FOSTERING CUSTOMER SATISFACTION ON THE ECO-BASED RESIDENTIAL
DEVELOPMENT IN MALAYSIA
Dr Abdul Shukor Shamsudi, Mohd Sobri Minai, Ali Yusob Md Zain and Abd Rahim Romle
School of Business Management
University of Utara Malaysia
Kedah
e-mail: [email protected]
Abstract
Awareness of the delicate balance between bio-ecological systems and the need for the
industrial development and achievement is becoming more sensitive. It focusses on
the well-being of the natural environment whilst conducting such development. The main
objective of this study is to identify the key eco-based residential features and their
relationship with buyer’s satisfaction. A quantitative approach was used in this study.
The data were gathered through personal-administered survey questionnaires and a
total of 284 respondents participated in this study. The SPSS 23.0 was the main
statistical tool employed for analysing the data collected. The findings revealed that
the eco-landscape and eco-energy are the most important features in eco-based
residential development. It was observed, the price of the property is no an important
factor of consideration for the potential buyers. In general, eco-based residential
buyers are satisfied with their purchases. Finally, based on the findings, the
recommendations and direction for further research also discussed.
Keyword(s): Eco-based residential development, eco-based residential features, buyers’
satisfaction
INTRODUCTION
The rapid industrialization of agriculture and the commercialization of farming have
led to a greater pressure to continuously increase the product’s yield. In many ways,
the systematic and satisfactory development to all have been achieved through
strategic management in the respective industry. For example, within the context of
agricultural management, the better disease management, better pest management
and use of growth hormones, genetic engineering through cloning and stem cell
research, etc. However, very often, to achieve these results, it involves extensive use
of chemicals such as pesticides, growth hormones, and newly cloned materials.
Thus, such development must be balanced with the needs and demands of the
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human being who modified their preference, especially in the recent years, to a more
eco-friendly environment.
Consequently, an increased consumer activism resulted in the rapid growth and
development of organizations to protect the environment like Green Peace, World
Wildlife Fund initiatives such as save whales, tigers, dolphins, orangutans etc. As
consumer demand for more environmentally non-destructive business practices
grew, the industry responded by adopting and embracing concepts of sustainability
and eco-friendliness in their Corporate Social Responsibility (CSR) manifestos.
Although many companies initially applied or utilized the concepts more, as a
marketing tool, however, research has since shown that companies that incorporated
“environmentally friendly”, “green”, “sustainable”, “sustainability”, “eco-friendly” or
“eco-based” practices tend to have better success, sales and profitability than those
which do not (Ibiyemi, Adnan, & Daud, 2015) .
Furthermore, some of the Malaysian property developers have used eco-based and
sustainability approaches as a marketing tool to promote their property development
projects. However, in Malaysia, generally, there may be a lack of awareness and
motivation from the customer perspective of the need to be more committed towards
practices that would be regarded as being eco-friendly especially with regards to
purchasing properties with eco-friendly features. While there are a number of
organisations that exists to promote the “green” agenda, the high visibility efforts are
normally done though the Federal Government and its ministries. The Ministry of
Science, Technology and the Environment and The Ministry of Energy, Green
45
Technology and Water (KeTTHA), are mainly responsible for the operational aspects
of managing the “green” agenda.
In Malaysia, the eco-based real estate development has gained much interest from a
number of stakeholders. There is an increasing trend of such developments,
introducing various concepts and approaches as to what constitutes an eco-based
environment (Jacobs, 2016). To promote the country’s efforts for eco-based
residential development, the role of consumers is essential. If consumers exhibit a
high degree of ecological concern and channel it into some eco-friendly purchasing
behaviors, it is likely that profit-driven developers will be motivated to adopt the
concept of eco-based approach in their operations. In short, the dynamics of this
buyer-seller interaction will lead to a further advancement of the eco-based revolution
in the country (Ottman, 1992; Salzman, 1991). Thus, in order to better understand
this eco-based residential development in Malaysia, an examination of how the
consumers view ecological issues, and how these views are reflected in their
purchasing behavior on green issues serves as a good starting point.
LITERATURE REVIEW
Malaysia’s Eco-based Residential Benchmarks
Initially, benchmarking provides a mean to compare practices against other practices
and subsequently identify area where improvement can be made to increase
performance. There is no specific rule whether to accept or reject benchmarking
features and indicators. The importance of eco-based features vary from region to
region, country to country and even county to county. The researchers after careful
consideration have decided for the Malaysian situation the appropriate eco-based
46
residential benchmark features should consist of eco energy, eco design, eco water,
eco construction, eco master plan and finally eco landscape. The following table
provides benchmark indicators for eco-based residential development in Malaysia.
Table 1: Eco-based benchmark features Indicators
Features
Eco energy Renewable energy, energy efficiency, and energy
management
Eco design Building orientation, window design, shading mechanism,
cool roof, natural ventilation, natural lighting, and recycling
ready
Eco water Renewable water, and water conservation
Eco construction Responsible construction, construction waste recycling, and
using green or eco-label materials
Eco layout plan Greenscapes and waterbodies, pedal ready, and green
mobility
Eco landscape Natives plants, biodiversity, landscape irrigation water, tree
preservation, and composting
Source: Eco World Development Group Berhad and current literature
Satisfaction with the Eco-based Features
Bruin and Cook (1997) explored that behavioural characteristic like (i) residential
characteristics, (ii) safety and security and (iii) friendly relationship with their
neighbours are the powerful factors of customer satisfaction in purchasing decision.
Ukoha and Beamish (1997) found that the satisfaction is based on the services
provided by the construction company. The satisfaction level also depends on some
economic factors like economic benefit, improvement in quality of life, planning and
environmental issues. These factors of residential characteristics, the economic
factors and the services provided are being referred to by current researchers such
47
Balta-Ozkan, Davidson, Bicket and Whitmarsh (2013) and are key factors to be
explored in this research work.
Carolyn and Gladys (1998) suggests that customers show their frustration and
dissatisfaction through taking harsh action (legal action) against the developers for
reasons such as taking a long time for handing over the project, not fulfilling
promises and poor after sale services. Thus, developers must ensure that buyers are
fully satisfied in order to avoid unnecessary litigation. Again, satisfaction can be
fulfilled by other factors. Liu (1999) found that both physical and social factors
influence the residential satisfaction. He highlighted that customer satisfaction
depends on both cleanliness and maintenance of the flat. Al-Momani (2000)
emphasized on the quality of service and found that the company paid little attention
to the customer needs (like customization) leading to its poor performance.
Holm (2000) stated that housing satisfaction largely depends on the construction
process. He examined the difference between the customer satisfaction and
expectation, and the perception of manager regarding the construction process for
the construction company. This process is assumed to cover the aspects such as (i)
responsible construction, (ii) recycling of construction wastes and (iii) usage of green
or eco-labelled materials.
Djebarni and Al-Abed (2000) found that customers who purchase their flat for low
cost are highly dissatisfied with the facilities provided by the construction company.
Apartment size is one of the important factors to evaluate the customer satisfaction.
Soetanto (2001) suggests that the performance of a construction company should be
48
improved to increase the customer satisfaction level. Satisfactory performance of the
company leads to maintain harmonious relationship with the customers’.
Parker and Mathews (2001) stated that satisfaction can be measured by determining
the relationship between the customer expectations and what they received. Maloney
(2002) states that customer as an organization that includes the interest of the
construction service buyer, potential users and other interest groups. Novak (2008)
indicates that customer satisfaction is measured by comparing buyers ‘satisfaction
and perception based on their location. Nahmens and Ikuma (2009) in the article
named “Discovering the variables that influence new home buyer service
satisfaction” found that higher income, price and larger house size are the factors
that influence home buyer satisfaction. Hui and Zheng (2010) revealed that high
quality service is an important variable to measure the customer satisfaction. He
found that service quality has larger impact on satisfaction of home buyers’ than the
management quality.
Santiago et al. (2010) in the article “Low income home ownership: does it necessarily
mean sacrificing neighborhood quality to buy a home?” states that low income
homebuyers may be forced to buy a home in disadvantaged region. This is a latent
problem because buying home in such region may limit appreciation, may reduce the
quality of life. Dekker et al. (2011) found that satisfaction level is high for elder
customers and customers with high income because customers can customize their
apartment based on their income level and experience.
49
Mustafa and Ghazali (2012) suggest that buying behavior model and the gap
analysis model are used to calculate the satisfaction level. The author use delivery
system as an independent variable and house buyer characteristics as a moderating
variable to measure the satisfaction level of the customer. Fang (2005) states that
customers who lived in an area for longer period showed more dissatisfaction levels
towards their neighborhoods.
Chen, Martin and Merchant (2014) states that two sets of customer satisfaction
measures are found from the homebuilding company to evaluate its performance
they are future financial performance and association timing between the customers
and the company. He finds that timing has a large impact in customer satisfaction
measures.
The housing industry has progressed from its early inception from a basic shelter to
providing a portrayal of personal success and aspiration, which includes the aspect
of safety, love, peace and freedom (Marcussen, 1990). It also involves the service
and infrastructure or facilities (Kemeny, 2013). In addition, housing involves activities
that generate economical benefit, improve the quality of life, and plan and solve
environmental issues (Yusof et al., 2016). The Ministry of Housing and Local
Government in Malaysia (MHLG) emphasizes that housing should provide residents
with safety, security, comfort, health, privacy and other services (José Vilares &
Simões Coelho, 2003).
In addition to the above, it is a fact that most people consider buying a house as an
important event in a person's life. It is considered as the single biggest capital
50
investment undertaken by a person in his or her lifetime. Therefore, such experience
would bring a sense of achievement and joy to those who pursue it.
METHODOLOGY
Sample
A pilot study was conducted from 27th August 2017 to 31th August 2017. It took place
at the following locations: (i) 35 Pearl Villas (SP Setia Bhd), (ii) The Light (IJM Land
Bhd), (iii) 11 Brook Residences (SP Setia Bhd) and (iv) 9 Brook Residences (SP
Setia Bhd). The contacts were identified through the internet based on the attribute of
(i) green residential building and (ii) northern region location.
In the real study, the researchers targeted 400 sets of respondents to be
administered by ten enumerators and only 284 sets of questionnaires were usable.
The enumerators face various difficulties in getting the access to the respondents to
the extent that they have to stop potential respondents when they were out for their
evening workout.
Reliability Analysis
The survey instrument consists of six scales measuring the respondents’ satisfaction
levels with the eco-based features. The reliability coefficients of the scales were
assessed using Cronbach’s alpha measure of internal consistency. The reliability
scores of the scales range from 0.690 to 0.875, indicating that the scales have
adequate internal consistency properties and are suitable for further statistical
analyses. The overall satisfaction score (comprising all the six satisfaction scales) is
0.925. The results of the reliability test are shown in Table 2.
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Table 2: Reliability of measurement scales Cronbach’s Alpha
.785
No Scale regarding eco-based features .875
1 Satisfaction with energy .690
2 Satisfaction with design .747
3 Satisfaction with water .792
4 Satisfaction with material .760
5 Satisfaction with layout plan
6 Satisfaction with landscape .925
7 Overall Satisfaction
DATA ANALYSES, DISCUSSIONS AND RECOMMENDATIONS
Profile of Respondents
The detailed profile of the respondents is shown in Table 3. Respondents who were
selected to participate in the survey were from five locations: Eco Hill Semenyih
(31.3%), Eco Park Setia Alam (31%), Eco Glades Cyberjaya (26.4%), SP Setia
Penang (7.7%) and IJM Land Penang (3.5%). In terms of ethnic group, there were
50% Chinese respondents, 32.4% Malays, 14.1% Indians, and 3.5% of the
respondents were from the other ethnic groups (including non-Malaysians). Most of
the respondents were from the 45 years or below age groups. They make up about
79% of the total respondents, whereas the 46 years and above age group is only
about 21%. The percentages of respondents based on their educational levels are
about equal, i.e. about 50% for both groups (respondents with university degrees or
higher, and respondents with diplomas or lower).
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Table 3: Profile of Respondents Frequency (N) Percentage
(%)
No Demographic Characteristics
89 31.3
1 Location 75 26.4
Eco Hill Semenyih 88 31.0
Eco Glade Cyberjaya 22 7.7
Eco Park Setia Alam 10 3.5
SP Setia Penang
IJM Land Penang 92 32.4
142 50.0
2 Ethnicity 40 14.1
Malay 10 3.5
Chinese
Indian 67 23.6
Others 91 32.0
64 22.5
3 Age (Years) 62 21.8
35 and less
36 to 40 140 49.3
41 to 45 144 50.7
46 and above
4 Education
High School and Diploma
Degree and higher
Satisfaction of the Purchasers with Eco-based Features
Table 4 reported that the respondents’ satisfaction with the eco-based features were
assessed by taking the mean satisfaction scores as the indicators. Of the six
features, respondents were most satisfied with the design of their eco-based
residents. There are seven criteria which are used to define the design feature. The
levels of satisfaction with the respective criteria, in the descending order of their
mean scores are: window, building orientation, natural lighting, natural ventilation,
shading mechanism, cool roof, and recycling ready. This indicates that, the
developers of eco-based residential projects should pay more attention to the design
features which are relatively less satisfying. Future eco-based residential projects for
example, should consider some improvements to the recycling aspect of the design
feature, e.g. by providing collection centres for recyclable materials which are easily
accessible to the residents.
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Table 4: Satisfaction of the Purchasers with eco-based features
Features Mean S.D.
Design 4.301 .498
1.Window 4.378 .453
2.Building orientation 4.363
3.Natural lighting 4.331 .519
4.Natural ventilation 4.324 .620
5.Shading Mechanism 4.282 .572
6.Cool roof 4.229 .509
7.Recycling ready 4.191
Landscape 4.291
1.Biodiversity 4.391
2.Native plants 4.336
3.Tree preservation 4.324
4.Irrigation water 4.289
5.Composting 4.109
Water 4.248
1.Renewable water 4.271
2.Conservation 4.225
Energy 4.199
1.Renewable Solar 4.286
2.Efficiency 4.194
3.Management 4.124
Layout Plan 4.199
1.Greenscapes and waterbodies 4.307
2.Green mobility 4.181
3.Pedal ready 4.088
Material 4.175
1.Responsible construction 4.193
2.Using green or eco label materials 4.168
3.Construction waste recycling 4.151
Other aspects in the design feature which are relatively less satisfying are the
installation of cool roof and suitable shading mechanism. Cool roof has two main
properties: solar reflectance and thermal emittance. These properties help reduce
electricity used for air conditioning by lowering roof temperatures. Probably, to suit
the Malaysian climate, the cool roof materials used in residential buildings should
have higher SRI (solar reflectance index) and also a higher thermal emittance in
order to provide a “cooler” indoor temperature.
The eco-based feature with the second highest score on the satisfaction level is the
landscape. Under the landscape, there are five eco-based aspects. Respondents
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were least satisfied with the “composting” and “irrigation water”. In terms of
composting, improvements could be made by the developers through the provision of
suitable facilities for residents to turn their stuff into compost. This is to avoid the
need for the residents to have the composting buckets in or close to their own
homes.
Proper drainage in residential areas is one of the most important aspects for a
comfortable living. Without proper drainage, the areas may experience flash floods
when there are heavy rainfalls. Developers need to pay attention to this aspect so
that the water flow is not hindered due to an unsuitable drainage system in the
residential area.
The third eco-based feature is water, comprising irrigation and conservation aspects.
The level of satisfaction with this feature is relatively low. Water use reduction is an
important aspect of many eco-based residential projects, and one way to achieve this
is to collect rainwater for non-potable uses, such as watering the landscaping
vegetation. Developers should improve on this aspect by introducing suitable and
efficient rain harvesting technology for their eco-based residential properties.
Energy, which includes renewable energy, energy efficiency and energy
management, is also one of the main eco-based features provided in the residential
properties. Among the aspects of this feature, energy efficiency and management
are relatively lower in the levels of respondents’ satisfaction. Possible actions to be
considered for future development, in order to reduce energy use include: installation
of Energy Star appliances, and programmable thermostats.
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In terms of the layout plan of the residential area, respondents are least satisfied with
the “pedal ready” element. This refers to the provision of proper infrastructure for
residents of the eco-based homes to be involved in cycling activities. Cycling could
also be an alternative to other less eco-friendly modes of transportation. The initiative
taken by one of the developers to encourage bike-sharing programme in their
development project could be emulated by other developers.
The last feature with the lowest mean score of satisfaction among the six eco-based
features is material. This includes responsible construction, use of green-labelled
materials, and recycling of construction waste. Generally, the mean satisfaction
scores of the three aspects are relatively low.
Multiple Regression Analysis
A multiple regression analysis was conducted by taking the levels of satisfaction with
the eco-based features as the independent variables, and the overall satisfaction
score as the dependent variable. The purpose of the analysis is to examine the
relative effects of the independent variables on the overall satisfaction with eco-
based residential properties. The results of the regression analysis are shown in
Table 5.
Derived from the Table 5, it can be concluded the order of importance for the eco-
based features in affecting the level of buyers’ satisfaction are Eco-landscape and
Eco-energy. Followed by, eco-design, eco-water, eco-layout and eco-material.
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Table 5: Levels of Satisfaction with the Eco-Based Features
Model Unstandardized Standardized t Sig.
Coefficients
1 (Constant) Coefficients 1.023 .308
Ecoenergy Beta 4.082 .000
Ecodesign B Std. Error 1.581 .116
Ecowater .330 -1.174 .243
Ecomaterial .969 .948 .190 -.275 .784
Ecolayout -.115 -.438 .662
Ecolandscape .416 .102 -.023 5.537 .000
-.039
.469 .297 .457
-.245 .209
-.056 .205
-.089 .202
1.355 .245
Recommendations
By looking at the present study, there are several approaches and areas that future
research should take into consideration and focus on. As mentioned earlier, this
study employed cross sectional approach to collect data. This approach is a research
tool applied to capture information based on data collected from a pool of
respondents with varied characteristics for a specific point in time. One of the
disadvantages is a cross sectional study cannot be used to analyze behavior over a
period of time. Therefore, we strongly believe a longitudinal study could examine
eco-based residential buyers’ satisfaction after they are staying in the property for
several (five to 10) years and this may provide some very valuable and useful
insights accurately.
This study had a single emphasize of eco-based residential property buyers in
Malaysia. There is further research opportunity exist that may broaden the
knowledge in eco-based residential development in Malaysia. One of the opportunity
is future researcher could conduct a comparative study on the satisfaction level of
eco-based residential buyers and ordinary residential buyers. Comparative study is
seen important as it enables researchers to explore and examine some possible
57
phenomena and reveal whether there are some specific reasons or characteristics
between the two groups of house buyers. The findings might be useful to the
government agencies to formulate some suitable and attractive incentives, such as
assessment reduction, that may encourage more people to invest in eco-based
residential property as this is in accordance with the Government’s Green
Development Policy.
CONCLUSION
Although there are many definitions of eco-based residential concept assumed in this
development context, however, it is obvious that stakeholders, specifically the buyers
have almost similar perspective on eco-based residential features. Eco-landscape,
and eco-energy are seen as the two most important and must have features,
followed by eco-design, eco-water, eco-layout and eco-material in eco-based
residential development. The findings of the study also suggested that eco-based
residential buyers are satisfied with their purchase as the developers delivered what
they promised.
ACKNOWLEDGEMENT
The researchers would like to thank The National Real Property Research
Coordinator (NAPREC) for granting this study. Appreciation also dedicated to the
comments and continuous support by the panel of experts.
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EXECUTIVE SUMMARY: PAPER 4
THE EFFECTIVENESS OF MAINTENANCE
MANAGEMENT THROUGH IMPLEMENTATION
OF BUILDING MAINTENANCE POLICY IN
COMMERCIAL HIGH RISE BUILDING
PRESENTER: PROF. DATO’ SRI AR. DR ASIAH ABDUL RAHIM, UIAM
Prof. Dato’ Sri Ar. Dr. Asiah Abdul Rahim, Sr Dr. Mohamad Ridzuan Yahya, Ir. Shahrul
Nizar Shaari, Assoc. Prof. LAr. Dr. Mohd Ramzi Mohd Hussain, Asst. Prof. Dr. Izawati
Tukiman and Dr. Zulkefle Ismail
Kulliyah of Architecture and Environmental Design
University of International Islamic Malaysia
Kuala Lumpur
e-mail: [email protected]
62
1.0 Project Title
The Effectiveness of Maintenance Management Through Implementation Of
Building Maintenance Policy In Commercial High Rise Building
2.0 Project Team
Prof. Dato’ Sri Ar. Dr. Asiah Abdul Rahim, Sr Dr. Mohamad Ridzuan Yahya, Ir.
Shahrul Nizar Shaari, Assoc. Prof. LAr. Dr. Mohd Ramzi Mohd Hussain, Asst. Prof.
Dr. Izawati Tukiman and Dr. Zulkefle Ismail
Kulliyah of Architecture and Environmental Design
University of International Islamic Malaysia
Kuala Lumpur
e-mail: [email protected]
3.0 Abstract & Keywords
Nowadays maintenance management in commercial high-rise buildings is quite
complex in the operation and maintenance activities. In Malaysia, most of them
carried out the operation and maintenance activities based on term and condition of
contract agreement and company regulation where they consider as a building
maintenance policy. There were two (2) objectives in this study which to identify an
existing implementation of maintenance policy in maintenance management and to
analyse the effectiveness of maintenance policy towards maintenance management
performances. The fundamental investigation was to review maintenance policy with
respect to maintenance strategy, acceptable maintenance policy standard and
resources. The methodology applied for this research by using questionnaire
based on rating scale and structured interview building stakeholders. The data was
analysed using combine method qualitative and quantitative. It is evident from the
findings that the implementation of maintenance policy was varies from one building
to another. It reflects to the maintenance performance, which was not consistent.
Hence, maintenance management should implement maintenance policy as
outlined by Malaysian Property Management Standard (Second Edition 2016).
Keyword: Maintenance Management, Commercial high rise building, Policy
4.0 Introduction
- Problem Statement
Nowadays maintenance management in commercial high-rise buildings is quite
complex in the operation and maintenance activities. In Malaysia, most of them
carried out the operation and maintenance activities based on term and condition of
contract agreement and company regulation where they consider as a building
maintenance policy. They were facing serious problems with the quality of
maintenance management, which cannot meet the current standard of building
63
policy. However, the development and implementation of sustainable building policy
in that particular building is still lacking.
- Research Objectives
The research objectives are:
i. To identify an existing implementation of maintenance policy in
maintenance management
ii. To analyse the effectiveness of maintenance policy towards
maintenance management performances.
5.0 Literature Review
Maintenance management refers to how well a building is maintained. British
Standard 3811: 1964 defined maintenance policy as an approach contained by
which maintenance decisions are made. According to British Standard BS8210:
1986 Section 2, a maintenance policy should ensure that value for money expended
is obtained, in addition to protecting both the asset value and the resource value of
the buildings concerned and the building owner against breaches of statutory and
legal obligations. It is important to have a well-developed building maintenance
management to guarantee the building always in high-quality circumstance. The
building maintenance policy is very significant to building owner, tenants, customers,
users and maintenance professionals in order to ensure that they are in safety zone
all the time and get the benefits. They also need high level of services and
awareness since their expectation is generally high. According to Mohamad
Ridzuan, Y. and Md. Najib, I. (2015), maintenance management operations in high-
rise building are more complicated, which leads to advanced maintenance policy.
There is a connection between improving maintenance effectiveness and the
maintenance policy implementation, the top management constantly requests to
recognize further on the efficiency of maintenance performance. Mohamad
Ridzuan, Y. and Md. Najib, I. (2015) discover that maintenance services are not
obvious and are always unseen by the management.
Concept of Building Maintenance Policy
According to Lee and Scott (2008), the building policy is a written document that act
as tool to planning and determine the framework to all maintenance strategy and
standard. In addition, Lee and Scott (2008) identify building policy and strategy,
strategic management, facilities management and performance management as the
four main aspects influencing the sustainable of maintenance management
operation processes. Improving the building policy is one of the major component in
achieving the maintenance objective and goal in adequate (Adenuge et al, 2010).
Mohamad Ridzuan, Y. and Md. Najib, I. (2015) state that high rise office building in
Malaysia mostly carried out the maintenance works based on contract agreement
and company regulation where they claim that is a maintenance policy.
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According to Lee and Scott (2008), maintenance framework and strategy cannot
implement successfully by responsible personnel without fully understanding the
basic essential element of maintenance policy such as the maintenance strategy,
defining maintenance standard and allocation of financial for maintenance works.
Adenuge et al, (2010) claim that, the building maintenance policy will ensure the
effectiveness of maintenance work in the building and will reflects toward the
building performance with suitable approach and strategy to sustain the value and
economic of the building and expand the lifespan of the building.
Key elements of a building maintenance policy
According to Arazi et al. (2009), the strategic of maintenance work need to be
planning by building maintenance policy and facility management to sustain the
value of the building in safety, quality and service aspect. James et al.(2016) state
that, the building maintenance policy should be carried out in maintenance
management in order to sustain high level of productivity based on maintenance
strategy, standard, and allocation of maintenance resources.
Maintenance policy is a tool for maintenance personnel to plan their appropriate
maintenance strategies. However, before a maintenance programme is prepared,
maintenance personnel and top management are required to agree on maintenance
policy because it requires strategic directions, as well as resources. The
maintenance policy consists of five (5) major components, and different
maintenance strategies are developed from these components. Without defining
this policy, maintenance operation processes will be in a haphazard order. The five
major components (CEM, 1994; RICS, 1990; Chanter and Swallow, 1996; Lee and
Wordsworth, 2001) are as follows:
The length of time for maintaining for their present use.
The life requirements of the buildings and their fittings and services.
The standard to which the building and its services are to be maintained.
The reaction time required between the defects occurring and a repair being
carried out.
The legal and statutory requirements shall also be considered.
Following with these five major components in maintenance policy, the sequences
for formulating maintenance policy and strategy is summarized in Figure 1.1.
Figure 1.1: Sequences for formulating building maintenance policy and strategy.
Essentially, a departmental maintenance policy should identify how, and by whom,
the maintenance of the department’s building assets is to be managed. The policy
should be structured to include the following components:
A statement of the policy’s intent and objectives
The scope of the policy
65
The details of the policy (i.e. the policy requirements)
Allocation of responsibility for implementing the various policy requirements
Continuous improvement arrangements for the policy, including policy review
procedures.
Policy Frameworks for Building Maintenance
The worth of buildings largely rely on the safety, quality and service of the standard
of policy given and enforced in them (Mohamad Ridzuan, Y. and Najib, I., 2011).
The definitions of policy of maintenance have been given as a system by which
decisions on maintenance are made (BS 3811:1964). Several studies have defined
the policy of maintenance being a framework of management embracing varying
type of strategic maintenance to guarantee that properties/facilities are adequately
maintained (Lee and Scott, 2008). The policy of maintenance framework stands as
document that is official which indicate the parameters, procedure, guidelines in full
description. The situations of management of maintenance have no general
acceptable suitable layout. A format being used for a specific situation must be
geared towards a specified need and programme of the host organisation (RICS,
2013). The policy of maintenance have to guarantee the certainty of worth for money
spent are attained and also protect the asset and the resource value of the buildings
concerned. It should also ensure that the building owner is not held liable of any
breach of statutory or legal obligations (BS 8210:1986). The policy of
properties/facilities maintenance standard should yield much profit on expenditure
incurred on actions of maintenance (Lee and Scott, 2008). The safe environment
and benefit guaranteed by the maintenance policy has made it much important to
stake holders such as facilities/maintenance managers, customers, owners and
tenants (Mohamad Ridzuan, Y. and Najib, I., 2011).
The Effectiveness Criteria Building Maintenance Policy
The approach taken to determine condition standard ratings should be outlined in
the departmental building maintenance policy and in any related departmental
documents (e.g. asset management manuals). Once determined, condition
standard ratings form the basis of instructions to the maintenance service provider
regarding the level to which the department expects building assets to be
maintained. For this reason, it is imperative that ratings clearly communicated to
service providers and carefully documented in procurement arrangements such as
Service Level Agreements (SLAs).
Ratings will be used by the service provider within the condition assessment process
that to identify gaps between the desired and actual condition of buildings. Providers
can then determine and report maintenance works necessary to return buildings to
the desired standard. Condition standard ratings also will be referenced by service
providers during the day-to-day maintenance delivery process, including delivery of
unplanned works. This regular referencing will ensure that works undertaken meet
– and do not exceed – the standards that have been established by the maintenance
management department.
66
6.0 Methodology
The Questionnaire Method
Questionnaire survey has been used as a research instrument to collect any
information of the research topic. The questionnaire surveys have been distributed
to the respondents who are building occupants (building owners and tenants) and
maintenance management team (in-house building maintenance personnel, out-
sourced contractors and out-sourced consultants). The primary data will be
collected by using questionnaire surveys which distributed among commercial high
rise buildings in Klang Valley, Malaysia. Questionnaire form is a survey of study
which to identify the value of commercial high-rise buildings through effectiveness
of maintenance management system based on implementation of building
maintenance policy. The building stakeholders of each building were interviewed
and got their feedback based on survey through questionnaire form which have
been developed into two (2) sections:
a. Section 1: Respondent & Organization detail
b. Section 2: Issue of effectiveness building maintenance policy
The Rating Scale
The likert scale able to give clearly and obvious result and ease the respondents to
answering the questionnaires. Likert scale on five (5) ordinal measures of
agreement were adopted in the questionnaire survey (refer to Table 3.1).
Table 1.1: Likert five-point in questionnaire
Section 1: Information about Section 2: Building
your Organisation Maintenance Performance And
Effectiveness
Value Level of
Complexity Value Level of
1 Very simple Performance and
2 Simple 1 Effectiveness
3 Fair 2 Very Weak
4 Complex 3 Weak
5 Very complex 4 Fair
5 Strong
Very Strong
The Interview Session
The oral interviews have be carried with in-house building maintenance personnel
to obtain perspective about building maintenance. They represented the perspective
from expert profession regarding the effectiveness of building maintenance policy.
Only two (2) number of questions have been asked which are as follows:
67
i. Question 1:
What is the main factor affecting good achievement of maintenance management
in high rise office building?
ii. Question 2:
The implementation of building maintenance policy standard as guidance able
towards the facilities management performances
Case study of Current Maintenance Management Practice in High Rise
Building
The buildings have been chosen randomly. The research limitation where the
building typology was commercial high-rise buildings in Klang Valley only.
Case Study:
Commercial High-Rise Buildings in Selangor, Malaysia
Table 1.2: List of case study of High-rise Commercial Buildings in Selangor,
Malaysia
1 Menara MBPJ
Location/Addr : Petaling Jaya,
ess Selangor
Main Usage : Commercial Office
Height : 108.11 m
(estimated) : 27
Floors (above
ground)
2 Wisma MBSA
Location/Addres : Shah Alam, Selangor
s
: Commercial Office
Main Usage : 112.11 m
Height
: 28
(estimated)
Floors (above
ground)
68
3 Menara MRCB Location/Add : Shah Alam,
4 Menara Mesiniaga ress Selangor
5 Manara MPAJ
6 Menara Axis Main Usage : Commercial
Office
Height
(estimated) : 80.08 m
Floors : 20
(above
ground)
Location/Ad : 1 A, Jalan SS 16/1,
dress Subang Jaya,
Selangor
Main Usage
Height : Commercial Office
: 63.00 m
(estimated)
Floors : 15
(above :1
ground)
Floors
(below
ground)
Location/Addr : Jalan Pandan
ess Utama, 55100
Ampang, Selangor
Main Usage
Height : Commercial Office
: 68.07 m
(estimated)
Floors (above : 17
ground)
Location/Add : Jalan 51A/223,
ress Petaling Jaya,
Selangor
Main Usage
Height : Commercial Office
: 56.87 m
(estimated)
Floors : 14
(above
ground)
69
Commercial Buildings High-Rise in Putrajaya and Kuala Lumpur, Malaysia
Table 1.3: List of case study of High-rise Commercial Buildings in Putrajaya and
Kuala Lumpur, Malaysia
1 KPWKM Building
Location/Addre : Putrajaya
ss
: Commercial Office
Main Usage : 92.38 m
Height
: 20
(architectural)
Floors (above
ground)
2 KPKT Building
Location/Addre : Putrajaya
ss
: Commercial
Main Usage Office
Height : 150.30 m
(estimated)
: 37
Floors (above
ground)
3 Menara TH Perdana
Location/Address : No.1001,
Jalan Sultan
Main Usage Ismail, 50250
Kuala
Height Lumpur
(estimated)
: Commercial
Floors (above Office
ground)
: 142.17 m
Floors (below
ground) : 35
:3
70
4 MIDA Headquarters Location/Address : Jalan Stesen
Tower Sentral 5,
Main Usage Kuala
5 Seri MARA (Medan Height (estimated) Lumpur
MARA) Floors (above
: Commercial
ground) Office
: 121.86 m
: 30
Location/Address : Jalan Raja
Laut, Kuala
Main Usage Lumpur
Height (estimated) : Commercial
Floors (above Office
ground) : 113.74 m
: 28
6 Wisma LPPKN
Location/Address : No.12A, Jalan
Raja Laut,
Main Usage Kuala Lumpur
Height : Commercial
(estimated) Office
Floors (above : 105.61 m
ground)
: 26
7 Wisma Sime Darby Location/Addre : Jalan Raja Laut,
ss Kuala Lumpur
Main Usage : Commercial
Office
Height
(estimated) : 89.37 m
Floors (above : 22
ground)
71
8 Dayabumi Complex
Location/A : Jalan Sultan
ddress Hishamuddin,
Kuala Lumpur
Main
Usage : Commercial
Office
Height
(estimated) : 157.00 m
Floors : 35
(above
ground)
9 Petronas Twin Towers
Location/Addr : Jalan Ampang,
ess Kuala Lumpur
Main Usage : Commercial Office
Height : 451.90 m
(architectural) : 88
Floors (above
ground)
10 KKR Tower
Location/Addr : Jalan Sultan
ess Salahuddin, Kuala
Lumpur
Main Usage
Height : Commercial Office
: 175.00 m
(architectural)
Floors (above : 37
ground)
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7.0 Result
Management for Property Asset
Most of buildings:
Certain positions primarily supervise trades work in a certain specialty area
while others will supervise general works in multiple trades.
Work supervised includes maintenance, repair, replacement, fabrication,
installation, alteration, construction and design of facility components
requiring the application and management of skills in planning, problem-
solving, attention to detail, teamwork, communication and adherence to
safety.
Current Maintenance Policy
Most of buildings:
Not fully meet their respective obligations as efficiently and effectively as
possible, in order to continually deliver both the business and building
maintenance objectives required from the contract..
Certain parties know their obligations under the contract and building
maintenance policy.
Contract Management Guidance and Procedures are not aligned with the
procurement policy and are not integrated with the procurement manual and
any other relevant processes.
Regular reporting to only certain parties takes place on contract management
performance, issues and opportunities.
Inappropriate systems and processes are in place to capture and report on
key data and lessons at a project, category and organizational level.
Not consistently implement the work planning system for maintaining high
availability and reliability of important plant structures, systems and
components.
Not propose maintenance performance indicators and the framework as a
whole;
From a management approach using systems thinking, facility managers did
not fully understand how building maintenance knowledge aligns with the
core competencies of facility management such as:
Operations and maintenance
Real estate
Human and environmental factors
Planning and project management
Leadership and management
Finance
Quality assessment and innovation
Communication
Technology
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A number of the interviewees indicated that one of the reasons for not
keeping the contractor’s engineers informed about the company is that the
relationship between them is temporary.
These problems are related to maintenance group management,
performance and execution of management during maintenance.
Effectiveness Level of Implementation Policy
Most of buildings:
Not achieve and maintain internal standards and regulatory compliance
Prefer to focus on corrective maintenance events only.
Only certain actions intended to ensure that an asset performs a required
function to a specific performance standard(s) over its expected useful life by
keeping it in as near as practicable to its original condition.
Only certain aspect of accepted standard or specification of performance,
which sets out the skills, knowledge and attitudes, required to operate
effectively.
Only certain record management system that not included their maintenance
lifecycle and not achieve efficient, transparent and accountability.
Performance management and reporting are only cover to certain information
to determine whether performance is in accordance with the entity’s
management policies, standards, strategic plans, procedures, objectives and
performance targets.
8.0 Conclusion and Recommendations
As for conclusions, the study and research made has led to the achievement of the
objectives of the study. It is evident from the findings that the originality of building
maintenance policy implemented varies from one building to another. This implies
the quality of maintenance is not consistent. There is a need to develop a building
maintenance policy based on Malaysian Property Management Standard (Second
Edition 2016) which to be enforced legally to ensure comfort and safety to public. In
view of the perspective on the maintenance policy practiced in building maintenance
management consideration and the maintenance requirements in office high rise
buildings, maintenance policy and strategy, strategic management, facility
management and performance management as the four key aspects which
significant fundamental for management of building maintenance operation
processes. Building maintenance policy is the main aspect that influences building
maintenance operation processes radically. Moreover, maintenance strategic
management and facility management are greatly influenced by the strategic
directions from the top management. Therefore, they can determine and value the
cost and quality of the building operational processes improvement through
performance management. Maintenance activities are no longer an individual
activity but depend very much on the maintenance management strategic directions.
It has more expectation from the building owner, maintenance professionals,
tenants and occupants. The study concludes that a clear most of building
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maintenance management do not implement the existing maintenance policy
standard published by Malaysian Property Management Standard (Second Edition
2016).
9.0 References
Adenuga, O. A., Olufowobi, M. B., & Raheem A. A., (2010). Effective Maintenance
Policy As A Tool For Sustaining Housing Stock In Downturn Economy. Journal
of Building Performance.Volume 1 Issue 1. pp. 93 – 109
Arazi, I., Khamidi M. F., & Lateef O. A., (2009). Value Based Maintenance
Management Nodel for University Building in Malaysia – A Critical Review.
Journal of Sustainable Development.Volume 2 Number 3. pp. 127-133
CEM. (1994) Maintenance, Technology for Postal Course, Diploma in Surveying,
Reading, MA: The College of Estate Management.
Chanter, B., & Swallow, P. (2007).Building Maintenance Management. (2nd ed.).
United Kingdom. Blackwell Publishing.
James, O., Lekan, A., Gani. J., Oleyani, T., Joy, P., & Omuh, I. (2016). Assesing
The Effectiveness of Maintenance Practices In Public Schools. Journal of
Science and Technology. Vol. 3 Number 3. pp. 103 – 109
Lee, H.H.Y. and Scott, D. (2008) Identification of main aspects in the management
of building maintenance operation processes. Surveyors Times, Hong Kong
Institute of Surveyors, 17 (6): 37–41.
Lee, R. and Wordsworth, P. (2001) Lee's Building Maintenance Management.
London: Blackwell Publishing.
Mohamad Ridzuan, Y. & Mohd Najib, I. (2015).Building Maintenance Policy Issues
In High Rise Commercial Buildings.The 2nd International Conference on
Public Policy & Social Sciences 2015.
Construction Industry Development Board (CIDB) Malaysia (2011). Asset and
Facility Management Implementation Manual.
Constitution, F. (2006). Laws of Malaysia Act 757 Strata Management Act 2013.
Article, 1–21. Retrieved from
http://defensewiki.ibj.org/images/c/cc/Malaysian_Constitution.pdf
Laws of Malaysia Act 663. (2007). Building and Common Property (Maintenance
and Management) Act 663, 44.
Government of Malaysia. (2006). Strata Titles Act 1985, (January).
Jabatan Kerja Raya (2014). Garis Panduan Pemeriksaan dan Penilaian Keadaan
Bangunan Sedia Ada.
Construction Industry Development Board (CIDB) Malaysia (2012) Standard for the
Delivery and Maintenance of Infrastructure using a Gateway System.
75
Construction Industry Development Board (CIDB) Malaysia (2011) The Key
Perspectives of Asset and Facility Management (AFM) in Malaysia
The Board of Valuers, Appraisers and Estate Agents, Malaysia. Malaysian Property
Management Standards.
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EXECUTIVE SUMMARY: PAPER 5
MODEL FOR LEVERAGING GROWTH
STRATEGY AND CORPORATE GOVERNANCE
FIT FOR A SUPERIOR FINANCIAL
PERFORMANCE IN THE MALAYSIA
PROPERTY INDUSTRY
PRESENTER: ASSOC. PROF. DR KARTINAH BINTI AYUPP, UNIMAS
Associate Professor Dr. Kartinah Ayupp, Dr. Daw Tin Hla and Encik Mohd Waliuddin
Mohd Razali
Faculty of Economics and Business
University of Malaysia Sarawak
e-mail: [email protected]
77
MODEL FOR LEVERAGING GROWTH STRATEGY AND CORPORATE GOVERNANCE FIT
FOR A SUPERIOR FINANCIAL PERFORMANCE IN THE MALAYSIA PROPERTY
INDUSTRY
Associate Professor Dr. Kartinah Ayupp, Dr. Daw Tin Hla and Encik Mohd Waliuddin Mohd
Razali
Faculty of Economics and Business
University of Malaysia Sarawak
e-mail: [email protected]
Abstract
This study was undertaken to examine the types of growth strategies and corporate governance
activities adopted by the property and construction firms listed in the Bursa Malaysia, by using
firm’s size and listing age as control variables. Currently there is a lack of studies on how growth
strategy and corporate governance activities can be leveraged as a means to achieve superior
financial performance. In terms of the scope of the study, this study covers all the construction
and property firms listed under the Bursa Malaysia that have full set of data dated from 2000 to
2105.With this in mind, the total number of firms under study are 38 firms from the construction
sector, and 76 firms from the property sector. Based on the result of this study, it is generally
found that the construction public-listed firms adopted more types and breadth of growth
strategies compared to the property firms. Big sized and well-established construction firms are
able to set a premium price for their products while maintaining a low-cost structure in
comparison to their smaller-sized competitors. Construction sector’s firms focuses more on
market penetration, risk management, customer relationship networking and R&D investment on
technology such as IBS and green technology in their business processes. On the part of the
property sector’s firms, the main growth strategies adopted involve offering customized
product/services especially within urban clienteles, mixed use of the buildings, focusing business
in a specific geographic location – such as highly populated and developed locations, new
township or future planned government infrastructure locales. Just like construction sector, firms
in the property sector also adopted related diversification. In terms of corporate governance,
construction sector was seen to have less influential effects as compared to the property sectors,
while listing age do not have significant influence to the firms in both sectors. Both sectors have
numerous important upstream and downstream stakeholders, including private and public
agencies; with customers encompassing both B2B and B2C such as commercial and residential
clients, designer, contractors, and manufacturers etc. With such fragmented sectors, this can
create issues such as lack of coordination and mismatched if not managed properly. In terms of
corporate governance aspects, it is found that BoD’s elements such as board diversity, size and
composition, do not significantly influence the level of financial performance of the construction
firms. While for the property sector, board diversity, composition, role of audit committee and
board independency have positive relationship with property firms’ performance.
Keyword: Growth Strategy, Corporate Governance, Firm Performance, Malaysian
Property Industry
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1. Introduction
The property industry encompasses a wide variety of activities including the planning,
construction, sales and purchase, and management of property. It is regarded as a high-growth
industry with the residential segment constituting the fastest growing and largest segment in
the sector. However, with the current fluctuations of the world economy, the Malaysian property
industry is facing a new business landscape Thus, this study focuses on the growth strategies
and corporate governance activities adopted by the firms within the property and construction
sectors listed in the Bursa Malaysia. It examined the simultaneous dependent and mediating
effects of the firm’s growth strategies and governance mechanisms towards achieving superior
financial performance. This study fills a need for a corporate governance process, that is not
just a custodian of a firm’s compliance but also a mechanism that is robust and fluid enough
to fit with, and is capable of supporting, business changes demanded by the firm’s strategies.
The results shows how the implementation of the governance mechanism can add value to a
property firm’s performance and achievement of strategies, taking into account firm’s size,
complexity, resources, and other external and internal factors. It is widely recognized that the
more dynamic and fast-moving an industry, the more complex are the governance issues. Most
of the time, business owners let governance lag behind and only start to act when symptoms
of governance problems begin to show such as mismanagement, accounting discrepancies,
poor performance, disputes between management over issues of control and accountability,
etc.
1.2. Problem statement
Despite widespread acknowledgement of the importance of strategy–structure fit, there is still
lack of studies to address the similar issues in other aspects of an organization such as
corporate governance-business strategies fit, especially within the property industry. Corporate
governance is generally viewed as a means to ensure compliance to an industry’s standard.
As stated by Monks and Minow (2012), governance is a structure intended to make sure the
right questions asked, and that proper checks and balances are in place for the creation of a
sustainable value and returns to the company. However, it is time for the governance role to
be extended to improving the fit between compliance, business strategies and superior
financial performance. Although the principle is not new, actual implementation involves new
thinking because of the fluid nature of strategies and the changing business needs. This is
especially lacking in a developing country like Malaysia where business success often involves
not so much what you know, but who you know & the appointment of directors tend to follow
such sentiments. As stated by Korine and Gomez (2014), “with new shareholders came new
strategies and with new strategies came new shareholders”. When a firm adds new business
to its portfolio, there is a change in the management control span and consequently this will
increase the complexity of the firm’s governance process. The more the new business differs
from exiting business, the greater the challenge it poses to governance (Anderson, Bates,
Bizjack and Lemmon, 2014). But growth is fundamentally important for any firm to safeguard,
at the very minimum, its capacity to earn returns and competitive standing in its business
environment.
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With the unpredictable nature of the existing business environment, property corporations need
to ensure that their business growth strategy is in sync with their corporate governance activities.
However, there is a lack of indicator on how to leverage growth strategy and corporate
governance activities to fit the firms’ superior financial performance. The problem is compounded
by tendency of some financially focused shareholders that seek relatively immediate returns to
shareholders rather than long-term gains. Firm performance measures in other researches use
mainly ROA, ROE (traditional accounting ratios) and Tobin’Q (market related performance ratio).
Traditional ratios indicators rely heavily on past trend and not on the future. There is a need for
an indicator of future growth to convey the sustainable profit growth of the property sector. With
the current volatile business scenario, property corporations need to ensure their processes are
in line with each other and this include the strategies they adopted and governance activities.
Thus, it can be seen that there are gaps in the current literature on how to leverage growth
strategies-corporate governance fit to achieve superior financial performance. Secondly, how
the firms in these two sectors are adapting to the dynamic business environments brought
about by the changes from the context of their strategizing and governance practices. With this
in mind, this study mainly focuses on the corporate governance, growth strategy and firm
superior performance of the property firms for their sustainability in the Malaysian construction
and property sectors.
1.3. Research Objectives
This project was conducted with the objective to identify how growth strategy and corporate
governance are being leveraged for a superior financial performance. Specifically, it aim:
O1: To assess the types of growth strategy adopted by the property and construction firms
listed on Bursa Malaysia.
O2: To study the sustainability of the property and construction firms by observing their
financial performance in Malaysia.
O3: To evaluate the trend of superior financial performance of the property and construction
firms in Malaysia
O4: To study the association between growth strategy and superior financial performance of
these firms.
O5: To define the impact of corporate governance activities on company’s superior financial
performance.
O6: To construct the model for leveraging growth strategy and corporate governance for
superior financial performance of property and construction firms in Malaysia.
2. Literature Review
2.1. Growth Strategies
According to Barbero et al. (2012) an effective growth strategy as one that could make use of
the organization’s resources and capabilities in order to grab the opportunities posed within its
external environment. Thus, for an organization that is competing within an industry that is facing
changes and challenges such as the property industry, this means the ability to leverage a
correct combination of resources and core competencies so that it can deliver above average
returns. However, determining the most appropriate growth strategy to adopt is not an easy task
because as an organization grows, the management of growth becomes more complex
(Lumpkin and McNamara, 2014; Dess, Lumpkin and McNamara, 2014) Be that as it may, growth
80
is crucial for an organization if it is to survive in the very long term. And for a firm to grow
successfully, it must be able to ascertain its limitations and strengths and leverage on those
areas. Every organizations faces similar challenges when it comes to strategic decision making
or which strategic process to pursue to grab the opportunities or to overcome significant
problems. These complexities in a way, lend to the robust nature of strategizing and provide a
direction to management on the different strategic options or typologies that organizations can
pursue (Henry, 2011).
There are some major strategies that organizations can adopt in pursuing, such as internal
development, strategic alliance, mergers and acquisitions (Thompson et. al., 2014; Hitt, Ireland,
and Hoskisson, 2015; Dess, Lumpkin and McNamara, 2014; Jones and Hill, 2013, David, 2015).
Internal development strategies are also sometimes refers to as organic growth strategies
because an organization builds on its own capabilities in order to grow. Other decisions include
whether to integrate horizontally or vertically (Wheelen and Hunger, 2012; David, 2015; and Hill
et al., 2014). Vertical integration is an approach where a company expands its business
movements on a similar production line, this includes owning or taking over the supply and/or
distribution task of the firm’s value chain. (Lin et al. 2017). There are also strategies that posed
higher risks but at the same time can bring very high return if managed properly such as
diversification strategy. Diversification helps firm to gain market power over rivals, distributers,
suppliers and clients (Li and Greenwood, 2004) and thus lower uncertainty in revenue by dividing
investment risks over multiple product lines. Taking all together, firm can enjoy economies of
scale by utilising synergies among the numerous product lines/categories, (Zahavi and Lavie,
2013). There is some evidence relationship between diversification and financial performance
under same industry (related industry). Nobeoka and Cusumano (1997) find positive relationship
between diversification and sales due the economies of scope in the sharing of technology.
Other researchers such as Tanriverdi and Lee (2008) find negative relationship between
diversification and sales as a result of the increased in costs in trying to effectively coordinate
the firm’s platforms and product scopes. Recent study made by Zahavi and Lavie (2013) show
a U-shape relationship between diversification and sales growth.
Furthermore, growth strategy is a continual process that is highly dependent on, and is control
by, the type of industry and business in which the company is operating in (Mankins and Steele,
2005). The steps taken to ensure growth success is multi-pronged; ranging from doing analysis
of its competitors, establishing objectives and strategies to counter current and potential
competitors; to re-evaluating the implemented strategy at a regular interval to monitor its status
and level of success. A change in the external environment would also warrant formulating a
new strategy to meet this changes or opportunities. Warugu (2001) noted that when strategies
formulation and implementation is done effectively it can offer opportunities for the firms to
respond accordingly and do improvement within its operating environment.
2.2. Corporate Governance
Depending on which practitioners’, researchers’ or theorists’ viewpoints are adopted, corporate
governance can be viewed in a narrow or a broad way. The narrow viewpoint looks at corporate
governance as being restricted to the relationship between an organization and its shareholders.
This way of thinking can be seen in the workings of the agency theory (Larcker, Richardson and
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Tuna, 2007). From a broader perspective, corporate governance is regarded as having a
multitude of relationships that encompass not only those between an organization and its
shareholders, but also between an organization and its numerous range of stakeholders such
as customers, employees, communities, suppliers etc (Koldertsova, 2011). In Malaysia, under
the Malaysian Code on Corporate Governance 2012, the purview of corporate governance is
not only pertaining to the interests of the shareholders, but also relevant internal and external
stakeholders. Notwithstanding the numerous definitions and perspectives, a good corporate
governance is crucial to ensure that the contribution of firms to the overall economy can be
maximised. Review of previous studies discover the benefits of better governance to the firms
in the form of performance improvement, higher access to financing options, reduction in cost of
capital, and improvement in the management of all relevant stakeholders (Claessens and
Yurtoglu, 2013; Ramli and Ramli (2016) In terms of market valuations, numerous studies have
also shown the positive impact of corporate governance (Cheung et al., 2014, Black et al., 2008,
Srairi, 2015, Black et al., 2008, Naushad and Abdul Malik,2015, Karolyi, 2012) . Hoever, in
terms of the specific aspects of corporate goverance activities, there seems to be a mixed
reviews on each actvitive’s contribution to firm perfoamnce. According to Germain, Galy, and
Lee (2014) there is a strong linkage between the size and independence of the board, and firm’s
operation level. The research by Zabri, Ahmad, and Khaw (2016) also reveal that board size
are significantly related to ROA , with weak negative relationship to ROE, while board
independence is found to be irrelevant to firm performance. A study by Ghazali (2010), uses
profit maximization instead of the e prevalent way of using ROA, ROE, or Tobin’s Q to represent
performance of firms. A study by Nik (2002) show that only the directors’ professional accounting
qualification have inverse relationship to the total revenues while the others board attributes like
directors, CEO or chairman demographics do not influence on the overall performance of firms.
Meanwhile, Bauer, Frijns, Otten, and Tourani-Rad (2008) shows that, although well-governed
firms lead to higher stock price, only certain governance categories affect the corporate
performance, namely activities pertaining to financial disclosure, remuneration and shareholder
rights, while there is limited impact shown from the provisions of board accountability, market
control, and corporate behaviour. While a study by Gupta and Sharma (2014) that include
parameters such as board structure, board constitution, conflict of interest, committee
compositions, independent directors, and disclosure of information, found only partial link
between corporate governance, firm’s shares prices and financial performance. Meanwhile, the
studies on listed firms in Sri Lanka provide evidence that board size and composition of non-
executive directors are negatively related to firm value, while the firm size and director
shareholdings have a substantial influence on firm performance as measured from Tobin Q (Guo
& Udaya, 2012).
2.3. Literature Review on Superior Firm Performance
Traditionally, many researchers used the profitability of the firm as a measure of firm
performance. Armstrong and Taylor (2014, p.336) defines profitability as the “measure of the
return in the shape of profits that shareholders obtain for their investment in the company”. The
objectives of having profits are to cover the cost of the business to sustain businesses’
survivability and to ensure the success of a business. Superior financial performance measures
such as growth of income, cash value added (CVA), market value added (MVA) and economic
value added (EVA) are mechanisms that are a better fit to reflect the effectiveness of a growth
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strategy. Cash value-added highlight the management ability to manage cash asset of business;
market value-added (MVA) is a proxy for the achievement of firm performance in the market;
while economic value-added represent the achievement of firm’s performance internally for a
successful business.
For this study, the metrics proposed to embody firm performance are economic value added
(EVA) and market value added (MVA). EVA and MVA have become important management
tools for many corporations to measure the firm’s true economic profit; and to be in-line with
shareholder value maximization (Uyemura, Kantor and Pettit, 1996, grant, 1994, Stewart, 1994,
O’Byrne, 1996, 1997). The presence of a positive EVA would indicate that the management has
created value. Conversely, when there is a negative EVA it shows that the management has
ruined value. EVA have numerous purposes which includes the development of organizational
targets, compensation plans, capital budgeting goals, and corporate valuation. Moreover, among
the most critical functions of EVA is to ensure alignment between shareholders’ interests and
management by tying executive compensation to the creation of shareholder value (Stewart &
Chew, 1995, Birchard, 1994, Dodd & Johns, 1999, Blair, 1997, Wallace, 1997, Ehrbar, 1999,
Baum, Sarver & Strickland, 2004). Thus, it could be seen that EVA directly tackles two important
issues which are, agency theory and capital scarcity theory. MVA is an extension of EVA as its
value is equivalent to the current/present value of the future streams of EVAs. MVA plays a role
by comparing the value of what shareholders put into the firm and what this input is currently
worth. An indication of value being created and a positive MVA is when the value of the
management’s actions and investments is higher than the value of the capital given to the firm
by shareholders.
This study use EVA and MVA to proxy for superior firm performance as it is not implacable to
measure one firm is more superior profit than another firm as their organisational structure may
be different which can impact differently on their profitability. Therefore, individual firm’s EVA
and MVA are used to proxy for the superior firm performance of the firms over some years’ data
for each firms. With this in mind, the dependent variables in this study are firm performance
which is indicated as economic value added (EVA) and market value added (MVA). As in prior
diversification studies (Delios & Beamish, 1999; Hitt, Hoskisson, & Kim, 1997; Tallman & Li,
1996) this study identify firm profitability using the accounting-based measure, return on assets
(ROA). Although the use of accounting-based measurement for firm's profitability have been
critiqued (Aaker & Jacobson, 1987), there is sufficient validation for their adoption (Hoskisson,
Hitt, Johnson, & Moesel, 1993). It has been shown that external analysts and managers
regularly use ROA or return on sales (ROS) as a means to measure management effectiveness,
and they are typically linked to various other measurement of profitability (Robins & Wiersema,
2003). Additionally, stock prices fluctuations tend to be influenced by the announcement of
figures depicted within ROA or ROS, which would indicate their significance in signalling the
performance of firms (Fama & Miller, 1983). Within the field of firm’s diversification, Tobin’s Q
has been frequently adopted to measure organization performance especially in measuring firm
value. (Bharadwaj, Bharadwaj, & Konsynski, 1999; Hitt, Wu, & Zhou, 2002; Tam, 1998). As a
market-based measurement for firm’s performance, Tobin’s Q is forward-looking and risk-
adjusted. Notwithstanding the above, the most important factor in using Tobin’s Q is that it
monitors both the long-term performance as well as the value of the intangible assets that a firm
83
owns (Bharadwaj, Bharadwaj, & Konsynski, 1999). In summary, majority of the prior researches
shows compelling evidence attesting to the robustness and soundness of a good corporate
governance, in addition to growth strategies in predicting firm performance.
With this in mind, the following hypothesis were developed:
Hypothesis 1: Growth strategy of a firm in the previous year can stimulate the growth strategy in
the current year.
Hypothesis 2: Growth strategy of a firm have a positive impact on the superior firm performance
Hypothesis 3: Firm’s superior performance is positively related to its level of corporate
governance.
Hypothesis 4: Firm size and superior firm performance are positively associated
Hypothesis 5: Firm age of listing can improve superior firm performance
3. Research Methodology
3.1. Development of Research Models
This research method involves the use of secondary data such as the examination of the
annual reports and relevant information from the Bursa Malaysia. It seeks to construct the
model for leveraging growth strategy and corporate governance fit for superior firm financial
performance by using quantitative research method. Two paradigms of the research, growth
strategies and superior firm financial performance are structured as a framework of the
research design. It is essential to change from cross sectional models and move towards a
model that capture the inter-temporal behaviour of firm’s profitability. Mueller (1986) was the
first to recommend that the autoregressive properties of firm-level profit time series reflect
whether, and how fast, abnormal profits converge upon normal long-run levels. The common
approach is to estimate the following first-order autoregressive base line model are applied for
the growth strategies, corporate governance activities and superior financial performance
models as follow:
grsit 0 0 * grsit1 eit -------------------------(Eq. 1)
cgait 0 0 * cgait1 eit -------------------------(Eq. 2)
sprofit 0 0 * sprofit1 eit -----------------------(Eq. 3)
Where: grs is growth strategy, cga stands for corporate governance activities, total number of
years which a firm has been up to year 2015 that is denoted as fage and sprofit, is firm i's
normalized superior profit rate, at time t of firm i; 'normalised' being realised profitability less
an indicator of normal profits. The 0 parameter or the persistence parameter-indicates the
rate at which abnormal profits converge upon long-run levels. An estimate that is not
significantly different from one indicates that abnormal profits persist indefinitely. More
generally, the higher 0 is, the more persistent abnormal profit outcomes. The 0 parameter
indicates the level upon which profits converge in the long run. An estimate that is significantly
greater than zero indicates that firms earn relatively high long-run profits. Therefore, higher
values of 0 also indicate greater profit persistence of the firms. The following model (Eq.4) n
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is in order to determine whether firm growth strategy and corporate governance (and other
proposed covariates) influence the convergence-of-returns process in a systematic way:
Based line model of the research:
sprofit a0 a1grsit1 a2cgait1 a3sizeit1 a4 fageit1 b1grsit1 * sprofit1
b2cgait1 * sprofit1 b3sizeit1 * sprofit1 b4 fageit1 * sprofit1 eit (Eq.4)
where sprofit-1 is the one-period lag of the superior firm performance of firm i relative to its
corresponding industry (Property sector), grsit-1 and sizeit-1 are similar measures of relative
growth strategy and relative firm size, and. Our superior financial performance hypothesis
predicts positive estimates for both and b . This model examines the path of convergence
followed by all abnormal profit outcomes. To be more specific about the effects of relative
growth strategies (denoted as cgs) and corporate governance activities (cga) on the
persistence of superior profit outcomes, we estimate a model, using only those observations
for which one year lag of the explanatory variables. The autoregressive profit models assume
that period-to- period changes in firm profitability are gradual, or incremental. However, current
theorising also embraces the more dramatic types of change associated with Schumpeter’s
process of creative destruction (Amit and Schoemaker,1993; Rumelt, 1987). This interest in
more discontinuous profitability changes suggest that we use an approach of explicitly models
the timing of discrete performance events. In light of this, we employ a complementary event
history approach to modelling sustained superior performance. This approach requires that
financial performance be recast as a categorical (i.e., superior versus below-average) variable.
Moreover, it assumes that firms are concerned with increasing the length of time spent in
superior firm performance position as an outcome of growth strategy and corporate
governance. Event history analysis relates the probability of an event occurring at a point in
time (i.e., movement from superior to below-average performance) to some set of accounting
measures of profitability as absolute performance measures. However, the autoregressive
approach assesses the dynamic properties of normalized profit time series, whereas the event
history requires that we distinguish superior from below-average performance outcomes. In
this analysis, we use industry-average return on assets (ROA) as an indicator of normal returns
(all other explanatory variables are also normalized to the corresponding industry averages).
The results from the autoregressive models are discussed firstly by using the model 1, 2 and
3 (Eq. 1 – 3). In Model 1, the estimated constant term is not significantly different from zero,
while the β estimate is significantly less than one. These results are consistent with the findings
of previous persistent profitability research, as they suggest that abnormal profits do eventually
converge upon normal long-run levels (Roberts and Dowling, 2002). Model 4 (Eq.4)
incorporates the explanatory variables and their respective interactions with the superior
financial performance as sprof lag variable. The significant coefficients on the reputation
variables suggest that high-reputation is associated with a larger intercept term and a greater
persistence parameter. These findings support our firm’s reputation hypothesis – firms with
better growth strategy and corporate governance activities tend to demonstrate greater profit
persistence. Models 3 and 4 demonstrate how the results change when we consider only the
persistence of superior profit outcomes. In Model 3, the persistence of abnormally high profits
is somewhat greater than in the overall model. The results from Model 4 suggest that firms
with relatively good growth strategy and corporate governance activities experience a
85
significantly greater degree of profit persistence, a finding that once again supports the
hypotheses.
Model 4 is classified to indicate the three different superior firm performance measures:
Model 4A: Growth strategy, corporate governance and superior firm performance with EVA.
EVAit a0 a1grsit1 a2cgait1 a3sizeit1 a4 fageit1 b1grsit1 * sprofit1
b2cgait1 * sprofit1 b3sizeit1 * sprofit1 b4 fageit1 * sprofit1 eit (Eq.4a)
Model 4B: Growth strategy, corporate governance and superior firm performance with MVA.
MVAit a0 a1grsit1 a2cgait1 a3sizeit1 a4 fageit1 b1grsit1 * sprofit1
b2cgait1 * sprofit1 b3sizeit1 * sprofit1 b4 fageit1 * sprofit1 eit (Eq.4b)
Model 4C: Growth strategy, corporate governance and superior firm performance with Tobin’s
Q
Tobin'Qit a0 a1grsit1 a2cgait1 a3sizeit1 a4 fageit1 b1grsit1 * sprofit1
b2cgait1 * sprofit1 b3sizeit1 * sprofit1 b4 fageit1 * sprofit1 eit (Eq.4c)
3.2. Measuring Dependent and Independent Variables
3.2.1. Measuring Superior Firm’s Performance
Market value added (MVA) was used together with other variables such as firm size, firm age,
board size, growth opportunity, return on asset, return on equity, corporate governance and
growth strategies:
= 0 + 1 −1 + 2 −1 + 3 −1 + 4 −1 + 1 −1 ∗ −1 +
2 −1 ∗ −1 + 3 −1 ∗ −1 + 4 −1 ∗ −1 +
Tobin’s Q is frequently used to measure the firm performance with market-based aspect. Thus,
in this research, Tobin’s Q is used as a proxy for superior firm performance. Tobin’s Q ratio used
as a proxy for market based measure is defined as the market value of equity divided by
replacement cost. Hu and lzumida (2008) argued that Tobin’s Q ratio measures the effectiveness
with which firm management is capable of using its assets to create value for the shareholders.
It is market based measures such as Tobin’s Q is calculated differently by different authors. For
example, prior researcher calculated Tobin’s Q by dividing the market value by replacement cost.
However, Booth and Deli (1996) calculated the same ration by dividing the market value of equity
divided by the total assets. Tobin’s Q larger than one is considered to be utilising scare resources
effectively. In contrast, those with Tobin’s Q less than one are judged to be poorly exploiting their
resources (Filatotchev & Jackson 2013).
Tobin' sQ (EquityMarketValue Liabilities BookValue)
(Equity Book Value Liabilities BookValue)
Weighted Average Cost of Capital - WACC'
Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each
category of capital is proportionately weighted. All sources of capital, including common
86
stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation.
A firm’s WACC increases as the beta and rate of return on equity increase, as an increase in
WACC denotes a decrease in valuation and an increase in risk. The method for calculating
WACC can be expressed in the following formula:
WACC E * Re D * Rd * (1 Tc)
VV
Where:
WACC is weighted average cost of capital; Re = cost of equity; Rd = cost of debt
E = market value of the firm's equity; D = market value of the firm's debt; V = E + D = total
market value of the firm’s financing (equity and debt); E/V = percentage of financing that is
equity; D/V = percentage of financing that is debt; Tc =corporate tax rate
Cost of Equity and Cost of Debt
The cost of equity is the return a company requires to decide if an investment meets capital
return requirements; it is often used as a capital budgeting threshold for required rate of return.
A firm's cost of equity represents the compensation the market demands in exchange for owning
the asset and bearing the risk of ownership. The traditional formulas for cost of equity (COE) are
the dividend capitalization model and the capital asset pricing model.
Cost of Equity Dividends per Share Growth Rate of Dividends
Current MarketValue of Stock
Furthermore, this study also looks at firms’ cost of debt and how it is factored into the firm’s
performance measurement.
Measuring Dividend Growth Rate
The dividend growth rate is the annualized percentage rate of growth that a particular
stock's dividend undergoes over a period of time. The dividend growth rate is necessary for
using the dividend discount model, which is a security pricing model that assumes a stock's price
is determined by the estimated future dividends, discounted by the excess of internal growth
over the company's estimated dividend growth rate. A history of strong dividend growth could
mean future dividend growth is likely, which can signal long-term profitability for a given
company.
3.2.2 Measuring Business Growth Strategies at Company Level
Measurement of the attributes of firm’s business growth strategy is done through content
analysis or disclosure analysis. The source of this secondary data is obtained from the annual
report of the firms in both the construction and property sectors. Level of growth strategy is
treated as one of the independent variable and thus the measurement will take into account this
factor. To determine the measurement attributes of the growth strategies, their different types
and corresponding levels, five categories of strategies are being applied which are [1] Market
penetration strategy; [2] Market development strategy; [3] Product/service development
strategy; [4] Diversification strategy: vertical integration; [5] Mergers, acquisition, joint ventures:
horizontal integration. Construction and property firms generally disclose these strategies in their
financial reports under the category of non-financial information such as within the Chairman
87
Message or speech; company’s prospective and notes to the financial statements. Each type of
business strategy used in a business is defined by the key performance indicators, and the key
performance indicators are determined and set up as queries to run content analysis by using
QSR Nvivo 10 software. The qualitative analysis software is used to accomplish the content
analysis or disclosure analysis. Growth strategy level of one firm for one year is computed as
the following statistical model (Eq:5).
GRSLit N (GSit ) ---------------------- -(Eq. 5)
1
N
Where, GRSLit is denoted as growth strategy level of a firm at time t period; N is total number
of key indicators for the growth strategies. GSit is each relevance scores of disclosure or content
regarding growth strategy. The average relevance scores of the following 24 key words (check
list) related to the measures of business growth strategy practices are computed for one
company by using above equation 5. The total number of key words in the check list N is twenty-
four.
3.2.3 Measuring Corporate Governance Practice
Similar to growth strategies measurement, corporate governance is measured through content
analysis from the listed firm’s annual reports and analysed using the Nivivo qualitative analysis
software. The key words are based on the Malaysia Code of Corporate Governance Guidelines
and these words represent the code of corporate governance practice. Total annual reports
amounting to 416 of firm year observations from the construction sector and 1327 from the
property sector are posted separately into the Nivivo software to run content analysis by using
the determined key works. The following statistical equation is used to calculate the code of
corporate governance compliance scores for each firm year observation for both sectors
(construction and property):
CCGit Q (CCGit ) ---------------------- (Eq. 3.2)
1
Q
Where, CCGit is code of corporate governance compliance score of a firm for a year. Q is total
number of queries runs for each and every company.
3.3. Data Sampling and Collection
The focus of the study is on the construction and property listed firms in the Bursa Malaysia. The
total number of firms used for this study are 126 public-listed firms. They are 43 firms belonging
to the construction sector, and 83 coming from the property sector listed under the Kuala Lumpur
Stock Exchange/ Bursa Malaysia. Based on the above list, their respective annual reports were
collected from the Bursa Malaysia, and data was tabulated from the year 2000 to 2015. Financial
ratios and stock prices are collected from Thomson Data stream and Yahoo finance.
In order to ensure the validity and reliability of the data collected, those firms that do not have
complete data are excluded from the study. Thus, although there is a total of 126 public-listed
firms within these two sectors, only 114 were included in the study. The other 12 firms were
removed from the sample because of incomplete data. This action was taken as their inclusion
will cause an unbalanced panel data. With this in mind, the total number of firms that have full
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set of data from the construction sector stands at 38, while for the property sector there are 76
firms. In terms of the time horizon, the annual reports being examined are from year 2000 to
2015; making it a 16-years coverage. On 1st October 2007, the Securities Commission of
Malaysia have launched an improved version of the Corporate Governance code. This new code
has a revision in some sections to ensure some better best practices within the governance of
the Malaysian public-listed firms. Due to this, year 2008 is chosen to explore the performance of
firms after the revised code is launched.
4. Data Tabulation
The time observation for each of these firms are 16 years, which is from year 2000 to 2015.
Since the total number of firms are larger than the total number of years for the both sectors, the
panel regression is deemed the most appropriate for this research. In this case, two data sets
comprising of the construction and property datasets are constructed separately to ensure
accurate analysis of the data. The construction sector’s data set includes 38 firms and 16 years
for each observation for 10 variables. This resulted in 608 total number of observations, with the
number of groups constituting 38 for the whole construction sector. For the property sector, the
total number of observations is 1216 with the number of firms standing at 76.
Furthermore, a comprehensive reliability and validity tests were conducted to ensure the best
methodology is being adopted for this study. Panel regression analysis in the form of pooled
regression, random effect and fixed effect were conducted in order to identify the most
appropriate regression analysis technique. Consequently, random effect is found to be the most
appropriate and subsequent analysis was conducted. Normality test was done to determine
whether a data set is normally distributed. Multicollinearity test indicate that the VIF’s mean is
less than 10 for both construction and property sector, indicating no problem of multicollinearity
effect in the model. The heteroscedasticity results also shown a gof fit witht chi-square
probability value of 0.0000 is less than 0.01 (1%) for both construction and property sector. To
further test the fit of the model, testing such as Hausman, Breusch and Pagan LM test were also
conducted. For diagnostic on autocorrelation problem, Wooldridge test is run in panel data. All
the above test has shown the strength of the research design and analysis being adopted for
the study.
5. Data Analysis
5.1. Random Effect Panel Regression Model Analysis (Construction Sector)
Table 1 below shows the Random Effect Panel Regression Model Analysis. The variables
included in the model, which are based on overall sample of the construction companies,
explained 29% of the variance of the superior firm performance. R2 of within is 15% which means
that the 15% explain the superior firm performance by one company variables. The between in
R2 is 39%, it indicates that the variables were able to explain towards 39% of the superior firm
performance. Table 1 also reveals that the growth strategies of a business variables have
negative relationship with superior firm performance at 1% significant level (p-value = 0.00 <
0.05). In contrast, board size is significantly positive to superior firm performance at 1%
significant level. This shows that the larger the board size, the more effective it is in improving
the firm performance. Therefore, random effect panel regression model is appropriate for this
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study. The value of Chi square is 123.69 and probability is less than 1%. Rho is 45%, there is a
variation in the superior firm performance among the firms.
In terms of the variables being studied, the Random Effect Model shows that corporate
governance practice does not significantly influence the market value added or superior firm
performance in this sector. The whole model of leveraging growth strategy and corporate
governance has significant negative effect on market value added (superior firm performance)
at less than 1% significant level (p value is less than 1). Therefore, the construction firms’ growth
strategy needs to be reviewed in terms of its choice of emphasis or combination of strategies in
order to increase its effectiveness in contributing towards superior financial performance.
Table 1: Random Effect Panel Regression Model Analysis
Random-effects GLS regression Number of obs = 608
Group variable: comp Number of groups = 38
R-sq: within = 0.1500 Obs per group: min = 16
between = 0.3916 avg = 16.0
overall = 0.2920
max = 16
Wald chi2(9) = 123.69
corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000
------------------------------------------------------------------------------
mva | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fs | -.0071105 .0037686 -1.89 0.059 -.0144969 .0002759
fa | -.0003392 .002721 -0.12 0.901 -.0056723 .0049939
bs | -.0101475 .007803 -1.30 0.193 -.0254411 .0051461
mv | .0231448*** .0023723 9.76 0.000 .0184952 .0277945
rev | .0004428 .0024352 0.18 0.856 -.0043301 .0052158
roa | -.0238284 .0162275 -1.47 0.142 -.0556337 .007977
roe | -.0710693 .2029924 -0.35 0.726 -.4689271 .3267885
corg | .0001221 .000269 0.45 0.650 -.0004051 .0006492
grows | -.0035474** .0014256 -2.49 0.013 -.0063415 -.0007533
_cons | 4.237864 .6102025 6.95 0.000 3.041889 5.433838
-------------+----------------------------------------------------------------
sigma_u | .01287665
sigma_e | .01416173
rho | .45257906 (fraction of variance due to u_i)
------------------------------------------------------------------------------
NOTES: MVA = superior firm performance (Market value added), size = firm size, bs = board size, fage
= number of year for being a listed company, rev = revenue growth opportunity, roa = return on
assets, roe = return on equity, corg = corporate governance growth, grows = growth strategies
practices by firm. . *** significant at 1%; ** significant at 5%.
The forecasted model of the leveraging can be explained as follows:
= 0 + 1 −1 + 2 −1 + 3 −1 + 4 −1 + 1 −1 ∗ −1 +
2 −1 ∗ −1 + 3 −1 ∗ −1 + 4 −1 ∗ −1 +
90
5.2 Random Effect Panel Regression Model Analysis (Property Sector)
In Random Effect Panel Regression Model Analysis (as shown in Table 2), the variables included
in the model explained 29% of the variance of superior firm performance. This is shown by the
overall R-square. R2 of within is 34%, the between in R2 is 27%. This indicates that the variables
among the company were able to be explained 27% towards superior firm performance. Based
on table 5.6, it is reveals that the growth strategies have negative relationship with superior firm
performance at 1% significant level (p-value = 0.00 < 0.05). In contrast, Fs is significantly positive
to superior firm performance at 1% significant level. This shows that the larger the board size,
the better is the firm’s performance. Therefore, random effect panel regression model is
appropriate than fixed effect model.
Table 2: Random Effect Modal (Property Sector)
Random-effects GLS regression Number of obs = 1216
Group variable: comn Number of groups = 76
R-sq: within = 0.345 Obs per group: min = 16
between = 0.267
overall = 0.291
Wald chi2(8) = 41.85
corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000
mva Coef. Std. Err. z P>z [95% Conf. Interval]
fs -.0077*** .0014629 -5.24 0.000 -.0105288 -.0047945
fa -.0001* .0000624 -1.83 0.068 -.0002362 8.28e-06
bs .0001105 .0002573 0.43 0.667 -.0003937 .0006148
rev .00342*** .0012312 2.78 0.005 .0010157 .0058418
roa .03140 .0853751 0.37 0.713 -.1359232 .198741
roe -2.2518 3.408763 -0.66 0.509 -8.932858 4.429246
corg -.00021** .0001042 -1.98 0.048 -.0004102 0.00000
grows . 002008* . 0010367 1.94 0.053 .0000236 .0040402
cons 10.75013 10.19538 1.05 0.292 -9.232456 30.73272
sigma_u .01070717
sigma_e .01129646
rho .47323789 (fraction of variance due to u_i)
NOTES: MVA = superior firm performance (Market value added), size = firm size, bs = board size, fage = number
of year for being a listed company, rev = revenue growth opportunity, roa = return on assets, roe = return
on equity, corg = corporate governance growth, grows = growth strategies practices by firm. . *** significant
at 1%; ** significant at 5%.
Table above shows the leveraging model of growth strategy and corporate governance toward
superior firm performance. The forecasted model of the leveraging can be explained as follows:
= 0 + 1 −1 + 2 −1 + 3 −1 + 4 −1 + 1 −1 ∗ −1 +
2 −1 ∗ −1 + 3 −1 ∗ −1 + 4 −1 ∗ −1 +
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6. Hypotheses Testing Results
6.1. H1: Growth strategy of a firm in the previous year can stimulate the growth strategy
in the current year.
It found that firm’s growth strategy from the previous year have a positive stimulus towards its
current year’s growth strategy, thus hypotheses 1 is accepted. That is, firms in both sectors tend
to gain better performance by focusing their efforts on extracting value from its current strategies
than on developing or finding new sources of values. Both sectors adopt growth strategies for
business expansion, although the type of strategizing focus differs slightly. Construction public-
listed firms are highly focused towards customer relationship and finding new markets, research
and development, risk management, exploring diverse sales opportunities and using new and
high technology processes such as IBS etc. The property sector, on the other hand, exercised
less diversity on the type of growth strategies with focus on exploring new market, R&D and high
emphasis on aspects of risk management. Notwithstanding the above, both sectors shows that
there is a positive impact when it comes to the effect of their previous strategic actions towards
future financial performance. This indicate that the sectors do not suffer from ‘strategic drift’, but
rather they show a commitment in implementing their planned strategies through to it natural
phase. This positive outcome seen from adhering to the systematically-planned growth
strategies is in-line with what scholars’ terms as the effect of organizational learning and higher
learning curve. That is, a systematically planned resource-based view of strategic plan will lead
to firms’ capabilities to improve its effectiveness and increase their capabilities in terms of
knowledge assets. This translate to increased ability to capture and extract the value as the
strategies progresses.
This study shows that effective growth strategies need a shared ambition and cooperation of all
the people in the organization, and this takes time to gain momentum. As stated by Kululanga
(2009), Thanurjan and Seneviratne (2009), and Escobar (2005), as firm progresses in its
strategic implementation, there is greater synergistic capabilities achieved as a result of a more
developed knowledge and competences on what works best for the firm. This synergistic factor
is especially important in property and construction firms as both are operating in a complex and
dynamic business environment with fragmented value chain and diverse stakeholders at various
phases of the chain. This include stages and functions such as as planning, design, construction,
sales, and maintenance. The stakeholders are from both upstream and downstream,
encompassing the public and public sector, while from both B2B and B2C such as commercial
and residential, clients, designer, contractor, and manufacturer etc. As can be expected from
any fragmented sectors such as these, it can generate numerous problems such as lack of
coordination and mismatched if not managed properly. Thus, by having growth strategies that
focuses on the long-term perspectives, these strategies crate synergies - one that balances the
needs for innovative practices and the relationship between price and expenditures.
6.2. H2: Growth strategy of a firm positively impact on the superior firm performance
The research findings show that the growth strategy adopted by both sectors have a positive
impact towards the firms’ MVA performance, and thus hypotheses two is accepted for both the
sectors. For the construction sector which have traditionally been known as a labour-intensive
sector with large number of unskilled, semi-skilled and skilled people, their growth strategies
have shifted to ones that make use of better adoption of technology such as IBS, related
92
diversification and new marketing channel. As for property sector, although traditionally it is
relatively conservative compared to construction due to its low level of automation, this has
changed in the past decade as the sector been experiencing disruptive technology due to the
advent of digital revolution, green technology and more sophisticated customer base and
changing needs. Both sectors demonstrated a range or portfolio of growth strategies that
balances the relationship between financial returns that can be expected from a portfolio and the
riskiness of the portfolio. Firms that demonstrated superior financial returns are those that seems
to be able to improve the level of risk relative to return, by diversifying their portfolios. The key
to these firms’ diversification is to choose investments
whose prices and processes are not strongly correlated. Firstly, investing technological process,
new market segments, geographical regions and classes of projects to improve diversification.
Below are the growth strategies’ focus emphasis by the two sectors:
Figure 1: Growth Strategies Adopted by the Construction Sector
Construction Sector Growth Strategies
30%
25%
20%
15%
10%
5%
0%
Construction companies are categorized by a project-based structure and by a relationship
with numerous third parties such as subcontractors, suppliers, government, clients etc. Thus,
the resources and relevant capabilities play an important role in sector’s success. For these
public-listed firms, the crucial assets for high performance covers both tangible and intangible
asset. This are namely, financial resources, technical competences, and the quality of its human
resources especially those related to technical knowledge on-sites. The firm’s connection and
image in the industry, research and development know-hows, quality of customer relationship,
and innovation tendencies are the four means of product differentiation in the construction. This
include doing both forward and backward integration into the various value chain encompassing
a range of project management methods, extending into design, financial packaging, and
commissioning, facilities management, etc. This include eentry into new type of construction
projects, implementation of new method in construction process, maintaining close relationship
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New Challenges
Creativity
customer focused
customer relationship
Product Development
diversity
employee training
growth strategy
information technology
innovative
market risk
new market
new product
new technology
operational efficiency
opportunities
R&D
risk management
sales opportunities
service positioning
Stakeholders Focused
Growth Strategy
sustainability
Service Quality
Employee Benefits
New Methods
segments Targeting
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