of Law, Multimedia University, Jalan Ayer Keroh Lama, 75450, Malacca, Malaysia
ABSTRACT
Cloud computing” is the delivery of computing services over the Internet. These computing services are
for storage of information, databases, networking, streaming of audio and video content, hosting of
websites, data mining and analytics of data and many more. The era of storing personal records physically
are now giving way to the usage of a variety of remote storage on the clouds. Consumers prefer storing
information on clouds for easy access, sharing of information is relatively convenient and the data are less
likely to lose in the event of a computer failure. Numerous Internet service providers also use cloud
computing as a basis for search engines, blogs and social networks, among others. The first objective of the
paper is to examine the international impact of European data protection legislation on the application of
which laws apply to data in the clouds. Thereafter, the second objective is to look at the development of
cloud computing in the Asian and South East-Asian region to determine the application of laws to the three
specific instances where concerns are raised by consumers on cloud computing. The research methodology
which is used in order to achieve the objectives of this paper is doctrinal and qualitative in nature. The
author has combed through the literature available on the EU regulations and also databases which includes
Singapore, Malaysia, Korea, China and India for a study of the consumer protection laws. These countries
have been selected for this study based upon their 2018 Score Card on Cloud Computing. Numerous reports,
case law, relevant statutes, journal articles have been studied. The data that has been collected is from
library and web based resources, which mainly include Lexi Nexis, Westlaw and Hein on Line databases.
It was found out that the European Union (“EU”) adopt a location-based approach for regulating data.
Jurisdiction is based upon the location or where the processor is established. In such an instance, a national
has the jurisdiction to process personal data which in fact may trigger regulation of activities of a controller
with no EU establishment. The implications and the significance of the study is such that consumers,
business organisations increasingly store data on clouds. The data are of many types, ranging from family
photos to personal documents. The growing use of the cloud creates new challenges for consumer protection
and privacy, and also intensifies problems that have long existed.
Type of Paper: Review
Keywords: cloud computing, consumer protection, data protection law
__________________________________________________________________________________
1. Introduction
1.1 A History and Evolution of Cloud Computing
As once stated by Judge Herbert B. Dixon, Jr. Cloud computing, has nothing to do with computer
services being delivered from a place high above the earth. He aptly describes it as “services are more likely
to be delivered from a nondescript office building on a farmland outside the city limits or a fortified
underground bunker-the point being the computer services are at one location and the user accessing these
services is at another.” Cloud computing has evolved through a number of phases that include grid and
utility computing, application service provision and software as a service but the overarching concept of
delivering computing resources through a global network is rooted in the 1960s. There is a debate on who
was responsible for coining the term “cloud computing.” Regardless of the debate it is widely accepted that
the idea of an “intergalactic computer network” was introduced in the 1960s by JCR Licklider, who was
responsible for enabling the development of the Advanced Research Projects Agency Network
(ARPANET) in 1969. Other experts attribute the cloud concept to computer scientist John McCarthy, who
proposed the idea of computation being delivered as a public utility, similar to the service bureaux that date
back to the 1960s. Despite the contention on who coined the term it is accepted that cloud computing was
born as a marketing term. The mechanism of its operation is that a user can remotely access data and other
applications by use of the web browser over the Internet with most of the users using various devices to
access the Internet. Once the user is connected to the Internet cloud computing will allow the user to access
the program and allow the user to view or edit the data. Some examples of regular usage of storing include
the Dropbox, SugarSync and most commonly used are email services such as Yahoo! Since cloud
computing is the delivery of computing services over the Internet and these computing services are for
storage of information, databases, networking, streaming of audio and video content, hosting of websites,
data mining and analytics of data and many more the era of storing personal records physically are now
giving way to the usage of a variety of remote storage on the clouds. Consumers prefer storing information
on clouds for easy access, sharing of information is relatively convenient and the data is less likely to lose
in the event of a computer failure. How the clouds are to be regulated is often complicated due to the fact
that individuals use the clouds for their own private usage and organisations for business purposes. Such
arrangements are likely to be subjected to data protection laws and consumer protection laws. The regulation
of the clouds is even more complicated as many “free” cloud services which appear to be for individuals
are also used for businesses. Thus the complications in technicalities of defining between what is for private
and business usage is quite common in the clouds. Three of the main issues faced by consumers using clouds
relate to data protection; contractual issues and privacy. Consequently, determining the applicability of
whether data protection or consumer protection laws are to be applied for a resolution of a dispute often
times lead to a legal conundrum.
1.2 Nature and Benefits of Cloud Computing
Cloud computing has a range of defining features, namely, the computer hardware is owned by the cloud
computing provider, not by the user who interacts with it via the Internet. Hence, the use of hardware is
dynamically optimised across a network of computers, so that the exact location of data or processes, as
well as the information which piece of hardware is actually serving a particular user at a given moment,
does not in principle have to concern the user, even though it may have an important bearing on the
applicable legal environment. Cloud set-up consists of layers including hardware, middleware or platform,
and application software. Standardisation is important especially at the middle layer because it enables
developers to address a wide range of potential customers and gives users’ choice. Users normally pay by
usage, avoiding the large upfront and fixed costs necessary to set up and operate sophisticated computing
equipment. At the same time, users can easily modify the amount of hardware they use. Cloud providers
often move their users’ workloads around to optimise the use of available hardware.
The remote hardware stores and processes data and makes it available, through applications such that a
company could use its cloud-based computing in just the same way as consumers already today use their
webmail accounts. Consequently, organisations and individuals can access their content, and use their
software when and where they need it, either on desktop computers, laptops, tablets and smartphones.
The first objective of the paper is to examine the international impact of European data protection
legislation on the application of which laws apply to data in clouds. Thereafter, the second objective is to
look at the development of cloud computing in the Asian and South East-Asian region to determine the
application of laws to the three specific instances where concerns are raised by consumers on cloud
computing.
The research methodology which is used in order to achieve the objectives of this paper is doctrinal and
qualitative in nature. The author has combed through the literature available on the EU regulations and also
databases in South East Asian nations for a study of the consumer protection laws. These countries have
been selected for this study based upon their 2018 Score Card on Cloud Computing. Numerous reports, case
law, relevant statutes, journal articles have been studied.
3. Cloud computing and Legal Challenges: Data Protection; Contractual Issues and Privacy
Because of its inherent freedom from locational constraints, cloud computing could raise various issues.
Problems with contracts are related to worries over data access and portability, change control and
ownership of the data. For example, there are concerns over how liability for service failures such as
downtime or loss of data will be compensated, user rights in relation to system upgrades decided unilaterally
by the provider, ownership of data created in cloud applications or how disputes will be resolved. It is
important to note that the data and applications are stored and accessed remotely, so there exists a risk to
the security and integrity of data. When the data of the business are stored virtually in a shared third-party
outsourced cloud computing infrastructure used by multiple users, there is bound to be disquiet among the
business organisations as to its safety and protection from tampering. In addition, legislative and regulatory
policies in some cases require certain types of data to be protected with certain prescribed standards. The
business has to make sure that the standards are met, and that the safety and integrity of the data is ensured
by the third-party cloud service provider which thus becomes an issue relating to data protection.
Another pressing concern is with privacy of information. Consumers and businesses are willing to use
online computing only if they trust that their data will remain private and secure. The problem of data
privacy arises during the sharing of data between the customers and the cloud computing service provider.
Individuals to a large extent do not have any problem in sharing their information with the cloud service
provider, but when it comes to business organisations they are very anxious about sharing proprietary data.
There are certain categories of businesses that are by specific laws prohibited from sharing certain data.
Cloud service providers and right holders may agree commercial terms for licences allowing customers to
access their personal account from multiple devices, irrespective of the territory from which the account is
accessed. This would mean issues relating to jurisdictional and data location concerns to be addressed as
well.
3.1 The Legislative Framework to address issues on cloud computing
The General Data Protection Regulation (‘GDPR’) (EU) 2016/679 is a regulation in EU law on data
protection and privacy for all individuals within the European Union (EU) and the European Economic
Area (EEA). It also addresses the export of personal data outside the EU and EEA areas. The GDPR aims
primarily to give control to citizens and residents over their personal data and to simplify the regulatory
environment for international business by unifying the regulation within the EU. Superseding the Data
Protection Directive 95/46/EC, the regulation contains provisions and requirements pertaining to the
processing of personally identifiable information (personal data) of individuals (formally called data
subjects in the GDPR) inside the European Union, and applies to an enterprise established in the EU or
regardless of its location and the data subjects’ citizenship that is processing the personal data of people
inside the EU. Another approach for legal transfer of personal data between the EU and third countries is
the application of the Binding Corporate Rules. Companies implementing these guidelines in their data
protection rules make specific commitments for the processing of personal data. In that regard, the
applicability of the Corporate Binding Rules to Cloud environments is worth mentioning. However, these
rules are only applicable within a single company and therefore proposed for the use in multi-national
corporations.
In India the law with regard to the use of computer networks can be found in the Information Technology
Act 2000. The main objective of the legislation is to provide legal recognition for electronic transactions,
which involves the use of electronic means of communication and storage of information, and to facilitate
the electronic filing of documents with government agencies. The Act has extra-territorial jurisdiction so it
also covers offences committed outside India. The Act covers various computer systems such as digital
signatures, electronic governance, electronic records, regulation of certifying authorities, duties of
subscribers, cyber regulations, the appellate tribunal, etc., and also provides for legal recognition of
electronic documents and transactions, the admissibility of electronic data/evidence in a court of law,
punishment for cybercrimes, and the establishment of an appellate tribunal and advisory committee for
regulating cybercrimes and regulations regarding the maintenance of electronic records. The Information
Technology (Reasonable security practices and procedures and sensitive personal data or information)
Rules 2011 were notified by the Government of India, for the protection of sensitive personal data or
information of individuals or organisations by the entity who possesses, deals with or handles such data in
a computer resource owned, controlled or operated by it. However, various provisions of the Rules are not
applicable to entities providing services under a contractual obligation with any other entity located
extraterritorially, unless such entity ensures the same level of data protection as laid down in the Rules.
Thus the cloud service provider, before dealing with “sensitive personal information” having a link to India,
has to ensure compliance with the Rules as any non-compliance would attract penalties, and imprisonment
in the case of any breach of contractual obligations under the Information Technology Act 2000. The cloud
service providers therefore have to ensure that both the rules and terms of contract entered into with the
customers are complied with. The Act imposes an obligation on a body corporate to provide for a privacy
policy and disclosure of information. The entities dealing with any “sensitive personal data or information”,
or any other personal information, shall provide for a privacy policy published on its website. The body
corporate has to ensure that such personal information is available at all time to its customers. When it
comes to the security the entities are required to protect such data by adopting the “Reasonable Security
Practices and Procedures” as laid down under rule 8.
One of the major loopholes of cloud computing services in India is that there is no specific law governing
the ownership of data on a cloud. Usually the service provider owns the data unless it has been contractually
agreed between the parties. This exposes the customer’s data to various risks as the ownership of such data
is vested with the cloud service provider. Under the Information Technology Act 2000, a cloud service
provider is not liable for any third-party information made available by him, if he proves that such
contravention or offence was committed without his knowledge or that he has exercised due diligence as
may be prescribed by the Government for the prevention of such offence. Under the Information
Technology
Act 2000 a new section10A has been inserted which states that a contract which has been concluded
electronically shall not be deemed to be unenforceable. However, there is still vagueness as to whether an
electronic contract is to be stamped, as the method of payment of stamp duty as envisaged under the Stamp
Act is not feasible in cases of electronic contracts unless they are printed. In certain circumstances the parties
entering into a contract have an option to choose the law which shall govern them in the case of any dispute
arising in the future. But this is not the same in all matters. As a result the applicable law and the jurisdiction
of the court remain a loophole as the contract entered into between the parties lacks clarity on such matters.
Singapore has modern digital economy laws in most areas. For example, the Electronic Transactions Act
2010 implements the United Nations Convention on Electronic Contracting, which Singapore has ratified.
Singapore privacy law provides a balanced approach between protecting personal information and
facilitating innovation in cloud computing and the digital economy. However, there have been some recent
trends suggesting Singapore may be looking to establish unique national standards for the IT sector. For
example, Singapore adopted the Singapore-specific Multi-Tier Cloud Security (MTCS) Singapore
Standard, which arbitrarily assigns levels to cloud computing services imposing distinct requirements on
particular levels. Singapore has some minor Internet censorship in place but generally promotes innovative
business practices that are free from tariffs and government intervention. Singapore is generally committed
to adopting international standards throughout the IT and security sectors. In terms of analysing the
country’s progress with reference to the Cloud computing BSA Scorecard for 2018 there were very few
changes in Singapore’s results from the previous Scorecard. The minor jump in the rankings from seventh
to sixth is a result of the rebalancing of the Scorecard methodology.
Malaysia has modern electronic signature laws, and electronic commerce laws in place. These measures
provide good level of protection for computing in Malaysia. Malaysia has data protection regulation in place
that is generally compatible with globally recognized frameworks. However, the law does not include data
breach notification provisions and data
controllers are required to register with the Personal Data Protection Department. Malaysia has a
moderate level of broadband penetration. In 2015, the government committed to new broadband targets by
2020, 100 percent of households in capital cities and high-impact growth area to have access to speeds of
100 Mbps and 50 percent of households in suburban and rural areas to have access to speeds of 20 Mbps.
Malaysia fell slightly in the Scorecard rankings from 13th place in 2016 to 14th place in 2018.
China does not follow international models in key areas that are relevant to cloud computing. For
example, the privacy and security provisions in the 2015 National Security Law and 2016 Cybersecurity
Law are controversial and have been the subject of extensive international debate. Key concerns include
data localization mandates, extensive and duplicative tests, audits, and certifications. These concerns are
exacerbated by pending and/or unclear implementing guidelines. Extensive regulation of Internet content,
including mandatory Internet filtering and censorship, remains a key issue in China.
Although South Korea has a personal data protection law in place, it imposes complex and inflexible
notice and consent requirements, which effect data flows that are paramount for cloud computing.
SouthKorea’s strong intellectual property laws facilitate the development and use of cloud computing
services. However, the implementation and enforcement of these laws could be improved in some instances.
The country’s cybercrime law does not cover the full range of relevant issues. South Korea is an active
proponent of free trade and interoperability and is a member of the World Trade Organization (WTO)
Agreement on Government Procurement. However, one current area of concern is that Korea imposes a
national encryption standard for the obtaining of information technology.
4. Results
It was found out that the European Union (“EU”) adopt a location-based approach for regulating data.
Jurisdiction is based upon the location or where the processor is established. In such an instance, a national
has the jurisdiction to process personal data which in fact may trigger regulation of activities of a controller
with no EU establishment. Whereas in the countries selected from the Asian and South East Asian region
have different statutes and legislation to address issues on cloud computing in relation to activities by
consumers without any commonalities in their legislative frameworks.
5. Conclusion
In Conclusion, the author puts forward the premise that cloud regulation may be more effective in a co-
regulation environment, encompassing states, legislators and individuals, as well as the cloud industry itself.
The implications and the significance of the study is such that consumers, business organisations
increasingly store data on clouds. The data is of many types, ranging from family photos to personal
documents. The growing use of the cloud creates new challenges for consumer protection and privacy, and
also intensifies problems that have long existed.
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Buyya, R.; Yeo, C. S. Venugopal, S.; Broberg, J.; Brandi, I.(2009) Cloud computing and emerging IT platforms:
Vision, hype, and reality for delivering computing as the 5th utility. In: Future Generation Computer Systems, 25(6),
599-616.
BSA Cloud Computing Score Card (2018) http://cloudscorecard.bsa.org/2018/
Chaput, S. R.; Ringwood, K. (2010) Cloud Compliance: A Framework for Using Cloud Computing in a Regulated
World. In N. Antonopoulos; L. Gillam (Eds.): Cloud Computing - Principles, Systems and Applications. Springer,
London, 241-255.
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Focusing on the Protection of Information Privacy. (2012) In: Proceedings of the 2. International Workshop on
Information and Electronics Engineering, Harbin, 241-251.
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34-36.
Fromholz, J. M.: The European data privacy directive. In: Berkeley Technology Law, 15, 2000, pp. 461-484.
Gilbert, F.: European Data Protection 2.0: New Compliance Requirements in Sight - What the Proposed EU Data
Protection Regulation Means for U.S. Companies. In: Santa Clara Computer & High Technology Law Journal, 28 (4),
2012, pp. 815-863.
Grant, J. International data protection regulation: Data transfer - safe harbor. In: Computer Law & Security Review,
21 (3), 2005, pp. 257-261.
Hon, W. K.; Millard, C.; Walden, I.: Negotiating Cloud Contracts - Looking at Clouds from Both Sides Now. In:
Stanford Technology Law Review, 16 (1), 2012, pp. 79-128.
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Systems, Oxford, 2012, Paper 30.
Factors Affecting Entrepreeurs’ Choice of Business Incubator – A

Study of Indian Technology Entrepreneurs
Shouvik Sanyal, Mohammed Wamique Hisam

Dhofar University, Salalah, Oman
Higher College of Technology, Ras Al Khaimah, UAE
ABSTRACT
Technology startups have been mushrooming in India in the recent past. Several factors such as availability
of well-trained IT professionals, the booming of e-commerce and supportive government policies have
contributed to this phenomenon. They have contributed immensely to the startup scenario in India and
contribute a fair share in wealth creation and employment generation. However, technology
entrepreneurship needs a supportive ecosystem to grow and flourish such as proper mentoring, a strong
network of business partners and other organizations.
In this context, business incubators provide a support mechanism to enable technology entrepreneurs to
sustain and grow in the long run. However, these mechanisms are still in an evolving stage of growth in
India and therefore, it is a challenge for entrepreneurs to make a proper assessment and to make incisive
decisions on whether or not to join an incubator or accelerator and which specific incubator best suits their
unique needs.
Research Problem: This paper attempts to analyse the key factors influencing the choice of Indian
technology entrepreneurs in selecting a business incubator. There are multiple factors at play in the selection
of a suitable business incubator and the choice is a difficult one for entrepreneurs to make. The researchers
have analysed available literature and conducted extensive data collection though structured questionnaires
and structural equation modelling has been applied to find out the relative impact of these key factors in
their choice of a business incubator to fulfil their needs. The authors have collected primary data from 120
technology entrepreneurs in India using a structured questionnaire with six variables. Exploratory Factor
Analysis has been used to reduce the number of items and six key factors affecting the entrepreneurs ‘
choice of business incubator have been extracted. Structural Equation Modelling and Path Analysis have
been used to analyse the direction and strength of these key factors on entrepreneurs’ choice of the
incubator. The findings of the path analysis show that the six factors namely participant screening,
networking opportunities, support services, location of the program, sector focus and mentoring services
have a strong impact on the entrepreneurs’ choice of the business incubator. This is in line with other studies
done on the topic in various countries. Networking opportunities and mentoring services have been found
to have the maximum impact on technology entrepreneurs in their search for a business incubator that will
fulfil their needs. Implications and Significance: This study has significant implications for technology
entrepreneurs as well as incubator managers as it throws light on the key factors that influence an
entrepreneur’s choice of the incubator. It will help the incubator managers to shape their marketing
strategies in order to attract the best innovators to their incubation programs.
Keywords: Technology Entrepreneurs, Business Incubator, Incubator Choice

__________________________________________________________________________________
Introduction
Technology startups have been mushrooming in India in the recent past. Several factors such as
availability of well-trained IT professionals, the booming of e-commerce and supportive government
policies have contributed to this phenomenon. They have contributed immensely to the startup scenario in
India and contribute a fair share in wealth creation and employment generation. However, technology
entrepreneurship needs a supportive ecosystem to grow and flourish such as proper mentoring, a strong
network of business partners and other organizations.
New entrepreneurs have to face multiple challenges in starting, growing and sustaining their businesses.
In developing countries, these challenges can range from labour and market regulations, finding the right
markets for products, finding appropriate sources of funding, education and training of entrepreneurs and a
lack or R&D infrastructure (Shanfari , D., 2012).
Many small businesses fail in the initial stages as the owners are unable to negotiate and find solutions
to these multifarious challenges. In this context, business incubators provide a support mechanism to enable
technology entrepreneurs to sustain and grow in the long run . However, these mechanisms are still in an
evolving stage of growth in India and therefore, it is a challenge for entrepreneurs to make a proper
assessment and to make incisive decisions on whether or not to join an incubator or accelerator and which
specific incubator best suits their unique needs.
The primary challenge facing a technology entrepreneur are the factors to be taken into consideration
when selecting a potential organization that will mentor and handhold the newly founded startup.
Considering the fact that there is a proliferation of interconnected factors that can affect the success or
failure of a startup , this is a tough and confusing choice. Commercializing the new business ideas and
innovations present several challenges for new technology ventures. Communities and organizations all
over the world have been constantly looking for new ways and means to encourage , motivate and support
new businesses , as they have been proven to develop economic development and create much needed
employment opportunities for the local population. One such mechanism to boost entrepreneurship is
business incubation, which has several variants. Technology incubation is a variant of business incubation
that focuses on technology driven business models . Technology incubators assist technology – oriented
entrepreneurs in the start-up and early – stage development of their firms by providing workspace, shared
facilities and a range of business support services (OECD, 2010).
Incubators
The National Business Incubation Association (NBIA) defines a business incubator as "a business
support process that accelerates the successful development of start-up and fledgling companies by
providing entrepreneurs with an array of targeted resources and services." The OECD (2010) defines
technology business incubators, the focus of this article, as variants of more traditional business incubation
schemes that assist technology-oriented entrepreneurs in the start-up and early development stages of their
firms by providing workspace, shared facilities, and a range of business support services. Aernoudt (2004)
describes the term incubator as an umbrella concept which covers a heterogeneous group of institutions.
There have been some studies aiming to classify business incubators and they have been differentiated along
various dimensions like; purpose (Bollingtoft&Ulhoi 2005), ownership structure-whether they are privately
or publicly owned (Grimaldi &Grandi 2005), service portfolio and management features (Aerts et al, 2007)
. The term “incubator” was used in the business context in 1959 in New York for the first time when Joseph
Mancuso opened the Batavia Industrial Center, as a framework to assist and support new ventures to develop
and grow (Barrehag et al, 2012).
Incubators differ from technology and research parks in their devotion to early stage and startup
companies, as well as through the services/facilities they are providing. Because startup companies lack
networks, experience, and resources, business incubators provide services that assist these companies to get
through the initial hurdles that they are likely to encounter during the business startup process. Such hurdles
include computer services, accounting services, legal services, funding, space as well as other prerequisites
that are important to running the business. The services also include linking the business to the strategic
partners, assist with the business basics, and market research, access to guarantee program, loan funds and
bank loans as well as offering the networking activities. Put it simply, the technology and research parks
offer mainly physical infrastructure, meanwhile business incubators offer know-how and networking during
incubation and post-incubation period .
Entrepreneurs and startups who are a part of an incubator are called tenants. Anyone who wishes to enter
a business incubator program has to apply for admission. Each program has a set of criteria that applicants
must meet in order to participate in the incubator. In general, only those who have feasible ideas and a
strong business plan are admitted. Most businesses have to move into their own facilities once they are able
to sustain themselves and fulfill the exit criteria of the program. These business incubation programs are
sponsored by the government entities, the economic development organizations as well as the academic
institutions.
The concept of business or startup accelerator first came up in 2005 with the launch of Y Combinator in
Cambridge, Massachusetts and later moved to Silicon Valley be legendary value investor and venture
capitalist Paul Graham. A significant difference between incubators and accelerators is the cost and structure
of investments, in a business accelerator these being considerably smaller for each new individual venture
( Barrehag et al, 2012).
Table 1 – Difference between business incubators and business accelerators

Nr. Business incubators Business accelerators
Participants • All types, including science – • Technology –based ventures (web-based,
based businesses (such as bio- apps, cloud – based, software, etc.).
tech, nanotechnology, clean • Ventures donot require significant immediate
energy etc.) investment or proof of concept.
• All ages and genders, including • Mostly young people, technology enthusiasts,
those with previous experience gamers and hackers
in an industry or sector • Focus on small teams , not individuals.
Ownership • A large number of incubators • Mostly are for- profit and privately owned;
are non-profit (associated to
universities); For-profit
incubators might ask for equity
in the startup
Selection • Competitive selection, often • Highly competitive open selection, from wide
Process from the local community regions, national or even global levels.
Duration • 1 to 5 years ( average of 33 • Generally 3 to 6 months

months )
Purpose • Mostly social purpose, assist in • Profit focused.
developing companies for
sustainability of community;
Investment • Usually does not have own • Invests own funds in teams of co – founders.
funds to invest directly. Takes equity in every investee ( usually 4 to 8
• More frequently than not, does percent).
not take equity. • Investments by angel investors and VCs.
Source: Author’s own sources.

Several regions of the world have been trying to replicate the success of Silicon Valley as an incubator
of startups, mostly without much success of their own (Aaboen, 2009). However, in spite of the relatively
long history of incubation, there is conflicting evidence as to whether or not incubation works. On the one
hand, there is evidence that new firms associated with incubators have a higher survival rate and achieve a
greater rate of growth, generally expressed in terms of sales and job creation, than non-incubated firms
(Hackett and Dilts, 2004). On the other hand, there is contradictory evidence that suggests little or no effect
of incubation on the success of firms (Scillitoe and Chakrabarti, 2010).Measuring incubation success has
also been difficult due to factors like different selection criteria . lack of proper data, difficulty in accessing
data and diversity of factors (Isabelle, 2013). In such a scenario, how does an entrepreneur know which
factors in choosing an incubator are crucial for the future success of his venture?
This article will focus on some key factors that influence the decision of Indian entrepreneurs while
choosing a suitable business incubator to assist his new business. Based on an extensive review of literature,
five factors have been identified. The factors have been analysed
using Confirmatory Factor Analysis and Structural Equation Modeling.
Literature review
Business incubators refer to organizations whose primary objective is to nurture and support the growth
of other business entities (Stokan, Thompson, & Mahu, 2015). Especially, the business incubators support
the establishment and growth of new firms. The incubating process is such that they provide the young
businesses with both tangible and intangible resources. The intangible resources include expertise and
networking opportunities (Tötterman & Sten, 2005). On the other hand, the intangible resources could entail
shared workstations, shared equipment, and common administrative services (Rice, 2002). The choice of
business incubators should be done with a view of ensuring that the best incubating organization is selected
for the organization. The various variables that should be considered when choosing the appropriate
business incubators include the following.
Participant Screening
One of the primary elements in business incubating is participant screening. The business incubators
ought to maintain a stable flow of quality business proposals. To achieve that, the organizations need to
engage in effective marketing and promotion campaigns to create awareness about their existence and the
roles they undertake (Van Weele, van Rijnsoever, & Nauta, 2017). The organizations are tasked with
filtering the right applicants with requisite qualifications threshold. Hence, filtering criteria similar to those
applied by venture capitalists are applied here.
There are three sets of screening criteria that business incubators usually employ. First, the experience
of the start-up company’s management team is assessed. Typically, a business with an experienced
management team with an exemplary history of stellar performance is likelier to achieve huge financial
returns when compared with another business with the inexperienced managerial team (Gerlach & Brem,
2015). Second, there is the business’ financial strength. In as much as the one of the business incubator’s
role to provide financial support to those start-ups, the proprietors should have invested adequate amount
into them. That shows that they have a significant stake in the companies’ success and thus are likelier to
act towards the interest of those businesses. Lastly, there are personal and market factors. Market factors
entail the external forces that could have a bearing on the business’s performance. For instance, a start-up
company whose business line is in the auto industry could face problems in the wake of tariffs imposed on
the auto exports by different countries. Hence, that could be a relevant factor during the screening stage in
choosing the most appropriate start-up business to support.
Networking opportunities and support services
The other variable relevant to business incubating organizations is networking opportunities and support
services. By and large, incubation entails bringing together of ideas from various quarters with a view of
supporting the execution of the best business ideas (Stokan et al., 2015). Thus, the business incubating
organizations get to interact with the most ingenious individuals in different industries. The meet-up
between the ingenious individuals creates a symbiotic relationship between the different players resulting
in a rich network of interdependent commercial entities.
Further, the business incubators provide support services to the start-up companies under their wings.
However, this objective is gradually being modified with different incubators providing different sets of
support services to the young businesses. By and large, most incubating organization are conducting
extensive market research with a view of establishing which support services are most relevant to respective
business organizations. With that, the risk is minimized as the incubators end up choosing the best risk-
balanced portfolio for their activities.
Some of the areas likely to be covered by incubating organization’s support services include the sales
sector, legal functions, patenting functions, and sales. To an extent, the support services role could inhibit
networking of ingenious people in the sector. Business incubators could aim to minimize loss of intellectual
property by eliminating interaction with other players thus limiting the networking aspect of business
incubating (Bøllingtoft & Ulhøi, 2005).
Location of Program
The location of program is a fundamental factor to be considered by business incubating organizations.

There are quite a lot of companies that send applications to these business incubating organization. The
companies are varied in their geographical location. The element of location should be given great credence
as it could influence the organizations in many different ways.
First, the most viable start-ups are set up close to the targeted market. With the growth of globalization,
however, this factor is steadily becoming redundant. The organization should seek to have stellar supply
chain functions (Hansen, Chesbrough, Nohria, & Sull, 2000). Therefore, with a business start-up that is
located far from the target markets, the incubating organization should consider which supply chain options
are available.
Sector Focus
The other variable that is fundamental in the choice of business incubators is the sector focus. There
are many business lines that businesses could focus on. For instance, there are technological, agricultural,
tourism, and manufacturing sectors (Mian, Lamine, & Fayolle, 2016). The choice by incubators is greatly
enhanced with the sectors in which the start-ups fall.
If a start-up company has its business line in the technological sector, it would be more prudent that
the business incubators experienced with support services are given utmost consideration (Zhao, Zhang, &
Wu, 2017). Likewise, incubating organizations should consider those applicants whose line of business fall
under their respective portfolios. The essence of this variable choice is to ensure that different business
optimizes on the support services offered by the different incubating organizations.
Conceptual Framework
Based on the results of the literature review and an interview based survey conducted via e-mail with a
group of technology entrepreneurs in India, a conceptual model was proposed for the current study to
highlight the impact of the independent variables on the entrepreneurs’ choice of business incubator.
Figure 1. Conceptual Model
Participant Screening(PS)
Sector Focus (SF)
Location of Program(LP)
Choice of Incubator
(CI)
Networking
Opportunity(NO)
Support Services(SS)
There are five independent variables in the model namely participant screening, sector focus of the
program, location of the program, available networking opportunities for the entrepreneur and support
services provided by the incubator. The dependent variable is the choice of incubator, that is whether the
entrepreneur will choose the incubator as a partner or not.
Hypotheses of the Study
From the literature survey five hypotheses were developed for the study as given below:
H1: There is an impact of participant screening policies on the choice of technology incubator
H2: There is an impact of the sector focus on the choice of technology incubator
H3: There is an impact of the location of the program on the choice of technology incubator
H4: There is an impact of availability of networking opportunity on the choice of technology incubator.
H5: there is an impact of support services provided on the choice of technology incubator.
Research Methodology
An applied and descriptive correlation method was applied in this study. After gathering data from Indian
technology entrepreneurs who were considering choice of incubator for their startups, recommended model
and the causal effects among the variables have been investigated. The data was collected using a structured
questionnaire. The survey population included all technology entrepreneurs in three states of India who
were trying to select a suitable incubator for their business. Random sampling was used and Cochran’s
methods was used to calculate the sample size, based on which 150 questionnaires were distributed to the
respondents. Out of these 150 distributed questionnaires, 128 were found to be suitable for analysis. The
current paper examined the impact of five independent variables (participant screening, sector focus,
location of program, networking opportunity and support services) on the dependent variable (technology
entrepreneurs’ choice of business incubator) with the questionnaire using a five point Likert scale.
The data were then analyzed using Structural Equation Modeling (SEM). It is a multivariate technique,
which combines factor analysis and multiple regression and enables the researchers to test the causal
relationship between latent variables at once (Hair et al., 2010). SEM modelling strategy applies the two-
steps approach suggested by Anderson and Gerbing (1988); Confirmatory Factor Analysis (CFA) as well
as hypothesis testing for the structural model between variables.
Results and Discussions
As the first step of SEM analysis, the researchers construct a measurement model (CFA). CFA is
conducted to ensure that the research data are valid and reliable. According to Hair et al.(2010), good
validity is illustrated by the minimum value of (0.5) of standardized factor loading (λ ) of each indicator
and a minimum value of (0.4) of Average Variance Extracted (AVE).Good reliability is represented by
Cronbach’s Alpha ( α) and Construct Reliablity (CR) minimum score of ( 0.6).
Discriminant Validity was used to determine the validity of the questionnaire, using Average Variance
Extracted (AVE) as well as Convergent Validity. Table 1 which is a snapshot of the CFA analysis shows
that the variables are appropriate for discriminant validity. The Convergent Validity results showed that
the Root Mean-Variance extracted for each construct structures is more compared to its correlation with
other structures. Thus the questionnaire has required validity. The table also shows that the AVE value of
each variable is greater than 0.4, which means all indicators are valid. Composite Reliability and
Cronbach’s Alpha reliability coefficient were used to assess the reliability of the variables. The values of
Cronbach’s Alpha (α) and CR of each variable are above 0.7, which means that all variables are reliable.
Table 2 Questionnaire Validity and Reliability

Construct Composite Reliability Cronbach's Alpha AVE
Participant Screening 0.84 0.89 0.59
Sector Focus 0.90 0.91 0.52
Location of Program 0.94 0. 85 0.66
Networking Opportunity 0.88 0. 80 0.72
Support Services 0.87 0. 88 0.53
The CFA analysis on the data also indicates favorable goodness of fit (GOF) (χ2/df =2.620; RMSEA =
0.070; TLI = 0.878; and CFI = 0.840) . Hair et al. (2010) argued that 3 to 4 GOF index shows a good model.
After the research data are proved to be reliable and valid, the next step is to test the research hypotheses.
The hypothesis testing is conducted by constructing structural model as the second step of SEM modelling.
The structural model analysis is started by examining the goodness of fit. The GOF value shows that the
structural model in this research is favourable and can be interpreted further. The results of the structural
model are illustrated in Figure 2.
Participant Screening
Sector Focus 0.020
0.254
Location of Program
0.195
Choice of Incubator
Networking Opportunity 0.457
0.019
Support Services
Note: Standardized path coefficients provided
Figure 2 Structural Equation Modeling Results
The structural model’s results from the Figure 2 and Table 3 shows that not all the independent variables
can predict the Indian technology entrepreneurs’ choice of business incubator. Networking opportunities
for the entrepreneur with external organizations as well as other incubator participants was found to have
the most significant impact on the entrepreneurs’ choice of incubator, followed by sectoral focus of the
incubator and the geographical location of the incubator program. On the other hand, participant screening
criteria and procedures and supporting activities did not have a significant impact on the entrepreneurs’
choice of incubators. Thus H1 and H5 are not supported while H2, H3 and H4 are supported by the results
of the study. The results indicate the importance of providing opportunities for the entrepreneur to share his
ideas and doubts with peers and mentors as well as sector focused incubator facilities. These results are not
in line with studies on industrial incubators, where sector focus has not been found to have significant
impact on choice of business incubator.
Structural relationship
Standardized estimates Critical ratio P-value Remarks

between constructs
PS CI 0.020 0.529 0.597 H1 not supported
SF CI 0.254 4.336 *** H2 supported
LP CI 0.195 2.119 0.034 H3 supported
NO CI 0.457 2.465 *** H4 supported
SS CI 0.019 0.107 0.915 H5 not supported
Table 3. Hypotheses testing results on the structural model
Note: *** Significant coefficient is recorded at p-value < 0.001.
Conclusions
This study was done to reveal the factors that are of key importance to technology entrepreneurs’ in India
in selecting a suitable business incubator to support their startups. The Indian technology sector has
witnessed a boom in the past decade and this has led to a mushrooming of startups with innovative business
models based on technology in the fields of mobile applications, gaming, technical support services,
graphics design among others. Simultaneously, there has been a tremendous growth in technology based
incubators in different parts of India to support, guide and mentor these startups in their vulnerable initial
days. Using a descriptive correlational method, five factors were identified from the literature review and
these were further analysed using data collected from one hundred and twenty-eight entrepreneurs spread
across three Indian states. As illustrated from Table 2, networking opportunities, sector focus of the
incubator and location of the program were the key influencing factors behind the choice of an incubator,
while participant screening and support services were found not to influence this choice. Three out of the
five hypotheses were supported.
This study is one of a very few studies done in this field especially in India. Thus in a way, it attempts
to bridge the knowledge gap by providing research based evidence on the key factors affecting incubator
choice among new generation technology entrepreneurs . It is seen that the entrepreneurs give primary
importance to the opportunities for networking with peers, mentors and other innovators, followed by the
sector based focus of the chosen incubator. The traditional factors like support services and mentoring are
no longer the primary reasons for selecting a particular incubator, thus showing that these are probably
taken for granted. These findings have implications for incubator managers, policy makers and other stake
holders in ensuring successful implementation of incubator programs in the future.
References :
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Aernoudt, R. (2004).Incubators Tool for Entrepreneurship, Small Business Economics, 23 (2) , 127-135.
Aerts, K., Matthyssens, P., & Vandenbempt, K. (2007). Critical Role and Screening Practices of European Business
Incubators, Technovation, 27 (5), 254-267
Anderson, J. C., & Gerbing, D. W. (1988). Structural equation modeling in practice: A review and recommended two-
step approach. Psychological Bulletin, 103, 411-423. http://dx.doi.org/10.1037/0033-2909.103.3.411
Barrehag, L., Fornell , A., Larsson, G., Mardstrom, V., Westergard, V., & Wrackfeldt, S. (2012). Accelerating
Success: A Study of Seed Accelarators and Their Defining Characteristics.
Bøllingtoft and Ulhøi. (2005) The Networked Business Incubator—Leveraging Entrepreneurial Agency? Journal of
Business Venturing, 20 (2), 265-290.
Gerlach, S., & Brem, A. (2015). What determines a successful business incubator? Introduction to an incubator guide.
International Journal of Entrepreneurial Venturing, 7(3), 286–307.
Grimaldi, R., & Grandi , A.(2005) Business incubators and New Venture Creation: An Assessment of Incubating
Models, Technovation , 25 (2), 111-121
Hackett, S.M. and Dilts,D.M.(2004). A Systematic Review of Business Incubation Research. The Journal of
Technology Transfer, 29 (1), 55-82
Hair Jr, J. F., Black, W. C., Babin, B.J., & Anderson, R. E. (2010). Multivariate data analysis (7th ed.). Englewood
Clifs, NJ: Prentice-Hall.
Hansen, M. T., Chesbrough, H. W., Nohria, N., & Sull, D. N. (2000). Networked incubators. Harvard Business
Review, 78(5), 74–84.
Isabelle, D.A.(2013) .Key Factors Affecting a Technology Entrepreneur’s Choice of Incubator or Accelerator.
Technology Innovation Management Review,17 (3), 16-22
Mian, S., Lamine, W., & Fayolle, A. (2016). Technology Business Incubation: An overview of the state of knowledge.
Technovation, 50, 1–12.
Rice, M. P. (2002). Co-production of business assistance in business incubators: an exploratory study. Journal of
Business Venturing, 17(2), 163–187.
Scillitoe,J.L and Chakrabarti, A.K.(2010). The Role of Incubator Interactions in Assisting New Venture.
Technovation, 30(3),155-167
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Nations Conference on Trade and Development: Multi-year expert meeting on enterprise development policies and
capacity-building in science, Geneva.
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Regulating the sex trade: A comparative study between the legal

frameworks of the sex trade adopted in selected countries.
Doctoral Student Jenita Kanapathy

Taylor's University, Malaysia
ABSTRACT
The sex trade has been commonly known as "the oldest profession in the world" and has existed in various
societies and cultures since ancient times. It is a known fact that almost all countries have a sector engaged
in this activity.
However, the laws and regulations governing this sector tend to vary from country to country. In some
countries, the sex trade has been legalised whereas in others, it has been criminalised.
This paper examines the type of policies that are adopted by selected countries in dealing with the sex trade
and the respective legal frameworks adopted by different countries namely India, Singapore, Hong Kong
and Turkey.
In addition, this paper hopes to give an insight on the workable legal framework that may be adopted by
countries in ensuring that the rights of the sex workers are guaranteed, equally in line with other occupation.
Ms Jenita Kanapathy is a lawyer by training and profession. She read law at University Malaya and was
called to the Malaysian Bar in 2002. After being called to the Bar, she started her career as a litigation
lawyer and had handled a wide spectrum of cases mainly involving commercial and civil litigation matters.
In 2012, she completed her Masters in Law at University Malaya and in the same year, joined Taylor's
University. She has authored various papers that have been published in various journals especially related
to human right issues.
Type of Paper: Comparative

Keywords: sex trade, sex workers, sex sector, prostitution; type of policies; criminalisation;
decriminalisation; legalisation;
__________________________________________________________________________________
1. Introduction
This paper confines the sex trade in the context of heterosexual relationships and does not include LGBTs
and child prostitution. Sex work is just as controversial in academia as it is in the wider society. There are
three perspectives in academic writings that view sex work through radically different prisms.1 They are
the empowerment paradigm, the oppression paradigm and the polymorphous paradigm.
The empowerment paradigm highlights the ways in which sexual services qualify as work, involve
human agency, and may be potentially validating or empowering for workers.2 This paradigm holds that
there is nothing that can prevent sex workers from operating for the mutual gain of all parties involved just
like other employments.
The oppression paradigm is supported by several academics as well as anti-prostitution activists and
grounded on radical feminism. It believes that prostitution exists because of inequalities between men and
women and that woman would not sell sex if their socio-economic opportunities were equal to men.
Furthermore, prostitution only exploits and victimises women to the benefit of men.
The polymorphous paradigm is about identifying the negative and the positive part of prostitution and
coming up with a policy which best suits a country. These competing paradigms are the factor for different
legal policies in different countries with respect to the sex trade.
2.1 Types of policies
2.1.1 Criminalisation
Criminalisation makes prostitution illegal with related offences which can be seen in the criminal code
of a particular country. Criminalisation seeks to reduce or eliminate the sex industry and is supported by
those who are opposed to prostitution on moral, religious or feminist grounds.3 Jurisdictions that have
criminalised prostitution can be divided into two groups:
Prohibitionist approach where all forms of prostitution are unacceptable and therefore illegal. This is the
approach has been taken by most of the states in the United States and countries in the Middle East.
Abolitionist approach is a modified form of prohibition which allows the sale of sex, but all other related
activities are illegal that comprises of soliciting, living off the earnings of prostitution, establishment of
brothels, and procurement. Making these related activities illegal effectively criminalises prostitution as it
is virtually impossible to carry out prostitution without contravening one law or another.4 An abolitionist
approach often focuses on eliminating or reducing the negative impacts of prostitution. This approach is
currently adopted by Malaysia, England, and Canada. Sweden on the other hand pioneered different
approach by criminalising the buyer rather than the seller of the sex trade
3
Gangoli, G., & Westmarland, N. (2006). International approaches to prostitution: Law and policy in Europe and Asia. London: The Policy Press.
4
West, J. (2000). Prostitution: collectives and politics of regulation. Gender, Work and Organization, 7(2), 106–118.
2.1.2 Decriminalisation
Decriminalisation is where there has been repeal of all laws against prostitution, or the removal of
provisions that criminalises all aspects of prostitution.5 In decriminalisation, it is also equally important to
know how the sex workers are procured. In this respect, sex workers can be procured in two major ways (i)
voluntary prostitution and (ii) that involving either by force or/and coercion and child prostitution. The latter
must remain a criminal offence regardless if prostitution is decriminalised or legalised. The key difference
between legalisation and decriminalisation is that with the latter there are no prostitution related regulations
or laws imposed by a particular state or country either to govern regulate and administer the industry. Simply
put, in decriminalising prostitution, since there are not laws to say that it is criminal offence to prostitute
oneself then it is legal to do so if it does not contravene any other statues of the land. Any regulation of the
industry is predominantly through the existing statutes and regulations which apply to all employment
equally. Thus, those involved in prostitution have the same rights and responsibilities as other workers
including a duty to pay tax. Proponents of decriminalisation argue that the cost of keeping prostitution
illegal largely outweighs the gains, and that prostitution should essentially be consenting behaviour between
adults.6 They also argue the injustice of a double standard whereby a sex worker can be found guilty of an
offence, but not the client who is typically male. They also point to potential violation of civil liberties that
state-regulated legalisation might involve, through controls such as registration and mandatory health
checks.7In decriminalised regimes, there is typically a shift in power away from the state and clients to sex
workers themselves. Decriminalisation is also recognised as a way of avoiding the two-tier reality of legal
and illegal operations, with the latter operating underground. Decriminalisation also aims to remove the
social exclusion which makes sex workers vulnerable to exploitation and difficult for them to move out of
the industry. Currently, only New South Wales (Australia) and New Zealand adopt a legal framework on
decriminalisation.
2.1.3 Legalisation
Legalisation is where prostitution is controlled and regulated by government. The underlying premise in
legalised regimes is that prostitution is necessary for a stable social order but subjected to controls to protect
public order and health.8 Some jurisdictions prefer legalisation to reduce negative elements associated with
prostitution such as organised crimes, sex trafficking, police corruption, child prostitution, and to control
STDs. Key indicators of a legalised system are the existence of controls and conditions by a particular state
or government. These can include establishing red-light districts, controlling public solicitation, licensing
individual workers, registration, and mandatory health checks, periodically inspecting legal establishments
managed by police, local authorities, or independent specialist boards. Businesses or sex workers without
the necessary pre-requisites and permits are subjected to criminal penalties. Because legalisation involves
regulation, citizens are more inclined to support this regime than decriminalisation. Prostitution has been
5 Mossman, E. (2007) International Approaches to Decriminalising or Legalising Prostitution. Wellington, New Zealand: Crime and Justice
Research Centre, Victoria University Wellington , at13
6Jordan, J. (2005). The Sex Industry in New Zealand: a literature review. Wellington: Ministry of Justice.
7 Ibid 6.
Research Centre, Victoria University Wellington.
legalised in countries such as the Netherlands, Germany, Iceland, Switzerland, Austria, Denmark, Greece,
Turkey, Senegal, the USA state of Nevada, and many Australian states which are Victoria, Queensland,
Australian Capital Territory and Northern Territory.
2.1.4 Unregulated regimes
Finally, there are some jurisdictions where prostitution is entirely unregulated which means that there
are no laws either prohibiting or allowing prostitution. A review of 27 countries in Central and Eastern
Europe and Central Asia found this was the case in eleven of them. They included Azerbaijan, Bulgaria, the
Czech Republic, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Poland, Slovakia, Slovenia and Tajikistan.9
This study will be conducted using a doctrinal research method where in-depth document analysis of the
type of policies on sex trade as well as the policies adopted in Singapore, Hong Kong and Turkey will be
discussed. Besides analysing the relevant statutes, secondary sources such as books, journal article and a
report will also be referred to.
4. Results & Discussion
4.1 Legal Policies of the sex sector in selected countries
The three countries selected for discussion are Singapore, Hong Kong and Turkey. These countries were
chosen because they share some basic features of regulation as well as differing in some intriguing respects.
Further, they are culturally Asian with the typical right-centre political stance. But, they have in-place
regulatory policies that could be used to support the legalisation policies on the sex trade in an Asian context.
4.1.1 The Singapore Model
Section 140 to 142 of the Women’s Charter prohibits selling, buying, or obtaining possession of any
woman or girl for prostitution either inside or outside the country. Section 159 empowers the Director of
Social Services to remove a girl under the age of 21 involved in the prostitution trade to a place of safety
and to detain her there. Notwithstanding this, Singapore’s approach to prostitution is unique, in that, this is
one of the few countries where there is a sharp divergence between the law and its enforcer. Prostitution in
Singapore is not criminalised or in other words is legal. However, prostitution related activities like pimping,
public solicitation, keeping or managing a brothel, exploitation and control of sex workers and living on the
earnings of sex workers are illegal (Section 146 and 148). Sex workers are allowed to operate within
Designated Red-Light Areas (DRA), in the form of brothels regulated and monitored by police.10
Prostitutes must be registered and carry a yellow card if they wish to work in designated red light areas
9Jordan, J. (2005). The Sex Industry in New Zealand: a literature review. Wellington: Ministry of Justice.
10 Shi Bin, Tan, & Alisha Gill (2013), Containing Commercial Sex to Designated Red Light Areas: An idea past its prime?. Singapore: Lee Kuan
Yew School of Public Policy, at 2.
(DRAs) such as in Geylang, Keong Saik Street, Flanders Square and Desker Road.11 Under an informal
agreement between the prostitutes, brothel owners and the Anti-Vice Enforcement Unit (AVEU) who
consists of the police unit in-charge of dealing with prostitution, the brothel owners are to ensure that the
prostitutes are free from STDs, not below the age of 18,12 not exploited and have a ‘yellow card’. New
prostitutes must be interviewed by the AVEU to ensure they are working on their own accord. This
arrangement seems to be beneficial for all parties involved. But, this certainly indicates that the existing
legislation in Singapore is inadequate to deal with the problem arising from the sex trade officially and
seems to be operating above the law albeit in a workable and pragmatic manner.
4.1.2 The Hong Kong Model
Prostitution in Hong Kong is itself legal, but organised prostitution is illegal, as there are laws against
keeping a vice establishment,13 causing or procuring another to be a prostitute, living on the prostitution of
others, or public solicitation.14‘One-Woman Brothel’ is allowed and they work in small, usually one room
apartments which are often referred to as ‘One girl in one apartment’. Currently, the main form of sex work
in Hong Kong are street girls, one girl in one apartment, karaoke bars, night clubs, massage parlours, saunas
and other entertainment outlets. Except for street girls and ‘one girl in one apartment’, others have an
employer or even an employment contract.
4.1.3 The Turkey Model
Prostitution is legalized by law.15 Under Article 227 of the Turkish Penal Code (Law No. 5237),
pimping is illegal. Women need to be registered and acquire an identification card stating the dates of their
health checks.16 Brothels commonly called ‘genelev’ are legal and licensed under health laws dealing with
sexually transmitted infections.17 Only single, Turkish women over the age of 18 may register and
registered women cannot marry while registered. Women who choose to register as prostitutes and work in
the genelevs are assured protection from police intervention and abuse by clients. However, the law places
severe constraints upon their personal freedom, although enforcement varies among local police forces.
They exchange the identity card carried by every ordinary citizen for special ones identifying them as
prostitutes. They may later 'renounce' prostitution to obtain an ordinary identity card.18 Most sex workers,
however, are unregistered, as local governments have made it a policy not to issue new registrations. As a
result, most sex workers in Turkey are not registered sex workers thus working in violation of the law.19
11 Joel Wong Yang, (1996), Brothels, Pimps and Prostitutes: The Administration of Criminal Justice vis-à-vis Prostitution, 17 Singapore Law
Review, at154.
12
Ong, Jin Hui. (1993). “Singapore”, In Prostitution: An International Handbook on Trends, Problems, and Policies, ed. Nanette J. Davis at 248
to 249.
13 Section 117(3) (b) to Chapter 200 Crime Ordinance
14
United States Department of State, "2008 Human Rights Report: China (includes Tibet, Hong Kong, and Macau)" , Bureau
of Democracy, Human Rights, and Labor, 2008 Country Reports on Human Rights Practices, 25 February 2009
15 Özaşçılar, Mine; Ziyalar, Neylan (2015). "Framing Prostitution in Turkey: News Media Coverage of Prostitution" .
International Journal of Criminal Justice Sciences Vol 10 Issue 2 July– December 2015
16
Ibid.
Research Centre, Victoria University Wellington, at 13

18 Ibid.15
19
Bindman, J., & Doezema, J. (1997). Redefining prostitution as sex work on the international agenda, at 30
The Turkey model only allows brothel and does not allow sex workers to work independently unlike the
‘one girl in one apartment’ concept in Hong Kong. Street prostitution is also not allowed in Turkey.
However, the sex workers in brothels are not given adequate protection by the police unlike the ‘unofficial’
model practiced in Singapore where any mistreatment or victimisation against sex workers by brothel
owners or management can be brought to the AVEU.
6. Conclusion
Comparative analysis of different type of policies helps in assessing the strengths and weaknesses of
various models and contributes to identifying the best practices in regulating the sex trade. Legislators may
adopt standards of best practices to address a legalised system which include visibility, eligibility, health
and safety and rights of the sex workers. Visibility is about keeping the sex trade discreet away from public
areas or to establish red light areas. Prostitution in Singapore is confined to DRAs. Turkey has also adopted
this approach as genelevs are not allowed to be visible from the main streets, places of entertainment, places
of assembling, educational, religious institutions or public authorities. Street prostitutions are also not
allowed in Turkey. Eligibility is about implementing administrative regulations in the sex trade for instance
prohibiting minors from participating in the sex trade and excluding minors from premises where sex is sold
as well as licensing the business. This approach has been adopted both by Singapore and Turkey.
Furthermore, brothels in Turkey are licensed. Health and safety is another vital aspect when regulating the
sex sector. The AVEU in Singapore is given the task to monitor the brothel owners to ensure that the
prostitutes are free from STDs, not below the age of 18, and are not exploited whereas in Turkey, women
who choose to register as prostitutes and work in the genelevs are assured protection from police
intervention and abuse by clients. The rights of the sex workers must be taken into consideration when
legalising the sex trade as well. The Hong Kong model allows empowerment to sex workers to work
independently and in Turkey sex workers are given the freedom to leave the trade on her own accord. In
countries where prostitution had been criminalized, sex trade continues to thrive. Prostitution will continue
to exist, whether legal or not, rather than taking the drastic approach of Decriminalising or Criminalising
the sex industry, legislators could look at regulating the sex trade to minimize the harms it causes as well as
empowering the sex workers.
References
Journal article
Özaşçılar, Mine.,Ziyalar, Neylan (2015). Framing Prostitution in Turkey: News Media Coverage of Prostitution.
International Journal of Criminal Justice Science ,Vol 10 Issue 2 July – December 2015
West, J. (2000). Prostitution: Collectives and the politics of regulation. Gender, Work & Organization, 7(2), 106–118.
Joel Wong Yang, (1996), Brothels, Pimps and Prostitutes: The Administration of Criminal Justice vis-à-vis
Prostitution, 17 Singapore Law Review.
A book
Bindman, J., & Doezema, J. (1997). Redefining prostitution as sex work on the international agenda.
Mossman, E. (2007) International Approaches to Decriminalising or Legalising Prostitution. Wellington, New

Zealand: Crime and Justice Research Centre, Victoria University Wellington.
Gangoli, G., & Westmarland, N. (2006). International approaches to prostitution: Law and policy in Europe and Asia.
London: The Policy Press.
Ong, Jin Hui. (1993). “Singapore”, In Prostitution: An International Handbook on Trends, Problems, and
Policies, ed. Nanette J. Davis.
Jordan, J. (2005). The Sex Industry in New Zealand: a literature review. Wellington: Ministry of Justice.
Weitzer, Ronald. (2012). Legalizing Prostitution: From Illicit Vice to Lawful Business. New York: New York University
Press
Shi Bin, Tan, & Alisha Gill (2013), Containing Commercial Sex to Designated Red Light Areas: An idea past its
prime? Singapore: Lee Kuan Yew School of Public Policy.
Statutes
Chapter 200 Crime Ordinance

Turkish Penal Code (Law No. 5237),
Women’s Chapter (Chapter 353)Chapter 200 Crime Ordinance
Turkish Penal Code (Law No. 5237),
Women’s Chapter (Chapter 353)
Report
United States Department of State, "2008 Human Rights Report: China (includes Tibet, Hong Kong, and Macau)",
Bureau of Democracy, Human Rights, and Labor, 2008 Country Reports on Human Rights Practices, 25 February
2009
The role of government to care relationship among ethnic in

Indonesia (study case: post-conflict between Dayak Tribe and
Madura Tribe in Sampit Kotawaringin Timur Central of
Kalimantan Indonesia)
1Didi Susanto, 2Tri Marhaeni P A, 2Masrukhi, 2Mohammad Yasir Alimi

1
Student Doctoral of Social Studies Department Universitas Negeri Semarang Indonesia
2
Professor Social Studies of Department Universitas Negeri Semarang Indonesia
ABSTRACT
This study aims to analyze the role of government to care and to depend relationship among ethnics in
Indonesia that have been experiencing of conflict in a transition era beginning from Poso conflict, North
Maluku (Ambon), west Kalimantan, then in Sampit Kotawaringin Timur Central of Kalimantan. The study
is a qualitative history approach, by using primer and secondary data, depth interviewed to find out
qualitative data post-conflict in Sampit Kotawaringin Timur Central of Kalimantan Indonesia. The result is
the government efforts helped scholars from “Adat Dayak” and “Adat Madura” always doing socialization
among ethnics in Sampit Kotawaringin Timur, the slogan “A peace is fixed, war is stopped”. This study
conclude, the slogan affords reducing of tension and effective to prevent repeating conflict ethnic in Sampit
Kotawaringin Timur until now. Recommendation for government is needed consistency to take care along
the time of relationship ethnics in order to prevent of conflict in repeat.
Keywords: role of government; relationship of ethnic; post-conflict; repeating conflict

__________________________________________________________________________________
Introduction
Indonesia has many cultures which come from its tribes, religion and any of groups. Furnival said that
Indonesia is a multicultural country. There are hundreds of tribes, six religion and faith, and much of groups,
and they bring out self of its culture. But, beside a multicultural countries, Indonesia has high conflict
tension. In between 1998 until 2003 there have been occurring more than four cases of high tension among
tribes and religion, sequential events and relationships with one another. The periodically of conflict among
ethnics and religion in Indonesia occurred within three decades of power, first in Habibie era (1998-1999),
Abdurrahman Wahid (1999-2001), and then Megawati Soekarnoputri (2001-2004), after periodically of
Soeharto in authoritarianism era to transition of reform period.
Diversity from experts to explain the factors of conflict invents a few hypothesis; (1) some of experts
guess the conflict occurred because of the emergence reform movement in Indonesia in 1998, being
transition period from authoritarianism to democracy; (2) there is uncertainty of values (anomie) after the
fall of authoritarianism and invents of weak state and failure state. In other words, the state unable to enforce
rules and control the community; (3) development impacts at Soeharto era, as like injustice, economic
inequality, and the breakdown of social and cultural networks; (4) act of revenges from the unacceptable
actor whom come from old regime in designing of conflict.
According Diamond (2003), and Stephan & Linz Z (1966), the democracy which generated from
incompletely transition will unconsolidated democracy. Huntington (1968), susceptible of democracy will
showed any of factors, and those are non-functioning of the political institutions maximally, elite faction
over power, low participation of the people, government bureaucracy is not effective, and because of the
strongest of military.
In Indonesia during transition era, has been shifting of violation human right from vertical to horizontal.
It means that in Soeharto era the violations of human rights conducted by tool state to citizens, then on
reformation era the violations of human rights conducted by man to a man, or by a group to another group
among citizens in being horizontal conflict. Attacking from group to another groups, clashing and expulsion
to the certain belief groups (Ambon, Poso and Maluku) or tribes such as Dayak and Madura tribes in Sampit
Kotawaringin Timur Central Kalimantan Indonesia and West Kalimantan. Those create many of effect
seriously. A thousands killed and injured, a hundred homeless, and each of them intend to revenge, so those
need long of reconciliation.
At Ambon and North Maluku’s conflict, reconciliation have failed because of securities engagement in
a process, both in helping one side or have some of interest it self. The reconciliation did not progress well.
Meanwhile some elites have own in politics covered by religion (Rabasa A, and J Haseman, 2002; Rozi et
al. 2006). Unbalancing in regulation tends spreading of conflict (Duncan, 2009; Lorrain, 2007; Taufiq T,
2007; Braithwhite et el, 2010).
The study reveals the reconciliation’s histories after conflict done by governments helped scholar from
Adat Dayak and Adat Madura to keep of peace in Sampit Central of Kalimantan Indonesia.
Research of method
This study refers to the qualitative approach using literature studies. Sources of data used in the form of
official government sources, the experience of people who experienced the conflict as well as books that
tell about the conflict Dayak and Madurese few years ago. Primary data resources taken from histories
books that relevant with, while secondary data taken from articles both national and international indexed.
The analysis of data is using case of study analyzed, by four steps, those are: (1) data was very wide, so
required for categorized, (2) analyzed collected data, got matching, and then generalized them on the
relevancy. In this research, to categorize of data using codification in similar of data, and relevant with this
research, then data get to some of relevant facts, relevant concept. Then, finishing step is summarize of data
and make a some generalization
Finding and Discussion
After conflict was in 2001, some of problems solving ways done to refugees come back in Sampit and
whole Central Kalimantan. It helped by all of component, but the indigenous initiated first to refugees
coming back in their lands. Dayak societies comes to form a unity formal organization “Kongres Rakyat
Kalimantan Tengah (KRKT)” and it was held June 2001. But it was meet up in Jakarta March 2001
previously, in a congress of “Penyelesaian Konflik Antar Etnik Di Kalimantan Tengah dalam Bingkai
Musyawarah Damai Anak Bangsa Di Bumi Kalimantan: Tekad Damai Anak Bangsa di Bumi Kalimantan”.
The conference concluded that (1) accepted all of result from the congress in Jakarta to reconciliation
completely, (2) refused violence in reconciliation, (3) keep in peace and accepting apologize, (4) local
government made new legal citizenship soon, (5) equity of enforcement in law, (6) gathering ethnics to
keep state and betang cultures.
Background the congress “Kongres Rakyat Kalimantan Tengah (KRKT)” done because of reasons,
which came from Dayak Tribe. (1) based on state declare that humans could live in everywhere as its human
right and keep in peace, brought out its welfare accordance with norms that agreed together, (2) they
revealed that Dayak tribes are welcomed and love in peace, and avoid violences based on Rapat Damai
Tumbang Anoi 107 Tahun yl. (1894), (3) they conquest that the conflict brought uses for the state awareness
to being more friendship, and back to the state of Bhinneka Tunggal Ika as Indonesian symbols, that means
the divergent but as unity.
Two months after “Kongres Rakyat Kalimantan Tengah (KRKT)” was held congress in Sampang
Madura East Java, “Musyawarah Besar Pengungsi Korban Kerusuhan Kalimantan Tengah Se Jawa Timur”
on August 2001. This was responses from KRKT previously held in Sampit Central Kalimantan. There
were points it concluded. The main points (1) as Madura tribes accepted what agreed in KRKT, would
adapted and accepted Huma Petang, (2) keep state aware, and keep in norms, (3) they quested that conflict
uses and no more repeated.
After both tribes dealing in peace, the government reformed National Coordinating Agency for Disaster
Management and Refugee Management (BAKORNAS PBP),having limited trial it leaded by vice president
on September 25th 2001 and followed Coordination Meeting of Ministers on September 28th 2001,
Establish national policies to accelerate the handling of refugees, especially in conflict source areas by
sequences; (1) backing home for refugees, helped social ministry as leading sector and local government;
(2) empowering refugees, minister of labor, minister of cooperatives and local government as leading sector
when 1st did not acted; (3) redirects, rehoming when 1st 2nd did not executed, minister of labor and local
government as leading sector.
Accelerated efforts by performing National Coordinating Agency for Disaster Management and Refugee
Management (BAKORNAS PBP), being province’s preference to perform local regulation to set Handling
of Inhabitants Impact of conflict. In PERDA number 9 on 2001, revealed reconciliation, re-evacuation,

rehabilitation and emphasized role Damang Kepala Adat in peacing, the procedures for the re-evacuation
of the population from the evacuation with security, guidance, supervision, control and sanctions.
Then, Minister of Home Affairs preformed a team to progressing reconciliation process in well. By
Ministry decision letter Number 200.5-1 in 2002 established “Tim Penyelenggara Pra Musyawarah Tekad
Mufakat Rakyat Kalimantan” previously, before they were having meet in Batu Malang East Java. The
meeting was performed to convincing reconciliation and re-evacuation doing well. The congress was
followed both of delegates, those from Dayak and Madura, while central government being leading sector
and facilitators of peace.
That congress in Batu Malang East Java being referenced for local government in Sampit Kotawaringin
Timur to establish legal government in 2004 by number 5, revealed “Penanganan Penduduk Dampak
Konflik” and to emphasized sustainable peace in Central Kalimantan, local government of Kotawaringin
Timur established legal government Number 6 in 2012, revealed “Tentang Kelembagaan Adat Dayak di
Kabupaten Kotawaringin Timur”.
As the others ways of reconciliation process in any tribes of Indonesia by using Adat such as in North
Maluku. Duncan (2009), explained how the role of Tobelo religion and Tobelo identity to prevent future
conflict in North Maluku. In Sampit Kotawaringin Timur established that every incomers that live in
Kalimantan must having and implementing “Huma Petang”. its means that every human that live in
Kalimantan must respect and obey Dayak philosophies “dimana bumi dipijak disitu langit dijunjung”.
To continuing of slogan “A peace is fixed, war is stopped”, so Damang Adat Dayak and Adat Madura
helping each other in socialization in every events in Sampit eventually, to prevent future conflict.
Conclusion
Future conflict ethnics in Indonesia really doing happens in any time, because of conflict histories
factors, eventhough every conflict really have been solving in early. Ethnic’s identity emerge after in era
Soeharto regime, that using military to control every conflict attempt, had replacement democracy era. Use
ethnics identity to prevent every conflict in Indonesia is smart and good ways, because of every ethnics
have cultures and philosophies. Every incomers must implement it, so future conflict never been occurring.
“Huma Petang” cultures as ethnics Dayak is a gun to prevent it, and it bring out “A peace is fixed, war is
stopped”.
Recommendation
Government is needed consistency to take care along the time of relationship ethnics in order to prevent
of conflict in repeat, and it helped by scholar Adat, as identities of ethnics.
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Factors of Cement Mining Conflict in Rembang Central Java

Indonesia; the Stages of Conflict, Emerging to Social Movements
Sidik Puryanto1, Dewi Liesnoor Setyowati2, Suyahmo2, Muhammad Jazuli2

1
Student Doctoral of Social Studies at Universitas Negeri Semarang Indonesia
2
Professor of Social Studies Department Universitas Negeri Semarang Indonesia
ABSTRACT
Mining has been enhancing the income of many districts in the whole, and it provides the fifth of the biggest
income material for Indonesian country. But, besides the advantages mining conflict has many of the
disadvantages for the people actually. The purpose of the study is to find out factors of cement mining
conflict in Rembang Central Java Indonesia and how the conflict expands and emerging of social
movement. Method of study is a qualitative approach by case of study. The result of the study, the
grievances as conflict resources, how the conflict expands and being social movement. The conclusion is a
cement mining conflict that occurred in Rembang not pure conflict between local communities with PT.
Semen Indonesia Tbk. but it has begun by conflict small mining before. Recommendation PT. Semen
Indonesia Tbk. should be understood of those causes, and shall to apply education of conflict to people in
order to continuing conflict will not occur.
Keywords: cement mining conflict, grievances, stages of conflict, social movement and education of
conflict
__________________________________________________________________________________
Introduction
The whole of world, mining industry has been enhancing income for welfare of that people belonging in
that country. Such as in Papua New Guinea proves that mining has been giving of economic sustainable for
welfare the people in Papua New Guinea, even though some of materials gave problems (Bainton
and Macintyre. 2013). On research in CSR as a tool to fight against poverty the case of Mauritius, conclude
that most of industries have established procedures by utilizing the allocation of funds from CSR. The goals
are insist of people to invent better of both material and non material (Regadon, 2009). Promoting a culture
of enlightenment from CSR to develop employee awareness education (Mària and Devuyst, 2011). Using
of resource-based frameworks and livelihoods can contribute to analyzing the spatial relationships between
transnational mining companies and can change the livelihoods (Jeffrey and Adam Kolff , 2002).
Like the others, in Indonesian mining give the fifth of economic growth sector besides trades, industrial
process, agricultural, constructions, and mining. Mining gave many contribution of material need for
welfare people, financial needed, improvement in health and education, and protection of human rights. The
codes that have done by Freeport to fight radicalism by people, are protection of human right, treatment of
indigenous people on whose traditional land its mine was located, economic development, job creation, and
improvement in health, education, and housing facilities (Sethi et al., 2011).
In the other side, exception of mining appeared in whole of the world. Many problems emerge every
mining come to the some land, such land acquisition or land of conflict problem, such as the land of conflict
on PT. Adaro Indonesia in Upau Tabalong district (Arbuansyah, 2008). land conflict in iron sand mining in
Kulonprogo Yogyakarta Indonesia (Syafran, 2016). maintaining customary land deprivation in Rokan Hulu
Riau Province (Hasibuan, (2011), inequity of policy in Porsea north of Sumatera (Manalu. Dimpos. 2006),
and emerged social movement (Silaen Victor, 2006), free market mining creates oligopoly, imperialism,
and Narco mining (Garibay et al, 2011), deprivation between indigenous and outworker (Ngadisah, 2003),
and its negative impact of environment in Pasuruan East of Java (Oetami, 1997), the issuance of permits for
disposal of waste into the sea by foreign companies in Minahasa (Dewi Y T, 2006).
Marx said that the causes of social movement of proletarian because of grievances, such as inequity,
exploitation, and deprivation. Johnson said, all of kind unbalance are the main factor of macro or micro
grievances, and emerged social movements. Grievances have dominant factors to explain conflict and social
movement (McCarthy & Zald, 1977), then Anthony in Resource Mobilization Theory, assumed that where
the people appear of grievances very impossible emerged social movement. With other word the grievances
is main factor of conflict and emerged social movement in Rembang Central Java Indonesia. Conflict is
differ of perception which does not accommodated well. Conflict is perceived divergence of interest, or
believes for the actor does not simulated achievement (Pruit & Rubbin,2009).
The study reveals of grievances that have been factoring of cement mining conflict in Rembang Central
Java, and emerging social movement.
Material and Methode
In this study, the approach used was qualitative by using the model case study, the aims is to explore the
facts that occurred in the community. Qualitative with case of study is method to deep what happens of a
case, why case is still happening, and how a case getting in progress. To answer the questions it required
qualitative of data. Qualitative of data is consisting any question related with concept from a case. Such as
factors of conflict before (small mining), factor of conflict with PT. Semen Indonesia Tbk. (large mining),
the issue that encouragement its conflict, and why conflict emerge social movement. Technically to choose
the informants by snowball techniques, as follows (1) the subjects are long enough of activities until now,
(2) the subjects have much times to get interviews, (3) the subjects got contentious to interviewed (Creswell,
2009). So, the credible interviewed from this research take a leader of social movement two of man, and a
woman (leader). It will take along of five months to get data from depth interview. Second, two religion
actors whose encourage of people to keep in protests since 2011 until 2014. Third are the participants of
protest whose are in keeping in protest until now.
Results and Discussion
Old Conflict by Small Mining
Conflict of local community with PT. The Indonesian cement, which occurred in Tegaldowo and
surrounding villages, was a series of previously existing conflicts, from the establishment of a small-scale
mine or Galian C (Amnah , 2006). Since 1996 until now there are 25 mining companies located in the
Watuputih Mountains region. The large number of small-scale mining factories raises a variety of impacts
felt by the surrounding community.
Conflicts between the local community and the company of that era have been occurred, caused by some
of conflict instruments. The practice of buying and selling land or land acquisition by mining companies
assisted by irresponsible actors (see table 1).
Table 1 forms land acquisition

Forms Land acquisition Describes Action from people who
Grabbing of land was done by Some of land disappear when Complaining people against the
mining actors heavily tools pass the narrow road acts which come from mining
that it usually villager’s use to reach actors, they are protesting to them
their land. (own mines) but it just like a
surrounding circle that never be
end. At last time, people given to
God, and they hoping curse that
God will punish them soon.
Threats come from mining actors Some of mining actors compel People was be grumble and anger
(interest actors) to sell of land people to sell by threat, and if they with it, but they afraid to them,
immediately aren’t, their land will disappear. because they are official of
villagers administration.
Cheats from mining actors by Because of most of land haven’t A widow (no one child), have been
using no legal standing of people’s legal administration (certificates), so cheated, and some of people too,
land (most of people haven’t legal it used for responsible actors to by same case, half of sold but in
administration of their land or fact whole of land.
certificate, because they got it from cheats some of people in sell and
grand-grand parent in heritage) buy dealing.
Cheats by only giving Down some irresponsible actors do just (case) A farm who died before
payment (DP). giving a down payment, only ten or settlement of land sold, have
less form mounts, but never asked experienced by irresponsible
of proof of payment and settlement. actors, same case by down
When the owner asked remaining, payment early, but not remaining
they always evasive with the reason because not of legal
that the land has not been paid by administration, until he died and
skippers (landlord). Or some his children did not take care of it
farmers accepted a little just like
installments a credit
Second factors cause of conflict is environment impact (suharko, 2006a; Suharko, 2013b) which has
been explained by two causes, air pollution, and noisy come from trucks and bombs that explode the stones
(see table 2).
Table 2 forms environment impact

Forms of environment impact Describes Action
Air pollution It comes from every trucks that Grumbling people caused of it, and
passing road every minutes and when they protest but intimidation
cause dusting street, and breathless. experienced by people.
It also causing damaging road.
Noisy It comes from sound generated from As human they also feel tired,
heavy vehicles that every day they exhausted after they work, and
always heard and sound mining they need some rest, but disturbing
process, like bomb before mining to of noisily is coming.
start
The third factor is uncomfortable outcomers by its attitude. It is contradictive by indigenous people who
have strong religion and faith for Islam. Such as habitually in gambling, drunk and appears of a group that
always force in every acts (see table 3).
Table 3 forms grievances from outcomers

Form of coming from outcomers Describes Action
Its attitude that contradictive with urban culture. It like alcoholic habit, Despite its personality but it make
people’s religion. gambling, and bad attitude showed uncomfortable, when they was
and generates of a group that always living in this village, increasing
use some forcing in their act. coffee shops, and many of coffee
shop sold drunks, and gambling
cards. Any time there was

gambler, and drunker.
Conflict with New Instrument by PT. Semen Indonesia Tbk.
Conflicts left had been finishing yet, the people must faced to new conflict with mining big scale, PT.
Semen Indonesia Tbk. . Since its had permitted by government, the people already resisted. They thought
that the government did not accommodate of the grievances by gave the existing cement factory to build in
that Tegaldowo region. It raised much from them to open acts and straight out against PT. Semen Indonesia
Tbk.. and any supported it. Despite of excepted by people and some organizations supporting, but
government just compelled it to keep going build the factory in Tegaldowo region.
Table 4 forms grievances while cement mining

Forms of grievances Describes Action
Land acquisition The same of forms land acquisition Raising of conflict by new
come back and raise many of actors instrument big scale.
because of much money they got.
(after cement mining built in
Tegaldowo region, the prices of
land increase fast, from hundred
million per hectare become billion
rupiah in per hectare).
Lack of humanity socialization News that cement factory will build People grumble to the actors that
in Tegaldowo region do not unable giving the information
confirmation well, it cause of the clearly.
actors do not well in giving the
information, furthermore
communication and interaction do
not doing in health.
The deprivation because of policy The regional government policy by People feel disappointed because
permitted to cement mining in of the policy. Despite they do not
manage of forest land, replace of legal of owning but they had been
farmers to cultivate it since a long caring to reserve the forest from
time ago by primordial deals. destroying.
Another Crucial Caused, Relevant in Post Modern Society
Differs Opinion from the National Religious and scientist Actors in this District
Since PT. Semen Indonesia Tbk. will be present in Rembang Central Java Indonesia, many of national
religious actors and academicians being different arguments. A half of them accepted and the others
exception, and they attend many of reasons by its personality. The reasons that showed are usefulness and
damage. Which one are true, confusing of people (see table 5).
Table 5 forms grievances accordance with criticism from the people

From of accordance with criticism Describes Action
from people
Distinction coming from religious A half of religious actors do The people do not understand what
actors exception in early, but in the middle their interest, but people’s faith to
of periodically reducing amount of keep exception cement factory until
them. They do contradictive views now. They do what should do and it
with the others, most of them accordance with their faith and
accept it, but most of them refuse it truth. The truth accordance with
too. them, their view.
Distinction coming from scientist Debatable coming from scientist Most people said that the reality is
or academics and academics belong national area, the most necessary of knowledge.
most of them refuse it, but most of When it refused by scientist, and if
them accept it. it is contradictive science, what is
going on to the knowledge?
Conflict Expand to Social Movement
Starting from the protest was held by a groups of man who getting inspire a movement, it consist of
small man, move to village’s office, to ask of completely of progression cement mining in its territory. In
2011 of January, a group of man together of walk at morning before lunch, have met by some officials who
in duty in that morning, but response do not accepted clearly. They decided to come again in other times.
On 2011 of February a groups that consist of much of young man decided to make a conference to merge
the argument and finding members, reveal to except of cement mining in territorial of Watuputih Region.
Before declared of it, some of officials was breaking it out, and it failed at the time.
On further of day, finding member was done by inclusive, person by person and from the door to another.
The act was successfully, and increasing members from the day until the day, and expanded along to the
other territory. The movement members include Tegaldowo, Suntri, Dowan, Pasucen, and Timbrangan. The
massive movement to find members proved that mining conflict as a problems in its territory.
In 2012, a group consist of mothers, fathers and young man walk together, do protest to village’s office
because of they did not invited in socialization of cement. They felt discrimination and disappoint to legal
officials. Then, they decided to come and did it even uninvitation. Asked of clear information as critics from
society was regarded unobedience to government, so they do discrimination and deviation them.
Asking a clear information then sent letters to stakeholders in regional government until President, but
it kept in unclear, so they decided to extend of action to legislative offices in Rembang subdistrict. The first
action was held on middle of 2012, there is eight of trucks that contain of demonstrans, together went to
legislative did of protest to demand of the clearly of socialization of cement mining in its territory. The
speech of it addressed to legislative and to hear of the problems in settlement around Watuputih Region,
that its cement was located.
The second protest and further was held on end 2012, followed by any organization non government
(NGoS), such as JMPPK, WALHI, HAM, JATAM, and academist of group They were consisting of
environment preventing, human rights caring, and sustainable of development. The second protest and
further demanded the cancellation of cement mining in Watuputih Region.
The conflict being top, when the grievances and the inspiration do not accommodate both legislative or
regional government. The top of conflict was held on 2014 in June, much of members in exceptor of cement
was walking together to cement location. In that day, cement was first step of building factory. The first
legion contain of mothers, and fathers the back in, moving forward and flastered some posters, came the
location to address failed of cement factory.
But, the demonstrans must faced with the securities contain police, TNI and from factory. Some of
mother being blocked the passing road to prevent or to block some of trucks that driving workers or some
assignment of cement factory. The attempting to cancel of cement mining had been failed, because of
discrimination acts from the securities. Some of mother has violence acts.
After blocked passing road failed, because of discrimination act from securities, the mothers built some
tents in sides of coming door location cement factory. It also built a mosque. Day by day, month by month
they kept in tents along two years, from 2014 until 2016.
Social movement did not stop yet, and kept going until now, because of some funds, motivator even
from religious actors, and any organization, is always encourage. Those are the diversity of the other social
form in Indonesia. The social movement in Rembang Central Java is called urban social movement because
of its diversity.
Conclusion
Based on causes had been explaining before, it conclude that cement mining conflict that occurred in
Rembang not pure conflict between local community with PT. Semen Indonesia Tbk. but that begun by
conflict companies mining before. Conflict among mining industry occurred when small scale of mining
built since 1996, then followed dozens of mining. Stage of conflict divide in two stages, that are the old
conflict, and a new conflict by PT. Semen Indonesia Tbk.
Conflict occurred by various grievances experienced people do not accommodate well, or there has been
divergent among grievances between people and stakeholders and those are inheritance from mining factory
before. The grievances among people distinguished by some views, (1) natural grievances/classics such as
land acquisition, cheated acts, and economics deprivation, (2) conservative/modern thinker grievances for
reserving environment, and (3) post modern grievances, linked critical society whom more dominant by its
principle and fight mainstream or hegemony.
Recommendation
PT. Semen Indonesia Tbk. should remains what gonna do before continuing the factory process to more
produce, what the grievances of society felt along until this time. Understanding of grievances determine of
the mechanism solving that problems without leaving of remains. It is not only by management of conflict
but also refresh what occurred before, or in other words sustainable conflict can not defined by management
of conflict, but required inclusive acts by education approach, more humanism, more touched, and more
delightable.
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Silence to Sexual Violence in Myanmar: Women Leadership and

Blind Politics
Shampa Iftakhar
Assistant Professor, Department of English, Daffodil International University, Dhaka, Bangladesh
ABSTRACT
In the recent years Myanmar has acted out to display the most stained and savage story of sex violence
in the Rakhine State where the Rohinyga muslims live. The government launched “Operation Cleansing”
against muslim terrorists. But the world witnesses how the Burmese Government executed ethnic cleansing.
Rape of women was committed here in conjunction with the other human rights violence such as beating,
mutilation, torture and murder etc. In Myanmar, sex violence has been observed as an effective policy to
terrorize the ethnic Muslim community. In 2017, Myanmar army and the Boarder Police, added a horrific
chapter of wide-spread and strategic rape of the Rohingya women to human history. The government itself
denied all the allegations. Consequently, these grave incidents have been remained unreported. More
pathetically, Aung San Suu Kyi, Novel Peace Laureate, remained conspicuously silent about the violence.
The inhumane violence was intensified when both India and China showed the unconditional sympathy
towards Myanmar over the Rohingya issue. The blind power politics in general and the political interest of
Aung San Suu Kyi in particular, show the hollowness of women leadership in Myanmar. This paper aims
to focus on Aung San Suu Kyi’s dilemma to decide her role as women leader against the state –run sex
violence in her own country.

Keywords: Sex Violence; ethnic cleansing; power politics; strategic interests; women leadership
__________________________________________________________________________________
Introduction
Sexual Violence is undoubtedly an obvious widespread phenomenon in time of war, armed-conflict and
ethnic cleansing. The general forms of sexual violence during war-time and armed-conflicts are rape, sexual
torture and sexual slavery. In the recent decades, rape and gang-rape which in widespread and systemic in
nature, have been used against minorities in the different countries. From the World War II to the recent
incidents of Rwanda in 1994, the former Yugoslavia in 1992-1995, Congo in 1990s and Myanmar in 2017,
it becomes evident that armed groups and police appear to engage in different sexual activities with utmost
violence against women and girls who belong to enemy group. The armed forces of Myanmar, which is
more commonly known in the country as the Tatmadaw, along with security forces and Rakhine Buddhist
vigilantes have been accused of launching “systematic and widespread” sexual violence including rape,
gang-rape and killing. in the northern state of Rakhine in the name of operation clearance, though Mortimer
(2017) reported that Myanmar rejected all allegations of “ethnic cleansing claiming its security forces were
carrying out clearance operations to defend against the insurgents of the Arakan Rohingya Salvation Army,
which claimed responsibility for the August attacks and similar, smaller raids in October last year.”
1. Minority Groups in Myanmar
Oxford Burma Alliance (2017) claims the presence of more than 135 different ethnic groups in
Myanmar. With a population of 56 Million people, minorities group constitute around one third. Each group
has its own history, culture and language. But Ekeh and Smith (2007) asserted that its history is one “that
tainted by political violence, tensions between and within ethnic groups, ethnic and religious discrimination
and persecution, amongst many other serious violations of human rights.” The following lists some of the
state-run campaigns and laws that Myanmar military janta carried out and issued to oppress ethnic groups.
2.1 The Four Cuts (Pya Ley Pya):
“Four Cuts” (Pya Ley Pya) campaign was carried out under the leadership of Dictator General Ne Win
in 1963, who was inspired by Japan’s ‘THREE ALLs’ which means ‘Kill all, Burn all and Loot all’. The
Four Cuts is intended to cut off food, funds, intelligence and recruits to ethnic insurgencies. Since 1988, the
Tatdamaw has maintained the use of these strategy in the Kachin, Karren, Mon and Shan State. Naw ( 2017)
mentioned in between 1996 and 1998, in the Shan State over 1400 villages were destroyed and more than
300000 local residents displaced as a direct result of the strategy. John and Catherine (2005) reported that
this tactic had been used for forced relocation. In 1991-1992, the “Four Cuts” dislocation carried against a
large community of Kareeni in the south-west off Kayah State.
2.2 Anti-Muslim Campaign and Ma Ba Tha Movement
Win (2015) asserted that long –lasting hatred and dangerous “hate speech” espoused by Burmese
Buddhist nationalists originated from experiences during the colonial era when Burma was a part of British.
Fuller (2017) expressed that though Buddhism inspires tolerance, non-violence, hate speech delivered by
Buddhist Monks threatens the delicate political ecosystem in a country peopled by at least 135 ethnic
groups. John and Cook (2005) claimed that from 1938, the country underwent “communal and religious
tension when an Indian Muslim author reprinted a book containing “highly disparaging reference to
Buddhism.” Smith (1965) asserted that this lead the Monk to treat Muslims as “ enemy number one and
prompted to take actions for the extinction of their religion and action”(p.87). In 1997, a dangerous rumour
spreaded that a muslim raped a Buddhist woman. International Crisis Group (2013) reported in Mandalay
and other cities, violence against took place. From that time, many leaflets were circulated against Muslims
urging Buddhists to boycott Muslims shops and not to marry them. Win (2013) stated that after the
publication of “Myo Pyauk Hmar Soe Kyauk Sa Yar” (Fear of the Elimination of Race and Faith), hatred
become more stronger that resulted into deaths about 200 Muslims, the devastation of 11 mosques and
burnt of 400 dwelling places. But the most influential anti-Muslims monk in the history was Ashin Wirathu.
In Times Magazine (2017) he was termed as “The Face of Buddhist Terror”. His virulent sermons
convinced the people believed that all must protest Muslims: Beech mentions, “They would like to occupy
our country, but I won’t let them. We must keep Myanmar Buddhist”. His recorded speech distributed to
the different parts of Myanmar mainly in Melukhtila that caused a mass violence. The rise and development
of Dhamma Schools plays an significant part to draw attention to the loss of Buddhist Culture and growing
religious antipathy among youth. These schools role to spread anti-Muslims sentiment is noteworthy. Waton
(2014) in his article expressed that apparently these schools are not problematic, “but when they are used
by monks who also spread misinformed rumours and negative images of Muslims, the message children get
is not that Buddhist values should be promoted to make Myanmar a more peaceful country but that
Buddhist identity is under threat and must be secured against an outside enemy. More worryingly, even
when these classes are not linked to explicit anti-Muslim rhetoric, students and teachers are likely to
interpret their lessons within the context of the currently dominant narrative of Buddhism in Myanmar in
danger of being overwhelmed by Islam.”
Another point is the denial of Muslims belonging to the Myanmar. Crisis Group (2017) mentions that
Rakhine Muslims are considered as “interlopers”(p-7). It mentions, “There is a strong belief in Rakhine
state and across Myanmar that if Buddhists in Rakhine had not protected the “Western Gate” of the country
and held fast against demographic pressure from Muslim Bengal, then Myanmar and the rest of Buddhist
South East Asia would have become Muslim long ago”(p.11). Interestingly, the strongest fear rose from
economical rise of Muslims. Fink (2001) adds that in addition, many Buddhist Women converted from
Buddhism to Islam when they married Muslims (p.225). As Buddhism and Islam are absolutely opposite in
their religious faith and practices, Win mentioned Buddhist reconsidered the ideals of non-violence and
tolerance of other religions and expressed their concern to save country “religiously and culturally”.
Ultimately they enthusiastically supported Protection of Race and Religious Laws adopted in 2015.
One significant religious movement was “969”. The “969” is a Buddhist symbol signifying the Three
Jewels of Buddhism –the 9 virtues of Budda, the 6 virtues of his Dharma, and the 9 virtues of Buddhist
monks. Rational Wiki (2017) expressed, “As the movement sees it, 969 is supposed to be the cosmological
opposite of 786, an Islamic symbol; 969ers, noticing 7+8+6=21, think 786 is a secret message that Muslims
intend to conquer Burma in the 21st century.” This movement was led by prominent monks Ashin Wirathu
and Ashin Wimala. Crisis Group Asia also associated the 969 movement of 2011 with the recent insurgence
of Buddhist Nationalism. Lehr (2017) points that its ideology combined “Buddhist religious fanaticism with
intense Burmese nationalism and more tithe a tinge of ethnic chauvinism.” In late-2013, this movement
effectively banned by Sangha Council, the government- appointed body of monks. On 15 January 2014,
The Patriotic Association of Myanmar (abbreviated Ma Ba Tha in Burmese) was formally established at a
large based conference of Buddhist monks in Mandalay, with the mission of defending Theravada
Buddhism in Burma, under the leadership of some PBA members who were associated with the 969
Movement and declaredly publicly that they intended to support the 969 movement’s ideology and to protect
“ younger monks” from domestic and international criticism. Mcpherson (2017) views “It is an ultra-
nationalist Buddhist organization, and for years it has been spreading anti-Muslim sentiment across the
country from this unassuming base.” Asia News (2017) reported that this movement was also banned for
spreading anti-Muslim hatred.
Mixing religion and politics completely banned in Myanmar’s constitution in 2008. In its 364 mentions,
“The abuse of religion for political purposes is forbidden.” Thus Buddhist monk cannot form political party
or have the rights to but Kalamsooriay (2015) mentioned that during the election campaign in 2015, military
janta allowed the extremist leaders of the Ma Ba Tha to travel all-over the Myanmar to conduct voter
educations seminars for the sake of protecting Buddhism and not to vote Aung San Suu Kyi. Perera (2015)
viewed the same : “The military junta used this movement as a tool of their existence.” After the election,
President Thein Sein signed the first of the four bills into law. Government adopted Four “Race and Religion
Protection Laws” adopted. These were: a) Monogamy Law ; b) Religious Conversion Law c) Interfaith
Marriage Law d) Population Control Law. Perera (2015) states, “The four bills, initiated by Ma Ba Tha.
“The four bills, initiated by Ma Ba Tha, are viewed by rights groups as a thinly veiled attempt to target
religious minorities, especially Muslims, in Buddhist-majority Myanmar.” Chloé White (2015) stated that
these laws directly violate International Law.
3. Ethnic Women and Sexual Violence
Overall conditions are brutal for women in ethnic minority regions since 1948.Smith (2014) reported
that there have been many reports of rape by Government troops in the war-zones and in occupied areas.
Since State Law and Order Restoration Council (SLORC) came to power, numerous reports of rape had
been received from The Rangoon, Tenasserim States, The Kachin, Karen, Rakhine and Mon States. Human
Rights Watch(2017) mentions, “The Military rulers used raped as a means of social control and used torture
for women deemed dangerous to the regime.” The women in Burma have been raped at their homes, often
in front of their husbands or other members of the families or relatives. Though Tatmadaw commanders
admitted that their troops could be alleged with allegations of rape but they denied “rape” was not a policy
to uproot ethnic groups. But Amnesty International (2002) reported numerous cases of rape, including mass
rape, among Muslim women from Butthidaung and Rathedaung townships in Rakhine State. There are
many reports published by independent human rights groups and Burmese Women’s organizations that
strongly commented that rape was not incidental to armed conflict rather it was a “deliberate tactic of war”.
The famous report titled “License to Rape” (2002) states so and claims, “Sexual violence serves the multiple
purpose of not only terrorizing local communities into submission, but also flaunting the power of the
dominant troops over the enemy's women, and thereby humiliating and demoralizing resistance forces.
Furthermore, it serves as a "reward" to troops for fighting in the war.” The report commented that sexual
violence had been commonplace in Shan State during the past four decades, since the Burmese military
began operations against the ethnic resistance forces in the late 1950s.Burma Briefing (2014) also reports,
“There appears to be a concerted strategy by the Burmese army troops to rape Shan women as part of their
anti-insurgency activities.” The incidents detailed were committed by soldiers from 52 different battalions.
83% of the rapes were committed by officers, usually in front of their own troops. The rapes involved
extreme brutality and often torture such as beating, mutilation and suffocation. 25% of the rapes resulted in
death, in some incidences with bodies being deliberately displayed to local communities. 61% were gang-
rapes; women were raped within military bases, and in some cases women were detained and raped
repeatedly for periods of up to 4 months. Out of the total 173 documented incidents, in only one case was a
perpetrator punished by his commanding officer. More commonly, the complainants were fined, detained,
tortured or even killed by the military.
Burma Briefing in 2014 mentions that since Thein Sein became president in 2011, the use of rape and
sexual violence by Burma armed forces against ethnic women and girls has occurred in a great scale that
these heinous activities become a common fate for ethnic women and girls. A report titled “ Same Impunity,
Same Patterns” published in 2014 by the Women’s League of Burma( WLB) highlighted “ 100 rape cases
where the Burmese army’s solders have sexually abused ethnic women and girls”. This report added how
gang-rape terrorized the ethnic groups.
“In many cases, women are not abused by isolated soldiers but by several of them. In total 47 of the
cases documented were brutal gang rapes. This commonality evidences a collective culture of civilian abuse
across different battalions. It signifies not only the Burmese soldiers’ sense of entitlement over ethnic
women’s bodies, but also of their confidence of being able to commit these crimes openly and remain
unpunished. This is a direct result of the culture of impunity encouraged by the authorities for so many
years”.
Over the past decades, many reports have been produced on this sexual violence. Tomas Ojea Quitana
(2016), the special Rapporteur of United Nations on human rights in Burma received allegations of serious
human rights violations “accompanying military offensives which included allegations of that over 100
women and girls had been raped by the army since 2010, and reports of 47 cases of gang rape and 28 women
dying as a result of their injuries.” The Kachin Women’s Association Thailand (KWAT) presented their
report in 2011on eighteenth different incidents of eleven different townships. All incidents were associated
with rape and sexual violence. It stated that the widespread nature of the rape cases, committed by more
than thirteen different battalions, along with the flagrant brutality of these incidents of sexual violence, in
full view of other troops, demonstrates that the Burma Army views rape as a legitimate tactic in its military
campaign. (KWAT, 2011)
4. Sexual Violence in 2017 against Rohingyas Women and Girls
Human Rights Watch (2017) research found that gang rape and other forms of sexual violence by the
Burmese military against Rohingya women and girls since August 2017 has been a widespread and at times
systematic practice. It claims, “It was often accompanied by killings, beatings, and other abuses against
both the victim and other family members. Burmese soldiers stripped, raped, and otherwise sexually
assaulted women and girls during the ethnic cleansing campaign that began on August 25, but also engaged
in repeated violence and harassment in the weeks prior to the military operations.” In a nutsell, “systematic
and widespread rape” was used as a tool the Burmese military's campaign of ethnic cleansing against the
Rohingya.
Human Right Watch (2017) interviewed women who fled from Myanmar how they became victims of
gang rape. It is difficult to estimate exact number of sexual violence that occurred in this crackdown. Human
Rights Watch documented six cases of “mass rape” by the Burmese military. In these instances, survivors
said that soldiers gathered them together in groups and then gang raped or raped them. The rapes were
accompanied by further acts of violence, humiliation, and cruelty. Aljazeera (2017) reports that security
forces beat women and girls with fists or guns, slapped them, or kicked them with boots. The United States
Holocaust Memorial Museum and Fortify Rights published its report in 2016 that states “Soldiers gang-
raped women and girls in homes, schools, other community buildings , paddy fields and forested areas,
often in plain view of other soldiers and civilians” In February 2017 , the United Nations of Human Rights
mentioned, “Mass gang-rape, killings – including of babies and young children, brutal beatings,
disappearances and other serious human rights violations by Myanmar’s security forces in a sealed-off area
north of Maungdaw in northern Rakhine State.” ORCHR (2017) reports that 52 (52%) of the 101 women
the team interviewed reported having survived rape or experienced other forms of sexual violence. “The
majority of interviewed rape victims were raped by more than one soldier, usually three to four but even up
to eight officers. Rape by an individual soldier would typically occur alongside a gang rape – i.e. several
women would be targeted for rape within a particular house, school or mosque and the majority of them
would be gang raped while some were raped by only one individual.” Pregnant women were raped too.
5. Silence Everywhere
Unfortunately India, China remained absolutely silent regarding Rohingya issue. K Yhome,(2017), the
Observer of Research Foundation, makes a valuable comment on India strategy regarding recent violence.
“India’s position is that this is an internal affair of Myanmar.” It showcases India’s fear that Arakan
Rohingya Salvation Army (ARSA) is a jihadi group Bangladesh’s Jammat-ul-Mujahideen (JMB) and the
Mujahideen. Being completely denying the violence against Rohingyas, India’s Prime minister Narendra
Modi comments in CNN (2017), “We share your concerns about the extremist violence in the Rakhine state
and especially the violence against the security forces and how innocent lives have been affected and killed."
On the other hand, Guo Yezhou, a deputy head of the Chinese Communist Party’s international department,
in South Chine Morning Post (2017) emphasizes on “long-standing relationship” between China and
Myanmar. Guo Yezhou mentions, “Based on experience, you can see recently the consequences when one
country interferers in another. We won’t do it.” Another major power USA in VOA (2017) expressed its
“deep concern about the situation in Myanmar’s northwestern Rakhine state,” though in the beginning of
this attack USA behave very carefully.
Now if we consider the strategic views of India and China, certain issues come forth. Andrew Selth
(2003) in his writing truly observes, “while Burma does not directly dominate any major lines of
communication (SLOCs), it is close to some important Indian Ocean shipping lanes and is crossed by a
number of busy east-west commercial air routes. As a result of this critical position, Burma has endured
centuries of unwelcome attention from both its neighbours and foreign empires, including several
invasions.” Dai Youghong (2014) claimed the same and scrutinized the different strategies adopt by China,
India, Japan and USA. Lixin Geng (2006) expressed that China’s and India’s geo-strategic interests are
more “defensive.” The reasons behind this are associated with security concerns, economical progress, and
ensure a balance relationship to enhance more control on ocean regions.
Noteworthy, Myanmar was referred as India’s “East Gate” by K.M. Pannikar (1945). As India has four
states in northeast side bordering Myanmar, it always gives a great concern for border security. India
worried that the Islamist terrorist groups may expand their networks through some hard-line Rohingyas.
Then upward rivalry with China in regard of power politics, economics, trade and technology made India
adopt “Look East” policy. Swanström (2012) commented that India is worried to be “encircled” by China.
Sakhuja (2013) viewed that as a part of “Look East”, India provided Myanmar with equipment including
offshore vessels, radars, submarines whereas the Myanmar Navy flotilla paid a port call to Vishakhapatnam
on the east coast of India. The Times of India (2017) reported that India has extended economical investment
in Myanmar to have a long-lasting relation. India has already invested in Kladan Multi-modal Transit
Transport project that includes the construction of a deepwater port at the mouth of the Kaladanriver in
Sittwe, the capital of Rakhine state on the Bay of Bengal.
Youghong (2014) added that China put importance on peaceful cooperation with Myanmar aiming at to
achieve utmost result in “core strategic and economical goals which envisage Myanmar as a strategic outlet
for China to the Indian Ocean.” While the United States has tried to build a “ C-shaped ring of encirclement”
against China, the later gives effort to keep Myanmar away from becoming the part of this policy adopted
by the United States. More significantly, China wants the access to Indian Ocean and abundant natural
resources. Myanmar is blessed with its geographical location. Ultimately, all major powers value Myanmar.
China wished to build a direct channel from southwest China to the Indian Ocean via Myanmar.
Tsin (2014) asserted that despite being bitter history between these two countries, in the recent time,
they realized need of cooperation. Accordingly, they signed a project on “Sino-Myanmar Pipelines” in 2008
and completed it in 2014. Then politically, both China and Myanmar stand in the same platform as both
countries received adverse criticism on the issues of democracy, freedom and human rights. Both countries
have many ethnic minorities in their border areas. So there is no way to deny that both countries take a very
conscious decision not to raise their voice against violence against Rohingyas. Binoda Mishra who heads
the Centre for Studies in International Relations and Development in India in This Week in Asia (2017)
points exactly and states,
“China supports Myanmar to retain its influence built over three decades of massive development aid
and supply of military hardware, India supports Myanmar to play catch-up and to build influence partly by
playing on civilization linkages based on the shard Buddhist heritage. And both India and China engage the
Burmese military as much as the civilian government because re country is the key to India’s “Act East”
policy and China’s Belt and Road initiative.”
6. Women Leadership in Myanmar and Aung San Suu Kyi
Myanmar has been ruled by series of military dictatorship from 1962 to 2011. Harriden (2012)
mentioned that from 1962 to 1988, women were disdainfully neglected to participate in political, economic
and social life which consequently limited their access to power. The Burmese Military strongly supported
the idea of a strong authority to govern the working class to create a society free from suffering and
exploitation. Burma Socialist Program Party in 1963 adopted this philosophy. Mills (2000) added that in
addition to this, female recruitment was to high position was rare and discourage women to enter in job. All
parties formed during these periods were male dominated. Burma Socialist Programme Party in 1971
recruited mass membership to become a “People Party” but Steinberg (1982) stated that it provided no
institutional incentive and support for female leadership whereas in 1981, women accounted for 15 percent
of the party membership with 2,22000 members out of a 1.5 million. Despite of the declaration in 1974
Constitution, that issued to ensure equality in terms of law and women’s right in all spheres, women were
under-represented in the national government. They occupied less than three percent of the 450 seat People’s
assembly in 1974. Women who were involved in administrative activities in the lower level councils were
mere representatives for the policies of the BSPP leadership. During the rule of BSPP, few women gained
wealth and influence for their personal and family connections to the military elite for example; Sandar Win
who was daughter of Ne Win, founder of BSPP exercised remarkable influence due to her position in the
Tatmadaw (official name for the armed forces of Myanmar). 1988 has been marked for Aung Sun Suu Kyi’s
return to Myanmar politics. Gordon (2017) mentioned, “She began speaking out publicly against him (Ne
Win), with issues of democracy and human rights at the fore of her agenda. It did not take long for the junta
to notice her efforts, and in July 1989, the military government of Burma—which was renamed the Union
of Myanmar—placed Suu Kyi under house arrest, cutting off any communication with the outside world.”
Though she was awarded with Novel prize for her struggle for democracy, her silence over Rohingya issue
denigrates her all glorious contributions. Lee (2014) rightly called her as “mere a politician”. Green (2017)
Professor of law and globalization and the founding director of the International State Crime Initiative
(ISCI) at Queen Mary University of London mentioned Aung San Suu Kyi as “a very ambitious and utterly
ruthless politician.” Her primary goal is to become Myanmar’s president, regardless of what it takes.
According to the country’s Constitution, because she married an English citizen and her two sons were born
in the UK, she is prohibited from becoming a president. In the past 19 months, all of her political efforts
have been designed to change the Constitution. This, however, is possible without military’s support, since
according to the deal she brokered before the 2015 elections, the military retains 25 percent of the seats in
Parliament, and , to change the Constitution, one needs over 75 percent of the votes. In other words, without
the military, the Constitution cannot be altered. Consequently, she not only refuses to condemn the military,
but has also allowed it to continue controlling three key ministries, defence, interior and borders. She has,
in other words, created an unholy pact with those were her enemies as Gordon (2017) claimed.
Thus she strongly deliberately lies on the issue of Rohingya. In the beginning of recent violence against
Rohingyas women and girls, her office declared that news and images of mass rapes and killing by
Myanmar’s security forces in northern Rakhine State were “ fake news” and “ fakes rapes”. CNN (2017)
broadcasted the news worldwide. Thus she stands for military actions and rules, though ironically she was
the icon leader who fought against military rules for establishing justice, human rights and democracy. Lee
(2014) pointed that the reasons for her silence which were broadly political and cultural. The party she leads
comprises of the leaders who are Burman Buddhists who sacrificed a lot during her long-term home-arrest.
Secondly, NLD party itself understands supporting Rohingya, they might loose the support Buddhists
Burmese in general as this majority group is truly inspired by anti-muslims monks. Next to it, Aung does
not much power over the military rules.” It's unclear how much control Suu Kyi has over how Burmese
forces handle the situation in Rakhine State compared to Sen. Gen. Min Aung Hlaing, the military's
commander-in-chief.”
6. Conclusion
Overall, ethnic cleansing in Myanmar could easily be termed as a “crime against humanity” as so-called
“operation clearance” in Myanmar, 2017 carries noticeable similarities with that of war-crime and genocide.
Even though the world expected Aung Sang Suu Kyi to stand as an uncompromising woman leader of
democracy; and power as a state counselor, a position newly created by the legislature and signed into law
by Htin Kyaw; the post was similar to that of prime minister and potentially more powerful than the
president, she failed to use her position of authority and powers. (Britannica, 2018 ). Though Bangladesh
gives Rohingyas shelter in the refugee camps, they are under lots of challenges : water, food, sanitary,
medicine. In addition, Myanmar has refused to take back all refugees. In a sense, there is uncertainty about
the future of Rohingya as it was before. However, the submissive attitude of Aung Sang Sun Kyi to military
jantas has caused the greatest harm to women leadership in Myanmar. Aung San Suu Kyi has not spoken
the word Rohingya in public. The United States Holocaust Museum has revoked a human rights award
given to Aung Sang Suu Kyi, over her failure to use her moral authority to halt a brutal military campaign.
Protests have erupted all over the world against her Novel Prize winning in 1991 because of her silence
over Rohingya crisis. This is also matter of great concern when and how the powerful countries like China
and India will come over their own political interests and voice for Rohingyas.
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Crowdfunding, the Way Forward
Doctoral Student Shamini Kandasamy

Universiti Tunku Abdul Rahman, Malaysia
ABSTRACT
Crowdfunding, a word which clearly brings in the technology to an advancement deals with a massive
impact in many economies worldwide, thus this paper was written to spread
awareness of what crowdfunding can do. In this new era of globalization, all the countries around the globe
including Malaysia had put lots of efforts on amending their laws and regulations due to tremendous
growing of the crowdfunding industry. Crowdfunding is getting the world’s attention as it is great platforms
for bringing new and innovative ideas and inventions to reality. A research institution named Massolution
had issued Global Crowdfunding Industry Statistics 2015 by the end of the first quarter of 2015, in 2014,
the crowdfunding platform had raised a total of $16.2 billion successfully. This paper not only discusses
the contribution of crowd-funding and how it facilitates financial inclusion, it also discusses the difference
of the status of financial inclusion of the society before and after crowdfunding was implemented.
Furthermore, it elaborates on the benefits and drawbacks, what makes certain crowdfunding platforms stand
out compared to the others, how Malaysia’s crowdfunding platforms vary from foreign countries. At the
end of this paper, the reader will come to realize and comprehend the pivotal role that crowdfunding plays
in our society and the businesses have been competitive globally.There will be implications and security
issues which will be a threat but there will be more benefits. The current situation can help some Small and
medium-sized enterprises and start-up companies to raise enough fund in order for them to run the business.

Keywords: Crowdfunding; Globalisation; Future; Confidence; Security
__________________________________________________________________________________
1. Introduction
Crowd-funding has gained wide attention across jurisdictions during the past decade as an alternative
financing mechanism compared to the traditional fundraising methods for business ventures or even social
projects. The term “crowd-funding” can be described as a mechanism of sourcing capital or funds from a
distributed network of individual through an online platform such as (MyStartr.com) or mobile phone with
internet access. The working principle of crowd-funding is simple which requires a large number of people,
through small individual contributions, able to raise big amounts to finance other individuals and projects
without the involvement of conventional financial institutions compared to the situation where a large
amount of capital is needed to start a business 20 years ago. Very often funds are collected for a charitable
course.
Although crowd-funding may have different definitions, however they have the following main key
components which are: (i) raising funds through small individual contributions, (ii) From many to many,
(iii) Using digital technology equipped with Internet access.
2. Problem statement
According to Apnizan Abdullah (2016), mentioned that the capital structure of start-up ventures depends
heavily on the entrepreneur’s personal resources such as financial need. Most of entrepreneurs face the
common challenge which is financial assistance (lack of initial fund) and also unable to attract external
capitals or funding (insufficient cash flow) when they first started their product development. Traditional
sources of capital such as bank loans and venture capital from the banks and investors also become more
risk averse to safeguard their investment as there are uncertainties involved. Entrepreneurs find it difficult
to get the financial assistance at the initial stage (Lau, K.L., Chew, B.C., 2016). Under these circumstances,
crowd-funding rises as an alternative method for financial. However, crowd-funding remains a new way of
raising fund in Malaysia; therefore it is difficult to get the positive response from the general public due to
high risks, uncertainties and challenges ahead.
Malaysia is recognises the importance of crowd-funding as shown by the concerted efforts by the
government and some private agencies efforts to introduce such concepts to the local funding ecosystem.
In Malaysia, top two reward-based crowd-funding platforms namely pitchIN (www.pitchin.my) and
MyStartr (www.mystartr.com) are currently in operation. Even though the platforms were incorporated in
2012, the concept of crowd-funding existed since 1982 with the fund raised to have extra live telecast of the
World Cup through the national television broadcast, Radio Television Malaysia (RTM). The initial target
is to raise RM60,000; the fund had been successfully collected about 400% above the targeted amount of
RM300,000” (Rahman, M.P., Duasa, J., & Kamil, N.K.M., 2016).
Types of crowd-funding in Malaysia
Crowd-funding can be differentiate into two distinct categories, which the first category is community
or social-based crowd-funding which could either be donation-based or reward-based, and the second
category is financial return crowd-funding which could either be P2P lending or equity or royalty-based
crowd-funding. (Abdullah, A., 2016). Currently, the largest reward-based crowd-funding in Malaysia would
be Mystartr while there are currently six equity crowd-funding platforms.
Financial inclusion is another process of ensuring access to appropriate financial products and services
needed by vulnerable groups such as people with lower income rate and does not have the ability to afford
in paying for projects. Financial inclusion can also mean individuals and businesses have granted to be
useful and affordable financial products and services that meets their needs in term of transactions,
payments, savings, credit and insurance. The vision of the financial inclusion framework introduced by
BANK NEGARA MALAYSIA is to create an inclusive financial system that best serves all members of
society, particularly the underserved, to have access to and usage of quality, affordable essential financial
services to satisfy their needs towards greater shared prosperity.
Crowd-funding is the practice of funding a project or venture by raising many small amounts of money
from a large number of people, via the Internet (Lau, K.L., Chew, B.C., 2016). Rossi, M. (2014) stated that
crowd-funding can be seen as an alternative method others than borrow loans from banks which have
becoming hard to obtain nowadays. US congress highly encouraged public to raise fund based on crowd-
funding method because it can be a source of capital for new ventures. (Kuti, M., Madarasz, G., 2014).
Crowd-funding might be drawing inspiration based on the past fundraising concept, but it still has its own
unique category of fundraising. “An open call, essentially through the Internet, for the provision of financial
resources either in form of donation or in exchange for some form of reward and/or voting rights in order
to support initiative for specific purposes,” was how Schwienbacher and Larralde define the term: crowd-
funding (Mollick, E., 2014). Besides, Liu, C. & Liu, J. S. (2016) mentioned that crowd-funding is often
seen to be a feasible source for entrepreneurial seed capital, as entrepreneurs are able to raise the initial
amount to start their business. Crowd-funding has been used in many fields especially the field of marketing,
it helps the initiators to gain more interest for their projects in the early stages of development. Because of
the relationship between founders and funders, crowd-funding differs from traditional methods of start-up
funding.
From the journal “California Management Review”, it is stated that crowd-funding managed to solve
the core problems of two namely, gatekeeping, and inexperience. First of all, gatekeeping can be solved by
crowd-funding as it grants access to those previously rejected. In Malaysia case, a study conducted by Liu,
J. & Hafizah, N.S (2016) suggests that women faces more disadvantages than men in obtaining
entrepreneurial capital in the form of bank credit, angel investment and venture capital. Moreover, more
women entrepreneurs are utilizing the Internet for alternative funding especially crowd-funding. In the
study, it also shows that women are more capable to raise their capital successfully rather than men on
Kickstarter, one of the top crowd-funding platform. With the present of crowd-funding as a platform, an
opportunity is provided for entrepreneurs to overcome these barriers by projecting their ideas directly to
general public. “In theory, this can reduce the reliance on social capital and geographic constraint, allowing
a broader range of founders’ access to resources, and providing the path to democratization so frequently
invoked” (Peter, Y., Keyvan, K., 2016). With the aids of crowd-funding platform, it enables new founders
and more founders to gather money from within their network and gatekeeping sites that promise founders
access to new networks.
Next, crowd-funding solves inexperience issues as crowd-funding sites do not exist only for simply pool
money; there are some crowd-funding sites from overseas that help people to evaluate the amount of money
they need to perform their project. “As crowd-funding expands, a new class of sites emerging with a focus
not on how much money they can help projects raise but on their ability to help projects decide how to use
the money” (Peter, Y., Keyvan, K., 2016). Research also showed that lead-users manage to give resource-
strapped entrepreneurs with insight into desired features, evidence of potential market size, and valuable
improvements. One of the famous site from overseas, CoFundersLab; was a site that “help projects founders
find partners with the skills they need to grow the idea.” Rahman, M.P., Duasa, J., & Kamil, N.K.M. (2016)
states that founders of pitchIN and Mystartr mentioned that the crowd needs more education on the concept
of crowd-funding even though both of these platforms have started in 2013. The main reason behind this is
due to low level of public awareness on crowd-funding in Malaysia.
However, as years passed by government begins to legislate equity-based crowd-funding; making
Malaysia the first country in Asia-Pacific to achieve such achievement as the public awareness start to rise.
A total of six equity crowd-funding operators received approval projected to complement existing avenues
for early-stage financing including venture capital and private equity (Lee, L., 2015).
Ultimately, crowd-funding has the opportunity to contribute to financial inclusion by providing
improved access to funds. A working paper published by Jenik, I., Lyman, T., & Nava, A. in 2017 mentioned
that crowd-funding can benefits financial inclusion in the following ways: (a) improved access to finance,
(b) innovative models for financial inclusion, and (c) access to more complex products. On the opposite
side, there are limitations of crowd-funding towards financial inclusion where a significant impact of crowd-
funding on financial inclusion has yet to be achieved. The limitations are such as: (d) improper legal and
regulatory framework, (e) limited access to technology, (f) lack of creditability.
Framework of Crowdfunding
4. Findings and Discussions
As stated earlier, crowd-funding could be categorized into two different categories which are
community-based crowd-funding and financial return crowd-funding. First of all, in community-based
crowd-funding it consists of donation-based and reward-based crowd-funding. Second, financial return
crowd-funding consists of P2P lending and equity-based crowd-funding. In donation-based crowd-funding,
the purpose is to receive donations from funders and utilized for charity and social projects. More
importantly, the funders in this case do not expect any form of return in terms of their donations. In reward-
based crowd-funding, the funders will expect return for their invested funds. Such rewards could be in the
form of acknowledgement such as paying their respected contribution or even a formal thank-you mail.
Platforms are able to generate their revenues by collecting certain percentage of the loan amount from the
borrower and charging a loan service fee from investors or funders. Lastly, equity-based crowd-funding
provides an opportunity to the investors to participate in equity. Then, investors are able to enjoy their return
based on their respective investment by fulfilling terms and conditions applied during the campaign.
The problems can be specified for example, the gatekeeping and the inexperience matters of the potential
founder. Gatekeeping is a barrier that prevents some projects from launching because of limited social
capital and causes those projects to be vain. Peoples perception wether it is a Halal product also maybe a
hindrance especially in Malaysia are still a problem.
With the aid of crowd-funding particularly debt crowd-funding, there are currently a big chance of
crowd-funding enough for three hundred millions of people according to studies made by World Bank back
around 2013 to 2014. This is a new form of innovation through the internet.
Equity crowd-funding also comes in handy while facing such situations. A lot of underdeveloped
countries that are having limited access to finance will be given a chance for more investors to invest in the
local business, with the circumstances of reduction of transaction cost and information asymmetric between
the economic transaction processes. This will lower the poverty level of the countries and increase rate of
employment with the help of crowd-funding in finance of economic. crowdfunding will contribute to
financial inclusion as innovative models.
The generalization of crowd-funding projects provided a great support to the low-income entrepreneurs
by facilitating new and different types of investment from various economic development levels. As a great
example, a popular crowd-funding platform in United States which is GoFundMe that launched back in
2010, have over forty million individual donors and raised over four billion dollars and still counting. The
other website named YouCaring has raised more than eight hundred million dollars for the sole purpose of
helping the others who are facing financial hardships like illness and natural disasters. Homestrings also
give an opportunity of investment in real estate property and financial services in different countries.
Meanwhile, in Malaysia a recently a business about delivery startup named Running Man successfully
reached their targeted amount of RM 175,000 within 24 hours of their pitchIN Equity crowd-funding during
2015 by a group of young Malaysians. These young Malaysian started food delivery service at their
university in 2014, and now in the year 2018 they have successfully covered most of the capital areas such
as Klang Valley. There is a growing trend already in Malaysia, where the new Government has called the
people to help reduce the national debt (Tabung Harapan)
5. Conclusion
In a nutshell, we concluded that crowd-funding has the potential to play as a drive to improve financial
inclusion in Malaysia based on the researches and analyses had done. The principal objective of crowd-
funding is to raise funds for a business or project from a large number of people with each member
contributes a small amount of funds through online platforms. Crowd-funding plays role as an alternative
method for those entrepreneurs who want to initiate a business but having financial problem and unable to
attract external capital especially in other countries like America. It is still remains a new way of raising
funds in Malaysia due to its high risk uncertainties and challenges ahead.
Hence Bank Negara Malaysia must regulate the laws so that it will be investor confidence and security
issues will be minimised. Security and risk issues must be always kept on importance. Lastly there must
be importantly investors confidence for the demand for crowdfunding for revenue increase globally and
success for businesses in the end.
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Antecedents and Consequences of Transformational Leadership

Implementation: Evidence from Furniture Businesses in Thailand
Veeraya Pataraarechachai
Mahasarakham University, Mahasarakham, Thailand
ABSTRACT
Effective transformational leadership (TL) has become a potentially valuable way of securing competitive
advantage and improving organizational performance. This research
conceptualizes and develops three dimensions of TL practice (dynamic business vision, corporate practice
flexibility and change learning competency) and tests the relationships among TL, organizational culture,
organizational innovation and competitive advantage. In addition, this model also needs many factors that
drive TL occur efficiency including, executive involvement and competitive knowledge. Data for the study
were collected from 146 exporting furniture businesses in Thailand and using a questionnaire as an
instrument. The statistics used for analyzing data were correlation analysis and the Ordinary Least Squares
(OLS) regression analysis. The results indicate that higher levels of TL practice can lead to enhanced
competitive advantage. The findings of this research thus point to the importance of TL practices to help
firms to improve their performance.
Keywords: Corporate Practice Flexibility; Change Learning Competency; Dynamic Business

Vision; Organizational Culture; Organizational Innovation; Transformational Leadership
__________________________________________________________________________________
1.Introduction
The pace of change confronting organizations today has resulted in calls for more adaptive flexible
leadership. Adaptive leaders work more effectively in rapidly changing environments by helping to make
sense of the challenges confronted both leaders and followers and then appropriately responding to those
challenges. Adaptive leaders work with their followers to generate creative solutions to complex problems,
while also developing them to handle a broader range of leadership responsibilities (Bennis, 2001). Bass,
1985 labeled the type of adaptive leadership described above transformational. Transformational leadership
concentrate their efforts on longer term goals; value and emphasize developing a vision and inspiring
followers to pursue the vision; change or align systems to accommodate their vision rather than work within
existing systems; and coach followers to take on greater responsibility for both their own and others’
development (Howell & Avolio,1993). Transformational leadership is the process of influencing major
changes in the attitudes and assumptions of organization members and building culture and innovation for
the organization (Yukl, 1999). Effective leaders in this context have been found to create a climate for
innovation and learning through transformational leadership. Specifically, they provide visions of
successful innovation, intellectual stimulation to enhance creativity, feelings of involvement and a
willingness to disagree, and resources that allow for needed autonomy and freedom to innovate (Elkins &
Keller, 2003). Based on the results of this, it appears that leadership style maybe the imperfectly mobile
asset that is linked to firm performance. If an organization has an asset that is imperfectly mobile, then the
organization will get a sustained competitive advantage (Mata et al., 1995).
Although the literature on transformational leadership has grown up rapidly over the past 30 years, only
a handful of studies have examined how a leader can influence followers to make self-sacrifices, commit to
difficult objectives, and achieve much more than was initially expected. However, these notions have only
recently been refined in the literature of organization behavior (Ilies, Judge, & Wagner, 2006). This research
focus on their conceptual standpoint, the influence that transformational leaders have on the behavioral
component of followers' motivation through affective and cognitive processes. It follows that by influencing
followers' emotional experiences and their affective states, transformational leaders can induce changes in
followers' behavior influencing them to exert effort on tasks that are important for the organization.
Our model, basing on Ilies, Judge, & Wagner, 2006 , then aim to consider the whole chain of
relationships among transformational leadership, its antecedents (executive involvement and competitive
knowledge), and its consequences (organizational culture, organizational innovation and competitive
advantage). This relationship has been under – researched in the literature. The main goal of this study is to
develop a framework of the relationships among transformational leadership. In sum, what is needed is a
richer conceptualization of the transformational leadership – competitive advantage relationship. We
conclude with a discussion about the implications of this model and directions for future research.
2.Literature review and hypotheses development
The conceptual model in Figure 1 shows the literature review and utilizes two theories to explain research
phenomenon including transformational leadership theory and social information processing approach.
Figure1. Conceptual Model of Transformational Leadership and Competitive Advantage

Transformational leadership theory provides a historical context for how leadership have developed in
relation to attempts to increase efficiency, improve employee morale, and achieve overall better
performance. Social information processing approach is implemented to understand links between
subordinate’s cognitions and their behaviors (Salancik and Pfeffer, 1977). A theoretical of social exchange
process is proposed to explain the psychological mechanism that may trigger employee’s attitude to their
organization (Rhoades and Eisenberger,2002 ). Eight hypotheses were then developed for assessing the
relationships of this concept.
2.1 Transformational Leadership (TL)
Transformation leadership is competitive strategy which needs firms to develop and maintain unique
competencies that distinguish them from competitors. Transformational leadership, which is the focus of
this study, refers to an ability of firm to match between firm’s resource or capabilities and the market change
by helping a firm to develop or renew its resource or capability based and thereby maintaining the
sustainability of its competitive advantage through the use of processes (organizational and management),
positions (firm assets of all types), and paths (beliefs and habits that constrain future behavior) (Rindova
and Taylor, 2002).This strategy involves less planning and control, and more flexibility, learning, and
improvisation. It is the ability to transform firm’s specific resources to adopt new process which becomes
an important facet of competition. This research integrates TL in the new model which comprises three
dimensions: 1) dynamic business vision; 2) corporate practice flexibility; and 3) change learning
competency.
2.1.1 Dynamic Business Vision
Dynamic business vision refers as an inspirational message to followers that expresses optimism about
the future, confidence in achieving positive future challenges and opportunities, while highlighting the
intrinsic needs that can be met and connecting this all to the core values of the organization. Employees in
transformational organizations are empowered to achieve a clearly articulated organizational vision. This
vision represents a firm’s idealized goal that is shared with followers and is a means for leaders to attract
followers to promote change. They continually learn together from their business vision to expand their
capacity to create desired results (Senge, 1990). Quality products and services exceed expectations
characterize in these learning organizations. Dynamic business vision, therefore, are seen as a vehicle for
helping firm to create organizational learning which lead firms to form creative thinking’s. The more firm
possesses valuable learning, the more develops and renews its resources and organizational capabilities
(Teece et al., 1997). Firm capability will be developed and ultimately, firm will achieve competitive
advantage. As reviewed, the first hypothesis is proposed as below:
Hypothesis 1: The higher the dynamic business vision is, the more likely that firms will gain greater
(a) organizational culture, (b) organizational innovation, and (c) competitive advantage.
2.1.2 Corporate Practice Flexibility
Flexibility has long been recognized as a manufacturing capability that has the potential to impact the
competitive position and the business performance of an organization (Cox, 1989). Corporate practice
flexibility is defined as the ability of firm to manage resources and uncertainty to meet an increasing variety
of customer expectations without excessive costs, time, organizational disruptions, or performance losses.
Upton (1995) describes internal flexibility as what the firm can do (competencies) and external flexibility
as what the customer sees (capabilities). This distinction is central to the notion of internal competencies
and external or customer-facing capabilities. Externally focused flexible capability can be viewed as a
linkage among corporate, marketing, and manufacturing strategy (Katsikeas and Morgan, 2000). Internally
focused flexible competence provides the processes and infrastructure that enable the firm to achieve the
desired levels of flexible capability. Koste and Malholtra (2000) suggest that even within the same industry,
firms from different countries do indeed follow different strategies to developing their flexibility capability.
The exporting furniture businesses are characterized by market dynamism. The businesses need to be
strategically flexibility to face increasing competitiveness in global markets. Firms need to respond quickly
and flexibly to its environment and significantly stimulate the learning in organization and the development
of firm capabilities responds to a global competitive intensity so that they can survive in the long run. This
study, based on these reviews proposes the hypothesis as follows:
Hypothesis 2: The higher the corporate practice flexibility is, the more likely that firms will gain
greater (a) organizational culture, (b) organizational innovation, and (c) competitive advantage.
2.1.3 Change Learning Competence
Learning as a dynamic capability is the process of generating new knowledge and building new thinking
to enhance existing resources capabilities. Interpreting capability of the changing environment is also
intimately linked to both strategy and organization and is one of sense-making process. This sense making
process is deeply rooted in organizational learning. Thus, firm has to support the development of a firm-
level absorptive capacity and to foster at the individual, group, and organizational levels capacity to learn
in order to be receptive to the external environment (Vera and Crossan, 2004). Wheeler (2002) states that
the ability to analyze and predict what's happening now is not enough, but firm needs to be better, faster
learners from what just happened and need to know how to stay acutely.
Change learning competency is defined as an ability of firm to acquire, assimilate, transform and exploit
existing knowledge to generate new knowledge from dynamic changing environment in various type of
learning process such as knowledge brokering, knowledge articulation and codification, new thinking,
pursuing new initiatives, and innovative solutions. Nowadays, competitive advantage no longer relies just
on tangible assets and natural resources, but on how effectively firms manage knowledge. Learning
mechanisms are important as the base for creating dynamic capabilities (Zollo and Winter, 2002).
Managerial academicians consider organizational learning as an effective mechanism to create and sustain
organizational competitiveness and to improve efficiency and innovation (Kao and Lee, 1996). Thus,
although few studies have integrated organizational learning to strategic management, it is reasonable to
investigate the organizational learning as one critical key factor in STL. Senge (1990) argues that building
up a learning-based organization with continuous learning and improvement is one of the best ways to create
competitive advantages. He further argues that organizational learning influences many aspects of an
organization including firm capability development. Based on aforementioned literature, it leads to the
hypothesis as below:
Hypothesis 3: The higher the change learning competency is, the more likely that firms will gain
greater (a) organizational culture, (b) organizational innovation, and (c) competitive advantage.
2.2 Organizational Culture
Organizational culture refers to firm’s values and norms which comprise two cultural orientations that
enhance customer value and satisfaction, humanistic orientation and achievement orientation. Humanistic
orientation is the recurring patterns of behavior, attitudes and feeling that characterize life of learning in the
organization. Achievement orientation exerts a direct influence on the performance and outcomes in
individuals, working groups and the organization.
Organizational culture is an intervening variable that affects individual and organizational performance
due to its modifying effect on organizational and psychological processes. Organizational culture is
influenced by many factors within the organization and, in turn, affects organizational and psychological
processes include learning, individual problem solving, creating, motivating and committing. Leaders create
the working culture by using a variety of levers within the organization. For example, when leaders create
and communicate mission and strategy, they can influence the learning of organization. Restructuring is one
lever we have witnessed that is utilized very often to create change in the way people interact. By providing
clear task requirements for projects and tasks, they can set the tone for the kind of change required.Taken
together these arguments, this research purposes to organizational culture directly affects organizational
innovation and competitive advantage. The following hypotheses are proposed:
Hypothesis 4: The higher the organizational culture is, the more likely that firms will gain greater
organizational innovation.
Hypothesis 5: The higher the organizational culture is, the more likely that firms will gain greater
competitive advantage.
2.3 Organizational Innovation
In situations of rapid and unpredictable change, where the competitive landscape is shifting, firm must
not only to exploit existing firm capabilities, but need to renew and develop them (Wheeler, 2002).
Organizational innovation is defined as firms’ dynamic capabilities that can demonstrate timely
responsiveness and rapid and flexible product innovation and management capability to effectively
coordinate and redeploy internal and external competence (Teece and Pisano, 1994). Organizational
innovation can be in many aspects such as product development capability, strategic decision making,
alliance and acquisition capabilities, marketing capability development, entrepreneurial capability progress,
network capability expansion, knowledge management capability improvement, etc (Eisenhardt and
Martin, 2000). All of these examples represent capabilities providing special competitive advantage to a
particular company.
Organizational innovation of a firm then has been shown to have an important effect on the ability of
organizations to acquire SCA (Johannessen and Olsen, 2003). It plays a key role for development of firm
value. It is the ability to activate firm’s resources and capabilities to introduce new ones at the right time
(Walter, Ritter, and Gemunden, 2001).Therefore, the firms must constantly re-invest to maintain and
develop existing capabilities in order to inhibit imitability (Mahoney, 1995). Combining and renewing
capabilities contribute to the achievement of superior firm performance. Thus, this research purposes to
organizational innovation directly affects competitive advantage. This suggests the hypothesis posited as
below:
Hypothesis 6: The higher the organizational innovation is, the more likely that firms will gain greater
competitive advantage.
2.4 Executive Involvement
The corporation between general managers and transformational leadership are importance for firm’s
performance. Executive involvement refers as top management teams (TMT)‘s role in influencing
transformational leadership formation and implementation in firms which effect on firm performance
(Beynon-Davies, 2002).
Transformational leadership formation must base on executive involvement in many aspects. This
research specifies three aspects of competitive based on strategic transformational leadership formation: (1)
dynamic business vision needs internal corporation to support policy for improving efficiency and
productivity performance; (2) corporate practice flexibility needs to develop and create their strategies in
dealing with changing organizational operations and external environments and situations. Strategically
flexible firms possess multiple strategic options with which to take advantage of different possible outcomes
(Aaker and Mascarenhas, 1984; Sanchez, 1995); and (3) change learning competency needs to learn the
strategic use of information to segment markets, differentiate services and maximize yields.
Hamel and Prahalad (1994) asserted that customer-oriented values and beliefs are uniquely the
responsibility of executives. Top management teams should functional diversity which will bring about a
richer cognitive pool of ideas, experience, and knowledge. The diversity of supports which produced by
TMT will give firm more benefits. Taken collectively, this research proposes the hypotheses as below.
Hypothesis 7: The higher the executive involvement is, the more likely that firm will gain greater (a)
dynamic business vision, (b) corporate practice flexibility, and (c) change learning competency.
2.5 Competitive Knowledge
Today turbulence environmental creates disequilibrium conditions for exporting firms. In these
conditions, firms face pressures to strategically adapt in order to survive and grow (Nelson and Winter,
1982). For the global competition, competitive knowledge is needed for organization’s information systems.
Competitive knowledge is the activity of the organization and commitment to integrate competitor
intelligence into strategic and marketing process (Van and Pierce, 2004). In this research, competitive
knowledge refers to the ability to learn how to collect key competitor’s information and use the benefits of
it for better performance against rivals. It is an ability of firm to identify their competitor’s information
including competitor’s managerial resources, opportunity of substitute products, threat of established rivals
and new entrants, bargaining power of supplier, and bargaining power of customers.
Organizations that have information about their competitors are more likely to achieve competitive
advantage than organizations that do not (Teece, Pisano and Shuen, 1997). Thus, as a result of differing
levels of available information resources, e.g. their competitor’s managerial resources, financial resources,
organization may expect to enhance performance after its implementation. Based on this line of reasoning,
the following hypotheses are formulated:
Hypothesis 8: The higher the competitive knowledge is, the more likely that firm will gain greater (a)
dynamic business vision, (b) corporate practice flexibility, and (c) change learning competency.
3. Methods
A population of 724 Thai furniture exporting firms was investigated in this study, of which 146 were
fully completed and usable, effectively a response rate of 22.91. According to Aaker, Kumar and Day
(2001), the response rate for a mail survey is considered acceptable. Personnel manager in each firm is our
key informant. A statistical test was conducted to verify if the sample was representative enough. Following
Armstrong and Overton’s (1977), two samples of early respondents and late respondents were compared
with t tests on the key variables in terms of firm size, firm age and firm capital. Using t-tests, we found no
significant difference at the .05 level in these comparisons. Overall, nonresponse bias does not seem to be
a serious concern. A statistical test was used to determine whether the methodological nuisance of common
method variance was an issue because all the variables were collected with the same instrument and there
is some correlation between the variables. The results indicate that method variance is not a serious concern
The development of the questionnaire was guided by the literature review, consultation with experts.
Most measures used in the survey were adapted from established studies, but some were developed
especially for this study. We measured the questionnaire items using a five-point scale anchored by ‘5 =
strongly agree’ and ‘1 = strongly disagree’. The measurement items and the results of reliability and validity
analyses are reported in table 1. Then, the ordinary least squares (OLS) regression analysis is used to
explicitly test and examine the influences of TL on competitive advantage which are shown in table 2.
4. Results and Findings
Results presented in Table 1 include descriptive statistics, scale reliabilities, factor loadings, and
zero – order correlations for all variables. All of the reliability estimates for all constructs
(Cronbach alpha coefficients) were above 0.70 (Nunnally and Berstein, 1994). Factor analysis
conducted were done separately to investigate the underlying relationships of a large number of
items and to determine whether they can be reduced to a smaller set of factors. All factor loadings
are greater than the 0.40 cutoff and are statistically significant (Nunnally and Berstein, 1994). Variance
inflation factors (VIFs) were examined for all of the variables included in the study to assess the potential
problems with multicollinearity (VIF, calculated as 1 / 1 - r2). The VIFs range from 1.136– 2.036, well
below the rule-of-thumb cutoff of ten as recommended by Neter, William and Michael (1985). It was
concluded that multicollinearity was not a serious issue here.
Results of hypotheses testing by regression as shown in table 2 and fig. 1 separate into two groups;
results provide evidence fully supported consist of H2a-c, H3a-c, H4, H6, H7a –c and H8b-c . Besides, the
evidence provides not supported are comprise H1a-c, H5 and H8a.
In summary, there are two dimensions of TL namely, corporate practice flexibility and change learning
competency which evidences support that firms with higher corporate practice flexibility and change
learning competency tend to gain greater organizational culture, organizational innovation and competitive
advantage. Surprisingly, only dynamic business vision is found that insignificantly effects on organizational
culture, organizational innovation and competitive advantage. Thus, in the context of this industry, firms
attempt to find the way to response to customer satisfaction by tailor made. Low cost strategies with mass
production are the generic strategies to compete with their competitors of Vietnam and China. Additionally,
prior research suggested that firm could enhance performance from investing in product rather than in
product innovations alone (Damanpour and Shanthi, 2001). In contrast, the results of this research opposes
to some studies which show that dynamic business vision is significantly affects competitive advantage.
For the control variables: firm size, firm age and firm capital have insignificant effects among all
variables in construct. Thus, the relationships among all variables in construct do not affect the influences
of these control variables.
Table 1. Variables in the model, Descriptive Table 2. Results of regression Cronbach’s
Statistics, alpha, Factor loadings, among all variables
and Correlations analysis
5. Conclusion, implications and suggestions
Results of the study confirmed that transformational leadership is an important factor in firm
performance. The results of regression analyses show that transformational leadership has two immense and
steady influences on organizational culture, organizational innovation and competitive advantage, namely,
corporate practice flexibility, and change learning competency. Thus, the model fit with the addition of
organizational culture and organizational innovation path. In furniture businesses, just as in other
organizations, satisfied in work and committed staffs are the organizations’ invaluable assets. Knowing this,
administrators and management should put an effort to make their staff satisfied. Once satisfied, employees
would in return contribute more to the organization, helping it to achieve its objectives. It is the hope of the
researchers that the findings would contribute towards developing ways to improve performance through
organizational culture and organizational innovation. This would definitely benefit the education industry
and the nation. Besides, the more investments in transformational leadership, the better are the business
performance.
In addition to its future empirical contribution, it is hoped that this research will focus the attention of
researchers and managers on the crucial role that strategic leadership plays in developing market-driven
capabilities and shaping the firm’s competitive position and SCA. One critical area is to explore is whether
transformational leadership characterized by three dimensions: 1) dynamic business vision; 2) corporate
practice flexibility; and 3) change learning competency. These dimensions are associated with
improvements in organizational performance. Suggested areas for measuring organizational performance
are financial outcomes, process improvements, and customer and employee satisfaction. Moreover, the
process which each attribute creates an impact on organizational performance could also be explored.
Author Profiles:
Dr. Veeraya Pataraarechachai earned her Ph.D. from Mahasarakham Business School, Mahasarakham
University, Thailand. She is an Assistant Professor of Management in the Faculty of Accountancy and
Management at Mahasarakham University. Her research interests include transformational leadership,
organizational innovation, organizational change, organization behavior, strategic orientation, knowledge
management, and strategic marketing in emerging economies. Veeraya Pataraarechachai can be contacted
at veeraya.p@acc.msu.ac.th OR Tel: 0864556002
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A Theoretical Investigation Of The Relation Between HRM

Practices And Firm Performance in Thailand 4.0
Sorasak Tang Thong

Lecturer and Assistant Dean for International Affairs Faculty of Administration & Management
King Mongkut's Institute of Technology Ladkrabang, Thailand
ABSTRACT
Foreign investment, globalisation and international expansions of companies in Thailand demand redrafting
of the company’s strategies stressing on change in HRM practices to
accommodate digital workplace, workforce diversity and management of expanding talent pool. (Daft,
2010) (Butler and Lee, 2003) (Kayode, 2012) Organizations that view people as important and necessary
assets should therefore lay emphasis on HR practices (Subhash, 2011). Only MNCs that are willing to adapt
their human resource practices to the changing global labor market conditions will be able to attract, develop
and retain the right talent, and will likely succeed in the global competition (Kapoor, 2011). In light of this,
present study explores whether there is a relationship between HRM practices and firm performance, the
latter being operationalize through three variables namely Employee Attrition, Employee Retention and
Employee Performance. Understanding more about the relationship between HRM practices and firm
performance, measured by employee retention, employee attrition, and employee performance, will not
only be beneficial for managers who seek to achieve higher performance in organizations, it will also allow
those organizations to become more competitive, understand the trend of HRM practices, and make
improvements that are in line with the results of this study.
__________________________________________________________________________________
1. Introduction
Organizations operate through their employees. Human resource management is needed to achieve
success for the key indicators of firm performance, which are employee retention, employee productivity
and employee self-development. Foreign direct investment (FDI) is a major factor in an era of globalization
that transforms and stimulates the global economy. FDI helps implement human resource management in
firms all over the world. At the same time, globalization has a profound impact on all countries, and it is
this mechanism that drives the industry under examination. Globalization refers to integration among the
people, government and companies of different countries (Rothenberg, 2003). It is a process that leads to
greater economic, political, social and cultural integration on a global scale. Combined, these factors affect
the free flow of goods, services, technology and capital across national boundaries. For the past two decades,
one of the main aspects of the new trends toward globalization has been the increased participation of
developing economies/nations in the world economy. They have become attractive and sometimes lucrative
options for foreign investors.
In that same time, myriad multinational companies (MNCs) and joint ventures have landed in Southeast
Asia and East Asia (Osman, Ho and Galang, 2011). In becoming active global participants and welcoming
outside investment and international trade, the Thai economy had shifted from a reliance on agriculture to
manufacturing. Due to the promotion policies that encourage continuous, long-term investments, abundant
resources and low-cost skilled and unskilled labor, Thailand now attracts more foreign direct investment
(FDI) than ever before. With its strategic position in the heart of Asia, Thailand will become even more
attractive to investors by 2015, when the ASEAN economic integration will have come into fruition,
creating a market of 600 million consumers. In the past, while total values for investment in Thailand were
lower in some years, they were still above the average level of growth (Thailand’s Board of Investment,
2011). Furthermore, the total investment in the nine months of 2013 had increased by 50.18% and there
were also annual growth for total exports (Hemaraj: Thailand’s Macro View and Annual GDP Growth). In
2017 Thailand government had promotes the Eastern Economic Corridor (EEC). The Eastern Economic
Corridor (EEC) Development Plan under scheme of Thailand 4.0 aiming to revitalise and enhancing of the
well-known Eastern Seaboard Development Program that had supported Thailand as a powerhouse for
industrial production in Thailand for over 30 years. Under this initiative, the Eastern Economic Corridor
Office of Thailand (the EECO) has been assigned to drive the country’s investment in up-lifting innovation
and advanced technology for the future generation. The EEC Development Plan will lead a significant
development and transformation of Thailand’s investment in physical and social infrastructure in the area.
The EEC project will, initially, be focused in 3 eastern provinces namely Chachoengsao, Chonburi and
Rayong. Regarding this, the EEC Policy committee is the primary Royal Thai Government collective force
chaired by Prime Minister of Thailand( Eastern Economic Corridor Office (EECO, Thailand ). Given that
the economy is one of the most important bases for the development of any nation, growth facilitated by
strong developmental structure can be viewed as the cost or fertilizer required to allow such developments
to flourish. Over the past decades, Thailand has seen little investment in large-scale projects, a situation
which has been the case since the “Eastern Seaboard” era, which changed the course of Thailand’s economic
strongholds from agriculture to more industry-oriented focuses. Be this as it may, global trends of industry
have begun to shift directions and this, importantly, is the spark which prompted Thailand’s necessity to re-
envision and enhance the nation. These changes will allow Thailand to better survive and lay the foundation
for a new era of prosperity. Today, the Eastern Economic Corridor Development Project (EEC) has risen as
a new large-scale investment, which sets its sights on new and unprecedented levels of development under
the “Thailand 4.0” initiative. These industries will also place special focus on human resource development
and acquisition and development of new technologies, thus providing a more sustainable vision of Thailand.
Foreign investment, globalisation and international expansions of companies in Thailand demand
redrafting of the company’s strategies stressing on change in HRM practices to accommodate digital
workplace, workforce diversity and management of expanding talent pool. (Daft, 2010) (Butler and Lee,
2003) (Kayode, 2012)Organizations that view people as important and necessary assets should therefore
lay emphasis on HR practices (Subhash, 2011). At the same time, companies need to streamline their human
resource practices that will enable global leverage and local responsiveness (Ulrich et al., 2005). They must
shape some HR practices that ensure consistency across geographic boundaries and have some HR practices
that will adapt to local conditions (Ulrich et al., 2005). Only MNCs that are willing to adapt their human
resource practices to the changing global labor market conditions will be able to attract, develop and retain
the right talent, and will likely succeed in the global competition (Kapoor, 2011). This will, in turn, bring
success to the organizations, leading to sustainable growth for the country and then the overall
regional/global development.
In light of this, present study explores whether there is a relationship between HRM practices and firm
performance, the latter being operationalize through three variables namely Employee Attrition, Employee
Retention and Employee Performance. Previous studies had managed to identify variables that mediated
the relationship between HRM practices and firm performance. While most studies assessed a single
mediating variable (e.g. Morrison, 1996), this study focuses on five variables, which were organizational
citizenship behaviors, job satisfaction, employee engagement, employee motivation and HR flexibility. It
is important, therefore, to remember that this particular area of HRM and firm performance has become
paramount to managing a diversified workforce in an era of globalization (Lo, Mohamad and La, 2009).
Understanding more about the relationship between HRM practices and firm performance, measured by
employee retention, employee attrition, and employee performance, will not only be beneficial for managers
who seek to achieve higher performance in organizations, it will also allow those organizations to become
more competitive, understand the trend of HRM practices, and make improvements that are in line with the
results of this study. The research therefore answers the research question:
“How do HRM Practices, Job Satisfaction, Employee Engagement, Organizational Citizenship
Behaviors, Motivation and HR Flexibility have an effect on Firm Performance of MNCs, in terms of
Employee Attrition, Employee Retention, and Employee Performance?”
2. Literature review
This section provides a review of the literature from secondary data sources that includes articles,
journals, concepts, theories and relevant research paper, as well as literature concerning the relationships
between HRM practices, mediating variables, which are Organizational Citizenship Behaviors (OCBs), Job
Satisfaction, Employee Engagement, Employee Motivation, HR Flexibility, and Firm Performance in terms
of Organizational Effectiveness with three observed variables, which are Employee Attrition, Employee
Retention and Employee Performance. Literature will focus mainly on the manufacturing industries and
related industries, and how the relationships between these variables can be applied within that sector.
a. Definition of terms used
Firm Performance is defined as the ability of an object to produce results in a dimension determined a
priori, in relations to a target. It is measured in this study in terms of Employee Attrition, Employee
Retention and Employee Performance. In line with the systems view of HR (Lado and Wilson, 1994), firm
performance serves as a final outcome of an effective HR system. Organizational effectiveness is part of
that construct and have been used as measures of productivity, service quality and profitability in Stavrou-
Costea (2005). These measures were chosen because they would lead to a full examination of firm
performance (Fox et al, 1999; Dessler, 2000). However, researchers have used financial and non-financial
metrics to measure organizational performance (Khan, 2010).
To understand more about how firm performance can be determined, particularly in relation to
organizational effectiveness, few definitions have been presented in Table 1. Organizational Effectiveness
is part of firm performance that defined as the ability of organizations to produce desire results, the notion
of how effectual an organization is in accomplishing the results the organization aims to generate.
Table 1. Definitions of Organisational Effectiveness

Researcher Definitions of Organizational Effectiveness
Oguntimehin (2001) The ability of organizations to produce desire results.
Pennings and An absolute level of either input acquisition or outcome attainment.
Goodman (1977)
Malik et al. (2011) The notion of how effectual an organization is in accomplishing the results the
organization aims to generate.
Thibodeaux and The extent to which an organization, with the use of certain resources, completes its
Favilla (1996) objectives without depleting its resources and without placing undue strain on its
members and/or society.
In order to measure effectiveness for this research, the following indicators are used: Employee Attrition,
Employee Retention and Employee Performance. Over a 35-year period, a survey of four leading
management journals has shown that the two concepts are not independent and that until 1978, effectiveness
and performance dominated the literature interchangeably. Since then, performance has become the most
widely used concept (Henri, 2004). In essence, organizational effectiveness represents the outcome of
organizational activities while performance measurement consists of an assessment tool to measure
effectiveness (Henri, 2004).
Employee Attrition is defined as the gradual reduction in membership or personnel through
retirement, resignation or death. In other words, attrition is the number of employees leaving the
organization, which includes both voluntary and involuntary separation. As an indicator of organizational
effectiveness, employee attrition has been used interchangeably with employee turnover to describe the
leaving of jobs by employees (Sengupta, 2010). Its definitions are provided in Table 2.
Table 2. Definitions of Employee Attrition

Researcher Definitions of Employee Attrition
Goswami and Jha The number of employees leaving the organization, which includes both voluntary and
(2012) involuntary separation.
James and Faisal Rate at which people leave an organization.
(2013)
Armstrong (2006) A normal flow of people out of an organization through retirement;
career or job change, relocation, illness, etc.
Negi (2013) Loss of workforce for any reason.
Employee Retention is defined as a systematic effort by employers to create and foster an environment
that encourages current employees to remain employed, by having policies and practices in place that
address their diverse needs. As an indicator of organizational effectiveness, there are many ways to define
employee retention. Some of these are listed in Table 3. Despite efforts to explain what employee retention
is, it is clear that the reason such term arose is due to the increasing number of employees leaving the
organization for various reasons. Collins and Porras (1994), and Collins (2001) explained that the first key
to success for any organizations is people.
Table 3. Definitions of Employee Retention
Researcher Definitions of Employee Retention

Chandiok (2012) A systematic effort by employers to create and foster an environment that encourages
current employees to remain employed, by having policies and practices in place that
address their diverse needs.
Mckeown (2003) Keeping the right people in the right jobs for every organizations.
Singh and Dixit A process in which the employees are encouraged to remain with the organization for the
(2011) maximum period of time or until the completion of the project.
Hassan et al. Keeping right people on right jobs for every organization.
(2011)
Employee Performance is defined as a rating system used by organizations to decide on the abilities and
output of an employee and the record of outcomes achieved per job function during a certain period of time.
It can also mean employee productivity and output as a result of employee development. Performance of
employees can be in the form of quantity of output, quality of output, timeliness of output, presence at work
and cooperativeness (Güngör, 2011). Macky and Johnson (2000) had stated that improved employee
performance could also lead to better firm performance.
Table 4. Definitions of Employee Performance

Researcher Definitions of Employee Performance
Darden and A rating system used by organizations to decide on the abilities and output of an employee.
Babin (1994)
Deadrick and The record of outcomes achieved per job function during a certain period of time.
Gardner (1997)
Hameed and Employee productivity and output as a result of employee development.
Waheed (2011)
Sultana et al. The achievement of specified task measured against predetermined or identified standards
(2012) of accuracy, completeness, cost and speed.
Guided by the literature, Ferguson (2006) had developed a model, shown in Figure 1, where various
components of the human resource management system model (human resource inputs, processes/practices,
and outcomes) are presented and how each is linked to important organizational outputs. The model is based
on Barney’s (1991) resource-based view of the firm, and is a compilation of the variables that individuals
bring to the firm like skills and motivation (Askov, 2000), and the firm’s human resource processes, such
as recruitment, selection, training, reward systems and performance management (Huselid, 1995; Den
Hartog and Verburg, 2004). The resource-based view theory conceptualizes the firm as a bundle of
resources. (Barney, 1991) These variables are then used to create and deliver products and services that
eventually lead to sustained competitive advantage. In other words, the system converts the inputs through
a set of distinct, yet interrelated activities, functions, and processes to achieve the outputs of job and firm
performance (Lado and Wilson, 1994).
Inputs Processes Output

Job
Performance
Employee Practices related to

Skills and strategic planning,
Motivation selection and recruiting
processes, promotion and
reward processes,
employee training and
development programs,
employee performance Output
and review processes Financial
Performance
Reaching intended outcomes, return on assets,

market-to-book ratios, percent growth, quality
control measures, perceived organizational
performance and perceived market value
Figure 1. Human Resource Management System (Source: Ferguson (2006))

Using the above system’s notion of HR, this study will examine human resource practices, which act as
processes used to transform existing human resource inputs within the human resource system (Lado and
Wilson, 1994). Human resource practices have been defined in the following Table 5. HR Practices is
defined as a set of distinct yet interrelated activities, functions, and processes aimed at attracting,
developing, and maintaining a firm’s human resources. Several attempts have been made by different
researchers to identify the type of HRM practices in different sectors. For the purpose of this research, these
practices include Training and Development, Employee Participation, Compensation and Benefits
Management and Reward System, Career Planning System and Employee Empowerment. Human resource
practices have been viewed by Barney’s (1991) RBV – resource based view of the firm as intangible sources
of competitive advantage
Table 5. Definitions of HRM Practices

Researcher Definitions of HRM Practices
Lado and Wilson A set of distinct yet interrelated activities, functions, and processes aimed at attracting,
(1994) developing, and maintaining a firm’s human resources.
Robbins and Judge Organizational practices implemented to motivate, discipline, hire, and train employees.
(2007)
De Cieri et al. Policies, practices and systems that influence employees’ behavior, attitudes and
(2008) performance.
Employee Participation is a process whereby influence is shared among individuals who are otherwise
unequal, employee participation allows employees to be involved in the decision making and management
of organizations. This definition has followed from the following literature review in Table 6. In other
words, employee participation allows employees to be involved in the decision making and management of
organizations. In doing so, Kim (2002) maintained that participative management practices balance the
involvement of managers and their subordinates in information-processing, decision-making, or problem
solving endeavors.
Table 6. Definitions of Employee Participation

Researcher Definitions of Employee Participation
Wagner (1994) A process whereby influence is shared among individuals who are otherwise unequal in
terms of hierarchy.
Knoop (1991) The act of sharing decision making with others to achieve organizational objectives
Compensation and Benefits Management and Reward System is a human resource practice that act as
incentives to employees. Compensation refers to all forms of financial returns and tangible benefits that
employee receives as part of the employment relationship. Benefits are indirect financial and non-financial
payments employees receive for continuing their employment with an organization, and Reward system is
anything that is extrinsically or intrinsically reinforced, maintain and improve the employees’ behavior in
an organization. Compensation management is considered to be one of the central pillars of human resource
management. (Armstrong, 2005). There are several definitions of compensation and benefits and reward
system, presented in Table 7.
Table 7. Definitions of Compensation and Benefits Management and Reward System

Researcher Definitions of Compensation and Benefits Management and Reward System
Bernadin (2007) Compensation refers to all forms of financial returns and tangible benefits that
employee receives as part of the employment relationship.
Odunlade (2012) Benefits are indirect financial and non-financial payments employees receive for
continuing their employment with an organization.
Goodale et al. (1997) Reward system is anything that is extrinsically or intrinsically reinforced, maintain and
improve the employees’ behavior in an organization.
Career Planning System is a deliberate process of becoming aware of one’s self, opportunities,
constraints, choice and consequences; identifying career-related goals; and programming work, education
and related developmental experiences to provide the direction, timing and sequence of steps to attain a
specific career goal. To sum up, career planning is viewed as an initiative where an individual exerts
personal control over their career and engages in informed choices as to his occupation, organization, job
assignment and self-development (Hall and Associates, 1986) (Leibowitz et al., (1986))
Table 8. Definitions of Career Planning System

Researcher Definitions of Career Planning System
Hall (1986); Aryee A deliberate process of becoming aware of one’s self, opportunities, constraints, choice
(1992) and consequences; identifying career-related goals; and programming work, education
and related developmental experiences to provide the direction, timing and sequence of
steps to attain a specific career goal.
Training and Development is a human resource practice that refers to a systematic development of the
knowledge, skills and attitudes required by employees to perform adequately a given task or job. There are
different ways to define training and development, presented in Table 9.
Table 9. Definitions of Training and Development

Researcher Definitions of Training and Development
Abiodun (1999) A human resource practice that refers to a systematic development of the knowledge,
skills and attitudes required by employees to perform adequately a given task or job.
Betcherman (1992) A type of activity which is planned, systematic and it results in enhanced level of skill,
knowledge and competency that are necessary to perform work effectively.
Training is considered to be an important part of the HR process in a sense that it makes a significant
contribution to the overall effectiveness and profitability of the organization (Adeniyi, 1995). Organizations
spend an enormous amount of time and money to train and assist employees on the learning of their job-
related competencies (Cascio, 2000; Noe, 2006).
Employee Empowerment is giving the power to employees to make decisions. Its process entails
providing workers with the skills and authority to make decisions that would traditionally be made by
managers. Employee empowerment can be defined in various ways, as shown in Table 10.
Table 10. Definitions of Employee Empowerment

Researcher Definitions of Employee Empowerment
Akbar et al. (2011) Giving the power to employees to make decisions.
Hand (1993) Empowerment itself means encouraging people to make decisions with the least
intervention from higher management.
The empowerment process entails providing workers with the skills and authority to make decisions that
would traditionally be made by managers (Ivancevich, 2001). Empowerment itself means encouraging
people to make decisions with the least intervention from higher management (Hand, 1993). Employees
are, therefore, affected by empowerment using it as a tool through which businesses goals could be achieved
(Akbar et al., 2011).
Organizational Citizenship Behaviors are the extra work-related behaviors of employees which go above
and beyond the routine duties prescribed by their job descriptions or measured in formal evaluations and
also defined it as “individual behaviour that is discretionary, not directly or explicitly recognised by the
formal reward system, and that in the aggregate promotes the effective functioning of the organization”.
Job Satisfaction is in regard to one's feelings or state-of-mind regarding the nature of their work
and is “a positive emotional feeling, a result of one’s evaluation towards his job and his job experience by
comparing between what he expects from his job and what he actually gets from it as well as a function of
the range of specific satisfactions and dissatisfactions that he/she experiences with respect to the various
dimensions of work”
Employee Engagement defined as he harnessing of organization members’ selves to their work roles; in
engagement, people employ and express themselves physically, cognitively, and emotionally during role
performances. Another definition is employees feel positive emotions toward their work, find their work to
be personally meaningful, consider their workload to be manageable, and have hope about the future of
their work and employee engagement as the involvement with and enthusiasm for work.
Employee Motivation is one of the policies managers used to increase effectual job management
amongst employees in organizations and defined as “something a need or desire that causes a person to act
as a psychological process that gives behavior purpose and direction, include as an internal drives to satisfy
an unsatisfied need and the will to accomplish.
HR Flexibility is a dynamic capability of the firm in a sense that it is focused on adapting employee
attributes, for instance knowledge, skills, and behaviors, to changing environmental conditions as well as
referred the term to the extent to which employees possess skills and behavioral repertoires that can provide
a firm with options to pursue strategic alternatives.
Globalization refers to integration among the people, government and companies of different countries.
It is a process that leads to greater economic, political, social and cultural integration on a global scale.
Foreign Direct Investment (FDI) has been defined as an investment involving a long-term relationship
and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or
parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI
enterprise or affiliate enterprise or foreign affiliate).
Multinational Corporation (MNC) has been defined as a business enterprise that maintains direct
investments overseas and that upholds value-added holdings in more than one country, and views MNC as
an enterprise that engages in foreign direct investment (FDI) and owns or, in some way, controls value
added holdings in more than one country.
a. HRM Practices and Employee Attrition, Employee Retention, and Employee Performance
The relationship between HRM practices and firm performance, as shown in previous
studies, and how they are relevant to this research will now be explained in Table 11.
Table 11. Relevant Studies on the Relationship Between HRM Practices and Employee Attrition, Employee
Retention, and Employee Performance
Relationship Dependent Researcher Industrial Sector Abbreviation
Between Variable
Variables
HRMP EP EP Bhatti and Oil, Gas, Banking and HRMP = HRM
Qureshi (2007) Telecommunication Practices
EP = Employee
Productivity
HRMP TI TI Dhiman and Oil and Gas Exploration, HRMP = HRM
Mohanty (2010) and Production Practices
TI = Turnover Intent
HRMP EP EP Qureshi et al. Cement HRMP = HRM
(2010) Practices
EP = Employee
Performance
HRMP FP FP Osman et al. Manufacturing HRMP = HRM
(2011) Practices
FP = Firm
Performance
HRMP EP EP Singh and Automobile, Agricultural, HRMP = HRM
Mohanty (2012) Service (Insurance), Practices
Financial Services (Credit EP = Employee
Banks) and Luxury Items Productivity
(Branded Wall Paints)
HRMP EP EP Ichniowski et al. Steel Production Lines HRMP = HRM
(1997) Practices
EP = Employee
Productivity
HRMP LP LP Banker et al. Electromechanical HRMP = HRM
(1996) Assembly Plant Practices
LP = Labor
Productivity
HRMP ET ET Arthur (1994) Steel Mini-Mills HRMP = HRM
Practices
ET = Employee
Turnover
HRMP OE OE Dizgah et al. Manufacturing HRMP = HRM
(2011) Practices
OE = Organizational
Effectiveness
There have been many literatures explaining how Employee Participation is able to increase Firm
Performance. Some have suggested that employees generally have more complete knowledge and
information about their work tasks and processes than the managers (Levine and Tyson, 1990; Miller and
Monge, 1986) and are in a better position than managers to plan and schedule work, to organize work tasks
and work flow, and to identify and resolve obstacles to achieve optimal performance (Hammer, 1988).
Others believed that Employee Participation provides employees with greater intrinsic rewards from work
than the traditional forms of management. These rewards will increase job satisfaction, leading to increased
employee motivation to achieve new production goals (Miller and Monge, 1986; Hammer, 1988). There are
also those who believed that by giving workers access to management information, it will increase mutual
trust and commitment to organizational goals (Hammer, 1988). As relations between employee and
supervisor improve (Cooke, 1990), employees are willing to be more flexible regarding changes in human
resource policies (Delaney et al., 1993), and inclined to channel their energy in positive ways than they
otherwise would be (Strauss, 1990).
By the 1990s, interest in quantifying the impact of HR practices on financial performance has led to a
number of studies linking the impact of HR practices to specific firm outcomes (Ulrich, 1997). For example,
turnover has been linked to job security, presence of a union, compensation level, culture, and demographics
(Arnold and Feldman, 1982; Baysinger and Mobley, 1983). Productivity has been linked to HR practices of
“transformational” labor relations (those emphasizing cooperation), quality of work life programs, quality
circles, training, extensive recruiting efforts, and incentive compensation systems (Cutcher-Gershenfeld,
1991; Katz et al., 1987; Weitzman and Kruse, 1990). In today’s competitive market, for organizations to
succeed will depend on advantages associated with speed and adaptability, patents and access to capital and
innovation, technology, and economies of scale (Quresh et al., 2010). HRM can help companies achieve
organizational effectiveness and thereby have a determining effect on whether or not these companies are
good enough, fast enough, and competitive enough not only to survive but also to perform well (Schuler
and Jackson, 2000). Thus, it would be difficult to imagine organization achieving and sustaining
effectiveness without efficient HRM programs and activities (Schuler, 2000).
In Osman et al. (2011), Regression analysis showed the three main HR practices that seem to have the
highest influence on organizational performance, one of them being Career Planning. Thus, from the results,
it was concluded that the effectiveness of implementing HR practices, including career planning, in a
company did indeed have a major impact towards a firm’s performance. Dizgah et al. (2011) examined the
relationship between empowerment and effectiveness in the executive organizations in Guilan province.
Results have shown that there is a direct relationship between employee empowerment and organizational
effectiveness in the Guilan executive organizations
a. HRM Practices and Organizational Citizenship Behaviors
To better understand the relationship between HRM practices and OCBs, it is useful to consider the
overall philosophy guiding those practices. An organization’s human resource philosophy refers to its
beliefs and values with respect to how employees should be treated (Schuler, 1992). This philosophy will
have a significant impact on the type of relationship that is established between an organization and its
employees, and thus an important impact on the level of OCB that employees display. To support this
argument, research has found that employees form generalized beliefs about the extent that their
organization values their contributions and cares about their well-being, and thus these beliefs would lead
to higher OCB (Eisenberger et al., 1986; Witt, 1991). There are many ways for organizations to show that
they value their employees as long term assets, including the following HRM practices discussed below.
The relationship between HRM practices and organizational citizenship behaviors, as shown in previous
studies, and how they are relevant to this research will now be explained in Table 12.
Table 12. Relevant Studies on the Relationship Between HRM Practices and Organizational Citizenship Behaviors
Relationship Mediating Researcher Industrial Sector Abbreviation
Between Variables Variable
HRMP OCB OCB Cappelli and Public Utilities HRMP = HRM Practices
Rogovsky OCB = Organizational
(1998) Citizenship Behaviors
HRMP OCB OCB Babaei et al. Banking HRMP = HRM Practices
(2012)
OCB = Organizational
Citizenship Behaviors
HRMP OCB OCB Gong et al. Manufacturing HRMP = HRM Practices
(2010) OCB = Organizational
HRMP OCB OCB Cushman Food HRMP = HRM Practices
(2000) OCB = Organizational
Organizations may also facilitate citizenship to the extent that they directly acknowledge or reward such
behaviors. A long line of research suggests that employees are likely to engage in those behaviors for which
they believe that they will be rewarded. Reward systems that directly recognize good citizenship make it
clear to employees that the organization truly values such behaviors. (Meet Asda’s Happy Family Pack,
2002; Levering and Moskowitz, 2003). Morrison (1996) found empowered employees have the ability to
invent and express organizational citizenship behavior. Empowerment increases self-efficiency feeling
among members of organization and results in organizational citizenship behavior. Furthermore, Batson
(1991) stated that expecting bonuses, avoiding punishment, and sensing nervous pressures would cause self-
orientated motivation for individuals to help each other. The impact means that individual influences
official, operational and strategic outcomes of his/her working unit. Individuals with such feelings are also
more likely to go beyond their job requirements (Watt and Schaffer, 2003).
b. HRM Practices and Job Satisfaction
The relationship between HRM practices and job satisfaction, as shown in previous studies, and how
they are relevant to this research will now be explained in Table 13.
Table 13. Relevant Studies on the Relationship Between HRM Practices and Job Satisfaction
Between Variable
Variables
HRMP JS JS Bhatti and Oil, Gas, Banking and HRMP = HRM
Qureshi (2007) Telecommunication Practices
JS = Job Satisfaction
HRMP JS JS Rehman et al. Electric Supply HRMP = HRM
(2010) Practices
HRMP JS JS Carden (2007) Manufacturing HRMP = HRM
Practices
HRMP JS JS Absar et al. (2010) Manufacturing HRMP = HRM
Practices
HRMP JS JS Swarnalatha and Automotive HRMP = HRM
Sureshkrishna Practices
(2012) JS = Job Satisfaction
Employee Participation in decision making leads to harmony in the organization (Ward and Pascarelli,
1987) and improves staff morale and support (Pashiardis, 1994). Employees who participate in making
decisions for the company feel like they are a part of a team with a common goal, and find their sense of
self-esteem and creative fulfillment heightened (Helms, 2006). Evidence has shown that when employees
are engaged in decision making, staff absenteeism is decreased. There is greater organizational commitment,
improved performance, diminished turnover and greater job satisfaction (Luthans, 2005; Moorhead and
Griffin, 1989). Sashkin and Burke (1987) also found that participation provides the satisfaction of the need
for achievement and closure, as well as for work-relevant interpersonal contacts.
Khojasteh (1993) found pay and security to be greater motivators and salary packages are of great
importance to create Job Satisfaction Other researchers added that the main factors that create greater Job
Satisfaction includes financial rewards, faculty workload (Miller et al., 2001), and compensation (Boyt et
al., 2001). It is said that the root cause for employees’ job dissatisfaction is due to the lack of happiness in
their career. Career happiness is the main source of job satisfaction (Henderson, 2000). People who perform
jobs which are aligned with their career plans experience a greater sense of self-esteem from doing what
one is able to do and wants to do (Priyanath, 2005). Job Satisfaction is just one of the benefits provided by
Training and Development. Organizations that are committed to employee training are realizing the rewards
of increased skill-sets, motivation, higher productivity and knowledge transfer of their employees
(Oosterbeek, 1998; Pate and Martin, 2000).
c. HRM Practices and Employee Engagement
The need for organizations to have engaged employees leads to studies being done to find out whether
HR practices can contribute to effective employee engagement. High involvement work practices are the
techniques used by the management to efficiently involve their employees in their works and receive high
performance among employees. If there is no career progression or limited career advancement
opportunities, then employees will definitely be disengaged at certain level and shall not remain committed
with an organization (Paradise, 2008). The relationship between HRM practices and employee engagement,
as shown in previous studies, and how they are relevant to this research will now be explained in Table 14.
Table 14. Relevant Studies on the Relationship Between HRM Practices and Employee Engagement
HRMP EE EE Nxumalo (2010) Mill HRMP = HRM
Practices
EE = Employee
Engagement
HRMP EE EE Ram and Hotel HRMP = HRM
Prabhakar Practices
(2011) EE = Employee
Engagement
HRMP EE EE Shafer (2010) Hotel HRMP = HRM
Practices
EE = Employee
Engagement
It was reported that organizations, in which employees were involved in decision-making practices at
higher levels, have shown more employee engagement and their financial performance relative to their
opponents gradually increased (Denison, 1990). As organizations cannot control external environment in
the period of recession, more emphasis has been put on management of internal environment in decision
making and coordination at all levels of hierarchy (Huselid, 1995). This not only increases the employee’s
value, but also employee’s engagement. Therefore, HR should be managed with equal importance with
other functions of the business (Ganzach, 2002). Nxumalo (2010) tried to prove that employee involvement
could be used as tool to increase levels of engagement within actively disengaged employees at Ngwane
Mills in the Kingdom of Swaziland in Africa.
d. HRM Practices and Employee Motivation
The relationship between HRM practices and employee motivation, as shown in previous studies, and
how they are relevant to this research will be explained in Table 15.
Table 15. Relevant Studies on the Relationship Between HRM Practices and Employee Motivation
HRMP EM EM Al-Nsour (2011) Banking HRMP = HRM
Practices
EM = Employee
Motivation
HRMP EM EM Ali and Ahmed Consumer Products HRMP = HRM
(2009) Practices
EM = Employee
Motivation
HRMP EM EM Mwanje (2010) Banking HRMP = HRM
Practices
EM = Employee
Motivation
HRMP EM EM Gawali (2009) Manufacturing HRMP = HRM
Practices
EM = Employee
Motivation
HRMP EM EM Yoon (2001) Electronics and HRMP = HRM
Electricity Practices
EM = Employee
Motivation
Participation in decision-making is an important psychological element that can help improve the
motivation of employees towards work, and allowing them to fulfill their basic needs of clarity and social
relations, thereby improving their performance (Hussein, 2007). With technology becoming more advanced,
so does the complexity in the role of managers, forcing them to cooperate with subordinates and their
employees in the management functions, particularly in decision-making (Kanaan, 2007). Ali and Ahmed
(2009) stated that all businesses use pay, promotion, bonuses or other types of rewards to motivate and
encourage high level performances of employees. Career planning system is an important part of employee
motivation. Employees should be encouraged under the guidance of their employers or supervisors to set
their own goals (Elrod, 2009). This will help them think about their strengths and weaknesses, and what
goals are realistic. This way, employees will be more motivated to meet the goals that they set for themselves
(Elrod, 2009), especially if these goals lead to career advancement, such as the prospect of getting a
promotion.
In Mwanje (2010), one of the objectives the study aim to assess is the effect that career advancement
has on motivation. . Results have shown that career advancement has a highly positive effect on motivation.
Lester (1999) concluded that if employees perform well on training, and subsequent to the training if they
perceive that they have learnt something new which would be an enhancement in their CVs as well as
beneficial for them to capture future opportunities, then their motivation and involvement towards their jobs
will increase. Stephenson (1999) concluded that there are two basic factors - ability to learn, adapt and
understand new corporate environment, which are very crucial for the employees in this new changing
economy. Gawali (2009) reported on the effectiveness of employee Cross-Training as a motivational
technique. HRM practices, such as employee empowerment, the balanced scorecard concept, which has
been advocated by many management accountants, stresses the importance of empowering employees to
increase their motivation, learning and growth (Kaplan and Norton, 1992, 1996). Similarly, management
studies have shown empowered employees have higher levels of task motivation, which in turn, has been
linked to greater organizational effectiveness and performance (Thomas and Velthouse, 1990; Koberg et
al., 1999).
e. HRM Practices and HR Flexibility
The benefits that HR flexibility provides for firm performance have encouraged researchers to analyze
the mechanisms through which the firm can promote the flexibility of its workforce. The relationship
between HRM practices and HR flexibility as shown in previous studies, and how they are relevant to this
research will be explained in Table 16.
Table 16. Relevant Studies on the Relationship Between HRM Practices and HR Flexibility
HRMP HRF HRF Beltrán-Martín et Manufacturing and HRMP = HRM
al. (2008) Service Practices
HRF = HR Flexibility
Some authors highlighted the relevance of equitable rewards to encourage employees’ willingness to
move and reallocate as the need arises. In other words, it is a way for employees to demonstrate functional
flexibility. Fluid assignments implicit in the notion of functional flexibility require high inputs from the
workforce and organizations should provide commensurate returns in an effort to motivate desired
employee movements across tasks and jobs (Dyer and Shafer, 2002; Noe, 1996). Furthermore, the provision
of equitable rewards is an instrument that helps to attract versatile employees because employees with high
qualifications, varied knowledge, and multiple abilities may expect to receive appropriate rewards for their
competences. (MacDuffie, 1995; Wright and Snell, 1998). In fact, authors like Morris (1993) indicated that
one of the components of equitable rewards, which is performance-related pay, is used as a signal to express
organizational intentions and create a flexible and self-motivated workforce. According to Unsworth and
Parker (2003), higher initiative and flexibility at work can involve greater workload, which may produce
stress and anxiety in employees if these efforts are not reinforced by equitable rewards. Therefore, a fair
and balanced exchange relationship with the organization enhances the feelings of certainty about gaining
fair rewards for substantial innovative efforts (Williams et al., 2002).
In Beltrán-Martín et al. (2008), research was done to examine the impact that High Performance Work
Systems (HPWS) have on performance through the firm’s human resource (HR) Flexibility. Results have
confirmed the mediating role of HR Flexibility in the HPWS – performance relationship, meaning there is
a link between HPWS, which includes Reward, and firm performance. Furthermore, the results confirm the
ideas provided by earlier proponents of HPWS in that one of the consequences of HPWS in terms of
employees’ performance at work is an improvement in their flexibility (Guest, 1987). Training is orientated
towards the promotion of a climate of personal growth in the firm, enabling employees to prepare for
whatever the future might bring in terms of abilities or behaviors needed in the workplace (Shafer et al.,
2001). Due to the rapid process of knowledge being outdated in the current environments, the importance
of being “ahead on the learning curve” is crucial to create flexible employees (Dyer and Shafer, 2002).
Thus, these developmental efforts on the part of organization are also beneficial in promoting the
workforce’s skill flexibility because employees are keen to increase their current pool of skills and abilities
when they possess a valid educational basis, since proficiency in certain areas gives them the confidence to
master and apply new skills (Wright and Snell, 1998).
f. OCB and Employee Attrition, Employee Retention, and Employee Performance
With managers becoming increasingly involved in analyzing employee performance, OCB has been
included in performance evaluations (Werner, 1994). The problem, however, is that by having managers
identify which employees or groups of employees are the best performers, it would create a bias, particularly
by managers who are highly engaged in OCB. Furthermore, some employees may use impression
management style in order to create a favorable impression of themselves (Bolino and Turnley, 2003). In
Appelbaum et al. (2005), a survey was done at the Rodbec plant in Canada concerning the production of
copper rod to measure the impact of employee satisfaction and organizational citizenship on productivity.
This is due to the fact that there were evidence for declining corporate citizenship from plant employees
and low attachment to the organization for supervisors, since this effects productivity.
g. Job Satisfaction and Employee Attrition, Employee Retention, and Employee Performance
For an organization to be successful they must continuously ensure the satisfaction of their employees
(Bataineh, 2011). This is due to the fact that when employees feel satisfied with the job their morale will be
elevated, and this will ultimately lead the organization towards prosperity and growth (Chaudhary and
Banerjee, 2004). Halkos and Bousinakis (2010) investigated the effects of stress and job satisfaction on the
functioning of a company. Findings show increased satisfaction leads to increased productivity.
h. Employee Engagement and Employee Attrition, Employee Retention, and Employee

Performance
Engagement goes beyond satisfaction and commitment. To become fully engaged is to be involved in
and enthusiastic about the work (Falcone, 2006). Schaufeli and Bakker (2003), and Schaufeli et al. (2001)
defined work engagement as a positive, fulfilling, work-related state of mind that is characterized by vigor,
dedication, and absorption. Rather than a momentary and specific state, engagement refers to a more
persistent and pervasive affective cognitive state that is not focused on any particular object, event,
individual, or behavior. This may, however, be distinguished from workaholism in that the former also
brings the association of positive attitudes at work, positive mental health and good performance (Schaufeli
and Bakker, 2003). Employee Engagement is also said to be a measure of Job Involvement (Harter et al,
2002). According to Wellins and Concelman (2005), engagement is an amalgamation of commitment,
loyalty, productivity, and ownership. To be engaged is to be emotionally and intellectually committed to
one’s organization (Bhatnagar, 2007). Employee engagement has also been conceptualized as having two
dimensions - Cognitive Engagement and Emotional Engagement / Physical Engagement (Kahn, 1990; 1992;
Luthans and Peterson, 2002). Therefore, high engagement for each dimension is predictive of the overall
high engagement for an employee (Kahn, 1990; Bhatnagar, 2007). Gibbons (2006) also indicated that
employee engagement is strongly correlated to several performance outcomes, such as retention, turnover,
individual productivity, customer service and growth in operating margin.
i. Employee Motivation and Employee Attrition, Employee Retention, and Employee

Performance
A motivated employee is responsive of the definite goals and objectives they must achieve, and therefore
they direct its efforts in that direction. Kovach (1987), for instance, suggested that if a company knows why
its employees come to work on time, stay with the company for their full working lives, and are productive,
then the company may be able to ensure that all of their employees behave in that way. Moreover, Wiley
(1997) also suggested that to ensure the success of a company, employers must understand what motivates
their employees, and such understanding is essential to improving productivity. These suggestions imply
that organizational success depends heavily on employee motivation. Solomon et al. (2012) investigated the
effectiveness of employee motivation for enhanced organizational performance in multinational companies
in Nigeria, especially the manufacturing sector. Findings show a positive correlation between motivation
and employee productivity.
j. HR Flexibility and Employee Attrition, Employee Retention, and Employee Performance
Studies within the framework of human capital theory argue that the pool of skills and abilities that
underlies employees’ functional flexibility determines their capacity to be responsible for several activities
in the organization (Rönnmar, 2004). Furthermore, employees who show functional flexibility maintain
profitable relationships with customers, contributing to satisfying their needs and enhancing their
satisfaction (Youndt and Snell, 2004). In Beltrán-Martín et al. (2008), research was done to examine the
impact that High Performance Work Systems (HPWS) have on performance through the firm’s human
resource (HR) Flexibility. Results of the study were affirmative of the relationship.
3. Business Implications
This research is an attempt to theoretically explore the direct relationship between HRM practices and
firm performance in Thailand’s manufacturing industry. This study may proves useful to firms that aim to
keep employees and avoid high turnover in their organizations. By employing the five specified HRM
practices, which are Employee Participation, Compensation and Benefits and Reward System, Career
Planning System, Training and Development and Employee Empowerment, managers can ensure that their
employees will remain loyal to their organizations and work there for as long as possible. But there needs
to be full employee participation in the organization, where information concerning policy issues is shared
with employees. What is more, employees should be allowed to make suggestions concerning policies and
procedures through a command structure that welcomes employee/employer interaction, and activities
should be aimed at encouraging employees to express their views. Managers should construct a system of
compensation, benefits and rewards in which employees are given positive recognition and rewards for
good performance. Furthermore, there should be a competitive benchmark that considers the amount and
quality of work that employees do. Within this system, the benefits should be equitable. Organizations
should institute a career planning system to help employees map out their visions of the future; it should be
long-term and focused on individual development. Career planning in organizations must be both vertical
and horizontal, allowing employees to not only grow within the scope of their jobs but also to function and
succeed in other roles. It is the duty of the organization to create the opportunity for employees to advance
in their careers. This can be done through effective and timely training and development. Once training is
complete, organizations should track employee progress both to ensure proper development and to monitor
workforce satisfaction. In that sense, organizations must empower employees, giving them autonomy over
their jobs. While the review clearly shows a strong direct and positive relationship between HRM practices,
and employee attrition and employee retention — both good indicators of firm performance—there is a
possibility of indirect relationship between HRM practices and the other indicator of employee
performance, which can be explored as well.
4. Summary and Future Scope
This conceptual research can be used to develop a framework for empirical investigation and can be
expanded to countries and regions other than Thailand. Research design may include other industries, and
may apply the framework for investigation with different set of variables. A research model can be
developed using this study and then robustness of the same can be tested in manufacturing industries. The
robustness of the model can be tested utilising variety of model testing techniques and tools. In short, the
study can be further carried into a quantitative research design. Researcher suggests that top management,
HR leader and line managers realize the importance of HRM practices within organizations by strongly
supporting activities of human resource management practices with five key factors through HRM policies,
programs, and activities.
In addition, organizations should initiate another specific program of HR Flexibility to create job
rotation, multi-tasking for employees in their career opportunity, and programs to create an environment for
job engagement, which will lead to Organizational Citizenship Behaviors, Job Satisfaction, Employee
Engagement, Employee Motivation, and finally have an effect on Employee Retention, Employee
Performance, and Employee Attrition.
Whenever any organizations can keep their employees, there will be retention, meaning they are able to
stop employees from leaving their firms. This will allow organizations to be successful in businesses by
maintaining their knowledge base. There will be no brain drain, and firm performance will continue to
improve, allowing for a competitive advantage and long-term sustainable growth. Furthermore, the fact that
globalization now has a huge impact on the world with MNCs crossing borders into other countries, those
who intend to do further research on the topic should include other countries, particularly those in Southeast
Asia that are going to be involved in the AEC (ASEAN Economic Community). Doing this will bolster
studies on HRM practices by adding diverse and cross-cultural contexts.
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Microfinance Institutions’ Competition Case Study Northern region

of Thailand
Ravipan Saleepon
Srinakarinwirot University , 10110, Bangkok, Thailand
ABSTRACT
The aim of this empirical research is to assess the level of competition appearance in the Microfinance
Institutions ( MFIs ) in northern region of Thailand after financial crisis in
1997. The analysis employed a widely used non-structural methodology by Panzar and Rosse who
developed an empirical test to discriminate between oligopolistic, monopolistically competitive and
perfectly competitive markets. Their procedure, which is based on the comparative static properties of
reduced-form revenue equations, accomplishes a concise indicator, the so-called H-statistic. Under certain
restrictive assumptions, it can be interpreted as a continuous and increasing measure of the overall level of
competition prevailing in a particular market. It relies heavily on the premise that firms will employ
different pricing strategies in response to changes in factor input prices depending on the competitive
behavior of market participants. In other words, competition is measured by the extent to which changes in
input prices are reflected in firms' equilibrium revenues From the study was found that the competitions’
between MFIs in northern region of Thailand are low competition. This empirical work has attempted to
measure the level of competition by H - statistics (H) demonstrated that the differences between price
(interest revenue) and cost (interest expenses) likely wider than before 1997. It indicated the more
monopoly power of MFIs in northern region of Thailand.

Keywords: Microfinance Institutions Competition, H-static Monopoly power.
_________________________________________________________________________________
1. Introduction
Thailand has a long history of development in the microfinance industry, which corresponds with its
large dynamic rural sector. National Statistical Office1 (NSO) statistics show that in 2017, 63 percent of the
population (41 million) lived in rural areas. About 92 percent of these were farmers. While these farmers
generate approximately 11 percent of the country’s GDP, their output is the raw material base for Thailand’s
large agro-processing sector, which contributes to about 25 percent of the country’s total export value. The
remaining 8 percent of the rural population are employed in a variety of areas, primarily as low skilled
workers in the, manufacturing, construction, and transport sectors.
In the case of small and medium sized enterprises (SMEs), according to the SME Development Bank of
Thailand (SME Bank), the total number of business enterprises throughout Thailand was estimated at 1.87
million in 2017; 99 percent of these are SMEs. They account for nearly 80 percent of non-farm employment,
42 percent of GDP and 38 percent of manufactured exports.3 There were roughly 10,000 SMEs registered
during the first quarter of 2009, while about 5,000 closed down, mainly due to lack of access to credit. The
Kasikorn Bank (KBank) has estimated that if these statistics included micro enterprises resulting from the
government’s One Tambol One Product (OTOP) program and new self-employed entrepreneurs consisting
of educated, unemployed office workers, the number of SMEs would increase to over 2.4 million (as of
early 2009) but only one third have access to credit from the formal financial sector.
According to the Office of the National Economic and Social Development Board (NESDB), those living
below the poverty line (using the UN benchmark of USD 1.25 per day) earn less than THB 1,443 per month.
This is 14 percent of the country’s GNP per capita of THB 10,043 per month. NSO statistics show that 8.5
percent (5.5 million) of Thailand’s population lived below the poverty line in 2017, a rapid improvement
from the 21 percent (12.6 million) in 2017. However, it is estimated that 13 percent of the rural population
(5.3 million) are considered “poor” people or “rural poor”; two thirds are concentrated in the north-east of
the country. It is also estimated that 18 percent of the population (12 million) are “urban poor”. There are
also several hundred thousand more poor people among the minority hill tribes in the Northern part of the
country, as well as refugees along the border who do not have Thai nationality, and so are not included in
the country census. These people are also in need of financial services.
Thailand remains a bank-based economy where most business sectors and citizens obtain funds (working
capital) and financial services from commercial banks. A research in 2017 by the Bank of Thailand (BOT)
and the NSO found that 9.61 percent of both the country’s households and SMEs did not have access to
financial services. Amongst those with access to financial services, 16.35 percent were serviced by the semi-
formal and informal sectors.
1.1 Microfinance Institutions’ in northern of Thailand
Microfinance Institutions’ in northern of Thailand has a relatively thin and segmented finance market
that has nonetheless been fairly efficient at mobilizing savings and channeling funds to the rural population
and commercial agriculture. From a conventional perspective, the size of the microfinance industry in
Microfinance Institutions’ in northern of Thailand is small, as the government has been the main provider.
There has been a lack of concerted effort in creating a legal environment friendly to private and/or NGOs
microfinance operations in Thailand. Most of the private and/or NGOs microfinance programs are small
and target specific groups of people such as those living in urban slums, factory workers, people living with
HIV/AIDs, minority hill-tribes, or non-resident refugees along the border with neighboring countries. These
programs are generally independent and rarely collaborate with each other.
1.2 Types of Microfinance Institutions’ in northern of Thailand
The MOF has divided by the current microfinance system in Thailand into three main categories:
1. Formal and large MFIs are those formal financial institutions (bank and non-bank)
operating under prudential regulations including commercial retail financial institutions and the
government’s Special Financial Institutions (SFIs), i.e., Government Savings Bank (GSB), Bank for
Agriculture and Agricultural Cooperatives (BAAC), SME Development Bank, Islamic Bank, et al.
Although there is no specific data on the total amount of funds operating under microfinance services of
these organizations, the MOF has estimated that credit supplied by formal financial institutions is about
THB 7.73 trillion (approx. USD $235 B) or about 89.7 percent of total credit in 2017.
2. Semi-formal MFIs are legal, member-based MFIs Informal Independent and Self-help saving
operating under non-prudential regulations to promote savings and investment within communities,
including agricultural, savings, and credit union cooperatives, registered savings-for-production groups, and
Village and Urban Revolving Fund (VRF). The amount of funds provided by this category of MFIs was
around THB 860 billions (≈USD 24.5 B) or about 10 percent of the total credit in 2017.
3. Credit groups are informal, community member-based organizations promoting savings and
providing lending services to community members. These groups are usually established with support from
external organisers, including NGOs, local government agencies, and monks. Most of them follow either
the village bank or solidarity group operating models. The amount of funds provided by MFIs in this group
is estimated at over THB 30 billion (approx. USD $910 M) or only 0.3 percent of the total credit in 2017.
The Microfinance Master Plan in development aims to regulate MFIs in the second and third categories
under appropriate prudential regulations and integrate them as part of the country’s formal financial sector.
Source: National Statistical Office and Office of the National Economic
and Social Development Board of the Prime Minister.
John C. Panzar and James N. Rosse developed an empirical test to discriminate between oligopolistic,
monopolistically competitive and perfectly competitive markets. Their procedure, which is based on the
comparative static properties of reduced-form revenue equations, accomplishes a concise indicator, the so-
called H-statistic.Under certain restrictive assumptions, it can be interpreted as a continuous and increasing
measure of the overall level of competition prevailing in a particular market. The methodology put forward
by Panzar and Rosse (1987) stems from a general equilibrium market model. It relies heavily on the premise
that firms will employ different pricing strategies in response to changes in factor input prices depending
on the competitive behavior of market participants. In other words, competition is measured by the extent
to which changes in input prices are reflected in firms' equilibrium revenues
The Panzar–Rosse method is used to estimate the degree of competitiveness. The estimation is relatively
easy to apply because there are few assumptions that need to be made. Furthermore, the Panzar–Rosse
method is used widely, so it can be used to compare the results for the Microfinance Institutions’
competition in northern region of Thailand.
As the Panzar–Rosse method will be used to estimate Microfinance Institutions’ competition in northern
region of Thailand. in this paper, that method will be introduced in this section as follows.
Rosse and Panzar (1977) and Panzar and Rosse (1987) formulated simple models for oligopolistic,
competitive and monopolistic markets and developed a test to discriminate between these models. This test
is based on properties of a reduced-form revenue equation at the firm or bank level and uses a test statistic
H, which, under certain assumptions, can serve as a measure of competitive behaviour of banks. The test is
derived from a general banking market model, which determines equilibrium output and the equilibrium
number of banks, by maximising profits at both the bank level and the industry level. This implies, first, that
bank i maximises its profits, where marginal revenue equals marginal cost:
𝑅𝑖′ (𝑥𝑖 , 𝑛, 𝑧𝑖 ) − 𝐶𝑖′ (𝑥𝑖 , 𝑤𝑖 , 𝑡𝑖 ) = 0 …… (1)
Ri refers to revenues and Ci to costs of bank i (the prime denoting marginal), x is the output of bank i, n
is the number of banks, w is a vector of m factor input prices of bank i, ziiis a vector of exogenous variables
that shift the banks revenue function, t is a vector of exogenous variables that shift the banks cost function.
Secondly, at the market level, it means that, in equilibrium, the zero profit constraint holds:
𝑅𝑖∗ (𝑥 ∗ , 𝑛∗ , 𝑧) − 𝐶𝑖∗ (𝑥 ∗ , 𝑤, 𝑡) = 0 …… (2)
Variables marked with an asterisk (*) represent equilibrium values. Market power is measured by the
extent to which a change in factor input prices (dw) is reflected inthe equilibrium revenues (dRi) earned by
bank i. Panzar and Rosse define a measure of competition H as the sum of the elasticities of the reduced-
form revenues with respect to factor prices:
The first market model Panzar and Rosse investigated describes monopoly. The monopoly analysis
includes the case of price-taking competitive firms, as long as the prices they face are truly exogenous, that
is, as long as their equilibrium values are unaffected by changes in the other exogenous variables in the
model. An empirical refutation of _monopoly_ constitutes a rejection of the assumption that the revenues
of the Microfinance Institutions in question are independent of the decisions made by their actual or
potential rivals. Panzar and Rosse proved that under monopoly, an increase in input prices will increase
marginal costs, reduce equilibrium output and subsequently reduce revenues; hence H will be zero or
negative. This is a very generalized result, requiring little beyond the profit maximization hypothesis itself.
Along similar lines, Vesala (1995) proves that the same result holds for monopolistic competition without
the threat of entry, i.e. with a fixed number of Microfinance Institutions. Thus, this case also falls under
what we call _monopoly_. In the case where the monopolist faces a demand curve of constant price elasticity
e > 1 and where a constant returns to scale Cobb–Douglas technology is employed, Panzar and Rosse proved
that H is equal to e - 1.
𝜕𝑅𝑖∗ 𝑤𝑘𝑖
𝐻 = ∑𝑚
𝑘=1 𝜕𝑤𝑘𝑖 𝑅𝑖∗
…… (3)
Three other commonly employed models for an industrial market investigated by Panzar and Rosse are
monopolistic competition and perfect competition and conjectural variation oligopoly, all of which happen
to be consistent with positive values for H. In these models, the revenue function of individual Microfinance
Institutions depends upon the decisions made by its actual or potential rivals. For monopolistic and perfect
competition, the analysis is based on the comparative statics properties of the Chamberlinian equilibrium
model. This model introduces interdependence into Microfinance Institutions_ structural revenue equations
via the hypothesis that, in equilibrium, free entry and exit results in zero profits. Under a set of general
assumptions, it can be proved that under monopolistic competition, H < 1. Positive values of H indicate that
the data are consistent with monopolistic competition but not with individual profit maximization as under
monopoly conditions. In other words, Microfinance Institutions produce more and the price is less than
would be optimal in each individual case. A priori, monopolistic competition is most plausible for
characterizing the interaction between Microfinance Institutions, as it recognizes the existence of product
differentiation and is consistent with the observation that Microfinance Institutions tend to differ with
respect to product quality variables and advertising, although their core business is fairly homogeneous. In
the limit case of the monopolistic competition model, where Microfinance Institutions_ products are
regarded as perfect substitutes of one another, the Chamberlinian model produces the perfectly competitive
solution, as demand elasticity approaches infinity. In this perfect competition case, H = 1. An increase in
input prices raises both marginal and average costs without – under certain conditions – altering the optimal
output of any individual firm. Exit of some firms increases the demand faced by each of the remaining firms,
leading to an increase in prices and revenues equivalent to the rise in costs. Finally, analyzing the conjectural
variation oligopoly case, Panzar and Rosse show that strategic interactions among a fixed number of
Microfinance Institutions may also be consistent with positive values of H. In general, the value of H is not
restricted. In the special case of perfect collusion oligopoly or a perfect cartel, the value of H is non positive
similar to the monopoly model.
The Chamberlinian equilibrium model described above provides a simple link between H and the
number of Microfinance Institutions, so between market behavior and market structure. The model is based
on free entry of Microfinance Institutions and determines not only the output level but also the equilibrium
number of Microfinance Institutions. Vesala (1995) proves that H is an increasing function of the demand
elasticity e, that is, the less market power is exercised on the part of Microfinance Institutions, the higher H
becomes. This implies that H is not used solely to reject certain types of market behavior, but that its
magnitude serves as a measure of competition. One of the general assumptions underlying the
Chamberlinian equilibrium model mentioned above is that the elasticity of perceived demand facing the
individual firm, (e,x,n,w), is a non-decreasing function of the number of rival Microfinance Institutions.
Panzar and Rosse call this a standard assumption, eminently plausible.
The empirical application of the P–R approach assumes a log-linear marginal cost function (dropping
subscripts referring to Microfinance Institution i)
ln 𝑀𝐶 =∝0 +∝1 ln 𝑂𝑈𝑇 + ∑𝑀
𝑝
𝑖=1 𝛽𝑖 ln 𝐹𝐼𝑃𝑡 + ∑𝑗=1 𝛾𝑗 ln 𝐸𝑋𝑐𝑜𝑠𝑡𝑗 …… (4)
where OUT is output of the Microfinance Institution, FIP are the factor input prices (regarding
e.g.funding, personnel expenses and other non-interest expenses) and EX are other variables, exogenous to
the cost function C (t in Eq. (1)). Equally, the underlying marginal revenue function has been assumed to
be log-linear.
ln 𝑀𝑅 = 𝛿0 + 𝛿1 ln 𝑂𝑈𝑇 + ∑𝑞𝑘=1 𝜀𝑘 ln 𝐸𝑋𝑅𝐸𝑉𝑘 ……. (5)
where EXREV are variables related to the Microfinance Institution-specific demand function (z in
Eq.(1)). For a profit-maximising Microfinance Institution, marginal costs equal marginal revenues in
equilibrium, yielding the equilibrium value for output (denoted by an asterisk):
𝑝 𝑞
(∝0 −𝛿0 +∑𝑚
𝑖=1 𝛽𝑖 ln 𝐹𝐼𝑃𝑡 +∑𝑗=1 𝛾𝑗 ln 𝐸𝑋𝑐𝑜𝑠𝑡 −∑𝑘=1 𝜀𝑘 ln 𝐸𝑋𝑅𝐸𝑉𝑘 )
ln 𝑂𝑈𝑇 =
𝛿0 −∝1
𝑗
……. (6)
The reduced-form equation for revenues of Microfinance Institution i is the product of the equilibrium
values of output of Microfinance Institution i and the common price level, determined by the inverse
demand equation, which reads, in logarithms, as
ln 𝑝∗ = 𝜀 + ln(∑𝑖 𝑂𝑈𝑇𝑖∗ ) ……. (7)
In the empirical analysis, the following operationalisation of the reduced-form revenue equation is used:
ln 𝑇𝑅𝑖𝑡 = 𝛼 + ∑𝑚
𝑝
𝑖=1 𝛽𝑖 ln 𝐹𝐼𝑃𝑖𝑡 + ∑𝑗=1 𝛾𝑗 ln 𝐸𝑋𝐹𝑗𝑡 + 𝑒 ……. (8)
where TR is the ratio of total interest revenue to the total balance sheet, the ratio of annual interest
expenses to total funds, or the average funding rate, FIP is the factor input prices , EXF are Microfinance
Institution specific exogenous factors (without explicit reference to their origin from the cost or revenue
function),
There are many studies on the competitiveness of banking systems using the Panzar–Rosse method.
Banks, trust companies, and mortgage companies in Canada are assessed using the Panzar–Rosse method
in Nathan and Neave (1989). The result is that the hypothesis of monopoly is rejected in all cases, and
perfect competition is accepted in some cases. These results are the same as Shaffer (1993). Furthermore,
they conclude that banks are much more competitive than trust companies and mortgage companies in
Canada. Nathan and Neave (1989) hypothesize that international business, which is conducted in a highly
competitive market, makes up a significant fraction of bank business, but that trust companies and mortgage
companies are only engaged in the domestic market.
Niimi (1998) estimates the banking industry in Japan during the peak of the bubble (1989.3–1991.3) and
the period near the bubble's end (1994.3–1996.3). Competition in banking in Japan is found to be
monopolistic during the peak of the bubble. Then during the period near the bubble's end, it is monopolistic
competition.
There are also many studies that examine the banking industry in Europe, such as Molyneux, Thornton,
and Lloyd-Williams (1994), who estimate the banking industry in Germany, UK, France, Italy, and Spain
using the Panzar–Rosse model. They find that the banking industry in Italy is a monopoly and that the others
are in monopolistic competition. Bikker and Haaf (2002) assess the banking industry in 17 European
countries and 6 countries that are outside of Europe. They conclude that all the countries have nearly
monopolistic competition. They also find that the environment for big banks is much more competitive than
that for small banks, and also that the environment in the international market is much more competitive
than in the local market.
There are also a number of assessments of banking industries in developing countries. Claessens and
Laeven (2004) estimate the banking industry in 50 countries using the Panzar–Rosse method. They conclude
that nearly all countries are in monopolistic competition. Eight countries in Europe and South America, all
of which have gone through some process of consolidation, are estimated in Gelos and Roldos (2002).
Argentina and Hungary are found to be in nearly perfect competition. Furthermore, they conclude that even
when the degree of concentration is high, the degree of competition is not decreased. In this paper, we find
the same result for China. Murjan and Ruza (2002) assess the countries in the Arab Middle East from 1993
to 1997 and obtain a result of monopolistic competition. They also find that oil-producing countries are less
competitive than non-oil-producing countries. From the above, the significant observation is made that
banking industries in almost all countries are in monopolistic competition.
Table 1
Discriminatory power of H
Values of H Competitive environment
H <0 Monopoly equilibrium: each Microfinance Institution operates

independently as under monopoly profit maximization
conditions (H is a decreasing function of the perceived demand
elasticity) or perfect cartel.
0<H<1 Monopolistic competition free entry equilibrium (H is an
increasing function of the perceived demand elasticity).
H=1 Perfect competition. Free entry equilibrium with full efficient
capacity utilization.
Figure 1. Discriminatory power of H
The level of competition by H - statistics (H)
The level of competition by H - statistics (H) or values of H Demonstrate Competitive environment that
H <0 means which Monopoly equilibrium: each Microfinance Institution operates independently as
under monopoly profit maximization conditions (H is a decreasing function of the perceived demand
elasticity) or perfect cartel. As 0 < H < 1Monopolistic competition free entry equilibrium (H is an increasing
function of the perceived demand elasticity).And H = 1 Perfect competition. Free entry equilibrium with
full efficient capacity utilization.
4. Results
This study attempts to assess Microfinance Institutions with regard to their financial costs,
economic costs, efficiency of operations, and supervisory practices. The method of evaluating financial
costs comprises analyses of deposit base, the cost of borrowing, and the cost of capital. The method of
appraising economic costs is to justify the implicit expenditures such as opportunity cost of employees,
committee members and group chairmen, together with indirect managerial expenses.The method of
assessing operational efficiency includes the analyses of various indices such as returns on assets, returns
on equity, debt to equity ratio, income to expense ratio, credit quality, and outreach of target groups. As for
supervisor practices, the study reviews the roles of responsible agencies and relevant regulations and
provides recommendations. The overall evaluation of Microfinance Institutions indicates the following
results. The BAAC’s services for small farmers had more expenses than income. The GSB’s people’s bank
scheme and fast-track loans of SME Bank encountered the problem of insufficient number of employees in
many remote areas. Nevertheless, it was found that the outreach of BAAC, agricultural cooperatives, and
credit union cooperatives rose steadily, while their financial costs tended to decline. On average, between
1998 and 2002, BAAC (only for small-scale borrowers) and agricultural cooperatives were able to serve
around 42% of total farmers in the country. As for informal , there were economic costs since some members
work for the group without compensation or with small returns. The groups which just began its operation
recently tend to show higher growth of members, deposits, and credits than those with long-term operation.
This is commonly due to the likelihood that members are living in the same village or in the same area have
locally known each other, which is easy for debt collection and group meeting process. However, this study
cannot reach definite or clear-cut conclusions on overall assessment of informal Microfinance Institutions’
financial costs and operational efficiency due to data unavailability.
5. Discussion
Regarding the supervisory practices, this study discovers that as for government-owned formal
Microfinance Institutions, the Ministry of Finance specifies policies and assigns the Bank of Thailand to
examine and monitor, which essentially follows the risk-based approach. As for publicly-owned formal
MFU, members determine policies incompliance with relevant laws. At present, the Cooperative Promotion
Department, the Cooperative Auditing Department, and members of their representatives serve as
supervisors. As for informal Microfinance Institutions, policies are determined by member consensus. In
practice, members or their representatives act as supervisors adhering to rule-based approach of supervision.
6. Conclusion
This empirical research is to assess the level of competition appearance in the Microfinance Institutions
( MFIs ) in northern region of Thailand after financial crisis in 1997. The analysis employed a widely used
non-structural methodology by Panzar and Rosse who developed an empirical test to discriminate between
oligopolistic, monopolistically competitive and perfectly competitive markets. Their procedure, which is
based on the comparative static properties of reduced-form revenue equations, accomplishes a concise
indicator, the so-called H-statistic. Under certain restrictive assumptions, it can be interpreted as a
continuous and increasing measure of the overall level of competition prevailing in a particular market. It
relies heavily on the premise that firms will employ different pricing strategies in response to changes in
factor input prices depending on the competitive behavior of market participants. In other words,
competition is measured by the extent to which changes in input prices are reflected in firms' equilibrium
revenues From the study was found that the competitions’ between MFIs in northern region of Thailand
are low competition. This empirical work has attempted to measure the level of competition by H - statistics
(H) demonstrated that the differences between price (interest revenue) and cost (interest expenses ) likely
wider than before 1997. It indicated the more monopoly power of MFIs in northern region of Thailand.
Acknowledgements
This empirical research project was supported by Scholarship for Staff development Faculty of
Economics Srinakarinwirot University at Fiscal year 2016.
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Promote Entrepreneur on Micro Small and Medium Business
Tjiptogoro Dinarjo Soehari1, Djumarno2

1,2
Lecturer of Mercu Buana University. Jakarta. Indonesia
ABSTRACT
The current population of Indonesia reaches approximately 261 million, the number of unemployed and the
poor every year increases with the increase of population, on the other hand the proportion of Indonesian
entrepreneurs that significantly contributes to job creation is still very low, which only reaches about 1,
65% (Ministry of Cooperatives and MSMEs, 2015). Ideally the number of employers at least 2% of the
total population of a country, thus Indonesia still lacks entrepreneurs / entrepreneurs at least 0.35% of the
population of minimum standards so research looking for solutions to promote entrepreneurship of Micro,
Small and Medium Enterprise (MSMEs) is very important. To promote entrepreneurship MSMEs needs to
strengthen Commitment (Y) candidates and entrepreneurs of SMEs by forming Character (X1) and equip
Competence (X2). The methodology used is explorative with quantitative analysis using SPSS.
The conclusion that prospective entrepreneurs and entrepreneurs of MSMEs in suburban areas such as
Jakarta has the potential of good commitment as a key element to promote entrepreneurship of UMKM. To
increase commitment needs to build a character that is in accordance with the business sector and supported
by the appropriate competence in the simultaneous policy.
Keywords: entrepreneurship, MSMEs, character, commitment, commitment.

__________________________________________________________________________________
Introduction
The Central Bureau of Statistics (2017) argued that Indonesia's population of about 261 million, the
number of poor people in Indonesia reached 27.77 million people (10.64 percent of the total population),
the figure increased 6.90 thousand people compared with the condition of 2016 which amounted to 27.76
million people (10.70 percent). The percentage of poverty rate has decreased, but the number is increasing,
this is because the population growth continues to increase from year to year.
The proportion of Indonesian entrepreneurs contributing to job creation is still very low at only about
1.65% (Ministry of Cooperative and Micro, Small and Medium Enterprises, 2015) is still under the
minimum requirement of 2% of the total population of a country or lack of entrepreneurs/ entrepreneurs at
least 0,35 or require the birth of 1 million new entrepreneurs. Some countries that can as a reference
percentage of the number of entrepreneurs to the number of residents such as the United States reached
12%, Singapore 7%, China 10%, Japan 10%; Malaysia 5% and Thailand 4%.
The condition indicates the need to promote the entrepreneurship of MSMEs so that the new
entrepreneurs are rise, for those who have become entrepreneurs can be more advanced, and for public
figures can be as supporting prospective entrepreneur in Indonesia.
Factors that determine the establishment of an important entrepreneurship commitment of SMEs is the
character and competence of entrepreneurship owned by someone who need to be focus on coaching. A
person's entrepreneurial character to be an entrepreneur or not reflected in: a strong desire to stand alone;
dare to take risks; willing to learn from experience; ready to face the competition; hard work; high
confidence; high achievement needs; creative; innovative. Entrepreneurship competencies can be obtained
both formally and non-formal such as: internship experience, business course. Competence becomes a factor
that can strengthen the nature of entrepreneurship that has been owned since birth and become a supporter
of the establishment of entrepreneurship of MSMEs. A person who has a strong entrepreneurial character
and is accompanied by adequate entrepreneurial competence, it will generate a strong commitment with
entrepreneurship, so that the person will continue to be tied to develop his career become entrepreneurs.
The commitment of entrepreneurship is the attitude or the tendency of one's act to remain focused and
consistent in the field of entrepreneurship that is in accordance with the talent and entrepreneurial training
obtained.
Literature Review
Character
Sexton in Low Aik Meng, at.al (1996: 33), argues that an entrepreneur is one who has ambition,
tenacious, dare to take risks, resist the establishment, ready to make changes. Shumpeter (1971), suggests
that the character of a successful entrepreneur is an innovator, taking risks (Yee, 1991), maximizing
opportunities (Drucker, 1985). Hebert (1989), found that an entrepreneur will buy goods or services when
the price is fixed and sell when the price is uncertain to make a profit so that he is in the center of the
transaction to create a profit in the community's economic environment or market. Nelson (1986), argues
that a strong will to take risks is the key to successful entrepreneurship, backed by luck, time, capital and
hard work. Duncan (1991), argued that the key character for entrepreneurial success is skill, able to identify
market niches and develop them to realize their business. Silver (1988), argues that for the success of
entrepreneurship requires: heart, courage, encouragement, courage, ability to work together, and understand
business leverage. Jim Gagan, CEO and founder of United Consumer Club (1987) argues that honest and
integrity is an important factor for building business success.
Competence
DeHayes et al (1990), argues that the main reason for entrepreneur success is the ability to identify and
focus on one or more market niches, craft industry skills, develop and sustain technological advantages.
Steiner et al (1988), suggests that the key to the success of small industry firms is to build competitive
advantage through the specialization of specific products, markets or customers. In line with Steiner
proposed by Prescott (1986) that the most important thing for MSMEs business is to develop a particular
specialty or niche. Profit-Building Strategy for Business Owners in Low Aik Meng, at.al (1996: 33)
identifies that one important factor for building entrepreneurial success is the ability to deal and treat
customer complaints effectively, the personal qualities of the owner and how to manage the business.
Campbell (1991) argues that to gain success in business requires the clarity of corporate mission and value
systems, customer-oriented policies, appropriate competition strategies, and personalized attention and
engagement. Gaskill (1989) argues that business success requires the ability of people in the field: business
planning, studying and closely watching the competition, the measure of success / performance, not quickly
satisfied with the progress achieved, the financial reporting system.
Haswell et al. (1989) and Brazell (1991), argue that the main factor of business failure is lack of
management skills and competence and inexperience. Wood (1998) argues that experience is the main cause
of business destruction. Flahvin (1985) argues that business failures are due to capital problems, financial
controls and ineffective accounting information, poor management and experience skills, and poor ability
to confront and adapt to change.
Tjiptogoro (2017), argues that competence is the ability to apply human resource management principles
to contribute to business success; managing relationships between customers and other stakeholders for
each of their interests so as to be able to produce services that support the achievement of organizational
success; give appropriate advice to employees and leaders who face issues and conditions that need
settlement; take the initiative to directly assist the activities of the organization; provide effective feedback;
work effectively in diverse cultures and share the background of people associated with their work
environment; apply the basic values of integrity, honesty, and responsibility; translate important
information; provide recommendations that impact on the success of business objectives, understand the
matrix of business functions, organization and industry.
Commitment
Commitment can be interpreted as a strong will to align personal attitudes and attitudes toward
environmental needs. The word commitment is often juxtaposed with other things such as: commitment to
the organization, commitment to performance, commitment to cooperation, commitment to the profession,
commitment to entrepreneurship etc. According to Gibson (2009: 315) commitment to the organization is
a loyalty and involvement that expressed a person to something organization. Sopiah (2008: 115) argues
that commitment is a relative power that someone identifies his involvement in something. Furthermore,
according to Mar'at (2004: 87) one's commitment influenced by several factors, among others: motivation,
compensation, training, leader / role, cooperation climate, morale. Furthermore, Bansal, Irving and Taylor
(2004) define commitment as a force that binds a person to an action that has relevance to one or more
targets. Commitment can be defined as a relative engagement that is expressed in attitudes and behaviors
that can be used to assess the extent of its involvement and its consistency with something. Curtis and
Wright (2001) explain that the concept of organizational commitment can be divided into: a) the desire to
maintain membership in the organization; b) strong confidence & acceptance of the organization's values
and objectives; c) willingness to work hard as part of the organization. The concept of organizational
commitment can be adopted as a dimension of entrepreneurial commitment, namely: a) loyalty in the field
of entrepreneurship b) strong belief and acceptance of entrepreneurial values; b) willingness to work hard
to develop entrepreneurship.
From the above description, the entrepreneurial commitment can be defined as the relative involvement
of a person expressed in attitudes and behaviors that can be used to assess the extent of his involvement in
entrepreneurial activity consistently, indicating the existence of: a) loyalty, b) confidence and acceptance
strong about values; c) willingness to work hard in relation to matters of the process of creating something
else, where the creator has characteristics such as: confidence, task-oriented, risk-taking, leadership;
originality, and future-oriented.
Research Methods
The objectives of the study were to obtain a regression equation model that could be used for policy
making to promote entrepreneur on micro small and medium business. Quantitative explorative research
methodology uses SPSS, dependent variable Commitment (Y), independent variables Character (X1) and
Competence (X2). The population of this research is Entrepreneurs, Candidates for Entrepreneurs and
Community Leaders related to MSME business activities in Rawa Buaya Village, West Jakarta, Indonesia.
The total number of population is 42 peoples, which is also the total sample.
Result and discussion
Profile of respondents
Profile of respondents: a) age of respondents 54.77% age below 40 years; b) sex 78.57% women; c)
highest education of Junior High School 35,22% and Senior High School 28,57%; d) entrepreneurial
experience of respondents at most under 1 year 45.24%, upper 1 year to 3 years 26.19%; e) type of food
and beverage business 40.48%, agribusiness 21.43%, and home industry 14.29%.
Reliability and validity
In sample 30 respondents. The reliability of the independent variable Character (X1) 0.884 greater than
the Cronbach's Alpha 0.6 standard means reliable. All valid instruments that obtain the validity of the count
are entirely larger than Cronbach's Alpha 0.3 standard. Reliability of independent variable Competence (X2)
0,866 bigger than standard Cronbach's Alpha 0,6 means reliable. All valid instruments are obtaining greater
arithmetic validity than Cronbach's Alpha 0.3 standard. Reliability of free variable Character (Y) 0.877
larger than Cronbach's Alpha standard 0.6 means reliable. All valid instruments that obtain the validity of
the count are entirely larger than Cronbach's Alpha 0.3 standard.
Normality and multicollinearity
Data on all normal distributed variables then conducted regression analysis to obtain model of regression
equation which then used to forecast influence of character and competence to entrepreneurship
commitment of small and medium micro business.
Multicollinearity test, VIF value for Character = 2.175 whereas Competence = 2,175 value is above 1
and below 10 so there is no multicollinearity.
Determination and simultaneous
R2 = 0.252 means Character and Competence can explain Commitment of entrepreneur MSMEs equal
to 25,5% while 74,5% explained by other factor.
Simultaneous test F = 6,97 with Sig = 0,004, it shows that character and competence together have
significant effect to entrepreneurship commitment of MSMEs.
Regression equation
The result of data run obtained by regression equation: Y = 2,378 + 0,361X1 + 0,068X2
Individual test obtained Regression constant = 2,378 value Sig = 0,000 < 0,05 means Constant has
significant effect to entrepreneurship commitment of MSMEs. Coefficient of regression Character (X1) get
value of Sig = 0,035 < 0,05 means with big coefficient of regression X1 = 0,361 have significant influence
to entrepreneurship commitment of MSMES. Regression coefficient Competence (X2) get value of Sig =
0,738 > 0,05 means with big coefficient of regression Competence (X2) = 0,068 have no significant effect
to entrepreneurship Commitment of MSMEs.
Discussion
The model shows that there is potential entrepreneurship of MSMEs in suburbs of Jakarta, if supported
by the condition of the character at a moderate level, and the condition of competence at a moderate level
then the potential of entrepreneurship of MSMEs will be close to good level. If the character is at a good
level despite the competence at a moderate level too then the entrepreneurial commitment of MSMEs is
already at the level of good too. Competence has an effect on entrepreneurship commitment of MSMEs but
with very small and insignificant influence, although it is still needed in the policy of character and
competency improvement which is done simultaneously based on simultaneous test.
Profile of respondents showed that the parties associated with entrepreneur MSMEs 54.77% are under
40 years, this age is still possible to be enhanced character and entrepreneur competence to be better.
Education at most junior high school level 35.72% and high school 28.57% this shows the level of ability
to face and adaptation to changes in business environment is limited. Efforts to promote entrepreneurship
of MSMEs should focus more on the character that is in accordance with a particular industry (niche).
Competence is more directed to face changes in industrial environment according to the field of business.
The method of coaching should be simple and easy to use.
Entrepreneurship experience of SMEs 45.24% below 1 year, 26.19% above 1 year under 3 years so that
the need for partnership program and entrepreneurship development of UMKM both character and
competence in an effective and intensive.
Types of food / beverage industry 40.48%, agribusiness 21.43%, home industry 14.28%, it addresses the
character and competence that need to be fostered to support the growth and development of
entrepreneurship of UMKM.
Conclusions and suggestion
Conclusion
Large urban areas such as Jakarta need to promote entrepreneurship of MSMEs especially in the field of
food / beverage industry, agribusiness, and home industry. Promoting entrepreneurship of MSMEs can be
done with partnership program and build entrepreneurship character of MSMEs supported by competence
appropriate with its industry. Developing the right character and competence is done with the material and
guidance technique that is easy to be applied by the participants who according to the education level of
candidate and entrepreneur of MSMEs, the majority of candidate entrepreneurs education are junior high
and high school education.
Suggestion
Characters that need to be built and nurtured are: have ambition, tenacious, dare to take risks, reject
establishment, ready to make changes, innovator, create profit, heart, patience, drive, courage, ability to
work together, and understand business levers, honesty and integrity.
The government, both central and regional, need to make a policy of partnership system and community
development of perpetrators and prospective entrepreneurs of MSMEs regarding character supported by
competence specifically for food / beverage industry, agribusiness, and home industry.
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Proceedings of the

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August 20th to 21st, 2018

Colombo Sri Lanka

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3. CIMSSR-00297 The Influence of Recruitment Process on Developing Organizational Performance

5. CIMSSR-00240 Determinants Of Fraud: How Corporate Governance Mechanism Affect Corporate

8. CIMSSR-00247 Analysis of Implementation of COSO-ERM Framework with moderation Philosophy

15. CIMSSR-00387 Crowdfunding, the way forward

16. CIMSSR-00380 Antecedents and Consequences of Transformational Leadership Implementation:

19. CIMSSR-00466 Promote Entrepreneur On Micro Small And Medium Business

The Effect of Incentive System on Job Performance Case: Public

Rashid ahmed khamis al naqbi

1.1 The aim of this study

2.1 Issues of incentives in UAE

2.2 The concept of incentives

3. The concept of employee’s performance

4. The relationships between incentives and employee’s performance

There is a positive relationship between incentive systems and employees’ performance.

3. Results and Discussions

Incentives system Employee’s Performance

Figure 1: Regression Model between incentives and employee’s performance

3.1 Model Summary of Simple Linear Regression

3.1.1 ANOVA Output

Table 2. ANOVA output between incentives system and employee’s performance

Model Sum of Squares df Mean Square F Sig.

3.1.2 The Regression Coefficients

Table 3. Coefficients of Regression between incentives system and employee’s performance

Unstandardized Coefficients Standardized Coefficients

Employee’s performance = 1.073 + 0.680* Incentives + 0.154

Assaf, A. (1999). Managerial Behavior in Contemporary Organizations. Amman: Dar. Zahran.

Hasan, R. (2002). Behavior of the Organizations.

The Mediation Role of Motivation on the association between

Rashid Ahmed khamis al naqbi

1.1 The aim of this study

2.1 The concept of incentives

Figure 1. Maslow's Pyramid of Needs (Maslow, 1943)

2.2 The concept of motivation

1. Extrinsic and Intrinsic motivation

Figure 2. Intrinsic and extrinsic motivation

2. Main issues of motivations in business world

3. The concept of Job performance

Non-monetary and Intangible H2

Monetary and Tangible

Figure 3. Research framework of the study

3. Results and Discussions

Table 2 Coefficients of regression 1

Table 4: Coefficients of regression 2

The Influence of Recruitment Process on Developing Organizational

Keywords: Recruitment Process, Organizational Performance

2. Purpose of the Study

3.1 The concept of Recruitment and Selection Process

3.2 The concept of Organizational Performance

Organizational performance encompasses the actual results or output of an organization as measured

Figure 1: The levels of performance evaluation in the organization (Sims, 2002)

4. Research Methodology and Population

5. The relationship between recruitment process and organization performance

5.1 Regression analysis between recruitment process and organizational performance