Environment Responsibility And Company Performances

Published Date: 02 Nov 2017

Chapter 1: Introduction

This chapter discussed about the introduction of this research. Section 1.1 discussed the overview of the impact of return on asset and return on equity on the environment sector. Section 1.2 discussed about the background of study. Section 1.3 discussed about the problem statement of the study. Section 1.4 discussed about objective of study. Section 1.5 discussed about the scope of study. Section 1.6 discussed about the significance of study. Section 1.7 discussed about the outline of study.

1.1: Overview of the impact of the environmental on ROA and ROE

This research aims to study the relationships between ROA and environmental of companies in Malaysia and the relationships between ROE and environmental of companies in Malaysia. The data range for this investigation is from 2009 to 2012 among 55 companies in the listed companies at Bursa Malaysia under consumer product industry.

In classical term, return on asset (ROA) means physical profits or income which is relative with the assets of the company. And return on equity (ROE) means physical profits or income which is relative with the shareholders’ or stakeholders’ invest in the company.

ROA and ROE can be effect by many sectors which social, environment and others sector. According to this research, we focus at the environment sector. And the variable of the environment sector that have being used are Protection on Environment, Recycling, Renewable and Waste Management.

Argument with reference to environmental protection often focuses on the role of government, legislation and law enforcement. Normally, all the people have the responsibility to protect it and the government also no easily to achieve it. Decisions that impact the environment will ideally involve a broad range of stakeholders, including industry, indigenous groups, environmental group and community representatives. Progressively, stakeholders are reflected by environmental decision-making processes in many countries. Nowadays, most of people knowing to take care their health. So one of the reasons which is the people are required to the healthy environment for living. Then, organizations and institutions committed to environmental protection in many countries such as United Nations Environment Programme.

Procurement policies which are the governments have used their own purchasing power to increase recycling demand. These policies have shown the budget that has been spending especially towards to the recycle products with larger amount to success the program. For example, the purchase of oil, paper, tires and building insulation from recycled or re-refined sources whenever possible is mandated by the Environmental Protection Agency. The final government regulation towards increased demand is recycled product labelling. The products which can be recycle, then producers are required to label the logo at their packaging. This will effected the consumers are able to make educated choices. All the consumers also can save the environment while buying the product produces by recycling material. This result the recycling labelling can have a positive effect on supply of recycle material.

1.2 Background of the study

Listed companies in Bursa Malaysia, there are many sector of industry such as Consumer Product, Finance, Technology, Properties and others. The consumer product sector industry is the main market of the Bursa Malaysia.

A procedure of corporate self-regulation incorporated into a business model which is corporate social responsibility (CSR). CSR policy functions as a built-in, self-regulating tool whereby a business monitors and makes certain its active compliance with the spirit of the law, ethical standards, and standard models. CSR is a process with the aim to embrace responsibility for the company's actions and raise its spirits at a positive impact through its activities on the environment, consumers, employees, and others.

The term "corporate social responsibility" came into common use in the late 1960s and early 1970s after many multinational corporations formed the term stakeholder, meaning those on whom an organization's activities have an impact. It was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward Freeman, Strategic management: a stakeholder approach in 1984. Proponents argue that corporations make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses.

According to the projects approved in 2011 show that increased global demand for more environmentally friendly products due by the oleo chemicals sub-sector has been rising. The oleo chemicals manufacturers use renewable natural resources, to progress high-performance products that are fully acquiescent with environmental safety.

With a goal to attain 40% cut in carbon emissions by 2020, the Malaysian government plans to raise the share of renewable energy in the total energy combination to 5.5% by 2015, according to a statement made by the Malaysian Prime Minister Najib Razak.

The government had formed support mechanisms and launched a feed-in-tariff scheme which pays a premium rate for generating electricity through renewable sources, Prime Minister Najib Razak said. According to him, renewable energy would make investments worth RM70 billion ($23 billion) and support 50,000 jobs by 2020.

1.3 Problem Statement

The impact of environment on ROE and ROA has always shows positive effect and thus many companies always attention on their ROA and ROA to boost their environment. However, there are still different points of view regarding ROA and ROE.

It is important to study the impact of environment on ROE and ROA of companies in Malaysia because all the companies have incorporated with the corporate social responsibility. CSR is a process with the aim to embrace responsibility for the company's actions and raise its spirits at a positive impact through its activities on the environment, consumers, employees, and others.

However, according to Jacqueln Humphrey, Darren D.Lee and Yaokan Shen (2010), they found that, overall, there is no difference in the performance of firms or company which achieved high or low environmental, social and others ranking.

And according to Javier GONZÁLEZ-BENITO, and Óscar GONZÁLEZ-BENITO (2001), they found that, overall the research, the environmental productivity will affect the companies’ performance in short term with a bit effect. But, they believe that it will be effect in the long term.

According to the Prof. Marieta Olaru (2012), they also found that the corporate social responsibility will affect to the company performance. They had observed a shift from the classical short-term analysis with particular focus on indicators like shareholder value, revenue and market share toward taking also into account soft indicators, such as environment, employee and customer satisfaction, which contribute to the long-term success of a company.

Therefore, there is a study to research the result of the relationship being studied for the impact of environment on ROE and ROA during the short term, long term or boths. The problem statement is to investigate the environment on ROE and ROA of companies in Malaysia, by studying the data from year 2009 until year 2012 among 55 listed companies in Bursa Malaysia.

1.4 Research Question

What is the relationship between ROA and environmental of companies in Malaysia?

What is the relationship between ROE and environmental of companies in Malaysia?

1.5 Research Objective

To analyze the relationship between ROA and environmental of companies in Malaysia.

To analyze the relationship between ROE and environmental of companies in Malaysia.

To analyze whether ROA brings positive effects toward environment sector of companies in Malaysia.

To analyze whether ROE brings positive effects toward environment sector of companies in Malaysia.

1.6 Significance of the Study

The focus of the study is to determine whether ROA and ROE affect by the environmental of companies in Malaysia

The goal is to assist companies in developing environmental in country by analyzing the effect of ROA and ROE on environmental.

1.7 Scope of the Study

The scopes of this research are using annually time series data from year 2009 until year 2012 among the 55 listed companies in Bursa Malaysia. The secondary data would be used to investigate the relationship between ROA and environment sector in Malaysia and the relationship between ROE and environmental in Malaysia.

Citizens of all the country are consumer in all the country. Nowadays, most of the citizens are important notice to the environmental because the save the environment is one of the goals that needed to achieve and support by the government. These are the reasons why the data is choosing from the Consumer Product industry. The consumer product industry is the main market and most important industry in all the country. By used the consumer product industry’s data will get a significant result in this research. Consumer product industry is reasonable to use it because if the company of consumer product’s performance is bad, it will affect to the economics of the country.

Based on the corporate social responsibility, there are many factors of responsibility that can be done such as environment responsibility, social responsibility and others responsibility. But in this research, the main responsibility to focus is the environment responsibility. Why in this research, environment responsibility had been choosing as the main responsibility? Environment activity that can do is limited and easier to analysis the relationship between the company performance and the environment responsibility.

1.8 Outline of Study

Chapter One

This chapter covers the topic and the background of the study, Malaysia. Besides that, it also brings out the problem statement and research questions of the study. This chapter also includes objective and scope of study. The outline of study is illustrated in last part.

Chapter Two

Literature review is being covered. The most suitable model in literature is being selected to perform in this study.

Chapter Three

Method and data sources to be used in conducting this research are being illustrated in this chapter. Methodology that contain data collection, measurement of variables and research method will be discussed.

Chapter Four

The result from data after investigation will be revealed. The suitable technique will be used to complete the study.

Chapter Five

The findings and results will be summarized. Contribution of this study to the theory and practice. Research questions in chapter 1 will be answered. The limitations of the research and further suggestion on studies that can be done on this area will be covered. Also, conclusion will be done.

Chapter 2 : Literature Review

2.0 Introduction

This chapter will cover the literature review of the relationship of environmental and company’s ROA and ROE in different countries. The literatures regarding green culture environment and other environment investment have been studied for doing this paper. Environmental related different countries have been studied too as different countries have different background in terms of their natural resources, politics, market, population and so on. Many countries have been looking very seriously on environment protections since during year 1980 until now. For example, Malaysia government has been make efforts on environment protection in taxation law. Any industry in Malaysia which has been put efforts on environment protection can be reduce their tax payment, which can due to increase the company’s return on asset(ROA) and return on equity (ROE). However, it is important to study on other country governance instead of Malaysia.

2.1 The relationship between renewable resources and ROA and ROE of company

Paul Alfred Weiss (1962), who is the chairman of renewable resources study, he define that renewable resources is the natural resources that can be complement in a no longer time taken either through biological reproduction or other naturally recurring processes.

Z. Wysokińska**, J. Witkowska (2004) explore that the countries which are Polish, Czech, and Hungarian which have been put effort on renewable resources can be increase their competitive position of goods and products in the future on both the European and global markets. However, based on their analysis, they found that most foreign investors do take environmental protection issues into account in making their decisions, but they do not consider them to constitute a major investment factor. A majority of the respondents favor centralizing strategies. This strategy seems advantageous for recipient countries. Firms with foreign capital frequently introduce environmental protection norms and take part in environmental protection programs.

Sebastian Eisenbach, Christoph Ettenhuber, Dirk Schiereck, Paschen Von Flotow (2011) investigate the relationship between renewable energy industry and the company return. They found that the renewable energy industry willing be the future winner in the future market due to the use of solar, wind, hydro, geothermal and tidal energy sources as well as biomass is widely regarded as a key element of future energy supply. In their analysis, the industry can be earns positive abnormal return when diversifying their activities towards renewable energy. This is a positive signal that the owners of industry consider to invest in green assets over then non green asset.

Based on the Malaysia taxation laws, Loo Choo Hong (2011) have been report the information about the promotion of environmental measures and use of renewable energy especially in the form of biomass in the private sector through incentives was first introduced 8th Malaysia Plan/Five Fuel Policy, which covered the period 2001-2005. The incentives in budget 2004 are which industry in pioneer status can be get an exemption of 70% (100% for value added products and promoted areas) of increased statutory income for 5 years for any manufacturing company, which reinvests in machinery utilizing oil palm biomass (in the 2004 Budget). Besides that, for those industry invest in green asset can be get tax exemption up to 70% of statutory income for each year of assessment from ITA computed at 60% of additional qualifying capital expenditure incurred within 5 years for any manufacturing company, which reinvests in the machinery by utilizing oil palm biomass.

From the view of Zhang Pei Dong, renewable energy is the first choice for sustainable economic growth, for the harmonious coexistence of human and environment as well as for the sustainable development. Government support is the key and initial power for developing renewable energy. In the long term of renewable energy development, it can strengthen the clean development mechanism, implementing process management, constructing market investment and financing system. Besides that, a company comprise of high technical of renewable energy can attract more foreign investor to invest in this high technical of green assets country.

2.2 The relationship between protections on environment and ROA and ROE of company

Since the 1960s, activity of environmental movements has created awareness of the various environmental issues. As the result, the world comes out an international environment agreement. Due to many of human being destroy the environment and make many kind of pollution, the protection on environment become more important in the world.

Sadaf Ehsan and Dr. Ahmad Kaleem (2012) explore that the nature of relationship between corporate social responsibilities and financial performance in the context of Pakistan. They found that there is positive and significant relationship between corporate social responsibilities and financial indicators (ROA and ROE). However, there is a high negative and significant correlation is observed between the corporate social responsibilities and financial indicators (ROA and ROE). This is because profitable firms preferred invest in high earning of business projects to fulfill operational needs then environment protection project. From their analyze, they conclude that Pakistani firms are contributing in the social wellbeing of society, improving the living standards by promoting education and better health facilities, protecting environment from hazardous changes.

Jacquelyn Humphrey, Darren D. Lee, and Yaokan Shen (2010) have been investigates the relationship between the environmental, social and governance factors and financial performance of company. They found that there is no relationship between the environmental, social and governance factors and financial performance of company.

Besides that, Lee et al. (2009) found that environment and social investments reduces financial performance, but argue this could be interpreted as there being a lower cost of equity capital for firms with high environment and social rankings.

Galema et al. (2008) and Statman and Glushkov (2009) suggest that environment and social originally comprise a large number of factors, each of which may have a different effect on performance. Some initiatives may be value enhancing while others may be value destroying. As the result, examining aggregated environment protection scores may mask the effect each of the environment protection and social.

Davidson and Worrell (1990) indicate that when discussing the relationship between corporate image and financial performance, the use of accounting data is unsuitable. As accounting data is not directly correlated with investor wealth, the use of the accounting rate of return may cause errors indicating the absence of a relation between the two. This study will then proceed to examine the question of whether the implementation of corporate environmental responsibility is detrimental to shareholder value, and whether it is consistent with the goals of shareholder value maximization from the perspective of shareholder equity.

2.3 The relationship between waste management and ROA and ROE of company

Waste management is the collection, transport, processing or disposal, managing and monitoring of waste materials. Waste management intends to reduce the waste materials effect on health, the environment or aesthetics. All wastes materials, whether they are solid, liquid, gaseous or radioactive fall within the remit of waste management.

Kevin Watson, Beate Klingenberg, Tony Polito, and Tom G. Geurts (2004) have been investigated is it the waste management influences the financial performance. From their analyzed in USA, they have been found that the waste management has no relationship between the financial performances of the company. The cost of reducing environmental impact does not seem to significantly impair a company’s profitability and the benefits produced by waste management may not be fully realized by existing accounting practices.

Arnold van de Klundert and Justine Anschiitz (2000) have been analyzes the strengths and weaknesses of the different alliances in each city of India. They found that there is significant and positive relationship between wasted management and the financial performance on the company. Besides that, they also have been found that the company that done well in the scope of waste management win the support of government.

Besides that, the research conducted by Anwar et al. (2010) in manufacturing firms period 2005-2007 indicates that there is significant effect between financial performance which is measured using Return On Asset (ROA) and Return On Equity (ROE), and the waste management. In addition, ROA, ROE, and waste management also have a significant effect, either partially or simultaneously, on stock prices as an indicator in the performance of the company.

2.4 The relationship between recycling and ROA and ROE of company

Recycling is the process of recycle the useless material to a new product to reduce over consumption of the materials. Recyclable materials include many kinds of glass, paper, metal, plastic, textiles, and electronics. From the historical, in 1813, Benjamin Law developed the process of turning rags into 'shoddy' and 'mungo' wool in Batley, Yorkshire. This material combined recycled fibres with virgin wool. After that, recycling is continuously processing until now.

The research conducted by Alexander P. Miller, Hang T. Nguyen and Samantha D. Sifleet (2007), they have been found that the recycling activities increase the financial performance of the company. This research analyzed the data of private sector recycling industry and the public sector recycling activities in Virginia. The result show that the higher the performance of recycling activities the higher the financial performance of the company.

Sjoerd Vijfvinkel, Nasser Bouman and Jolanda Hessels(2011) explore that different indicators of environmental sustainability display a distinct relationship with the two performance measures. When firms have a policy on the re-usage of materials they perform significantly better in terms of profit development and when firms have a policy on the reduction of pollution they perform significantly better in terms of revenue development. Besides that, they also find that firms that communicate to their employees about their recycling efforts perform better in terms of profit development. Finally, weak support is found for a moderating effect of communication to employees on the positive relationship between recycling and profit development.

Ioannis Oikonomou (2011) had been analyzed the relationship between the recycling and the return of the social responsibilities company and non social responsibilities company. He found that there is a significant and positive relationship between the recycling and the return of the social responsibilities company. However, there is a significant and negative relationship between the recycling and the return of the non-social responsibilities company.

Chapter 3: Data and Methodology

3.0 Introduction

This chapter investigates two relationships which are the relationship between Return on Asset (ROA) and Environment sector and the relationship between Return on Equity (ROE) and Environment sector in Malaysia by using annually data of 4 years, from 2009 to 2012 among 55 companies which are consumer product industry (listed companies in Bursa Malaysia). There is significant reason for using this data. This is because Environment sector will giving benefit to the business. Thus, is it important to observe the effect of the environment sector on Return on Asset (ROA) and Return on Equity (ROE).

Several research methods are used to examine the relationship between Return on Asset (ROA) and Environment sector and the relationship between Return on Equity (ROE) and Environment sector in Malaysia. In this study, the methods are Descriptive Analysis, Normality test and Jarque-Bera, OLS model and Heteroskedasticity Test: White.

3.1 Scope of study

The scope of study focuses on Return on Asset (ROA) and Return on Equity (ROE) of the companies which are consumer product industry (listed companies in Bursa Malaysia) from year 2009 until year 2012. In this study, the determinants of the environment sector being used are Protection on Environment, Recycling, Renewable and Waste Management. Annually data is being used.

3.2 Framework

Equation 1:

Protection on Environment Independent variables (IV) Dependent variable (DV)

Recycling

Return on Asset (ROA)

Renewable

Waste Management

Equation 2:

Protection on Environment Independent variables (IV) Dependent variable (DV)

Recycling

Return on Equity (ROE)

Renewable

Waste Management

3.3 Formulation of Hypothesis

The dependent variables of this study are Return on Asset and Return on Equity. The independent variables of this study are Protection on Environment, Recycling, Renewable and Waste Management. There are relationships among themselves.

ROA is an indicator of how profitable a company is relative to its total assets. ROE is the amount of net income returned as a percentage of shareholders equity. Decisions that impact the environment will ideally involve a broad range of stakeholders, including industry, indigenous groups, environmental group and community representatives.

Hypothesis 1 :

H0 : There is no significant relationship between the Protection on Environment and Return on Asset (ROA).

H1 : There is a significant relationship between the Protection on Environment and Return on Asset (ROA).

Hypothesis 2:

H0 : There is no significant relationship between the Protection on Environment and Return on Equity (ROE).

H1 : There is a significant relationship between the Protection on Environment and Return on Equity (ROE).

Hypothesis 3:

H0: There is no significant relationship between the Recycling and Return on Asset (ROA).

H1 : There is a significant relationship between the Recycling and Return on Asset (ROA).

Hypothesis 4:

H0 : There is no significant relationship between the Recycling and Return on Equity (ROE).

H1 : There is a significant relationship between the Recycling and Return on Equity (ROE).

Hypothesis 5 :

H0 : There is no significant relationship between the Renewable and Return on Asset (ROA).

H1 : There is a significant relationship between the Renewable and Return on Asset (ROA).

Hypothesis 6:

H0 : There is no significant relationship between the Renewable and Return on Equity (ROE).

H1 : There is a significant relationship between the Renewable and Return on Equity (ROE).

Hypothesis 7:

H0: There is no significant relationship between the Waste Management and Return on Asset (ROA).

H1 : There is a significant relationship between the Waste Management and Return on Asset (ROA).

Hypothesis 8:

H0 : There is no significant relationship between the Waste Management and Return on Equity (ROE).

H1 : There is a significant relationship between the Waste Management and Return on Equity (ROE).

3.4 Description of the Variables

Dependent Variables

1. Return on Asset (ROA)

An indicator of how profitable a company is relative to its total assets. ROA can show how efficient management is generated profits by using the assets. ROA is also namely as "return on investment".

ROA = Net Income / Total Assets

2. Return on Equity (ROE)

It is a measure of a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is also namely as "return on net worth" (RONW).

ROE = Net Income / Total Equity

Independent Variables

Environment Sector:

1. Protection on Environment

2. Recycling

3. Renewable

4. Waste Management

There are two benefits of Environmental Management which are economic benefits and strategic benefits. Economic benefits can be categorized to two categories which are cost savings and revenue savings. Cost savings can be due by many ways such as decreased consumption of energy and others, decreased waste disposal costs by recycling, decreased the legal damage suits, for example, pollution cases, and others. Revenue savings can be due by many ways such as sell the goods at higher prices to the consumers who is interest to the environment-friendly goods, open another new market to the consumers, and others. There also have some strategic benefits such as improved the image of the company, productivity improvement, show some creativity of the company, and others.

3.5 Data Collection

Secondary Data

The data being collected are from year 2009 until year 2012. Annual data is being used.

All of the data sources are according to the annual report of the companies. Annual report is collected from the website of Bursa Malaysia. All the companies that used according to the listed companies in Bursa Malaysia and the companies are under the consumer product industry.

3.6 Test Conducted in the Study

1. OLS

Model 1

Ordinary Least Square (OLS) model 1 is selected in this study to examine the empirical evidence between the effected of Return on Asset (ROA) on environment sector in Malaysia. The relationship between independent variables and dependent variables are being examined.

The model of Ordinary Least Square is:

ROAt = β0 + β1Protectiont-1 + β2Recyclingt-1 + β3Renewable t-1 + β4Waste t-1 + εt

[t-stat(Constant)][t-stat(Protection)][t-stat(Recycling)][t-stat(Renewable)][t-stat(Waste)]

Where:

ROAt = dependent variable, Return on Asset at level

Protectiont-1 = Protection On Environment at t differences

Recyclingt-1 = Recycling at t differences

Renewablet-1 = Renewable at t differences

Wastet-1 = Waste Management at t differences

β = coefficient

εt = error term

Model 2

Ordinary Least Square (OLS) model 2 is selected in this study to examine the empirical evidence between the effected of Return on Equity (ROE) on environment sector in Malaysia. The relationship between independent variables and dependent variables are being examined.

The model of Ordinary Least Square is:

ROEt = β0 + β1Protectiont-1 + β2Recyclingt-1 + β3Renewable t-1 + β4Waste t-1 + εt

[t-stat(Constant)][t-stat(Protection)][t-stat(Recycling)][t-stat(Renewable)][t-stat(Waste)]

Where:

ROEt = dependent variable, Return on Equity at level

Protectiont-1 = Protection on Environment at t differences

Recyclingt-1 = Recycling at t differences

Renewablet-1 = Renewable at t differences

Wastet-1 = Waste Management at t differences

β = coefficient

εt = error term

2. Descriptive Statistics

Descriptive statistics is used to show the statistical information which the population or a sample is being represented. It is important to have a brief idea of the variables in our study. The measure such as mean, median, mode, maximum and minimum variables, skewness, kurtosis and standard deviation are examined.

The variables in negative kurtosis lead to flat distribution. The variables in positive kurtosis lead to peaked distribution. The data is left-skewed when it is negative skewness. The data is right-skewed when it is positive skewness.

3. Correlation Matrix

Correlation matrix works out the correlation coefficients of the columns of a matrix. Row I and column j indicate the correlation. If they are the correlation of column, the diagonal of matrix is 1.

4. Jarque-Bera test of normality

According to open source website, ALGLIB, Jarque-Bera test is used to check hypothesis about the face that a given sample of normal random variable with unknown mean and dispersion is being checked. This test is based on the fact that skewness and kurtosis of normal distribution equal zero. So, the absolute value of these parameters can be a measure of deviation of the distribution from normal.

Chapter 4: Analysis of Data

4.1 Descriptive analysis

ROA

Protection On Environment

Recycling

Renewable

Waste Management

Mean

 0.06900

 0.767857

 0.41071

 0.232143

 0.642857

Median

 0.04289

 1.000000

 0.000000

 0.000000

 1.000000

Maximum

 1.89959

 1.000000

 1.000000

 1.000000

 1.000000

Minimum

-0.22035

 0.000000

 0.000000

 0.000000

 0.000000

Std. Dev.

 0.26732

 0.426021

 0.496416

 0.426021

 0.483494

Skewness

 5.85707

-1.268865

 0.362977

 1.268865

-0.596285

Kurtosis

 40.8020

 2.610018

 1.131752

 2.610018

 1.355556

Jarque-Bera

 3654.49

 15.38170

 9.373837

 15.38170

 9.628313

Probability

 0.00000

 0.000457

 0.009215

 0.000457

 0.008114

Sum

 3.86398

 43.00000

 23.00000

 13.00000

 36.00000

Sum Sq. Dev.

 3.93039

 9.982143

 13.55357

 9.982143

 12.85714

Observations

 56

 56

 56

 56

 56

Table 4.1.1 Descriptive Analysis (ROA)

Table 4.1.1 shows the descriptive statistical table related with mean, median, maximum and minimum value, standard deviation, skewness and kurtosis of changes of the variables.

The mean annual growth of each variables are very low. From the table, high volatility is observed among Protection on Environment, Recycling, Renewable and Waste Management. ROA is relatively lower volatility among all.

The variables that having positive skewness which are ROA, Recycling, and Renewable. Another side, the variables that having negative skewness which are Protection on Environment and Waste Management.

Kurtosis of each variable is shown in positive. Data is considered to be peaked distribution.

ROE

Protection On Environment

Recycling

Renewable

Waste Management

Mean

 0.25266

 0.767857

 0.410714

 0.232143

 0.642857

Median

 0.122603

 1.000000

 0.000000

 0.000000

 1.000000

Maximum

 3.42771

 1.000000

 1.000000

 1.000000

 1.000000

Minimum

-0.46721

 0.000000

 0.000000

 0.000000

 0.000000

Std. Dev.

 0.57775

 0.426021

 0.496416

 0.426021

 0.483494

Skewness

 3.27144

-1.268865

 0.362977

 1.268865

-0.596285

Kurtosis

 17.6318

 2.610018

 1.131752

 2.610018

 1.355556

Jarque-Bera

 599.429

 15.38170

 9.373837

 15.38170

 9.628313

Probability

 0.00000

 0.000457

 0.009215

 0.000457

 0.008114

Sum

 14.1488

 43.00000

 23.00000

 13.00000

 36.00000

Sum Sq. Dev.

 18.3589

 9.982143

 13.55357

 9.982143

 12.85714

Observations

 56

 56

 56

 56

 56

Table 4.1.2 Descriptive Analysis (ROE)

Table 4.1.2 shows the descriptive statistical table related with mean, median, maximum and minimum value, standard deviation, skewness and kurtosis of changes of the variables.

The mean annual growth of each variables are very low. From the table, high volatility is observed among Protection on Environment, Recycling, Renewable and Waste Management. Renewable is relatively lower volatility among all.

The variables that having positive skewness which are ROE, Recycling, and Renewable. Another side, the variables that having negative skewness which are Protection on Environment and Waste Management.

Kurtosis of each variable is shown in positive. ROE is relatively highest kurtosis among all. Data is considered to be peaked distribution.

4.2 Correlation Matrix

ROA

ROE

Protection On Environment

Recycling

Renewable

Waste Management

ROA

1

0.8961

0.1211

0.1408

0.2637

0.1176

ROE

0.8961

1

0.1103

0.1349

0.3062

0.0954

Protection On Environment

0.1211

0.1103

1

0.3731

0.1020

0.5611

Recycling

0.1408

0.1349

0.3731

1

0.2287

0.5465

Renewable

0.2637

0.3062

0.1020

0.2287

1

0.1450

Waste Management

0.1176

0.0954

0.5611

0.5465

0.1450

1

Table 4.2 Correlation Matrix

Table 4.2 shows the correlation among all variables.

All of the independent variables are having positive correlation with the dependent variables which are ROA and ROE. Among the variables, each and every one of them is having positive correlation relation among themselves and the highest positive correlation are ROA and ROE.

The slightly lower positive correlation compared to others are Waste Management and ROE.

4.3 Normality Test

Table 4.3.1 Residual Graph (ROA)

Table 4.3.2 Residual Graph (ROA)

The consistency of the data can be studied through residual graph. When the range of value of Y-axis, which represent residual spread, is within 3 < x < -3, then data series is consistent. If it is shown that the Y-axis of data series is outside the range of 3 < x < -3, then data series is not consistent.

According to table 4.3.1 and table 4.3.2, the data series is consistent.

Table 4.3.3 Jarque-Bera test (ROA)

Jarque-Bera test is used to examine whether the data is normally distributed. According to table regarding the critical value says that 2 degrees of freedom at 5% is 5.99.

It is stated that the value of Jarque-Bera is 2601.278. The value is larger than the critical value. Hence, according to Jarque-Bera test, null hypothesis has to be rejected. The data is not normally distributed.

Table 4.3.4 Jarque-Bera test (ROE)

Jarque-Bera test is used to examine whether the data is normally distributed. According to table regarding the critical value says that 2 degrees of freedom at 5% is 5.99.

It is stated that the value of Jarque-Bera is 365.7021. The value is larger than the critical value. Hence, according to Jarque-Bera test, null hypothesis has to be rejected. The data is not normally distributed.

4.4 Ordinary Least Square Model

Dependent Variable: ROA

Method: Least Squares

Date: 12/26/12 Time: 17:14

Sample: 1 56

Included observations: 56

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

PROTECTION_ON_ENVIRONMEN

0.042779

0.102217

0.418512

0.6773

RECYCLING

0.027435

0.088121

0.311337

0.7568

RENEWABLE

0.152320

0.086538

1.760155

0.0844

WASTE_MANAGEMENT

0.009037

0.099797

0.090554

0.9282

C

-0.016286

0.075999

-0.214296

0.8312

R-squared

0.081372

    Mean dependent var

0.069000

Adjusted R-squared

0.009323

    S.D. dependent var

0.267323

S.E. of regression

0.266074

    Akaike info criterion

0.274960

Sum squared resid

3.610560

    Schwarz criterion

0.455795

Log likelihood

-2.698868

    Hannan-Quinn criter.

0.345069

F-statistic

1.129392

    Durbin-Watson stat

1.996607

Prob(F-statistic)

0.353107

Table 4.4.1 Ordinary Least Square Model (ROA)

ROAt = β0 + β1Protectiont-1 + β2Recyclingt-1 + β3Renewable t-1 + β4Waste t-1 + εt

ROAt = -0.016 + 0.043Protectiont-1 + 0.027Recyclingt-1 + 0.152Renewable t-1

[-0.214] [0.419] [0.311] [1.760]*

+ 0.009Waste t-1 + 0.076εt

[0.091]

R2 = 0.081 Adj. R2 = 0.009 DW = 1.997

* Significant at 10% level

Ordinary least square method determines the relationship between dependent variable and independent variables.

The R-Square value of the result is 0.081372. R-Square statistic indicates the "goodness of fit" of the model. It is the percentage of total variation in the dependent variables which explained by independent variables.

Statistical significance of model coefficients must be determined as the regression line of data may not fit the data points accurately. The coefficient estimate divided by the standard error equals to the t-statistics. The most important explanatory variable is Renewable, with statistically significant with 90% confidence level.

All of the variables, Protection on Environment, Recycling, Renewable and Waste Management are having positive relationship with ROA, the indicator of environment sector.

Dependent Variable: ROE

Method: Least Squares

Date: 12/26/12 Time: 17:26

Sample: 1 56

Included observations: 56

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

PROTECTION_ON_ENVIRONMEN

0.094052

0.218441

0.430559

0.6686

RECYCLING

0.057821

0.188316

0.307043

0.7601

RENEWABLE

0.392810

0.184934

2.124058

0.0385

WASTE_MANAGEMENT

-0.015120

0.213269

-0.070895

0.9438

C

0.075222

0.162411

0.463158

0.6452

R-squared

0.101850

    Mean dependent var

0.252657

Adjusted R-squared

0.031407

    S.D. dependent var

0.577752

S.E. of regression

0.568607

    Akaike info criterion

1.793792

Sum squared resid

16.48903

    Schwarz criterion

1.974627

Log likelihood

-45.22618

    Hannan-Quinn criter.

1.863901

F-statistic

1.445847

    Durbin-Watson stat

2.150014

Prob(F-statistic)

0.232465

Heteroskedasticity Test: White

F-statistic

1.057707

    Prob. F(4,51)

0.3870

Obs*R-squared

4.289749

    Prob. Chi-Square(4)

0.3682

Scaled explained SS

23.45501

    Prob. Chi-Square(4)

0.0001

Test Equation:

Dependent Variable: RESID^2

Method: Least Squares

Date: 12/26/12 Time: 18:09

Sample: 1 56

Included observations: 56

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

0.039032

0.307503

0.126932

0.8995

PROTECTION_ON_ENVIRONMEN^2

0.032526

0.413588

0.078645

0.9376

RECYCLING^2

0.266873

0.356550

0.748486

0.4576

RENEWABLE^2

0.557538

0.350145

1.592305

0.1175

WASTE_MANAGEMENT^2

-0.013374

0.403794

-0.033120

0.9737

R-squared

0.076603

    Mean dependent var

0.294447

Adjusted R-squared

0.004179

    S.D. dependent var

1.078834

S.E. of regression

1.076577

    Akaike info criterion

3.070495

Sum squared resid

59.10991

    Schwarz criterion

3.251330

Log likelihood

-80.97387

    Hannan-Quinn criter.

3.140605

F-statistic

1.057707

    Durbin-Watson stat

2.144528

Prob(F-statistic)

0.387015

Table 4.4.2 Ordinary Least Square Model (ROE)

ROEt = β0 + β1Protectiont-1 + β2Recyclingt-1 + β3Renewable t-1 + β4Waste t-1 + εt

ROEt = 0.075 + 0.094Protectiont-1 + 0.058Recyclingt-1 + 0.393Renewable t-1

[0.463] [0.431] [0.307] [2.124]**

- 0.015Waste t-1 + 0.162εt

[-0.071]

R2 = 0.102 Adj. R2 = 0.031 DW = 2.15

** Significant at 5% level

Ordinary least square method determines the relationship between dependent variable and independent variables.

The R-Square value of the result is 0.101850. R-Square statistic indicates the "goodness of fit" of the model. It is the percentage of total variation in the dependent variables which explained by independent variables.

Statistical significance of model coefficients must be determined as the regression line of data may not fit the data points accurately. The coefficient estimate divided by the standard error equals to the t-statistics. The most important explanatory variable is Renewable, with statistically significant with 95% confidence level.

All of the variables, Protection on Environment, Recycling, Renewable and Waste Management are having positive relationship with ROE, the indicator of environment sector.

4.5 Heteroskedasticity Test

Heteroskedasticity Test: White

F-statistic

1.074618

    Prob. F(4,51)

0.3788

Obs*R-squared

4.353004

    Prob. Chi-Square(4)

0.3603

Scaled explained SS

60.90959

    Prob. Chi-Square(4)

0.0000

Test Equation:

Dependent Variable: RESID^2

Method: Least Squares

Date: 12/26/12 Time: 18:13

Sample: 1 56

Included observations: 56

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

-0.026492

0.107649

-0.246101

0.8066

PROTECTION_ON_ENVIRONMEN^2

0.007961

0.144786

0.054987

0.9564

RECYCLING^2

0.074640

0.124819

0.597988

0.5525

RENEWABLE^2

0.206218

0.122577

1.682357

0.0986

WASTE_MANAGEMENT^2

0.009840

0.141358

0.069610

0.9448

R-squared

0.077732

    Mean dependent var

0.064474

Adjusted R-squared

0.005397

    S.D. dependent var

0.377903

S.E. of regression

0.376882

    Akaike info criterion

0.971275

Sum squared resid

7.244031

    Schwarz criterion

1.152110

Log likelihood

-22.19569

    Hannan-Quinn criter.

1.041384

F-statistic

1.074618

    Durbin-Watson stat

2.117954

Prob(F-statistic)

0.378780

Table 4.5.1 Heteroskedasticity Test (ROA)

Heteroskedasticity occurs when the variance of the unobservable error u is not constant. It acts an efficient estimator of re-weighting data correctly. Since the White test statistic has a probability(4,51) of 0.3788, which is greater than 5% critical value, we can reject null hypothesis that there is heteroscedasticity.

Heteroskedasticity Test: White

F-statistic

1.057707

    Prob. F(4,51)

0.3870

Obs*R-squared

4.289749

    Prob. Chi-Square(4)

0.3682

Scaled explained SS

23.45501

    Prob. Chi-Square(4)

0.0001

Test Equation:

Dependent Variable: RESID^2

Method: Least Squares

Date: 12/26/12 Time: 18:09

Sample: 1 56

Included observations: 56

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

0.039032

0.307503

0.126932

0.8995

PROTECTION_ON_ENVIRONMEN^2

0.032526

0.413588

0.078645

0.9376

RECYCLING^2

0.266873

0.356550

0.748486

0.4576

RENEWABLE^2

0.557538

0.350145

1.592305

0.1175

WASTE_MANAGEMENT^2

-0.013374

0.403794

-0.033120

0.9737

R-squared

0.076603

    Mean dependent var

0.294447

Adjusted R-squared

0.004179

    S.D. dependent var

1.078834

S.E. of regression

1.076577

    Akaike info criterion

3.070495

Sum squared resid

59.10991

    Schwarz criterion

3.251330

Log likelihood

-80.97387

    Hannan-Quinn criter.

3.140605

F-statistic

1.057707

    Durbin-Watson stat

2.144528

Prob(F-statistic)

0.387015

Table 4.5.2 Heteroskedasticity Test (ROE)

Heteroskedasticity occurs when the variance of the unobservable error u is not constant. It acts an efficient estimator of re-weighting data correctly. Since the White test statistic has a probability(4,51) of 0.3870, which is greater than 5% critical value, we can reject null hypothesis that there is heteroscedasticity.

Chapter 5 Discussion and Conclusion

5.0 Introduction

This paper studies about the relationship between ROA and environmental in Malaysia and the relationship between ROA and environmental in Malaysia. Both of examine the explanatory variables is only Renewable variable for the past 4 years among the 55 listed companies in Bursa Malaysia.

This chapter also discuss about the contribution of this study in theory and practice. And also, this chapter will include limitation of study. Recommendations on further studies are to be suggested.

5.1 Findings and Conclusion

This study tests the relationship of ROA and environment and the relationship of ROE and environment. Impact of renewable is being tested as renewable plays an important role on environment.

From the OLS test, it is found that all the variables are having positive relationship with ROA and ROE which are protection on environment, recycling, and renewable, but only the waste management has negative relationship with ROE, the indicator of environment. However, only the renewable is the more significant or more important variable.

5.2 Recommendation for Future Study

The study can be useful for the entrepreneurs who are interested to explore a new business. Also, this study is useful for the academic purpose as the model being tested and variables being used do illustrate an obvious and clear the relationship between ROE and environment and the relationship between ROA and environment. For future further research, it is more reliable if the factors such as social and consumer can be included. However, these variables are hard to measure. Besides the 4 variables in this study, other variables should be included in further study for a more profound study.

5.3 Limitation of the Study

The econometric techniques being used in this study have been widely used in many fields and no doubt it is useful in this study too. The observation used is suitable as the 4 years of 55 listed companies in Bursa Malaysia is indeed a good range of data reflecting the environment performance. However, there are only 4 variables being used. It would be better to use more variables to have a clearer study.