The impact of ASEAN economic community, firm characteristics and macroeconomics on firm performance and firm value: An investigation of Shariah-compliant firms in Indonesia.

ABSTRACT

The ASEAN Economic Community (AEC) presents both opportunities and challenges to Shariah-compliant firms (SCF) that have particular rules concerning business activities and financial ratios following Islamic principles. The SCF has to maintain the ratio of interest-based debt to total assets as well as non-permissible income, where these restrictions may impact both firm performance and firm value, particularly in the AEC era. Therefore, the SCF has to utilize internal factors to strengthen the firm while also considering the external factor of macroeconomics. The purpose of this paper is to examine the internal factors-firm age, size and efficiency (FASE), financial leverage, foreign ownership- and macroeconomics affecting financial performance and firm value of SCFs, including the effects both pre- and post-AEC. This study applies structural equation modelling-partial least square (SEM-PLS) to analyze 103 non-financial firms that were continuously listed on the Islamic Shariah Stock Index (ISSI) from 2011 to 2020. The results showed that FASE and macroeconomics had a significant positive influence on firm performance. Moreover, financial leverage, foreign ownership and the AEC participation showed a negative effect on firm performance. In addition, there was a positive relationship between FASE and firm value, as well as firm performance and firm value of SCFs. Finally, the findings from this study may help stakeholders determine policies that involve both internal and macroeconomic situations, as well as the potential effect of the AEC on the enhancement of firm performance and firm value.