Lecture Notes in Networks and Systems 621

Bahaaeddin Alareeni
Allam Hamdan
Reem Khamis
Rim El Khoury Editors

Digitalisation:
Opportunities
and Challenges
for Business
Volume 2
Lecture Notes in Networks and Systems 621

Series Editor
Janusz Kacprzyk, Systems Research Institute, Polish Academy of Sciences, Warsaw,
Poland

Advisory Editors
Fernando Gomide, Department of Computer Engineering and Automation—DCA,
School of Electrical and Computer Engineering—FEEC, University of
Campinas—UNICAMP, São Paulo, Brazil
Okyay Kaynak, Department of Electrical and Electronic Engineering, Bogazici
University, Istanbul, Türkiye
Derong Liu, Department of Electrical and Computer Engineering, University of
Illinois at Chicago, Chicago, USA
Institute of Automation, Chinese Academy of Sciences, Beijing, China
Witold Pedrycz, Department of Electrical and Computer Engineering, University of
Alberta, Alberta, Canada
Systems Research Institute, Polish Academy of Sciences, Warsaw, Poland
Marios M. Polycarpou, Department of Electrical and Computer Engineering, KIOS
Research Center for Intelligent Systems and Networks, University of Cyprus, Nicosia,
Cyprus
Imre J. Rudas, Óbuda University, Budapest, Hungary
Jun Wang, Department of Computer Science, City University of Hong Kong, Kowloon,
Hong Kong
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Bahaaeddin Alareeni · Allam Hamdan ·
Reem Khamis · Rim El Khoury
Editors

Digitalisation: Opportunities
and Challenges for Business
Volume 2
Editors
Bahaaeddin Alareeni Allam Hamdan
Middle East Technical University, Northern College of Business and Finance
Cyprus Campus Ahlia University
Kalkanlı, Güzelyurt, KKTC via Mersin 10, Manama, Bahrain
Turkey
Rim El Khoury
Reem Khamis Lebanese American University
University College of Bahrain Beirut, Lebanon
Manama, Bahrain

ISSN 2367-3370 ISSN 2367-3389 (electronic)

Lecture Notes in Networks and Systems
ISBN 978-3-031-26955-4 ISBN 978-3-031-26956-1 (eBook)
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 Preface

We are delighted to write this Foreword for the International Conference on Business
and Technology (ICBT’22) proceedings. I deeply believe in the role of such a conference
and other similar scientific forums in bringing together leading academicians, scholars,
and researchers to share their knowledge and new ideas as well as to discuss current
developments in the fields of economics, business, and technology. ICBT’22 provides a
valuable window on the implementation of technology such as artificial intelligence, IoT,
and innovation in business development. For two days, a large number of distinguished
researchers and guest speakers discussed many contemporary issues in business and
technology around the world. We have a strong faith that this book will be of great benefit
for many parties, especially those aspiring to develop buoyant strategies that will lead
to positive impact on any future endeavors. Finally, I hope that the ICBT’22 continues
as a destination for researchers, postgraduate students, and industrial professionals.

Bahaaeddin Alareeni
Allam Hamdan
 Contents

Marketing, E-commerce and Digitalization

The Impact of Organizational Justice on Organizational Trust: Examining

the Moderating Role of Job Security: A Study at the Jordanian Insurance
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Motteh S. Al Shibly and Sahar Moh’d Abu Bakir

Owner-Managers’ Perceptions of Ethical Culture in Malaysian Small

Medium Enterprises (SMEs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Siti Faizah Zainal, Hafiza Aishah Hashim, Zalailah Salleh,
Akmalia Mohamad Ariff, and Nor Raihan Mohamad

Service Quality’s Effect on Customer Satisfaction (A Comparison

Assessment of the Public and Private Banking Sectors) . . . . . . . . . . . . . . . . . . . . . 22
Ananta Uppal, Subhash Kumar Verma, Deepa S. Rajesh,
Satendra Gupta, Lalit Prasad, Sandeep Kumar Gupta, S. Arun Kumar,
and Valeriia Prokopenko

Optimization in the Flow of Scientific Newspapers . . . . . . . . . . . . . . . . . . . . . . . . . 33

Priyanka Mishra, Laodicea Weersma, Nandini Desai, Ananta Uppal,
Sandeep Sharma, Sandeep Kumar Gupta, D. Rajsekar,
and Ganna Zadnieprovska

An Assessment of Challenges of Digitalization of Agrarian Sector . . . . . . . . . . . . 48

D. Arivazhagan, Kunal Patil, Chhaya Dubey, Ananta Uppal,
Sandeep Kumar Gupta, Priyanka Mishra, and Liudmyla Akimova

Effective Utilization of Marketing Strategies by Independent Textile

Retailers in Post Pandemic Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
N. Kavitha, S. Udhaya, M. Esther Krupa, and S. Gokilavani

Purchase Intention Based on the Brand Value of Pharmacies in a Locality

of the Peruvian Highlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Rosario Huerta-Soto, Hernan Ramirez-Asis, K. P. Jaheer Mukthar,
Roger Rurush-Asencio, Juan Villanueva-Calderón,
and Eva Zarzosa-Marquez

Reflections of Social Support on Twitter: The Case of the Soma Mine

Disaster in Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Selcen Ozturkcan, Nihat Kasap, İnanç Arın, and Yücel Saygın
viii Contents

A Study to Assess the Impact on Narcissist, Necrophilia, and Sadistic

Personality Disorder on Youth’s Purchase Decision with Respect
to Cosmetics Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Syed Kazim, K. P. Jaheer Mukthar, Juan Vilchez-Carcamo,
Willian Fernandez-Celestino, and Robert Jamanca-Anaya

Effects of Social Media and the Internet on Academic Performance

in Bahrain Universities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Mariam Juma Alfulaiti, Mohamed Rafea, Allam Hamdan,
and Louai Maghrabi

Young Customers’ Perception of Sharia Financial Services

Mobile-Banking and Behavioral Intention Consequences . . . . . . . . . . . . . . . . . . . . 116
Indah Fatmawati, Delvira Althaf Zulfanti, Nurul Aini, and Fadhilah Tsani

The Social-Media Websites Addiction and Its Impact on University

Students’ Mental Health in Palestine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Ahmad Hamad, Mahmoud O. Jalambo, and Aibo Shwedh

The Impact of 5S on the Production Planning Minimum Order Quantity

(MOQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Mohammad Kanan, Abdulhadi Hawsawi, Salem Aljazzar, Siraj Zahran,
and Zaher Abusaq

The Importance of Digital Marketing in Building Brand Loyalty . . . . . . . . . . . . . 155

Abdulsadek Hassan and Siraj Zahran

The Impact of Social Media on E-Commerce and Marketing . . . . . . . . . . . . . . . . . 164

Alyaa Khalaf, Ateqa Radhi, Maysa Al Mascati, Mohamed Moosa,
Allam Hamdan, and Sharifah Syed-Ahmad

The Factors Affecting Online Buying Behavior of Consumers During

Crises: Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Maryam Shaaban, Allam Hamdan, and Ramzia Albakri

The Impact of Customer Experience Strategy on the Buying Behavior

on the Beauty Sector in Bahrain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Atiqa Aqeel Radhi, Allam Hamdan, Amani Al Abbas,
and Doha Abualsaud

The Impact of Online Banking Services on Customer Spending Behavior . . . . . . 195

Khaled Altamimi, Sayed Mohammed Fadhel, Allam Hamdan,
and Louai Maghrabi
 Contents ix

The Professional Competencies and Its Relationship to Emotional

Intelligence of the Faculty Members at Al-Quds Open University . . . . . . . . . . . . . 203
Hesham O. Jalambo and Mahmoud O. Jalamo

Governance, Technology, Optimal use of Resources and Performance

Tax Culture and Compliance with Tax Obligations of Peruvian Rural

Microentrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Edwin Ramirez-Asis, María García-Figueroa, K. P. Jaheer Mukthar,
Liset Silva-Gonzales, José Del-Carpio-García,
and Robert Concepción-Lázaro

Determinants of Foreign Direct Investments in Bangalore . . . . . . . . . . . . . . . . . . . 226

Jaspreet Kaur, M. R. Eshan, C. H. Madhavi Latha, and Deepa Iyer

Financial Reportings and Analysis Practices in Tata Steel and Corus

Acquisition: Their Association with Growth Rate and Financial
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
F. Lourdunathan, Deenu Nadayil, and Swati Saxena

Stock Market vs Commodity Market- A Study on Traders’/Investors’

Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
S. Jayashree, J. Poornima, S. R. Deepika, M. K. Baby,
and S. Muniya Sathya

Is There Underpricing After IPOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

Mellisa Fitri Andriyani Muzakir and Dessy Isfianadewi

The Application of Ta’widh and Gharamah in the Context of Non-financial

Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Rusni Hassan, Fatimah Mohamad Noor, and Jawwad Ali

Audit Committee and Tax Avoidance: An Empirical Study on Palestinian

Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Islam Abdeljawad, Jehad Al-Selkhi, and Wesam Abu-Ras

Social Responsibility and Corporate Financial Performance: Theoretical

Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Mohammed Nawaf Jallad

A Study in the History of Financial Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

Rima Assaf
x Contents

Tax Policy of the State as a Tool for International Trade Regulation . . . . . . . . . . . 292
Lesia Matviychuk, Inna Dotsenko, Oksana Melnichuk, Svitlana Kolotii,
and Olena Pasichnyk

The Role of Governance, Leadership in Public Sector Organizations:

A Case Study in the UAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Samihah Bt Khalil Halim, Sharifuzah Bint Osman,
Mohamed Matar Al Kaabi, Mahmoud Alghizzawi,
and Jabir Ali Abdalla Alrayssi

An Analysis of Compensation Instruments on Employees’ Job Satisfaction:

The Case of Gamo Gofa Zone Trade and Industry Development Office . . . . . . . . 314
R. Divyaranjani, Nandini Desai, Gurpreet Kaur, Ananta Uppal,
Sandeep Kumar Gupta, Elango Janakiraman, and Sonia Ahsan

The Mediating Role of Psychological Capital Resources Between Grit

and Graduate Employability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Hartini Mashod and Kabiru Maitama Kura

The Impact of Working-Life Quality on UCAS Workers’ Performance . . . . . . . . 334

Mohammad Fayez Abu Sulaiman

ESG, Accounting and Implementation of Technology

An Econometric Assessment on Causal Relation Between Carbon

Emissions and Economic Growth: India’s Reference . . . . . . . . . . . . . . . . . . . . . . . . 347
D. Balaji, Mudunuru Vijay Chand, Cherian Thomas, N. M. Vipulkumar,
M. Lokanadha Reddy, and K. Sivasubramanian

Strategy Implementation in a Developing Country Multinational (Etisalat):

A Factor-Analytic Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Mohamed Al Shami

The Association Between the Structure of the Capital and Profitability

in Palestinian Local Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Mohammed Maali and Tamer Sabri

ESG Policies for Financial Institutions: Comparative Studies Between

Malaysia, United Arab Emirates and United Kingdom . . . . . . . . . . . . . . . . . . . . . . 375
Ieman Huda binti Adnan, Siti Nursyawani binti Misman,
Syarah Shahirah binti Mohd Yusof, Rusni binti Hassan,
and Nurul Afifah binti Che Basir
 Contents xi

Accounting for Climate Change in Light of the IFRS Foundation

Movements: A Systematic Review and Future Research Agenda . . . . . . . . . . . . . 389
Mohammad A. A. Zaid

Islamic Private Equity: A Hybrid Equity-Debt Structure as an Alternative

Investment Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404
Aiman Aizuddin Abdul Rashid and Rusni Hassan

The Role of Corporate Governance in Managing Risks: An Applied Case

on Companies Listed on the Palestine Stock Exchange . . . . . . . . . . . . . . . . . . . . . . 415
Mohammad Kamal Abuamsha and Bahaa Razia

The Issue of Providing State Guarantees on a Portfolio Basis

by the Legislation of Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Sudarenko Olena, Shevchenko Olena, and Sydorenko Dmytro

The Impact of Ownership Structure on Risk Disclosure: Evidence

from Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
Mohammed Hassan Makhlouf and Dania Al-Ghosheh

Board and Audit Committee Structure and the Quality of Corporate

Environmental and Social Responsibilities Disclosures in Malaysian
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Sulaiman Tahajuddin, Abdul Wahid Mohd Kassim, Raman Noordin,
and Junainah Jaidi

Sustainability and Operational Challenges of Islamic Microfinance

in Nigeria: The Case of Al-Hayat Microfinance Bank . . . . . . . . . . . . . . . . . . . . . . . 457
Adnan Opeyemi Salaudeen, Auwal Adam Sa’ad, and Hassan Suleiman

Tone Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474

Roaa Bilal AL-Zyoudi, Raneem Mohammad Fawarseh,
and Salah AL-Kayed

A Study on the Culture of Accountability in Non-profit Organizations

in the State of Qatar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
Abdullh H. Alnameh, Habeebullah Zakariyah,
and Mustafa S. Abdul Karim AL-Wahaib

Unlocking True Potential of Zakat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485

Roshaiza Taha, Zalailah Salleh, Mimi Aizreen Hamzah,
Norsiah Ahmad, and Riswadi Azmi

Ways to Improve the Performance of Accountants in the Workplace . . . . . . . . . . 496

Heba Tayseer Shereer and Rahma Ali AL-Tarawneh
xii Contents

Factors that Influence Profit Sharing Investment Account Holders

(PSIAHs) to Patronise Islamic Banks in Nigeria: An Empirical Study . . . . . . . . . 499
Ya’u Isah, Romzie Rosman, and Ashurov Sharofiddin

The Evolution of the National Strategy for Integrity and Anti-corruption

in Jordan From 2008 to 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532
Rahaf Ibrahim Alkhalaileh, Hanadi Ahmad Kamum,
and Hashem Alshurafat

Tax Burden in the System of Investment Appeal Assessment

of an Enterprise in the Context of Globalization and Transformation
of National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Inna Dotsenko, Lesia Matviychuk, Viktoriia Klochkovska,
Oleksandr Klochkovskyi, and Liudmyla Sachynska

Evaluation of the Exercise of the Performance Assessment System . . . . . . . . . . . 547

Lalit Prasad, Neha Nagar, D. Rajsekar, Ananta Geetey Uppal,
Priyanka Mishra, Sandeep Kumar Gupta, Renu, and Natalia Kornieva

The Effects of Cyber Crime on E-Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560

Mohamed Fareed Ghazi Rafea, Allam Hamdan, Ruaa Binsaddig,
and Esmail Qasem

Risk and Return Analysis of Crypto Currencies in India . . . . . . . . . . . . . . . . . . . . 570

Arockia Stalin, Annie Stephen, and Aakash Kumar

Risk Assessment of Islamic Banking Products: A Case Study of Murabaha

and Ijarah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Adnan Yusoff, Rusni Hassan, and Syed Ahmed Salman

Enhancing the Role of Audit as an Effective Governance Mechanism

via Digital Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Nurul Afidah Mohamad Yusof, Zam Zuriyati Mohamad,
and Vikniswari Vija Kumaran

Promoting the Adoption of Islamic Microfinance in Nigeria: The

Moderating Role of Religiosity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603
Abdurrahman Abdullahi, Anwar Hasan Abdullah Othman,
and Salina Hj Kassim

« 2 °C Finance» and Green Bonds Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619

Mohamed Bechir Chenguel
 Contents xiii

IFRSs Adoption and Earnings Management, Earnings Persistence,

and Value Relevance: Evidence from Selected Telecommunication
Companies of Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Gagan Kukreja, Abdulla Al-Jalahma, Raj Bahadur Sharma,
and Ali Abdulaziz Almanasef

Impact of Corporate Governance on Financial Performance: Empirical

Evidence of the Selected Telecommunication Companies of GCC . . . . . . . . . . . . 643
Raj Bahadur Sharma, Abdulla Al-Jalahma, Gagan Kukreja,
and Zahra Sayed Mohamed Almoosawi

Artificial Intelligence (AI) in the Education of Accounting and Auditing

Profession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656
Sara Mohammed Ali, Zainab Jawad Hasan, Allam Hamdan,
and Mohammed Al-Mekhlaf

Descriptive Study on Audit Quality Reporting: Evidence from Listed

Firms in Bahrain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665
Mujeeb Saif Mohsen Al-Absy and Zainab Hasan Mahdi

Critical Discussions on the Upcoming Sugar-Sweetened Beverages Tax

in Kuwait: A Qualitative Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677
Hasan Ghura, Fahad Alsalem, Hanan Alsharah, and Wael Abdallah

The Impact of Value-Added Tax on Small and Medium Enterprises . . . . . . . . . . . 684

Amna Hameed, Hasan Ali Khalaf, Hasan Alzaimoor,
Mohmed Ali Alshehab, Allam Hamdan, and Ahmed Attia

Technology, Tourism, Hospitality, and Health Care Services

Teal Organizations in Times of Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699

Agnieszka Rzepka, Magdalena Maciaszczyk, and Magdalena Czerwińska

Are Tourists Interested and Finally Decide to Visit Tourist Attraction After
Seeing Virtual Tour? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
Hana Ulinnuha, Melody Angeline, Fithria Khairina Damanik,
and Reza Permadi

Ways of Optimizing the Environmental and Operational Mobility

of Passenger Transportation in Megacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720
Volodymyr Porfirenko, Dmytro Dekhtiarenko, Liliia Lytvyshko,
Mykola Hrebelnyk, Valentyna Artemchuk, and Oleksii Parokhnenko
xiv Contents

Analysis of the Potential of Tourism Restorative Destinations to Overcome

Health Disorders Due to Work Fatigue: (Study on Perceived Destination
Restorative Qualities (PDRQ) in the Context of Tourism) . . . . . . . . . . . . . . . . . . . . 733
Ratna Roostika and Punik Mumpuni

Case Study of Pasirmulya Subdistrict, West Java, In-donesia as a Model

for Analyzing the Development of a Tourist Village . . . . . . . . . . . . . . . . . . . . . . . . 742
Yopy Maulana, Dicky Hida Syahchari, and Azizah Omar

The Influence of Motivation and Behavior on Sustainable Tourism

in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
Fithria Khairina Damanik, Jesisca, Hana Ulinnuha,
and Wendy Purnama Tarigan

Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) . . . . . . . . . . . . . 756

Fithria Khairina Damanik, Hana Ulinnuha, Candy Reggie Sonia,
and Nurhalisa

Understanding Indonesian Rural Tourism Destination Marketing Best

Practices Using Social Media Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766
Juliana Juliana, Sabrina Oktaria Sihombing, and Ferdi Antonio

Family Homestead as an Innovative Project for the Development

of Tourism, Entrepreneurship and Management of Socio-Economic
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776
Plotnikova Maria, Prysiazhniuk Oksana, Shvets Tetyana,
Buluy Oleksiy, Ovdiyuk Olena, and Reznik Nadiia P.

Blockchain Technologies in the Conditions of Digitalization

of International Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796
Smutchak Zinaida, Fedun Igor, Chorna Nelia, Chornyi Roman,
Kulikov Oleksii, and Tyshchenko Oleksandr

Encountering Jaycustomer at Hospitality Business: The Roles of Staffs’

Experience and Age in Determining Workplace Stress . . . . . . . . . . . . . . . . . . . . . . 805
Nur Hafizah Muhammad, Mohd Hafzal Abdul Halim,
Nur Syahirah Mohd Nawi, Aikal Liyani Mohd Rasdi,
and Nurul Aziah Ahmad

Conceptualizing Experience-Rich Sustainable Tourism . . . . . . . . . . . . . . . . . . . . . 815

Marlisa Abdul Rahim, Nurzehan Abu Bakar, Nor Maizana Mat Nawi,
Nik Alif Amri Nik Hashim, Hassnah Wee, and Siti Salina Saidin
 Contents xv

Assessment of Health and Safety Hazards Affecting Workers at Saline

Water Conversion Corporation Lathe Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . 824
Raid Almutairi, Zaid Albeladi, and Ali Elrashidi

Work Habits Based on Agile Methodology: Metrics and Procedures . . . . . . . . . . 838

Raja Kamal Chicha, K. Meenadevi, G. V. Mruthyunjaya Sharma,
J. R. Archana, and Kumar SubbaAnantha

Digital Leadership in Education: A Meta-analysis Review . . . . . . . . . . . . . . . . . . . 849

Ahmad Fadhly Arham, Nor Sabrena Norizan, Ahmad Firdhaus Arham,
Nornajihah Nadia Hasbullah, Irfah Najihah Basir Malan,
and Shaliza Alwi

A Study on Effect of Coronavirus Outbreak on India’s Goods and Service

Tax Revenue: An Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
Noble Jacob, N. Siva Sankar, J. Poornima, Lakshmipathi Naidu,
M. Vaishnavi, and Lourdunathan

Framework Development of the Internet Ethical Attitude Scale

for University Students . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868
Juliana Jaafar, Shahrinaz Ismail, Afifah Saifullah,
Teh Faradillah Abdul Rahman, Wan Normeza Wan Zakaria,
Maslin Masrom, Nor Raihana Mohdali, Noorlizawati Abd Rahim,
Nik Nadzirah Nik Mohamed, and Shuaib Muhammad

Perceptions of Incorporating Virtual Reality of Goggles in the Learning

Management System in Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879
Saadia Anwar Pasha, Humaira Sharif, Sana Ali, Amal Al-Misfari,
Mokthar Elareshi, Abdulkrim Ziani, and Mohammad Habes

Author Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887

Marketing, E-commerce
and Digitalization
 The Impact of Organizational Justice
on Organizational Trust: Examining
the Moderating Role of Job Security: A Study
at the Jordanian Insurance Companies

Motteh S. Al Shibly(B) and Sahar Moh’d Abu Bakir

Business Administration Department, Faculty of Business, Amman Arab University, Amman,

Jordan
[email protected]

Abstract. The study aimed to examine the impact of Organizational justice in

terms (distributive, procedural, and interactional justice) on organizational trust:
the moderating role of job security at Jordanian Insurance Companies. The quanti-
tative analytical descriptive method was used. 19 Jordanian Insurance companies
participated in the study out of 22 companies operating in the Jordanian market.
The sampling unit consisted of middle and first-line management, working at all
the companies’ branches, a random sample of 360 was selected. For collecting the
needed information and data the questionnaire was used, 360 questionnaires were
distributed, and 319 were valid for statistical analysis. The main findings of the
study revealed that there is a statistically significant impact of organizational jus-
tice on organizational trust, and job security as a moderator improved this impact
by 0.077. The study recommended giving more attention to procedural justice
and to enhance transparency and other corporate governance elements. The study
recommended also fostering employees’ job security through engaging in human
resources retaining strategies.

Keywords: Organizational justice · Organizational trust · Job security ·

Jordanian Insurance Companies

1 Introduction

Organizational justice and trust are important concepts in business practice and human
resource management in organizations. Likewise, organizational justice and trust reflect
the positive side of the employees, and this is reflected in their performance and orga-
nizational affiliation with the organization in which they work to form a fundamental
relationship [1, 2]. According to [3], organizational justice and organizational trust in
organizations enhance the job performance of employees so that they reduce many nega-
tive effects. Although many studies have been conducted on the impact of organizational
justice on trust [2–6]. There are few studies that dealt with the aspect of job security, in
addition to the fact that the current study adopted job security as an intermediary factor,

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 3–13, 2023.
https://doi.org/10.1007/978-3-031-26956-1_1
4 M. S. Al Shibly and S. M. A. Bakir

the current study is interested in explaining the impact of organizational justice on trust
to contribute to the literature of the field of study And whether job security affects the
relationship between organizational justice and organizational trust. In addition, the field
of study research in Jordanian insurance companies, gives new contributions in the ser-
vice sector and in a developing country such as Jordan in terms of organizational justice,
organizational trust, and job security. Especially since the global economic situation
imposed many challenges and increased competition, which forced insurance compa-
nies in Jordan to seek to adopt modern strategies in business to enhance productivity and
support their position, especially since a country like Jordan has many insurance compa-
nies within a small population. This increases competition among them. In addition, the
insurance sector in Jordan includes small, medium and large companies, and this may
create a difference in the application of strategies, but in the same matter they agree that
the employee is the focus of the attention of companies from large to small, especially
in the insurance sector because they are companies that provide services and not goods
[7]. Hence, organizational justice, organizational confidence and job security are impor-
tant factors affecting employees [8, 9]. Accordingly, the importance of the study lies
in strengthening insurance companies in Jordan through the important factors affecting
the employees, which is reflected in their performance, and this is due to the company’s
productivity, which supports it in facing challenges in Jordan due to the presence of
high competition and a decline in the economic situation as a whole, especially after the
Corona pandemic.

2 Review of Literature
2.1 The Relationship of Organizational Justice and Organizational Trust
Based on business administration, organizational justice has been considered one of the
important concepts in the field of organizations’ business and organizational behavior
[10, 11] Accordingly, organizational justice is linked with fairness so that employees
can see equality among themselves with reward and punishment, and employees always
deliberately compare that among themselves [12]. Accordingly, the concept of organi-
zational justice is divided into dimensions: first Distributive justice in the results within
the organization [13]. Then procedural justice means justice in the procedures within
the organization by managers in terms of reward or punishment for employees. Finally,
interactional justice, crystallizes in justice by dealing with all employees, i.e. by personal
treatment between managers, employees, employers, and employees [14]. In the same
context the organizational justice and its dimensions, it enhances the human cadres in
the organization and preserves the human capital, which is reflected in the satisfaction of
the employees, as the employee in the event of touching injustice was not satisfied with
the environment of the organization in which he works [15, 16]. Study, which examined
the impact of organizational justice on employees, showed that organizational justice
enhances the capabilities of employees through their feeling of satisfaction and reassur-
ance from the work environment. According to [17] study, which aimed to examine the
relationship between organizational justice and organizational trust, there is a positive
relationship in addition to the presence of compatibility with the dimensions of justice
represented in procedural justice, interactive justice and distributive justice. Likewise
 The Impact of Organizational Justice on Organizational Trust 5

organizational justice and organizational trust among employees in organizations play

an important role and represent a supportive relationship in addition to the association of
the dimensions of organizational justice in that, procedural justice and distributive justice
[8]. According to the above discussion about the relationship of organizational justice
and its dimensions and organizational trust, the following main and sub-hypothesis were
assumed:

H1 Organizational justice (distributive, procedural and interactional) has a positive

impact on organizational trust.
H1–1 Distributive justice has a positive impact on organizational trust
H1–2 Procedural Justice has a positive impact on organizational trust
H1–3 Interactional justice has a positive impact on organizational trust

2.2 The Relationship of Job Security with Organizational Justice

and Organizational Trust

Job security is considered to have a fundamental impact on the performance of employ-

ees and their organizational behavior. This was demonstrated by comparing the work
performance of employees appointed with a permanent contract, where their perfor-
mance and behavior were better than employees appointed with temporary contracts
[18]. According to study of [19], which examined the concept of job security, it appears
that job requirements enhance job security, and this in turn is reflected in the employee’s
performance, as the higher job guarantees there are, the more job security is achieved.
Accordingly, study of [20] examined the relationship of organizational justice with
job security. The results of the study revealed the existence of a consensual relation-
ship between organizational justice and job security in terms of developing employees’
behavior and performance, even if they suffer from job fatigue in their work environment.
On the other hand with the relationship of organizational trust and job security Orga-
nizations that adopt organizational trust achieve high practical results. Therefore, job
security and organizational trust are important matters for the organization, as there is a
positive relationship between organizational trust and job security, The greater the orga-
nizational confidence and job security in the organization, the greater the organizational
behavior of the employees and the psychological commitment, which is reflected in the
performance of the employees and the performance of the organizations [9]. Accord-
ing to the above discussions about job security and its relationship with organizational
justice and organizational trust, the following hypothesis has been proposed:

H2 Job security positively moderated the effect of organizational justice on organiza-

tional trust (Fig. 1).
6 M. S. Al Shibly and S. M. A. Bakir

Fig. 1. The study framework

3 Research Methodology

3.1 The Study Population and Sample

The population of the study consisted of all the Jordanian Insurance companies, accord-
ing to the Jordanian Securities Depository Center, (22) shareholdings Insurance compa-
nies are operating in Jordan, 19 companies agreed to participate in the survey. The sam-
pling unit consisted of middle and first line management, in all the companies Branches,
a random sample of 360 were selected [21–23]. The study relied on the quantitative ana-
lytical descriptive method, and to collect the needed data and information a questionnaire
was developed based on 5-point Likert scale [24–27]. The first part of the questionnaire
contained the information related the characteristics of the participants [28]. The second
part was designed to measure organizational justice, which were obtained from [29, 30].
The third part of the questionnaire encompasses organizational trust questions, which
were obtained from [31, 32]. The last part was developed to measure the moderator
variable (job security), the researchers relied on [33]. A total of 360 questionnaires were
distributed, 319 questionnaires were valid for statistical.

3.2 The Questionnaire Reliability

Cronbach’s alpha was calculated to identify the internal consistency of the tool questions.
[34–38], commented that if the results of this measurement were 0.70 or more the
questions of the variables are internally consistent. The results of organizational justice
= 0.811, Organizational trust = 0.84,3 and Job security = 0.798Consequently the results
revealed that the study tool is reliable.

First: The Respondents’ Characteristics

Frequencies and percentages were used to get the results of the respondents’ character-
istics. When it comes to gender 38.7% of them are females, and 61.3% are males, this
variations is due to the nature of managerial positions that needs long working hours and
to transfer from place to place. These conditions are difficult for females particularly
when they have family responsibilities. In terms of age, 33.1% of them were between
25–35 years old, 41.6 were between 35–45 years old, and 25.3% were older than 45 years
 The Impact of Organizational Justice on Organizational Trust 7

old. According to education: 15.9% of the respondents have diploma, 66. 8% have B.A,
and the 17.3% have Master degrees. All the participants have minimum 5 years practical
experience in the insurance sector.

4 Descriptive Statistics Analysis

The researchers employed one sample t test with 3.5 as a compare value with 95%
confidence interval [39, 40]. Table 1 shows that the total means of the three types of
organizational justice were as follows (3.75, 3.67, and 4.05), the results revealed high
level of application of the three types of justice, the interactional justice recorded the
highest mean. The table also manifests the means of the dependent variable (organiza-
tional trust) = 3.84 and the moderator (job security) = 3.82, which proved a high level
of application for these two variables in the study population according to the perception
of the sample members. The table shows also that (t sig) values of all the variables =
0.000 which is less than p value 0.05. This result confirmed that there is no difference
between the sample means of each variable and the population mean, and all the variable
are applied in the Jordanian Insurance companies.

Table 1. Descriptive statistics and one sample t-test.

One sample t-test

Confidence interval = 95% test value = 3.5
Variables Mean Std. deviations T T sig
Organizational justice
Distributive 3.7484 0.66499 6.672 0.000
Procedural 3.6701 0.69242 4.387 0.000
Interactional 4.0549 0.37320 26.555 0.000
Dep
Organizational trust 3.8427 0.33057 18.518 0.000
Job security 3.8245 0.47968 12.081 0.000
N = 319 df = 318.

4.1 Hypotheses Testing

H1 Organizational justice (distributive, procedural and interactional) has a positive

impact on organizational trust.
To test H1 multiple regression was calculated with p value = 0.05, the hypothesis
will be accepted if t sig value was less than 0.05. Table 2 illustrated the results of the
multiple regression as follows: The value of R = .548 revealed a moderate correlation
between organizational justice and organizational trust, the value of R2 (0.300) indicated
8 M. S. Al Shibly and S. M. A. Bakir

that 30% of the variation in the organizational trust is explained by the organizational jus-
tice, while 70% of the dependent variable variation is due to other factors. The ANOVA
part manifests the value of F (45.074) and F sig which = (0.000) since the sig value is
less than 0.05 means that at least one of the independent variables (the organizational
justice dimensions) has a statistically significant impact on the dependent variable (orga-
nizational trust). The third part (the coefficient) shows based on the value of t sig that the
distributive and the interactional justice both have a statistically significant impact on
organizational trust, while the procedural justice has no statistically significant impact
on organizational justice.

Table 2. Multiple regression results

Independent Dependent Model summery ANOVA Coefficient

variables variables R R square F Sig. Beta t Sig.
(organizational
justice)
Distributive Organizational .548a .300 45.074 .000b .182 2.447 .015
Procedural trust .003 .034 .973
Interactional .467 9.405 .000

H2 Job security positively moderated the effect of organizational justice on

organizational trust.
To test the moderation effect the researchers relied on the hierarchal regression.which
was employed through 3 steps In the first step the impact of organizational justice as
one single variable on organizational l trust was calculated to confirm a statistically
significant impact based on t sig = (0.000) In the second step job security impact on
organizational trust was tested, with F = 122.266 at (0.000) sig level. And t value =
8.576 at 0.000 sig level. In the third step the interaction between organizational justice
and job security impact on the organizational trust was tested, t value = 7.038 at 0.000
sig level. The values of R: the correlation were as follows: In the first model = 0.415
indicated a moderate relationship between the organizational justice and organizational
trust with R2 = 0.172 In the second model R = 0.660 indicated a strong relationship
between job security and organizational trust with R2 = 0.436 In the third model R
= 0.716 indicated a strong relationship between the interaction of the independent and
the moderator variables together and the dependent variable With R2 value = 0.513
(Table 3).
 The Impact of Organizational Justice on Organizational Trust 9

Table 3. The second hypothesis results (hierarchical regression results)

Model R R2 R2 Change F Sig. F Change Beta T T sig

1 .415a .172 .172 66.007 .000b 66.007 3.638 7.642 .000
2 .660b .436 .264 122.266 .000c 147.930 2.841 8.576 .000
3 .716c .513 .077 110.545 .000c 49.540 4.470 7.038 .000

5 Results
The results of the study indicated that, the largest percentage of insurance company
employees were males, and the largest age group among employees is the age group by
35-45, and the largest percentage of employees in insurance companies hold a diploma,
not a bachelor’s degree or higher studies. While the results of the study indicates that the
distributive and the interactional justice both have a statistically significant impact on
organizational trust, while the procedural justice has no statistically significant impact on
organizational justice. The values of Beta revealed that the interactional justice has the
highest impact on enhancing organizational trust among insurance companies’ employ-
ees, followed by the distributive justice. In addition to that the impact of the organizational
justice on organizational trust improved with the existence of the job security.

6 Discussion
This section discusses and contrasts the analysis’s results with those from earlier stud-
ies. As discussed in the literature Organizational justice enhances organizational trust
in terms of employee job security [41]. As a result, companies tend to Organizational
justice (distributive, procedural and interactional) in achieving organizational trust [8].
Based on business administration, organizational justice has been considered one of
the important concepts in the field of organizations’ business and organizational behav-
ior [11]. Accordingly, trust is considered to have an active role in the relationship of
employees with the organization [42]. Justice and job security increase the performance
of employees and their organizational behavior, which confirms the existence of a rela-
tionship between organizational justice and job security [5]. The current study revealed
that while distributive and interactional justice both have a statistically significant impact
on organizational trust, this is consistent with [8]. While the procedural justice has no
impact on organizational justice this is what you agree with [43]. In addition to that, the
impact of organizational justice on organizational trust improved with the existence of
job security. This was consistent with a study of that emphasized the role of modified
job security on organizational trust and organizational justice [44]. In order to reach an
in-depth understanding about the relationship of organizational justice to organizational
trust, the study model was assumed, which showed that all dimensions of organizational
justice play an important role on organizational trust, and that job security enhances this
relationship and where the greater the job security, the stronger the relationship between
them. This in turn affects the employees and their performance.
10 M. S. Al Shibly and S. M. A. Bakir

7 Conclusions and Recommendations

Organizational Justice can be described as the perceived state of equity and fairness that
are felt by the staff of the organization. Related to the financial and non-financial com-
pensations and benefits they got, and also to the equity and fairness of the regulations
and policies that apply to them, and the level of respect, honesty and integrity of dealing
with all the staff regardless the managerial level, by their management. The topic has an
interest particularly in the new era, due to the crucial role it plays in enhancing employ-
ees’ moral and positive attitudes towards the organization and its members. So that this
study aimed to examine the impact of organizational justice in terms of (distributive,
procedural and interactional) on organizational trust, taking job security in consideration
as a moderator The findings of the study underlined the statistically significant impact
of two dimensions of organizational justice on organizational trust, (the distributive and
the interactional) whilst the procedural justice has no statistically significant impact on
organizational justice. When it comes to the moderator role, the results revealed that
organizational security improved the impact of organizational justice on organizational
trust by .077. Based on the findings it is important to apply all the dimensions of orga-
nizational justice, particularly the procedural, accompanied by transparency and other
corporate governance elements. The study also recommended to give more attention to
the crucial role of job security in promoting organizational trust in all its dimensions
for future research it is recommended to study the impact of organizational justice on
other factors than organizational trust, and in other sectors than the insurance companies.
Accordingly, insurance companies in Jordan must rely on business strategies related to
organizational justice and organizational confidence, taking into account job security,
in order to achieve a fair and positive work environment, which is reflected on the per-
formance of employees and the performance of the company as a whole, especially
insurance companies are service companies that rely mainly On the employee, and for
the purposes of future studies, this study can be applied to companies with a different
sector, such as telecommunications, because of its important economic role in Jordan.

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 Owner-Managers’ Perceptions of Ethical
Culture in Malaysian Small Medium Enterprises
(SMEs)

Siti Faizah Zainal, Hafiza Aishah Hashim(B) , Zalailah Salleh,

Akmalia Mohamad Ariff, and Nor Raihan Mohamad

Universiti Malaysia Terengganu, 21030 Kuala Nerus, Terengganu, Malaysia

[email protected]

Abstract. The study aims to identify the elements of ethical culture being imple-
mented in small and medium enterprises (SMEs) in Malaysia. The method used for
this study was a phenomenological approach with a purposive sampling method.
The research was conducted through interviews with managers from 11 SMEs in
Malaysia, which included micro, small and medium enterprises. Atlas.ti version
9.1.3 was used to identify and explore themes and codes among the interview data.
Primary elements found were the aspects of formal elements, informal systems
and leadership as found in the past literature. The critical aspects of communi-
cation, training and management were also discovered in this study. However,
one element found in Malaysian SMEs not otherwise found in the literature is
religiosity. This study bridges significant obstacles to knowledge generation of
the essential issues of ethical culture in SMEs. All the elements of ethical culture
discovered to be implemented in the small medium enterprises (SMEs) during the
interview are presented in this paper.

Keywords: Ethical culture · SMEs · Religiosity · Manager

1 Introduction
Nowadays, ethical standards need to be emphasised in company culture. The ethics issue
remains limited in business literature and is given less attention by SMEs researchers
[22]. There were more studies on ethics in large organisations rather than in SMEs.
Small-medium enterprises are becoming major business vital actors in the economies
of countries globally [30] and function as economic drivers and engines for a coun-
try’s economic growth and development [14]. SMEs contribute tremendously to GDP
[32]. SMEs are regarded a backbone of the economy in most nations [23, 27]. SMEs
have a considerable presence in the economies of all countries globally, especially in
fast-changing and competitive global markets [28]. In Malaysia, SMEs have produced
many work opportunities, covering many families’ daily income, education, house rent,
utilities, and other family expenses [18]. About 97.2% of business entities in Malaysia
are SMEs, including 1.6% medium, 20% small, and 78.4% micro enterprises [18].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 14–21, 2023.
https://doi.org/10.1007/978-3-031-26956-1_2
 Owner-Managers’ Perceptions of Ethical Culture 15

Due to local and global corporate crises, there is a need for ethical business practises
[19]. Since most SMEs lack an ethical culture, fraud is a possibility [36]. Individuals
and organisations have revealed numerous reports of fraud, corruption, kickback, and
dishonesty [10]. In Malaysia, fraud rose to 43% in 2020 and ranks highest among Asian
countries [36]. The frequency of fraud cases has harmed firm reputations, indicating that
owners do not even value an ethical culture.
According to ACFE (2018) [4], small firms lack resources to grow and thrive. In
addition, a company’s sustainability may be affected by limited access to funding [20],
which depends on how well its management runs the company. Many realize ethical
wrongdoing may be costly for small firms and others [1]. In competitive contexts, the
different backgrounds of employees provide ethical issues for individuals and manage-
ment [1]. Implementing ethical procedures has put pressure on business owners [25].
Business ethics in large organisations are limited in small organisations due to poor
global competitiveness and significant failure likelihood [15]. Fernandez and Camacho
(2016) [22] report that SMEs’ ethical issues have received less attention from researchers.
SME sustainability is a challenge. They struggle with the global marketplace’s impact
on SMEs’ ethical behaviour, which affects stakeholders [15]. SME bargaining power is
weak. Customers may employ unethical practises like bribes and SME contracts. SMEs
are susceptible when they struggle with technological improvements, changing market
trends, and business sustainability [2].
The objectives of this study are to explore the ethical culture elements being imple-
mented in SMEs. Therefore, the research questions are focusing on what are the ele-
ments of ethical culture being implemented in SMEs? Therefore, this paper has research
and practical value. Understanding ethical culture in SMEs will advance the field. This
research creates a basis for future research on SME ethical culture. This study should
notify policymakers and practitioners about implementing best practises for SMEs in
which it in lines with the new Malaysian government’s goal to promote ethical practises
and combat ethical misconduct.

2 Literature Review
2.1 Ethical Culture
Ethics is a set of values or guiding principles for proper behaviour [29, 33]. Ethical
rules of conduct provide guidelines that protect a community and its members [6, 34], as
well as prescriptive rules and virtues that help individuals determine how things should
be done. Ethical culture is as social and behavioural environment where individuals
must differentiate right and wrong and act beyond the minimum implementation of
ethical decisions and behaviours [8]. It is also a subset of organisational culture that
represents various dimensions of formal and informal systems in the organisation. [38]
extended this to include influential ethical culture, where several pillars are applied in
the organisation. The first pillar is concerned with core values. The second pillar is the
ethics program, and the third pillar is ethical leadership. However, in the literature of
[22] that as overall ethical culture is influenced by the three elements which are formal
systems, informal systems [21] and leadership [35] and all elements can be differentiated
by goal (communication, training, and management) [22].
16 S. F. Zainal et al.

Formal Elements. Formal ethic systems are tangible and provided in paper or elec-
tronic. It is an organization’s procedures and policies that direct all parties to achieve
its goal. A training course that generates a record is formal [26]. Formal ethical culture
includes mission statements, codes of conduct, orientation rituals, and rules and regula-
tions. [22] list formal elements such as codes, review, reports, transparency of informa-
tion, specific ethics content, welcome manual, and adherence to bodies or standards. [22]
cite only formal communication elements. Employees and potential candidates in the
hiring process can view company information online. They can view company perfor-
mance and results. It can also help employees achieve the organization’s goal. [31] say
formal communication can be vertical, horizontal, or diagonal. Formality depends on
the company’s strategic goals. Ethical values can also be found in the company’s vision
and mission statement, where the mission statement provides information on ethics, ori-
entation, and strategy [11, 16]. Promoting the company’s ethical values would give it a
competitive advantage [9].

Informal Elements. Informal ethical culture is the second element in ethical culture
which includes organisational norms, values, and behaviour [11]. In contrast to formal
systems, informal systems are more prevalent when it comes to resolving unethical issues
within the organisation [21]. An informal system focuses more on implicit learning from
experience that is acquired without awareness, and the culture is becoming normalised
inside the organisation. It can be accepted or not accepted in achieving the organisation’s
goal. An informal system and a formal system are interconnected, and if the informal
system and the formal rule are allinged, then the organisational objective can be achieved.
According to [31], informal communication can be defined as unofficial and spontaneous
messages. It is generally with the exact directions with the formal communication.

Leadership. Leadership is a major factor in culture, including an organization’s ethi-

cal culture [35]. Organisational leadership describes the shaping of the organisational
context, provision of strategic direction, and influencing the firm’s philosophy by top
management [3]. [5] found that business directors must lead ethically to have ethical
executives, employees, and agents. The organization must also be accountable to its
stakeholders and ethical effect can be reached by assessing how they integrate ethics
[5]. While, [17] found family employees make family business more personal and its
mentoring characterised by teamwork, trust, and loyalty that displayed family business
value ethics.

3 Methodology
This study employs a phenomenological study approach as It aims to comprehend a
person’s experience and capture the essence of a lived phenomenon [13]. Face to face
interviews were performed to obtain information regarding the objective of the study. An
interview script was developed, and a few processes were taken to ensure the interview
questions were structured well. Three bilingual organisational researchers and account-
ing professionals validated the scripts to see whether any terms were missing, unclear, or
hard to understand [7]. Thus, the validated scripts were used for a pilot test in the SMEs
from two SME players. The scripts were finalised at the end of the interview session
 Owner-Managers’ Perceptions of Ethical Culture 17

with the understanding and accuracy of the SME player’s perspectives. The questions
for the interview consist of background information and elements of the ethical culture
practised in SMEs.
The target participant sample size for this study was ten respondents. However, the
researchers acquired eleven participants. Before engaging in the interviews, an ethical
clearance letter was approved by university ethics committee. This study’s quality was
based on its credibility, reliability, and ethical standards. The interviewee’s knowledge
of the ethical issue is used to select candidates. After the interviews are finished, the tran-
scripts are forwarded to the interviewees so they can acknowledge, comment, and verify
the information. For registration and analysis, a digital recorder was used. Respondents’
answers were noted in case the recording equipment failed and the interview couldn’t
be transcribed verbatim [12]. After the interviews, the tape was transcribed to find any
questionable words or expressions. Data was analysed with ATLAS.ti 9.1.3. It helped
code, categorise, and cross-reference the data to find the themes.

4 Key Findings and Discussion

SMEs managers have different views on ethical culture. Some assert ethical culture is
part of the company’s business practises. Ethical culture encompasses all ethical in the
organisation. They also believed it was due to organization’s working culture, policies,
and communication.
After interviewing SMEs, it was found that formal systems, informal systems, and
leadership were implemented, which supported [22] study with one added ethical cul-
ture element, religiosity. In Malaysia’s SMEs, not all proposed goals (communication,
training, and management) were implemented. The formal systems mainly involved
communication and management. Informal systems are related to all three goals, but
mainly communication and leadership, according to management. Religion is practised
by all interviewed SMEs and can be used by Malaysian SMEs. Hence, Coronavirus-
2019 attacked Malaysia in March 2020, disrupting business. Therefore, the manager of
SMEs adheres to the law (bodies or standards), such as providing employee welfare and
continuously checking on their health before working to ensure the virus will not attack
and spread to other employees.
The interview revealed guidelines documentation elements. The manager provided
the employee procedures and SOP. Internal communication, formal meetings, job
description documentation for each employee, and a performance checklist or progress
report were also followed. SMEs with vision and mission had formal communication ele-
ments. Some prepared a handbook for employees that acted as a code of ethics in which
the management shared their beliefs and ethical values. Besides that, communication-
related informal elements were most prevalent. Telephone conversations are daily. SMEs
implemented employee-manager conversations frequently. Clear communication and
using their own language and spontaneity were important as a two-way relationship to
maintain the relationship and ensure the goals can be accomplished together.
SMEs implement communication information like informal but regular meetings.
It’s often held weekly, and it’s a useful way for management to discuss issues with
employees, including ethical ones. In informal meetings, minutes weren’t always taken.
SMEs also use informal performance rules.
18 S. F. Zainal et al.

According to previous studies, the leader played a key role in all three aspects (man-
agement, communication, and training). Malaysian SMEs managers or owners pro-
vide several elements. One of the key aspects was setting an example related to work or
written or unwritten rules.
Other leadership elements found in this study are avoiding ‘moral silence’: estab-
lishing clear expectations and promoting creativity, ensuring the selection process fol-
lowing ethical values, promoting responsibility at the individual level, addressing ethics
issues, rewards behaviour, performance reward, and being realistic about expectation
and interest of employees.
Coaching has also been identified as a significant new aspect. Coaching is essentially
guidance for someone to achieve an organisation-established goal. The coach acts as a
facilitator for the employees. For example, they ask employees how to solve problems.
The employees will be led to the desired solution.
Religiosity are new elements of ethical culture that are being implemented. Reli-
giosity are key to SME growth. It drives decision-making [24]. This suggests that they
prioritise religion above all else. Religiosity make employees honest and trustworthy.
Religion also fostered closer relationships between employees within the organisation,
provided serenity, and promoted a healthy work-life balance.
SME owner-managers believed all formal, informal, leadership, and religiosity ele-
ments in their organisation were linked. Regular informal meetings helped SMEs grow.
It cannot be created if one is missing.

5 Conclusion and Limitation

Ethical culture issues in SMEs in Malaysia are required, especially due to a lack of
research. SMEs managers from different industries have different views on ethical culture
in their companies. In three months, 11 Malaysian SMEs participated in a semi-structured
exploratory study. This study found SMEs’ awareness of ethical standards and issues
in their organisation. In addition, the study found that formal, informal, and leadership
elements were implemented in SME organisations. Despite this, only formal training
elements were not implemented in Malaysian SMEs, based on a review of the key aspects.
Principally, the key aspects, such as formal communication and management elements,
were implemented, followed by informal communication, leadership-related training,
and management elements. In their organisation, a code of ethics, mission, and vision
exist. Additionally, the SMEs adhere to the authority’s regulations, bodies, and standards.
Guidelines, job descriptions, and internal communication were documented. A formal
meeting was also held, and its minutes were documented. The employee performance
checklist and progress report were also used.
All key aspects of informal systems were then implemented (i.e., communication,
management, and training). In informal communication settings, employees engage
in conversation and use their own language. The organisation normalised day-to-day
learning, informal meetings, and informal performance rules. In leadership elements,
managers lead employees towards their organization’s goal by example. They avoided
‘moral silence’ between employees, set clear expectations, and promoted creativity. The
selection process was also ethical, promoting individual responsibility, addressing eth-
ical issues, rewarding ethical behaviour, and setting realistic goals. Coaching is a new
 Owner-Managers’ Perceptions of Ethical Culture 19

leadership element. In Malaysia, a new ethical element was found in SMEs: religiosity.
However, the formal element of training has not yet been implemented in Malaysian
SME. Overall, the awareness of ethical culture in Malaysia, especially for SMEs, is still
lacking.
The study presented a few limitations related to the size of companies. The views
on ethical culture in SMEs were still lack. As Malaysian has more than 80 percent of
the SMEs are micro-enterprises, the research should be in-depth to find out and give
awareness towards the SMEs because during the approach for interviewed, some were
afraid maybe due to the transparency of the information that they had. In terms of the
area of the study, it is suggested to have a study that focuses on certain districts or states
in the future. This study might be concerned with specific industries or specific sectors
to view more on the issues in specific areas.

Acknowledgment. The study is supported by the Fundamental Research Grant Scheme (FRGS)
FRGS/1/2020/SS01/UMT/02/3 provided by the Ministry of Higher Education Malaysia. The
authors would like to thank the Ministry for the support.

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 Service Quality’s Effect on Customer
Satisfaction (A Comparison Assessment
of the Public and Private Banking Sectors)

Ananta Uppal1 , Subhash Kumar Verma2 , Deepa S. Rajesh3 , Satendra Gupta4 ,

Lalit Prasad5 , Sandeep Kumar Gupta3(B) , S. Arun Kumar3 ,
and Valeriia Prokopenko6
1 P P Savani University, Surat, India
2 Noida International University, Greater Noida, India
[email protected]
3 AMET University, Chennai, India
{executivedirector,arunkumar.s}@ametuniv.ac.in,
[email protected]
4 Galgotia University, Greater Noida, India
[email protected]
5 D Y Patil Institute of Management Studies, Pune, India
[email protected]
6 V.N. Karazin, Kharkiv National University, Kharkiv, Ukraine

[email protected]

Abstract. The objective of this research has to compare the effect of service qual-
ity on customer loyalty in Kombolcha city between public and private banks. As a
result, the study’s findings are important in that they offer solutions for bank cus-
tomer satisfaction issues and give them an understanding of where they are now in
terms of service quality and what they can do in the future to please customers and
compete effectively with the sector’s current fast growth. The analytical analysis
methodology was used to achieve the study’s goals by combining quantitative
and qualitative data descriptions. A total of 385 bank customers were interviewed
and a questionnaire was used to gather data. Convenient screening methods were
used to collect the sample. Statistical methods such as mean, standard deviation,
correlation, independent sample t-test, and multiple regression analysis were used
to interpret the collected results.
The findings of this study show that all five service quality dimensions (tangi-
bility, assurance, openness, empathy, and reliability) have a strong and important
association with customer satisfaction and that customers of the public bank in
Kombolcha town are dissatisfied with all five dimensions of service quality. Cus-
tomers of private banks, on the other hand, were pleased with the three service
level dimensions (Tangibility, responsiveness and assurance.) Customers in pri-
vate banks, on the other hand, we’re disappointed with the efficiency and empathy
aspects of service quality. Similarly, the five service quality dimensions (tangi-
bility, empathy, assurance, and reliability) were found to explain 68.9% of the
differences in customer satisfaction in public and private banks in Kombolcha
town. The researcher contains suggestions to the bank’s management and makes
suggestions for other studies conducted on the study’s results.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 22–32, 2023.
https://doi.org/10.1007/978-3-031-26956-1_3
 Service Quality’s Effect on Customer Satisfaction 23

Keywords: Customer loyalty · Customer satisfaction · Service quality ·

Profitability and sustainability

1 Introduction

Banks would also play a critical role in stock market activities as well as a vital role in
maintaining a country’s economic growth. To do these, banks have to provide quality
service to customers and enhance customer loyalty and customer satisfaction. According
to Hansemark and Albinson (2004), “Satisfaction is a customer’s overall feeling toward
a service provider, or an emotional response to the gap between what consumers want
and what they get when it comes to the satisfaction of those wishes, goals, or desires.
Customer loyalty, on the other hand, refers to a strongly felt commitment to repurchase a
favourite good or service in the future, considering the possibility of switching behaviour
due to situational influences and marketing efforts. (Oliver, 1997). Better profitability and
a larger market share are critical factors in improving bank efficiency and deciding their
future. (Hung et al. 2003). Thus, service quality becomes a decisive tool for private and
public Banks to struggle to make themselves unique and different from other competitors
(Ladhari 2008). This is why scholars most of the time focus on defining service quality
and identifying determinant factors in service quality that contribute to the success of the
organization (Nagi 2009). Thus to say that Banks are providing high service quality, there
should be high-quality service in banks which in turn enhances customers’ satisfaction
and motivate them to loyal to banks (Duff et al. 2008).
Service quality can be achieved when customers’ expectation about the service they
get from banks and what banks provide is matched (Akroush 2008). Besides, customer
loyalty is the easiest way to assess service efficiency. This is because service efficiency
improves as performance beats expectations and decreases when performance falls short
of expectations. (Athanassopoulos et al. 2001). Banks in the service sector consider ser-
vice efficiency to be a strategic aspect of their business strategy in these calls (Spathis
et al. 2004). Organizations can achieve a higher degree of service efficiency, and higher
levels of customer loyalty, and retain a constant competitive edge by focusing on service
quality. (Meuter et al. 2000). Banks have to also focus on providing excellent and world-
class standard services to survive in the banking industry. Guo et al. (2008). This brought
a remarkable change in how banks performed their activities over the past decades. Cus-
tomers are also looking for quality service from banks as they have various choices
available than before. Thus, banks have to recognize this fact in their customer expec-
tation (Newman et al. 1996). These calls for banks in the market to put their maximum
effort into service quality to differentiate themselves from their competitors and enhance
their image, dependability, responsiveness, reputation, and communication, all of which
contribute to customer loyalty and retention (Newman, 2000.). Much research on ser-
vice quality and consumer loyalty has been conducted, with the conclusion that “service
quality has a favourable impact on customer satisfaction.” These two variables should
work hand in hand to ensure the success and survival of the private sector banks. The
study accomplished that quality service is an important factor to satisfied customer sat-
isfaction. So, Banks should focus on service quality to satisfy their customers in every
24 A. Uppal et al.

dimension of service quality” (Rashed et al. 2014). Besides, According to Moham-

mad and Alhamadani (2011), service efficiency is a significant determinant of customer
satisfaction. Parasuraman et al. (1985) confirmed that “service quality is a significant
predictor of customer satisfaction.” Heskett et al. (1997) also concluded that “Service
quality and customer satisfaction have been identified as key elements of the service-
profit chain”. The successfulness of an organization is, therefore, determined partly by
customer satisfaction. Accordingly, Newman and Cowling (1996) stated that “excellent
service quality is vital to business profitability and survival.” Hence from these research
findings, we can understand that if service quality is ignored in the organization, it will
have negative effects on the organization’s profitability and sustainability. With the pro-
vision of licensing investments to private bank services by the government of Ethiopia,
there is rapid growth or expansion of the banking sector. It provides services in different
parts of the country and plays a vital role in economic development. It also makes inter-
mediary financial services for society at global levels. The quality of services provided
by the public bank and private banking sectors still needs improvement to attract and
satisfy customers (National bank of Ethiopia 2009/10) While studies on service quality
and its effect on customer satisfaction have been performed in various banks indepen-
dently, they cannot compare service quality and its impact on customer satisfaction in
the public and private banking industry. Besides, no research is carried out on service
quality and its impact on customer satisfaction in private and public banks in Kombolcha
town. As a result, this research aims to compare the effect of service quality on customer
loyalty in public and private banks using Service quality dimensions. In many service
sectors, customers focused on the best quality services in all aspects due to the presence
of different alternative services. According to Peter F. Drucker, “Quality in a service or
product is not what you sate into it. It is what the client or customer gets out of it”. The
lack of in-depth research into consumer needs is the most critical part of the relationship
between service providers and consumers. To thrive in their market, banks must prepare
effectively to draw new customers and satisfy them. After that, banks must coordinate
their operations and actions to satisfy and retain customers, recognising the role of cus-
tomers in driving results. (Johnson et al. 2000). Quality can be a critical factor in the
production of value and affect customer loyalty with every bank. As a result, the bank-
ing sector must be geographically situated to offer high-quality services to consumers.
Banking firms must examine the level of awareness and preferences of consumers when
it comes to service quality to deliver better service. Customer satisfaction depends on
the individuals feeling about whether the services provided by an organization to an
individual satisfied him/her or not concerning his or her expectations (Oliver 1980).
Customer loyalty is often prioritised by service suppliers and it is seen as a requirement
for customer retention. Customer loyalty leads to frequent visits to retailers, repeat prod-
uct orders, and word-of-mouth exposure to friends as a beneficial result of marketing
practices. (Anderson et al. 1994) Although low customer satisfaction has been linked to
a tendency to complain (Zeithaml et al. 1996). A happy client is more inclined to remain
loyal and patronise the company in the future (Kotler et al. 2006). Customer satisfaction
can be divided into two categories: transactional satisfaction and cumulative satisfaction.
A customer’s assessment of her or his experience and responses to a particular business
interaction is known as transaction-specific satisfaction. Cumulative satisfaction refers to
 Service Quality’s Effect on Customer Satisfaction 25

a customer’s cumulative assessment of their patronage service from the beginning to the
present. (Boulding et al. 1993). Banks play an important economic role as intermediaries
in mobilising public savings and channelling the influx of funds for beneficial purposes,
ensuring that the country’s economic growth continues (Uppal 2010). Recognizing the
importance of banks in economic growth, the Ethiopian government/Reserve Bank has
taken many significant steps since 1991 to align the banking system with the country’s
goals. Currently, there is rapid growth and expansion in the banking sector. The banking
system is confronted with strong competition and technological advancements; bank
systems have become more simple and more convenient (National Bank of Ethiopia
2010). For example, several studies have been conducted to determine the impact of ser-
vice quality on customer loyalty. Tizazu (2012) researched the effects of service quality
on customer satisfaction in private banks and the result indicates that “there is a pos-
itive effect of the four service quality dimensions on customer satisfaction.” Besides,
Yonatan (2010) concluded that “the banks need to become more responsive and assuring
to their customers as well as increase their accessibility.” Beliyu, (2012) also confirmed
that “the overall service quality perceived by consumers was not satisfactory meaning
expectations exceeded perceptions and all the dimensions showed higher expectations
than perceptions of services.” Even though studies on service quality and its effect on
customer satisfaction have been performed in various banks across the country, they are
limited in their ability to compare service quality and its impact on customer satisfaction
in the public and private banking sectors. Moreover, in Kombolcha town. In addition
to this, the researcher carried out the observational survey and referred to suggestion
boxes at private and public banks in the area, some customers raise complaints about
the service quality of the private and public banks. This will be used as a springboard to
study the issue in detail. So this study attempted to assess the impact of service quality
on customer satisfaction in comparison to the public and private banks by using Service
quality dimensions.

2 Research Methodology
The approach of the research explains Why has a research study been conducted, how
has the research problem been identified, how the data been obtained, what data have
been collected and what specific techniques have been used, why has a particular method
of data analysis been used, and several other questions about a research problem are gen-
erally asked. (Kothri, 1990). So considering this the researcher has presented under this;
sample size, research design and sampling techniques, data sources and data collecting
tools, data analysis and interpretation.

Research Design: Accordingly, this research aims to assess the impact of service qual-
ity and customer satisfaction in comparison of three private banks namely Dashne Bank,
Wogagen Bank, and Abay Bank and one public bank namely the commercial bank of
Ethiopia Kombolcha Town. A descriptive and explanatory analysis approach was used
to accomplish the study’s goals.

Data Source: The effect of service quality and customer loyalty in comparison to three
private banks was assessed using primary and secondary data sources in this report.
26 A. Uppal et al.

Namely Dashne Bank, Wogagen Bank, Abay Bank and one public bank namely Com-
mercial Bank of Ethiopia at Kombolcha town. The primary data has been obtained
from employees, managers and customers of private and public Banks in the study area.
Moreover, the secondary data has been obtained from manuals, and reports, which are
prepared by these banks.

Data Collection Tools: The data collection tools conducted in this study were a ques-
tionnaire and an interview. Therefore, structured interview questions were prepared for
the branch managers (4) and one employee in the position of customer service officer (4)
of the private and public banks to explore the impacts of service quality that could not be
raised in the questionnaire to strengthen the respondent’s response. Besides this; ques-
tionnaires were prepared; for respondents selected from customers of private and public
banks. Thus, the questionnaires consist of closed-ended question items which have both
Service Quality Questionnaire (SQQ) and a Customer Satisfaction Questionnaire (CSQ).

Sampling Method and Sample size: The population of this study was all the cus-
tomers who received services in saving and current accounts from the three private
banks namely Dashne Bank, Wogagen Bank, and Abay Bank and one public bank
namely Commercial Bank of Ethiopia at Kombolcha Town. The convenience sampling
approach was used in this analysis to select a sample from the available population based
on the researcher’s interest or by assessing who can supply the necessary details and
who is more willing to participate in the research (Hair et al. 2003).

Therefore, the total population of the bank’s customers were 60,731(2014 banks
data). This included all the selected banking sectors of current and saving accounts, out
of this the sample has determined by using the following statistical formula (Cochran,
1977). According to the target population mentioned above, the population is infinite.
Because Cochran defines above 50,000 the population is infinite if it is below this pop-
ulation it is finite. So the following statistical formula should be used to determine the
sample.

n1 = z2 ∗ {p ∗ (1 − p)}
c2
where, n1 = population size or sample size
Z2 = confidence level/95% valued by 1.96
P = population standard deviation/50%, C2 = margin of error/5%
1.96 ∗ 1.96 ∗ {0.5 ∗ (1 − 0.5)}
=
0.05 ∗ 0.05
3.8416 ∗ 0.25
=
0.0025
0.9604
= = 384.16
0.0025
= 385

The total sample size has taken 385. But the population in each bank is different, so
calculating the samples of each bank requires dividing based on strata proportionally by
 Service Quality’s Effect on Customer Satisfaction 27

using the following formula.

n1 ∗ N1
n=
N
where n = the total number of samples
N = total number of population
N1 = total number of population in each bank
n1 = number of samples in each bank (Table 1)

Table 1. Number of population and samples taken from each bank

Banks Population/number of Sample size Percent Remark

customers/N1
Commercial bank of 40,000 254 66%
Ethiopia
Dashen bank 14,781+ 20,731 131 34% 93 Dashne bank, 20
Wogagen bank 3250+ Wogagen bank and 18
Abay Bank 2700 Abay bank
Total 60,731 385 100%
Source: Questionnaire developed for this research

Data Analysis: The data was analysed and presented using the Statistical Package for
Social Science (SPSS) programme version 20.0. Descriptive analysis, correlation, single
sample t-test, and multiple regression analysis were used as statistical methods in this
research.

Descriptive Analysis: Tables, frequency distributions, and percentages were used to

display the descriptive statistical findings, which included a summary of the statistics.
Summary statistics, which include the mean and standard deviation values for each
variable and attribute in this study, were also used to collect data.

Inferential Analysis: Karl Pearson Coefficient Correlation analysis.

When the relationships between the variables are linear and the interaction between
the two variables is constant, the Coefficient Correlation is a commonly used mathe-
matical tool for producing an index of the relationships between the variables (Cohen
1988). Determine if the service quality dimensions have a statistically meaningful rela-
tionship. (Tangibility, responsiveness, reliability, assurance and empathy) with customer
satisfaction the Karl Pearson Coefficient Correlation was used).
The Coefficient Correlation will range from −1 to +1, according to Cohen (1988).
A perfect negative correlation is represented by a value of −1, whereas a perfect positive
correlation is represented by a value of +1. A correlation value of 0 indicates that there is
no interaction. The results of the Coefficient Correlation may be interpreted as follows.
28 A. Uppal et al.

Correlation coefficient Interpretation

r = .10 to .29 or r = –.10 to –.29 small
r = .30 to .49 or r = –.30 to –.4.9 medium
r = .50 to 1.0 or r = –.50 to –1.0 large

T-Test Analysis: A T-test is used to compare the values on some continuous variable
for two groups, or on two occasions (Cohen 1988). So independent-sample t-test was
used for this research to determine the customer satisfaction level difference between
public and private banks in Kombolcha town.

Multiple Regression Analysis: The effect of service quality dimensions (tangibility,

efficiency, responsiveness, assurance, and empathy) on customer satisfaction was inves-
tigated using multiple regression analysis, and a regression model was constructed to
validate the theories and assess the impacts of service quality on customer satisfac-
tion. This model is incorporated to predict the value of a certain variable based on the
other variables that are determinants of service quality dimensions (independent vari-
ables) to predict customer satisfaction comparatively private with public bank sectors
(dependent).

Regression Functions: The dependent variable (customer satisfaction) and indepen-

dent variables are the two types of variables in this study’s equation of regressions
(tangibility, reliability, responsiveness, assurance and empathy). The main goal of using
regression equations in this research is to improve the study’s ability to describe, interpret,
and forecast the variables.

Regression of customer satisfaction on selected variables.

Yi = β0 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5

where:
Y is the response or dependent variable- Customer satisfaction.
X1 = tangibility, X2 = reliability, X3 = responsiveness, X4 = assurance, X5 =
empathy are the explanatory variables.
β0 is the intercept term, which is a constant that equals the mean if all slope
coefficients are zero.
The coefficients associated with each independent variable are β1, β2, β3, β4 and β5,
and they calculate the difference in the mean value of Y per unit change in their respective
independent variables. As a result, the following relationships were explained using this
mathematical methodology. Using multiple regressions, regress customer loyalty (as a
dependent variable) on a chosen linear combination of independent variables.

Reliability and Validity of Data: Reliability is mostly concerned with matters of

measurement accuracy (Bryman and Bel 2003).

According to Hair et al. (2006), if α is greater than 0.7, it indicates high reliability,
while if it is less than 0.3, it indicates poor reliability. The questionnaire was circulated to
21 customers of public and private banks in Kombolcha town to ensure the accuracy and
 Service Quality’s Effect on Customer Satisfaction 29

reliability of the instrument, and Cronbach’s alpha was found to be 0.939 and 0.943 for
the service quality questionnaire, respectively. And a consumer loyalty questionnaire;
the latter is true if the score is greater than 0.7. The degree to which a test tests what it
claims to assess is known as validity (Creswell 2009:190–92). Validity is characterised
as the accuracy and usefulness of inferences drawn from research findings. It refers to
the degree to which data analysis findings accurately represent the phenomenon under
investigation. He claims that the capacity and desire of respondents to supply the required
information is critical to the authenticity of the questionnaire results.

3 Result and Conclusion

A comparative analysis of public and private banks in Kombolcha town was performed
to investigate the impact of service quality on customer satisfaction. According to the
study’s conclusions, consumers of public banks were dissatisfied with all five dimensions
of service efficiency (assurance, tangibility and responsiveness). Customers of private
banks, on the other hand, were unhappy with the service level of Reliability attributes.
Like Employees’ politeness in the provision of services to customers consistently, effec-
tive handling of employees’ complaints of customers and employees’ dependability
in handling service problems. In addition to this customer were dissatisfied with the
Empathy attributes of employees’ treatment and respect of customers, friendly service
provision of employees to the customers, service provision of employees to the cus-
tomer within a short waiting time, serious attention of employees to the customer and
convenient location of the banks to the customers. Further on this, the findings of the
research also indicate that customers of private banks were satisfied and had better ser-
vice quality than public banks in Kombolcha town. The unbiased sample t-test ensures
this. The t-test for equality of means sig. (2 –tailed) the result showed 0.00, which is
less than 0.05, indicating that there were substantial gaps in consumer loyalty between
public and private banks. According to the study’s correlation findings, all five service
efficiency measurements are positively and substantially linked to customer loyalty.
Furthermore, the results of the study show that reliability has the strongest link to
customer loyalty, accompanied by assurance, openness, empathy, and tangibility. On
the other hand, the study’s findings indicate that the five service efficiency metrics can
explain 68.9% of the variance in customer satisfaction, while other unexplored factors
can account for 31.1 per cent of the variation in customer satisfaction compared to other
service quality dimensions, the results of this study revealed that assurance is the most
critical service quality parameter that has a positive and meaningful impact on customer
satisfaction.

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 Optimization in the Flow of Scientific
Newspapers

Priyanka Mishra1 , Laodicea Weersma2 , Nandini Desai3 , Ananta Uppal3,4 ,

Sandeep Sharma5 , Sandeep Kumar Gupta6(B) , D. Rajsekar6 ,
and Ganna Zadnieprovska7
1 Sri Balaji University, Pune, India
2 Centre Christ University, Bengaluru, Brazil
3 Dr D Y Patil Institute of Management Studies, Pune, India
4 P P Savani University, Surat, India
5 DIT University, Dehradun, India
6 AMET University, Chennai, India
[email protected], [email protected]
7 V.N. Karazin, Kharkiv National University, Kharkiv, Ukraine

[email protected]

Abstract. The evolutions that occurred in the past decades have provoked vari-
ations in the market as well as academic and research. Given this scenario, the
research explored in this article was aimed to analyze the contribution of the man-
agement of PMBOK methods for the optimization of Scientific Editorial Flow.
The methodology used presented a quantitative approach, of descriptive charac-
ter based on a survey, made available on social networks and Facebook groups,
through the google forms platform. The sample is given by Snowball, this type of
sampling enables the researcher to study specific groups and is difficult to reach.
The analysis was by descriptive statistics, using the Likert scale, as well as the
weighted average and fashion responses. It was identified that the Critical Suc-
cess Factors of a Project that can contribute to the optimization of the editorial
flow of a Scientific Periodical are efficient communication, empowerment, change
management, client involvement, supplier involvement and conflict management.

Keywords: Management · News-papers · Projects

1 Introduction

The economic and scientific changes resulting from technological advances are changing
the form of management, seeking to obtain better results, because of the challenges in
adjusting procedures to the new scenarios. New computerized tools have been developed,
significantly altering traditional ways of acting, even in well-established activities, such
as scientific research.
About scientific journals, an important part of scientific communication, it is worth
noting drastic changes with the emergence of the electronic journal and the ease of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 33–47, 2023.
https://doi.org/10.1007/978-3-031-26956-1_4
34 P. Mishra et al.

communication between the editorial team and authors. In the same way as the open
access movement (Open Access) has changed the issues related to the dissemination
of scientific information, as discussed initially by Harnad et al. (2004) and Antelman
(2004) and later by Piwowar et al. (2018).
Thus, with the evolution of the web and new technologies that provide the develop-
ment of other forms of communication, journals need to innovate and improve the means
of publication and dissemination of scientific research, so that they ensure the sharing of
knowledge and, jointly, comply with the essential parameters of quality, periodicity and
visibility, thus providing its recognition before the academic community. So much so
that Bogers et al. (2018) suggest the connection between forms of open dissemination of
information and scientific data to issues related to the so-called open innovation, which
is related to the impacts of data flows and new combinations of knowledge and physical
and digital resources.
Through technological advances and the constant ruptures of the status quo, unpre-
dictability has become a more accentuated variable in contemporary society, so knowl-
edge management becomes one of the most relevant actions that tend to reduce inconsis-
tencies and constitute the contribution. to the decision-making process (Weersma et al.
2018).
In this context, it is observed that Project Management (GP) based on the Project
Management Body of Knowledge (PMBOK) model, enables methods and techniques
that allow a new standardized methodology, which points out specific areas of knowledge,
procedures and tools for making the processes feasible, aiming to meet basic criteria
such as scope, time, cost, quality and public engagement. Also, it has strategic actions
to eliminate, mitigate or scale the risks and uncertainties of a project.
Named “The Project Management Knowledge Guide”, the PMBOK is recognized
and used in more than 185 countries and covers the best practices in project manage-
ment, creating different concepts, standardizing the actions to be used throughout the
project and in its life cycle (Guerra et al. 2016). However, the concept of projects has
evolved and the development and acceptance of its methods and approaches to carry out
its planning and management have enabled its applicability in several areas, realities and
organizational cultures. The search for methods and tools capable of leading the orga-
nization to succeed in the project, as well as in a scientific journal, has motivated many
organizations to seek, in PMBOK, the best management practices and better planning
and management of the projects (Lacerda et al. 2015).
Thus, this study aims to answer the following guiding question: What is the contri-
bution of Project Management based on PMBOK to the optimization of the scientific
editorial flow? In this sense, it is taken as a basic assumption that the criteria of a scien-
tific journal can be related to the areas of GP and its basic criteria, under the direction
of PMBOK.
Thus, a study is justified by the relevance that the research will bring to journals in
the speed of their publications, by identifying the tools and methods of Project Manage-
ment by PMBOK, to obtain greater efficiency in publications. And for the professional
experience in the researched environment, thus identifying the need for a new method-
ology that avoids slowness in publishing. This work, too, can contribute as a model to
professionals in the area of Administration, Accounting and Project Management, as
well as assisting the members of the editorial team of a scientific journal from other
areas of knowledge.
 Optimization in the Flow of Scientific Newspapers 35

The relevance of the research stems from the positioning of scientific production in
Brazil, which still requires better international competitive standards, since the country is
in 12th place in the world ranking of scientific production, totalling 53 thousand articles
in 2016. Significant growth of 89% in the number of articles published, however, the
disparity vis-à-vis emerging economies is disproportionate, such as China, which showed
an overwhelming growth in the last ten years, obtaining 426 thousand publications in
the same year, leading the world competition (Jornal Da Ciência 2018).
This article has, in addition to this introduction, the theoretical framework that sup-
ports the research, and the methodology that proposes the best path. And later, the
analysis of the results makes it possible to discuss the data found with the literature
covered and, finally, the conclusion and references.

2 Periodic Characterization and Criteria

In the second half of the twentieth century, innovations in the areas of information
and communication technology began an accelerated development, which modified the
way of doing scientific production in several aspects, with electronic journals appearing
and superimposing themselves on printed ones, through their characteristics that pro-
vide greater diffusion, cost reduction and speed in their editions (Pereira et al. 2017).
According to ANPAD (2010), from the point of view of authors and their institutions, the
academic journal initially has as its main function the dissemination of research results
in the most comprehensive way possible.
However, there is a need to share the knowledge generated from scientific produc-
tions, so for this to be possible, in the mid-2000s in Latin America and especially in
Brazil, a new international panorama called open access took place. whose objective is
to make scientific production available online and at no cost to readers, whether printed
or electronic (Fapesp 2017).
In this perspective, so that scientific production does not assume an amateur char-
acter, it is necessary to establish criteria and guidelines that standardize the structuring
of research and provide its validation. According to Barata (2016) aiming to meet this
purpose, in 2007, the CAPES technical-scientific Committee (CTC) approved a new
classification containing new extracts: A1, A2, B1, B2, B3, B4, B5 and C (weight zero),
in which the largest extracts are A1, A2, or B1, which evaluate scientific journals for
excellence (extracts A) and quality (B1). According to Weersma et al. (2018), the issue of
legitimation of content, in scientific journals, occurs through peer review, ensuring qual-
ity parameters. “Because peer review is the central element of contemporary scientific
journals” (Vasconcellos, p. 13).
Among the attributes of a journal, according to the indexing criteria of the Scientific
Electronic Library Online (SciELO), which are essential requirements for a journal to
be considered scientific, are the scientificity of the content to be published, the editorial
team that must have a board and a committee and the editorial policy that guides the entire
operation, aiming to meet the basic requirements of quality, periodicity and visibility
(Weersma et al. 2018).
However, the associated editors instead of the others, is not a mandatory practice,
as it presents a greater need when the annual amount of submitted and admitted works
36 P. Mishra et al.

exceeds forty, but there are no obstacles that would make its existence unfeasible if
the journal obtains fewer submissions. Immediately, the Scientific Editorial Board must
be made up of researchers who have credibility and recognition before the academic
community, with relevant participation in the routine of the editorial process. (ANPAD
2010). In this sense, the work of a journal’s consultants is also essential to guarantee the
quality of the manuscript of the productions, for this reason, according to ABEC (2017),
the screening of reviewers must take place impartially, excluding specialists belonging
to the same institution as the author, asking them to report any potential conflicts of
interest. Segundo Shintaku et al. (2019). However, to achieve certain objectives, there
must be a management in the editorial flow of the journal, which according to the authors
Sandes-Guimarães and Diniz (2014) must be managed by two types of management:
scientific and administrative, as shown in Fig. 1 below.

Technical
Administration Scientific Editorial National Editorial Board
Editor Committee

International Editorial Board

Editorial
production

Review: Translation: Printing/On

Layout and Art
Language and Abstract/Full line
Creation
Formatting Text Publication

Fig. 1. Scientific and Administrative Management. Source: Sandes-Guimarães and Diniz (2014,
p. 451)

The image presented, demonstrates the interdependence between the managements

in the same process, and is managed by the Scientific Editor, who performs the commu-
nication between the parties in the process. Sandes-Guimarães and Diniz (2014, p. 453)
state that.
Scientific management comprises the management of the journal’s content certifica-
tion process, aiming at the selection and dissemination of quality knowledge, supported
by the actors involved in the process. Administrative management includes managing the
publication process of a scientific journal. […] for this, several activities are necessary,
which briefly involve the processes of editorial and graphic production (text editing,
layout editing, diagramming, printing); administrative and financial management (per-
sonnel management, financial resources, material resources, monitoring of outsourced
services, etc.) communication and marketing (database indexing, sale and distribution))
 Optimization in the Flow of Scientific Newspapers 37

(Sandes-Guimarães and Diniz 2014, p. 453). To manage the necessary resources in the
editorial flow process and to obtain success in the results, which is to guarantee the pub-
lication of the journal’s publications, the authors Spudeit et al. (2012) listed a system of
indicators that will make it possible to understand the actions to be taken. be undertaken
to achieve this end (Table 1).

Table 1. Proposal for a system of indicators of the editorial flow of the Scientific Journal

Criteria Indicators
Qualis Classification A stratum of classification of the journal in
the triennium
Technical and normative adequacy of the The proportion of issues according to the
journal standards and specifications established in the
journal’s regulations
Editorial quality: adherence of the themes of - Proportion of sections of the issues
the sections to the journal’s thematic area, according to the journal’s purpose, spelt out
preserving the journal’s mission, focus and and synthesized in its mission, focus and
scope; consistency of sections of the journal scope. - Proportion of sections (research
with the editorial line articles, original and unpublished, reviews,
research reports, etc.), by volume
Peer review - Composition of the ad hoc panel of
evaluators:
- Percentage of its members linked to external
institutions, with different institutional links
of at least one per region
- Percentage of institutional
representativeness among ad hoc evaluators
- Number of articles evaluated by the
evaluator in the period of one year
- Number of ad hoc reviewers for each section
of the journal
- Percentage of new evaluators registered each
year
Editorial Board and Scientific Board - Composition of the editorial board and
scientific board: - Percentage of its members
linked to external institutions in Brazil. -
Percentage of representatives of foreign
institutions.- Percentage of federation units
represented on the council
(continued)
38 P. Mishra et al.

Table 1. (continued)

Criteria Indicators
Authors - Percentage of articles by authors affiliated
with foreign institutions.- Percentage of
articles by authors affiliated with external
institutions (not including those with foreign
authorship)
- Percentage of authors with a doctorate,
master’s degree, specialists and students
(undergraduate and graduate). - Percentage of
authors linked to the institution sponsoring
the journal
Frequency - Proportion of editions launched on the date
provided for in the regulation
Regularity of Editions The average interval between submission and
acceptance
Scientific quality - Percentage of works evaluated and approved
for publication, with or without restrictions
P Eternity - Publication time, to measure the continuity
of scientific publication
Visibility - Access rate in the year. - Index of
registration of new readers in the year. -
Number of indexes in the repositories and/or
catalogues of libraries in the year
- Number of indexes in national and foreign
databases, recommended by the area. - Index
of visibility in search engines (Page Rank)
between editions
- Impact factor index for the triennium
Source: Spudeit et al. (2012, p. 112)

The monitoring of the criteria, as well as the related indicators, must be interpreted
and analyzed according to the scope of the journal and its objectives, paying attention
to its positioning regarding what it wishes to achieve in its publications.

3 Basis of Project Management

Project management (GP) emerged in 1958, based on the POLARIS project, which
used the PERT technique as a central element of management and was managed by the
American government (PAES 2014). However, with the constant market variations, in
the 1990s, there was a consequence of significant growth in project management, both
in Brazil and in the world (Carvalho and Rabechini 2015). According to Paes (2014), the
number of organizations that are applying project management as something strategic has
 Optimization in the Flow of Scientific Newspapers 39

been expanding considerably, making a model based on focus, priorities and objectives
essential (Fig. 2).
KNOWLEDGE AREAS

Communications

Acquisitions
Integration

Stakeholder
Scratchs
Quality
PROCESSES

Scope

Time

Cost
GROUPS

HR
Initiation

Planning

Execution

Monitoring and control

closure

Fig. 2. Project Management Process Groups and Knowledge Areas. Source: Lacerda et al. (2015,
p. 616)
According to Toledo et al. (2008, p.117) state that: “And the degree of this success
depends on management factors practised during the development of the project”. How-
ever, in the view of Besteiro et al. (2014), success in projects is an arduous task and
depends not only on meeting scope, deadline, cost and quality but on the perspective of
the project’s stakeholders (stakeholders), temporal and organizational aspects.
To obtain satisfactory results and decrease the margin of error, the concept of Critical
Success Factors (FCS) emerged, which according to Rockart (1979, p. 85) is defined
as: “a limited number of areas in which the results, if satisfactory, they will ensure a
successful competitive performance for the organization. These are the few key areas
where things must work out for the business to flourish”. Therefore, Vezzoni et al. (2011)
present a table with some critical success factors, as well as the authors who identified
them through the study, as shown in Table 2 below.

Table 2. Critical success factors

Critical Factors for Project Success Description

Efficient communication Its presence is essential in project environments,
including organizations as a whole, to avoid duplicate
information and to ensure that everyone involved in the
project receives the necessary information at the right
time and in the best possible way. from (Kerzner 2010)
Empowerment Can be defined as the process of providing autonomy in
decision-making so that they are made within
acceptable guidelines about organizational culture
(Geroy, Wright E Anderson 1998)
(continued)
40 P. Mishra et al.

Table 2. (continued)

Critical Factors for Project Success Description

Flexible organizational structure That for the project it is important in the sense that the
organization meets the needs of customers quickly and
efficiently. Also, this type of structure together with
project management is essential for the company to be
competitive (Damodara 2000)
Change management Because even with all project planning, the execution is
unlikely to follow exactly what was foreseen, so the
necessary changes need to be managed, which is not
always the case. One way to collaborate with this
management is to involve stakeholders in the project
throughout the execution (CicmiL 1997)
Requirements management Because the requirements of a project are the conditions
and restrictions that the project must meet (Kerzner
2010; Dinsmore E Cabanis-Brewin 2009)
Customer Involvement Due to the customer’s relationship with the
organization, facilitating the obtaining of information
regarding their needs, preferences and expectations and
thus the possibility of improving the company’s
efficiency and costs Vickery et al. 2003)
Supplier involvement The company must ensure good treatment with
suppliers to offer services and products in a way that
meets the requirements of the project (Dinsmore e
Cabanis-Brewin 2009)
Conflict handling Conflicts are inherent in projects and can occur related
to cost, schedule and technical aspects, also, the best
projects use conflict as a source of creativity and thus do
not let them destroy the project (Dinsmore e
Cabanis-Brewin 2009
Creation of the project charter (TAP) TAP also defines the initial requirements, restrictions,
assumptions, the most important delivery dates, a
preview of the project budget and an initial view of
what stakeholders expect (Dinsmore and
Cabanis-Brewin 2009)
Risk management The project manager must recognize all risks, both at
the beginning and during the execution of the project,
which may need to be managed so that the project is not
affected or is prepared to face them (Fortune and White
2006)
(continued)

4 Methodology
This research developed in this article is characterized as the approach as quantitative,
since this type of research focuses on describing, explaining and predicting, that is,
 Optimization in the Flow of Scientific Newspapers 41

Table 2. (continued)

Critical Factors for Project Success Description

Resource allocation When this allocation is miscalculated it can cause
influences such as an increase in overtime, purchase of
unplanned resources, delay in the schedule and changes
in the budget, which can compromise the performance
of the project (Belassi and TukeL 1996)
Top management support When it comes to making available the necessary
resources for the development of the project, the thought
turns to top management, on the other hand, they can
determine profitability, service quality and market
share, the thought, in addition, the high management
will be interested in how these resources will be used
expecting efficient use and control by the project team
(Munns e Bjeirmi 1996; Fortune E White 2006)
Source: Adapted from Vezzoni et al. (2011)

measuring something. The researcher’s involvement is controlled and limited, to avoid

bias, since the objective is to build and test theories, through probabilistic sampling
(Cooper and Schindler 2011).

5 Results and Discussions

5.1 Characteristics of Respondents in Scientific Journals
Most of the participants, totaling 68.7%, have a link in the production of a journal, which
is indexed on some scientific basis and inserted in directories, others have no link with
the production of a journal corresponding to 6.25% of the sample and 25% intend to
have involvement with the production of journals. Table 3.

Table 3. Types of scientific base and directories

Scientific Base Directories

Cengage (Academic One File) Catálogo Ulrichsweb
Citefactor PKP Cite Factor
DOAJ (Directory of Open Acess Journals) Diadorim
(continued)

5.2 Criteria in the Light of Scientific Journals

To obtain a good evaluation with the approval of Qualis – Capes, scientific journals
need to comply with some established standards so that they can receive a satisfactory
42 P. Mishra et al.

Table 3. (continued)

Scientific Base Directories

EBSCO (Business Source Corporate Plus) EBSCO
Gale Cengage Learning IBICT
Google Scholar LATINREV
LATINDEX LATINDEX
LIVRE LIVRE
OASISBR ROAD
ProQuest (ABI Inform) SciELO
Qualis Capes Sherpa Romeo
Redalyc ULRICH’S
REDIB
RVBI
SciELO
SCOPUS
South American Development Society Journal
Spell (Scientific Periodicals Electronic Library)
Sumários.org Sumários.org (Sumários de Revistas Brasileiras)
Web of Science (Emerging Sources Citation Index)
WOS
Source: Research data (2018)

evaluation regarding the criteria of excellence and quality. The aspects covered in the
research to assess the degree of use of the criteria by the journals in their editions
are Qualis Classification, Technical-normative adequacy, Editorial quality, Peer review,
Editorial and Scientific Council, Authors, Periodicity, Regularity of editions, Scientific
Quality, Perpetuity and Visibility. Figure 3 presents, below, the most used criteria.
The parameters that stood out as the most used by journals, obtaining the highest
weighted average were: Technical-normative adequacy and Editorial Quality, reaching
an average of 4.4. Qualis Classification, Peer Review, Scientific Quality and Perma-
nence, all reached the value of 4.1. However, the events that presented themselves as the
most frequent, identified by fashion were: Qualis Classification, Peer Review, Scientific
Quality and Permanence.

5.3 Criteria in the Light of PMBOK

The aspects analyzed in the research regarding the degree of contribution as Critical Suc-
cess Factors of a Project were: Efficient Communication, Empowerment, Organizational
Structure, Change Management, Requirements Management, Customer Involvement,
Supplier Involvement, Conflict Treatment, Creation of Project Opening Term (TAP),
 Optimization in the Flow of Scientific Newspapers 43

Scientific Journals
Qualis
classification
5 Technical-
Visibility normative
4
adequacy
3
Perpetuity 2 Editorial Quality
1
Scientific 0
Peer Assessment
Quality

Regularity of Editorial and

edits Scientific Board
Frequency Authors

weighted average Fashion

Fig. 3. Criteria of Scientific Journals. Source: Research data (2018)

Risk Management, Resource Allocation and Top Management Support. Figure 4 shows
the main factors regarding the degree of contribution.

Critical Success Factors

Efficient
Communication
High ADM 5
Empowerment
Support 4
Resource 3 Organizational
allocation 2 structure
1
Management of Change
0
Risks Management

requirements
Creation of TAP
management
Conflict customer
Handling engagement
supplier
involvement

Weighted Average Fashion

Fig. 4. Critical Success Factors for a Project. Source: Research Data (2018)

The data pointed out as the factors that most contribute to the success of a project,
obtained through the highest value of the weighted average were: Organizational Struc-
ture with 4.2 on average; Customer Engagement and Conflict Handling resulting in 4.1
on average; Senior Management support obtaining 4.0 in the average value; Empow-
erment and Change Management achieving 3.9 on average; and Efficient Communica-
tion and Supplier Engagement with 3.7 on average. However, the elements indicated
44 P. Mishra et al.

as the most frequent, through the use of fashion were: Customer Engagement, Conflict
Treatment, Empowerment, Change Management, Efficient Communication and Supplier
Engagement.

5.4 Relationship Between PMBOK and the Scientific Journals Criteria

When analyzing the data obtained from the research, the fashion of the responses was
considered, whose results point out the main elements, to those that are more fre-
quent, both in their contribution and in their use. Thus, an integrated graph was created,
obtaining the joining of these iterative points, as shown in Fig. 5 below:

FCS versus Criterion

Efficient
Communication
5
Perpetuity 4 Empowerment
3
2
Scientific Quality Change Management
1
0
Customer
Peer Assessment
Engagement

Qualis classification Supplier Involvement

Conflict Handling

FCS Criterion
Fig. 5. Critical Success Factors for a Project versus Criteria for a Scientific Journal. Source:
Research Data (2018)

When observing the graph, it is noted that the Critical Success Factors of a Project
establish a cooperative relationship with the Criteria of a Scientific Journal, providing
the achievement of a better result through the use of FCS, which must occur before,
during and after the stages of the editorial flow, whose management of these factors is
concentrated, exclusively, in the person of the Scientific Editor, main responsible for the
communication between the parties in the process.

6 Conclusion
This research aims to analyze the contribution of the management of methods from
PMBOK to the optimization of the Scientific Editorial Flow. For this, the literature on
the management of scientific journals was first analyzed to identify the main stages of
the publication process, as well as the main actors involved. It was identified that to make
 Optimization in the Flow of Scientific Newspapers 45

the production of the scientific journal feasible, two types of management are necessary:
the scientific one, responsible for the quality of the publication and the administrative
one, designated by the technical and financial part of the journal. It was also analyzed,
the PMBOK literature and its guidelines, as well as the main Critical Success Factors of
a Project, which provide the conclusion of the project management stages satisfactorily.
The analysis was based on the use of the Likert scale, which sought to identify the
most frequent elements used by the journals, through fashion and the weighted average,
to ensure that the main attributes such as quality, periodicity and visibility were met.
And to identify which FCS of a project would collaborate with the optimization of
the journal, being measured from the degree of perception of the respondents of the
research, through the average and the fashion determined. The results achieved point out
that the FCS, based on the PMBOK methodology, contributes to the management of the
editorial flow of the scientific journal are efficient communication, empowerment, change
management, customer and supplier involvement and the treatment of conflicts. Efficient
communication becomes essential in the development of a magazine, avoiding duplicate
information and ensuring that others receive the information correctly and accurately,
will optimize the time spent, thus avoiding rework. The characteristic empowerment
presents in a project leader, which is based on four pillars which are power, motivation,
development and leadership, also extends to the Editor, who is the main responsible
for the journal’s decisions and development, having access to the others that make
up the magazine’s teams. Managing the changes will help professionals to avoid the
emergence of adversities that may hinder the speed of publication. The involvement of
the customer and the supplier, who can be considered as everyone who has an interest
in the publication of the journal, ranging from the authors, and partners to Financing
Institutions, will contribute to a greater commitment in the participation of the roles that
each competes for one. As well as, the treatment of conflicts that, once not managed,
may prevent the publication of the journal. Based on the PMBOK guidelines and the
attributes of Scientific Journals, the study has limitations regarding the use of FCS in the
editorial flow, since there are several lists published by authors that, based on the practical
application of projects, list several factors belonging to several areas of knowledge of the
PMBOK, which may prove to be effective in its use. For future studies, it is suggested to
analyze the five groups of project management processes based on the Good Management
Practices of a journal.

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 An Assessment of Challenges of Digitalization
of Agrarian Sector

D. Arivazhagan1 , Kunal Patil2 , Chhaya Dubey3 , Ananta Uppal4 ,

Sandeep Kumar Gupta1(B) , Priyanka Mishra5 , and Liudmyla Akimova6
1 AMET University, Chennai, India
[email protected], [email protected]
2 Dr D Y Patil Institute of Management Studies, Pune, India
[email protected]
3 B.M.S. College for Women, Bengaluru, India
[email protected]
4 P P Savani University, Surat, India
[email protected]
5 Sri Balaji University, Pune, India
[email protected]
6 National University of Water and Environmental Engineering, Rivne, Ukraine

[email protected]

Abstract. The study asserts that the digitization of the agriculture business is
a significant trend that impacts not only economic development but also human
progress. Digitalization is defined as the process of turning information into a
digital format, and it is a process that influences all aspects of life, bringing about
qualitative changes and influencing human development. In Ukraine, where the
agricultural sector is the engine of economic development, the digitalization of this
sector becomes the most crucial implementation task. On the way to digitalization,
Ukrainian agricultural companies have made significant strides, but a large number
of problems remain unresolved and constitute potential impediments. Initial focus
should be made on combining the use of digital technology with the proper training
of all levels of personnel who can operate in the new environment. Then it will
be possible to ensure both economic and human development goals are met. To
achieve this, government activities on all levels must promote the digitalization of
the agriculture economy.

Keywords: Agrarian industry · Digitalization challenges · Digitalization ·

Human evolution

1 Introduction
Agriculture sector digitalization in Ukraine and other countries entails modifications
to Food security and the production of agricultural commodities and services. Digital-
ization offers vast opportunities for environmental, financial, sociological, and cultural
progress. Concurrently, there exist hurdles and hazards that can result in both predicted

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 48–57, 2023.
https://doi.org/10.1007/978-3-031-26956-1_5
 An Assessment of Challenges of Digitalization of Agrarian Sector 49

and unforeseen long-term outcomes. Inequalities in the availability of digital technol-

ogy result in discrepancies in the ability of individuals in Ukraine and other nations to
engage in economic activities, particularly in agriculture. Large agrarian corporations are
focused on using digital technologies to reduce costs and increase output, yet problems
related to digital technology among villagers might cause people to resist innovations
and even trigger crises. Those that fail to successfully integrate digital technology into
the manufacturing process run the risk of falling behind in regards to productivity, social
and financial progress. To realize the true value of the transformation of the agricultural
industry by digital technology, it is necessary to establish a well-considered economic
policy that prioritises human development.

2 Literature Review
Various theorists in the sphere of the agrarian sector continually discuss issues related to
digitalization. Negroponte N. (1995) initiated the term “digitalization” and defined it. In
his work, Negroponte explores profoundly numerous facets of the general digitalization
process.
In recent years, the number of Ukrainian researchers focusing on digitalization issues
in many departments and sectors of the domestic economy has increased. In Reznik N’s,
Kozhemiakina S’., Cherkasov A’s., Zhuravka O’s., and Mazunrov S. ‘researches, an
innovative solution to the issue of predicting new employment in the industrial sector
of the Ukrainian economy was specifically sought (2018). L. Lazenbnyk conducted
study on the digitization of economic interactions as a factor in improving the business
operations of organisations (2018).
Academics in Ukraine continue to be interested in the innovation and digitization
of certain agronomic routes within the industry. For instance, N. Reznik, R. Levkina O.
Sakovska, A. Ostapchuk, S. K. Gupta, and A. Ostapchuk have researched the hurdles to
the development of oilseeds and their subsequent interchange on the worldwide market
(2019).
Despite the significance of the research previously conducted by academics, several
aspects of the digitization of the economy have gone overlooked. The essay discusses
the issues in the context of human advancement, digitization of the agricultural sector
because this was judged a pertinent and beneficial topic for research.
The primary objectives of this research are to demonstrate the importance of the
agrarian sector to the Ukrainian economy, to outline the sector’s current digitalization
achievements, and to outline the principal remedies for the issues that occur as a result
of digitalizing the agrarian sector.

3 Research Methodology
To attain the given research objective and complete the indicated objectives, A collection
of established scientific processes and methodologies were employed The approach of
template matching was utilised to conceptually establish the significance of studying the
issues of digitization in the agricultural industry from the perspective of human devel-
opment. Utilizing synthesis and analysis enabled for the illustration of the agricultural
50 D. Arivazhagan et al.

sector’s relevance to the economy of Ukrain and its current digitalization accomplish-
ments. The concept of locating logical linkages was used to illustrate the importance of
simultaneously introducing innovations and preparing personnel for their manipulation.
For a visual depiction of the study’s findings and their diagrammatic depiction, a method
of developing schemes and models was employed.

4 Results

Today, The digital world permeates every aspect of society and economy, from time man-
agement to money management. The digitalization process is altering the conventional
means of communication and entertainment. Millions of websites collect information,
although the Internet can substitute TV, periodicals, and other publications. People are
getting used to communicating through email, online communities, and weblog and
exchange vital data and statistics; They have evolved into digital customers who make
internet purchases. Analysts estimate that e-commerce sales of tangible goods and ser-
vices increased by 30% in 2017, surpassing about 50 billion UAH by year’s end. In 2018,
e-commerce sales of physical goods and services were 65 billion Ukrainian Hryvnia [3].
It investigates the inclusion of local companies into the worldwide trend of digitalizing
economic connections.
N. Negroponte, an American physicist, in 1995 introduced the phrase “digital econ-
omy.” [9]. Since the early 20th century, exponential spread of digitalisation processes
throughout every aspect of economic activity has led to the growth of the notion of a
digitalization. As early as the first decade of the twenty-first century, it was apparent that
only a nation that properly integrated digitalization into its economic structure would be
prosperous and successful. Because all modern sophisticated market systems are digi-
tal, digitalization of the economy has become a criterion for the progress of a nation.
The digital processes have necessarily been hastened in (the U.S., Europe, and Asia’s
developed nations). However, this idea is still ambiguously construed. Specifically, the
The digital industry is dominated by information and knowledge, and networks. Digiti-
zation, in our view, can be acknowledged as an information-based process, specifically
The digitization of huge volumes of information and knowledge, which contributes to
qualitative gains in human and economic progress. Digitalization is essentially the pro-
cess of transforming data into digital form, or “translating” text, music, and vision into
a code that can be comprehended by computer.
Globally, every facet of professional life is currently being incorporated into the vir-
tual space. Digitalization profoundly alters business by decreasing manufacturing costs
and increasing labour efficiency. As a result of digitization, there are new advertising
tactics that may aid in the promotion of goods, as well as new, creative approaches to
management in all sectors. Some firms cannot maintain competitiveness in the current
market climate if they disregard digitization. Everything in the management of a busi-
ness, from the accounting system to the creation of a company’s reputation, is related to
digitization in some way or another nowadays.
As for the notion that Not only does digitalization determine economic growth pat-
terns, but it also influences the human development cycle. It is vital to mention that dig-
italization makes people’s life easier, improves their quality, creates new employment
 An Assessment of Challenges of Digitalization of Agrarian Sector 51

opportunities, and consequently alters people’s ways of thinking by expanding their

horizons. All of them are witnesses to the enormous changes that are occurring in our
time and that might be observed. This transition is described by the term “digitalization
of social and economic life.”
Macroeconomic Fundamentals for Ukraine Agriculture is currently one of the most
dynamically expanding industries and plays a vital role in society. Due to the high
number of people residing in the rural areas, it has a significant relationship with human
development and is often considered as a social boost for the young people born there.
It is a commonly held belief that the economy of Ukraine has experienced a number of
catastrophes, but that The agricultural industry has not changed the economic engine
throughout. There are four primary factors that helped Agrarians are necessary to sustain
growth pace of the industry. The first reason is a relatively advantageous geographical
location that facilitates global communication. Two-thirds of Ukraine’s area consists of
fertile soil. Weather and climate conditions are the third cause. And indeed the fourth is
obligated agricultural labourers.
The agricultural industry has dominated the Ukrainian economy for the past decade.
It accounts for 10 to 12% of the nominal gross domestic product of Ukraine, rendering
it one of the world’s top three economies. This industry employs approximately 17% of
the labour force. In 2017, nominal agricultural GDP reached $11.5 billion, a 6% increase
from 2016’s nominal agricultural GDP of $10.8 billion. [1] A variety of natural resources
being readily available which is a distinguishing feature of the Ukrainian agriculture sec-
tor. The agricultural region of Ukraine comprises 41,9 million hectares, or 69.4% land
area. There are 33,3 million hectares of arable land in Ukraine, which is greater than the
total agricultural resources of all European nations. In addition, 2.2 million hectares are
devoted to hay production, 5.3 million hectares to pastures, and 1.1 million hectares to
annual crops. In the agricultural sector, unlike in the majority in other industries of the
economy of Ukrain, Capital and construction projects, as well as profitable debt man-
agement measures, company reorganisation, donor organisation activities, and technical
assistance projects, may be examined by scholars. Existing successful projects include,
among others, the EBRD and Cargill partnering venture in the building projects of a grain
station in the harbour of “Yuzhny,” a number of operation sources of funds in favour
of agricultural producers of Ukrain, and the productive reconfiguration of Ukraine land
farming’s financial liabilities of about $600 million [6].
Owing to these optimistic signs, Ukraine has the potential to become a worldwide
agricultural leader. Clearly, the export of items with low added value, i.e. the exporting
raw resources, remains the major objective. This is characterised by a dearth of invest-
ments in high-tech manufacturing and the absence of government programmes targeted at
encouraging the creation of such products. Simultaneously huge yield-growing regions
and fertile soil quality enable for successful yield-raising and subsequent sales. It is
worth noting that in the United States, for instance, exports of unprocessed corn and
soybeans are similarly large due to their cultivation potential. This means that a nation
with such large agricultural land as well as high-quality soil will always be exported from
these regions. Agricultural raw materials. This is a universal practise, not a Ukrainian
peculiarity.
52 D. Arivazhagan et al.

Concerning the digitalization of the Ukrainian agriculture industry, it should be

emphasised that the worldwide digitalization and automation of all agriculture activities
is predicted to occur within the next few years. This necessitates the use of cutting-edge
technologies and customised IT solutions on a massive scale. Already now, Ukrainian
agricultural enterprises employ inventions that have no equivalents in any other Ukrainian
industry.
In the last five to seven years, the agricultural sector has undergone profound changes.
The agriculture sector in Ukraine has reached a remarkable different dimension, with
the principles of work, techniques, and the development of transparent business models.
Prior to this, the government and international organisations paid insufficient attention
to the agriculture industry’s development. As the world’s population continues to rise,
more and more focus is being placed on the agricultural sector, and in particular on the
agricultural sector of our nation, which possesses a unique agricultural potential. This
prompts businesspeople in the industry to consider introducing innovations, enhancing
technologies, and learning to handle all operations properly.
Today, the Farming Management System is utilised in the fields of Ukraine, which
includes satellite internet monitoring, GPS navigation, mapping, and the utilisation of
drones. The research centres have weather station networks. In addition to technological
advancements, agricultural production is aggressively incorporating IT innovations.
Large Ukrainian agroholdings are responsible for the majority of programmes aimed
at the digitalization of the agricultural industry. For instance, Since the beginning of
2016, Kernel Agro Holding has implemented an advanced Digital Agri-Business soft-
ware package across its companies. This strategy has allowed a single field to yield
the most profit and output. The tool provides agronomists, engineers, and other depart-
ments with potential solutions based on previously stated methodologies. The Digital
Agribusiness project is a one-of-a-kind IT system that provides utmost control over the
execution of all technical tasks, including data analysis and effective production adjust-
ment management. MHP (Ukrainian acronym for Myroniv Breand Products) has also
provided an exciting solution for the digitization of agricultural product production. In
addition, MHP is among the minority of Ukrainian agricultural companies having a
specialised innovation division. The firm develops a variety of geographic information
systems (GIS) that help in the administration of an existing land bank on its clusters.
Legislators of the agriculture standing firm say that this technology allows the business
to hasten data analysis processes and develop unique algorithms for effectively executing
a range of consumer demands. [5].
To continue the digitization of the agriculture sector in Ukraine efficiently, it is
necessary to address both general and country-specific obstacles. To make agricultural
production as effective as possible, it is vital to recognise the importance of two aspects.
(Fig. 1) These are technologies that are regularly adapted into digital formats and then
taught to individuals. If consumers are reluctant or unable to utilise these technologies,
for example due to a lack of knowledge, the corporation might face a severe catastrophe.
In the past, untrained employees in massive factories destroyed new machinery that were
intended to be put into production in order to keep operations operating. Obviously, such
brilliant expressions of creativity do not occur in the contemporary environment, where it
 An Assessment of Challenges of Digitalization of Agrarian Sector 53

is common to find underlying opposition to advances that change too rapidly for individ-
uals to have time to adapt to them. It is not uncommon, for instance, to deploy tractors
that operate without human intervention or production lines that are totally managed
by a single skilled operator. This helps agricultural firms optimise expenses, operate in
novel methods, and achieve high-value-added items in the end. This, however, needs
the employment of skilled individuals who are able to use and manage such technolo-
gies. This may be a professional technician or a middle-level agricultural administrator,
However, he or she must have technical skills and be equipped to employ the proper
machinery at any moment. As a result, employee education and training become crucial
aspects in offering the digitization process in practise.
There is no need to combat opposition to innovation; rather, people must be prepared
for innovation. The more the penetration of technology into an agro-business, the more
specific the change management programme must be to reduce the shock and stress and
convince employees to accept the necessity of changes. In the agricultural industry Kernel
of Ukrain, for instance, a software called “mobile agronomist” is being implemented
to control the login statistics. Numerous security professionals were let go when the
system was put into operation as component of a prototype in one of the nodes since
creating the new product was too challenging for them. Instead of tearing people down,
it is essential to engage with them and illustrate how design allows their tasks simpler
and more productive. Nevertheless, some individuals are unable to accept this truth and
will be discarded as a consequence [4].
In addition, to digitally alter agriculture in varied situations, several conditions
must be satisfied. The fundamental ones might be seen as the minimal requirements
for implementing technology. These include accessibility, affordability, the capacity to
connect, various educational programmes that increase people’s informational abilities,
and government regulations that encourage digital growth.
As for the supporting circumstances, they are primarily the characteristics that may
lead to widespread acceptance of agricultural technology by agricultural workers. World
wide web, cell telephone, and online social networks, development of digital abilities,
and promotion of digital culture in agriculture are examples of such well-known ele-
ments. Almost all of these characteristics may be applied via talent development, sprint
programmes, incubator use, and the introduction of various accelerator programmes
(Fig. 1).
The digitization process is inaccessible to those who lack basic reading and numeracy
skills. Unlike other African and Asian areas, this issue is not one that must be addressed
in Ukraine. All Ukrainians, whether they live in a city or a hamlet, have fundamental
knowledge and get a basic education, and they are often active in gaining a higher
education. In rural parts of Ukraine, the participation rate in higher education is very
high compared to that of many other nations, but it is substantially lesser in metropolitan
regions (Fig. 2).
Nonetheless, “digital literacy” is a barrier for rural residents. Due to a lack of material
and technological resources, basic computer instruction has not yet been included into
elementary and secondary school in the communities. In contrast to affluent nations
where students routinely employ, internet access has not been developed everywhere in
54 D. Arivazhagan et al.

Digitalization of agri-
culture
Digital technologies Trained people

Resistance to in-
novations

Lack of education
Basic conditions Enabling conditions

Connectivity, cost, ac- Use of mobile phone,

cessibility, and a variety of Internet, digital skill, so-
educational programmes cial media using, support
are all factors to consider. for digital practices in
Enhancing workers' infor- agriculture area
mational abilities

Fig. 1. Conditions and variables that characterise the digitalization of agriculture. * Author-
created source based on [2]

Ukraine, limiting the use of modern technology and digital skills in school and everyday
life.
In addition, instructors often demonstrate a lack of appropriate abilities. The World
Bank identifies attempting to create the menial work in the agri-food sector while main-
taining existing employment as one of the tremendous difficulties in the digitalization
of agriculture In the following 2 decades, as 1.7 billion individuals will reach the age
of employment in developing countries during that time. [2] The digital transformation
of economy will fundamentally alter the nature of employment and the need for labour
as well as competencies. Technical knowledge will emerge as the primary prerequisite
for a variety of employment in the industry, and education level will become vital. In
Ukraine’s rural areas, there is still a dearth of digital tools such as laptops and tablets,
which might lead to a crisis in innovation due to a dearth of individuals capable of
operating modern technology and equipment.
To tackle the problems posed by the digitization of the agricultural industry and estab-
lish the conditions for successful human development, the government must implement
a well-grounded strategy.
 An Assessment of Challenges of Digitalization of Agrarian Sector 55

Uganda

enya

Indo-

nesia

Ger

man

Bela-

Urban

Fig. 2. Participation in higher education as a function of urbanisation (%). *Source: made up by

the authors based on [2]

5 Discussion

The digitization of the agricultural industry is the dominant trend in the present environ-
ment and cannot be ignored or avoided. The decision not to deploy digital technology in
the industry may expand the disparity between the Ukrainian economy and the economies
of the world’s wealthy nations. Considering the agricultural sector’s significance to the
Ukrainian economy, the process of incorporating digital technology inside it should be
prioritised.
Incorporating digital technology into the sector not only aids in achieving the eco-
nomic objectives of agricultural businesses especially and the industry in general and
yet also addresses concerns of human development, standard of living, and psychological
wellbeing.
However, rapid digitization of the agricultural industry may be met with resistance
due to people’s unwillingness to embrace change, education, and new management
styles. Because of this, the implementation of the process of digital modernisation should
be well-organized and progressive that is accelerated through concurrent worker training.

6 Conclusion

Consequently, the digitization of the agriculture industry has an important influence in

the current state of Ukraine and other nations. Due to the fact that, on the one hand, the
agriculture sector may be regarded a motor of economy of Ukrain and, contrary to this,
56 D. Arivazhagan et al.

digitization is a mechanism that produces significant shift in every aspect of life, hence
boosting socioeconomic growth, this is the case. Significant market players and industry
leaders have designated the digitization of agriculture as their responsibility. It is crucial
for them to attain consistent high outputs at minimal costs, enabling them to produce
high-quality, low-cost products. This is significantly aided by advanced technologies.
Simultaneously, as a consequence of digitalization, the quality of people’s lives is alter-
ing, new working environments are emerging, people’s perspectives are shifting, and
standard of living are increasing.
Numerous important ideas and technologies are now being introduced by repre-
sentatives of significant agricultural corporations and integrated into the production of
agricultural commodities. However, the fundamental issue that emerges is that people
in rural regions are not adequately prepared to use these technological advances. The
answer to the issue is the implementation of government-sponsored initiatives to improve
the e-literacy of rural residents, as well as the establishment of conducive environment
and a digital culture.
Practical Implications. The study findings may be considered as a source of knowledge
on the stages involved in the digitalization of the agricultural industry to promote human
development and economic growth.

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Management 16(4), 384–394 (2018). Available at: https://www2.scopus.com/authid/detail.
uri?authorId=57202444035
8. Lazebnyk, L.: Digitalization of economic relations as a factor of improving the business
processes at the enterprise 2, 69–74 (2018). Ekonomichnyi visnyk. Seriia: finansy, oblik,
opodatkuvannia. Available at: http://ojs.nusta.edu.ua/index.php/ojs1/article/view/75
9. Negroponte, N.: Being Digital. Mackays of Chatham PLC, London, Great Britain (1995).
Available at: http://governance40.com/wp-content/uploads/2018/12/Nicholas-Negroponte-
Being-Digital-Vintage-1996.pdf]
 An Assessment of Challenges of Digitalization of Agrarian Sector 57

10. Reznik, N., Gupta, S., Sakovska, O., Ostapchuk, A., Levkina, R.: Ukrainian world exchange
market of oilseeds: A research of challenges for growth. International Journal of Engineering
and Advanced Technology 8(6), 3823–3829 (2019). Available at:: https://www2.scopus.com/
authid/detail.uri?authorId=57202444035
 Effective Utilization of Marketing Strategies
by Independent Textile Retailers in Post
Pandemic Scenario

N. Kavitha1 , S. Udhaya1 , M. Esther Krupa1 , and S. Gokilavani2(B)

1 Department of Commerce, PSG College of Arts and Science, Coimbatore, India
{kavitha_n,udhaya,estherkrupa}@psgcas.ac.in
2 Department of Commerce, Kristu Jayanti College, Bengaluru, India

[email protected]

Abstract. Retailing is a process of selling merchandise or some sort of service

directly to large set of customers. Retailers enable the customers to purchase
products of their choice in shops located in close proximity and assume a prominent
role in the distribution channel. Small scale retailers are those retailers who have
lesser scale of operation and restricted to a small segment of the market. Stocking
large variety of customary stuff in small quantities is the operational mode of a
small scale retailer. Retailing occupies an important role in the economic growth
of any country. The Indian retail sector is characterized by small retailers who are
mostly unorganized. This sector is a mix up of opportunities and obstacles. The
success of the small stores more depend on their relationship with the customers
and the adoption of suitable marketing strategies.

Keywords: Retailers · Customer · Distribution · Channel

1 Introduction

Retailing is a process of selling merchandise or some sort of service directly to large

set of customers. Retailers enable the customers to purchase products of their choice in
shops located in close proximity and assume a prominent role in the distribution channel.
Personal relationship by the retailer with the customers who reside in the close prox-
imity helps them to understand their varied tastes and stock products accordingly. This
relationship paves way for understanding the problems of manufacturers and customers
who are on the extreme ends of the supply chain.
Retailers support wholesalers and manufacturers in many ways like storage of goods,
communication of customer desires and transportation of goods. On the other hand, they
help customers by providing small and convenient packages, act as advisor and educate
about uses of a product.
Small scale retailers are those retailers who have lesser scale of operation and
restricted to a small segment of the market. Stocking large variety of customary stuff in
small quantities is the operational mode of a small scale retailer.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 58–66, 2023.
https://doi.org/10.1007/978-3-031-26956-1_6
 Effective Utilization of Marketing Strategies 59

Transformation in every industry is evident as time and preference changes. This

has become more evident in this post pandemic situation. Retailing is not an exception
to the change. Gone are the days where the role of manufacturer is mere manufacturing
the product and retailer to sell the produced merchandise. More than merchandising,
understanding the choice of customer has become more important.

1.1 Statement of the Problem

Retailing occupies an important role in the economic growth of any country. The Indian
retail sector is characterized by small retailers who are mostly unorganized. This sector
is a mix up of opportunities and obstacles. Every sector in retail throws a different set
of problems to small retailers against large retailers and textile sector is no exception
for it. Large scale retailers are relatively successful than small retailers in every aspect
of business like accomplishment of apt marketing strategies, purchasing, finance etc.
Independent textile retailers suffer from operational issues, merchandising, raising of
funds etc.
Further rigid competition from large scale textile retailers makes the existence of
independent textile retailers as a question in some parts of the country. The success
of small scale retailers solely depends on how they perform in the market place at a
given point of time. Hence the study attempts to point out the issues and challenges in
marketing of independent textile retailers in the post pandemic scenario.

1.2 Objectives of the Study

Objectives framed for the study are as follows:

• To study the factors influencing the effective utilization of marketing strategies by

independent textile retailers.
• To measure perception of independent textile retailers regarding challenges faced in
their business.

1.3 Research Methodology

1.3.1 Area of the Study
Coimbatore named as “Manchester of South India” is chosen to study the effectiveness
of marketing strategies adopted by independent textile retailers.

1.3.2 Sources of Data

Primary data is collected from 250 independent textile retailers and secondary data from
printed and online published sources.

1.3.3 Sampling Design

For the purpose of the study, 250 respondents were selected using convenience sampling
method.
60 N. Kavitha et al.

1.3.4 Tools for Analysis

The following statistical tools are used in this study in tune with the objectives.

• Percentage analysis
• Average score analysis
• Factor analysis

1.4 Limitations of the Study

• Data were collected from 250 textile retailers and the study has been confined to
Coimbatore city only.

1.5 Review of Literature

Study by Wesley Niemann, Karabo Mannya, Theuns Kotzé (2018) [1] identifies the
global sourcing has increased as buyers searched for new markets that offered better
pricing, quality, variety and delivery lead times than their local markets. However, the
increase in global sourcing has also exposed businesses to many supply risks. Small
clothing and textile retailers need to proactively identify and manage global sourcing
risk using the identified approaches in order to reduce and mitigate potential supply
disruptions.
A study by Madhurima Deb (2014) [2] identifies that a central role in retailer customer
long-term relationships is played by customer-level attributes along with store-level
attributes. Proper knowledge of factors and continuous efforts leads to retain a customer
and have a lasting relationship.
Vikram Gahlawat & Pankaj Kumar (2014) [3] in their article discuss about selecting
and training employees cautiously. Since people are the driving force in maintaining
personal touch with the customers, special attention should be given to human resource
management.
The choice of apparel shoppers in India and the influencing factors which drives them
in decision making was studied by Rituparna Basu, et al. (2014) [4] Factor analysis was
used to measure the results and it was found that five store attributes influences the
decision of the buyers. The shoppers expressed their interest towards organized retail
stores and expected the stores to have multi brands rather than a single brand.
Khare Arpita (2014) [5] opined that most Indian consumers prefer to shop with small
retailers. The factors which attract the consumers towards small retailers are service,
personal relationship and store facilities. There is a difference in preference pattern
between the young and the aged customers. The study concludes that the service and the
personal relationship help the small retailers to compete with the organized retail sector
to an extent.
A comparative study of consumer preferences between online and offline purchases
was conducted by Sunil (2013) [6] The study points out certain factors like advancement
in information technology, accessibility to internet, use of smart phones and banking ser-
vices have improved the scope for e-tailing. This increases customer choice of products
 Effective Utilization of Marketing Strategies 61

and even accessibility to international markets is made possible. This gives a competi-
tive advantage to online stores and poses a threat to traditional stores. On the contrast,
physical stores also have some competitive advantage like physical feel of the product,
lower price, product assortment and easy information about the products (Tables 1 and
2).

1.6 Findings

Table 1. Table showing the Percentage Analysis: Allocation of respondents based on the
agreeability

Statements Strongly agree Agree Neutral Disagree Strongly Total

Disagree
Marketing of 47 (18.8) 136 (54.4) 20 (8.0) 47 (18.8) - 250 (100)
textile products
is not a difficult
task
Customer 28 (11.2) 149 (59.6) 47 (18.8) 26 (10.4) - 250 (100)
response
towards textile
products is
encouraging
Sales during 59 (23.6) 132 (52.8) 35 (14.0) 24 (9.6) - 250 (100)
festivals give us
more earnings
Suppliers 19 (7.6) 120 (48) 76 (30.4) 35 (14.0) - 250 (100)
deliver the
material
promptly
(punctual) and
thus support us
Sales persons 39 (15.6) 98 (39.2) 67 (26.8) 30 (12.0) 16 (6.4) 250 (100)
involvement
towards selling
the goods
Offers given to 40 (16.0) 96 (38.4) 78 (31.2) 28 (11.2) 8 (3.2) 250 (100)
the customers
make them to
buy
(continued)
62 N. Kavitha et al.

Table 1. (continued)

Statements Strongly agree Agree Neutral Disagree Strongly Total

Disagree
Sales persons 28 (11.2) 112 (44.8) 73 (29.2) 29 (11.6) 8 (3.2) 250 (100)
relationship
with customers
are very
pleasant
(cordial)
We take 28 (11.2) 96 (38.4) 82 (32.8) 25 (10.0) 19 (7.6) 250 (100)
sufficient steps
to compete with
big shops
Returns in this 55 (22.0) 132 (52.8) 34 (13.6) 25 (10.0) 4 (1.6) 250 (100)
business is
satisfactory
The customers 47 (18.8) 110 (44.0) 55 (22.0) 26 (10.4) 12 (4.8) 250 (100)
always expect
the products to
be durable
Facilities given 36 (14.4) 125 (50.0) 55 (22.0) 30 (12.0) 4 (1.6) 250 (100)
in the shop for
the customers
and sales
persons are
quite
satisfactory
Competition 44 (17.6) 116 (46.4) 53 (21.2) 37 (14.8) 250 (100)
with the nearby
shops make me
to think
differently
Customers react 43 (17.2) 101 (40.4) 59 (23.6) 40 (16.0) 7 (2.8) 250 (100)
positively
towards
advertising for
textile products
Customers are 27 (10.8) 96 (38.4) 96 (38.4) 24 (9.6) 7 (2.8) 250 (100)
satisfied with
the pricing of
products sold
(continued)
 Effective Utilization of Marketing Strategies 63

Table 1. (continued)

Statements Strongly agree Agree Neutral Disagree Strongly Total

Disagree
The price of 27 (10.8) 106 (42.4) 56 (22.4) 50 (20.0) 11 (4.4) 250 (100)
textile product
is reasonable
Note: values given in brackets are in percentage.

Table 2. Table showing the Average score – Organizational factors and level of agreeability on
the various aspects relating to retailers

Organizational Factors F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 F13 F14 F15

Nature of Sole trading 4.06 3.68 3.97 3.38 3.34 3.50 3.48 3.39 3.94 3.94 3.75 3.91 3.89 3.48 3.23
business Partnership 4.06 3.97 3.94 3.69 3.63 3.31 3.37 3.06 3.83 3.32 3.60 3.52 3.36 3.08 3.09
Experience in Less than 5 4.24 4.00 4.18 3.76 3.43 3.25 3.13 3.49 4.09 3.67 3.67 4.00 4.12 3.82 3.52
business ( years) 5 – 10 3.78 3.93 4.15 3.71 3.93 3.64 3.56 3.42 3.85 4.08 3.93 4.07 3.64 3.35 3.35
10 – 15 4.05 3.70 3.77 3.44 3.44 3.36 3.52 2.80 3.74 3.71 3.42 3.58 3.55 2.91 2.82
15 years 4.00 3.32 3.74 2.97 2.97 3.55 3.55 3.23 3.90 3.34 3.65 3.39 3.28 3.07 2.97
and above
Initial capital Own capital 4.03 3.86 3.96 3.55 3.32 3.20 3.40 3.40 3.87 3.91 3.64 3.83 3.82 3.51 3.24
Borrowed 4.22 3.67 3.76 3.01 3.13 3.31 3.10 2.91 3.73 3.59 3.61 3.55 3.19 2.97 2.71
capital
Both 3.82 3.58 4.15 3.79 3.91 4.00 3.82 3.24 4.12 3.39 3.73 3.82 3.82 3.21 3.45
Source of Banks 4.11 3.53 3.81 3.40 3.34 3.84 3.70 3.23 4.16 3.57 3.75 3.81 3.36 3.07 2.99
borrowing Financial 4.09 3.82 3.91 3.51 3.60 2.93 2.89 2.53 3.42 3.38 3.29 3.38 3.31 3.18 3.18
institutions
Friends and 3.78 3.65 4.00 3.04 3.57 3.57 3.48 3.09 3.83 3.48 3.57 3.65 4.00 3.30 3.39
Relatives
Organizational Factors F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 F13 F14 F15
Number of sales Upto 3 4.00 3.95 4.09 3.67 3.51 3.33 3.33 3.23 3.93 3.98 3.74 3.91 3.86 3.81 3.72
persons
4–6 4.05 3.58 3.89 3.30 3.40 3.21 3.60 3.51 3.91 3.70 3.68 3.83 3.44 3.23 2.95
7–9 4.18 4.07 4.20 3.70 3.77 3.57 3.47 2.88 3.93 3.60 3.60 3.73 3.65 2.98 2.75
10 and 3.65 2.61 3.04 2.70 2.35 4.35 3.13 3.13 3.65 2.87 3.39 2.96 3.65 2.35 2.87
above
Working hours Upto 8 4.05 4.00 4.13 3.40 3.78 3.65 3.94 3.54 3.87 4.00 3.84 3.68 3.66 3.53 3.22
of the shop 8 – 10 4.04 3.93 4.13 3.65 3.56 3.34 3.18 3.13 3.92 3.71 3.77 3.96 3.75 3.57 3.36
10 – 12 3.87 3.14 3.65 3.11 3.11 3.62 3.40 3.02 3.75 3.43 3.59 3.33 3.56 2.70 2.67

Note: F1 –F15 indicates the factors of agreeability

It is observed from the table 78 that majority of the respondents irrespective of their
organizational classification have high level of agreeability towards marketing of textile
products is not a difficult task (F1), followed by sales during festivals give us more
earnings (F3), customer response towards textile products is encouraging (F2) and so
on. It is concluded that the majority of the respondents have high level of agreeability
towards marketing of textile products is not a difficult task (F1), followed by sales
64 N. Kavitha et al.

during festivals give us more earnings (F3), customer response towards textile products
is encouraging (F2) and so on (Table 3).

Table 3. Table showing the Factor Analysis - Level of agreeability towards the various aspects
relating to small scale retailers

Agreeability factors Group 1 Group 2 Group 3 Group 4

Suppliers deliver the material promptly (punctual) and 0.613 - - -
thus support us
Sales persons involvement towards selling the goods 0.644 - - -
Offers given to the customers make them to buy 0.529 - - -
Sales persons relationship with customers are very 0.597 - - -
pleasant (cordial)
Returns in this business is satisfactory 0.667 - - -
The customers always expect the products to be 0.623 - - -
durable
Facilities given in the shop for the customers and sales 0.750 - - -
persons are quite satisfactory
Competition with the nearby shops make me to think 0.610 - - -
differently
Customers are satisfied with the pricing of products 0.747 - - -
sold
The price of textile product is reasonable 0.693 - - -
Marketing of textile products is not a difficult task - 0.574 - -
Sales during festivals give us more earnings - - 0.671 -
We take sufficient steps to compete with big shops - - 0.657 -
Customer response towards textile products is - - - 0.686
encouraging
Customers react positively towards advertising for - - - 0.647
textile products

It is concluded that the various aspects considered are classified under 4 factors such
as functional factors, marketing oriented factors, sales oriented factors and customer
oriented factors with an important aspect supplier delivering the material promptly,
marketing of textile products is not a difficult task, steps taken to compete with big
shops and customer response towards textile products is encouraging.

1.7 Recommendations
• Success in India’s retail market is not an effortless task and is achievable with the
combination of the following recommendations.
 Effective Utilization of Marketing Strategies 65

• Store ambience: Store ambience should be improved by adopting various techniques

for product display, planning the store space and assortment. As store ambience carries
store image in customer’s minds, the ambience should be concentrated.
• Training the employees: Selling in retail is much about personal feel and relationship
more than buying a product. The employees should be trained in such a way so that
they have complete knowledge of the store and are able to convince the customers
with their requirements.
• Retention of customers: Cost of acquiring a new customer is higher than retaining an
old customer. Moreover in case of physical store a returning customer is a good sign
that shows the customer’s taste and preference is understood by the retailer.
• Role of retailers association: Association with registered associations, fellow retailers
will give a complete knowledge about the banking procedures, Government schemes,
exhibitions and current trends in the market.
• Supply Chain Management: Managing supply chain is very essential for every busi-
ness without mention to the scale of business. The small retailers with already limited
resources should keep the supply chain as short as possible to reduce cost.

1.8 Conclusion
India has become a level playing ground for retailers all over the globe. The present
study concludes that the retailers in textile products are moderate in implementation of
marketing strategies and practices. Even though the problems are highly perceived by the
retailers, there is a higher opportunity for textile products in retailing. The challenges
in marketing of textile products are higher among small and medium retailers when
compared to large retailers. Adoption to the upcoming changes is very important for
the survival of small retailers in the market. The small retail organizations / retailers are
put into the task of attracting new consumers and retaining the present customers. The
success of the small stores more depends on their relationship with the customers and
the adoption of suitable marketing strategies.

1.9 Future Research

The present study is an attempt to identify the effective utilization of marketing strategies
by independent textile retailers in Post pandemic scenario. Further research can be done
including all forms of retailing, promotion strategies of retailers and not only textile
other areas of retailing can be considered.

References
1. Niemann, W., Mannya, K., Kotzé, T.: Global sourcing risk management approaches: a
study of small clothing and textile retailers in Gauteng. The Southern African Journal of
Entrepreneurship and Small Business Management 10(1) (2018)
2. Deb, M.: A study on the factors governing retailer–customer long-term relationship. Int. J.
Comm. Manage. 24(3), 257–272 (2014)
3. Gahlawat, V., Kumar, P.: Human resource in retail: Challenges, issues and opportunities. Asian
J. Multidimens. Res. 3(2), 42–46 (2014)
66 N. Kavitha et al.

4. Basu, R., Guin, K.K., Sengupta, K.: Do apparel store formats matter to Indian shoppers? Int.
J. Retail & Distribution Manage. 42(8), 698–716 (2014)
5. Khare, A.: How cosmopolitan are Indian consumers: a study on fashion clothing involvement.
J. Fashion Mark. Manage 18(4), 431–451 (2014)
6. Sunil: Bricks and clicks: consumer preference –A comparative analysis. Int. J. Mark. Bus.
Commu. 2, 1–13 (2013)
 Purchase Intention Based on the Brand Value
of Pharmacies in a Locality of the Peruvian
Highlands

Rosario Huerta-Soto1 , Hernan Ramirez-Asis2(B) , K. P. Jaheer Mukthar3 ,

Roger Rurush-Asencio2 , Juan Villanueva-Calderón4 ,
and Eva Zarzosa-Marquez2
1 Universidad Cesar Vallejo, Lima, Peru
[email protected]
2 Universidad Nacional Santiago Antunez de Mayolo, Huaraz, Peru
{ehramireza,rrurusha,ezarzosam}@unasam.edu.pe
3 Kristu Jayanti College Autonomous, Bengaluru, India
[email protected]
4 Universidad Señor de Sipan, Chiclayo, Peru

[email protected]

Abstract. The aim of this research was to identify the relationship between brand
value and purchase intention in pharmacies in the city of Huaraz, 2021. The type
of study that was applied was observational, with a correlational, transactional
level not experimental. To collect the information, a 22-question questionnaire
was applied on the Likert scale. The study comprised a total city of 180,000
consumers, with a stratified sample of 384 consumers from the most recognized
pharmacies (Inkafarma, Farmarecuay and Mifarma) in the pharmaceutical sector
within the city. In the results got, it was evidenced that there is a moderate positive
significant correlation of 0.634 based on the general hypothesis of brand value
and purchase intention, while, of the four specific hypotheses, the brand loyalty
dimension is the one with the greatest impact in the purchase intention.

Keywords: Consumer · Brand value · Pharmacy · Purchase intention

1 Introduction
Pharmacies have become an indispensable organism in the health system of any society,
since thanks to the role they play together with the pharmaceutical professional, they
have led to an improvement in the lifestyle of users, and today, besides offering different
products, consumers can also make consultations and receive suggestions, and they can
go at any time of the day without the need to make an appointment, since 95% of the
population generally has a pharmacy near their home [1, 2]. In addition, pharmacies
would not be able to function without the pharmaceutical industry, which has made it
possible to carry out research that has led to the improvement and development of new
drugs [3].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 67–78, 2023.
https://doi.org/10.1007/978-3-031-26956-1_7
68 R. Huerta-Soto et al.

According to the ranking of countries that have generated the highest sales in the
pharmaceutical sector, the industrialized countries occupy the first places, as is the case of
the United States [4], which ranked first with 533.5 million USD, followed by China with
93 million USD, and in third place Japan, which obtained a sales volume of 79.2 million
USD; making a comparison with the United States, which has the highest sales volume
in the pharmaceutical sector, the United States is in first place with 533.5 million USD,
followed by China with 93 million USD, and Japan in third place with a sales volume of
79.2 million USD. A comparison between the first three positions shows that the United
States, as one of the great powers in the world, stands out in the pharmaceutical market
as the strongest thanks to its large sales recorded during 2020, mainly due to the great
impact brought about by covid-19 [5].
In the case of Peru, the brand value as a country until 2019 was in 37th place
worldwide and ranked second among Latin American countries [6], however, due to
the issue of the Covid-19 pandemic the brand value as a country dropped 28 places,
remaining in 65th place, thus exposing the great deficiencies that exist in our country,
where the main factors were the irregularity in terms of inequality, quality medical care,
and the lack of trust towards the state [7], On the other hand, in the pharmaceutical
sector, during the first quarter of 2021 registered a growth of S/937 million in revenues,
which represents 27. 5% [8].
In the case of the city of Huaraz, there are a total of 11 registered pharmacies,
presenting a broad market of consumers who tend to choose pharmacies as their first
option rather than an apothecary’s shop. Therefore, the brand value generated for the
consumer will depend a lot on the competitive advantage and success of the company,
since it is an intangible asset that offers a type of guarantee to the customer, because it
provides various benefits [9]. Thus, the value of the brand will be distinguished from one
state to another, and for this purpose it can be grouped into five categories or dimensions.
The first one obeys to the brand notoriety that the user has with respect to a specific
brand compared to others that have similar characteristics. The second dimension is
due to the perceived quality that the consumer believes a certain product and/or service
has, which will be determined by various intrinsic and extrinsic attributes [10]. The
third dimension is due to the brand association, whether it is the quality, attribute or
outstanding characteristic that gives a particular benefit to the brand [11]. The fourth
dimension is due to brand loyalty when the consumer finds a superior value compared
to another brand [12]. At present, it is necessary for every company, and in this case
the pharmaceutical sector, to know what are the main characteristics that lead to the
intention to buy or choose a certain product and/or service of a specific brand, since
the intention to buy is a way of making a decision when the user has gone through a
process of reasoning that leads him to acquire a brand [13]. Therefore, knowing the main
characteristics that lead to a purchase will allow pharmacies to create and offer the best
marketing strategies in order to achieve a strong and emotional bond between the brand
and its customers.
The arguments presented allow us to propose the general hypothesis of this research:
HG: There is a direct and significant relationship between brand equity and purchase
intention in pharmacies.
 Purchase Intention Based on the Brand Value 69

On the other hand, because of the problems described above, this article aims to
answer the question: What is the relationship between brand equity and purchase inten-
tion in pharmacies? Based on the aforementioned hypothesis. It also aims to identify
the relationship between brand equity and purchase intention in pharmacies, for which a
quantitative methodological approach is proposed by means of a questionnaire using the
Likert scale. The instrument was applied to 384 pharmacy customers (149 Inkafarma,
107 Farmarecuay and 128 Mifarma). For the analysis of the results, various techniques
were applied, such as the normality test, univariate tests, and others.

1.1 Brand Awareness

This refers to when a consumer remembers or recognizes a brand just by seeing the
logo, hearing some characteristic or simply by highlighting a product in comparison with
others of different brands [14]. Thus, brand awareness or recognition occurs through the
relationship that a product has with the brand, which implies a continuous range that
begins when the brand is not known, then there is a low brand recognition, then there is
a medium recall and finally the brand is placed in first place in the consumer’s mindsght
[15].
Likewise, it is important to take into account certain strategies that will allow to
increase brand awareness among customers, so the first strategy is to create a name and
logo that stands out among its competitors; the second strategy is to forge a captivating
story that helps to capture attention and therefore leads to position itself in the consumer’s
mindsght; the third strategy is to create and offer attractive and valuable content on
the different platforms or social networks that the company has; the fourth strategy is
related to the previous one, in which e-commerce should be used to help capture digital
consumers; the fifth strategy is related to the customer itself, so it is important that the
brand builds long-term relationships; and finally the sixth strategy is to offer a brand that
generates value for consumers, leading to a positive relationship between the customer
and the product of a brand [16]. The first hypothesis is thus proposed:
H1: There is a direct and significant relationship between brand awareness and
purchase intention in pharmacies.

1.2 Perceived Quality

It is considered as the consumer’s perception of the product and/or service of a specific

brand, which is known as a subjective indicator [9, 17]. Likewise, perceived quality has
five forms; related to the perception of customers, it offers an advantage that is focused
on generating a superior collection, the brand quality can be significant for stakeholders,
the perceived quality can be extended as long as new product categories are introduced
in the market, and by extending it further it can find a higher probability of success
compared to a weak brand [13]. The second hypothesis is developed for this work.
H2: There is a direct and significant relationship between perceived quality and
purchase intention in pharmacies.
70 R. Huerta-Soto et al.

1.3 Brand Association

Brand association can be defined as that attribute, characteristic or outstanding quality

of a brand that gives it a particular benefit [11], becoming the basis for the customer
to decide to purchase a product or service and therefore to be loyal to the brand [18]
since it will be remembered in the consumer’s mind. Therefore, it is necessary to build
more characteristics to the brand, according to the target market to which we want to
address [15]. Likewise, the brand may present different types of associations, which will
depend on how the consumer perceives it [19]. Among the main types of associations
or attributes are the descriptive ones, which are based on the characteristics of a product
or service, as well as the functional associations that are associated with the advantages
or benefits offered by the brand when a customer decides to make a purchase; the
emotional associations are focused on the emotion or feeling generated by the customer
when consuming a product of a specific brand, while the projective associations are
based on what a consumer thinks when seeing another person when consuming a certain
recognized brand, and finally the personality associations refer to how the consumer
personifies a brand [20]. Thus, the third hypothesis is presented.
H3: There is a direct and significant relationship between brand association and
purchase intention in pharmacies.

1.4 Brand Loyalty

Loyalty or loyalty is considered as the preference for the brand, which is translated as
the level of sympathy or favorable attitude that the customer has towards the brand, so
that as the level of loyalty increases, competition is reduced, resulting in the repeated
purchase for a long time, as long as the consumer’s need is satisfied, therefore, achieving
this satisfaction becomes loyalty, and this translates into higher future sales of the brand
[9, 16].
According to [21], brand loyalty is the result of the interaction between behavioral
loyalty and attitudinal loyalty; in the case of behavioral loyalty, it is based on a repeated
behavior towards the purchase of a certain product or service of a specific brand, thanks
to customer loyalty [22]; while attitudinal loyalty represents the psychological and emo-
tional attitudes that a consumer has towards a brand, that is, thanks to the characteristics
and comparisons of a brand with respect to the competition, the consumer has managed
to identify and highlight which of them solves a problem or need, and this leads the
consumer to present a strong connection, bond or preference towards a certain brand
[23]. Thus, presenting the fourth hypothesis.
H4: There is a direct and significant relationship between brand loyalty and purchase
intention in pharmacies.
Based on the hypotheses proposed, the following Fig. 1 is developed on the basis of
the proposed research model.
 Purchase Intention Based on the Brand Value 71

Brand
awareness
H1
Perceived H2
Quality
Brand purchase
value H3 intention
Brand
association

Brand H4
Loyalty

Fig. 1. Research model. Source: Own elaboration

1.5 Purchase Intention

It is defined as that spontaneous purchase process subject to certain emotional and

behavioral stimuli, which finally leads to the consumption of a specific product or service
[24]. It is considered as a measure of the customer’s attitude or preference that leads him
to make a specific purchase, however, to reach this last process of acquiring a product
or service the customer will have to go through certain external and internal factors that
lead him to make an evaluation of the product or service he has in mind to buy, and
according to the previous analysis can limit or lead him to make the final purchase [10,
18].
According to [25], they consider that the consumer’s intention is a measure of the
customer’s attitude or preference that will lead him to make a specific purchase, however,
to reach this last process of acquiring a product or service the customer will have to go
through certain factors (external and internal) that lead him to make an evaluation of
the product and/or service he has in mind to buy. Among the main internal factors
are perception, personality, lifestyle, while the external factors are culture, family and
leading groups, therefore, these are the factors or events that can alter and affect the
purchase intention.
Therefore, through the purchase intentions of a consumer, the company increases
its profits thanks to the investments it makes in marketing activities, and thanks to the
activities used in marketing management, it helps the product and/or service provided
by a company to be more successful in the market, i.e. against its main competitors [26].
Thus, before launching a certain product and/or service to the market, the company
must make sure to create brand awareness in the consumer, which translates into how
the user or consumer generates associations towards a specific brand.
72 R. Huerta-Soto et al.

2 Methodology
The present study was observational and non-experimental, since there was no interven-
tion by the researcher based on the study variables. It was also correlational because
it sought to relate the variables brand equity and purchase intention through hypothe-
sis testing. It was trans-sectional because of time, since for the research the data were
collected taking into account a single period of time.
Likewise, for the analysis and clarification of the secondary information, identifica-
tion of the dimensions and variables to be measured, and selection and adaptation of the
instruments for the collection of primary information; it was decided to use the models
[26, 27] for the first variable brand value with its respective four dimensions (brand
awareness, perceived quality, brand association and brand loyalty); while for the pur-
chase intention variable the model [28] was used, for which the 4-question questionnaire
[29] was acquired. Since the questionnaire for both variables (brand equity and purchase
intention) was self-administered, it was necessary to adapt it to the pharmaceutical
industry.
Likewise, the survey technique was applied through the use of online and face-to-face
questionnaires, which consisted of a total of 22 questions divided into three parts: the
first part included demographic questions, the second based on brand value, and the third
on purchase intention, including the initial instructions. In addition, the measurement
of the questions was established using a five-level Likert scale. For the collection of
primary information, a population of 180,000 clients of the three main pharmacies was
established; the first two are leading brands such as Inkafarma and Mifarma, and the
third being one of the first in the city of Huaraz, which is Farmarecuay. A sample of 384
clients.
The reliability measurement was carried out through Cronbach’s alpha, showing that
the questionnaire is acceptable, since for the brand value variable the result was 0.899,
while for the purchase intention it was 0.855; concluding for both that the instrument
has a high reliability.

3 Results
Once the activities described in the methodology chapter have been carried out, the
following are the relevant results from the information gathered through the surveys,
which contribute to the achievement of the objectives proposed in this research.
First, regarding the description of the demographic variables of the sample, 51.3%
of the respondents are female, 41.7% are university graduates, 45.3% are employees,
and 60.7% live in the district of Huaraz, the average age of the clients of the pharmacies
in the city of Huaraz is approximately 35 years, with clients between 18 and 68 years of
age having been surveyed.

3.1 Descriptive Results

It is observed that 39.6% of the surveyed clients present medium levels of brand equity in
relation to the pharmacies, while 29.4% present high levels, which leads to the conclusion
that the brand equity in the pharmacies is medium.
 Purchase Intention Based on the Brand Value 73

In the Table 1, it was determined that 38.3% of the surveyed customers show low
levels of brand awareness, while 23.4% show high levels. For the next dimension, it
was determined that 45.8% of the clients show medium levels of perceived quality,
while 24.7% show high levels. As for the third dimension, 50.5% of the clients surveyed
showed medium levels of brand association, while 16.4% showed high levels. As for the
fourth dimension, it was determined that 46.6% of the customers surveyed had medium
levels of brand loyalty, while 15.9% had high levels. Therefore, that the first dimension
of brand awareness of pharmacies is low, while the other three dimensions of perceived
quality, brand association and brand loyalty of customers to pharmacies are medium.

Table 1. Levels of the dimensions of brand equity

Levels Brand awareness Perceived quality Brand association Brand loyalty

Low 38.3 29.4 33.1 37.5
Medium 38.3 45.8 50.5 46.6
High 23.4 24.7 16.4 15.9
Total 100 100 100 100

For Table 2, it was observed that 37.5% of the surveyed pharmacy customers present
low levels, while 28.1% present high levels of purchase intention.

Table 2. Levels of purchase intention

Levels Frequency Percentage

Low 144 37.5
Medium 132 34.4
High 108 28.1
Total 384 100.0

3.2 Hypothesis

Table 3 shows a direct correlation between the research variables brand equity and
purchase intention, with a degree of correspondence of 0.634, that is, it symbolizes that
there is a moderate positive correspondence with a significance value of less than 0.05, so
the null hypothesis is rejected and the alternative is accepted. In conclusion, brand equity
is related to customers’ purchase intention in pharmacies. Therefore, the general research
hypothesis is accepted, since the variables present a direct and significant relationship.
74 R. Huerta-Soto et al.

Table 3. Correlation of brand equity and purchase intention

Brand value Purchase Intention

Rho de Spearman Brand value Correlation coefficient 1.000 ,634**
Sig. (bilateral) 0.000
N 384 384
Purchase intention Correlation coefficient ,634** 1.000
Sig. (bilateral) 0.000
N 384 384
** The correlation is significant at the 0.01 level (bilateral).

4 Contributions

According to the study, it was determined that there is a moderate positive relation-
ship of 0.634 between brand equity and purchase intention in the city’s pharmacies;
therefore, there is coincidence with the work of [22], who in his research work, brand
equity presents a relationship with purchase intention of 0. 399 showing a low posi-
tive correspondence, although the study variables do not belong to the same research
sector (pharmaceutical), therefore, the correlation is a little low since it focused on
the consumption of its customers for the products sold in its main store in Bode Peru,
instead for pharmacies it worked with customers of the three major pharmacies recog-
nized in the city. Moving on to the first specific hypothesis, a correspondence between
brand awareness and purchase intention of 0.431 was observed, showing that it has a
moderate positive correlation, since unlike the study of [23] it reflects a low similarity
coefficient of 0.099, since it is not offering a positive communication according to the
new products and promotions. In the case of pharmacies, the correlation coefficient was
higher because the products offered by pharmacies, such as medicines, beauty, hygiene,
etc., are usually recognized according to the brand name, are usually recognized on the
basis of the pharmacy brand and not on the products they offer. This is also consistent
with the levels where it was determined that of the 384 respondents, 38.3% reflect a
low level of brand awareness, therefore, pharmacies do not apply appropriate strategies
where customers associate or link the product with the company’s brand. For the sec-
ond hypothesis, a moderate positive correspondence was observed between perceived
quality and purchase intention with a coefficient of 0.538. This is in agreement with
the research of [30, 31], where the correlation coefficient is 0.451, which is considered
a moderate positive correspondence, since customers value the quality and guarantee
of the products offered by Bode Peru, while in pharmacies, customers value product
quality very highly. Likewise, it can be seen in the levels where it was determined that
of the 384 respondents, 45.8% reflect a medium level, since pharmacies offer various
lines of products that are focused on health, and customers tend to consume them on a
daily basis. For the third hypothesis, a moderate positive correspondence of 0.471 was
observed between brand association and purchase intention, which does not coincide
with the study of [24], where the correspondence coefficient is 0.165 and is considered
 Purchase Intention Based on the Brand Value 75

a very low positive correspondence; in comparison with the research [32], which also
obtained a low positive correlation value of 0.265, since the products offered in one of
the stores of Bode Peru do not offer variety in their products, therefore they do not end up
covering the needs of their customers; while in the pharmacies it can be seen in the levels
that of the 384 respondents 50.5.% reflect a medium level in the brand association, since
the attributes that relate to the brand value are so high. Finally, the fourth hypothesis
obtained a moderate positive correspondence between loyalty with purchase intention in
pharmacies, where the similarity coefficient was 0.634, which agrees with the research
of [19, 33], where a correlation of 0. 598 since customer service plays an important
role since, they need personalized advice and specifications of their products; while in
Pharmacies customers are only considered loyal to recognized products, as long as the
prices are cheaper and they provide discounts on certain product line, which generates
an added value of the brand and this leads to more loyal customers.

5 Conclusion

This research was conducted to examine the relationship between brand equity and
consumer purchase intentions. Therefore, it has been concluded that the independent
variables of the study such as brand awareness, perceived quality, brand association
and brand loyalty have a sig value of less than 0.05, which symbolizes a relationship
with a more significant impact on the dependent variable, i.e. on consumer purchase
intentions. The coefficient of brand awareness is 0.431, which is why brand awareness
should be strengthened through the application of better communication strategies on the
different product lines, promotions and/or discounts, which will help increase purchase
intention in other pharmacies and not only in those leading brands in our city. The
coefficient of perceived quality is 0.538, which suggests that when perceived quality
increases, an increase of 0.538 can be predicted in the increase of purchase intention with
other variables remaining constant, which is why pharmacies should link and integrate
differentiating characteristics and advantages in their products and/or services, which
will allow customers’ perceived quality to be higher. The coefficient of brand association
is 0.471, so pharmacies should interact through social networks, website and in the
same store, making known the different products they offer and the benefits obtained
by consuming them, which generates that the customer associates’ greater qualities of
the brand. The brand loyalty coefficient is 0.638, In addition, according to the results
obtained, brand loyalty is the dimension that has the greatest impact in relation to the
dependent variable, consumer purchase intention, so it is important to offer an after-sales
service through online surveys, in order to know customer satisfaction and the products
or product line that they usually buy, which will help to increase and strengthen brand
loyalty by offering incentives in the products they mostly consume.
Indeed, future research on purchase intention can be conducted with other variables,
which can be the achievement on consumer purchase intention.
As for the main limitations of the study, firstly, since the variables are little known,
it is difficult to obtain background information at the local level, especially that they are
aimed at the pharmaceutical sector. Secondly, based on the literature on brand equity,
several variables were found that have not been considered in this study, since it was
76 R. Huerta-Soto et al.

tried to focus on those best known and used according to the antecedents that were
applied for the discussion, likewise regarding the purchase intention variable, there was
little information in terms of literature, making it difficult to obtain its main dimensions.
Therefore, based on what was stated in the research, it is important to take it with
moderation.

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 Reflections of Social Support on Twitter: The
Case of the Soma Mine Disaster in Turkey

Selcen Ozturkcan1(B) , Nihat Kasap2 , İnanç Arın2 , and Yücel Saygın2

1 Linnaeus University, 352 52 Växjö, SW, Sweden
[email protected]
2 Sabancı University, Istanbul, TR 34956, Turkey

{nihatk,inanc,yucel.saygin}@sabanciuniv.edu

Abstract. Tweets posted during the Soma mine disaster that took place in Turkey
provide a better understanding of the potential that social networks have for social
support. The social media analytics framework and the text categorization method-
ology using CovNets were used to analyze 6.3 million tweets containing the key-
word “soma” posted between 13 May 2014 and 23 March 2015 in Turkish. Accord-
ing to the findings, people used Twitter more after hearing about the terrible and
tragic event. In reaction to the demand for a public day of mourning, Twitter was
used to express grief and outrage. Twitter usage has expanded in unison with
the involvement of charity and assistance organizations. Regardless, none of the
support efforts posted on Twitter garnered widespread public participation. The
results, on the other hand, showed that deep learning could accurately predict if a
tweet would garner a substantial number of retweets. The findings could be bene-
ficial for people interested in how social support organizations and policymakers
use Twitter to keep the public informed during significant disasters.

Keywords: Soma mine disaster · Twitter · Tweet · Social media analysis · Social
support · Deep learning · Big data

1 Introduction
On May 13, 2014, a serious accident occurred at a coal mine in Turkey’s Soma district.
The Soma mine disaster, widely regarded as one of the worst industrial disasters in the
region in the last decade, claimed the lives of 301 mine workers. [5] When the bad news
broke, the death toll was unknown to the public, but prayers for the rescue of all trapped
miners were overwhelming. This was followed almost minute by minute by news of
every saved life, or the majority of them; unfortunately, the casualties were brought
to the surface from underground. As public interest in the status of rescue operations
grew, social media, particularly Twitter, emerged as the primary source of information
dissemination. Twitter users engaged in a variety of activities. Some have organized
collaborative prayer sessions to help affected families emotionally and socially. Oth-
ers were busy gathering and delivering humanitarian aid funds and materials to Soma.
Regardless of their participation in such events, the majority of Twitter users were inter-
ested in conveying real-time information about Soma rescue operations to the general

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 79–88, 2023.
https://doi.org/10.1007/978-3-031-26956-1_8
80 S. Ozturkcan et al.

public. The rising death toll had drawn even more users to Twitter, while public mourn-
ing had become more intense. Twitter, a social media platform initially developed for
entertainment and socializing, proved to offer opportunities for social support during
a disaster. Thus, we focus on the Soma mine disaster in this study with the research
objective to better understand the various uses of Twitter and the possibility of predict-
ing whether a tweet will receive a large number of retweets in a specific domain. We
use a type of deep learning artificial neural network, Convolutional Neural Networks
(CovNets), which are widely used in image [14] and text [13] classification for precise
prediction using only the text fields of tweets. The study and its findings offer significant
contributions to the multi-disciplinary fields of social networks, information technology
adaption, human-computer interaction, communication, and policy-making by revealing
virtual behavioral mechanisms involved in the disaster context.
The following is how this paper is structured: Sect. 2 summarizes the most important
studies published in the literature. Section 3 contains an explanation of the methodology
used. The analysis and results are then presented in Sect. 4. Finally, Sect. 5 summarizes
and concludes our research.

2 Literature Review

Several studies in the literature indicate that social media could be used to enhance
disaster operations. [9] developed a framework to aid in the design and implementation
of disaster-related social media tools, as well as to assist scientists in studying how
social media affects disasters. [2] proposed a model for detecting major events and
alerting via ‘Twitter’ in order to comprehend the occurrence of events in real-time. Their
system identifies significant events with national implications, such as disasters, terror
attacks, and social events like protests, sends alerts shortly after the event occurs, and
allows for proper preparation. [12] investigated the various functions of social media as
interpersonal communications channels for information sharing and gathering, as well
as channels for local governments, organizations, and media. They recommend creating
an effective communication network through social media to prepare for disasters.
Twitter, as a social media platform, provides a potential communication channel for
information sharing and gathering that governments and organizations can use actively
during crises. [8] empirically demonstrated that Twitter is insignificant for government
crisis communication because most tweets contain no new and relevant information for
the government, and many citizen tweets obscure the tweets posted by the government.
As a result, issues raised by citizens on Twitter were effectively addressed by other citi-
zens, and accurate information was quickly disseminated via social media. Furthermore,
users’ perceptions of information consumed through social media may be influenced by
their general trust in the medium. Government and public safety organizations should
be aware of the effect the medium of information distribution may have as a practical
implication of risk and crisis communications. [15] investigated the role of social media
as an information source during a crisis. They concentrated on trust, which is critical
in high-risk situations. They proposed that general social media use could predict trust
in social media during crises. In addition to trust, thought leaders influence informa-
tion dissemination and sharing through social media. [6] created a content analysis tool
 Reflections of Social Support on Twitter 81

for online social media by piecing together social network graphs to identify thought
leaders who emerge during crisis events. Their approach is concerned with assessing
thought leadership in large social networks. Although social media is an excellent plat-
form for sharing and disseminating information during disasters and crises, it has some
limitations. [4] stated that using social media to disseminate disaster information has
limitations, particularly for older adults, because many do not use social media or tech-
nology and thus are unable to access information through these channels. The extra stress
of trying to interpret disaster information in a chaotic time reduces credibility for older
adults due to the large and conflicting volume of information available through social
media. Furthermore, multiple sources of warning information may be problematic dur-
ing a disaster because residents may become confused, and information sent via social
media may be unreliable and exaggerated [1].
In addition to sharing and disseminating information, people use Twitter to express
social support, particularly during disasters and crises. [3] conducted a content anal-
ysis on tweets to determine the presence and magnitude of social support messages
conveyed by Twitter users following the death of a non-celebrity. In general, the find-
ings provided empirical support and show that people use Twitter as a platform to send
informational and emotional support messages to convey social support. Informational
support was mostly expressed through posting or sharing pictures and relevant news
articles, whereas emotional support was mostly expressed through praise, sympathy,
and prayers. Furthermore, Twitter can be used to assist in social marketing activities
such as fundraising and social support campaigns. [10] conducted a content analysis
to demonstrate how sports help public and non-profit organizations in disaster relief
efforts by providing monetary and in-kind donations, spreading attention to the recovery
effort beyond regional boundaries, and facilitating psychological recovery for affected
individuals as emotional support. They stated that sport could play an important role
in community recovery efforts, and their findings can serve as a framework for future
research into this role of sport. [16] concentrated on creating more effective campaigns
immediately following a disaster. They discovered various types of advertisements. They
discovered that most commonly used advertisements aimed at improving the company’s
image or providing information do not correlate with public perception. As a result,
despite being the most commonly used type, “image” ads were poorly perceived by the
general public. However, “participation” with the less commonly used type received
the highest rating, followed by “fundraising promotion” and “informative” ads. As a
result, they revealed that campaigns should be more aligned with public expectations
and evaluations.

3 Methodology

Studies involving Twitter big data analysis must frequently rely on one of two available
sources [11], either purchased from a data source or streamed data collected via a Twitter
API. In our research, we chose the latter. Between 13 May 2014 and 23 March 2015,
a Twitter Stream API was used to collect real-time publicly available Turkish tweets
containing the keyword “soma.“ While the tragic incident marked the start of data col-
lection, the end date was determined solely by server maintenance requirements coupled
82 S. Ozturkcan et al.

with visual analysis of stabilized Tweet volume. As a result, 6,329,038 tweets that were
publicly available were collected. Our methodology is based on a social media analytics
framework [7], and it consists of three sequential processes: capturing, understanding,
and presenting. This was followed by the text categorization methodology, CovNets,
which [13] presented the overall architecture.

4 Analysis and Results

Tweet volume is regarded as a reliable indicator of Tweeting activity. As a result, a tweet

volume analysis with major local peak points and related real-life events was performed.
Figure 1 depicts the daily volume of all collected tweets over a ten-month period. Table 1
lists major events that have an impact on tweet volumes. As a result, the first peak point
was recorded on 15 May 2014, two days after the Soma Mine disaster, when news broke
of an increasing death toll of over 250 people. Following that, there was a downward
trend in daily tweet volume, with some local peaks. The second tweet volume peak is
observed on Father’s Day, June 15, 2014, due to campaigns emphasizing slogans such
as “remember those kids who lost their Dads, celebrate your Father’s Day.” Consecutive
peaks occurred on August 8, 2014, and August 25, 2014, when a Charity Soccer Match
was held and the Turkish Football Federation announced the establishment of a Soma
Soccer School, respectively.

Fig. 1. Volume of Tweets (12 May 2014 – 16 March 2015)

Despite the shocking impact of more than 300 miners dying in a single incident,
Soma-related tweeting behavior lacked the expected sustained activity. Except for the
Charity Soccer Match, the remaining days in our analysis have not exceeded 50K daily
tweets, despite the fact that 1,4M daily tweets were posted on the second day of the
disaster. As a result, other major events had only induced 10–50K daily tweets, which
was far too low in comparison to the initial peak. During the first few days, the high
 Reflections of Social Support on Twitter 83

volume of Tweets observed abruptly dropped to shallow levels. The drop was observed
following the Tweets of some politically prominent users with political agendas. Our
analysis does not include any causality to refer to; however, the loss of interest in Twitter
use could be attributed to sensitivities associated with mixing political agenda with
mourning and sorrow.

Table 1. Major events affecting tweet volumes

Date (MM/DD/YY) Events simultaneously taking place Volume of Tweets

1 5/15/14 Death toll rising 250+ 1,364,403
Street protests organized
2 6/15/14 Father’s Day 48,231
3 8/8/14 Charity Soccer Match 53,951
4 8/25/14 Turkish Football Federation Soma Soccer School 47,670
groundbreaking ceremony, Fenerbahçe -
Galatasaray Super Cup Match
9/7/14 Güven Özdemir’s stand-up show “Am I Crazy?” 19,661
was staged at Batıkent Theater Hall for the benefit
of Soma
5 9/27/14 Devastating News: Preventive fire masks were not 14,607
distributed, could have saved 150 lives
6 10/28/14 ‘Ermenek’ mine accident - Death toll 18 13,249
7 2/15/15 The aftermath of the triple tournament income for 11,589
Soma benefit and Galatasaray former football
player Drogba’s allegedly donated 1 million TL
are unknown

An increase in daily tweet volume could be caused by the same Twitter users posting
more tweets or by new subscribers tweeting on a specific topic. Figure 2 shows the daily
number of Twitter users in the case of Soma. The daily number of Twitter users, like the
volume of tweets, peaked on the second day of the incident, followed by Father’s Day,
the Charity Soccer Match, and the Turkish Football Federation’s announcement of the
Soma Soccer School.
An increase in daily tweet volume could be caused by the same Twitter users tweeting
more frequently or by new subscribers tweeting on a specific topic. The daily number of
Twitter users was examined in the case of Soma, as shown in Fig. 2. The daily number
of Twitter users peaked on the second day of the incident, as did the volume of tweets,
and was followed by Father’s Day, the Charity Soccer Match, and the Turkish Football
Federation announcing its Soma Soccer School (Fig. 3).
Finally, we used 30K tweets with the most and least number of retweets, labeled
as ‘high’ and ‘low,’ respectively, to predict the likelihood of retweeting. The data was
then randomly divided into training and test sets with sizes of 25K and 5K, respectively.
84 S. Ozturkcan et al.

Fig. 2. Daily number of Twitter users (12 May 2014–16 March 2015)

Fig. 3. Trend of new subscribers’ involvement in tweeting

TensorFlow,1 an open-source software library for deep learning networks, was then used
to create the CovNets model shown in Fig. 4.
The first step in our CovNets model was to convert tweets into a sequence of word
embeddings. By setting the maximum sequence length to 25, each tweet was specified to
contain 25-word embedding vectors. Three convolution operations were used, with filter
sizes 3, 4, and 5. ReLUs were chosen as a nonlinear function, and an L2 regularizer was
used. For the pooling operation, the Max pooling method was chosen, and the dropout
operator parameter was set to 0.5, resulting in half of the units being dropped between
each layer. Then, using an Adam optimizer with a learning rate of 0.001 and a batch size
1 https://www.tensorflow.org.
 Reflections of Social Support on Twitter 85

Fig. 4. The CovNets model architecture

of 32, a fully connected layer was obtained. We tackled a binary classification problem
in which two outputs of ‘high’ and ‘low’ were predicted.
TensorBoard,2 a visualization tool, was used to show the accuracy results for training
and test data, as shown in Figs. 5 and 6. As a result, the learning model learns the training
data with greater than 95% accuracy (Fig. 5). The test data results, however, showed
oscillations at the start, which resumed after the 16Kth iteration, where an accuracy of
73 percent was achieved (Fig. 6).

2 https://www.tensorflow.org/get_started/summaries_and_tensorboard.
86 S. Ozturkcan et al.

Fig. 5. Accuracy of training data

Fig. 6. Accuracy of test data

5 Conclusion
Our analysis revealed that the shocking exposure to the severely tragic incident has
increased Twitter use dramatically. This was particularly evident in our observation
when news broke about the death toll increasing and rising beyond 250 miners leading
to about 1.4M tweets on 15 May 2014. Public mourning was called upon, and Twitter
served to express sadness and frustration.
 Reflections of Social Support on Twitter 87

Twitter use also increased upon support and charity organizations taking place. The
increase in Tweeting behavior was evident in organizations initiated by soccer clubs
and players, whether a summer school, a charity match or a super cup match. All ticket
sales revenue was directed to affected families, and further donations were collected
during these sports events. Similarly, a stand-up show was staged for charity purposes.
An increase in Tweet volume reflected all these support activities. Emotional support
from the public surfaced on Twitter, particularly around Father’s Day. Users have posted
messages to reflect on their emotional support towards Soma kids who lost their parents
during the disaster. Despite all valuable efforts, none of the support activities conveyed
on Twitter captured broader public participation in Tweeting. Daily Tweet volume on
corresponding days of social support activities hardly exceeded 50 000, reaching only
4% of the global peak in our dataset. Social support intentions were not only weak in
capturing high Tweet volumes, but the mini-peaks they were able to raise had faded out
very quickly, too.
Our findings suggest that deep learning can be used to accurately predict the like-
lihood of high retweeting, allowing policymakers to use Twitter to inform the public
during major disasters.
Various disaster cases need to be examined to understand better the nature of social
media use in various settings. Our findings are limited only to a mine disaster; therefore,
certain limitations exist in applying our conclusions to different other disasters. More-
over, deep learning could also be employed to analyze social media content with visuals
to understand better such content retweeting.

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 A Study to Assess the Impact on Narcissist,
Necrophilia, and Sadistic Personality Disorder
on Youth’s Purchase Decision with Respect
to Cosmetics Products

Syed Kazim1 , K. P. Jaheer Mukthar2(B) , Juan Vilchez-Carcamo3 ,

Willian Fernandez-Celestino3 , and Robert Jamanca-Anaya3
1 Jain (Deemed to be University), Bengaluru, India
2 Kristu Jayanti College, Autonomous, Bengaluru, India
[email protected]
3 Universidad Nacional Santiago Antunez de Mayolo, Huaraz, Peru

Abstract. The cosmetics products industry is growing rapidly across the world,
especially in India. The majority of the people who buy these cosmetics products
are the youth as they want to look more presentable and beautiful. As the number
of women workforce has increased over the years, the sale of cosmetics has also
increased as women want to be presentable during work, as it makes them feel
confident. But it is not only women who use cosmetics, but it is also men who
are consuming cosmetics products almost equally. The study is performed with an
objective to assess the impact of gender with respect to their Perception Towards
Cosmetic Advertisements, Narcissist Personality Disorder, Sadistic Personality
Disorder, and Intention to Purchase Cosmetics, to assess the impact Perception
of Cosmetics Advertisements, Narcissists, Necrophilia, and Sadistic Personality
Disorder on Intention to Purchase Cosmetics and to assess the relationship between
Perception of Cosmetics Advertisements, Narcissist, Necrophilia, and Sadistic
Personality Disorder with the Intention to Purchase Cosmetics.

Keywords: Narcissist · Necrophilia and Sadistic · Personality · Disorder ·

Youth · Purchase · Cosmetic · Products

1 Introduction
Looking beautiful is not a new concept, when we go back to history we get concrete
proofs of the beautification of women, as women are obsessed with looking beautiful.
This has actually led to the creation of various products which can be used by women
to beautify themselves. Initially, various cosmetics were created with the help of herbs,
which helped women to look young and charming. Various forms of herbs that were
easily available in India were initially used and became popular across the globe. In
recent years cosmetics made from herbs have become very popular with the name ‘herbal
cosmetics’ and have grown in demand. Not only in India, but these products are very
much popular across the globe and are also widely accepted.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 89–105, 2023.
https://doi.org/10.1007/978-3-031-26956-1_9
90 S. Kazim et al.

The cosmetics industry in India has been very popular and accepted in the herbal
products category. Various Indian brands have also made it big in the domestic as well
as the global market. Some of the companies which are made it big are Himalaya, Khadi
Herbal, Lotus Herbal, etc. There are many smaller brands that have a significant presence
in the local market. They do have various kinds of cosmetics ranging from hair care,
skin care, oral care, fragrances, colors, etc.
The increase in consciousness to look beautiful and handsome among women and
men respectively has contributed to the growth of the cosmetics industry in India, this
type of significant growth has been witnessed in the last ten years. The cosmetics industry
has proved to be one of the biggest emerging markets across the world. Various new
products have been introduced into the industry every now and then, and it has just added
fuel to the growth of the industry, and thus, the future of the industry looks very bright
in India.
A reason which has contributed to the growth of cosmetics is the increase in con-
sciousness about beauty, grooming, and appearance. Today cosmetics has grown to
such an extent that there are more than three thousand and three hundred cosmetics
manufacturing companies only in America that are doing pretty good business.
After the literature review, a gap was found. There is no research happened to assess
and understand the impact on human personality after seeing cosmetics advertisements.
There is no study conducted to assess the personality discovered developed by the view-
ers, especially the youth who watch the cosmetics advertisements. Thus, this study
would help in contributing significantly to the field of advertising, consumer behaviour
and human psychology.
The entire paper is broken down into five parts. The first part is the introduction, the
second part is the literature review. The third part discusses the research methodology of
the paper which covers various aspects such as objectives, sample size, sample design,
reliability, and validity test. The fourth part of the paper is analysis and interpretation,
followed by discussion and conclusion as the fifth and the sixth path respectively.

2 Literature Review
The ultimate objective of advertisements is to gain sales and to keep selling expenses
low on the other end. The respective company advertising cosmetics ensures that the
advertisements show positive results, even when the message is not delivered personally.
As advertisements are carried on various means such as the newspaper, magazines,
hoardings, radio, television, social media, or any other mass media that exists. The
respective advertising company must pay the media companies for their space in print
media and for the time in audio and video media [1].
Through advertisements, people develop perception and this perception will have
an impact on one’s behavior and actions. An individual tends to develop a number of
positive and negative feelings and emotions after seeing the advertisement. This impact
helps us to assess how powerful the message was. This is a very significant aspect, as
companies and ad agencies will have to create an impact in a span of just 30 s [2].
 A Study to Assess the Impact 91

Not much research has been done in order to understand the direct impact of cos-
metics advertisements on consumers. The majority of the previous studies have only
discussed and focused on the impact and implications of the cosmetics industry. This
is also because boys and girls at a very young age are thought to use cosmetics to that
themselves look more attractive. Different amounts are applied based on the need and
requirement and it works as a self-esteem and self-image booster for a temporary period.
One of the most important benefits of cosmetics is that it is a quick and easy way to
solve any kind of beauty problem. It is basically a shortcut to looking beautiful. Women
use cosmetics at different levels based on how and where they spend the day [3].
The primary objective of the advertisement is to create a sense of liking, and under-
standing of the products or service. The most important aspect from the point of view
of advertising is the perception of advertisements. The perception which people develop
after viewing the advertisement has an impact on their purchase intention [4].
The more the television is aired on television, the higher will be the demand for
the respective cosmetics. When the viewers see the advertisement more and more, they
develop a sense of liking and attachment towards the respective cosmetics. Advertise-
ments that are aired on television have a positive impact on women, as it directly influ-
ences their choice to purchase cosmetics. When it comes to cosmetics, consumers always
prefer to purchase branded products because they feel that branded products will be of
good quality, as good quality ingredients would be used, and it would not have any neg-
ative impact on their body and skin. The cosmetics companies and advertising agencies
should ensure that complete information about the cosmetics is provided to them so that
it would facilitate them in better decision making [5].
Men purchase cosmetics on a regular basis and they purchase cosmetics in order to
satisfy their self-image, lifestyle, social belief, and self-esteem. Men go shopping for
cosmetics products as it would enhance their lifestyle and would add to their confidence
and self-image. Later the self-image is also linked to the social belief and self-esteem
of the individual. Thus, there exists a similarity between men’s and women’s behavior
when it comes to the purchase and use of cosmetics products [6].

3 Research Methodology

3.1 Objectives

1. To assess the impact of gender with respect to their Perception Towards Cosmetic
Advertisements, Narcissist Personality Disorder, Sadistic Personality Disorder, and
Intention to Purchase Cosmetics.
2. To assess the impact of Perception of Cosmetics Advertisements, Narcissists,
Necrophilia, and Sadistic Personality Disorder on Intention to Purchase Cosmetics.
3. To assess the relationship between Perception of Cosmetics Advertisements, Narcis-
sist, Necrophilia, and Sadistic Personality Disorder with the Intention to Purchase
Cosmetics.
92 S. Kazim et al.

3.2 Population

Bangalore is a city with a fast-growing population and also has a huge number of peo-
ple who are purchasing and consuming cosmetics. Thus, the population is taken from
Bangalore city.

3.3 Frame

Youth are defined as people who are in the age group of 15 to 29 years. More than 24
lakh people in Bangalore city fall into this age group.

3.4 Method

The sample is collected from different parts of Bangalore city. A simple random sampling
technique was employed to conduct this study.

3.5 Sample Size

The youth population is more than 24 lakhs in Bangalore city. The questionnaire was
given to 560 respondents from across Bengaluru. As per BBMP, Bengaluru is divided
into 10 zones, and data from 56 respondents was collected from each zone. A total of
560 questionnaires were distributed in 10 zones in Bengaluru. 27 questionnaires were
rejected due to over-writing and 21 questionnaires were rejected due to incomplete
filling. Thus, the final sample size came up to 512.

3.6 Data Collection Design

Primary data was collected with the help of a structured questionnaire. A four-point
rating scale was employed in the questionnaire. Secondary data such as newspapers,
magazines, journals, and online articles were also referenced for the research.

3.7 Statistical Tools

The collected data were subjected to a t-Test, Regression, and Correlation. The data
analysis was carried out using SPSS.
 A Study to Assess the Impact 93

3.8 Reliability

A pilot Study is a small-scale preliminary study conducted in order to evaluate the fea-
sibility, time, cost, adverse events, and affect size (statistical variability) in an attempt
to predict an appropriate sample size and improve upon the study design prior to perfor-
mance of a full-scale research project. Pilot studies, therefore, may not be appropriate
for case studies.
The Pilot Study was conducted to test the tool developed and to standardize the
deceptive rating scale. The tools presented were administered on 50 respondents who
were similar to the final sample of the study.
Reliability analysis was used to conduct the pilot study. It is a measure to check the
internal consistency of an instrument constructed with multiple-item scales. Reliability
analysis is undertaken by estimating a ‘true’ score and comparing it with the observed
score. It is used to examine whether the instrument measures the same thing irrespective
of who administers the instrument and how.
The analysis focuses on the internal consistency of the instruments. Therefore, we
need to use Cronbach’s Alpha. The null and alternative hypotheses for Cronbach’s Alpha
are:

H0 : The test is not reliable, that is, the observed score is not reliable to the true score.
H1 : The test is reliable, that is, the observed score is related to the true score.

3.9 Reliability Statistics

The Case Processing Summary table shows that out of 50 respondents, all 50 respondents
are included in the analysis. The value of Cronbach’s Alpha is 0.783 (Table 3.1) and the
number of items (questions) is 50. Since the value of Alpha is higher than the accepted
(.70), we reject the null hypothesis and we say that the instrument is reliable and can be
used with other statistical procedures for future investigation.

Cronbach’s alpha Number of items

0.783 50
Source: Primary Data.

On the basis of the result of the pilot study, minor alternations and changes were
made in the questionnaire wherever necessary and the tools which should be employed
for testing were finalized. This was followed by developing a pre-coded questionnaire.

3.10 Validity

The validity of the research instrument was ascertained using Confirmatory Factor
Analysis (CFA) and the analysis is presented in the below Fig. 1 and Table 1.
94 S. Kazim et al.

Fig. 1. Confirmatory factor analysis graphical diagram

It can be seen from the above table that all paths were found to be significant at p <
0.001. The fit indices for the measurement model are summarised in the Table 2 below.
 A Study to Assess the Impact 95

Table 1. CFA path analysis

Path Unstandardized coefficients Standardized coefficients T p

Q6.14 <--- Q6 .457 .619 15.422 ***
Q6.13 <--- Q6 .397 .509 12.198 ***
Q6.12 <--- Q6 .491 .675 17.207 ***
Q6.11 <--- Q6 .399 .536 12.966 ***
Q6.10 <--- Q6 .467 .578 14.171 ***
Q6.9 <--- Q6 .499 .661 16.764 ***
Q7.3 <--- Q7 .525 .576 13.350 ***
Q8.3 <--- Q8 .478 .644 15.805 ***
Q9.2 <--- Q9 .664 .759 19.308 ***
Q9.3 <--- Q9 .543 .639 15.811 ***
Q9.4 <--- Q9 .642 .783 20.803 ***
Q10.2 <--- Q10 .617 .832 22.387 ***
Q10.3 <--- Q10 .630 .746 19.105 ***
Q6.18 <--- Q6 .388 .495 11.838 ***
Q6.17 <--- Q6 .395 .522 12.574 ***
Q6.15 <--- Q6 .396 .510 12.225 ***
Q6.2 <--- Q6 .766 .948 28.762 ***
Q6.4 <--- Q6 .773 .956 29.263 ***
Q6.3 <--- Q6 .769 .923 27.458 ***
Q6.5 <--- Q6 .748 .937 28.186 ***
Q6.6 <--- Q6 .739 .903 26.382 ***
Q6.7 <--- Q6 .463 .608 15.070 ***
Q6.8 <--- Q6 .738 .919 27.242 ***
Q7.4 <--- Q7 .716 .845 22.099 ***
Q7.5 <--- Q7 .587 .735 18.963 ***
Q7.2 <--- Q7 .694 .896 24.256 ***
Q7.1 <--- Q7 .687 .808 21.577 ***
Q9.1 <--- Q9 .648 .722 18.564 ***
Q9.5 <--- Q9 .667 .855 23.251 ***
Q8.2 <--- Q8 .640 .884 24.758 ***
Q8.1 <--- Q8 .481 .620 15.057 ***
Q8.4 <--- Q8 .611 .849 23.032 ***
(continued)
96 S. Kazim et al.

Table 1. (continued)

Path Unstandardized coefficients Standardized coefficients T p

Q8.5 <--- Q8 .561 .679 16.549 ***
Q10.4 <--- Q10 .575 .684 16.926 ***
Q10.1 <--- Q10 .675 .831 22.347 ***

Table 2. Major measurement model fit indices

Model fit indices Measurement model values Acceptable values*

CMIN/DF 3.627 Lesser than 5
GFT .970 Greater than 0.9
AGFI .913 Greater than 0.9
NFI .961 Greater than 0.9
CFI .948 Greater than 0.9
RMSEA .060 Lesser than 0.06
* Hooper et al., 2008; Hair et al. 2007; Hu and Bentler, 1999.

4 Results
4.1 t-Test
Ho = There is no significant difference between gender with respect to their Perception
Towards Cosmetic Advertisements, Narcissist Personality Disorder, Sadistic Personality
Disorder, and Intention to Purchase Cosmetics (Table 3).

Table 3. T-test of independent and dependent variables

Gender N Mean Std. deviation Std. error mean t P

Perception Male 252 1.9762 .68524 .04317 −3.419 .001
towards cosmetic Female 260 2.1885 .71866 .04457
advertisements
Narcissist Male 252 1.9921 1.00196 .06312 −1.661 .097
personality Female 260 2.1385 .99228 .06154
disorder
Necrophilia Male 252 1.8294 .78751 .04961 −.074 .941
personality Female 260 1.8346 .82408 .05111
disorder
(continued)
 A Study to Assess the Impact 97

Table 3. (continued)

Gender N Mean Std. deviation Std. error mean t P

Sadistic Male 252 1.8373 .83816 .05280 .192 .848
personality Female 260 1.8231 .83795 .05197
disorder
Intention to Male 252 2.0873 .88385 .05568 .087 .350
purchase Female 260 2.0154 .85636 .05311
cosmetics
Source: Primary Data.

There null hypothesis for Perception towards Cosmetic Advertisements is rejected as

the p-value is 0.001, which is lesser than 0.05, which is significant at 1%. For Narcissist
Personality Disorder, Necrophilia Personality Disorder, Sadistic Personality Disorder,
and Intention to Purchase Cosmetics, the null hypothesis is accepted, as the p-value is
more than 0.05.
There is a significant difference between the perception of cosmetic advertisements
and gender. There is no significant difference between Narcissist Personality Disor-
der, Necrophilia Personality Disorder, Sadistic Personality Disorder, and Intention to
Purchase Cosmetics.

5 Regression

5.1 Model Summary

(SeeTable 4).

Table 4. Model summary for regression

Model R R square Adjusted R square Std. error of the estimate

1 .752a .566 .562 .99262
a Predictors: (Constant), Sadistic, Necrophilia, Narcissist, Perception about Cosmetics Advertise-
ments.
Source: Primary Data.

The model summary of the regression indicates that the four independent fac-
tors, such as Perception of Cosmetics Advertisements, Narcissist Personality Disorder,
Necrophilia Personality Disorder, and Sadistic Personality Disorder, represent 75.2%
of the variance. It means that 75.2% of the dependent factors have an influence on the
independent factor which is ‘Intention to Purchase Cosmetics’, while the rest may be
due to other variables.
98 S. Kazim et al.

5.2 ANOVAa
(See Table 5).

Table 5. ANOVAa for regression

Model Sum of Squares df Mean Square F Sig

1 Regression 650.486 4 162.622 165.049 .000b
Residual 499.543 507 .985
Total 1150.029 511
a Dependent Variable: Purchase Intention.
b Predictors: (Constant), Sadistic, Necrophilia, Narcissist, Perception about Cosmetics Advertise-
ments.
Source: Primary Data.

The value of P = 0.000 indicates that the overall model applied is good enough to
identify the impact of dependent factors on the independent factor. It indicates that the
study is relevant and it has got significant importance.

5.3 Coefficientsa

Table 6. Coefficientsa for regression

Model Unstandardized coefficients Standardized t Sig.

coefficients
B Std. Error Beta
1 (Constant) 3.078 .672 4.578 .000
Perception about −.154 .022 −.357 −7.009 .000
cosmetics
advertisements
Narcissist .476 .027 .638 17.784 .000
personality disorder
Necrophilia .458 .036 .547 12.723 .000
personality disorder
Sadistic personality .143 .037 .128 3.853 .000
disorder
a Dependent Variable: Purchase Intention.
Source: Primary Data.

From the coefficient Table 6, it is clear that there was a significant relation (at 95%
confidence level) of independent factors with four independent variables. ‘Perception
 A Study to Assess the Impact 99

about Cosmetics Advertisements’ has a ‘p-value’ of 0.000, ‘Narcissist Personality Dis-

order’ has a ‘p-value’ of 0.000, ‘Necrophilia Personality Disorder’ has a ‘p-value’ of
0.000, and ‘Sadistic Personality Disorder has a ‘p-value’ of 0.000. Hence, all the four
independent factors, Perception of Cosmetics Advertisements, Narcissist Personality
Disorder, Necrophilia Personality Disorder, and Sadistic Personality Disorder have an
impact on ‘Intention to Purchase Cosmetics’.

1. The regression equation: y = a + b1 X 1 + b2 X 2 + b3 X 3 … + bn xn + standard

error, where, ‘Y’ = dependent variable (independent factor)
2. a = 3.078 (constant)
3. b1 = −0.154
4. b2 = 0.476
5. b3 = 0.458
6. b4 = 0.143

In the above table ‘Narcissist Personality Disorder’ has the highest coefficient value
of 0.476, so Narcissist Personality Disorder has the highest impact on ‘Intention to
Purchase Cosmetics’.
The regression equation is given by:

Intention to Purchase Cosmetics = 3.078 + (−0.154)(Perception about Cosmetics Ad

vertisements) + 0.476(Narcissist Personality Disorder) + 0.458 (Necrophilia Person
ality Disorder) + 0.143(Sadistic Personality Disorder) + 0.99262

As the value of significance is less than 0.05, so the null hypothesis is rejected and the
alternative hypothesis is accepted. Thus, there is strong regression existing between the
independent factors, i.e., Perception of Cosmetics Advertisements, Narcissist Personality
Disorder, Necrophilia Personality Disorder, and Sadistic Personality Disorder, and the
dependent factors, i.e., Intention to Purchase Cosmetics.

6 Correlation
6.1 Perception of Cosmetics Advertisements and Intention to Purchase Cosmetics

A correlation was conducted to find out the relation between the dependent variable
‘Perception about Cosmetics Advertisements’ and the independent variable ‘Intention
to Purchase Cosmetics’.
The correlation Table 7 indicates the correlation analysis is significant at a 0.01
confident level. It is found that there is a positive correlation between the dependent
variable ‘Perception about Cosmetics Advertisements’ and the independent variable
‘Intention to Purchase Cosmetics’, where, r = 0.429.
100 S. Kazim et al.

Table 7. Correlation between perception of cosmetics advertisements and intention to purchase

cosmetics

Perception about Purchase Intention

Cosmetics
Advertisements
Perception about cosmetics Pearson correlation 1 .429**
advertisements Sig. (2-tailed) .000
N 512 512
Intention to purchase Pearson correlation .429** 1
cosmetics Sig. (2-tailed) .000
N 512 512
** Correlation is significant at the 0.01 level (2-tailed).
Source: Primary Data.

6.2 Narcissist Personality Disorder and Intention to Purchase Cosmetics

Table 8. Correlation between narcissist personality disorder and intention to purchase cosmetics

Narcissist Purchase intention

Narcissist personality disorder Pearson correlation 1 .648**
Sig. (2-tailed) .000
N 512 512
Intention to purchase cosmetics Pearson correlation .648** 1
Sig. (2-tailed) .000
N 512 512
** Correlation is significant at the 0.01 level (2-tailed).
Source: Primary Data.

The correlation Table 8 indicates the correlation analysis is significant at a 0.01

confident level. It is found that there is a positive correlation between the dependent
variable ‘Narcissist Personality Disorder’ and the independent variable ‘Intention to
Purchase Cosmetics’, where, r = 0.648.

6.3 Necrophilia Personality Disorder and Intention to Purchase Cosmetics

The correlation Table 9 indicates the correlation analysis is significant at 0.01 confident
level. It is found that there is a positive correlation between the dependent variable
‘Necrophilia Personality Disorder’ and the independent variable ‘Intention to Purchase
Cosmetics’, where, r = 0.499.
 A Study to Assess the Impact 101

Table 9. Correlation between necrophilia personality disorder and intention to purchase cosmetics

Necrophilia Purchase intention

Necrophilia personality disorder Pearson correlation 1 .499**
Sig. (2-tailed) .000
N 512 512
Intention to purchase cosmetics Pearson Correlation .499** 1
Sig. (2-tailed) .000
N 512 512
** Correlation is significant at the 0.01 level (2-tailed).
Source: Primary Data.

6.4 Sadistic Personality Disorder and Intention to Purchase Cosmetics

The correlation Table 10 indicates the correlation analysis is significant at a 0.01 con-
fident level. It is found that there is a positive correlation between the dependent vari-
able ‘Sadistic Personality Disorder’ and the independent variable ‘Intention to Purchase
Cosmetics’, where, r = 0.253.

Table 10. Correlation between sadistic personality disorder and intention to purchase cosmetics

Sadistic Purchase intention

Sadistic personality disorder Pearson correlation 1 .253**
Sig. (2-tailed) .000
N 512 512
Intention to purchase cosmetics Pearson Correlation .253** 1
Sig. (2-tailed) .000
N 512 512
** Correlation is significant at the 0.01 level (2-tailed).
Source: Primary Data.

7 Discussion
Cosmetic companies and advertising agencies can develop a realistic brand message to
connect with the common walks of life rather than tall claims or exaggerated claims.
Concepts that are closer to human nature do tend to attract the audience. Cosmetics
companies and advertising agencies can design a creative idea as well as brand con-
cept considering the consumer insight instead of developing a fancy image and tapping
unwanted needs. Creative concepts and creativity as a whole have always worked in
favour of the people and organizations that have employed it.
102 S. Kazim et al.

Cosmetics companies should develop more organic products, such as natural ingre-
dients, which are human-friendly in nature. It is necessary to create such products as
herbal products are very much popular and accepted among Indians. Various companies
that have come up with herbal products have also witnessed success.
As advertisements have shown a positive impact on the perception of cosmetics,
thus, the advertisements should be made with due care and attention. On the other hand,
advertising agencies can use a more realistic creative strategy with natural models rather
than artificial images. Many consumers do not appreciate the way advertisements are
shown to attract people.
Cosmetics companies and advertising agencies should employ creative ideas, such
as ‘Looking pleasant’ rather than stressing about becoming fair. This type of concept
would appeal to the target audience and lead them towards being natural and maintaining
healthy skin, rather than modifying the skin with the help of cosmetics. Consumers who
use cosmetics tend to become more selfish and self-centred. Thus, the need for the hour is
to imbibe a sense of responsibility, so that they become helpful and responsible citizens.
The companies can evolve a social model as part of their sales to help out the needy in
society.
Creativity would always work and attract the attention of the audience. Cosmetic
companies and advertising agencies should develop a creative idea underlying the theme
of “Social movement” or “Togetherness concept” rather than focusing on self. This would
help people also love others, the way they love themselves. Cosmetic companies and
advertising agencies can come up with much more creative concepts and themes such
as “Helping hands”, which should focus on telling the audience that, the real beauty lies
in winning the heart of people rather than look or style. The stakeholders should create
awareness about sustainability social projects where the real beauty is in the form of
humanity not in terms of make-up or external outlook.
Cosmetics companies and advertising agencies need to revisit their ‘chick magnet
advertisement’ concept where the focus can be on one’s own self-awakening concept
and connecting with people and nature, thus, real social success can be attained rather
than look or beauty. The companies should focus more on helping people with ‘self-
awareness’, as is a very important life skill to be imbibed by people. Out of the ten life
skills identified by ‘World Health Organisation’, it places ‘self-awareness’ in the number
one slot, and is also termed as the mother of all life skills.
Cosmetics companies and advertising agencies need to execute the creative idea
of social movement and the concept of taking people together, in order to exhibit the
success of beauty rather than creating differences in look or style. The objective of using
cosmetics should be to look beautiful, for their self-satisfaction and not to make people
jealous. Consumers use cosmetics also due to peer pressure and expectation from society,
rather than for their self-satisfaction. They tend to use cosmetics as it is a norm of society,
these days. The advertising agencies can develop a concept to appreciate inner beauty,
rather than the external look or outer beauty. Cosmetics companies and advertising
agencies should work out in collaboration regarding the brand concept connecting to the
realistic lifestyle of the target audience.
Cosmetic companies can conduct a beauty award every year based on the criteria of
sustainable social projects undertaken by women and highlight the theme that beauty is
 A Study to Assess the Impact 103

in minds rather than external looks. Through this message, companies can communicate
a social message and cosmetic products can enhance the inner smartness of the person.
This communication can act as a base for brand association.
Cosmetics companies and advertising agencies should see to it that they unveil a
brand concept that is practical and connect with the day-to-day lifestyle of the target
consumers. People develop thinking and develop a type of behaviour based on what they
view on a regular basis. As perception has got a direct impact on purchase intention,
cosmetics companies can employ brand activation techniques that enhance the overall
perception of the brand and as a result of that experience, consumers may prefer to
purchase. This would lead to a win-win situation, both for the cosmetics companies and
consumers of cosmetics.
There is not much difference with respect to the perception of males and females
towards cosmetics advertisements. As the respondents belong to the same age group, the
majority of them have the same level of thinking and attitude. It is not only female, who
wants to become fair but also male respondents who want to be fair. The youth should
know that skin color comes to us through the genes of our parents, which cannot be
changed. It is not the colour of the skin which makes people different, but the character,
attitude, and behavior of the individual. Beauty is not which is outside but which is
within. Thus, the colour of the skin should not be used to discriminate against people.
From the point of view of the consumers, they need to understand that they cannot
become like the models which are shown in all forms of advertisements, such as television
and print. On television media, the image and complexion of the model are enhanced
using high-end cosmetics, make-up artists, lighting, and various graphic technologies.
On the other hand, when it comes to print media, the models are edited using Photoshop
software. Thus, the images are photoshopped. Print media can show testimonials of dark
complexion women or people and highlight the beauty based on their work and humanity
shown towards society.
Consumers should realize that true happiness is in helping others and not in being
self-centered. Cosmetics can be used, but should not go on to become a priority in his
life. What might happen and develop, cosmetics will always remain a ‘want’ and will
not become a ‘need’. Make-up should never come in-between when it comes to helping
others, no matter their make-up would be affected. Consumers should spend more on
their family members when compared to what they spend on cosmetics.
Consumers should keep things in mind that cosmetics should not be purchased with
an objective to show off and make people jealous, rather it should be used to look
good. The use of cosmetics should make them feel happy, content, and self-satisfied,
thus, it should be used to tease people and put them down on how they look or carry
themselves. Consumers should focus more on developing a good relationship with people
and cosmetics should never come in between which would lead to a socio-economic
divide.
The youth are under the impression that the images in the advertisements are not
photoshopped, but the reality is that all the images which are on billboards, newspapers,
and magazines are actually photoshopped, and that is how they look so beautiful and
without any kind of mark on their face. Purchasing cosmetics thinking that by using
104 S. Kazim et al.

them they would become like the models that appear in the advertisements is next to
impossible.
Cosmetic ads have a significant impact on the overall personality of the individual.
Ads have a positive and negative impact on the audience. Not only women, but men also
purchase and use cosmetics. Companies should consider making and broadcasting ads
with a high level of social responsibility.

8 Conclusion

The study was an effort to assess the impact of cosmetics advertisements on youths and
to check the extent to which they have developed Narcissist, Necrophilia, and Sadistic
Personality Disorder. The extensive study offered a number of suggestions and ideas to
5 major stakeholders, namely the cosmetics companies, the advertisement company, the
government, the public who is viewing the advertisement, and the customers who are
purchasing the cosmetics products.
Time was a limitation as the study was conducted in a span of 6 months, and the study
was conducted only taking into consideration Bengaluru city. The study has only taken
3 personality disorders into consideration namely, Narcissist, Necrophilia, and Sadistic
Personality Disorder, and the study was only conducted taking youth into consideration
who are between the age group of 15 to 29 years.
There is huge scope available for further research. Research can be conducted on
consumer awareness about the legal aspect of advertisements and cosmetics ingredients.
The scope of the study could be extended to youth in other metro cities. The study
could also only focus on working women as they would have a higher purchasing power.
Finally, studies can be conducted to assess the other kind of personality disorders that
are developed among the viewers and users of cosmetics advertisements and products
respectively. Surely, these kinds of studies will add value to the researchers and will help
add to the existing pool of knowledge, and will act as a positive contribution to society.

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 Effects of Social Media and the Internet
on Academic Performance in Bahrain
Universities

Mariam Juma Alfulaiti1 , Mohamed Rafea2 , Allam Hamdan3(B) , and Louai Maghrabi4
1 Ministry of Housing, Manama, Bahrain
2 Bahrain Airport Company, Muharraq, Bahrain
3 Ahlia University, Manama, Bahrain
[email protected]
4 Jeddah College of Engineering, University of Business and Technology, Jeddah, Saudi Arabia

Abstract. Students nowadays have access to a variety of privileges and possibil-

ities to enhance their learning experience and academic performance through the
internet and social media platforms. In this paper, the major objective is to find
out how using social media platforms such as WhatsApp, Twitter, Facebook and
Instagram impacts the students’ overall academic performance and achievements.
The following aspects will be covered by the research questions: (1) ICT’s impact
on education; (2) the effect of social media on students’ academic performance at
Bahraini universities; and (3) the most well-liked social networking sites among
Bahraini university students. According to the research, social media enhances
academic performance, and students use WhatsApp for academic purposes.

Keywords: Social media · ICT · Academic performance · Bahrain

1 Introduction
Nowadays, college students consider social media to be an essential component of their
everyday life.
Social media platforms such as WhatsApp, Instagram, Facebook and Twitter are
used to better enhance the learning experience and academic performance for college
students. Using social media in a classroom context offers several advantages for the
educational process as well as for improving communication between academic insti-
tutions, instructors, and students. Social networks are seen as additional channels for
communication that allow resource sharing and inter-person engagement.
Hence, it’s important to understand the advantages that these social media platforms
could offer, such as how they might improve the learning experience, increase instructor
and student involvement, and increase academic achievements. For example, groups
facilitated by instructors in WhatsApp and Facebook for a specific course can improve
the learning experience for the student.
On the other hand, the primary factor interfering with students’ concentration is
their improper use of social media platforms and the Internet during class time and when

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 106–115, 2023.
https://doi.org/10.1007/978-3-031-26956-1_10
 Effects of Social Media and the Internet 107

working on coursework activities. Hence, this could lead to lack of attention affecting the
overall academic performance. Therefore, it is vital to assess this problem to determine
if accessing social media and using the Internet in class should be authorized.
The purpose of the study is to demonstrate the reasons behind college students’
strong attachment to these platforms, in addition to raising awareness of the negative
impact of such attachment on their academic performance. Furthermore, the students’
perspective on these effects will be discussed Finally, the social media’s technological
attributes and how they forged strong bonds with the media while accurately portraying
how social networks operated on the Internet.

2 Literature Review

ICT has significantly aided the development of several areas on a worldwide scale.
It is the driving force behind the astonishing changes in the digital world today. The
broad adoption and usage of ICT by humanity has significantly changed how individuals
interact socially and professionally. In addition, ICT has enabled efficiency gains in
several business processes that were previously unthinkable, particularly in knowledge
economies and innovation. For example, social media platforms are impacting people’s
life around the globe (Wuhan 2016).
As a result of new technologies, people’s perspectives on time and location as they
relate to their own behavior are changing likewise. The author (Brun and Hinostroza
2014) claims that mankind is on the edge of an extraordinary technological change.
Information society and knowledge can now follow a deployment time and reach the
full potential of the new, victorious paradigm thanks to the ICT installation period that
took place over the previous thirty years, with its procession of “creative destruction”
and generalization of a new social paradigm.
According to the analysis of the data, there will likely be institutional change, spec-
ulative bubble bursts, volatility, and unpredictability during the transitional phase before
the turning point. If this theory is valid, archaic institutions would be under pressure
from the unavoidable challenges of basic structural adjustment and transformation into
integrating ICTs.
In this section, the following main aspects will be addressed and reviewed: ICT’s
impact on education, the effect of social media on students’ academic performance at
Bahraini universities, and the most well-liked social media platform among students.

2.1 ICT Impact on Education

Education is significantly impacted by the information society in general and new tech-
nologies in particular. The younger generations already integrated into this new culture,
which directs us to concentrate on its significance in teaching efforts and its adaptability.
Nowadays, students have several alternatives for utilizing ICT in education to
broaden their knowledge and experiences in their field of study (Cifuentes 2015). The
author (Norazah 2015) mentioned that to support the educational process, it is crucial
to start with informal (e.g., family, leisure, etc.) learning environments. Universities
108 M. J. Alfulaiti et al.

recently adopted the new culture, including digital literacy, information sources, pro-
ductivity tools for the workplace, teaching materials, and cognitive instruments. For
instance, creating a class webpage will provide students with information about the
course schedule, syllabus and relevant resources. In addition to being used for edu-
cational objectives and supporting cognitive, emotional, and social development, new
technologies can enable people to spend more time with their families.
(Boranbayev and Nurbekov 2015) The fundamental difficulty with training that peo-
ple and businesses will face in the twenty-first century will thus be lifelong learning.
The information society has unquestionably been consumed by society at all levels in
recent years.
To prepare people for the twenty-first century, lifelong learning should be introduced.
To succeed in the information society, people should be able to learn through variety of
different methods and adapt to changes in social, economic, and labor contexts (Rascón-
Moreno 2014).

2.2 Social Networks’ Effects on Academic Achievement

The learning process can be achieved through studying, instructing, observing, or prac-
ticing. It is described as a common long-term change in behavior indicative of learning
new information or developing new abilities. However, cooperative learning is based on
interactions between students working together in groups to learn a range of topics from
a number of sources. This method is supported by the instructor’s assistance in directing
this group through the appropriate learning process (Towards 2006).
Social media usage is growing in our culture, which reflects how people interact with
one another and are recognized. According to Stuart (2012) research, both interpersonal
relationships and the educational process were impacted by the easeiness of accessing
social media platforms. In addition, social media strategies assist the development of the
educational process and results in strong learning outcomes for students since they pro-
vide several channels for communication and exchanging knowledge with other parties
Alwagait et al. (2014) claims thay if these resources are used in the educational field, we
should acknowledge that web 2.0, with its focus on social dynamics, has facilitated the
establishment of online learning communities and a wide range of peer collaboration
networks. These networks were created in line with the reciprocity and cooperation prin-
ciples to capitalize on the popularity of social media platforms. Social platforms would
ultimately come to match this full description in the modern context by enabling users
to connect across the network and use features like the creation of subgroups, public or
private message, or chat, among others. These platforms vary in their goals: for example,
Facebook was developed to cater to the various student groups in American Universities
whilst LinkedIn is more of a business-oriented networking platform.
There are some advantages for using such platforms such as:

1. Boosts motivation for cooperation and collaboration in teamwork

2. Improve academic performance by using student feedback
3. Promote critical thinking and convey knowledge effectively
 Effects of Social Media and the Internet 109

According to research, social media networking is used to educate people, discuss

different topics and to spread scientific results (Gurkiar and Mukherjee 2015). This is
carried out to democratize information and make it widely accessible.
The educational activities that frame every encounter will ultimately decide the worth
of educational networks (Sana 2011). Social innovations in this educational event are
being developed through social appropriation techniques rather than by the technology
itself. The author makes the case that the suggested learning environment could prioritize
social benefits over utilitarian ones. While the second encourages competition in the
common user code that governs interactions and sharing the same community, the first
provides details on activities that may be carried out on a given interface. According
to a research in Boza Carreño and Conde Vélez (2015) the Web has recently changed
the educational scene. The computer has supported education during the course of the
20th century. The network is currently the primary way for disseminating knowledge
and information, and it is also frequently used for educational purposes. According to
the author, ICT is a tool that is available to everyone and encourages equal opportunity
(Montrieux et al. 2015). The authors assert that using technology in the classroom was
an early adopter (Acheson et al. 2014). Through ICT-based education, people from
diverse nations may forge close bonds. The needs, interests, and preferred modes of
learning of the varied student body might also be considered. By utilizing the network
to support academic practice in real-world contexts, it completes a comparable goal.
Once distance is no longer an obstacle, ICT-based education enables communication
with people from other countries. The author, (Al-Alwani 2014), also emphasizes how
utilizing the Internet enables virtual interactions with people from various language
and cultural backgrounds. According to the author (Satyanarayana and Meduri 2015),
because of the advancement of computer multimedia and the growth of the Internet,
learning is changing in terms of communication and interaction strategies. The network is
saturated with resources for boosting the effectiveness of the online learning environment
because of the rising interest in it. Collaboration and the expansion of shared information
have been encouraged by Web 2.0. Utilizing Web 2.0 tools has improved the latter by
converting the learning process into a social learning network.

2.2.1 Twitter as a Tool for Education

Twitter was utilized as a teaching tool when it was first released in 2006. In a research
conducted in 2015 (Tur 2015), there were several instances when Twitter has been used
to improve academic performance. The following options are available to teachers:

1. Share instructional resources with students and employees (e.g., photos, videos,
papers, presentations, …etc.).
2. Set up online study groups for their students to discuss specific themes or courses.
3. Provide students with a URL for each list or topic of interest.
4. Class assignments are completed outside of the traditional classroom setting. Give
them access to a larger universe so that they may see the true value of ubiquity.
5. Tweet important information on Twitter so that the students can reflect on it,
share their knowledge, and discuss the topic within a specific hashtag (i.e.,
#CourseCode_UniverstyName)
110 M. J. Alfulaiti et al.

6. Before getting into a subject, the instructor may question the students about it before
class to encourage their research skills. In addition, questions may get raised on
Twitter for class discussion and response before the test. If you do this, it will be
easier to clarify concepts and create a group summary of the most crucial ideas in
the subject at hand.
7. Teachers can follow students on Twitter to track their engagement in Twitter
discussions or to assess their level of topic knowledge.

However, studies examined how this medium has improved previous teaching strate-
gies. Students in challenging classes can use Twitter to conduct research on a topic and
provide their peers with pertinent links, comments, and other information. Additionally,
it may be utilized as a brainstorming tool, enabling each student to add relevant thoughts
to a subject under discussion (Junco 2010).

2.2.2 Using Facebook for Education

Facebook is a social network that stands out from its competitors and has more than 400
million users worldwide which gives it a mass medium to engage with people. Facebook
is the most popular social network and is recognized as one of the best environments
for learning and teaching in educational institutions (Seaman and Tinti-Kane 2013).
According to research conducted by (Reynol 2015) and (Manca and Ranieri 2013),
utilizing Facebook in educational contexts has several benefits such as:

1. Providing discussion among students which can encourage them for depth knowl-
edge.
2. Improve the discussion’s idea to be more related to reality.
3. Providing tools that enable users to share resources.

Researchers who investigated the effects of Facebook and its features on academic
performance concluded that teachers should adopt some of their lesson plans for Face-
book in order to promote more interactive learning and increase student interaction rather
than relying solely on class time for discussion (Esquivel-Gámez 2015).

2.2.3 Using WhatsApp as a Teaching Tool

The growth in the use of smartphones as a communication channel tends to limit face-
to-face interactions. Text messaging became available as smartphones developed, which
increased the demand in purchasing such devices. In particular, a growing number of
people are using WhatsApp which is one of the contemporary tools for communication,
and as of September 2015, there were 900 million users. WhatsApp is so well-liked by
users because it provides the quickest and least expensive form of communication.
The research by Johnson (2014) looks at the potential effects of the WhatsApp on
students’ academic performance in Ghanaian tertiary institutions. The study sample
for the survey included 418 students (Male: 142, Female: 276). The researcher then
interviewed (50) out of (418) participants to gather additional data.
The study concluded that WhatsApp is essential for quick and simple engagement
among students since it allows for the exchange of resources and information. Another
 Effects of Social Media and the Internet 111

research by Tulika B. in 2014 looked at how the WhatsApp app can affect the education
of B.Ed. Students at an Indian University. In order to gather information for the study, 37
students participated in a questionnaire as part of the first approach, and an interview was
conducted as a qualitative technique in the second approach. According to the study’s
results, 56% of students believe WhatsApp offers educational advantages, and 73%
see the application as a tool that allows them to learn anytime they want. WhatsApp
makes contacts and discussions more engaging, according to 64% of the students. The
study found that WhatsApp’s flexibility for student communication enhances learning.
(Desmal 2017)

2.2.4 Instagram as a Tool for Education

In 2010, Instagram was launched and reached 400 million users worldwide (Instagram
2016). Instagram ranks seventh among the most well-liked social networking websites
and apps. Numerous research and articles have been written about Instagram’s effects on
academic achievement. Considering the findings, the authors in (Jason 2013) proposed
a few techniques that students may employ to enhance their academic performance such
as:

1. Spatial Intelligence: The Instagram user uses his spatial intelligence to examine the
images or videos to gather essential information that assists in elucidating the post’s
intended purpose.
2. Linguistic intelligence: The user’s friend will be able to view the photos once they
have been uploaded. The students are now employing their language intelligence to
give observations and remarks on these images when the teacher uploads an image
and asks the class to comment on it. These methods aid in the linguistic development
of young individuals.
3. Interpersonal Intelligence: Teachers could be inspired by seeing what their students
are posting on Instagram. This may be done by setting up a group, for instance, where
the teacher is in charge and all the students are urged to demonstrate their aptitude for
teaching techniques. Instagram offers additional educational advantages. The author
(Hudson 2015) provided a list of 10 advantages of Instagram that might support
academic progress such as:

• Show student work: The creation of new works by art and design students will
be encouraged, especially when they upload their creations and share them with
friends and family.
• Improve historical knowledge: Students analyze the images using historical dates
and other relevant information when a teacher uploads an old photograph and
instructs the class to focus on its history.
• Mathematical steps: Teachers might upload mathematical procedures to help
students grasp them better and to solicit their input. In this scenario, the teacher
will be able to assess how well the students have understood the content and
determine any topics that require extra discussion in class to help the students
better comprehend the processes.
112 M. J. Alfulaiti et al.

2.3 Conclusions of Literature Review

Social media clearly plays a significant influence in academic success. Hence, incor-
porating Web 2.0 technologies into the classroom curriculum, such as blogs and social
networks, promotes individual learning and increases student engagement. Meanwhile,
digital media may be utilized to complete the teaching and learning process in the infor-
mation society, according to several authors such as (Boranbayev and Nurbekov 2015)
and (Gurkiar and Mukherjee 2015). To conclude, social media use in a learning envi-
ronment allows students’ activities to go beyond those of traditional classrooms since
social media can be accessed anytime, anywhere by instructors and students for a range
of academic activities. Hence, such activities will improve students’ academic perfor-
mance. In addition, it gives instructors a simple way to get feedback from students and
take part in online debates about its impact.

3 Whatsapp Mobile Application

In this section, WhatsApp groups’ features and roles in relation to education are dis-
cussed. Through WhatsApp groups, students and teachers may communicate directly
with one another.

3.1 Forms of WhatsApp Group Communication

The bulk of WhatsApp groups that were the focus of the inquiry used verbal communi-
cation, images, URLs, and less usage of videos and audios. Some WhatsApp groups also
used the GPS location feature. These groups were all given names based on the topic
name or subject code. Teachers and students are using their iPhones to take pictures of
classroom board notes and printed books, which are then shared in WhatsApp groups.
Both professors and students routinely use emoticon choices in WhatsApp groups.

3.2 The Main Purpose of WhatsApp Groups

For four main reasons, instructors and students are urged to start WhatsApp groups.

a) The major objectives are to encourage student engagement and to offer learning
tools that might help other students.
b) WhatsApp groups might save time and effort instead of bringing all students together
in one place, by promoting a welcoming social environment among its members,
these groups encourage students to engage more fully.
c) Students may engage in discussions regarding facts about a subject with one another
in WhatsApp groups, which helps them learn something new or pertinent to the
subject.
d) In this case, by relating it to actual cases, students may draw certain conclusions about
the subject. The abundance of educational resources that professors and students in
these organizations share may improve learning. (Desmal 2017)
 Effects of Social Media and the Internet 113

4 Conclusions

Examining how social media affects academic achievement was the main goal of this
study. The final findings of the survey suggest that every student who possesses a smart-
phone also makes use of social media. WhatsApp and Facebook are the two most popular
social networking services among college students. The amount of time spent online and
on social media by college students is shown by this statistic. Students may utilize social
media to further their academic objectives because of their increasing interest in using it
at university level. According to experts, university is the greatest place for students to
utilize social media. This might be seen as showing that students are attempting to use
social media as effectively as possible for educational goals.
Sharing academic resources is made easier by modern technologies. There are sev-
eral methods to share and trade resources via social media sites (images, videos, audios,
documents, and others). However, social media currently has a bigger influence on aca-
demic accomplishment due to presenting educational advancement-supporting tactics.
However, integrating Web 2.0 tools like blogs and social networks into the curriculum
in the classroom encourages individual learning and raises student engagement. Using
digital tools to complete the teaching and learning process is advantageous in the context
of today’s information culture. Hence, it is impossible to dispute the benefits modern
technology adoption brings to the process of academic accomplishment. When social
media is used, educational activities for students can go beyond those of traditional
classrooms because teachers and students can use these platforms whenever and wher-
ever they want for a variety of academic purposes. Hence, this will improve students’
academic performance and give instructors an easier way to receive and discuss student
comments on social media platforms.

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 Young Customers’ Perception of Sharia
Financial Services Mobile-Banking
and Behavioral Intention Consequences

Indah Fatmawati1(B) , Delvira Althaf Zulfanti2 , Nurul Aini2 , and Fadhilah Tsani1,2
1 Doctoral Program of Management, Universitas Muhammadiyah Yogyakarta,
Yogyakarta, Indonesia
[email protected]
2 Department of Management, Faculty of Economics and Business, Universitas Muhammadiyah

Yogyakartam, Yogyakarta, Indonesia

Abstract. The growing number of mobile banking applications is a fascinat-

ing phenomenon to understand better how people use financial services. This
study looked into the behavior of mobile banking users considering perceived
usefulness, perceived ease of use, security, and the mediating effect of consumer
attitudes. We investigated a sharia-based financial services mobile banking appli-
cation called Baitul Maal wat Tamwil (BMT), developed by a leading private uni-
versity in Indonesia. We conducted explanatory research using an online survey
involving university students who become customers of the BMT. One hundred
and seventy-six respondents were applied based on a non-probability sampling
technique with the purposive sampling method. The data analysis uses structural
equation modelling (SEM) with the AMOS 22. Our finding revealed that perceived
usefulness, perceived ease of use, and security influence behavioral intentions
to use mobile banking. Furthermore, consumer attitudes mediate the association
between perceived usefulness and ease of use on behavioral intention in mobile
banking. The contribution of this paper lies in achieving a deeper understanding
of perceived usefulness, ease of use, security, and consumer attitude on behavioral
intentions in mobile banking. Hopefully, this will enrich the investigation of the
use of technology in sharia financial services.

Keywords: Perceived usefulness · Perceived ease of use · Security · Customer

attitude · Behavioral intention · Mobile banking

1 Introduction
Today’s information technological (IT) advancements are accelerating, including in the
banking industry. IT simplifies financial transactions and affects nearly all industrial
sectors in Indonesia and worldwide [1]. In the banking industry, the level of services
provided determined client satisfaction since the bank service system heavily relies on
IT and is a service-oriented business. Banks usually offer various products and services
to their customers, such as e-banking, m-banking, e-wallets, e-cash, and e-checks [2].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 116–125, 2023.
https://doi.org/10.1007/978-3-031-26956-1_11
 Young Customers’ Perception 117

One of the financial services that are growing in response to this situation is electronic
banking [3].
Customers can utilize electronic banking services to access information and carry
out financial activities, such as internet banking, m - banking, SMS banking, and phone
banking. Now, transactions that were previously only feasible through an ATM can be
carried out on mobile devices or the internet. One of the clients’ most preferred payment
options is mobile banking, allowing them to complete transactions solely through their
mobile phones [4]. It has numerous advantages and benefits, enabling customers to
conduct transactions anytime and from any location.
Discussing consumer acceptance of technology is interesting, and it can be tracked
from the study of Davis [5], who introduced the theory of the Technological Acceptance
Model (TAM). TAM, created based on the perceived value and ease of information
technology use, focuses on user attitudes regarding its use. TAM is frequently used
to anticipate the level of user acceptability and usage-based views of the usability of
information technology by taking into account the ease of use of information technology.
Another relevant factor which determines people’s evaluation of technology is security
since performing banking transactions involves the risk of the fund inside. The safer the
transaction, the preferable for the consumer as it means they do not cope with the risk
of losing their money.
We chose the research setting in mobile banking of financial services developed by
a leading private university in Yogyakarta, Indonesia, in the form of Baitul Maal wat
Tamwil (BMT). The BMT perform financial services based on Sharia principles. As a
BMT that uses mobile banking applications, it is interesting to investigate the extent to
which consumers use this application, taking into account their perceptions of ease of
use, usefulness, security, and attitude.

2 Literature Review and Hypothesis Development

This section discussed the conceptual definition of the research variables. We consider
perceived usefulness, perceived ease of use, security, consumer attitude and behavior
intention in our research framework. The following is the discussion about our conceptual
research definitions.
Perceived usefulness refers to how people believe using a specific system will
improve their work performance. The importance of perceived usefulness has been exten-
sively recognized in the electronic banking sector [6, 7]. Previous research showed that
perceived usefulness impacted customer attitude [8–10]. Taylor & Strutton [11] and Kan-
chanatanee [12] stated a direct and indirect relationship between perceived usefulness,
attitudes and intention to use e-marketing. Based on previous research by Shanmugam
[13], attitude also partially mediates the relationship between perceived usefulness and
behavioral intention to use mobile banking. Thus, we developed the first hypothesis.

H1: Perceived usefulness has a positive effect on customer attitude.

Perceived ease of use is the extent to which a person believes that using an exacting
approach will cost nothing or make their effort lighter [14, 15]. Pavlou [16] stated that
perceived ease of use is an intrinsic motivation for using technology to conduct online
118 I. Fatmawati et al.

business. Ease is a state or level when someone thinks that using a precise system will not
take effort or that people will have no trouble understanding the technology. Al-Ajam &
Nor [17] state that perceived convenience is how people believe technology will be free
from effort. Previous research by Al-Ajam & Nor [17] showed the relationship between
perceived ease of use and behavioral intention to use mobile banking. Perceived ease of
use also showed a positive effect on customer attitude [9, 18, 19]. Hence, we proposed
the second hypothesis.
H2: Perceived ease of use positively affects customer attitude.
Security is the level of safety customers associate with information technology, influ-
encing their decision to use it. It shows customers’ perceptions of the bank’s ability to
protect unauthorized users’ personal information obtained through electronic transac-
tions are considered security. Because of the security of electronic transactions, cus-
tomers can trust their data security when using mobile banking. Many banking studies
have highlighted the importance of security and privacy in online banking [20, 21]. Sal-
isbury [22] defined perceived web security as the degree to which a user believes that
an online retailer or website is secure. According to Aslam [23], security is consumers’
perception of trust that their personal information is unseen, stored, or manipulated dur-
ing data transfer to other parties. Previous studies showed that security concerns are
a barrier to adopting technology [24]. Safe conducting of financial transactions with
mobile technology is essential to alleviate concerns about using technology to make
payments. Previous research showed security and privacy positively affect customer
attitudes toward online banking. Security positively affects customer attitude [25–27].
Therefore, we developed our third hypothesis regarding this idea.
H3: Security positively affects customer attitude.
Customer attitude is the behavior exhibited by consumers in searching for, buying,
using, evaluating, and consuming service products and services that they hope will satisfy
their needs [28]. It reflects someone’s feelings when performing a behavior. Based on
previous research by Sanchez-Mena [29], attitude towards educational video games
directly and positively influences behavioral intention. Furthermore, customer attitude
positively affects behavioral intention [18]. Behavioral intention is the extent to which
a person intentionally plans to engage in or abstain from specific future behavior [30].
Consumer behavior intention refers to their desire to own, dispose of, and use specific
products or services. As a result, consumers may want to obtain information, tell others
about their product experiences, purchase a particular product or service, or dispose
of a product in a specific way. The following is our fourth hypothesis regarding this
relationship.
H4: Customer attitude positively affects behavioral intention.
The following are our hypotheses to test whether there is a direct relationship between
perceived usefulness, perceived ease of use and security on behavior intention. Research
by Hosseinin [31] stated that perceived usefulness positively correlates with the intention
to use m-banking. Other previous studies also showed a positive relationship between
perceived usefulness and behavioral intention [18, 32, 33]. Thus, we proposed the fifth
hypothesis.
H5: Perceived usefulness positively affects behavioral intention.
Previous research findings also revealed that perceived ease of use positively affects
behavioral intentions [34, 35]. Then, we developed the sixth hypothesis.
 Young Customers’ Perception 119

H6: Perceived ease of use positively affects behavioral intention.

Based on previous research by Pikkarainen [36], there is a positive effect between
security and privacy on the intention to adopt online banking. Furthermore, security
positively affects behavioral intentions [35, 37]. Based on this idea, we proposed the
seventh hypothesis.
H7: Security positively affects behavioral intention.

According to the previous discussion, we visualize the relationship of our research

variables in Fig. 1.

Perceived
Usefulness H1 H5

Perceived H2 Customer Behavioral

Ease of Use Attitude H4 Intention

H3

H6
Security H7

Fig. 1. Research model

3 Method

We conducted a quantitative approach by using explanatory research. The research set-

ting is the BMT, which belongs to a leading private university in Yogyakarta, Indonesia.
The mobile banking application is a newly launched service from the BMT to respond
to technological advancement in the financial service industry to maintain its competi-
tiveness. These BMT customers are mainly lecturers, staff, and university students who
own the BMT. They started to use this application after its establishment in 2018. Our
study intentionally chose these students’ customers since their decisions to be BMT
customers are voluntary. It is different from the lecturers and academic staff customers
who mandatory requested to be the customers of the BMT, which belongs to their univer-
sity. We use purposive sampling to collect the final usable sample size of 176. The data
collection uses online questionnaires due to the Covid-19 pandemic, where there are no
offline lectures in the university. The data was analyzed using the AMOS 22 application
tool and structural equation modelling.
120 I. Fatmawati et al.

4 Data Analysis, Results and Discussion

Data from 176 respondents showed that the dominant age was 21–25 (66.5%). The
data indicates that the dominant gender is 93 females (52.8%). The primary respon-
dent’s education was undergraduate (74.4%). Most respondents’ expenses were at ≥
IDR 2,000,000, 33%. Most use mobile banking because it saves time (50%). The domi-
nant visit time ranged from 1–3 times per week (65.3%). All twenty items’ validity test
results were valid because the instrument meets the accepted standards: the factor loading
value ≥ 0.50. Based on the calculated reliability, the Composite Reliability coefficient
value on all variables is greater than 0.6. Thus, all research variables are reliable.

Table 1. Goodness-of-fit criteria

The goodness of the fit index Cut-off value Model test result Model
Significant probability ≥0.05 0,013 Good Fit
Chi-squares 308,254 (df = 269) 185,519 Marginal Fit
RMSEA ≤0.08 0,040 Good Fit
GFI ≥0.90 0,907 Good Fit
AGFI ≥0.80 0,865 Good Fit
CMIN/DF ≤2.00 1,279 Good Fit
TLI ≥0.90 0,970 Good Fit
CFI ≥0.90 0,977 Good Fit

Based on Table 1, most of the indicators of Goodness of Fit showed Good Fit results.
Thus, the model can be used for further data analysis. The next step is testing the proposed
hypotheses. The results of the hypotheses testing showed in Table 2.

Table 2. Hypothesis testing

Estimate S.E C.R P Decisions

CA ← PU ,683 ,198 3,442 *** S
CA ← PEOU ,356 ,140 2,547 ,011 S
CA ← S ,146 ,130 1,122 ,262 NS
BI ← CA ,473 ,143 3,314 *** S
BI ← PU −,206 ,221 −,933 ,351 NS
BI ← PEOU −,030 ,133 −,227 ,821 NS
(continued)
 Young Customers’ Perception 121

Table 2. (continued)

Estimate S.E C.R P Decisions

BI ← S ,699 ,150 4,667 *** S
Note:
S: supported
NS: not supported

Based on Table 2, the result of hypothesis 1 testing shows that the estimated value
is 0,683. Therefore, perceived usefulness positively affects customer attitude. The p-
value is 0,000 < 0,05, which indicates that hypothesis one (H1) is supported. This
finding supports the previous result of Kanchanatanee [12], which stated that perceived
usefulness’s consequences on consumer attitudes toward using e-marketing. This idea
also supports the finding of Indarsin [38], which revealed that perceived usefulness affects
attitudes towards m-commerce. Based on this finding, the BMT must build consumer
perception of the usefulness of using mobile banking to create a positive attitude toward
using mobile banking.
Our results of hypothesis 2 testing show that the estimated value is 0.356. Our
findings revealed that perceived ease of use positively impacts customer attitude. The
p-value is 0.011 < 0.05, which means significant, so hypothesis 2 (H2), which states
that “perceived ease of use positively affects customer attitude”, is supported. This
outcome is in line with Suki’s earlier discovery [39], which stated that perceived ease
of use influence consumer attitude toward using 3G mobile. Moreover, this finding also
supports the result of Guritno [19], which revealed that perceived ease of use influenced
consumer attitude toward using online airline ticketing. Thus, the BMT management
needs to explain the ease of using mobile banking to shape their consumer’s positive
attitude toward using mobile banking.
Our data analysis of hypothesis 3 shows that the estimated value is 0,146. The results
show that the relationship between security and customer attitude is negative, meaning
there is no direct influence between security and customer attitude. The p-value is 0.262
> 0.05, which means there is no significant relationship between security and customer
attitude. Thus, our hypothesis 3 (H3) is not supported. This result is not in line with
the previous finding of Jahangir and Begum [26], which stated that security affects
consumer attitude toward online banking and is also contrary to the result of McCole
et al. [40], which indicated security affects consumer attitude. Thus, it is interesting that
BMT consumers did not consider security in forming their positive attitude toward using
mobile banking. This result may be because they are mainly students already familiar
with mobile banking, so they did not have a significant risk in using the new launch
mobile banking.
Our data processing of the hypothesis 4 result shows that the estimated value is 0.473.
Therefore, the results demonstrated that Customer Attitude affects Behavioral Intention.
The p-value is 0.000 < 0.05, which means significant, so hypothesis 4 (H4), which states
that “customer attitude positively affects behavioral intentions,” is supported. This find-
ing supports the previous results of Sanches-Mena [29], which revealed that consumer
122 I. Fatmawati et al.

attitude affects behavioral intention of using an educational video game. Thus, the BMT
management needs to shape a good consumer attitude toward using mobile banking to
create an excellent behavioral intention.
Our statistical analysis result of hypothesis 5 shows that the estimated value is −
0,206. It indicates that the relationship between perceived usefulness and behavioral
intention is negative, meaning there is a negative influence between perceived usefulness
and behavior intention. However, the p-value is 0.351, greater than 0.05, meaning that the
relationship between perceived usefulness and behavioral intention is insignificant. Thus
hypothesis 5 (H5) is not supported. This finding is not aligned with Kuo and Yen [32] and
Chong [8], which found that perceived usefulness impacts behavioral intention. Thus,
for BMT consumers, attitude formation becomes essential in creating their behavioral
intention.
Our data analysis of hypothesis 6 shows that the estimated value is -0.030. Our results
showed that perceived ease of use negatively impacts behavioral intention. However, the
p-value is 0.821, greater than 0.05, which means that the relationship is insignificant.
Thus, perceived ease of use did not impact behavioral intention. Therefore, hypothesis
6 (H6) is not supported. This finding is not in line with the previous results of Lai [41]
and Luarn [34], which revealed that perceived ease of use impacts behavioral intention.
Thus, the BMT management must create a positive attitude toward using mobile banking
since this is the antecedent of their consumer behavior intention.
Our data analysis of hypothesis 7 shows that the estimated value is 0.699. Therefore,
there is a positive relationship between security in behavior and intention. The p-value is
0.000 < 0.05, which means significant, so (H7), which states that “security has a positive
effect on behavioral intentions,” is supported. This result is consistent with the outcome of
Qureshi [37] and Pikkarainen et al. [36], which revealed that security impacts behavioral
intention. Although security did not influence consumer attitudes toward mobile banking,
it has been demonstrated that security positively impacts behavioral intentions to use it.

5 Conclusion and Suggestion

Our hypothesis testing results provide a new framework for understanding attitude for-
mation and its impact on behavioral intention. It demonstrated that perceived usefulness
and ease of using influence consumer attitudes toward mobile banking. Perceived use-
fulness and perceived ease of use do not impact behavioral intention. Thus, it is vital
to shape a positive consumer attitude toward mobile banking since consumer attitude
substantially affects behavioral intention. Our data analysis showed that security did not
affect consumer attitudes. Interestingly, security directly influences behavioral intention
in using mobile banking. This result gives insight that although security did not affect
attitude formation, it directly affected the behavioral intention of using mobile banking.
Therefore, although they have a different process of impact, perceived ease of use, per-
ceived usefulness and security are critical aspects in shaping the behavioral intention of
BMT consumers in using mobile banking.
We have not considered religious aspects and Syariah compliance considerations in
our research model. Thus, we recommend that future research incorporate our research
limitations in the future. Those two variables may become relevant in the Syariah banking
context to be investigated.
 Young Customers’ Perception 123

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 The Social-Media Websites Addiction and Its
Impact on University Students’ Mental Health
in Palestine

Ahmad Hamad, Mahmoud O. Jalambo(B) , and Aibo Shwedh

The University College of Applied Sciences, Gaza, Palestine

[email protected]

Abstract. The study aimed at identifying the degree of addiction to social media
websites and its relationship to the mental health of university students in the Gaza
Strip according to some variables (gender, marital status, number of hours in using
social media). The researchers used the descriptive correlational approach (causal-
comparative), as for the data collection the researchers designed a questionnaire
that was distributed to a sample consisting of 100 students who were chosen
randomly. The results showed that there are statistically significant differences
in the level of addiction to social media websites and the level of mental health
among the university students attributed to the variable of gender, marital status,
and the number of hours of using social media platforms. In light of the results of
this study, some suggestions and recommendations were concluded.

Keywords: Addiction to social media · Mental health · Gaza universities

1 Introduction
Students at the university level represent the main pillar in the development plans in soci-
eties because after their graduation they form specialized bodies to implement develop-
ment plans. Therefore, attention must be paid to them, both psychological and cognitive,
which contributes to benefiting from their abilities to the fullest extent possible (Saleh
and Al-Masdar 2013).
The world today faces many different developments that have a significant impact
on society in general and on youth in particular, and one of the most important of these
developments is the emergence of social media websites, which have spread very quickly
recently (Tibi and Bouanan, 2020). Indeed, social media websites (such as Facebook -
Twitter - Instagram - YouTube and others) are no longer just sites on the Internet, but
have become an integral part of the daily and social life of many individuals and have
achieved various gratifications for their users (Keller Al-Helou et al.).
Social media invade our daily lives more than ever before, even in our intimate and
private lives, the entire world has become a circle of virtual life on the internet. Social
media indeed facilitates communication with others, but in return it takes us away from
real life, throwing us into the abyss of virtual life, we sacrifice face-to-face conversation

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 126–136, 2023.
https://doi.org/10.1007/978-3-031-26956-1_12
 The Social-Media Websites Addiction 127

and human relations so the undesirable effects of technology become so destructive

that it can threaten to nullify its benefits (Al-Labban, 2000). University students are
the most exposed to these sites, due to their increasing demand for the use of modern
technology represented in these networks, more than any other category, this is due
to some psychological and social factors represented in the desire of young people to
establish relationships and friendships with others in different countries of the world
(Ellison and Boyd 2007).

1.1 Objectives of the Study

The main objectives of the study are as follows:

1. Detecting the level of the degree of addiction to social media among the students of
the University College of Applied Science.
2. Highlighting the level of mental health manifestations among them.
3. Shed light on the correlation between the use of social media and the level of
manifestations of mental health among students.
4. Find out if there are differences in addiction to social media attributed to the gender
variable, marital status variable, or the number of hours in using social media.

1.2 Terminology of the Study

The terminology of the study can be defined as follows:

• Social Media Addiction: It is the extreme use of social media, and not feeling the
waste of time or the inability to dispense with browsing through these sites, measured
by the total score obtained by the study sample based on the social media addiction
scale prepared for the current study (Al-Tibi et al. 13: 2020).
• Mental Health: The individual’s positive characteristics help in his good compatibility
with himself and with his environment, socially and materially, as well as liberation
from negative traits and pathological symptoms that impede this compatibility. (Al-
Quraiti, The Person, 1992:9) this compatibility. (Al-Quraiti, The Person, 1992:9).

2 Methodology of the Study

The study followed the descriptive correlational approach, to detect the level of Internet
addiction and mental health among university students, and the correlational differences
between them.

2.1 The Sample of the Study

The researcher applied the study tools to an exploratory sample of (30) students; They
were randomly selected to answer the current study’s measures (social media addiction,
and mental health), to calculate its psychometric properties (reliability and validity),
while the actual sample consisted of (100) students, as shown in the Table 1 below:
128 A. Hamad et al.

Table 1. Statistical characteristics of the study sample.

Variables Statement Number Percentage

Gender Male 28 28.0
Female 72 72.0
Total 100 100%
Marital status Single 79 79.0
Married 21 21.0
Total 100 100%
Number of hours for using social media 0–1 h 7 7.0
1–2 h 28 28.0
3–4 h 29 29.0
4 h or more 36 36.0
Total 100 100%

2.2 The Study Tools

The researchers designed and used two main tools; the Scale of Addiction to Social
Media and the Mental Health Scale.

Validity and Reliability of the First Tool (Social Media Addiction)

The validity of the internal consistency of the scale was verified by calculating the Pear-
son Correlation Coefficient. It is clear from Table 2 that there is a significant relationship
between the items of the scale and its total score. Also, the reliability of the Scale was
calculated using Cronbach’s Alpha Coefficient, and the half-segmentation, as shown in
Table 3 below:

Table 2. Correlation coefficients between paragraphs and total score.

Item Correlation coefficient Item Correlation coefficient Item Correlation coefficient

1 **0.625 8 **0.625 15 **0.585
2 **0.754 9 **0.632 16 **0.645
3 **0.525 10 **0.565 17 **0.754
4 **0.625 11 **0.754 18 **0.636
5 **0.765 12 **0.625 19 **0.645
6 **0.632 13 **0.645 20 **0.754
7 **0.565 14 **0.636 21 **0.825
** Statistically significant at 0.01
 The Social-Media Websites Addiction 129

Table 3. Reliability coefficient of Cronbach’s Alpha and the half-segmentation.

Domain Cronbach’s Alpha Correlation before modification

Addiction to social media 0.889 0.895

It is clear from Table 3 that the reliability coefficients are high which proves the
viability of using this tool to collect the data of the current investigation.

Validity and Reliability of the Second scale (Mental Health Scale)

The validity of the internal consistency was verified by calculating the Pearson Correla-
tion Coefficient between all items of the scale, and the total score for the domain by the
SPS, as shown in Table 4.

Table 4. Correlation coefficients between the items and total score

Item Correlation coefficient Item Correlation coefficient Item Correlation coefficient

1 **0.754 12 **0.625 22 **0.754
2 **0.625 13 **0.565 23 **0.656
3 **0.741 14 **0.696 24 **0.714
4 **0.636 15 **0.754 25 **0.645
5 **0.645 16 **0.639 26 **0.714
6 **0.565 17 **0.512 27 **0.636
7 **0.754 18 **0.636 28 **0.647
8 **0.636 19 **0.517
9 **0.565 20 **0.645
10 **0.702 21 **0.636
** Statistically significant at 0.01

It is clear from Table 4 that there is a significant relationship between the items of the
scale and their total score. Then the reliability of the mental health scale was calculated
using Cronbach’s Alpha Coefficient, and the half-segmentation, as shown in Table 5 that
shows high-reliability coefficients.

Table 5. The reliability coefficient of Cronbach’s Alpha and the half-segmentation.

Domain Cronbach’s Alpha Correlation before Correlation after

modification modification
Mental health 0.84 0.91 0.953
130 A. Hamad et al.

3 The Results of the Study

3.1 The Results of the First Question

To answer the first question i.e. “What is the level of addiction to social media web-
sites among university students?”; The researchers calculated the means, and standard
deviations, as shown in Table 6 below:

Table 6. Means and standard deviations to detect the level of addiction to social media

Scale Mean Standard deviation Relative weight

Addiction to social media 1.74 0.422 57.94

It is clear from the table that the mean of the responses is (1.74), while the standard
deviation is (0.422) with relative weight (57.94%) for addiction to social media. So it
can be interpreted as an average level. In other words, the results showed that there is a
negative and statistically significant correlation between the degree of use of social media
websites and the degree of mental health among university students. The current study
agreed with the results of some previous studies (Kaddoura 2017), (Al-Helou et al. 2018)
and (Al-Ajmi et al. 2021), which their results indicated a correlation between the use of
mobile applications on the internet and the sub-scales of the psychological loneliness
and between shyness, self-esteem and pessimism.
It is worth mentioning that the negative correlation between the use of social media
websites and mental health among university students can be attributed to the fact that
students who use social media rationally are less likely to the emergence of disturbances
or problems affecting their psychological status. Also, the students who enjoy good
mental health and the ability to adapt to themselves and their surrounding indicates
reasonable use of social media websites.

3.2 The Results of the Second Question

To answer the second question “What is the level of mental health among university
students?”; The researchers calculated the means, and standard deviations, as shown in
the following table.

Table 7. Means and standard deviations to detect the level of mental health

Scale The mean Standard deviation Relative weight

Mental health 2.13 0.266 70.85

It is clear from Table 7 that the mean of the responses for mental health is (2.13),
while the standard deviation is (0.266) with a relative weight (70.85%), which is a high
 The Social-Media Websites Addiction 131

level. The results of the current study agree with the results of (Younis 2016), (Kaddoura
2017), and (El-Helou et al. 2018), who investigated the impact of using the internet on
academic achievement, social adjustment, depression, and communication skills among
students of Al Qassim university, their results indicated a high level of social adjustment
and social skills communication for those who use the internet moderately and little.
In other words, the current investigation revealed statistically significant differences
in the level of mental health due to the level of addiction to social media among university
students. This conclusion can be attributed to the fact that the low level of student use of
social media guarantees a high level of mental health for the university student in general,
and this is due to the reasonable and acceptable use of social media. Also, the less use of
social media websites the higher level of psychological compatibility, social adjustment,
and communication skills among university students because they will have good mental
health. The researchers believe that the decrease in addiction to social media is due to
the student’s awareness of the good use of social media in a positive way which means
they enjoy good mental health. Accordingly, People who have a high level of addiction
to social media websites suffer from frequent depression and increased problems, which
causes a deterioration in their mental health, and this causes an increase in the time they
spend with social media and their preference for communicating through social media
rather than real life.

3.3 The Results of the Third Question

To answer the third question i.e. “Is there a relationship between addiction to social
media and mental health?”, the researchers used the Pearson Correlation Coefficient to
find out the strength of the relationship between each of the dependent variables and the
independent variable. The following Table 8 shows the correlation coefficients between
the degrees of the social media addiction scale, and the degrees of the mental health
scale. It is clear from the table that there is a significant inverse relationship between
addiction to social media and mental health, as shown below:

Table 8. Correlation coefficient values between the study variables.

Scales Mental health

Correlation coefficient Sig. Level
Addiction to social media **0.311- 0.002
Statistical significance at the level 0.05 for the degree of freedom (100 − 2) = 0.138.
Statistical significance at the level 0.01 for the degree of freedom (100 − 2) = 0.181.

3.4 The Results of the Fourth Question

To answer this question “Is there an impact of social media addiction on mental health?”,
the researchers used simple regression and simple linear regression equations, and the
132 A. Hamad et al.

Table 9. The value of (beta) for the significance of the simple regression coefficients.

Dependent Independent Standard and non-standard regression coefficients Sig. Covariance

variable variables Non-standard Standard Standard (t)Value Level Coefficient of
regression error regression determination
coefficient(b) coefficient(beta) (R2 ) value

Mental Constant 1.78 0.108 16.5 ** 0.097

health Addiction to −0.196 0.331 0.065 0.196 //
social media

/// is not statistically significant.

* Statistically significant at the 0.01 level.

following table shows the prediction of addiction to social media’s impact on mental
health (Table 9).
From the previous table, it is clear that the (beta) values of the simple regression
coefficients for social media addiction are not statistically significant at the 0.01 level,
which indicates that there is no effect of social media addiction on mental health.

3.5 To Answer the Fifth Question: “Are There Statistically Significant Differences
Among the Averages of Social Media Addiction Attributed to the Variables
(Gender - Marital Status - Number of Hours of Using Social Media)?”

The researchers tested three hypotheses that were derived from the previous question.
The first hypothesis is “There are no statistically significant differences among the
averages of social media addiction attributed to gender”. So, the researchers cal-
culated the mean and standard deviation, besides the (t-test) test according to gender
variable (male-female), as shown in Table 10 below:

Table 10. The average and the computed value and its significance attributed to gender

Gender Frequency Average Standard deviation “T” Sig. Level

Male 28 1.901 0.439 2.47 0.015
Female 72 1.675 0.401

It was found from the previous table that the value of the significance level (0.015)
sig is less than α = 0.05, so there are statistically significant differences among the
averages of social media addiction according to the gender variable in favor of males.
The results of the current study go in line with the study of (Younis 2016), (Tibi et al.
2019), and (Al-Sawafi et al. 2021). In other words, the table indicates that the percentage
of males is (1.901) which is more than the percentage of females i.e. (1,675). This could
be due to the fact that females spend most of their time with their commitments and
household chores, so they are less likely to use social media websites than males. Also,
 The Social-Media Websites Addiction 133

some Palestinian conservative families do not allow females to use social media contin-
uously, so we find that they use it in a restricted and limited way or under supervision
compared to males, who have more freedom.
The second hypothesis is “There are no statistically significant differences among
the averages of addiction to social media attributed to the marital status variable”.
To test this hypothesis, the researchers calculated the mean and the standard deviation,
as well as the (T-Test) according to the marital status variable, as shown in Table 11
below:

Table 11. The average and the computed value and its significance due to marital status

marital status Frequency Average Standard deviation “T” Sig. Level

Single 79 1.762 0.427 1.09 0.276
Married 21 1.649 0.401

It was found from the previous table that the value of the significance level (0.276)
sig is greater than α = 0.05, so the results revealed that there are statistically significant
differences at the level (0.01) in the level of addiction to social media among university
students attributed to the marital status variable. In other words, the table shows that the
percentage of single students (79) is greater than the percentage of married ones (21) in
addiction to social media websites.
The researchers attributed this finding to the fact that single people have a passion
for exploration and creating new relationships because they have more free time and
fewer commitments than married people. In other words, married people have daily
commitments, responsibilities and busy life compared to single people so their use of
social media is not that much for single people.
The third hypothesis is “There are no statistically significant differences among
the averages of social media addiction attributed to the variable Number of Hours
of Using Social Media”. To test this assumption, the researchers calculated the mean
and standard deviation, besides the One-Way ANOVA test according to the variable of
the number of hours for using social media websites. The following table shows the
results obtained:

Table 12. The One-Way ANOVA analysis to identify the addiction to social media according to
the variable Number of Hours of Using Social Media.

Variance Sum of squares Degrees of freedom Mean squares F Sig. Level

source value
Between groups 5.24 3 1.747 13.5 0.00
Within groups 12.4 96 0.129
Total 17.6 99
134 A. Hamad et al.

It was found from the previous table that the value of the significance level (0.00) sig
is less than α = 0.05, so there are statistically significant differences among the averages
of addiction to social media according to the variable number of hours of using social
media, and through Scheffe’s Test it was found that the differences are in favor of the
category of university students who use the social media platforms from (3–4) hours.
This can be justified by the wise use of such websites which is somehow moderate and
not addictive use (Table 12).

3.6 To Answer the Sixth Question I.E. Are There Statistically Significant
Differences Among the Averages of Mental Health Attributed to the Variables
(Gender - Marital Status - Number of Hours of Using Social Media?)

The researchers tested three hypotheses that were derived from the previous question. The
first hypothesis is “There are no statistically significant differences among mental
health averages attributed to gender variable”. To test this assumption, the researchers
calculated the mean and standard deviation, besides the (t-test) test according to gender
variable (male-female), as shown in the following Table 13:

Table 13. The average responses according to gender (male-female)

Gender Frequency Average Standard deviation “T” Sig. Level

Male 28 2.109 0.22 0.394 0.694
Female 72 2.132 0.283

This table presents that the value of the significance level is (0.694) which means
that the sig is greater than α = 0.05, so there are no statistically significant differences
among the mental health averages according to gender variable.
The second hypothesis is “There are no statistically significant differences among
mental health averages attributed to the marital status variable”. The researcher
calculated the mean and standard deviation and used the (T.test) test according to the
marital status variable, as shown in the following Table 14.
The value of significance level (0.957) sig is greater than α = 0.05, as it is clear that
there are no statistically significant differences among mental health averages according
to the variable of marital status.
The third hypothesis is “There are no statistically significant differences among
mental health averages attributed to the variable Number of Hours of Using Social

Table 14. The average responses according to the marital status variable

Marital status Frequency Average Standard deviation “T” Sig. Level

Single 79 2.125 0.279 0.054 0.957
Married 21 2.128 0.212
 The Social-Media Websites Addiction 135

Media”. The researchers calculated the mean and standard deviation and used the One-
Way ANOVA test according to the variable number of hours of using social media, as
displayed in the following Table 15:

Table 15. The One-Way ANOVA analysis according to the variable Number of Hours.

Variance Sum Squares Degrees of Freedom Mean Squares F. value Sig. Level
Source
Between groups 0.401 3 0.134 1.95 0.127
within groups 6.589 96 0.069
Total 6.99 99

As seen in the Table 15, the value of the significance level (0.127) sig is greater than
α = 0.05 which indicates that there are no statistically significant differences among
the averages of mental health according to the variable number of hours of using social
media.

4 Conclusion
The study revealed the level of addiction to social media websites and its relationship
to the mental health of the university students in the Gaza Strip according to gender,
marital status, number of hours in using social media. The results showed that there are
statistically significant differences in the level of addiction to social media websites and
the level of mental health attributed to the study variables.

5 Recommendations and Suggestions for Further Research

This research is limited by tackling two main universities namely; Al-Aqsa University
and UCAS, as it was also limited to a sample of (100) students. In light of the limitations
and results, the researchers suggest the following:

– Providing psychological support to university students through student guidance

centers in universities so that students overcome psychological pressures.
– Raising the students’ awareness on how to use social media and immunizing them
from slipping into the dangers of lying and deception.
– Raising the awareness of the families to follow up on their children in terms of the
uses and contents of social media.
– Emphasizing the negative impact of social media website addiction on the mental
health of individuals through all the possible channels.
– Conducting similar research on other samples from the other universities of Gaza to
tackle more variables and larger samples.
136 A. Hamad et al.

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 The Impact of 5S on the Production Planning
Minimum Order Quantity (MOQ)

Mohammad Kanan(B) , Abdulhadi Hawsawi, Salem Aljazzar, Siraj Zahran,

and Zaher Abusaq

Jeddah College of Engineering, University of Business and Technology, Jeddah 21448,

Saudi Arabia
[email protected]

Abstract. Nowadays, the competition between the FMCGs (Fast Moving Con-
sumer Goods) organizations is at its peak. One of the main factors in which an
organization could gain or maintain its market share is being agile and flexible in
response to the market needs for specific SKUs (Stock Keeping Unit). By being
more resilient to the market demand, the supply side (production representing
manufacturing) will produce the required SKUs in terms of the variety of the
SKUs or quantities ordered by the demand side (marketing representing supply
chain). Focusing on the supply side, the operation department always prefers to
maintain the production line stable by producing the same product for the longest
time. Supporting the production lines running the same product will reduce the
operation wastes, which eventually guarantees to deliver the contracted produc-
tion KPIs such as non-value-added percentage, low level of wastes, efficiency,
productivities, and product quality. When both demand and supply sides agree on
the production plan, demand seeks a mix of SKUs with low quantities.
On the other hand, the supply side demands a higher amount with a minimum
combination of SKUs. This study will explore the impact of the 5S methodology
implementation in the supply side on the MOQ (Minimum Order Quantity). The
methodology will help solve such conflicts and build a dynamic collaboration
between the demand and supply sides, generating the lowest possible MOQ. The
8s will focus on production activities to reduce the waste and ensure delivering
the agreed KPI’s.

Keywords: Minimum Order Quantity · Fast Moving Consumer Goods · Supply

chain · Stock Keeping Unit

1 Introduction

The strategy of doing business in the 21st century mostly rely on marketing relation-
ship. One of the main drivers for the market is maintaining marketing relationships with
customers. These days, doing business is heavily dependent on the end-user’s and cus-
tomers’ demands. As a result, the business growth is subjected to the quality of the goods
and functional relationship-improving to achieve the customers’ requirements and gain a

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 137–154, 2023.
https://doi.org/10.1007/978-3-031-26956-1_13
138 M. Kanan et al.

competitive advantage. The competition in the FMCG (Fast Moving Consumer Goods)
market reaches the highest level nowadays.
One of the CRM (Customer Relationship Management) elements is relationship
marketing, targeting a customer’s relationship instead of short time targets like single
sales and customer acquisition. Developing strong, even some emotional, relations with
customers in a specific brand or SKU (Stock Keeping Unit) is the prime motive of the
relationship marketing to an ongoing business. The main focus is on improving single
sales performance with the more classical transaction business approach. With this in
mind, it can be considered that customer relationship marketing plays a critical role in
leading the overall performance of any firm. One of the most challenging and expensive
tasks a business will face is acquiring new customers for a specific product.
The FMCGs are the products that sell fast at a relatively low cost. The profit of
these single products is lacking; however, the sales are in massive quantities. The high
coemptions in the FMCG market are based on identifying and meeting the customer’s
needs with high quality and, in a short time, providing a satisfying experience to the
customers. Firms focus on building a close connection with customers and developing
long-lasting rapports (Rai 2018).
To develop such a relationship with a customer, the companies must ensure product
availability in the market all the time. And this will be possible only if their factories were
able to produce the required quantity on time and meet customer’s quality expectations.
One of the customer’s expectations is having more products, which can be advantageous
for an organization to remain competitive solid as per a case study done by Mussche
(2019).
As per the manufacturing-based approach definition of quality, the manufacturing
environment focuses on increasing efficiency, profits, and incomes through cost reduc-
tion (Garvin 1986). Offering a mix of products to meet customer expectations will result
in a low demand, which means multiple changeovers in the manufacturing side, pri-
marily if the products are produced in a shared resource or technology. Considering
the manufacturing-based definition of quality, manufacturing demands a high minimum
order quantity (MOQ) or batch size to maintain high performance. Essentially, a low-
demand product will be produced if it’s lower than the agreed MOQ. And this will
ensure maintaining the customer relationship, but on the other hand, it’ll introduce dif-
ferent types of wastes impacting the manufacturing performance. The debris could be in
the forms of time and materials scraps or rework in terms of changeovers, and inventory
in terms of overproduction along with the required product demand quantity as shared
by Mussche (2019).
This case study will explore how a lean manufacturing tool can play a crucial role
in facilitating the MOQ limit to support both businesses’ ends. The aim is to provide
the market with the demanded quantity of products to maintain a positive customer
relationship. And on the manufacturing side is to be efficient enough to deal with low
demand and a wide variety of products and, at the same time meet the main manufacturing
KPI’s such as production cost, on-time product delivery, and other operation-related
KPIs. Such performance will ensure a win-win situation.
 The Impact of 5S on the Production Planning MOQ 139

2 Literature

Different corporations have adopted the 5S practices in various businesses such as

FMCGs corporations, services providers, health care sectors, governmental institutes,
and many others with different sizes and nature as per the below studies. The imple-
mentation of 5S aimed to gain competitive advantages and improve the workplace by
eliminating waste and organizing the workplace, which will enhance productivity and
efficiency to provide better products and services. MOQ is a common practice imposed by
the manufacturer. When one browses through various e-commerce business-to-business
sourcing portals on the Internet, such as alibaba.com and globalsources.com, it is not
difficult to find that many manufacturers state their MOQ requirements together with
their product information. Like the other forms of quantity commitments, MOQ helps
the manufacturer to “reduce the uncertainty during the ordering process” and “ensure
markets”. Using the principle of economy of scale, MOQ can also justify the production
setup cost of the manufacturer and guarantee its income to be at a certain level. However,
the retailer generally does not welcome MOQ as it restricts its ordering flexibility.
In his article, Ahuja (2017) mentioned that Japanese industries developed the 5S
concept and introduced it to the world at the end of the 1960s. The method was devel-
oped to understand and apply by Osada 1991 followed by Hirano 1995. Toyota Motor
Corporation started implementing 5S in its production system, which they call the Toyota
Production System (TPS). The meant objectives of the 5S were to clean, organize, stan-
dardize and maintain discipline at the workplace to achieve sustainable improvements
in efficiency, cost optimization, productivity, and waste reduction in an organization.
The article explained the 5S meaning and its objective. The first S is Sort (Seiri), which
focuses on sorting out the items and keeping the necessary things in their appropriate
places. Set in Order (Seiton) is the second S meant to develop an economical and effi-
cient workspace with organized and orderly storage of the tools and goods. It creates the
proper storage per the priorities and important use of the goods to maximize location.
Third S is Shine (Seiso), and it means cleaning the tools, goods, and the workplace as
it emphasizes self-inspection. It also includes three primary activities: getting the work-
place clean, maintaining its appearance, and using preventive measures to keep it clean.
And by cleaning mean eliminating and removing dirt, debris, and fluids.
Standardize (Shitsuke) is the fourth S. It maintains the workplace in the same condi-
tion after the previous Ss. Hence, it becomes productive and comfortable by repeating the
sort, set in order, and shine. In this phase, the team will be developing a standard to estab-
lish a standard operating procedure to improve workplace practice. Sustain (Shitsuke)
is the last S in the 5S method, and it means sustaining all the previous Ss, which require
self-discipline by all employees at all levels. It is crucial to understand and implement
as it requires a change in the employee’s behavior to adapt to the new way of working.
Omogbai and Salonitis (2017) explained in their case study that sometimes, manu-
facturing organizations need to see how a particular project will benefit the organization
before deciding to proceed with the implementation. A system dynamics (SD) model
shall perfectly mimic the actual outcomes when the project is about understanding the
effect of implementing or improving the 5s program on the current throughput; a system
dynamics (SD) model shall perfectly mimic the actual outcomes. It is a methodology
140 M. Kanan et al.

that measures the cause and effect relationship in a system; in this case, it’s a manufac-
turing system. The simulation can give a clear idea of how the system will behave after
implementation. In many manufacturing organizations with particular operation models
such as make-to-order, in this case, variation of the demands is a key to the throughput.
With the low market, the throughput is high.
On the other hand, with increased demand seasons, the organization struggles to
meet the due dates with the customers as the throughput is not at the expected level.
As per this case study, the low level of 5S practices is one of the main factors causing
this firefighting situation. Although 5S is implemented, yet still considered inefficient to
meet the customer requirements on time. In the high-demand season, the changeover and
breakdowns are repeatedly occurring. During this case study, the operators are taking
extra time in completing the modification or fixing a breakdown as they spend more
time searching for the required tools for the job. The researchers highlighted that 5s
is a tool that reduces the non-value adding time, increases productivity, and improves
overhaul quality. The 5S methodology was reintroduced after an in-depth investigation
of the weak area and understanding its struggles with the current setup. The SD model
results showed a direct link between improving the 5S practices and the manufacturing
system performance. The improvement has also been noticed in time setup and repairing
activities.
In conclusion, the benefit is a multi-dimensional improvement beyond the target.
They found that by decreasing the sorting time by 30%, the throughput rose by 6% from
24.05 to 25.49 completed orders a day. Therefore, it was an eye-opener for the leadership
team, who was encouraged to adopt the methodology to improve another lean aspect
using the SD moulding technique. However, the study did not highlight how the order
quantity impacted as productivity increased with all the gained benefits.
Bin Ashraf et al. (2017) studied R5 Food & Beverage Ltd, a recent and newly estab-
lished firm considered FMCG manufacturing firm. It is a small size organization with
about 20 employees. The private company started its production in February 2016, pro-
ducing different food and beverage items such as juice, lollipop, and water glass. In its
early life, the researchers noticed that the firm faced a challenge in its operation. Some
of the problems are machine performance, space availability, shop floor employees’
productivity, hygienic cleanliness of the factory, etc. With all of these challenges, the
researchers found a lack of a systematic approach to managing the operation to overcome
these problems. Upon applying the 5s methodology, improvements in the operation were
observed with every 5S step. The researchers saved 310.1 square feet with the sorting
step, which resulted in a saving cost of $440.82 US. And after the set-in order step, the
flow distance reduced from 2450.65 ft. to 1686.8 ft. After the full implementation of 5S,
the productivity increased by 38.65%, and the product rejection reduced by 6.1%. The
study did not consider how adapting to the 5s methodology improved the operation flexi-
bility with the demand requirements. Dixit et al. (2019) discussed in their case study one
of the critical members of India’s generic drug distribution centres is Government Sup-
port Drug Warehouse (GSDW). Different types of medical supplies, including generic
drugs, gloves, sutures, syringes, etc. being managed and supplied by GSDW to other
health care centres for consumption. Considering the importance of providing accurate
and on-time required supplies to the customers, the GSDW should maintain a specific
 The Impact of 5S on the Production Planning MOQ 141

efficiency and productivity in the warehouses’ regular operation. GSDW is also respon-
sible for maintaining smooth and uninterrupted medical supplies to avoid shortages in
the healthcare centre. The study highlighted unscientific housekeeping processes and a
different level of waste, such as low space utilization, unnecessary movements, and other
shoddy practices that could impact the work quality and efficiency. Upon implementing
the 5S methodology in the GSDW facility, the researchers concluded that the ultimate
goal of improving the working environments was achieved. The improvement was evi-
dent in operational efficiency, customer satisfaction, and responsiveness. Although the
study highlighted improved productivity by above 38%, the impact on the minimum
order quantity was not measured.
Leming-Lee et al. (2018) mentioned in this case study as per the Institute of
Medicine’s (IOM) report, at least 44,000 Americans die annually due to a medical
error. And a total of $17 to 29 billion are estimated a preventable cost which health care
represents over half. About 40 to 50 per cent of the hospital medical errors occur in the
operation room (OR) as per the estimation. Further, surgical site infections (SSIs) are
considered one type of these repetitive errors. The impacts of the SSIs are increasing
the patient’s stay reduce the quality of life and death. Out of the total surgeries, 2.7%
result in SSIs. Frequent contribution factors of SSIs in the OR errors are distraction and
interruption.
The case study found unnecessary foot traffic during the OR’s surgical process work-
flow, creating distraction and interruption. This case study found that manly, the foot
traffic searched for medication, supplies, and medical tools and equipment by the OR
neurosurgical team. Upon confirming the unnecessary foot traffic by a thin spaghetti
diagramming exercise, there are many steps, and motion would be eliminated by imple-
menting the 5s methodology. The main aim of the quality improvement tools implemen-
tation was to decrease the infection from 9.0 per 100 cases to 4.4 per 100 cases. The 5s
project team and the OR management team targeted the equipment, supplies, space, and
OR foot traffic to be solved by the 5s practices. As a result, the infection varied between
1.7 to 6.9 per 100 procedures compared to 9.0 per 100 procedures. Another benefit was
a significant reduction in the inventory cost from $460,530 to $147,363.62 and a 68%
reduction in inventory. And this results in eliminating two large inventory carts, creating
extra space in the OR. Although the overall four main goals of implementing the 5S
methodology are met, improving the number of operations per period is not measured.
Sembiring et al. (2018) discussed in their article that in PT XYZ, they produce
fresh fruit bunches (FFB) to crude palm oil (CPO) and palm kernel oil (PKO). The
manufacturing process consists of six different working stations. The company suffers
from the absence of scheduling engine maintenance, which impacts the smooth oper-
ation of the manufacturing process. It was also noticed that the environment in one of
the workstations is less convenient for operators as there are some new machines and
equipment, slippery and muddy floors, scattered fibres, incomplete use of PPE, and
lack of employee discipline. The study suggested that the company’s management team
apply the 5S method to improve workers‘ discipline and create a safe and comfortable
working environment. It is also expected to increase work productivity and avoid acci-
dents. For implementing the 5S method at PT XYZ, the study’s approach focused on
top management involvement initiatives to provide resources to support the different
142 M. Kanan et al.

implementation phases, strategy and mission statement communication, and another

directional strategy. And employee involvement initiatives in terms of 5S training, other
quality tools and methods, and motivating them to actively participate in continuous
improvement initiatives. The ultimate goal of improving the work environment was
reached after implementing the 5S method. The new machines are transferred from the
operation area, grouping goods based on their use, developing a cleaning procedure for
the production area, conducting a planned inspection for the PPE use. As the primary
goal of 5S implementation is achieved, the impact on the minimum order quantity could
also be discussed due to better productivity.
Yik and Chin (2019) recalled that inventory is considered one of the eight waste in
lean. Production efficiency and process capability can be assessed through its inventory
level. Other issues the insufficient inventory management cause is an inadequate response
to customer demand and hiding production problems. The article explained the basic
inventory categorization of raw materials, Work in Progress (WIP), finished goods,
and safety stock. In this case study, a company that manufactures ferrite in a make-to-
order operation model was selected. It takes 6.5 days for the storekeeper to complete
a shipment. Twenty wooden crates are needed for weekly shipment as per the average
demand. The case study found that three-fourths of the shipments are affected due to the
shipment postponement to the following week because of the insufficient pack to store
quantity regularly.
The current shipment preparation process consists of twelve steps contributing 3.58
h. Some of the causes related to the issue are unorganized inventory and lack of visibility.
The selected products are being stored in a location without clear identification. As a
result, the storekeeper spends an average of 40 min searching and retrieving products
during shipment preparation. Implementing the 5S methodology significantly reduces
shipment preparation time from 3.58 h to 1.83 h. And the number of activities reduced
from twelve to eight steps only. As the shipment preparation improved, the storekeeper
became more productive and efficient in carrying out other than the redundancy tasks.
5S practices allow the system inefficiencies to be categorized and assessed separately.
And the waste (inventory) is within the limit. As the inventory waste is reduced via
implementing the 5S methodology, the response to the customer demand is increased;
therefore, the impact on the minimum order quantity could be measured.
Kanamori et al. (2016) shared that a Japanese manufacturing enterprise initially
developed the 5S methodology. Although it was initially been introduced to the West’s
manufacturing sector, it was also adopted by the health sector to organize and standardize
the workplace. As government healthcare organizations in some low and middle-income
countries are focusing on improving healthcare services, they consider implementing a
5S method. This study highlighted other studies that showed the application of 5S in
primary health care facilities and hospitals in many countries. They also consider it as
starting point for health care services quality improvements. The main focus areas that
improved due to the 5S application were safety, efficiency, and patient-centeredness.
Besides, it was already adopted by several country’s governments as a quality improve-
ment strategy method. Upon reviewing the empirical studies in the literature, this study
concluded the 5S could be implemented in any health care facility regardless of the
location. The policymakers can adopt it. Some of the 5S benefits were shared in this
 The Impact of 5S on the Production Planning MOQ 143

case study, such as; a potential reduction of more than 45% in the drug-dispensing cycle
time, 70% reduction in the number of instruments used in a specific type of surgery,
37% decrease in setup times, and potential institutional annual cost saving of US$ 2.8
million. In terms of safety improvements, there was a reduction of 52% in infection
and a 33% reduction in the stillbirth rate over the 2-yeares period. Another improvement
shared by the study was assessing patient-centeredness measures based on the time spent
on direct patient care increased from 30 to 61% after 30 days. 5S is lower than many
other quality improvement tools in terms of cost, making it more attractive to adopt low
and middle-income countries and resource-constrained healthcare facilities as a starting
point toward quality improvement. As the surgery setup time is reduced, the number
of instruments used in operation is reduced, resulting in a reduction in the operation
time. And this will open the opportunity to serve more patients in a period. In FMCG
terminology, this can be seen as increasing the serving order quantity. The study could
discuss this factor too.
Arifin and Charisma (2018) developed a material procurement model in their case
study considering the two factors: minimum order quantity. The model is meant to help
an aerospace company to manage its inventory. What made this an issue for the company
is the type and number of demands vary greatly, lead time order, minimum order quantity
from the vendor, and other characteristics. Such issues make it difficult for the planning
department to order the perfect amount of materials. The optimum material order interval
can be 100 per cent achieved with a condition of a relatively small amount of MOQ. The
case study did not highlight what impacted the MOQ.
In their case study, Shenoy and Zhao (2019) discussed how the sponsoring company
wants to review a product segment’s raw material ordering and production plan. As the
product’s demand is unstable, the company was ordering materials worth one month of
production. The supplier offers a good deal of discount with large quantity orders. Such
an offer will benefit the company in terms of cost. This case study developed a model
that can provide an optimal minimum order quantity (MOQ). Although the developed
model did not support the researchers’ hypothesis of optimizing the raw material order by
incorporating high or low MOQ value switching rules, they discovered another critical
insight. Implementing the 5S methodology can be a tremendous key factor that will
impact the MOQ and the overall holding cost, which can be explored.
Mussche (2019) investigated the impact of batch sizes (in other words, order quantity)
on the adequate production capacity using a shared resource for the production. The case
study confirmed a significant impact on the adequate production capacity caused by the
batch size. The study focused on the product demand, product variety, and the shared
resource to conclude the final result. The study did not mention or explore how the batch
size could be optimized to introduce another level of flexibility on the shared resources.
In this case, it could be the 5S methodology.
144 M. Kanan et al.

2.1 Problem Statement

The demand planning specialist meets the production planning specialist to confirm and
agree on the production plan for the next period (weekly or monthly). This meeting is
called a handshake meeting. The discussion covers the number, types, and quantity of
SKUs requested from the market team. The conflict usually is on the number of SKUs.
The demand side prefers the quantity as low as possible as it gives them high flexibility
to respond to market demand with the precise quantities of SKUs. This quick response
is considered one of the factors that help in gaining market share.
On the other hand, production always seeks and demands a large quantity of a
single SKU before changing over to another. The frequent changeovers between SKU’s
negatively impact the production line’s efficiency and the overall performance. Frequent
changeover introduces several types of waste such as material waste in the form of scrap,
over-processing in rework, wetting time till the changeover is done, and non-value adding
activities in terms of the changeover itself. This paper will explore the impact of the 5s
on reducing the MOQ as low as possible through improving the production changeovers
between SKUs.

3 Methodology and Analysis

3.1 Methodology – Lean Manufacturing 5S

Lean manufacturing is a set of five key elements that rely and depend on each other to
create value. Every element is a must to have for the successful implementation of a lean
manufacturing program. In other words, implementing only one element out of the five
will not drive the performance level as the five elements all together.
Every element includes a list of lean principles. These principles work together
to develop a world-class manufacturing environment that can be measured by a com-
pany’s inventory-turn level equal to 50 or higher. In addition, also there is a fundamental
relationship between these principles when it comes to the deployment sequence.
The first element is manufacturing flow, which focuses on the design standard and
physical changes implemented as part of the working area. The organization is the
second element, and it is all about identifying people’s roles and responsibilities, com-
munications, and training on new ways of working. The third element is process control
which focuses on controlling, stabilizing, monitoring and exploring ways to improve the
process. Metrics is the fourth element, and it’s directed at visible and results-based per-
formance measures, rewarding and recognizing teams, and improving the targets. The
last element is logistics, which defines operation mechanisms and rules for controlling
and planning the material flow.
 The Impact of 5S on the Production Planning MOQ 145

Fig. 1. Five primary elements of lean manufacturing

Figure 1 illustrates all the lean practices related to each primary element. With such
categorization, one of these primary elements will address all the issues, problems, and
challenges that would arise while implementing lean manufacturing (Feld 2001).
This research will focus on the process control key element, more specifically on the
5S principle.

3.2 The Current MOQ - Before 5S Program Implementation

The current limits of the MOQ are agreed upon and signed off between demand and
manufacturing. The demand department is aiming for a lower limit of the MOQ as the
current demand volumes from markets are becoming lower due to competition strategies.
Demand is also looking to ensure product availability with the exact quantity in the
market. This means a frequent and continuous market fills up even before the product
gets out of stock. With such a sales and marketing operating model, it’s investable to
order lower quantities to be produced at a specific time. This will ensure the supplying
the market with required products quantities and the freshness of the products.
On the other hand, the production department faces challenges with lower quantities
as it increases the operation wastes. It’s also impacted the production line’s efficiency
as the line will be running for a shorter time before it gets disturbed with product
changeovers.
The below analysis will focus on the manufacturing side. As explained above, dif-
ferent factors impact the MOQ, such as changeovers, human resources, equipment and
tools, machine efficiency, production area design. The 5S methodology will be used to
146 M. Kanan et al.

focus on the changeovers and consider the other neutrals. To explore the effect of the
5S, the implementation will be on a pilot production line that produces several SKUs.
The current agreed MOQ between the demand and production department on the
products produced on L1 (Production Line 1) is below (Table 1).

Table 1. MOQ limits before the 5S project implementation

MOQ limits before 5s project

Product Line Variant Description MOQ
1 L1 Milk - MP Milk - MP 36 g × (4 + 1) pk × 24 10,000
2 L1 Milk - MP Milk - MP 36 g × 5pk × 24 10,000
3 L1 Milk Milk 18 g × 24 × 12 4,600
4 L1 Milk Milk 18 g × (24 + 2) × 12 4,600
5 L1 Milk Milk 36 g × 24 × 6 10,000
6 L1 Milk Milk 36 g × (24 + 4) × 6 10,000
7 L1 Milk Milk 80 g × 12 × 6 6,000
8 L1 Hazelnut Hazelnut 36 g × 24 × 6 5,000
9 L1 F&N Fruit & Nut 36 g × 24 × 6 2,000
10 L1 Crispy Crispy 16 g × 45 × 8 5,000
11 L1 Crispy Crispy 36 g × 24 × 6 5,000
12 L1 Caramel Caramel Single 20 g × 45 × 6 12,000
13 L1 Mini - Choco Choc Mini 150 g(12 pc) × 12 –
14 L1 Mini - Choco Choc Mini 225 g × 12 –
15 L1 Mini - Hazelnut Hzlnt Mini 150 g(12 pc) × 12 –
16 L1 Mini - Hazelnut Hazelnut Mini 225 g × 12 –
17 L1 Brittle Orange Brittle 36 g × 24 6 –
18 L1 Brittle Coconut Brittle 36 g × 24 × 6 –

Some SKUs don’t have MOQ as they are considered seasonal products or promotions.
This means the production of these products throughout the year is limited for a few
runs. There are also the essential products that are frequently on demand; hence the
MOQ limit for those SKUs is 10,000 cases or above.
The changeover matrix was developed based on different factors, such as using the
same resources and tools to produce the product, preparation of the tools and materials
(raw and packaging materials), the speed of the production line, and some other factors
related to the materials specifications. The below table is a summary of the current
changeovers time (Table 2).
 The Impact of 5S on the Production Planning MOQ 147

Table 2. Changeover matrix before the 5S project

Change over matrix in minutes

Matrix To
Milk Milk Milk Milk Crispy Crispy HN HN HN FN Caramel
36 g 12.5 g 18 g 80 g 16 g 36 g 36 g 12.5 g 90 g 40 g 20 g
From Milk 36 g 90 45 45 45 45 45 60 45 45 120
Milk 90 90 90 90 90 60 45 60 60 480
12.5 g
Milk 18 g 45 90 45 45 45 45 60 45 45 120
Milk 80 g 45 90 45 45 45 45 60 45 45 120
Crispy 180 180 180 180 45 120 120 120 120 480
16 g
Crispy 180 180 180 180 45 120 120 120 120 480
36 g
HN 36 g 120 120 120 120 120 120 90 90 45 120
HN 120 120 120 120 120 120 90 90 90 120
12.5 g
HN 90 g 120 120 120 120 120 120 90 120 90 120
FN 40 g 120 120 120 120 120 120 480 120 120 120
Caramel 120 480 120 120 240 240 60 60 60 60
20 g

There are four SKUs equal to or greater than 10,000 cases as MOQ limit, and those
are the key variants in the production line L1. The high limit of the MOQ came from the
fact that the changeovers for these products is time-consuming and require effort and
energy.

3.3 5S Implementation Steps

The 5S implementation plan was developed specifically to improve the changeover
time. With this in mind, a special training session was delivered to the L1 production
line’s operators. The training covered the aim of the 5S program, introduction to lean
manufacturing, and 5S methodology. Before the implementation start, a workshop has
been conducted with the operation team where the tasks, activities, steps, and resources
(people, tools, and materials) related to operating the equipment and changeovers are
quantified. This is followed by brainstorming on the quick wins the team can gain before
the 5S implementation. Below are the details on the implementation steps.

3.3.1 Sort
The team identified the common and uncommon resources required in each changeover
in the sorting exercise. And building on the brainstorming workshop, the team managed
to identify some materials that should be removed from the working area. Those materials
are confusing the changeover activity as it either block the needed tools or is mistakenly
used by the operator, which causes a waste of time in terms of rework. It also increases
the searching time for tools.
148 M. Kanan et al.

As a result of the sorting exercise, the team labelled all the changeable resources
with a specific product name and labelled the standard tools, parts, and materials in the
area.

3.3.2 Set in Order

In the second stage, the team identified a space away from the production line to store the
resources. The new storing area is divided and marked with specific products to match
the labels on the resources. And another space near the production line is identified and
labeled as the following activity resources. This area is designed to be empty all the
time. The following product’s plan required resources will be moved to this area before
the changeover by 24 h.
Shadow-boards were designed and fixed beside the production line for some of the
standard tools used frequently. With a quick and straightforward look into the board, the
operator will notice if any crucial tools are missing and need to search for them or not
before the actual changeover start.

3.3.3 Shine
Following the clean as you go policy, the new operating standard in the area is all the
used items should be cleaned within eight hours after the changeover is completed and
before moving it to the dedicated storing area. A step of the changeover is cleaning some
parts before installing them in the machine. This cleaning activity is time-consuming,
which impacts the overall changeover time. With this new cleaning standard (Shine), the
cleaning activity during the changeover is either eliminated or reduced to a neglectable
time compared to previous changeover steps.

3.3.4 Standardization
With the new changes introduced in changeovers steps, all the related Standard Operating
Procedures (SOP) are revised and updated as per the agreed steps. In some cases, new
One Point Lessons (OPL) are developed to share key learnings and insights with the
other operators in the different shifts. The area supervisors and the area owner reviewed
all the updated SOPs and OPLs and validated them. The final document versions are
shared with all operators in the area and aligned with the supporting functions such as
Quality and Food Safety (Q&FS).

3.3.5 Sustain
An audit plan is developed to ensure the new SOP is followed to sustain the new operating
standard. The audit activity is performed twice a week linked with the changeover
time per the weekly production plan. Occasionally, a specific changeover is targeted
due to some findings or to observe an improvement opportunity. The audit frequency
will. Be reduced to once per week once the results are reduced to an acceptable level.
The 5S project team reviews the findings monthly and develops solutions to close the
gaps in collaboration with the area operators. This exercise is considered a continuous
 The Impact of 5S on the Production Planning MOQ 149

improvement for the project. The new solution will be shared face-to-face and in a
communication event with the area operators.

3.4 The New MOQ - After 5S Program Implementation

After all elements of the 5S methodology were implemented, the project team started
to measure the change over time. The focus was on changeovers either to Milk SKUs
or Caramel. The reason is Milk SKUs are the most frequently demanded, and it has one
of the highest MOQ. And changeover to Caramel has the highest changeover time and
highest MOQs. The changeover from FN to HZ 36 g was deprioritized in this study
as it is one of the rare changeovers. To ensure measuring the actual effect of 5S on
changeovers, repeatability of changeovers by the same team and reproducibility of the
changeover steps between shifts were considered. The Measuring was conducted for four
teams, three times each, except one group measured only once due to the production
scheduling interval.

Table 3. Changeover matrix after the 5S project

Change over matrix in minutes after the 5S project

Matrix To
Milk Milk Milk Milk Crispy Crispy HN HN HN FN Caramel
36 g 12.5 g 18 g 80 g 16 g 36 g 36 g 12.5 g 90 g 40 g 20 g
From Milk 36 g 90 45 45 45 45 45 60 45 45 120
Milk 90 90 90 90 90 60 45 60 60 436
12.5 g
Milk 18 g 45 90 45 45 45 45 60 45 45 120
Milk 80 g 45 90 45 45 45 45 60 45 45 120
Crispy 160 160 160 160 45 120 120 120 120 436
16 g
Crispy 160 160 160 160 45 120 120 120 120 436
36 g
HN 36 g 108 108 108 108 120 120 90 90 45 120
HN 108 108 108 108 120 120 90 90 90 120
12.5 g
HN 80 g 108 108 108 108 120 120 90 120 90 120
FN 36 g 108 108 108 108 120 120 480 120 120 120
Caramel 120 480 120 120 240 240 60 60 60 60
20 g

It’s noticeable in the Table 3 the reduction in the changeover time to Milk and
Caramel. Below is the average reduction time in minutes:

• The changeover from Milk or Crispy to Caramel: 44 min (9%)

• Changeovers from Crispy to Milk: 20 min (11%)
• Changeovers from HN and FN to Milk: 12 min (10%)
150 M. Kanan et al.

The production MOQ formula = (TOC * Lights ON time)/60.

TOC stands for Theoretical Operating Capacity. And Light ON time is the sum-
mation of an agreed list of activities to produce a product. It includes production
time, changeovers between products, breakdowns until rectified, planned maintenance,
hygienic cleaning, startups and shutdowns, any learning curve, and other activities
(Fig. 2).

Fig. 2. Light-ON and Light-OFF.

Table 4. MOQ limits after the 5S project implementation.

New MOQ after 5s project

Product Line Variant Description MOQ
1 L1 Milk - MP Milk 36 g × (4 + 1) pk × 24 9,440
2 L1 Milk - MP Milk 36 g × 5 pk × 24 9,440
3 L1 Milk Milk 18 g × 24 × 12 4,379
4 L1 Milk Milk 18 g × (24 + 2) × 12 4,379
5 L1 Milk Milk 36 g × 24 × 6 9,520
6 L1 Milk Milk 36 g × (24 + 4) × 6 9,520
7 L1 Milk Milk 80 g × 12 × 6 5,664
8 L1 Hazelnut Hazelnut 36 g × 24 × 6 5,000
9 L1 F&N Fruit & Nut 36 g × 24 × 6 2,000
10 L1 Crispy Crispy 16 g × 45 × 8 5,000
11 L1 Crispy Crispy 36 g × 24 × 6 5,000
12 L1 Caramel Caramel Single 20 g × 45 × 6 11,045
13 L1 Mini - Choco Choc Mini 150 g(12 pc) × 12 –
(continued)

Table 4 reflects the new MOQ after reducing the changeover time, considered
essential in the Light ON time.
 The Impact of 5S on the Production Planning MOQ 151

Table 4. (continued)

New MOQ after 5s project

Product Line Variant Description MOQ
14 L1 Mini - Choco Choc Mini 225 g × 12 –
15 L1 Mini - Hazelnut Hzlnt Mini 150 g(12 pc) × 12 –
16 L1 Mini - Hazelnut Hazelnut Mini 225 g × 12 –
17 L1 Brittle Orange Brittle 36 g × 24 × 6 –
18 L1 Brittle Coconut Brittle 36 g × 24 × 6 –

The table and graph below directly compare and illustrate old and new MOQ after
reducing the changeover times on the selected products (Table 5 and Fig. 3).

Table 5. Old and new MOQ limits comparison.

Product Line Variant Description MOQ New MOQ Changes %

1 L1 Milk - MP Milk -MP 36 g × (4 + 1) pk × 10,000 9,440 6
24
2 L1 Milk - MP Milk- MP 36 g × 5 pk × 24 10,000 9,440 6
3 L1 Milk Milk 18 g × 24 × 12 4,600 4,379 5
4 L1 Milk Milk 18 g × (24 + 2) × 12 4,600 4,379 5
5 L1 Milk Milk 36 g × 24 × 6 10,000 9,520 5
6 L1 Milk Milk 36 g × (24 + 4) × 6 10,000 9,520 5
7 L1 Milk Milk 80 g × 12 × 6 6,000 5,664 6
12 L1 Caramel Caramel Single 20 g × 45 × 6 12,000 11,045 8
152 M. Kanan et al.

Old & New MOQ

12,000

10,000 10,000 10,000

10,000
11,045
9,520
9,440 9,440 9,520
6,000

4,600 4,600
5,664

4,379 4,379

1 2 3 4 5 6 7 12
1 2 3 4 5 6 7 8

Product MOQ new MOQ

Fig. 3. Graphically represented the Actual reduction in the MOQ.

The above graph visualizes the MOQ reduction on the selected products after
implementing the 5S project in production line-1.

4 Conclusion

As the demand and production planning from the supply chain department are facing
challenges to maintain the availability of their products in the market, manufacture.
The implementation of the 5S program was eye-opening for several issues related to
the production activities. Focusing on the project’s aim, there were different challenges
in operators understanding the 5S steps, availability of spare parts, and other heavy
activities related to other projects—those challenges impacted following the agreed
procedures. Yet, the team manages to benefit from the program in different KPIs and,
most specifically, on the changeover time.
The MOQ is linked with available production time, directly impacting changeover
times and other factors listed above. There was a reduction after implementing the
5S project and measuring the changeovers aligned with the six-sigma methodology of
repeatability and reproducibility. As the elements of the changeovers varied between
products, the amount of time reduced is also varied. For example, in the case of the
changeover to Caramel, the reduced time was 44 min, and changeovers from inclusion
products HN and FN to Milk were 12 min only. With these differences in the saved times,
there was a positive impact on the MOQ of the same products. Milk different variant
products reduced by 5–6% and Caramel reduced by 8% from the original MOQ. This
will conclude the 5S methodology can impact the MOQ limits. With such an impact,
the marketing department will have better flexibility in ensuring product availability on
the market shelves most of the time.
 The Impact of 5S on the Production Planning MOQ 153

5 Future Work
Considering the sensitivity of the FMCG business nowadays, companies must ensure
a healthy relationship with their customers. Otherwise, competitors will enjoy growing
their market share by gaining more customers. Product availability will help maintain this
relationship, which is impacted by the 5S methodology discussed above. As a continuous
improvement, the 5S program should be carried on the other production line and review
all the MOQs.
The other KPI, such as ATS (Adherence to Schedules), NQC (Non-Quality Cost),
and Productivity, could benefit from the 5S program; therefore, another study shall be
conducted and updated the targets. The 5S methodology could be upgraded to the recent
8S or 9S. The newer version considered other elements such as Safety or Support from
management, which might add value to the ultimate time reduction goal. Therefore, the
MOQ might have further improvement.

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 The Importance of Digital Marketing
in Building Brand Loyalty

Abdulsadek Hassan1(B) and Siraj Zahran2

1 Ahlia University, Manama, Kingdom of Bahrain
[email protected]
2 Jeddah College of Engineering, University of Business and Technology, Jeddah 21448,
Saudi Arabia
[email protected]

Abstract. Digital marketing is a module of marketing that is used to promote

an organisation’s products and services through the use of the internet and digi-
tal technologies. Brand loyalty is a positive feeling of consumers that dedicates
them to purchase specific products or services. This study aims to identify the
importance of digital marketing in building brand loyalty in the digital era. The
results of this study indicate that building brand loyalty depends primarily on
trust. The decision of customers to purchase a product may be made consciously
or unconsciously, as it arises from an emotional engagement between consumers
and the brand, based on their confidence that the brand will meet their needs. The
results also reveal the importance of the customer’s perception of the quality and
value of a particular product compared to its competitors. This adds a competitive
advantage to a particular brand, which is a set of consumer feelings and feelings
about the benefit and quality of a particular product.

Keywords: Digital marketing · Brand loyalty · Quality

1 Introduction

Among other things, building a brand requires establishing a strong connection with
end users [3]. But in order to establish a connection with someone, it is important
to know where to start [17]. With more than 4.66 billion people actively using the
internet worldwide, it has become imperative for businesses to promote their products
and services on digital platforms [7]. Thus, digital marketing has become a necessity
nowadays [8]. If you are aiming to build a brand, there is no way you can do without
using modern marketing techniques to assist in the brand building process [1].
Organisations use social networking sites for the purpose of republishing their TV
advertisements [5], in addition to producing videos, advertising campaigns and adver-
tising programmes for publication specifically on their YouTube channels. They also
publish other promotional videos, such as their TV interviews and some of their spon-
sorship activities, for the purpose of providing information about the goods or services
they provide [4]. Serving multiple purposes, these videos explain how to use products or

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 155–163, 2023.
https://doi.org/10.1007/978-3-031-26956-1_14
156 A. Hassan and S. Zahran

services, consolidate a brand, activate its sales by offering promotions and competitions,
and remind audiences of its name, brand and promotions [2].
Some organisations fail to take advantage of the marketing and interactive benefits
offered by their sites [7]. The results showed that the organisations were not interested in
activating some of the interactive sections provided by their sites, such as the discussion
board and the dialogue communities between the admin and the community [11]. These
sections appeared in name only without activation from the organisation, not caring to
respond to any inquiries they received from customers, while others left them entirely
blank [12].
Brands have an economic importance that lies in their ability to convey various
information about the products offered in the market, to familiarise the consumer with
them and to increase the profits of producers through their ability to control prices [7].
Selling is what makes the maximum profit possible [3].
A distinction must be made between brand counterfeiting and brand infringement
[4]. Brand counterfeiting means imitation of the original brand and the imitated brand,
while brand infringement reflects the attempt to imitate the brand, but there remains a
difference between the original brand and the counterfeit brand [2].
Brand counterfeiting aims primarily to deceive the consumer by convincing them
that the products they seek to buy are original products [10]. In this case, the original
product and the counterfeit product enter into unfair competition [1].
Brand infringement targets another type of market, namely the secondary market,
in which the consumer is aware of the counterfeit status of products and yet desires to
buy them on account of their low prices relative to the original products and with an
acceptance of their inferior quality [13].
Several factors influence the consumer’s decision towards the demand for counterfeit
products, including those related to the product itself, its characteristics, the cost of
searching for it and others related to the consumer. There are also many factors that
encourage imitators to copy the brand and provide counterfeit products [2].
The rest of this study is divided as follows. Section 2 summarises how marketing
builds loyalty, Sect. 3 is about the types of brand loyalty, Sect. 4 lists the factors affecting
brand loyalty in the digital age, Sect. 5 lists different brand loyalty examples, Sect. 6
summarises the reasons why some brands lose the loyalty of their customers, and the
study ends with Sect. 7, which is for the conclusion and future extensions.

2 How Marketing Builds Loyalty

2.1 Creating Vision

Marketing your products on different digital platforms helps to promote the visibility
needed in creating a brand name [3]. When users begin to see a company’s name, logo,
and products continually on different platforms, they start to become familiar with them
[33]. The best way to do this is to promote your brand on platforms that your target
audience is likely to visit often [6].
 The Importance of Digital Marketing in Building Brand Loyalty 157

2.2 Establishing Trust and Credibility

Since users frequently see a brand name, they establish a connection to it on a sub-
conscious level [1]. It sounds familiar to them and consequently they begin to trust the
name [12]. Delivering the quality promised through branding and marketing campaigns
is essential to retain their trust and maintain the credibility of the company [2].

2.3 Enabling Two-Way Communication

Digital platforms enable two-way communication [3]. Not only do emails, online forums
and social media platforms allow a company to communicate with its target audience
[11], and also allow the target audience to reach the company easily. Accordingly, being
active on these platforms helps to gain customer satisfaction, though it is crucial to
respond to customers in a timely and efficient manner in order to retain their faith in the
company and brand [2].

2.4 Attracting Investors

Digital marketing helps to attract investors as well as consumers [4]. In promoting

products and services and talking about business values across multiple digital plat-
forms, companies come into the spotlight and receive greater interest from investors [7].
This attention is crucial, as it is well known how important the right investors are in
establishing and growing a brand [8].

2.5 Presenting the Work Properly

Building brand loyalty is achieved by following the correct steps, without neglecting
any of them, and by presenting the right products and services to the public [15]. To do
this, it is critical to focus on providing valuable products and services that convince the
consumer you are the right partner for him. To get customers to the stage of adopting
the product or service, first pay attention to their pain points and then explain effectively
how the product or service you offer can remedy these and provide a satisfactory solution
[5].
During the marketing of the product or service, place the focus on the value it adds to
customers and the solutions it provides them with [11]. Do not focus solely on describing
the quality of the product [7]. To gain their trust, customer concerns must be taken into
account as far as possible. This can be done through a professional team trained to
deal with customer satisfaction, whether it be answering phone calls, emails and social
media, or following up customer complaints in detail to find out the reason for their
dissatisfaction, with the aim of finding a solution to their problem as soon as possible
[8].
The findings showed that customers who had a bad experience and received great
service in resolving it were more likely to become brand loyal than customers who did
not have a complaint at all [2].
158 A. Hassan and S. Zahran

2.6 Creating Own Stories

Creating a strong story about your brand builds and enhances customer loyalty by pro-
viding a clear narrative about how the company was created and why it is in the market
such that it encourages customers to interact with the company [9]. As the story engages
with the human brain just like real events, care must be taken to ensure the story is
conflict-free while still being compelling enough to attract customers [13].
Some of the most successful and influential stories are about the creation of Facebook,
Amazon, Alibaba and Kentucky Stores and others [7]. It is common knowledge how these
companies started and what difficulties their creators faced in the early stages [9].

2.7 Having a Customer Service Team

The best way to win over customers is to make them feel that the organisation fully
meets their needs [38]. Customer data must be organised and used so that each customer
gets the best value from the company’s products [14].

2.8 Sharing
By listening to their opinions and suggestions in designing the product, customers are
able to participate in the brand [15]. When interacting with a brand, most customers
expect to be answered within four hours [11]. This may sound demanding, but catboats
make it easier, and case management directs customers’ issues to the right department
[12].

2.9 Implementing Loyalty Building Programmes

In order to continue paying attention to its loyal customers, the organisation must adopt
loyalty programmes that target customers correctly [8]. A study must be conducted
to choose the right customer by targeting individuals who are most likely to buy the
products [8]. It is important to remember that it is the small details that win the hearts
of customers, and one way to achieve this is by designing a loyalty programme that is
suitable for your business and your customers [3].

2.10 Paying Attention to the Emotional Side of Customers and Creating

an Interactive Community

The organisation should provide a good consumer experience with an emotional focus
and make the brand’s online presence, especially on social media, distinctive and effec-
tive [13]. Social media channels should be employed as a nucleus for forming a loyal
community around the business [3].
Here, it is vital that your stories and posts speak accurately to your customers, as
well as your videos and photos, and make them feel like they are talking to a regular
person rather than a brand [14].
 The Importance of Digital Marketing in Building Brand Loyalty 159

2.11 Adopting a Good UX for the Website

Most consumers prefer to shop online, so ensuring your website has a good user expe-
rience (UX) is a powerful tool to increase customer loyalty. Alternatively, in one study
88% of shoppers expressed that they did not want to shop again from some online stores
because of the bad UX, as well as over 70 digital businesses having failed for the same
reason [2].
Because there is a relationship between brand loyalty and the Internet, if a company
already has a website, it must constantly develop and make improvements to it, in terms
of navigation, speed, clarity and so forth [5].

2.12 Being Transparent

We live in the information age, so access to any information is possible and available.
As such, transparency and acknowledging mistakes in the brand are important. Respon-
sibility must be taken for the mechanism by which products and services are provided,
and attention must be given to the social and environmental impact of production [15].

2.13 Pricing

Providing offers, low prices and discounts helps to retain customers and makes them feel
that the company is offering the best prices among competitors and building marketing
and sales programmes for their benefit [7].

3 Types of Brand Loyalty

There are six patterns of consumer brand loyalty:

1) Loyal consumer: This type refers to loyal consumers who continue to purchase
products and services of a particular brand all the time [2].
2) Divided loyalists: Consumers whose loyalty is divided between more than one
brand, where loyalty may be to one, two or three brands [9].
3) Converted loyalist: A consumer who switches loyalty from one brand to another.
4) Unloyal: A consumer who has no brand loyalty [15].
5) Price-related customers: Customers whose first loyalty is to the price and therefore
have no particular brand loyalty. Rather, loyalty is temporary and depends on the
lowest price available [3].
6) Loyal customers by virtue of habit: Customers who are accustomed to buying a
certain brand and therefore their loyalty is driven by habit beyond anything else [6].

Additionally, some divide brand loyalty into:

1) False: A customer purchases a product or service motivated by certain stimuli, which

may be situational stimuli or social norms, but these positive trends do not last long
[15].
160 A. Hassan and S. Zahran

2) Actual: In this type, the loyalty of the customer to the brand is at its peak and the
customer rejects the offers of competitors [14].
3) Voluntary: The customer has relative loyalty, but the chances of repurchasing are
also low [2].

4 Factors Affecting Brand Loyalty in the Digital Age

There are a number of factors affecting customer loyalty to a particular brand, including:

4.1 Quality and Perceived Value

Perceived value is simply the customer’s perception of the quality and value of a particular
product compared to competitors, which adds a competitive advantage to a particular
brand [3]. Perceived value is not an intangible or tangible value but rather a set of
consumer feelings about the benefit and quality of a particular product [1].
Achieving perceived value in a brand is often difficult for a number of reasons, mainly
because of the increase in customer expectations driven by continuous development and
the intense competition between different brands [5]. Also, considering that perceived
value is achieved after the consumer uses a product and not before it, this makes product
quality and consumer satisfaction a prerequisite [3].
Perceived brand value confers a range of features, including (1) priority among
competitors [4], (2) enables the brand to raise its price [11], (3) a powerful reason for
consumers to buy [3], and (4) opens horizons for the brand to expand and introduce new
products [6].
Quality plays a huge role in brand loyalty and has a set of criteria. It includes (1)
product quality [15], (2) price is a key factor in attracting customers [1], (3) innovation,
namely the brand’s ability to provide its customers with everything new [2], and (4)
places of distribution, usually symbolic of the value of the brand [10].

4.2 Paying Attention to Customers’ Behavioural and Sensory Experiences

A study conducted on 383 self-service store customers in Egypt (Carrefour, Hyper One
and Spinneys) found a strong relationship between behavioural and sensory customer
experiences and brand loyalty. This means that marketing managers should pay attention
to creating a positive sensory and behavioural experience for customers during their
interactions with workers and employees in order to gain their trust [14].

4.3 Internal Marketing

To encourage employees within an institution to be internal customers, it is necessary to

take care of them and raise their job satisfaction. In addition, when teams are properly
qualified, they will provide good customer service to consumers and serve as a good
interface for the institution, which also helps to raise brand loyalty [11].
 The Importance of Digital Marketing in Building Brand Loyalty 161

5 Examples of Brand Loyalty

To be clearer, here are some examples of brand loyalty:

5.1 Apple

Brand loyalty is perfectly embodied by Apple [15]. The reason the company has so many
loyal customers is that Apple has been able to meet the needs of its customers, provide
high quality products and consistently innovate through its customer technology [9].
Apple has benefited from this tremendously, and the company has achieved increased
customer retention and reduced marketing costs [8].
If by chance you have followed any news of Apple releasing a new phone or product,
you will have noticed several things: the large number of consumers who book their
products in advance, the long queues of customers who amass in front of Apple outlets,
and the unwavering loyalty of customers despite the high prices of Apple products [12].
The key lies in the quality and value of Apple products, where customers feel that
they are distinguished simply because they use them. This is what we call building brand
loyalty [2].

5.2 Adidas

To create and build brand loyalty, it is necessary to present an image that matches your
vision and values. The famous Adidas brand, for example, specialised in the field of cloth-
ing, shoes and sports products, and presented its image, values and vision professionally
[7].
Adidas thrives in the world of sports, which was the passion of its founder and
famous shoemaker Adolf Dassler. Everything it represents is expressed in the motto:
‘Impossible is nothing’. So how did Adidas build brand loyalty?
Adidas identified athletes as its target group and then expanded its category to all
those from the general public interested in sports, by listening to them, understanding
the problems they faced and trying to meet their demands [12].

Quality: It has maintained the quality of its products over the years [12].
Innovation: From the beginning, Adidas gained a competitive advantage in the market,
providing light shoes for players and then continuing to innovate through its various
products [14].
Listening to its customers: Adidas is always ready to listen to athletes, to meet their
expectations and even to exceed them, and as such it has made significant strides in
customer engagement [3].
Community participation and responsibility: Adidas also participated in the creation
of many sporting events in the world, which gave it status and continuity in the face of
competitors [4].
162 A. Hassan and S. Zahran

6 Reasons Why Some Brands Lose the Loyalty of Their Customers

Primarily, brands lose the loyalty of their customers because they stop understanding
and fulfilling their needs. They no longer satisfy customer expectations and so fail to
keep pace with the market and product development. Finally, when the quality of their
products begins to deteriorate, customers start forming loyalty to competing brands [3].
In conclusion, the process of building brand loyalty is an integrated process with var-
ious elements, whether it be studying the market, understanding the needs of customers,
listening to them and creating a good buying experience for them, or paying attention to
product quality and continuing to innovate and provide competitive prices [15].
Finally, it is crucial to pay attention to the human element in providing services
to customers from the internal marketing of the organisation [12]. When these ele-
ments are complete and work together, building brand loyalty becomes relatively simple,
considering that it is an ongoing project without respite, because rest means failure [12].

7 Conclusion
The results showed that organisations seek, through the videos and advertisements they
publish on their websites, to achieve several different goals that serve their marketing
objectives. The main objective is to consolidate the organisation’s brand to its target
audience, with other goals varying between being informative, memorable, improving a
mental image, activating sales, sponsorship, brand loyalty, social responsibility, compet-
itiveness, and finally rebuilding the brand for the organisations that changed their name
and business or changed the shape of their product.
The results demonstrated the public’s willingness to interact with videos and adver-
tisements published on the organisations’ channels, by watching these videos, clicking
on the like or dislike button and adding a comment on the video.
The results of the study indicated that the viewers of the organisations’ channels on
YouTube are an active rather than a passive audience that receives the content without
interacting with it. In fact, the audience is eager to interact with the content published
on the organisations’ channels in more than one way. The results of the field study
showed that the most popular method of interaction is to press the Like button, followed
by adding comments on the videos and inviting friends to join the channel, which are
methods that require mental effort.
The results showed the failure of the organisations in question to use their sites as a
platform for customer service practice, to listen to and respond to customer complaints
and inquiries.
The results showed that the majority of the organisations under study do not use
their YouTube channels to establish two-way communication with their audience. The
results showed that these organisations are not interested in responding to the public’s
comments and inquiries received on their videos.
This study can be extended in several ways: First, by considering a qualitative app-
roach to test the effectiveness and strength of each of the marketing factors to build
loyalty. Second, by testing the effect of customer loyalty on the total cost of the supply
chain. Third, by testing how customer loyalty affects the management of the inventory.
Lastly, by looking at how each marketing factor affects the total cost of the supply chain.
 The Importance of Digital Marketing in Building Brand Loyalty 163

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 The Impact of Social Media on E-Commerce
and Marketing

Alyaa Khalaf1 , Ateqa Radhi1 , Maysa Al Mascati1 , Mohamed Moosa1 ,

Allam Hamdan1(B) , and Sharifah Syed-Ahmad2
1 Ahlia University, Manama, Bahrain
[email protected]
2 University of Business and Technology, Jeddah 21448, Kingdom of Saudi Arabia

Abstract. This paper reviews how social media has impacted e-commerce and
marketing. Social media has a big role today for companies and consumers. Busi-
nesses use it for communication, marketing, and other ways to gain profit. The
youth around the world are heavy users of social media, including for online
purchases. Therefore, businesses are increasingly employing social media within
their companies to compete in this digital age.

Keywords: Social media · e-commerce · Marketing

1 Introduction
During the past years, consumers are increasingly accessing social networking sites to
find information about various products and services, rather than depending on traditional
channels such as television, radio, and periodicals. Every sixth person on the planet now
has a Facebook account, and nearly four out of five Internet users are connected to at least
one social media platform. With the growing number of internet and social media users,
understanding online customer behavior has become essential for major brands. The rise
of social media has resulted in a shift in media consumption, prompting businesses and
organizations to use social media as part of their marketing and public relations efforts.
As a result, social media is becoming a more widely used platform in E-Commerce to sell
services and resources to present and potential clients. Therefore, we can define social
media as a web-based social communication tool that allows people to communicate
with one another through sharing and consuming information [1].
Marketing and advertising techniques have shifted from mass market channels like
television and radio to the social platform as a result of the introduction of social media.
Today, all big brands and organizations boast enormous fan bases and followers on
major social media platforms such as Facebook, Twitter, YouTube, and Instagram, among
others. Social media platforms are not only cost-effective, but they also bring the producer
and consumer closer together [1].
Social media has changed, and its user base has grown faster than the population of
several countries. Newspapers and magazines were the preferred media in the 1930s.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 164–171, 2023.
https://doi.org/10.1007/978-3-031-26956-1_15
 The Impact of Social Media on E-Commerce and Marketing 165

P&G was the first corporation to advertise in print media. The 1950s are known as the
“TV commercial age,” with marketers gravitating toward electronic media commercials.
The concept of corporate social responsibility was first introduced in the 1960s. During
the 1970s, the computer was invented, and applications such as logos, credit cards, direct
marketing, media research, payroll, visa cards, and master cards were developed. The
introduction of cable television in the 1980s altered the landscape of advertising media
[2]. Print media is still used nowadays, however, could not be used by itself anymore
and need the assistance of technology [3].
Marketers are continually looking for new ways to pique the consumer’s interest.
People have embraced modern media and technologies to such an extent that they have
given marketers the ability to reach consumers 24 h a day, seven days a week through
several outlets. It increases the likelihood of messages getting seen. As a result, it’s only
natural to entice marketers to use social media. Traditional campaigning methods are
being eclipsed not simply by the rise of social media, but also by the increasing difficulty
of creating a standout campaign in a highly competitive market [2].
Due to the fact that technology is advancing, and everything is becoming automated,
and people tend to use social media a lot, businesses are also taking their path towards
the internet, and even startups businesses are tending to go towards online selling and
marketing, due to many different factors such as the low startup cost and social media
will help businesses reach a wide range of potential customers. Thus, the correct use
of social media whether it was for promoting a certain product or service or for sales
purposes, will indeed provide competitive advantage to that business. Therefore, this
research will help discuss and discover the various impacts that social media will have
on marketing and e-commerce.

2 Overview

In this modern era, social media is the necessity of life. Social media is one of the fastest
mean to gain any kind of information. It plays a vital role to supply knowledge to their
clients. And because of this, clients take decisions of whatever they want. Therefore, this
article shows the image and impression of social media in market and daily life. There
are some researchers who have done researching on social media and they are referred
for other researchers as well.

2.1 Literature Review

Hoffman and Novak (1996) have shown that collaboration is an important factor in dis-
tinguishing between online marketing communication and mainstream media. Today
online consumers have more control and negotiation power than conventional vendors
because the internet provides more correspondence among the users and providers of
commodity/services with additive attainability of understanding for commodity and ser-
vices [4]. Geissler and Zinkhan (1998) said that the Internet revolutionized the rest
of the world in terms of increasing the bargaining power of buyers as it became less
troublesome for them to procure substitutes without being influenced by the vendors.
Virtual stores diminish transaction costs and are beneficial for both buyers and sellers
166 A. Khalaf et al.

[5]. Pandit and Agrawal (2022) also highlighted the importance of the Internet, espe-
cially during the Covid pandemic [6]. Suki and Suki (2016) prescribed that advertisers
should offer more promotions such as advertisements or discounts, that too online [7].
Yulihasri et al. (2011) studied online consumerism, ease of use, compliance, confiden-
tiality, surveillance, common beliefs, efficiency, behavior, and student purchasing intent
[8]. They came to know that web advertising has a positive effect on the purchasing
of a company’s products. Consumers are increasingly looking for the so-called “seam-
less omni channel experience”, which means that retailers allow them to merge online
browsing with inventory and its storage, purchase, order and return for any combination
they would like.
Sharma et al. (2014), surveyed consumers Internet based procurement in India, and
discovered that consumers are afraid of unsafe transactions in online payments and that
most online shoppers are from 18–25 years old [9]. Ioanas and Stoica (2014) discuss the
impact of social media on consumer behavior, consumers prefer to shop online for utility
and majority customers check product information before purchasing commodities [10].
Bauboniene and Guleviciute (2015) are key factors that influence consumers to buy
online comfort, clarity and suitable price [11]. Muda et al. (2016) investigated Gen Y’s
online shopping behavior in Malaysia and identified the fundamental aspects [12]. They
reached the conclusion that Gen Y in Malaysia purchase mainly from social media sites
such as WhatsApp and Instagram.
Bhagwat & Goutam (2013) stated that social media is necessary in business [13].
Social media helps people connect with each other however far they are. There are many
ways of social media in which we can connect with each other easily and vastly. From
their study, they came to know that Facebook is one of the most used apps in social media
networking. In the conclusion, they said that social media is giving aptitude, talent, skills
and solutions in business and to people as well.
Kumar & Singh (2013) studied how social media communication help in building a
bond between customers and clients in business and market [14]. The campaign “Live
the Moment” was designed for the Maruti Suzuki in recognition of their brand new car
through social media. Because of this, they come to know that social media helps this
campaign to be most victorious by the company. They make this master plan to build
bond between customers and their brand new car. And it also encourages connection
through social media. This not only helps to excite their social fans but also expand the
apprehension of other share holders.
Ramnarain and Govender (2013) conducted a study with 150 students, aged between
18–24, and studying at a university in South Africa [15]. Their questionnaire resulted
in showing that there is a bond between males and that the youngsters gain behavioral
changes through social media. There are three main factors such as some channels
are critical for communication, improving product, and spending power and choice of
brand. They suggested that marketers must change their communication and advertising
procedure for the sake of obtaining behavioral changes of the youngsters.
Shabnam et al. (2013) studied the role of social media in market networking. They
made a point to how marketers develop relationship in their target population [16].
The study focused on the youngsters of Bangladesh and observed many consumers and
responses related to social media. They also ask questions with the marketers that how
 The Impact of Social Media on E-Commerce and Marketing 167

social media is important in their life and how they utilize it on their daily basis needs.
They can also know what the strategies that are being used by the sellers all around for
them to reach the highest ranks of sales.
Valeecha and Reza (2013) examined to what extent social media is helping out
different telecommunication brands in Karachi, Pakistan, and what is the feedback of
users by keeping in mind the factors that are vital for a favorable outcome of these
telecom brands [17]. They gathered data from five different telecommunication firms
and 8 social media platforms. They found that users that use social media daily have an
expectation from organizations to be there on social media platforms by combining with
users’ relationship strategies and always be ready to connect with buyers.
Bajpai and Pandey (2012) studied how the idea of marketing establishes itself on
social networking platforms [18]. They decided to choose Facebook for their research.
And come to know that direct marketers that have clever techniques for the Facebook
environment will undoubtedly succeed. They also emphasize the benefits Facebook gives
to brand marketing. And summed up that there is much to learn about marketing which
is still in its infancy.
Bajpai et al. (2012) did another research in the same year on social media marketing
techniques and how their effect draws attention to many small companies’ social media
marketing techniques [19]. This viral marketing technique can be outside of the current
social media and can help to create a strong enough group to enable effective buying
and marketing. Furthermore, they also correlate it with other conventional marketing
techniques as well. Similarly, to determine the efficacy of social media as a marketing
tool, Bashar et al. (2012) did an observational study [20]. They used a non-probability
convenience sample technique and a questionnaire survey to undertake their study across
150 social network users in the Delhi and NCR areas. Eventually, researchers discovered
that social media as an advertising medium would only be successful in the case it
brings customers real-time information that they need to narrow the gap between their
perceptions and what they truly seek moreover, he suggested that businesses in today’s
society need to be adapted as social relationships rather than transactional relationships.
They also elaborated on a few important points to reach these goals.
Castronovo and Huang (2012) highlighted the role played by social media as a
replacement for the marketing communication model [21]. To make word-of-mouth
Marketing, social media, and other mediums for marketing communications a possible
element of integrated marketing communication was their main motive of work. Apart
from that, they have also established an alternative marketing model that can be utilized
by industries. Which will aid them in achieving their marketing goals such as escalating
sales, a surge in consumer awareness, and improved loyalty of users. Hence all different
elements of the model could be combined to gain a successful outcome.
Jati and Mohanty (2012) outlined the surge in recent years and trends in social
networking media [22]. They stated that social media plays an essential role in build-
ing a company’s brand and paving the way toward success. They have provided
recommendations for companies that are competing in an international atmosphere.
Kaplan et al. (2010) shared the notion that social media should be the main priority
for companies [23]. This will help organizations to make their way toward success and
allow them to make profitable choices also advisors are trying to highlight ways to
168 A. Khalaf et al.

do it using a variety of social media platforms. Additionally, they presented a concise

definition of “Social Media” and elaborated on what it actually implies. In the end, they
also represented 10 important points for companies that are willing to put social media
into services.
Mangold and Faulds (2009) put forward an analysis according to which social media
was described as a new mixed component of advertisement [24]. They strongly sug-
gested that when developing and putting into practice their marketing communication
techniques advanced marketing should make use of social media as a promotional device
because social media covers a massive amount of the public. Customer feedback should
be considered by administrators in a way that will help the organization to achieve its
objectives. Apart from that they also shed light on the measures that can be adopted
to achieve this viz, along with providing users with satisfactory platforms. Mangold &
Faulds’ study is consistent with Boone and Kurtz’s (2007) which claims that the inte-
grated marketing communications’ goal is to organize practically all aspects of mar-
keting strategies including, advertisement, personal sales, direct marketing, and sales
promotion along with public relations to provide a combined customer-focused com-
munication [25]. Companies would have to acquire a new model of communication in
order to become successful. This new model of communication will allow users of social
media to exchange ideas.
Bernoff and Li (2008) used 25 examples to demonstrate how businesses can use
social platforms to enhance their market knowledge, generate income, save money, and
to automate their workforce using these networking sites [26]. They also outlined how
crucial it is to know how new connections are made on social media.
Ranjitha and Sinnor (2012) examined usage methods of different famous social
media platforms and choices of users using these networking sites [27]. They chose a
range of age categories and occupations to carry out this study. They monitored Face-
book conversations for several weeks. The findings conclude that Facebook is the most
affordable platform that any business can utilize for advertisement, and buyers are learn-
ing more about the items, and the businesses are interacting directly with customers,
growing their sales volume.
Edosomwan et al. (2011) explained how social media has transformed in these recent
years and in what manners social media has changed the way how people interact with
one another and communicate globally [28]. Additionally, they shed some light on ideal
scenarios for using social media such as ensuring effective communication between the
staff and managers, encouraging teamwork, idea sharing, etc. among workers. At last,
they also talked on various social media platforms such as Facebook, YouTube, Twitter,
and Lunar Storm.
Greer & Ferguson (2011) used a qualitative approach to find out the use of Twit-
ter for marketing and advertisement [29]. They looked at the Twitter accounts of 488
regional tv channels across the United States of America using a technical model of
media advertising. They discovered, among other things, that news headlines were the
most frequently appearing content on the websites and that channels that gave news head-
lines also infrequently publicized their usual broadcasting. Certain things in this area,
such as promotions for competitions, announcements of news headlines, or requests for
 The Impact of Social Media on E-Commerce and Marketing 169

user participation, did not appear frequently. Finally, they believe that channels did not
actively promote using Twitter to direct viewers to the channel’s live programs.
Hanna et al. (2011) examined how customers participate in the co-creation of
advertisements with businesses and their labels [30]. They discovered that businesses
encounter a variety of difficulties because they lack a comprehensive knowledge of how
to use social media efficiently which metrics they ought to be using and how they ought
to evaluate them. In their study, they provide a methodical framework for comprehending
and conceiving online social media as a network of interconnected components encom-
passing both physical and virtual media. They provided this methodical framework by
highlighting the Music Academy’s design and implementation of their marketing strat-
egy for the 52nd Grammy music award held in the year 2010. They also offered five
principles and various insights as a conclusion. For example, visualizing, monitoring,
reporting, having no funds, and being different pertaining to the smart introduction of
digital media into a company’s marketing planning process.
Moise (2011) highlights the fact that several advertisers think companies can actively
advertise just a single edge over their competitors in the industry and by doing so through
social media, they might seem more appealing to customers [31]. Moreover, they also
said that a company can examine how the market that has been targeted reacted to past
engagements and identify the platforms on which various stakeholders have responded
most successfully.
Asur and Huberman (2010) have shown how information from social sites is uti-
lized to forecast actual findings reported on using digital platforms to anticipate the
future [32]. They calculated box office sales for films using Twitter’s discussion. Apart
from that, they examined a role having great importance in forecasting actual box office
results while concentrating on popular advertising methods and pre-release enthusi-
asm on Twitter. At last, they looked at the feelings engendered by the spread of both
favorable and unfavorable viewpoints.

3 Conclusion

Social media has had a revolutionary impact on both e-commerce and marketing due to
its convenience, cost-effectiveness, and reach. The growth in social media usage over the
past two decades has given companies a platform to market and retail products digitally
at lower costs. It has also enabled companies to engage with wider audience, gauge
customer sentiment and enhance offering more efficiently.
The accessibility of social media platforms worldwide means that smaller retail-
ers can now promote diverse and potentially cheaper alternatives influencing customer
purchase decisions and obstructing loyalty. The emergence of big data and artificial
intelligence technologies has led to personalized feeds across social media platforms
which has exasperated the issue. According to Forbes, 81% of purchasing decisions are
influenced by social media posts.
Social media is rapidly becoming the backbone of business strategies across the
globe [33]. According to the 2022 CMO Survey, retail businesses typically spend around
15% of their total marketing expenditure advertising to customers on social media. It is
expected that social media will reach 23.5% of marketing budgets in the next five years.
170 A. Khalaf et al.

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 The Factors Affecting Online Buying Behavior
of Consumers During Crises: Literature Review

Maryam Shaaban1 , Allam Hamdan2(B) , and Ramzia Albakri3

1 College of Business and Finance, Manama, Bahrain
2 Ahlia University, Manama, Bahrain
[email protected]
3 College of Business Administration, University of Business and Technology, Jeddah,

Kingdom of Saudi Arabia

Abstract. The aim of this research paper is to understand the consumer buying
behavior online during the crises. It is important to distinguish the factors that affect
their online buying behavior. Many researchers have identified that consumer buy-
ing behavior is impulsive, it evaluates how emotion, thoughts and preference vary
from consumer to consumer. Nowadays, purchasing any product and services is
clearly different from the past-days and it is extremely influenced by digital mar-
keting as a successful tool for increasing good advantage. The difference is that
the consumers in the 21st century are more sophisticated, and better concerned
with innovative technology and internet network. Whereas they search for any
product and services detailed information easily and feedback from different con-
sumers/users. In order to achieve in today’s world and the rapidly developing mar-
ket, marketers need to understand everything about their consumers such as; what
they want, what they need, what they work and finally how they want to spend their
money and time. Many factors influence consumers in his/her decision-making
process, purchasing behavior and the selection of specific brand or merchant. By
indicating and understanding the factors the marketers will have good chance to
develop their strategy to attract and maintain their recent consumers and potential
consumers as a real strength to better meet the need of their consumers.

Keywords: Factors · Online-buying · Crises · Literature review

1 Introduction
The fast development of internet network around the world has empowered business and
consumers to be more associated than in the past. This has expanded the connectivity
to the spread of electronic commerce, a zone that has extended exponentially during
the past decade. The transformations of consumer buying behavior over decades has
controlled the retailers to investigate into psychology of online consumers. The difficulty
of interpreting the online consumer buying behavior is complicated by zero physical
interaction during the purchase (Jinang et al. 2008; Mukherjee and Nath 2007).
In the online world, the issue of protection and security are intensely basic and cannot
be over emphasized. The security is considered the state of confinement on the data. The

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 172–185, 2023.
https://doi.org/10.1007/978-3-031-26956-1_16
 The Factors Affecting Online Buying Behavior of Consumers During Crises 173

security is the main inhibitor to the online buying and is characterized as the capacity of
the framework to avoid snoopers from getting access from the available personal data
online or abusing the personal data. However, there is an existing connection between
privacy and security in terms of online transaction. According to an extant research,
privacy and security function as an important component of digital business and are the
main factors influencing the online buying behavior in selecting and attitude (Cheung
et al. 2005).
Due to the current situations there is a decrease in economic situation and how
policymakers, governments and businesses will overcome the harm of crises and how
marketers will react to the shift or change of purchasing behavior. Along with the pan-
demic digitalization of economy action has taken a critical jump. This has given an
increase in the online marketing. The effect of crises on our lives, behavior, and our
routines. But in the age of internet network and crises, the marketers ought to promote
their products and services online. Leveraging the control of innovative technology can
be successful, particularly in the time of the current pandemic, to be active and closer to
the consumers. In these circumstances marketers needs to understands their consumer,
and assist them in their purchasing process. The online marketing has demonstrated to
be a viable way to communicate with their current and potential consumers. The con-
sumer needs more positive communication from their desired brand or business and as
more consumers and staying at home due to lockdowns and the spread of the virus,
consumers are now currently looking toward social networks and smartphones to keep
them feeling associated, updated and engaged with what is happening. In the modern
conceivable outcomes advertised by innovative technologies, it encourages interaction
between consumer and business.
Through the crises, there has been extreme media attention relating to the current
crises, and consumers are out to an expansive amount of data referring the circumstances
(Loxton et al. 2020). Increasing level in economic instability during the crises deliver
a unique opportunity to examine the ways in which both anxiety stemming from data
on current circumstances within internet and anxiety from online network impacting
consumer buying behavior. Thanks to the internet network, consumers are offered with
new opportunities to improve their power in connection with businesses. Other than
reaching to an uncommon amount of data, online consumer can compare wide range
of products, access widely and qualified sources of skills, and associated in a proficient
and beneficial way with businesses and shops.
However, online consumer may play a dynamic part in both marketing communica-
tion and the product design related to the benefits and values to the consumers themselves.
These consumers are more prepared and ready to spread their opinions about products
and services whether favorable or unfavorable, and even to authorize business among
prospective audience. Online consumer benefit from a collective insight, demand more
control over their purchasing experience and the plan of value propositions in terms of
their personal interests. Within the online innovation, businesses are more prepared to
face challenges of satisfying the online consumer buyers. Moreover, profiting from the
online based processing framework to oversee the extraordinary amount of buyer infor-
mation, business may embrace progressed consumer centric standard and characterize,
174 M. Shaaban et al.

create digital marketing methodologies and programs that are more accurate and more
coordinated to consumer needs.

2 Theoretical Framework of Buying Behavior

Engel, Kollat, and Blackwell have presented the EKB model in 1968 to clarify the
decision-making process of buying behavior in 5 stages. Problem identification, Data
search, Evaluation of options, Purchase decision and Post-purchase assessment (Engel
et al. 1968). The model was created by Engel, Blackwell, and Miniard (EBM) into the
EBM model in 1995 to increase the decision process to incorporate data input, data
handling, and other factors impacting the decision process. Compared to the original
model, the EBM model pays more consideration to the external factor impacting the
buying behavior process and is subsequently utilized in the study (Blackwell et al.
2006).
The EBM model illustrate that the buyer decision making process is impacted
and shaped by a few factors and determinants. These factors are divided into 3 wide
categories, specifically psychological form, consumer differences and environmental
impacts. The psychological form alludes to the 5 steps from the original EKB model
that have been modified into 7 steps within the decision process; problem search, pre-
purchase evaluation of alternative, purchase, utilization, post-consumption assessment
and satisfaction. Consumer differences include consumer resources, knowledge, atti-
tude, personality, value and lifestyle. Environmental impact includes culture, social
class, personal influences such as the buyers with family, and the circumstances such
as the behavior changes reliant on the circumstance (Blackwell et al. 2006). However,
the EBM model demonstrate has received throughout the years for instance, the EBM
model has been criticized for having a mechanical diagram of human behavior. The
model ignores consumer, social and situational factors impacting consumer purchase.
Further, the model is contended to be well complex, as the factors are vague leading them
to be difficult to examined and uncertain for useful habit (Foxall 1980; Jacoby 2002).
Different model used to clarify the consumer buying behavior which pays more consid-
eration to social and situational factor is the Theory of Planned Behavior “TPB” (Brug
et al. 2006). Both models, EBM and TPB are utilized to show how the impact of factors
can look in term of output. Each variable will be critical indicator for understanding the
changing of consumer buying behavior during crises.
The TPB model was demonstrated in 1985 by Ajzen and is built on the prior model of
Theory of Reasoned action developed by Ajzen and Fishbein in 1975. The TPB model
is demonstrated to clarify assumed influencing factors on consumer buying behavior
under ordinary condition. The model was also created to predict consumer individual
behavior, by considering attitudes, subjective norms, and perceived behavior that impact
the influence to perform a behavior (Ajzen 1985).
Attitude towards the behavior is illustrating how people surrounding the individual
feel about any behavior, and how these are affected by the strength of the behavior
convictions and assessment of potential result. Behavior beliefs let people understand
motivation behind the potential results of the behavior. Subjective norms are alluding to
how perceptions of others can influence the performance of a behavior. Normative beliefs
 The Factors Affecting Online Buying Behavior of Consumers During Crises 175

can be created by which behavior is accepted or not by a social group and motivation
of people will determine if the person will observe with the social circle beliefs and
opinions. Perceived behavioral illustrates individuals cautious for a certain behavior,
however the behavior is disturbed by subjective and objective reason like beliefs (Ajzen
1985). The TPB model has been panned because the connection between intention and
behavior is frequently considered due to the control of behavior. Moreover, the model
is useful when there are positive attitude and beliefs regarding the behavior (Kothe and
Mullan 2015). Furthermore, many researchers appeal that models ought to adjust and
developed to latest version regarding the vast change in the society (Xia and Sudharshan
2002).
By understanding what impact, the consumer buying behavior, these models will
be utilized as motivation to build an adapted version of buying behavior of consumers
during the crises.

3 Literature Review
3.1 Consumer Online Buying Behavior
Many years ago, consumer and their behavior have been discovered both in in science
and in practice. Consumer buying behavior study is more beyond marketing. Research’s
in this range started within the year 1960’s. In the field of marketing, understanding
consumer buying behavior is necessary for developing marketing tactics. Concurring
to Solomon (2017), a consumer is a person who recognizes a need or want, purchase
a product or services and after they go through three stages of purchasing process.
However, the part of a person is varying in different scenery, for instance, if the adults
purchase product for their children, they will be the purchasers for their children’s, but
also the children are the consumers. Consumers is a term for a person that purchases a
product or services (Solomon 2017).
Moreover, understanding the means of virtual shopping and the behavior of the online
consumers could be an important issue for experts competing within the quick extending
virtual market. Consumer online buying behavior is progressively catching attention of
researchers (Cheung et al. 2003). With the infinity development of the internet in term
of consumer, transaction of volumes and trade penetration, this enormous search isn’t
surprising. More than 20% of internet users in some countries are already purchasing
product and service online (Taylor Nelson Sofres 2002) whereas more than 50% of con-
sumers frequently purchase online (Forrester Investigate 2003). These improvements are
slowly changing the digital marketing into a standard commerce activity whereas online
consumers are developing and virtual sellers realize the significance and urgency for a
proficient and consumer-oriented approach (Lee 2002). To achieve more understanding
of e-tailing, many researchers have drawn e-shopping support from different perspec-
tive. Consumer attitude will always be a critical predicator of consumer buying behavior
and obviously, to e-consumer attitude to draw critical consideration from researchers.
(Keen et al. 2002) has examine the structure of consumer choice on items, and how they
determine the significance of attribution in decision making process. Many researchers
have also tried to understand the online behavior by drawing on the Technology Accep-
tance Model (TAM) from the Information System (IS) literature (Davis 1989; Leder
176 M. Shaaban et al.

et al. 2000; Moon and Kim, 200; Venkatesh and Davis 2000; Shih 2004). The following
researchers have accomplished that consumer attitudes toward e-shopping are high and
clearly connected with consumer acceptance to this shopping procedure.

3.2 Consumer Buying Behavior in Response to Crises

The buying behavior of consumers tend to change during crises (Nistorescu and Puiu
2009). The consumer’s responds to any changes during the circumstances around them
and his/her utilization. This happens due to the change within the level of his/her per-
ception of risk. The consumer buying behavior can alter depending on the income and
financial steadiness of before the crisis occurs (Ang et al. 2000). Reasonable pricing
and non-traditional offers are implemented, addition to the product offered did more
to satisfy a need and also create a passionate association to provide consumer loyalty
since the retailers were worried for consumer to return (Mansoor and Jalal 2011). How-
ever, consumer behavior by companies and consumers are outlined within the current
widespread crises, for instance, Unilever chose to stop and redesign its way of promoting
to save money on external promoting. Unilever also began to switch to cheaper options,
and arranged for anticipated enduring changes in customer behavior. With the change
of consumer buying behavior Unilever, anticipated to see an increment in consumer
spending more time at home in lock-down days and quarantine long time during the
crises (Marketing Week 2020).
However, crises impact the consumers not only economically but also mentally. Con-
sumers becomes more careful. They don’t want to spend a lot on product and services,
even if they afford it. Consumers only purchase necessities, switch to cheaper alterna-
tives and have more rational view on promotion and online products which are cheaper
and faster. They begin to compare different products and services online based on price
and quality (Nistorescu and Puiu 2009). The buying process in this circumstance can be
changed from being a programmed behavior or limited decision-making buyer behavior
to become extensive decision-making buying behavior. However, the consumer buying
behavior past crises was not based on broad decision-making and information gather-
ing. Unfortunately, after the crises the process became more complicated. Increasing
inflation, or even diminishing of compensation, and decreasing purchasing authority,
bad economic circumstances impacts the consumers in all types of markets. As long
as consumer’s are inspecting more about crisis and as long as the internet is centering
on reflecting on the effect of the crises, there is mental influence with negative impact
on consumers (Amalia and Lonut 2009). The impact of the crises on consumers can be
reflected on their utilization. The researcher (George Katona 1974) proposes that var-
ious consumer believe that in short-periods when prices would be higher, they would
have to spend more on necessities and so would have smaller assets at their transfer for
the purchase of desirable but unnecessary products and services. Consequently, inflation
encourages the delay of optional expenditures. (Katona 1974), has also believed that con-
sumers are motivated to save because of the current situation. The saving rates decreases
as economic condition strides. The researcher has also recommended that saving more
or less is impacted by economic and mental factors.
 The Factors Affecting Online Buying Behavior of Consumers During Crises 177

3.3 Consumer Buying Process

The buying behavior process is used by the consumers in the action of purchasing any
product or services before, during and after final process. It starts with the problem
recognition and conclude with the post purchase evaluation (Kumar 2019).

Problem Recognition: The decision of purchasing products and services starts with
problem recognition the desire and need a consumer to satisfy their needs. The con-
centrated of needs is the top priority of any consumer. The consumers will make an
instant purchase of product and services that is important for them and delay the other
needs or desire (Kumar 2019).

Information Search: When purchasing products and services consumer usually tend to
review his/her consideration toward a specific product and experience. For instance, if
the past-experience is positive then the information will end by the consumer. But if
the past-experience is negative the consumer will tend do more search about it (Clow
and Baack 2016, p. 76). For this purpose, the consumers always tend to search for more
feedback and information from various sources such as family, friends and social media.

Evaluation: In evaluating process the consumer usually tends to search or seek for dif-
ferent options in product and services in form of features, price, quality, brand name and
etc… The criteria to assess the product contrast on the circumstances and the consumer
connection to it (Kumar 2019).

Purchase: After going through all the above process, the consumer has chosen to pur-
chase the product after gathering information from some sources and evaluate what to
purchase and from where. Consumer purchase the brand or product he/she provides the
highest rank and satisfied. However, the buying decision also impacts by the surrounding
environment (Qazzafi 2019).

Post-purchase Evaluation: Finally, the consumer always evaluates the performance of

the product and service. They will either be satisfied or dissatisfied after the actual
purchase. If the product or service meet the consumer anticipation, they will definitely
repeat the process and will share about it positively. On the other hand, if the product or
service didn’t meet the anticipation of the consumer, they will definitely will not repeat
the process and this will result into negative reputation of the product or service (Kumar
2019).

3.4 Factors Affecting Online Consumer Buying Behavior

There are many factors affecting online consumer buying behavior on different levels,
from social factor to motivation, beliefs and attitudes within the people (Kotler and
Armstrong 2018). Over-all, it can be divided between internal factor that impacts on
consumer buying behavior and external factors (Hoyer et al. 2008).
178 M. Shaaban et al.

3.4.1 Social Factor

Social Factor is the main factor that impacts the online consumer buying behavior. It can
be divided into 3 parts that includes; Reference Group, Family, Role and Lifestyle.

Reference Group: Have the potential for the arrangement of an attitude or behavior of a
consumer. The impact of reference group changes over product and brands. For instance,
if the products are noticeable as clothing, bags, cars etc… The impact of reference
group will be high. However, reference group also involves opinion leader such as social
media influencer (a person who impacts others by experience, information and feedback)
(Ramya and Ali 2016).

Family: Family members are unequivocally affected in buying behavior. Marketers are
attempting to discover the influence of siblings, cousins and other family members.
For instance, if a member is satisfied with a particular product or service, they will
recommend it for their family members to follow or purchase it (Ramya and Ali 2016).

Role and Lifestyle: This is another factor which has an impact on buying behavior of
consumer. Because it alludes to the way person life and work in a society and express
things in the environment. It has also been determined that the consumer interest, opinion
and actions appeal their way of interacting with the world (Ramya and Ali 2016).

3.4.2 Economic Factor

Economic factors are impacted by the consumer buying behavior. The economic cir-
cumstances of consumers impact its purchasing decision and selection of specific brand,
products and services. The businesses can think of a consumer buying behavior of spend-
ing money or saving it. For instance, websites or brands can offer discount or sale on
product and services in occasions such as Ramadan, Eid or beginning of the season.
There are some economic factors which are; Personal Income, Family Income, Income
Expectations, Savings and Consumer Credit (Ramya and Ali 2016).

Personal Income: It alludes to a consumer income, and it impacts a consumer buying

behavior (Ramya and Ali 2016). The consumer purchases its desire product and services
on the basis of his/her income.

Family Income: It alludes to the total income of all family member. Family income
affects the buying behavior of the family. The surplus family, remaining after the use
of the essential need of the family, is available for purchasing product, durables and
luxuries (Ramya and Ali 2016).

Income Expectations: Are one of the critical factors of purchasing behavior of a per-
son. If he/she expects increase in the income, the consumer enticed to spend more on
products, durable goods and luxuries. Moreover, if the consumer anticipates any drop in
the future income, they will limit their consumptions on comfort and luxuries and limit
their consumption for necessary item (Ramya and Ali 2016).
 The Factors Affecting Online Buying Behavior of Consumers During Crises 179

Savings: Consumer buying behavior is also impacted by savings. A alter within the
sum of savings funds leads to alter in the spending of the consumer. For instance, if
a consumer wants to save his income, he/she will spend less on purchasing goods and
service (Ramya and Ali 2016).

Consumer Credit: The availability to the consumer covetous of purchasing durable and
luxuries good refers to the credit facility. It is made accessible by the sellers, either
specifically or through banks and other financial institution (Ramya and Ali 2016). Con-
sumer credit impacts consumer behavior. If the consumer credit is obtainable in liberal
term, purchasing durable goods and luxuries increases, because it motivates consumer
to buy more of these things, and raise their lifestyle standards.

3.4.3 Consumer Satisfaction Factor

Customer satisfaction is vital in today world according to (Deng et al. 2009). This
factor is how consumer evaluates the product and service performance (Gustafsson
et al. 2005). Consumer buying behavior are related to each other, particularly within
features of quality, pricing and decision making (Kumar 2011). The consumers obtain
their purchasing decision on information, feedback, customer service and indications
such as product name, design and price (Samiee 1994). The main factor impacting the
consumer buying behavior is indicated in the paper above which is cultural, social and
personal. However, the satisfaction of consumer may affect the concerned company by
repurchase, buy more items, and positive word-of-mouth and readiness of consumer to
purchase more for the specific brand. Consumers nowadays wants easy and high-quality
products that help them to purchase the same product or services more in future (Ahuja
et al. 2003).
Moreover, consumer is essential and valued outcome of any good marketing prac-
tice. Expanding consumer satisfaction has been created to higher future productivity
(Anderason et al. 1994), lower price linked to unreliable product and services, expanded
buyers to purchase, provide referrals and more use of the product (Reichheld 1996;
Anderson and Mittal 2000), with higher level of consumer retention and loyalty.

3.4.4 Availability of Products

Online websites have made purchasing less stress-full than it was, and online websites or
applications deliver consumer benefits by method of offering more variety of products
and service that consumer can select from (Lim and Dubinsky 2004; Prasad and Aryasri
2009). Consumers can discover broad extend on products and services which would be
possibly accessible fully online in any time or location. Many organizations have their
own websites or application to provide their products and services online, regardless
of they have opportunity replacement or not. Various actual physical shops provide
beyond any question stock that is exclusively online to reduce their retailing price or to
offer consumers more choices or highlights. However, online purchasing also offers best
prices (Amin 2009) and choices for consumer with different income and preferences.
Consumer can select what criteria, cost and their personal preference and comfort.
180 M. Shaaban et al.

Overall, the digital marketing has made the transaction easier than it was and online
websites and application offers consumers benefits by providing them with more options
of products and services that they can select from (Lim and Dubinsky 2004; Prasad and
Aryasri 2009). Many traditional retailers offer specific products which is only available
online to reduce their costs and to offer consumers with more options such as size,
colors or features. So, consumers can select the product they desire into the online cart
and the item will be delivered to their door. Moreover, online purchasing sometimes
offer great plans (Amin 2009) and different option for the consumers. Consumers can
select their payment method data and amount (Anonymous 2009) in their preference
and convenience.

3.4.5 Perceived Risk

The amount of perceived risk by a consumer in considering a particular purchase is
alluded to a perceived risk (Cox and Rick 1964). The researchers (Forsythe et al. 2006)
have argued that perceived risk plays a critical part in performing and deciding consumer
online buying behavior and anticipating his/her deliberate to online purchasing. The
major factors of perceived risk in case of online consumer buying behavior are the
following; financial risk performance risk, time risk and delivery risk. Whereas, social
risk and psychological risk have no significant role in online purchasing (Masoud 2013;
Nepomuceno et al. 2014).

Financial Risk: According to the previous studies, it has been found that consumers
perceive the risk related with conceivable financial loss from online purchasing as more
than the normal conventional purchasing (Bradley and Stewart 2002; Cox and Rich 1964;
Wang et al. 2003). Researchers have studied that perceived risk toward online purchase
is a core factor to be tended to the success of the digital marketing as it contains a
negative impact on online buying behavior (Hoffman et al. 1999; Jarvenpaa and Todd
1996; Thakur and Srivastava 2015). Perceived financial risk is a critical negative impact
on online business and acts as an obstacle in conducing online purchase (Bhatnagar
and Ghose 2004; Liu and Forsythe 2010; Lu et al. 2005; Masoud 2013; Ruiz-Molina
et al. 2009; Tong 2010). Subsequently influencing the selection of the online web-
sites/channels (Thakur and Srivastava 2015). A study from other researchers (Swinyard
and Smith 2003) expressed that approximately more than 70% of online consumer do
not purchase online because of the risk of financial loss when purchasing from online
venders.

Performance Risk: Is related with how well the product or service will perform. A
major confinement faced by online consumers is that they are unable to touch or try any
products before purchasing it online. For numerous products, it is necessary to try or feel
the product before actual final purchase which is difficult in online purchasing (Alreck
and Settle 2002, Garbarino and Strahilevitz 2004). For instance, consumer perceive better
level of product risk when obtaining online as associated with traditional stores (Dai et al.
2014; Goldsmith and Goldsmith 2002). This proposes that products and services and
performance risk is like to impact on online purchasing (Bhatnagar and Ghose 2004; Lu
et al. 200; Masoud 2013), regardless any product category (Dai et al. 2014).
 The Factors Affecting Online Buying Behavior of Consumers During Crises 181

Time Risk: This category is the potential loss of time and action for obtaining a corrupt
purchase (Featherman and Pavlou 2003; Nepomuceno et al. 2014). Within the setting of
online purchasing, this sort of risk its critical to the probability of such chance is related
with the time and action in browsing, returning or product exchange (Forsythe and Shi
2003; Hassan et al. 2006). This risk happens to any technological problems in purchasing
a product or service online (Hassan et al. 2006). Time Risk impacts the deliberate of
the consumer to purchase online easily. Many consumers may have a fear in purchasing
online due to the concern as delays or safety (Forsythe and Shi 2003).

Delivery Risk: Potential loss in delivery is related with product lost, damaged or deliv-
ered to wrong address (Masoud 2013). Some studies have been conducted that the risk
of non-delivery products harmfully impacts online consumer buying behavior (Javadi
et al. 2012; Masoud 2013; Zhang et al. 2012).

3.4.6 Perceived Usefulness

Perceived Usefulness is characterized as the degree to which consumer feel connected
to the website, value and adequacy to them when purchasing online (Hu et al. 2009; Lai
and Wang 2012). The perceived usefulness of a website depends on the effectiveness
of innovative technology such as search engines, personal assistance and smart phones
benefits to consumers (Kim and Tune 2010). Different information and high-quality
products description should be given to the consumers to assist them in making the right
choice (Chen et al. 2002). Concerns of price, quality, durability and other product related
perspective are the key factor of consumer buying decision (Ahmed 2012). Referring to
the researcher (Enrique et al. 2008; Kim and Song 2010; Xie et al. 2011), that perceived
usefulness was demonstrated to have critical impact on the aim to purchase online. A
supported research by (Kim and Song 2010) identified that consumer anticipation to get
valuable information and to browse through products that are usefully to purchase. Else,
the online consumer will move to their competitors since there are many websites and
application that provides similar product and services (Kim and Song 2010). Briefly,
perceived usefulness will impact the consumer aim to purchase in high risk condition
(Xie et al. 2011).
Trust is another factor in perceived usefulness, that accepted to impact the online
consumer buying behavior. Trust is a multidimensional concept because trust was based
on balanced appraisal of an individual capacity and judgment on concern and generos-
ity (Carlos Roca et al. 2009). In the digital environment, trust is essentially built in a
person-to-website instead of through individual-to-individual communication, occurred
by innovation (Limbu et al. 2012). Trust is vital because online consumers and retailers
cannot actually see each other during transaction (Jiang et al. 2008). Lack of trust is
primary reason why consumers don’t purchase online (Limbu et al. 2012). Concurring
to the researcher lee, et al. (Wei et al. 2010) the intention to purchase online is affected
by the dependability and reliability of the online retailers. Unplanned disclosure of per-
sonal consumer information, information sharing with third parties, lack of consumer
authentication, and access to the consumer’s personal information may contrarily impact
the intention to purchase online (Zhuo and Xiaoting 2010). The more consumer has trust
182 M. Shaaban et al.

in online purchasing, the more they engage in digital shopping activities (Jiang et al.
2008). It provides valuable understanding to examine whether perceived usefulness and
trust will influence the online consumer buying behavior.

3.4.7 Website Quality

Website quality along with consumer service and benefits have been described as a core
“retailer characteristics” influencing the online consumer buying behavior satisfaction
(Luo et al. 2012; Mishra and Priya Mary Mathew 2013). The perceived control in web-
site browsing and product category are essential factors impacting the website quality.
Studies have indicated that “consumer with high trust” that spend more time online
and purchase more regularly the “return policy” cannot compensate the website quality
(Bonifield et al. 2010). The website quality impact consumer perception of product and
service quality, and also impact the online purchasing purpose (Sun et al. 2014). Signal
validity is found to support the connection among website quality and products quality
awareness for high quality websites.
The website serves as an essential point of contact for most of the retailers. They are
used to deliver the information about the business or retailers, its products and services
and the level of service the consumer can anticipate to get. Past studies have recom-
mended that the quality of the website may impact the consumers and their attribution
to purchase from the retailers (Ranganathan and Ganapathy 2002; Stop et al. 2004). The
website quality refers to the whole quality of the website perceived by the consumer.
The amount, accuracy, and the information about the product and services offered on
the website many impact the consumer consideration to browse more time through the
website and impact the intention to purchase its products and services.
However, consumers can be influenced by the image of the website when they want
to decide on what site or retainers they should purchase from (Lim and Dubinsky 2004).
Not only the businesses should create a safety website, but moreover they should to
make it more attractive and more useful. Digital purchasing can alter a consumer into a
buyer if they offer variety and useful information about the product and services, decent
customer service and finally easy to access (Laudon and Traver 2009). The website
should have sufficient information but not overwhelming. Providing unstructured or
useless information in the website can diminish web usefulness and ease of use (Bigné-
Alcañiz et al. 2008). Also, business and retainers should double check all the information
in their websites to decrease mistakes and consumers misunderstanding. Information
quality and image of the website is imperative effect of repurchasing (Koo et al. 2008).
The motivation to purchase online will be low is the online store needs lack of searching,
comparing and updated products. Online websites should make their sites to be simple
for consumers to look at the product and services. Additionally, is digital stores need to
change visitors into buyers, they should improve their websites by offering consumers
a comfortable, coherent and interesting by developing quick website with useful plan
(Broekhuizen and Huizingh 2009). Online payment process is other issue that should be
important because, it influences the readiness to pay (Wang et al. 2005). Digital shops
should make their payment method to be easy and secure. Hence, if online websites want
to increase their consumers, they have to take care of the website design (Bigné-Alcañiz
et al. 2008).
 The Factors Affecting Online Buying Behavior of Consumers During Crises 183

4 Conclusion and Upcoming Work

Consumer buying behavior is complex in nature. The variety of difference in con-

sumer choice depends on the involvement and the buying behavior decision. The service
providers within the marketing need to work intelligently to initiate the consumers. By
keeping in focus, the factors affecting consumer buying behavior online and can make
positive and consumer-oriented market. In the diverse world, the marketers need to be
innovative and understand the consumer buying behavior (Kumar 2019). In this research,
we found that there are 7 factors that affect online consumer buying behavior. These fac-
tors are Social Factor, Economic Factor, Customer Satisfaction, Availability of Products,
Perceived Risk, Perceived Usefulness and Website Quality. The research also concludes
that online digital marketing essentially impacts on consumer buying behavior. This was
due that consumer usually give positive feedback and refer the product or service to oth-
ers. Digital marketing appealed more consumers and consumer perceived is easy and fast
way of purchasing. Consumer are cheerful with online purchasing because of the factors,
and also its convenient consumer can access quickly on product and service and have an
idea by comparing features, price and quality before purchasing process (Durmaz and
Efendioglu 2016). These factors are the most important for consumer buying behavior
while purchasing online. Still, if the price on the internet and traditional store is almost
identical, the consumer will give more consideration and interest on choice of product
and services instead of the price. Also, if there is a decent consumer past experience,
and that consumer is fulfilled with the product and service he/she will purchase more
often and be loyal. This research will offer assistance for many consumers to recognize
the advantages that online network is offering, and to realize there are other choices for
purchasing rather than aiming to traditional stores, and may become an initiator for using
digital marketing (Uzan and Poturak 2014). The crises have dramatically impacted our
daily life, economy and consumer buying behavior around the world. The organization
and marketers have to adapt to this lifestyle. The digital marketing has come to huge
opportunity for marketers to respond and manage consumer buying behavior during the
crises (Patel and Malpani 2020). Recently consumer is more persevering to purchase
online because of the lockdowns, quarantine’s and safety option. Thus, the consumer
preference for digital gadgets, and platforms of gathering information easily purchasing
and payment option proves that changes in consumer buying behavior during the crisis.
Finally, this research will help the understanding of factors that affect the consumer buy-
ing behavior online for decision toward the product or service. The upcoming work of
the thesis, will continue more on the factors affecting consumer buying behavior online
in crises in the Kingdom of Bahrain in methodology section. The segment will focus on
data collecting techniques and interpretation which will cover a part about online appli-
cation in the region with a rapid investigation model that utilized to accomplish the aim
and consideration on how digital marketing and online buying behavior of consumers
in the current crisis in the Kingdom of Bahrain. The data will be collected by preparing
organized questionnaire that will target consumers usage of the online application in a
daily basis and to examine the independent and dependent variable. The next process
will be discussion, data analysis and testing of hypotheses which will be divided into
three section which will be descriptive analysis, validity of data and testing of hypothesis
184 M. Shaaban et al.

which will be illustrated by using SPSS program in order to examine and identify the
factors affecting the consumers buying behavior online during crises.

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 The Impact of Customer Experience Strategy
on the Buying Behavior on the Beauty Sector
in Bahrain

Atiqa Aqeel Radhi1 , Allam Hamdan1(B) , Amani Al Abbas1 , and Doha Abualsaud2
1 Ahlia University, Manama, Bahrain
[email protected]
2 College of Business Administration, University of Business and Technology, Jeddah 21448,

Kingdom of Saudi Arabia

Abstract. The purpose of this study is to investigate the impact of customer

experience strategy on the buying behaviour of Bahrain women customers towards
beauty products. The quantitative method and descriptive research design is used
for primary data collection consisting of consumer buying behaviour through the
online structured questionnaire and data will be analyzed using Microsoft Excel
and SPSS software. The respondents will be selected based on the sample size of
n = 385. The findings of the study will be based on the outcomes via responded
questionnaires. The current study will be subjected to sample size limitations, as
the study will only be focused on women with specific age group and also the
study is restricted to Bahrain. Besides, the survey method will be only used the
quantitative method for primary data collection.

Keywords: Beauty products · Customer experience · Questionnaire · Buying

behaviour · Bahrain

1 Introduction
In the global competitive environment, companies are trying to attract customers through
offering a variety of products and services under customer experience strategy differen-
tiating themselves from the other competitors triggering the customer experiences and
creating stimuli of buying behavior (Kim and Sullivan 2019). The concept of buying
behaviour were originated in mid-1950’s in the marketing strategies focusing on the
consumer buying behaviors and addressing the motivation of the consumer in the mar-
ket. Under the customer experience and buying behaviours is critical for the companies
for the long-term period as they have interacted with the customer focusing on different
touchpoints using different media channels, and customer experience which is neces-
sary for social experience requiring the firms to integrate their business function through
developing and creating positive customer experiences (Lemon and Verhoef 2016).
Customer experience is based on the subjective response of the customers through
direct and indirect contact of the company focusing on a different aspect of offering com-
prised of the advertising, and the customer cares, features, packaging, reliability, ease of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 186–194, 2023.
https://doi.org/10.1007/978-3-031-26956-1_17
 The Impact of Customer Experience Strategy 187

use which shapes the customer expectation and reflect the experience of the customers
(Meyer 2007). The findings of the Bustamante and Rubio (2017) demonstrated that the
determinant of the customers’ experience is the cognitive, social, affective, and physical
experience attracted by the stimuli for purchase decision-making, which also impacts
the buying behaviour of the consumers. Marketers focus on consumer consumption
and buying behaviors through creating a positive experience which indirectly impacts
their behaviors of purchasing products and services; the findings of Esmaeilpour and
Mohseni (2019) confirmed that the five dimensions of the customer experience including
the cognitive experience, social experience, affective experience, behavioral experience,
sensory experience have a significant positive impact on the consumer buying behavior
(Esmaeilpour and Mohseni 2019). Bahrain’s cosmetic and beauty sectors are estimated
to be BD 70 million at the end of 2019 and have a vital contribution to the country’s
GDP. The country’s beauty and cosmetic sectors are dependent on imports from for-
eign countries and are considered highly competitive because of high-quality cosmetics
products and the tremendous customer experience in the Bahrain beauty sector.

2 Literature Review
2.1 Theoretical Framework

Theory of Reasoned Action

The theory of reasoned action is the consumer behaviour theory focuses on the relation-
ship between marketing and consumer attitudes in bringing purchase intention decisions.
According to this theory, consumers only act on the specific behaviors, in a way that,
they believe will create or receive a particular outcome through rational decision mak-
ing which moves toward final purchase decision of products or services. The theory of
reasoned action is the predictor tools for the examination of the purchase intention of
the consumers focusing of the favorable outcomes and attitudes (Belleau et al. 2007).
The application of this theory in this study is that, consumer always take specific action,
when they are given reason for the belief for the specific outcomes and then customer
take decision in moving forward for the final decision in term of purchasing the items
through completing the action with changing their minds and adopting different course
of action during the buying behavior. This theory is applicable in this study because its
predictor of the consumer buying behaviors.

Social Learning Theory

Social learning theory based on the attitude, behavior and the observation and emotional
reaction of the other persons in the society which influence the behavior and the human
learning and cognitive factors. The theory was developed by Albert Bandura in 1977
through confirmation of the behaviorist learning theories (Seel 2012). The social learning
theory is the basis for the sociological models of the consumer behavior emphasize on
the consumer learning behavior from their experience, observing the response of the
other customers through hearing their views and opinions in the peer groups. The theory
based on the social learning and experience of the consumer which influence their buying
behavior and patterns of learning (McGregor 2009). The application of this theory in
188 A. A. Radhi et al.

this study is that, social learning theory apply on the social experience of consumer in
their buying behavior through actions of the other consumers and observations which
indirectly impact their buying behavior.

2.2 Buying Behaviour

Definition
“Consumer buying behaviour is the study of way buying and disposing of the goods,
services, ideas and experience by the individual, groups and organization to satisfy their
wants and needs” (Kotler and Keller 2011).
The concept of consumer buying behaviour were emerged in 1940s and 1950’s under
the marketing strategies of the companies focuses on the consumer buying and accessing
the valuable information through motivating the consumer and addressing the consumer
behaviour in the market. Al-Khalif et al. (2021) studied the purchase behaviour during the
covid-19 pandemic in Bahrain, focusing on consumer habits and buying and shopping
habits. The findings demonstrated that product availability, pricing, easiness towards
purchasing, product details, and social media significantly impacts buying behaviour in
Bahrain (Al-Khalifa et al. 2021).
Ramya and Ali (2016) studied the factors impacting consumer buying behaviors,
focusing on selecting, consuming, and purchasing goods and services. The study’s
findings demonstrated that shopping habits, purchasing behaviors, and consumer brand
awareness impact their decision-making process (Ramya and Ali 2016). Hayat and Vic-
tor (2020) studied the buying behavior of consumers in the electronic industry of Bahrain
while assessing the consumer buying behaviors, where the findings demonstrated that
learning, motivation, perception, behavior, attitude, and economic values significantly
impact the consumer buying behavior in the electronic industry in Bahrain (Hayat and
Victor 2020).
Anjana (2018) studied factors impacting the buying behaviour of consumer in cos-
metic industry. The study was conducted through encompassing the factors impacting
the buying behaviour of consumer for the beauty care products. The findings of the
study demonstrated that, advertisement, pricing, quality of products and the packaging
have major influence on the consumer purchasing behavior in the cosmetics and beauty
industry (Anjana 2018).
The above literature related to the customers’ buying behaviour towards beauty prod-
ucts revealed that brand awareness and shopping habits greatly impacts the customers’
decision-making related to buying behaviour and purchase intensions. The reasoned
action theory (RAT) mainly focuses on the relationship among the consumer attitude and
marketing in making the decisions of purchase intensions. Therefore, the reasoned action
theory is supportive for the buying behaviour of customers towards beauty products.
 The Impact of Customer Experience Strategy 189

2.3 Customer Experience

Definition
“Customer experience is a multi-dimensional construct linked with the consumer cogni-
tive, behavioral, emotional and the sensory and social responses the firms offer during
the purchase journey”.
Customer experience is one of the highly involved traditional concepts in the purchas-
ing process since 1965, focuses on the interaction and steps between the company and
the individual before making purchases which delivers experience and reaction (Laming
and Mason 2014). According to Bustamante and Rubio (2017), customers’ responses are
evoked by the store stimuli during the customer visit to the physical stores, which expect
to create cognitive, physical, social, and affective experiences, reflecting psychometric
properties of the customers (Bustamante and Rubio 2017). All of the factors united to
create the customer experience, these customers responses to the suppliers. The customer
experiences extents the entire phases of the consumer journey due to the supplier envi-
ronment, whether produced in various marketing touchpoints or in the stores of beauty
products, impacts the consumer perceptions of the suppliers and choices (Roggeveen
et al. 2020).
Ameen et al. (2021), claimed that the customer experience’ cognitive factors refer to
speed, functionality and avail availability of the services. Moreover, previous findings
demonstrated that the emotional features of the customer services might be complex in
nature. Such type of feelings might be either negative or positive such as regret, delight,
outrage, surprise, anger or joy (Barari et al. 2020).
Koetz (2020) studied customer experience management, focusing on beauty retailer
shops. The study was conducted using case studies analysis based on the press release,
the beauty products blog content, social media, companies’ website, and mobile appli-
cations. The study’s findings demonstrated that the consumer’s shopping experiences is
because of the bonding, and reward loyalty and through promoting the social shopping
experience where the customer experience a high correlation with the buying behaviours
and the customer loyalty.
The above literature from previous studies found that the customer experience greatly
impacts the customers’ buying behaviour towards the beauty products. Moreover, the
theory of reasoned action greatly supports the customer experience towards the buying
behaviour of beauty products. The findings of the study revealed that the customer
experiences are due to their bonding and customer loyalty.

2.4 Factor Impacting Buying Behavior

Social Experience

Definition
“Social experience demonstrates the social interaction and the individual process aspect
being part of the customer experience, which seeks social benefits by achieving a deep
sense of their social involvement in the sale process and buying behaviour” (Pawar and
Naranje 2016, page 8).
190 A. A. Radhi et al.

Social experience of consumers is attracted with the social influence which relate
to the consumer behaviors in terms of product consumption. The social networking of
consumers strongly impacts their purchasing opinion and behaviours. Barber et al. (2012)
investigated the psychographic assessment of the consumer’s purchase behaviour while
collecting data through an online survey questionnaire. The study’s findings concluded
that consumers having high social interaction with the other consumers have higher
purchase intention and motivation than the customer having lack of social interaction
in their communication and purchase intentions. The findings further concluded that
consumers have higher purchase intention or behaviour for the friendly environment
impacting their attitude and behaviors towards the shopping environment (Barber et al.
2012).
Clarke et al. (2012) investigated the store environment of the fashion stores in North
West England, focusing on the sensory environment of the small boutique’s stores
through using sensory in-store experiences while taking photography with follow-up
interviews. The findings revealed that not the tangible thing impacts the consumer’s
shopping experience. Still, the store’s traits, including lighting, smell, and the presence
of the managers or owners, influence the social experience of consumers and buying
behavior. The sales environment is important for providing space for social experience,
communication, and interaction (Clarke et al. 2012).
Handarkho (2020) studied impact of the social experience on the customer pur-
chasing decision in the social commerce environment. The sample of the study were
comprised of 288 responses from Indonesia focusing on the perceived behavior of con-
sumers. The findings of the study concluded that, parasocial interaction is the strong
determinant in the purchase intention and buying behavior of consumers followed by
the peer communication and the herd behavior (Handarkho 2020).
Nasermoadeli et al. (2013) examined the impact of the customer experience on the
purchase intention of consumer. The study used 330 respondents focusing on the social
and emotional experience of the consumers. The findings of the study demonstrated that,
social experience and the emotional experience have significant positive impact on the
purchase intention of consumer. The findings further revealed that, social experience
mediate the relationship between the purchase intention and emotional experience as
well (Nasermoadeli et al. 2013).
The above literature studies found that social experience greatly impacts the buying
behaviour and purchase intensions of the customers. The findings based on empirical
evidences related to social experiences demonstrated that the customers’ social network
greatly effects the purchasing behaviours ad opinions of the consumers. While, the
previous studies also found that the social experience factor is greatly linked with the
social learning theory.
Cognitive Experience

Definition
“Cognitive experience is the psychological basis of intellectual giftedness and represen-
tation where, how the individual sees, understand, interprets the surrounding reality”
(Shavinina and Kholodnaja 1996).
 The Impact of Customer Experience Strategy 191

Customer cognitive experience is generally linked with the cognition which are
formed through direct interaction with the companies offering in the form of products
and services and the retail environment and process that information collected through
online or word of mouths, comparing them with their memories impacting their buying
behavior (An Hai Ta and Litovuo 2022). Cognitive experience is the innovative way of
targeting consumer intelligence and creating awareness to create a different experience.
Under the psychometric properties of the buying behavior, cognitive and the affective
and the physical experience of the consumers are the significant factors that impact the
buying behavior of consumers (Bustamante and Rubio 2017).
Liang and Lin (2018) investigated the influence of the product patterns on con-
sumers’ purchase intention while using the likelihood model. The sample of the study
was comprised of 205 respondents. The study’s outcome revealed athlete endorsement
of products enhanced consumer purchasing intention. The findings concluded that con-
sumers interpreted the product features and information, which increased their cognitive
experience, which have an important role in the determination and increasing the buying
behavior of the consumer (Liang and Li 2018).
Alnawas and Hemsley-Brown (2018) studied the cognitive and emotional elements
of customer experience on the customer buying behavior. The study collected data from
843 respondent through online panel in the UK while using the structural equation model,
the findings of the study concluded that, cognitive experience have significant impact
on the consumer cognitive outcomes which leads to purchase intentions as compared to
the emotional outcomes (Alnawas and Hemsley-Brown 2018).
The above literature based on empirical evidences found that cognitive experience
significantly impacts the customers’ buying behaviour. The previous studies found that
the customers perceived the information and features related to product, which enhanced
the cognitive experience as significant role in determining and developing the customers’
buying behaviour.

Affective Experience
Affective experience reflects the emotions and feelings obtained from the interactions
with stimuli and external settings. These two aspects have been intellectualized in dif-
ferent ways such as hedonic and utilitarian addition to intrinsic and extrinsic dimensions
(Akram and Kortam 2020). In other words, an affective experience refers to feelings and
emotions of the customer which impacted by different parts of the brand, product and
services while interacting with them.
Shahpasandi et al. (2020) studied impulse buying behaviour while addressing the
flow of information and hedonic browsing. The study was conducted on 635 respon-
dents using consumers’ cognitive and affective experiences. The study’s findings showed
that cognitive experience and affective experience positively impact consumer buying
behaviour and online impulse buying (Shahpasandi et al. 2020). Affective experience is
considered as one of the important elements in the consumer decision-making process
in terms of products and services.
According to Emaeilpour and Mohseni (2019) studied effect of the customer expe-
rience on the consumer buying behavior. The study employed survey questionnaire and
data were collected from 385 consumer of fast stores and restaurants through conve-
nient sampling method in Iran. The findings of the study demonstrated that, affective
192 A. A. Radhi et al.

experience of the consumer has positive significant impact on the purchase intention.
The outcomes of the study further elaborated that, affective experience of consumer is
the felling and affection of consumer in receiving with the products and services and
dependent upon the environmental signs (Esmaeilpour and Mohseni 2019).
All of the above previous literature were based on empirical evidences which revealed
that an affective experience positively impacts the customers’ buying behaviour. While,
there are limited studies on the effective experience factor in relation to the cutomers’
buying behaviour. Therefore, the findings of the study revealed that there is a literature
gap among the customers’ affective experience and buying behaviour of the beauty
products.
Hedonic Aspect

Definition
“Hedonic aspect is the consumer experience based on the psychological needs including
the prestige, satisfaction, emotion and subjective feeling and sensory pleasure” (Roz
2021).
The hedonism aspect of the consumer and its impact on buying behavior were origi-
nated 50 years ago in the marketing studies focusing on the different consumer theories
which demonstrated that, hedonism is the value of the expression. Haq and Abbasi
(2016) studied the hedonic consumption experience and consumer buying behaviour in
the fashion industry. The study was conducted on 231 consumers having fashion shop-
ping product experience through survey method. The outcomes of the study demonstrated
that the hedonic experience of the consumer in terms of fashion orientation have a sig-
nificant positive impact on the purchasing behaviour of the consumers because of the
emotional attachment and hedonic consumption (Haq and Abbasi 2016).
Tarka et al. (2022) studied the role of the hedonistic shopping experience and the
buying behavior, and consumer personality. The sample of the study was comprised of
363 adults where the findings concluded that agreeableness and conscientiousness under
the hedonistic shopping experience have a significant positive impact on the buying
behavior of consumers (Tarka et al. 2022).
Kang and Park-Poaps (2010) studied the hedonic aspects of consumer and its impact
on the buying process through focusing the product or services and different motives for
seeking the pleasures of shopping. The findings of the study demonstrated that, hedonic
shopping aspects of the consumers have significant impact on in the buying behavior of
consumers (Kang and Park-Poaps 2010).
Kazakeviciute and Jurate (2012) examined the relationship between the perceived
hedonic values and the consumer behaviors focusing on the hedonic aspects. The findings
of the study concluded that, social, emotional and the epistemic factors are majorly
involving in the hedonic aspect which impact the consumer behavior and the intentions
(Kazakeviciute and Banyte 2012).

3 Conclusion
The findings of the literature found that there was significant impact of hedonic aspects
on the buying behaviour of customers. While, emotional, social and epistemic factors
 The Impact of Customer Experience Strategy 193

were also involved in the hedonic aspect that greatly effects the buying behaviour of the
customers. Additionally, conscientiousness and agreeableness under the hedonic aspects
were also found positively significant impact on the customers’ buying behaviour.
All the above discussed studies of previous literature were based on empirical evi-
dences and consisted of various results due to customer perceptions and cultural dif-
ferences. Moreover, because of the range of sample selection methods, the findings of
the studies were subjected to the sampling bias and were not generalized. The findings
of the literature also demonstrated the literature gap between the buying behaviour and
customers’ attitude and their experiences which denotes the demand for further study in
the beauty sectors.

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 The Impact of Online Banking Services
on Customer Spending Behavior

Khaled Altamimi1 , Sayed Mohammed Fadhel1 , Allam Hamdan1(B) ,

and Louai Maghrabi2
1 Ahlia University, Manama, Bahrain
[email protected]
2 College of Engineering, University of Business and Technology, Jeddah, Saudi Arabia

Abstract. This paper is aimed on examining and testing the effect of mobile
banking services on customer spending behavior and the changes caused by this
influence of the COVID-19 pandemic in The Kingdom of Bahrain. In this study,
the online banking services is the independent variable, where customer spending
behavior is the dependent variable, COVID-19 pandemic is the moderator vari-
able of the study. The study is focused on examining and testing the impact of
the online banking services toward the consumer spending and saving behavior on
making decision either to buy or save. The data will be collected in a primary form
where the questionnaire survey method will be adopted to gather responses from
bank consumers in the Kingdom of Bahrain and will be analyzed through the Sta-
tistical Package for the Social Sciences software (SPSS) tool by using the built-in
functions such as regression, mediation, scale, correlation, coefficient, significant,
and moderation analysis. The results of the study will show the acceptance and
rejection of the hypotheses of the study.

Keywords: Online banking · Consumer spending behavior · COVID-19

pandemic · PEST · BENEFIT · F.A.W.R.I.+ · F.A.W.R.I. · Kingdom of Bahrain

1 Introduction

As the technological growth is moving fast in innovating, the banking sector in many
develop countries are using the electronic banking as a distribution channel (Farida 2019).
The banks provide the freedom to the customers to integrate in the self-services for doing
a certain types of transactions (Farida 2019). Online banking service is a method the bank
use to communicate with the customers to provide information and services through
the internet such as preparing, managing, and controlling the financial transactions.
The Mobile banking allows the customers to view their bank accounts to do financial
transactions like transfer the money from the account and purchasing financial goods or
services by using the online channels (Karjaluoto 2002).
The online banking services require internet services and infrastructure which was
established in 1995 in Bahrain. In 2010, around 55% of the population had access to
the internet. In 2014, over 90% of the Bahraini citizens are connected to the internet as

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 195–202, 2023.
https://doi.org/10.1007/978-3-031-26956-1_18
196 K. Altamimi et al.

stated in the World Bank website. Later in 2015, this percentage rose to 96.4%, and as
a result, the Kingdom of Bahrain now has the highest internet penetration rate in the
Middle East (Internet in Bahrain – BIS).
Bahrain’s banking sector was given the leading role regionally and globally, it was
expected that the banks in Bahrain will move rapidly to be in the front lines of the
new era of banking services. Emerging technologies could be used to enhance financial
performance and offer customers a whole new service experience (Bahrain Rises to The
Challenge 2018 Global Finance p. 73).
The rapid development in digital banking and payment platforms, as well as con-
sumer preferences shifting towards cashless financial services has resulted that the adop-
tion of online banking in Bahrain has been risen with the bank accounts which linked
to the internet by increasing from 286,000 accounts to 534,000 accounts in latest years
(Oxford BusinessGroup).
In the period the spread of COVID-19, consumer spending and saving behaviors
has been changed. The flexibility methods of payments in the lockdown restrictions
increased the spending on non-essential retail and hospitality products. Moreover, con-
sumers start buying the grocery through the online channels during the lockdown restric-
tions as the groceries start providing these services through their own designated mobile
applications. These behaviors had changed the shopping and payment habits during the
COVID-19 away from the cash toward the online payments. Also, the spending has
been declined on the dining-in restaurants, travelling in the holidays and shopping in the
stores which forced the consumers to redistribute their income to save more than before
(Alex Davenport 2020).

2 Literature Review

Many factors must be considered when analyzing the impact on the global banking
markets. Traditional bank branch networks have shrunk due to advances in information
technology. Customers of banks are divided into two groups. The first category includes
older clients who are regarded typical branch customers, while the second category
includes younger consumers with a high level of education and a professional vocation
who are considered typical internet banking users.
Rapid technical advancements in online banking push banks to assess themselves
in the market and compare their performance to that of their competitors. Internal and
external pressures affect this industry. The PEST analyses were utilized to make this
comparison. It’s utilized to normalize the four elements in terms of the bank’s financial
status. The P E S T evaluations assist the bank in determining how these four primary
aspects will affect the bank’s long-term functioning and operations. This model is fre-
quently used in conjunction with other analytical methods such as Porter’s Five Forces
and SWOT analysis to provide a comprehensive picture of the situation and its rele-
vant internal and external elements. The PEST analysis can be defined as a part of an
analysis conducted on external factors that influences the activity of an organization.
This analysis focuses on four principal’s components of strategic significance in the
macro-environment level. These factors are political, economic, social, and technologi-
cal (Bîrsa 2016). Economic and political changes have strengthened the power and rights
 The Impact of Online Banking Services 197

of the customer, whereas legislation has increased competition in the financial services
industry. Social environment changes include the emergence of mature bank customer
segments. The cultural values, beliefs, and attitudes has been changed regarding the
transformation of technology and toward the society. The transformations in technology
involve the quick development of information technology and the effect of this on the
banking sector in total (Karjaluoto 2002).
Michel Porter Five Forces is an internal analysis which consists of supplier and
customers bargaining power, threat of new entrants and substitutes and internal com-
petition (Karjaluoto 2002). The Five Competitive Forces are the rival competition from
the sellers of other organizations within the industry, competition from new potential
entrants which increases the number of rival competitors, competition from producers
of substitute products, supplier bargaining power, and customer bargaining power.
SWOT analysis has an exceptional characteristic nature which allows improvement
of an analysis of previous and future conditions of the organization, its operative areas
and helps shaping the predictions for long-term development of the organization and
respective areas (Raluca 2013).
SWOT is a technical term for examining an undertaking’s internal variables,
strengths, and weaknesses, as well as external aspects, opportunities, and threats
(Pant 2019). Strengths are internal organization skills that give the competitive advan-
tage among the other organizations in the market. Weaknesses are internal weak points
which results competitive disadvantages. Opportunities are external occasions that give
the organization advanced elements to get benefit from a particular course of actions.
Threats are external elements that prevents the organization to keep their course of
actions (Raluca 2013).
A SWOT analysis is a matrix which is commonly used to illustrate and create a
SWOT analysis. It is a crucial tool for understanding and making decisions in a variety
of commercial and organizational scenarios. Aside from that, it’s a common way to
collect, organize, present, and review anticipated data inside a large business or during
the project planning process. Strengths indicate competencies that give an organization
a competitive advantage over similar organizations, whereas weaknesses describe traits
that give a business a competitive disadvantage. Similarly, opportunities represent a
combination of external components that are significantly beneficial to an organization,
whereas threats represent a combination of external elements that cause major damage to
an organization in the context of maintaining its course of action. (Pant 2019). The mobile
banking services strengths are accessible anytime, fast transaction with a low cost, com-
petitive advantage for economies of scale, and provide better convenience and efficiency.
The weaknesses may occur in the security, availability of the internet access, and may
not be used by all customers. The opportunities to be arise like integration of domestic
banks with foreign markets, develop many areas such as risk management, develop a
better system to avoid any failure, and this will raise the awareness of the benefits of
mobile banking services. The threats in the mobile banking services are cybersecurity
related issues, high competition, and lack of customer loyalty (Oleg et al. 2020).
Banks and customer are getting many benefits from the online banking. The main
benefits to banks are cost savings, reaching new segments in the market, efficiency,
enhancement of the bank’s reputation and better customer service and satisfaction.
198 K. Altamimi et al.

Online banking offers new value to customers as it avail a full range of services at
any time upon customer convenience.
The introduction of new banking technologies has resulted in intense market competi-
tion, which has had a significant impact on consumer behavior. Customers’ requirements
and views about technology in general must be better understood by online banking
providers. If they succeed, banks will be able to influence and even control customer
behavior, which will become a huge concern in the future when it comes to gaining a
competitive advantage. (Karjaluoto 2002).
Mobile banking is defined as the use of mobile devices, such as smartphones or
tablets, to conduct banking transactions. Furthermore, mobile banking, which integrates
the bank with telecommunications services, is now the most modern technique to pro-
viding financial services. Mobile Banking Services are critical in almost every economic
sector, including personal life, particularly as a way of delivering financial services. The
services are convenient, comfortable, and rapid. Furthermore, the user can do any form
of online transaction at any time and from any location. Many variables contributed to
the adoption of mobile banking applications, including utilitarian expectation, hedonic
incentive, status gain, habit and privacy concerns, usability, and social impact. (Sunday
Adewale Olaleye 2022).
The mobile banking services provided by banks are many such as fund transfer, bill
payments and online shopping. EFTS, the Electronic, Fund, Transfer, System, is a sys-
tem that links all commercial banks electronically to increase the effectiveness of fund
transfers and payments (Ciolacu Beatrice 2008). (Sardana 2018) The Electronic Fund
Transfer System are devoted towards transfer of funds within a financial institution or
among many institutions, without the involvement of bank employees. This type of trans-
action take place over an automated network. EFTS include fast wholesale payments via
a variety of methods, depending on the country where the bank is located. International
banks are conducted automated transmission of payments messages by the Society for
Worldwide Interbank Financial Telecommunication (SWIFT) (Barbara Casu 2006).
Local banks in Bahrain are using BENEFIT. BENEFIT is an electronic payment sys-
tem provide services such F.A.W.R.I., F.A.W.R.I. + and F.A.W.A.T.E.E.R.. F.A.W.R.I.
+ is a near-real time electronic fund transfer service. F.A.W.R.I. is a postponed pay-
ment electronic fund transfer service. F.A.W.A.T.E.E.R. is an Electronic Bill Payment
and Presentment (EBPP) and it provides a single gateway and hub connecting all banks
and billers together in one centralized platform. In 2021, the number of transactions
in F.A.W.R.I. reached 9.6 million transactions, 140 million transactions in F.A.W.R.I.
+ and 9.1 million transactions in F.A.W.A.T.E.E.R. (https://benefit.bh/ 2022). Bill pay-
ment is a service that allows the customer to pay a different type of bills through the
bank. It allows the customer to manage a various payment for a various merchant in one
payment. In Bahrain, this service is available in the mobile banking by using a direct
payment or direct debit service. Direct bill payment combines bills from different billers
into a single interface for the customer. F.A.W.A.T.E.E.R. provides real-time bill pay-
ments and enquires which lets the customer to pay the bills within 30 s. Moreover, it
also offers a deferred payment to billers without the need for integration. Direct debit
service provides real time bill payments and allows the customer to pay the bills within
 The Impact of Online Banking Services 199

30 s. Moreover, it also provides a deferred payment to billers without the need for inte-
gration (https://benefit.bh/ 2022). The online shopping is a form of e-commerce where
consumers buy product or service through the internet directly. The growth on electronic
service and the improvement of digital technology had affected the consumer behavior.
Consumer started using online shopping instead of visiting the stores because it is more
convenient and faster (Fedork 2021). The online shopping in Bahrain takes place among
the majority of population. Regardless of the age and interest, people start to use online
shopping regularly, through both the website and social media (Ali Hussein Zolai 2018).
The online shopping products and services had grew rapidly during the COVID-19 in
Bahrain. Many of the retailers took advantages by establishing a new application to serve
the customers. These retailers including the food, grocery, clothes, electronic equipment
and so on (Alex Davenport 2020) (Ali Hussein Zolai 2018). In Bahrain, majority of
banks integrated the BENEFIT mobile application to ease the payment methods for
online shopping. The application provides the need for safe and seamless transactions
without the use of cash and cards. The transaction is safe, secure and very convenient
(https://benefit.bh/ 2022).
The mobile banking services has impacted the consumer spending behavior. The
consumer behavior definition is “the mental, emotional, and physical activities that peo-
ple engage in when selecting, purchasing, using, and disposing of products and services
so as to satisfy needs and desires”. The communicating actions among the seller and the
buyer is consider as a consumer behavior. The key factor of this communication is the
alternative implemented by the buyer (Karjaluoto 2002). It is important for the banks
to understand the variables which influence customer’s decision to use mobile banking
services and become more loyal toward these services (Kwee Kim Peon 2021). The
consumer behavior toward mobile banking services has been increased significantly in
the last decade. In the financial service business, there is a need to test and examine the
consumer behavior in the economy toward the psychology research. To apply the test, a
matrix has been developed to link the consumer behavior with the psychology literature.
This matrix will improve the process of detecting consumer behavior towards saving or
spending within a general framework. The matrix shows the relationship between the
customer confidence level and the participation of the customer in the financial products.
The consumer spending and saving characterized by four standard categories of con-
sumer behavior, passively repeated, actively rational, no decision taken and dependently
rational (Karjaluoto 2002).
The Repeat-Passive indicate that a small sample of involvement in monetary goods
or services, but large consumer involvement of buyer assurance. This type could be
described as passive in the replicated involvements as buyers are not searching for
substitute monetary goods or services. This type of consumers choose their banks based
on the geographic physical place of the institution either it is near their house or theirs
offices. Also, the impact of community groupings, like friends or the members of their
family, seemed particularly hugely impact their decisions (Karjaluoto 2002).
The Rational-Active indicate that a large involvement of participation in monetary
goods or services and a large sample of buyer’s assurance. This kind of buyers seemed
to consider price as a vital element to choose a financial product provider, the bank. The
delivery channel to be used by the consumers in this type play an important role. On
200 K. Altamimi et al.

average, this kind of buyers used mobile online banking services or telebanking. This
kind seems to be at a low level of being faithful to monetary institution than repeat-
passive types. Moreover, this type of consumers has a less communication with their
bank (Karjaluoto 2002).

The No-Purchase represent the buyers who do not buy and they don’t involve in
any monetary transaction such as buying a monetary goods or services through the
online platforms. This type is not involving with the monetary product and don’t have
the capability or the trust to make a choice by using the mobile banking channels.
Nevertheless, a quantum amount of promotions activity and campaigns are focused on
this segment, as an effort to expand their knowledge of monetary services and products
and influence them to use the mobile banking services (Karjaluoto 2002).
The Relational-Dependent, displays high participation of the customer in the finan-
cial products but low consumer assurance because they find it very difficult to make use
of the product and have concerns about the eventual results. This type of consumers will
need guidance and assistance from financial institutions such banks or third parties to
decrease the difficulties and build their pattern of buying. This kind of buyers shows that
they had an issue of trust and awareness with regards to the choosing among alternatives
for monetary goods and services. The bankers who deal with this kind of buyers should
take in consideration the foundation of relationships and make conversations and consult
their consumers, where consumers can ask for an advice (Karjaluoto 2002).
To conclude, the banks need to use the consumer behavior matrix in-order to help
them to know their customers. The type of the financial product has an impact on the
consumer purchasing behavior. In addition, the providers of financial services need to
emphasis the trust level for their customers to gain their trust to participate in the financial
products services through the mobile banking channels. Also, banks most implement
strategies to retain and maintain their customers and increase their profitability. The main
reason for this is that many competitors in the financial services market are developing
new technologies through their delivery channels which might lead the customers to
switch their financial services provider (Karjaluoto 2002).
Spending and saving are the two key components of customer behavior when it comes
to using mobile banking services. A consumer is a person who purchases products and
services from businesses to consume them (Michael Baye 2018). Individual customers
have legal, time, physical, and financial constraints while making decisions. Budget
 The Impact of Online Banking Services 201

constraints limit customer behavior by forcing them to choose an affordable package of

products and services. The amount of money a consumer spends and saves is determined
by his budget. Many things influence a customer’s budget, including income and the cost
of goods and services. To clarify, a budget set is a collection of products and services
that a consumer may buy. The budget set refers to the mix of products and services that
a customer may purchase. The consumer’s spending on products and services must not
exceed his or her income. If a customer does not spend his entire salary, he has a savings
account for the amount remained (Michael Bay 2018). The consumer spending categories
are groceries, clothing, transport, holiday, restaurants, entrainment, bills, taxes, school
fees, financial services, and cash withdrawals (Alex Davenport 2020). During COVID-19
pandemic, the value of payments through the electronic financial transactions reaches 20
billion Bahraini Dinars. The payments made through EFTS has increased by 164% with a
total of 159 million transactions with a value of 20 billion Bahraini Dinars. The increase
in transactions was 26%. F.A.W.R.I. + transactions reached 140 million transaction
which represent an increase of 196% with a value of 4.4 billion Bahraini Dinars which
represent a 97%. F.A.W.R.I. transactions reached 9.7 million transactions that shows an
increase of 11% with a value of 15.2 billion Bahraini Dinars which represent an increase
of 14%. F.A.W.A.T.E.E.R. transactions reached 9.1 million transactions which shows an
increase of 117% with a value of 640 million Bahraini Dinars which represent an increase
of 38%. The BENEFIT PAY application users has increased by more than 200,000 users.
Moreover, the fuel payment transactions have increased by 134% (BENEFIT 2022). This
numbers clearly shows the impact of the COVID-19 towards the consumer spending by
using the mobile banking channels. There are many factors that influence the Bahrain
citizen purchasing behavior such as the ease of use the online shopping applications and
the convenience payment methods. Also, the satisfactions from the perceived product or
services have significantly increase this behavior. Moreover, the low-risk and the high
confidence of the consumers has increased the online shopping and payment during the
COVID-19 pandemic (Ali Hussein Zolai 2018).
The consumers have been forced toward saving during the COVID-19 pandemic due
to many reasons such as economy lockdown, consumer spend toward substitute products
or services that provided with a lower price, and the reduce usage of transportation (Alex
Davenport 2020). The spending groups could be categorized to four groups; unaffected
group which remained open even through the lockdown such as groceries. Affected
groups which have different methods to serve their customers such as clothes shops
which close the physical stores but still offering online shopping. Fully shutdown that
were entirely shutdown with no substitute such as childcare. Cash withdrawals, many
businesses stopped accepting cash payments because of the limitations of depositing the
cash in the bank accounts. The decline in spending and the increase in the income has
increased the number of savings (Alex Davenport 2020).

3 Conclusion
As the previous study results reveal that the online banking services in the Kingdom of
Bahrain is a sufficiently role player in impacting the consumer’s spending and saving
behavior where they are provided with a strong technological infrastructure, an excel-
lent bank services, and an awareness and knowledge of how to spend and save money
202 K. Altamimi et al.

eventually resulting to an increase in the involvement of the online banking services

and have a stable financial situation. The study found that the bank consumer in The
Kingdom of Bahrain is using the online banking services more than before since they
have the required resources and capabilities and this impact their spending behaviors
towards buying goods and services. Likewise, the role of the COVID-19 pandemic has
been considered as a role player in impacting the overall spending and saving behavior
of the bank consumers in The Kingdom of Bahrain by using the online banking services.
This suggests that when there is a problematic situation, the consumers behavior towards
spending or saving their money are more involved in the online banking services due
to the increasing of the impressive role of the availability of resources and capabilities
provides by the financial institutions.

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 The Professional Competencies and Its
Relationship to Emotional Intelligence
of the Faculty Members at Al-Quds Open
University

Hesham O. Jalambo1 and Mahmoud O. Jalamo2(B)

1 Al-Quds Open University, Gaza, Palestine
2 The University College of Applied Sciences, Gaza, Palestine

[email protected]

Abstract. The current study aims at identifying the level of emotional intelli-
gence among the faculty members at Al-Quds Open University in Palestine, and
to reveal whether there is a correlation between the level of professional compe-
tencies among the faculty members at Al-Quds Open University and the level of
their emotional intelligence. The descriptive analytical approach was adopted by
the researchers. For the data collection, the researchers designed a questionnaire
on a sample of (84) faculty members who were chosen randomly from Al-Quds
Open University in the Gaza Strip branches. The results showed that the level of
professional competencies of the faculty members as well as their emotional intel-
ligence is very high. Also, there is a positive statistically significant relationship
between the level of teaching competencies, technological competencies, human
competencies, evaluation competencies, professional competencies and the level
of emotional intelligence. In light of those results, some recommendations were
produced.

Keywords: Professional competencies · Emotional intelligence · Faculty

members · Al-Quds Open University of Palestine

1 Introduction
Nations and societies always strive for advancement and progress by paying attention
to their educational system, developing and improving it in all its stages, the teacher
is the cornerstone of the educational system, and attention to him is a top priority,
accordingly, universities began to focus on the quality of teaching performance of faculty
members, so they established training centers that offer a variety of courses, providing
teachers with some of the skills that help them in university teaching, including courses
related to teaching methods and evaluation, others about the use of modern technology
in university teaching, and others concerned with communication skills and social and
personal relations, to develop the capabilities of university teachers in various aspects.
In this regard, Al-Shammari (2019) and Al-Jabr (2014) confirm that university teach-
ing is more complex and comprehensive than teaching in general education schools, and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 203–213, 2023.
https://doi.org/10.1007/978-3-031-26956-1_19
204 H. O. Jalambo and M. O. Jalamo

this is due to the multiplicity of tasks and responsibilities of a university professor on

the one hand, and the high levels of skill and knowledge required to be achieved by
students on the other hand. The matter also increased the importance of entering quality
and international standards as a tool for the level of education and the high levels of
performance that this requires to achieve distinct outputs.
The current study finds that the faculty member’s possession of the skills of com-
munication, and social and personal relations at the university may be one of the most
important skills that a university professor must possess because it is an essential and
authentic pillar of professional competencies and emotional intelligence that a university
faculty member must possess on the one hand, and students on the other, and because
it may have a significant impact on promoting and reaching the anticipated objectives
from the university education. Accordingly, the gap to be narrowed down in this inves-
tigation was determined by identifying the level of professional competencies as well
as the level of emotional intelligence of the faculty members besides revealing the level
of professional competencies and its relationship to the level of emotional intelligence
among faculty members at Al-Quds Open University.

1.1 Objectives of the Study

The objectives of the study are presented in the following:

1. Identifying the level of professional competencies of the instructors at Al-Quds Open

University in Gaza.
2. Identifying the level of emotional intelligence of the instructors at Al-Quds Open
University in Gaza.
3. Determining the relationship between professional competencies and emotional
intelligence among the instructors at Al-Quds Open University in Gaza.

1.2 Significance of the Study

The importance of this study is derived from the lack of similar studies that dealt with
the level of professional competencies and its relationship to the level of emotional intel-
ligence among faculty members in Palestinian universities. This study may help those in
charge of the universities decision makers, especially the university administration, to
develop the emotional intelligence and the various competencies of the faculty members
through holding training courses for them, which contributes to providing them with the
necessary competencies in various disciplines and practicing all the necessary compe-
tencies to achieve the mission of university education and based on the foregoing, the
study problem was identified.

1.3 Terminology of the Study

Professional competencies: is a set of cognitive abilities, teaching skills, technology

assessment and human relations practiced by the instructors at Al-Quds Open University
to achieve the goals of the educational process in all its multiple aspects.
 The Professional Competencies and Its Relationship to Emotional Intelligence 205

Emotional intelligence: It is the degree obtained by the instructors at Al-Quds

Open University on the emotional intelligence scale, which included five areas: man-
aging emotions - empathy - self-motivation - knowledge - emotionality - and social
communication.
Faculty member: refers to the male and female instructors who teach at Al-Quds
Open University (QOU) in Gaza Strip in all faculties and various disciplines and hold
various academic ranks.

2 Theoretical Framework

General intelligence contributes at the highest rate of (20%) only to one’s success in his
personal and work life, though other factors, the most significant of which is emotional
intelligence, contribute by (80%), as mentioned by Abdul Nabi (2001) and this is con-
firmed by the results of studies conducted by (Gardner 1983), Mayer and Salovey (1990),
and Stirringberg (1996), where it became clear that general intelligence contributes to
rates that fluctuate between (4%, 10%, 25%) of the individual’s performance variance,
while the remaining percentages are attributed to emotional factors.
Some studies indicate that general intelligence alone does not guarantee individual
success and superiority. Rather, the individual needs emotional intelligence, which is the
key to success in various fields of which the scientific, practical and educational field is
an integral part. Emotional intelligence also helps to resolve conflicts (Al-Shawa 2015).
Abu Afash (2011) stated that emotional intelligence helps in the process of training
and teaching at its various stages, and in making the right decisions. In this regard,
emotional intelligence is related to the quality of the individual’s social relationships
and is linked to the positive relationships of friends, also individuals who are more
emotionally intelligent are more capable of social adjustment and sociability, and they
are also better in terms of mental and physical health, and are more concerned with their
outward appearance and more academically superior.

2.1 Components of Emotional Intelligence

Luthans (2008) believes that emotional intelligence consists of several components,

including self-awareness and social awareness, managing interactions and emotions,
self-motivation, and social skills. In this regard, Abu Amsha (2013) believes that emo-
tional intelligence skills make the individual more effective, so he must possess five
skills:

1 The ability to take responsibility.

2 Finding a variety of flexible options to face different situations.
3 Accept the views of others and the formation of social relations.
4 Work effectively to find the best possible options for each case, especially effective
decisions.
5 The insistence on creating self-determination, self-respect, and a sense of personal
effectiveness.
206 H. O. Jalambo and M. O. Jalamo

2.2 Previous Studies

Based on reviewing the related literature, the current study found that there is a diversity
in previous studies in terms of purpose, most of which referred to the identification
of emotional intelligence and its relationship to professional competence, such as the
Owaisi study, Abu Aqil study (2019), Wahyuddin study, Abu Al-Khair and Abu Shaira
study, the study of Muhammad and Geneva (2016), the study of Shahid et al., the study
of Shallah (2015), and the study of Josheth (2012). While other studies indicated the
degree of availability of teaching competencies such as the study of Al-Shammari and the
study of Al-Thaqafi (2019), which aimed to identify professional competencies required
for university faculty, the current study, intended to determine the level of professional
competencies and their connection to emotional intelligence. Also, most of them were
not applied to faculty members, except for the study of Shahid et al. (2015). Also, no
study addressed the level of professional competencies and its relationship to the level
of emotional intelligence among faculty members in Palestinian universities as well as
Al-Quds Open University, which is a strong motive and justification for conducting such
the study.

3 The Study Methodology

The researchers followed the descriptive-analytical method to a population that consists

of all the faculty members at Al-Quds Open University in Gaza who were 92 university
instructors among them (52) are full-timers and the other (40) are part-timers.

3.1 Sample of the Study

The actual study sample tackled all the faculty members, due to the small size of the
study population. So, the questionnaires were distributed to all members of the study
community i.e. (92). However, only (65) responses were regained, with a percentage of
(70.7%) of the study community. The participants of the study are classified according
to their contract status, gender, branch of the university, and the college they teach in,
and their academic qualification as follows (Tables 1, 2, 3, 4, 5, 6 and 7):

Table 1. Classification of the participants according to status

Status Number Percentage

1 Full-time 38 58.5
2 Part-time 27 41.5
Total 65 100%
 The Professional Competencies and Its Relationship to Emotional Intelligence 207

Table 2. Classification of the participants according to gender

Gender Number Percentage

1 Male 59 90.8
2 Female 6 9.2
Total 65 100%

Table 3. Classification of the participants according to the university branch

Branch Number Percentage

1 North 16 24.6
2 Gaza 20 30.8
3 Central 17 26.2
4 Khan Younes 4 6.2
5 Rafah 8 12.3
Total 65 100%

Table 4. Classification of the participants according to the college

College No Percentage
1 Educational sciences 13 20.0
2 Technology and applied sciences 16 24.6
3 Social and family development 4 6.2
4 Administrative & Economic Sciences 22 33.8
5 Literature 6 9.2
6 Media 4 6.2
Total 65 100%

3.2 Tool of the Study

The researchers, for the data collection, designed a questionnaire aiming at determin-
ing the level of professional competencies and their relationship to emotional intelli-
gence among faculty members at Al-Quds Open University in Gaza. The questionnaire
included 3 sections. The first section is personal data i.e. (status, gender, branch, college,
academic degree, age, years of experience), and the second section is the professional
competencies (48) items, which is made up of teaching competencies (10) items, and
technological competencies (11) items, and the human competencies (14) items, and the
evaluation competencies (8) items. The third section of the questionnaire is the emotional
intelligence domain, which consists of (33) items, which included managing emotions
208 H. O. Jalambo and M. O. Jalamo

Table 5. Classification of the participants according to the academic qualification

Academic degree Number Percentage

1 Lecturer 31 47.7
2 Assistant Professor 12 18.5
3 Co-professor 18 27.7
4 Professor 4 6.2
Total 65 100%

Table 6. Classification of the participants according to age

Age Number Percentage

1 30–40 years old 16 24.6
2 40–50 years old 18 27.7
3 50 years and above 31 47.7
Total 65 100%

Table 7. Classification of the participants according to number of years of experience

Number of years of service Number Percentage

1 1–10 years 19 29.2
2 11–20 years 20 30.8
3 21 years and above 26 40.0
Total 65 100%

(8) items, empathy (4) items, self-motivation (8) items, emotional knowledge (6) items,
and social communication (7) items.
For the scale of grading, the answers of the participants were adopted based on
the scale of (1–5), as (1) indicates the lowest level of approval, and (5) indicates the
highest level of acceptance. The acceptance scores were classified and sorted as follows
(Table 8):

3.3 The Tool Validity and Stability

The content validity means the validity of referees, so the questionnaire was presented to
(10 referees who are experts and specialized in the field. For the Structural validity, it was
found that the significance level values are less than (0.05) which that all domains have
statistically significant validity coefficients, and they meet the purposes of the study.
Using Cronbach’s alpha equation, the stability of the questionnaire was checked
by calculating the correlation coefficients using the Cronbach alpha equation to find
 The Professional Competencies and Its Relationship to Emotional Intelligence 209

Table 8. Approval degree scale

Level of acceptance Digital weight The means Relative weight

From To From To
Very low 1 1.00 Less than 1.80 20.00 Less than 36.00
Low 2 1.80 Less than 2.60 36.00 Less than 52.00
Medium 3 2.60 Less than 3.40 52.00 Less than 68.00
High 4 3.40 Less than 4.20 68.00 Less than 84.00
Very high 5 4.20 5.00 84.00 100.00

that Professional competencies are 0.955 and the Emotional intelligence is 0.940. It is
clear that the correlation coefficients using Cronbach’s alpha equation are close to 1.00,
and they are statistically significant coefficients to meet the purposes of the study. The
stability of the questionnaire was also verified by calculating the correlation coefficients
by the half-split method, as shown in the following Table 9:

Table 9. The half-split correlation coefficients for the questionnaire domains

Domains Correlation coefficient

Before modification After modification
Professional competencies 0.773 0.872
Emotional intelligence 0.806 0.893

Table 9 shows that the correlation coefficients values are close to 1.00, so they are
statistically significant stability coefficients. Accordingly, this questionnaire is valid and
stable to be used for the purposes of the study.

4 The Results
4.1 Answering the First Question
To answer the first question i.e. What is the level of professional competencies for the
university instructor at QOU in Gaza? the means, standard deviation, and relative weight
were calculated to find that the level of professional competencies for the university
instructor at QOU in Gaza reached a relative weight of (90.497), which is very high.
The analysis of the domains of teaching competencies, technological competencies,
human competencies, and evaluation competencies came with relative weight (89.877),
(87.580), (93,736), and (89.615), respectively, which is a very high level of competency.
The researchers attribute this result to the interest of the administration at Al-Quds Open
University in upgrading the skills and competencies of the faculty members through
conducting training courses and workshops for all members of the academic staff, as
210 H. O. Jalambo and M. O. Jalamo

the top management of the university is seeking for refining the technological skills of
faculty members through specialized training courses to keep pace with the requirements
of the modern era, and this may be attributed to the fact that all the staff members are
well-educated and have human nature in dealing with students as their sons or brothers
in most cases since they have a sense of responsibility stemming from their religious
beliefs that distinguish the Palestinian society. Finally, this result could be because of
the administration of Al-Quds Open University’s efforts in unifying the standards of
good evaluation among all the academic staff and urging them to transfer the evaluation
culture among students, leading to self-evaluation.

4.2 Answering the Second Question

This question i.e. What is the level of emotional intelligence of for the university instruc-
tor at QOU in Gaza? was answered using the means, standard deviation, and relative
weight. The analysis of the emotional intelligence domain reveals that the level of emo-
tional intelligence for the university instructor at QOU in Gaza hit a relative weight of
(88.401) that indicates a very high level.
As for the analysis of the items of this domain, the managing emotions, sympathy,
self-motivation, and emotional knowledge, it was found that the level of managing
emotions, and social communication for the university instructor at QOU in Gaza came
with a relative weight of (87.192), (88.385), (89.269), (87.692), and (89.407) respectively
which is very high.
The researchers attribute the high level of emotional intelligence among the faculty
members to their possession of sufficient knowledge and skill in how to humanely
deal with students under their educational and scientific experiences and their mental,
emotional and social maturity.

4.3 Answering the Third Question

To answer this question i.e. Is there a corelation between the level of professional com-
petencies and the level of emotional intelligence for the university instructor at QOU in
Gaza? the following hypothesis was composed:
There is no statistically significant relationship at the level (α ≤ 0.05) between the
level of professional competencies and emotional intelligence among the faculty member
at Al-Quds Open University in Gaza.
This hypothesis was tested by calculating the Pearson correlation coefficients, as
presented below:
 The Professional Competencies and Its Relationship to Emotional Intelligence 211

Table 10. Pearson’s coefficients for professional competencies and emotional intelligence

Domain Managing Sympathy Self-motivation Emotional Social Emotional

emotions knowledge communication intelligence
Teaching coefficient 0.626 0.501 0.642 0.585 0.608 0.674
competencies Sig 0.000 0.000 0.000 0.000 0.000 0.000
Technological coefficient 0.617 0.462 0.665 0.627 0.544 0.668
competencies Sig 0.000 0.000 0.000 0.000 0.000 0.000
Human coefficient 0.472 0.333 0.562 0.453 0.579 0.542
competencies Sig 0.000 0.007 0.000 0.000 0.000 0.000
Evaluation coefficient 0.396 0.477 0.586 0.335 0.498 0.451
competencies Sig 0.001 0.000 0.000 0.006 0.000 0.000
Professional coefficient 0.636 0.448 0.734 0.607 0.668 0.704
competencies Sig 0.000 0.000 0.000 0.000 0.000 0.000

It is shown in the above Table 10 that:

– Pearson’s Correlation Coefficients between teaching competencies and emotional

intelligence are statistically significant, and this indicates the existence of a positive
statistically significant relationship at the level (α ≤ 0.05) between teaching competen-
cies and emotional intelligence among faculty members at Al-Quds Open University
in Gaza.
– Pearson’s Correlation Coefficients between technological competencies and emo-
tional intelligence are statistically significant, and this indicates the existence of a
positive statistically significant relationship at the level (α ≤ 0.05) between techno-
logical competencies and emotional intelligence among faculty members at Al-Quds
Open University in Gaza.
– Pearson’s Correlation Coefficients between human competencies and emotional intel-
ligence are statistically significant, and this indicates the existence of a positive sta-
tistically significant relationship at the level (α ≤ 0.05) between human competencies
and emotional intelligence among faculty members at Al-Quds Open University in
Gaza.
– Pearson’s Correlation Coefficients between evaluation competencies and emotional
intelligence are statistically significant, and this indicates the existence of a posi-
tive statistically significant relationship at the level (α ≤ 0.05) between evaluation
competencies and emotional intelligence among faculty members at Al-Quds Open
University in Gaza.
– Pearson’s Correlation Coefficients between professional competencies and emotional
intelligence are statistically significant, and this indicates the existence of a posi-
tive statistically significant relationship at the level (α ≤ 0.05) between professional
competencies and emotional intelligence among faculty members at Al-Quds Open
University in Gaza.
212 H. O. Jalambo and M. O. Jalamo

The researchers attribute this to the fact that the faculty members possess suffi-
cient knowledge and skill in how to humanely deal with students under their educa-
tional and scientific experiences, as the faculty members’ experience in teaching and
their possession of various professional competencies make the increasing of their emo-
tional intelligence an expected result that has been refined by different situations and
experiences.

5 Conclusion

It is concluded that the level of emotional intelligence of a faculty member at Al-Quds

Open University in Gaza is very high, and there is a positive statistically significant
relationship between the level of teaching competencies and the level of emotional
intelligence of the faculty members. It is also concluded that there is a positive statis-
tically significant relationship between the level of technological competencies and the
level of emotional intelligence of the faculty members. Additionally, there is a positive
statistically significant relationship between the level of human competencies and the
level of emotional intelligence. A positive relationship also was revealed between the
level of evaluation competencies and the level of emotional intelligence as well as the
level of professional competencies and the level of emotional intelligence of the faculty
members.

6 Limitations and Recommendations

The application of the study was limited to the faculty members of Al-Quds Open
University in the Gaza Strip during the second semester of the academic year 2021–2022.
Based on the results and limitations of the study, the researchers recommend main-
taining interest in professional growth by studying needs and keeping pace with global
trends, as well as maintaining the development of the emotional side of university faculty
members, as both affect and are affected by each other and reflect positively on students.

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Governance, Technology, Optimal use
of Resources and Performance
 Tax Culture and Compliance with Tax
Obligations of Peruvian Rural
Microentrepreneurs

Edwin Ramirez-Asis1(B) , María García-Figueroa2 , K. P. Jaheer Mukthar3 ,

Liset Silva-Gonzales1 , José Del-Carpio-García2 ,
and Robert Concepción-Lázaro4
1 Universidad Señor de Sipan, Chiclayo, Peru
{ramirezas,sugey}@crece.uss.edu.pe
2 Universidad Nacional Santiago Antunez de Mayolo, Huaraz, Peru
{mgarciaf,jdelcarpiog}@unasam.edu.pe
3 Kristu Jayanti College Autonomous, Bengaluru, India
[email protected]
4 Universidad San Pedro, Chimbote, Peru

Abstract. Since the most developed countries have a greater tax culture for the
same reason that they are more responsible with respect to compliance, it is essen-
tial to internalize a tax culture that emphasizes the importance of meeting one’s
tax obligations in a conscientious manner and contributing to the growth and
prosperity of our people. The researchers in this study set out to find out if and
how tax culture influences the likelihood that rural Peruvian microentrepreneurs
will file their taxes as required. A sample of 214 rural microentrepreneurs was
selected using statistical methods, including a non-experimental cross-sectional
design and a relational level of analysis. Based on the data, it seems that 37.6% of
rural microentrepreneurs are not tax compliant and have a poor tax culture. Finally,
it is demonstrated that tax culture significantly correlates with the purpose of rural
Peruvian microentrepreneurs to file all necessary tax returns.

Keywords: Tax culture · Intention to pay · Tax obligations · Rural

microentrepreneurs

1 Introduction
There are sectors of the population that do not understand the value of taxes and how they
can improve their quality of life, so it is necessary to educate them about their position as
partners of microentrepreneurs since many of them are not prepared, informed, or perhaps
take the role of ignorance not to comply with their obligations, added the low level of tax
awareness, values, identity and training that can be known to not fall into sanctions and
act in a democratic way [1]. As we well know, taxes are public revenues demanded by a
public administration which will play a very important role in the retribution of the same
in the form of resources that can be beneficial to the population such as the construction

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 217–225, 2023.
https://doi.org/10.1007/978-3-031-26956-1_20
218 E. Ramirez-Asis et al.

of parks, squares, schools, libraries and museums [2, 3]. Tax noncompliance is not only
a local problem if not also at the national level and perhaps at the international level,
being this problem in microentrepreneurs that if they are not under pressure they do not
comply with their obligations, for fear of a sanction or fine by the collecting entity [4].
Such is the case of rural Peruvian microentrepreneurs.
The non-coercive parts of fiscal awareness, such as the attitudes and beliefs of the
agents, are called “fiscal awareness” in the literature [5], generating a negative attitude
towards governments, taking into account that there will always be corruption, although
to a small extent within municipalities and tax collecting entities. Tourism and hospitality,
as well as energy and water generation, are the three sectors that contribute the most to
the economy in the SUNAT study. Mining and hydrocarbons account for 36% of the total,
followed by commerce, construction and agribusiness, which account for 27% of the total
[6], seeing from this side that the commerce sector is the sector that contributes the least,
being participants of the great irresponsibility that affects in the development of their
cities. One of the elements that affect tax compliance is one that we do not understand
because it is the most complicated, diffuse and beyond what tax administrators generally
know; consequently, they do not assume it or supervise it adequately, and this will
continue to grow over the years along with irresponsibility and “liveliness”.
Everything seen above, are subject to reality, although they are not carried properly, it
should be emphasized that it is important to comply with our obligations as entrepreneurs
and generate efficiency in the provision of services by the administering public entities
[7]. Seeing the case of the micro-entrepreneurs of the city as the reality is different, Mrs.
Clementina Araucano, fruit merchant mentioned that sometimes she did not issue her
ballots because the municipalities did not give her an adequate administration of the
collection of taxes and did not provide a better service with what was collected, she
hinted that there were thefts with the said taxes and that it did not benefit them at all,
Mr. Porfirio Mendoza, retributed his non-compliance to that he does not know that by
providing these taxes, the security capacity can be improved, Mrs. Irma del Castillo, a
chicken trader, mentioned that not everyone complies with their obligations and if they
do, it is when there are large sales that it would not be fair that only some pay. On the
other hand, Rotney Vargas, a young man who sells sneakers, mentioned that he did issue
receipts at the time of sale and that at least the basic taxes must be complied with and
that thanks to this, some social aspects in Peru can be improved. Regarding tax values,
it was observed that there is a small absence and that sometimes they may even make
excuses for not admitting their irresponsibility at the time of paying their taxes. The
level of studies is basic, therefore, some of them do not know in depth about the good
use that can be made of taxes, although this is not a factor that can justify their actions,
but they take it as a pretext to continue evading taxes.
According to the above, one of the best ways to improve this problem that exists
would be to strengthen the tax culture by making known the importance of putting into
practice the values, beliefs, attitudes they take in relation to the collection of their taxes
so that they can not fall into certain crimes by failing to comply with tax rules [5], they
should know that this good practice is important so that they can provide public services
(security, lighting, cleaning, etc.) of quality and hence be able to generate full confidence
when collecting. Thus, the purpose of this research is to analyze the relationship.
 Tax Culture and Compliance with Tax Obligations 219

The second Tax Theory of Contribution emphasizes principles such as Tax Justice
which is established according to the proportionality in the distribution of public enter-
prises taking into account the tax law, that is why those who have more pay more, Tax
Legality which is imposed according to the law, generality where the state imposes the
law for the entire population and forces them to contribute to public expenses, legal cer-
tainty which is one of the instruments of legal certainty. Our Peru will be a new country
with numerous possibilities of progress for our children, brothers and grandchildren,
reducing or eliminating tax evasion. The State must be adequately funded as a national
shield to protect public order and supervise the collection of services from various angles
[8]. In the Peruvian case people’s attitudes towards tax collection is tainted by corruption
and mismanagement of taxes, since they have a poor contribution in the development of
our society, so the attitude resistant to a regulation is alive because these are perceived
as inefficient, unfair, and corrupt.
It is coercively enforceable, substantial because it is the duty of the taxpayer to pay
taxes, and formal because it will comply with the mechanisms, means, deadlines, forms
and conditions of control to ensure the substantial obligation [9]. The state acts as an
active subject (collects) and the subject as a passive subject (pay) its tax obligations
while the state will have to ensure compliance. Within them we can see the types of tax
obligations one of them is the formal obligation which are all those that are imposed
on taxpayers [5, 10], and that compliance is basically related is related to the actions,
duties, procedures and responsibilities outlined in the Law or in the Municipal Tax Law.
It should also be emphasized that this duty refers to the method to be followed to satisfy
the considerable obligation to pay taxes. Everyone has the responsibility to contribute to
the State budget, but not everyone fulfills their tax duties (declare, register in the RUC,
grant invoice, comply with all the requirements of the tax administration, register in the
corresponding regime). It should be noted that these legal responsibilities do not imply
the actual payment of taxes, but in certain circumstances both are required: declare and
pay VAT, income tax, excise tax, etc.
Failure to comply with these responsibilities has penalties [11]. The second type is
crucial, as it is a substantial responsibility to pay state taxes, whereby the Constitution
specifies that every citizen must contribute to state finances. For example, in the case
of income tax, the taxpayer fulfills his substantial responsibility by paying the tax.
Consequently, the considerable tax obligation is not fulfilled until the State receives the
payment of the tax [12].
The Active Subject is the one who is empowered by law to manage and collect taxes
at the level, while the Passive Subject is any individual or legal entity obliged to pay
taxes.
The generating facts are sales, consumption, import/export of goods and capital alter-
ations. The taxable event is the State’s guideline for the materialization of the generating
event. The taxable event is the moment in which the obligation arises or is configured for
each of the taxed activities. The taxable base is the factual value or unit of measurement
on which the tax rate is imposed. The rate is the percentage of the tax base that is assigned
to the tax liability. The tax period is the time in which the taxpayer must declare and pay
the tax [6].
220 E. Ramirez-Asis et al.

We can cite the tax compliance theories of [13], this model shows a logical individual
seeking to benefit from income tax evasion risks being audited and sanctioned for the
non-compliance already detected. Consequently, his strategy will be to minimize the
danger of evasion and maximize the impact of fines [14] (Gómez, 2020). This model has
four aspects: demographics, opportunities for noncompliance, attitudes and views, and
the tax system. This model considers that demographic factors, such as gender, age and
education, have an indirect impact on taxpayer compliance. However, the likelihood of
non-compliance is defined by income, source of money, and education, which directly
affects the taxpayer’s attitude [12, 15].
[16] in his thesis points out the objective of this study is to describe the tax culture
and its influence on compliance with the IGV-Renta in food retail micro-entrepreneurs of
the Sullana model market. Approximately 300 retail microentrepreneurs in the Sullana
model market were interviewed, observed and surveyed. This study concluded that the
2022 Sullana model market grocery micro-entrepreneurs of the Sullana model market
are mostly elderly women who only completed basic school, so they do not contribute
to the growth of tax culture.
Based on the above, the general objective is to know the link between tax culture and
compliance of rural Peruvian microentrepreneurs. And the hypothesis is that tax culture
influences the tax compliance of rural Peruvian microentrepreneurs. Like any study,
there are limitations such as the fact that the results can be generalized to the Peruvian
level but not to the Latin American level since the context where the organization is
developed can be very variable at the Latin American level according to the reality that
is lived in each region and the responsibility that each citizen has with his respective
community.

2 Methodology

The present study used a non-experimental cross-sectional design and a relational level
of analysis; each of them was described in detail, establishing the existing relationship;
it dealt with issues of tax culture and how they affect the fulfillment of the obligations of
rural Peruvian microentrepreneurs, which is developed in their commercial activities.
The population consisted of 214 individual microentrepreneurs, but due to the small
size of the population, the same number was considered for the sample. A questionnaire
adapted from [17], was administered with 18 questions, of which 9 correspond to tax
culture, which has a Cronbach’s alpha of 0.742. The other 9 questions correspond to
compliance intention, which has a Cronbach’s alpha of 0.751.
Also add that for the contracting of hypotheses, the Kolmorov-Smirnov normality
test was performed, which yielded a p < 0.05, which shows that our variables in mention
do not have a normal behavior, then for the same reason we will use as a tool to determine
the degree of relationship of our variables, the Spearman’s Rho statistic [18]. Finally,
it is worth mentioning that participation was voluntary while maintaining the biosafety
protocols due to the Covid 19 pandemic and the parameters of professional ethics that
correspond to this type of research.
 Tax Culture and Compliance with Tax Obligations 221

3 Results

It was identified that Peruvian rural microentrepreneurs are on average 38 years old, our
sample comprises 214 microentrepreneurs in total of which 66.9% are men and 33.1%
are women, since the average income of microentrepreneurs is approximately 1537 soles
and a level of technical education in its majority which is made up of 60% and what
is even more important, their level of occupation which is independent represented by
70.77% of the total respondents.
The normality test of data through the Kolmovorov Smirnov index with a confidence
level of 95%, as it is appreciated that the values found are significant because the behavior
of the variables does not have a normal distribution [19] (Table 1).

Table 1. Data normality test.

Variables Kolmogorov-Smirnova Result

Statistician gl Sig.
Tax culture 0.232 130 0.000 No normal
Intention to comply with 0.175 130 0.000 No normal
tax obligations
a Lilliefors significance correction.

According to Table 2, 23.8% of rural microentrepreneurs have a low level of tax

culture, 15.2% have a medium level and 13.5% have a high level of tax obligations,
while 12.3% have a medium level.

Table 2. Tax culture and intention to comply with tax obligations.

Levels of intent to comply Level of tax culture Total

Low Medium High
Low 23.8% 15.2% 1.0% 40.0%
Medium 11.5% 12.3% 9.2% 33.1%
High 1.1% 12.3% 13.5% 26.9%
Total 36.5% 39.8% 24.8% 100.0%

As shown in Table 3, the Spearman correlation coefficient test result of p = 0.000 is

lower than the theoretical significance value of 0.05, indicating that the null hypothesis
is rejected. This indicates that there is a strong correlation between tax culture and tax
compliance by rural Peruvian microentrepreneurs.
222 E. Ramirez-Asis et al.

Table 3. Correlation of tax culture and intention to comply with tax obligations.

Rho de Spearman Tax culture Intention to comply with

tax obligations
Tax culture Correlation coefficient 1 ,687**
Sig. (bilateral) 0.000
N 214 214
Intention to comply with Correlation coefficient ,687** 1
tax obligations Sig. (bilateral) 0.000
N 214 214
**. The correlation is significant at the 0.01 level. (bilateral)

4 Contributions

Based on this order, it was obtained as a result on the tax culture variable that 40.8%
of the microentrepreneurs perceived that the tax culture is at a medium level. These
obtained results coincided with [16], in his research, where it is inferred that 90% of
the microentrepreneurs qualify it significantly. Well, also in their research [20] points
out to us that 91.7% of their respondents consider that the tax culture has a regular
medium level, while only 8.33% of respondents consider that the level of tax culture
is low, which reflects a similarity in the results. Additionally [21, 22] in his research,
mentions that 69% of taxpayers in the district municipality of Chocope, present a low
level of tax culture while only 9% of taxpayers present a high level of tax culture, since
they are unaware of the main reason why they should pay taxes, which in turn has its
origin in the training centers. Similarly [23] in his research, points out that 45.7% of the
microentrepreneurs surveyed have never made the declarations before SUNAT and that
only 10% of them if they have declared their obligations, even highlighting that 43.05%
of them if they have declared, but only a few times, which shows again that the little
knowledge that these people have in this regard, so in this same study also points out
that 100% of the microentrepreneurs who participated in this survey have responded to
the same expressing that they have never received talks by SUNAT.
On the other hand, the variable of compliance with tax obligations was perceived by
Peruvian rural microentrepreneurs in a way that resembles that of other studies such as the
ones we will see below. As a result, the vast majority (40%) of formal microentrepreneurs
show low levels of compliance with tax obligations, while a minority (26.92%) show
high levels of compliance with tax obligations, i.e. the vast majority are not complying
with their payments and declarations to the state. This result agrees with the research
of [16] in his research where the following results were obtained: 93.3% of respondents
rated as medium level the compliance with the obligations of natural and legal persons,
while 5.4% rated it at a high level, and only 1.3% rated this variable with a low level.
[24] also concluded in their research that most taxpayers have a low level of tax
culture, represented by 62.30%; the use of payment vouchers also has a low level of
68.85%, therefore tax evasion has a high level of 65.57%, which indicates that the
 Tax Culture and Compliance with Tax Obligations 223

tax system is not efficient, nor consolidated, nor has it implemented all the necessary
corrective measures so that these actions do not occur.
On the other hand to go to an international scope in the analysis of the general
hypothesis [25, 26] in his research shows as a result that Ecuador has more tax revenue
from tax collection, above the income from oil exports, which is taken as the basis of fiscal
sustainability, to promote tax culture and thus be able to contribute to the development
of the country, since there is a significant proportion of collection of interest on arrears
and tax fines, which exceeds the collection of the Simplified Tax System, seeing the
reality this makes up more than half of the total number of companies in that country.
Finally, [9] in their article mentioned that it represents the first source of tax revenue for
the Ecuadorian economy due to its broad tax base and ease of collection, where they
reached the result that there is a positive relationship between economic growth and tax
collection.

5 Conclusion
It was concluded that there is a statistically significant relationship between tax culture
and the intention to comply with the tax obligations of microentrepreneurs, which means
that as the level of tax culture by the microentrepreneur increases, the intention to comply
with their tax obligations with the State increases; that is, as one variable increases, the
other variable increases in direct proportion. In this context, it was shown that there
are high levels of tax problems, because on the one hand, with respect to tax culture,
this is a subject that has been neglected too much, since state authorities and entities
related to the subject have not been concerned with raising awareness and providing
information on the subject, showing the advantages of compliance with the same, and
on the other hand, with respect to compliance, the fact that the first variable was not
adequately addressed resulted in the fact that compliance with the obligations was not
carried out in the right way and at the right time, so much so that natural and legal persons
distrust the system and the treatment that will be given to the money, since the taxes
collected are not being used in the best way by the authorities, which has an impact
on the fulfillment of the obligations; This means that the variables in question act in
a directly proportional manner; Therefore, if the first variable is improved, the second
one will also improve, a subject that must be reviewed by the state entities and which
must be given due importance and emphasis through training and joint talks by different
means in order to reach the largest number of target public, since this public expresses
that there are no initiatives of the state institutions in informing about these normative
and formal processes that benefit both parties, since that budget that enters the coffers of
the state are the main support of the activities of this organizational structure that serve
to support the growth and development, emphasizing also that it is of imperative degree
within the economic cycle of the country.

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 Determinants of Foreign Direct Investments
in Bangalore

Jaspreet Kaur1(B) , M. R. Eshan1 , C. H. Madhavi Latha2 , and Deepa Iyer1

1 Department of Management, Kristu Jayanti College, Bangalore, India
[email protected], {jaspreetkaur,eshan,
deepaiyer}@kristujayanti.com
2 Department of Professional Accounting and Finance, Kristu Jayanti College, Bangalore, India

[email protected]

Abstract. This study is conducted in the city of Bengaluru, India to study the
factors that make MNCs invest and operate in the city. Data is collected from
20 Multinational corporations to know about the factors that attracted them here.
Primary factors affecting FDI are Economic Factors, Physical Infrastructure, Tax-
ation and Inflation, Affordable Labour Cost, Geographic location and Climatic
Conditions, Fiscal Incentives, Social Conditions, Political Environment, Govern-
ment policies and initiatives, Availability of Technical Expertise, Market size and
growth rate, prospects, High investment returns etc. Top 5 factors which impacted
the entry of MNCs into Bengaluru are low labour cost (49%), Technical expertise
(44.5%), climatic conditions (43.5), and availability of elite educational institu-
tions (41%) (which make educated workforce available) and Government policies
and initiatives (40%). Apart from these advantages in their favour, these organi-
sations face challenges in the shape of traffic congestion, bad road infrastructure
due to the slow-paced ongoing infrastructural projects, waterlogging etc. t-test is
used to assess the responses. It has been observed that there is a significant differ-
ence faced by the firms in the challenges faced by them during the introductory
stage and while considering reinvestments. This also opens avenues for further
explorations in the area to avoid inconvenience to these investors.

Keywords: Foreign investment · Bengaluru · GDP · Multinational corporations

1 Introduction
Many Multinational companies or corporations chose Bengaluru to be their destination.
These companies also called Transnational corporations to register and operate in more
than one country at a time. Generally, they have headquarters in one country and operate
through subsidiaries in other countries, (Britannica 2022). Bengaluru has the highest
number of Multinational corporations and research and development centres. India can
provide engineers to these MNCs.456 MNCs operating in India, (John 2016). Texas
Instruments Inc. Was the first company to begin its operations in Bengaluru in 1985,
(https://thescalers.com/). Bangalore has served as India’s technology capital for over
three decades. The city has significantly contributed to India’s IT Leadership in the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 226–231, 2023.
https://doi.org/10.1007/978-3-031-26956-1_21
 Determinants of Foreign Direct Investments in Bangalore 227

world, (Prakash 2020). The number of MNCs is continuously on the rise in India. In
1991, there were 197 MNCs in India which grew to 891 in 2012. The contribution of
these MNCs in India in the year 2011–12 was 5.24 to the GDP and accounted for 16.51
for FDI, (Kaur 2017). Bengaluru is the capital city of the state of Karnataka and was
founded by Kempe Gowda I. Govt. of Karnataka renamed Bangalore to Bengaluru in
2006. Union ministry approved this name change in the year 2014. Bangaluru is well
known as the Silicon Valley of India due to the presence of companies dealing with
information technology, (Wikipedia 2022). Bengaluru’s economy contributes 4365 to
the economy of the state. It accounts for 98% of the total exports of the state. As of
2020, Bengaluru’s IT firms employ around 1.5 million employees in IT and IT-enabled
services. Metro’s GDP of the city is around US$ 110 billion. The Gdp Per capita of
Bengaluru is roughly US$ 8,461. It has been ranked as the fourth most productive metro
area in India, (Wikipedia, Economy of Bangalore 2022).

2 Literature Review
Bangalore is an iconic place due to the presence of universities and research facilities
to train skilled workers to develop new technology and people’s entrepreneurial drive to
start new ventures, (Krishnaswamy, Four Factors that made Bangalore an icon 2001).
Factors such as incentives by state and central govt, the strategic location of the city
in the Indian Peninsula and a network of roads and railways contributes to the growth
of Bengaluru, (Factors that influenced the development of the electronic city of Ben-
galuru). Liberal policies introduced during the early 1990s stimulated the growth of FDI
in Bengaluru. Its growth is also attributed to its environmental and geographic location
advantages, (Arun Natrajan Hariharan 2021). Key factors contributing to the attractive-
ness of India as an investment destination include, the availability of raw materials,
policy reforms and cheap labour, corporate tax cuts, ease of doing business measures,
simplification of labour laws, FDI reforms and focus on human capital are some of the
recent reforms in the country for fresh investments. Also, India’s plan to invest Rs, 113
lakh crore in infrastructural development in 100 smart cities has been attracting MNCs
to the Nation, (Singh 2020). New computer and software policies announced in 1984
resulted in the liberalization of the import and export of hardware and software in India.
Organisations like Wipro and Infosys set up camps in Bangalore as a result and hire
Indian programmers. American companies were attracted by offering them advanced
systems offered in India. Americans started utilizing a huge talent pool along with low
operational costs. As a result, they started setting up software facilities and innovation
centres on Indian soil. The value of R&D done in India is estimated to be around $40
billion. The primary factor contributing to this is tech-talents availability. Nearly one mil-
lion residents are developers in the city of Bengaluru. They can build custom software at
a low cost. The availability of Technical expertise and a multi-skilled labour force is an
important determinant of a heavy concentration of R&D centres in Bangalore. Amazon,
Tesco, Nokia, Siemens, Microsoft and IBM are a few to name, (Scalers 2020).
The city has an attractive location for setting up IT firms followed by good telecom-
munications and data communication infrastructure. The infrastructural setup in these
regards is better in Bangalore than in any other city in the nation. Different cities spe-
cialise in one or more functions, such specializations develop when produced goods and
228 J. Kaur et al.

services are consumed by both inhabitants and external actors. These specializations,
known as urban functions help urban development better, (Srinivas 1998). The make in
India campaign by the Indian Government is another factor responsible to attract FDI.
The process of FDI is related to acquiring assets in the host nation to carry out production
distribution and other related activities, (Sharma 2017). Karnataka recorded 48% and
41% of FDI in India during the first two quarters of 2021–2022. During the third quarter
of 2021, 1.02 lakh crore of FDI was received by Karnataka. The total FDI received by
India during this period was 2.29 Lakh crore and nearly 45% of this was received by
Karnataka, mostly Bangalore, (SOOD 2022).
Determinants of FDI are largely classified into two factors viz economic conditions
and host countries policies. Other factors determining the flow of FDI are Market size,
rate of urbanization and industrialization, labour cost, physical and economic infrastruc-
ture and underlying economic factors such as inflation, tax regime, external debt etc. Rel-
ative strength of a currency is attractive for investments as assets are relatively cheaper.
Social, political and economic reforms enhance investors’ confidence by improving a
favourable business environment, (Narayan 2014).
Fiscal incentives, low tariffs, and BITs (Bilateral Investment Treaties) with developed
countries have an impact on FDIs, (HOODA 2011).

3 Objectives

• To find Bengaluru as preference of MNCs for investment

• To find top factors contributing FDI in the city
• To assess the challenges faced by organisations being in the city

4 Methodology

Primary data is collected from 20 MNCs in Bengaluru city. The questionnaire included
two sections to kow about the preference of the companies to initially invest in the city
and to know about the factors which push these organisations to reinvest. Respondents
were asked to rate each factor in order of prefernce in each section (Table 1).

Table 1. Responses rating factors affecting FDI

Determinants of Responses Part A Mean Responses Part A Mean

FDI-importance %age 20% 40% 60% 80% 100% 20% 40% 60% 80% 100%
Economic Factors 1 4 6 4 5 34 1 3 3 6 7 37.5
Physical – 2 5 11 2 36.5 1 1 4 12 3 39
Infrastructure
Taxation and Inflation 3 5 5 3 2 25 2 4 4 4 2 23.5
(continued)
 Determinants of Foreign Direct Investments in Bangalore 229

Table 1. (continued)

Determinants of Responses Part A Mean Responses Part A Mean

FDI-importance %age 20% 40% 60% 80% 100% 20% 40% 60% 80% 100%
Affordable Labour – – – 2 18 49 – – – 3 17 48.5
Cost
Geographic location 1 2 2 8 7 39 – 1 3 7 9 42.5
and
Climatic Conditions – 2 2 3 13 43.5 – 1 2 5 12 44
Fiscal Incentives 4 4 5 3 4 29.5 3 5 4 4 4 30.5
Social Conditions 1 3 6 6 2 29.5 – 3 6 6 5 37
Political Environment 2 3 4 5 6 35 1 4 4 5 6 35.5
Government policies 0 1 4 9 6 40 – 1 4 7 8 41
and initiatives
Availability of – – 3 5 12 44.5 – – – 2 18 51
Technical Expertise
Market size and 1 2 3 8 6 38 – – 2 3 15 46.5
growth rate
Prospects 2 3 6 5 4 33 1 1 2 5 11 42
High investment – 3 5 5 7 38 – 1 4 3 12 43
returns
Exchange rate 3 3 4 6 4 32.5 2 3 3 8 4 34
Exports 3 5 5 5 2 24.5 2 5 5 4 4 31.5
SEZs 3 4 5 5 4 33 2 2 3 7 6 36
Educational – 1 1 3 15 41 – – 1 1 18 48.5
institutions

The top 5 factors which impacted the entry of MNCs into Bengaluru are low labour
cost (49%), Technical expertise (44.5%), climatic conditions (43.5), and availability
of elite educational institutions (41%) (which make educated workforce available) and
Government policies and initiatives (40%). Factors that impact re-investment/ expan-
sions are the availability of Technical expertise (51%), followed by affordable labour
cost and availability of premium educational institutions (both 48.5%), market size and
growth rate (46.5%) and high returns on investments (43%) (Table 2).

Table 2. Challenges faced by MNCs in Bengaluru

Responses- Part Responses- Part P value

A B
Yes No Yes No 0.20893
Political factors – 20 1 19
(continued)
230 J. Kaur et al.

Table 2. (continued)

Responses- Part Responses- Part P value

A B
Banking facilities 3 17 2 18
Legal framework 5 15 4 15
Infrastructural challenges- roads 3 17 18 2
Transport 3 17 2 18
Waterlogging – 20 17 3
Satisfaction related to foreign trade policy 18 2 18 2

5 Challenges Faced

The p-value of challenges faced by firms during initial investments and subsequent
investments is 0.20893. This suggests that there is a significant difference between the
challenges faced by the firms. During the recent downpour in September 2022, water-
logging affected many areas of Bangalore. Many companies were shut down due to
either water entering their premises or due to the non-approachability of their campus
due to rain-waterlogged roads. Many residential areas were also submerged underwater,
bringing to light the poor state of infrastructure at present in the city. Metro city is also
facing challenges due to traffic congestion on the roads. Concentrated construction of
office space along the outer ring road and other areas inside the city has made traffic
situations worse. Commute time on the roads of the city is very high during peak hours.
Ongoing infrastructural projects (flyovers, Metro rail work etc.) are the major causes of
building up traffic.

6 Conclusion

Bengaluru has been the favourite destination for MNCs to invest in. Many factors ranging
from the availability of technical workforce to favourable climatic conditions contributed
towards this step. Bengaluru presently is home to many multinational corporations and
various research and development centres, the number being the highest in the country.
Going by the trend it would continue to be so in the recent times to come. This can
be supported by the availability of various technical institutions present in the city to
support the supply for present and new entrants in the area. Apart from many favourable
conditions enjoyed by MNCs in Bengaluru, they are not secluded from the heat of heavy
traffic congestion and waterlogging ( as surfaced during the September 22 showers of
rain).
 Determinants of Foreign Direct Investments in Bangalore 231

7 Limitations and Suggestions for Future Studies

This research is limited to those entrants who are already present in the city. There is
much more potential in the city. The study can be extended to many more companies
that are likely to come to Bengaluru. Areas around the city can be developed as satellite
towns to contain the growth.
The research throws light on the favourable conditions for FDI by MNCs and also
brings to light some of the challenges faced by these organisations. Huge MNCs like
Google’s recent entry into Bengaluru is an indicator of preference for such companies to
silicon valley of India. This discussion leads to exploring options for more new entrants.
Further research in this regard among various companies across the globe can open
gates for many more such companies. A lookout for more such factors that influence
investments can be done by exploring those who have not yet been part of the expansion
of the city. A peek into such factors can open bigger opportunities for the city in terms
of higher revenues from such new entrants.
At the same time, a sneak peeks at correcting unfavourable conditions thereby cor-
recting them can be an added advantage. There is a need to assess the present growth
rate and future expansion possibilities to explore the rate at which infrastructure can be
developed to contain this possible growth. However, investors who are likely to invest in
the future look forward to trade policy reforms export-import improvements along with
a few more factors, (Annapurna Singh 2020).

References
Encyclopedia Britannica, Inc. (n.d.).: Multinational corporation. Encyclopedia Britannica (2022)
Coquard, E.: How Bangalore became Asia’s Silicon Valley. The Scalers. Accessed 27 Sep 2022
Chetan Krishnaswamy: THE TIMES OF INDIA NEWS SERVICE Jul 12, 2001. (n.d.). Four factors
that made Bangalore an icon: India News–Times of India. The Times of India. Accessed 27
Sep 2022
Hariharan, A.N., Biswas, A.: Global advantage of Bangalore as a location choice for knowledge-
based industries in India. Region. Sci. Policy Pract. 14(2), 328–351 (2021)
Singh, A.: India among most attractive destinations for mncs. Deccan Herald. Accessed 27 Sep
2022
Coquard, E.: How Bangalore became Asia’s Silicon Valley. The Scalers, 2 June 2022
Sood, A.R: Why Karnataka got record 45% of India’s total FDI in first half of this financial year.
The Print (2022)
Aarti-Sharma (n.d.): Determinants of foreign direct investment inflows in India - researchgate.
Accessed 29 Sep 2022
CITESEERX (n.d.). CiteSeerX. (2022)
Laxmi Narayan, P.: Int. J. Res. (IJR) Determ. Foreign Direct Invest. India 1(7), 2348–6848 (2014)
Sapna Hooda’s thesis is a study of FDI and the Indian economy. (n.d.). Accessed 29 Sep 2022
Ucl: The Bartlett Development Planning Unit, 27 May 2022. Accessed 27 Sep 2022
https://www.fundoodata.com/companytypecity/1/6/-companies-in-bangalore-bengaluru
https://en.wikipedia.org/wiki/Economy_of_Bangalore
https://timesofindia.indiatimes.com/india/four-factors-that-made-bangalore-an-icon/articleshow/
1525884430.cms
https://www.shaalaa.com/question-bank-solutions/mention-any-two-factors-which-have-influe
nced-the-development-of-the-electronic-city-of-bengaluru-spatial-distribution-of-population-
in-india_100050
 Financial Reportings and Analysis Practices
in Tata Steel and Corus Acquisition: Their
Association with Growth Rate and Financial
Performance

F. Lourdunathan1(B) , Deenu Nadayil1 , and Swati Saxena2

1 Department of Professional Accounting and Finance, Kristu Jayanti College (Autonomous),
Bangalore, India
[email protected]
2 Department of Commerce and Management, Mangalayatan University, Jabalpur, India

Abstract. This research article examined the financial reporting and analysis
practices in Tata steel and Corus acquisition: Their association with growth rate
and financial performance. This article analyzes the reasons and the effect of the
Acquisition of Corus by paying 12.33 billion dollars to buy which is one of the
biggest acquisitions by an Indian Company at the cross border. This paper also
emphasizes this acquisition led to global growth in Steel Industry. The sample size
of this research consists of Tata Steel and Corus Company which underwent acqui-
sitions during 2007–08. This paper also emphasizes the significance of developing
skills in analyzing and interpreting financial statements to maintain financial posi-
tion and progress. To understand the distinguishing characteristics, problems and
needs of the organization’s growth performance, the published audited report from
2002–2022 was studied and interpreted. To measure the significance of the orga-
nization’s performance the author adopted comparative, ratio analysis and other
statistical tools were adopted. The study shows that there is important growth in
income and financial position of companies after the merger, the growth can result
in financial stresses and excessive use of debts as such cash flow difficulties. But
the coronavirus (Lockdown) the company faced a downfall in their profits.

Keywords: Tata steel and corus · Mergers and acquisitions · Growth rate and
financial performance · Share holders’ funds

1 Introduction
The ideas that underlie financial reports have developed over several hundred years.
This development continues today to meet the needs of a changing society. Demand
for financial reports exists because users believe that the reports help them in decision-
making. In addition to the financial reports, users often consult competing information
sources, such as new wage contracts and economy-oriented releases. In the present covid-
19 (pandemic) situation where all companies are suffering in their sustainability, finding
it difficult in making payments (interest, Debts), Manufacturing expenses and modern

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 232–241, 2023.
https://doi.org/10.1007/978-3-031-26956-1_22
 Financial Reportings 233

technology (M&As) and also adopting reporting standards is the only means to, adopt the
modern method, Increase the trade, enter fresh ventures or to create collaborations with
prevailing business functions and overcome the present market risk (includes financial
risk. In the present scenario every organization believes that M&As as Mergers and
Acquisitions will take the businesses to a safe and profitable and global standard. The
Financial reporting and analysis practices in Tata Steel and Corus acquisition: Their
association with growth rate and financial performance. The present study measure
by adopting Financial reporting and, the M&A helps in increasing the profit earning
capacity and repay the debts in time and the impact on the growth of the organization’s
pre and post-acquisition and to know the effect of the implantation of financial reporting
into the system.

1.1 Review of Literature

Ramakanta Prusty, 2011, Vol. 1, Issue 3, p. 63. P. College of Business Administration
Priyanka Gohil,Neesa Institute of Management Studies, Atul Bansal, J.V. Jain College,
Sahareanpur; Dr. Atul Bansal. In the paper, an attempt has been made to see how TATA
has been affected by its acquisition of Corus group. For this purpose, the authors have
analyzed the pre and post-acquisition performance of TATA with the help of the various
financial ratios of the company. The paper concludes that TATA is apparently in benefit
of its buying Corus and still to benefit in the long run from capital and technology.
International Journal of Financial Management,
Rajesh Khurana1 and Dr. D.P. Warne2, (2014), made a study on five sectors of Tata
Ltd and the paper was focused impact of M&A on maximization of shareholders fund
and profitability of Transferor company. The author also made an comparative study
on M&A on different countries across the globe. pp. 33–50 Volume 1, Number 1 ©
International Research Publication House.
The succive published papers are shows the authors concentrated more on financial
performance of the company (Transferor company during pandemic. HBR (2001). Rao
and Sankar (1997) in their analysis found that there is great impact on the profitability
and liquidity on account of M&A and Hitt, Harrison and Best (1998). Rau and Vermalen
(1997) interpreted that the has investigated that the selling firm always will have a poor
performance in the market and make very poor decisions. In general M&A however,
higher profitability of the firm being found to be existing pre and post-merger and
acquisition Acharya (2000). Clear and factual communication among the Employees of
the acquiring and acquired firms is very crucial to increase their productivity which will
Resultantly have positive impact on performance of firms during or even after merger
and acquisition Appelbaum etal (2000). International Journal of Entrepreneurship and
Small Business Management.

1.2 Research Gap

Several studies have been conducted on M&A, all the studies had intensive on the
adverse sides of the M&A, (stakeholder risk and financial stability risk ect, no studies
have been conducted optimistically. Hence the present study on the topic of “Financial
Reporting and Analysis Practices in Tata steel and Corus acquisition”: Their association
234 F. Lourdunathan et al.

with growth rate and financial performance, attempted to understand the significance of
M&A in the present market condition is the uniqueness of this study.

1.3 Methodology

The current research is an attempt to Analyse Financial Reporting And Analysis Practices
In Tata Steel And Corus Acquisition: Their Association With Growth Rate And Financial
Performance on the optimistic side of the company. For this purpose, the researcher has
collected Annual reports of both the companies dated from 2002–2022 till date to study
the impact of coronavirus outbreaks on the financial performance of the company both in
the pre and post-acquisition period by implementing the Financial reporting standard for
the 2015 onwards(Consolidated Balance sheet). The researchers used the Comparative
statement tool, and ratio analysis to find out the growth rate.

1.4 Objectives of the Study

To Study the impact of coronavirus outbreak (Covid-19) on the company’s performance.

To understand the significance of implementation of Reporting standard during
Acquisition of Companies.
To Analyze Financial performance of post and prior acquisition of the companies.

2 Analysis and Interpretation

Table 1. Analysis of fixed assets

Sl.no Year Amount (Rs.) Growth rate (%)

01 2002–2003 7,543.80 59.75
02 2003–2004 7,857.85 62.24
03 2004–2005 9,112.25 72.18
04 2005–2006 9,865.05 78.14
05 2006–2007 11,040.60 87.45
06 2007–2008 12,624.60 100
07 2008–2009 14,483 114.72
08 2009–2010 16,007.02 126.79
09 2010–2011 18,775.50 148.72
10 2011–2012 27,424 217.24
11 2012–2013 33,597 266.14
(continued)
 Financial Reportings 235

Table 1. (continued)

Sl.no Year Amount (Rs.) Growth rate (%)

12 2013–2014 42,775.20 338.85
13 2014–2015 ,48,285.20 382.50
14 2015–2016 52,411.00 415.18
15 2016–2017 1,31,719.50 1043.44
16 2017–2018 1,22,411.18 969.70
17 2018–2019 90,470.43 716.67
18 2019–2020 120,462.78 954.26
19 2020–2021 1,30,383.37 1032.85
20 2021–2022 1,41,279.69 1119.17
Source: Annual Report of Tata Steel

Fig. 1. Graphical presentation of fixed assets growth rate

The above Table 1 and Fig. 1 shows very clearly the increase in the value of Fixed
assets after depreciation From 59.75% during 2002–2003 pre acquisition period to
415.8% increase in the value of fixed assets this shows a great positive sign on the M&A.
it absorbed that the The company invested more funds on fixed assets afer merger. It
indicates that the company more keen on allocating the huge fund on fixed assets.
236 F. Lourdunathan et al.

3 Analysis of Net Current Assets (Working Capital)

Table 2 The below mentioned table indicates the control on the net current assets of the
Acquirer from the date of acquisition ie, from 2007–2008 assumed as base year 100%
and made comparative analysis from Pre incorporation to post Incorporation 2002–
2022 it shows gradual and steady increase in the net current assets (working capital),
The analysis also indicates that 2011–2016 there was decline in the value of current
assets (Net decrease in working capital (Table 3).

Table 2. Analysis of net current assets (working capital)

S. no Year Amount Growth

1 2002–2003 957.52 3.171262
2 2003–2004 3808.82 12.61463
3 2004–2005 3699.99 12.2542
4 2005–2006 428.88 1.420431
5 2006–2007 8248.23 27.31775
6 2007–2008 30,193.66 100
7 2008–2009 1,311.04 4.342104
8 2009–2010 3,247.08 10.75418
9 2010–2011 13,216.49 43.7724
10 2011–2012 − 4,039.64 − 13.3791
11 2012–2013 − 4,983.80 − 16.5061
12 2013–2014 − 7,317.18 − 24.2342
13 2014–2015 − 4774.62 − 25419.04
14 2015–2016 − 4585,04 − 25608,62
15 2016–2017 14,421.49 47.76
16 2017–2018 20,110.40 66.60
17 2018–2019 36,643.91 114.73
18 2019–2020 17,035.58 56.42
19 2020–2021 1,50,392.56 498.09
20 2021–2022 1,65,035.99 546.59
Source: Annual Report of Tata Steel

In any and every Organization Share capital plays very significant role in the devel-
opment of the company this companies are also not exceptional the contribution on
shareholders form 2002–2022 from the above table there was an upward trend from pre
incorporation to post incorporation by comparing the base year 2007–2008 (Fig. 2 and
Table 4).
 Financial Reportings 237

Table 3. Analysis of share holders’ funds

S. no Year Amount Growth

1 2002–03 3186.02 11.67
2 2003–04 4515.86 16.54
3 2004–05 7059.92 25.85
4 2005–06 9755.30 35.73
5 2006–07 14096.15 51.63
6 2007–08 27,300.73 100
7 2008–09 30,176.26 110.53
8 2009–10 36,961.80 135.38
9 2010–11 46,944.63 171.95
10 2011–12 52,621.36 192.74
11 2012–13 55,209.68 202.22
12 2013–14 61,147.99 223.97
13 2014–15 66,663.89 244.18
14 2015–16 70,476.72 258.14
15 2016–17 39,421.02 144.395
16 2017–18 49,659.00 181.89
17 2018–19 61,514.82 225.32
18 2019–20 70,454.71 258.06
19 2020–21 76,838.12 281.45
20 2021–22 91,267.11 334.30
Source: Annual Report of Tata Steel

Fig. 2. Graphical presentation of shareholders funds

238 F. Lourdunathan et al.

Table 4. Analyses of loans and advances

S. no Year Amount Growth

1 2002–2003 4225.61 30.84
2 2003–2004 3373.28 24.62
3 2004–2005 2739.70 20.00
4 2005–2006 2516.15 18.36
5 2006–2007 9645.33 70.39
6 2007–2008 13,701.89 100
7 2008–2009 15,459.81 112.83
8 2009–2010 12,246.69 89.38
9 2010–2011 24,212.30 176.71
10 2011–2012 10,453.41 76.29
11 2012–2013 7,097.65 51.80
12 2013–2014 8,781.73 64.09
13 2014–2015 3,207.90 23.41
14 2015–2016 4,230.38 30.87
15 2016–2017 3787.88 27.64
16 2017–2018 2119.97 15.47
17 2018–2019 2139.50 15.61
18 2019–2020 2318.16 16.92
19 2020–2021 1607.32 11.73
20 2021–2022 1555.95 11.36
Source: Annual Report of Tata Steel

Fig. 3. Graphical presentation of loans and advances

 Financial Reportings 239

The above Fig. 3 reveals that 2002–2003 onwards there is uptrend by taking the base
year 2007–2008. In 2002–2003 the loans and advances amounted Rs. 4225.61 ie,23.44%
as compared 2007–2008 was Rs. 18,021.69. Gradually after acquisition the Loans and
advances are gradually declining which clearly analyzed from the above table (Table 5).

Table 5. Analysis of profitability

Sl. no Financial year Amount (Rs.) Growth rate (%)

01 2002–2003 1,012.30 21.59
02 2003–2004 1,746.20 37.25
03 2004–2005 3,474.16 74.12
04 2005–2006 3,506.40 74.90
05 2006–2007 4,222.15 90.08
06 2007–2008 4,687.03 100
07 2008–2009 5,201.75 110.98
08 2009–2010 5,046.80 107.67
09 2010–2011 6,865.69 146.48
10 2011–2012 6,696.42 142.90
11 2012–2013 5,062.97 108.02
12 2013–2014 6,412.19 136.80
13 2014–2015 6,439.12 137.38
14 2015–2016 4,900.94 104.56
15 2016–2017 4,840.25 102.48
16 2017–2018 (4,168.57)
17 2018–2019 17,762.81
18 2019–2020
19 2020–2021
Source: Annual Report of Tata Steel

The net Profit of the company during pre- incorporation period was significant from
2002–2003 it was increased from Rs. 1,012.30, 21.59% to Rs. 4,222.15,90.08% dur-
ing 2007–2008. The above study indicates that there was gradual growth during post
incorporation but gradually the profit decreased (Fig. 4).
240 F. Lourdunathan et al.

Fig. 4. Graphical presentation of profitability

4 Findings
• From the base year 2007–2008 the company Invested more on the Fixed assets but
the profitability of the concern was not par with investment on long term assets, the
company could have controlled on fixed assets.
• The current assets (working capital was stable and good till 2014–2015. But 2015–
2016 it shows negative percentage of working capital.
• The Profit earning capacity of the company was increasing during pre and post merger
which is positive sign of any company, but compared to 2014–2015-2015–2016 the
profit after tax declined due to availability low quality steel import.
• The Loans and advances were controlled. The study shows that during pre-
incorporation there was increase in loans and advances gradually it declined owing to
repayment of loans in the year 2015–2016.
• It is advisable to the company to take precautionary measures to overcome the financial
hardness.

5 Conclusion
The study was conducted with objective of measuring the overall performance of the
company on account of merger and acquisition and the impact of pandemic on financial
performance by implementing financial reporting and analysis practices of the company
taking base year 2007–2008 made an comparative analysis with companies investment
on fixed assets, Current assets (working Capital). The study shows that company conse-
crated more on investing on fixed assets rather than Sales and its revenue. Shareholders
fund also increased which leads more expectation on returns to the shareholders, the
study also reveals that the pandemic impacted lockdown of the company due to which
production was declined. From financial 2015–2016 onward the company started imple-
menting financial Reporting to control and safeguard, protect and promote the interest
of stakeholders. To conclude the merger and acquisition of both the companies was not
without controversy.
 Financial Reportings 241

References
Anonymous Battle for Corus. Financial Times (2006)
Anonymous. Tata Steel ratings cut to ‘BB’ with positive outlook after Corus buy (2007) AFX
News Limited, [email protected] at Forbes.com
Anonymous. Moody’s marks down Tata Steel. Business line Chennai (2007)
Anonymous. The Indian steel industry is characterized by fragmentation, particularly in the
downstream segment, with a large number of unorganized players. Business Wire (2007)
Anonymous. Notice on merger moves may be made mandatory. Business line Chennai (2007)
Anonymous. Metal Producing & Processing, vol. 45, no. 3, pp. 10 (2007)
Anonymous. Daily mail, London, business briefs column. Knight Ridder Tribune. Business News
Washington (2007)
Anonymous. Tatas investments driven by trust, stakeholder value. Business line Chennai (2007)
Anonymous. Budget has little for corporate restructuring. Business line Chennai (2007)
 Stock Market vs Commodity Market- A Study
on Traders’/Investors’ Preferences

S. Jayashree1(B) , J. Poornima1 , S. R. Deepika2 , M. K. Baby3 ,

and S. Muniya Sathya2
1 Department of Professional Accounting and Finance, Kristu Jayanti College (Autonomous),
Bengaluru, Karnataka, India
[email protected]
2 Department of Commerce with CA, Syed Hameedha Arts and Science College,
Ramanathapuram, Tamil Nadu, India
3 School of Management, Kristu Jayanti College (Autonomous), Bengaluru, Karnataka, India

Abstract. The stock and commodity markets have always been the backbone
of every nation. More the volume traded in these markets, more will be the rate
of capitalization. It then has become extended that there should be strong and
consistent players in these markets who uphold and enhance the values of the
markets. The players being both the traders and the investors, it becomes very
important to understand the nature of interests shown by them either in both the
markets or either of the markets.
The current study has deciphered the awareness level of the chosen 100 respon-
dents in Bengaluru city in the state of Karnataka in India, concerning the stock
market and the commodity market and the returns they anticipate receiving along
with the actual returns that they have enjoyed. Statistical analysis has been done
on the data collected from the respondents to analyse their demographic factors
with their trading activities in either the stock market or the commodity market or
both, as the case may be.

Keywords: Stock market · Commodity market · Investors · Perception

1 Introduction
Regardless of their age, profession, level of education, or level of income, people from
all walks of life invest in a variety of assets. When a person has more money than he
needs for current consumption, he likes to invest it in either tangible assets like gold
or real estate in financial assets like securities, fixed deposits and insurance. Due to
the complexity of financial assets, people typically prefer to invest in physical assets
rather than financial assets. Every single financial asset and investment plans have their
own advantages and disadvantages. The investors also have their own individual choices
for various financial/investment plans. Thus investors choose investments, according to
their perception and attitude. The commodity markets in the recent era is considered as
a very important source of investment. The current research aims to study the investor
preferences in the Indian commodity market since investment goals and motivations
have an impact on an investor’s investment behavior.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 242–247, 2023.
https://doi.org/10.1007/978-3-031-26956-1_23
 Stock Market vs Commodity Market- A Study on Traders’/Investors’ 243

2 Stock Exchange
Securities and derivatives are traded on a stock exchange. Essentially, stock market is
a place where companies trade their stock at an agreed price. Stock markets are public
and private markets for the trading of stocks of companies.

2.1 Significance of Stock Market

The stock market is unique and it is considered as the important source for the corpo-
rations to rise capital. This permits business entities to trade publicly or raise additional
funds for their business development by trading stocks of ownership of the corporation
in a public financial market. The liquidity that a stock exchange offers manages to pay
for shareholders the capability to speedily and effortlessly trade securities. This makes
stock investment more attractive. Price of shares also influence the wealth of households
and their consumption. The exchange also acts as the clearing house for every transac-
tion, denoting that it can accumulate and deliver the shares and guarantee payment to
the security seller. This removes the risk of an individual buyer or seller of a security.
The smooth operational effectiveness of the activities facilitates economic progression.

3 Commodity Exchange
A commodity market refers to the place where raw materials or prime products are
exchanged. These raw commodities are traded on regulated commodity exchanges in
which they are purchased and sold in standardized contracts. Commodity markets offer
as much an opportunity to investors as the stock market does.

3.1 Commodities Traded

Commodity market exists almost all over the world. The following are the broad
classification of commodities traded:

a. Precious metals: gold, silver, platinum, etc.,

b. Other metals: nickel, aluminum, copper, etc.,
c. Agro-based commodities: wheat, corn, cotton, oils, oilseeds, etc.,
d. Soft commodities: coffee, cocoa, sugar, etc.,
e. Live-stock: live cattle, pork bellies, etc.,
f. Energy: crude oil, natural gas, gasoline, etc.

4 Statement of the Problem

The development of stock and commodity markets during the recent times have paved
way for the focus on the attitude of investors in commodity and stock markets. In a short
duration of time the online stock and commodity markets have witnessed a tremendous
growth in India. Are the market players aware of the risk involved in speculation? Does
the public understand the organization of the stock markets? To what extend are the
traders satisfied with the operational strategies and returns of the market? Are few of the
questions which have induced the current topic for an analysis.
244 S. Jayashree et al.

5 Review of Literature
Senthil (2017) the paper titled “Investor’s perception regarding the performance of Indian
mutual funds” have investigated the investors’ interest and behaviour towards commod-
ity future market in terms of goal line, preferences, reasons inducing while choosing
the patterns of investment. The findings of the research study have concluded that the
investors’ foremost objective is maximization of their net worth. The study has suggested
that the mutual fund corporations should regulate the charges to be paid by the retail
depositors and reduce the expenses to a reasonable level.
Kumar (2018) in the paper titled “A study of customers’ preference towards invest-
ment in equity share and mutual funds” made an attempt to study the objective of
investment of investors and their preference towards various investment alternatives
with the help of statistical tools such as z test, chi-square, percentage analysis and rank-
ing method. Author concluded that investors consider mutual funds and equity share as
good investment alternative as they prefer liquidity and return as an important criteria
for investment consideration.
Sivarethinamohan and Aranganathar (2019) in the paper titled “A Study on investors’
preference in Indian commodities market” studied investors’ preference in numerous
investment opportunities of commodity market instruments and also to identify the
relationship between the numerous factors persuading the investors’ judgements on
commodity market. The study observed significant relationship between the respon-
dents’ age and the dependent factors like terms, conditions and benefits. Significant
association between respondents’ profession and features such as awareness and knowl-
edge, tax exemptions and reasonable brokerages is also observed. Author has concluded
that the respondents have considered various factors to take their investment choices in
commodity market investments due to the presence of both risk and return factors.
Ilyas (2020) in the paper titled “Indian investors behavior and perception: A study
of commodity market” focused on discovering the elements inducing the investment
pattern of the investors towards commodity markets in India. Results of factor analysis
and descriptive statistics concluded the presence of several factors that have larger impact
on the behavior of investors of commodity market of India. Information irregularity,
objective facts, low risk and high return are some of the main factors that have effect on
the investors’ pattern of investment in commodity market.

6 Objectives of the Study

To access the level of awareness of the respondents with respect to the stock and
commodity exchanges.
To deduce the consolidated opinion of the respondents in stock and commodity
exchange with respect to their choice of market.

7 Research Methodology
The necessary data and information required to achieve the objective of the study
have been collected with the help of a well-structured questionnaire. Secondary data
 Stock Market vs Commodity Market- A Study on Traders’/Investors’ 245

was collected from key books of concerned title, relevant journals and from internet
sources. Convenient random sampling has been used to study the preferences of the
traders/investors of the stock market and commodity market, 100 respondents were ran-
domly identified from Bengaluru city in the state of Karnataka in India. The period of
study is for 6 months between January 2022 and June 2022.

7.1 Hypothesis Used

Personal factors like age, gender, education, occupation and monthly income of
the investors/traders have no significant influence on the motivation to invest in
stock/commodity markets.

8 Analysis

Table 1 has shown the chi-square analysis done for two factors – the personal factors
and the motivation of the select respondents to invest in the stock market.

Hypothesis
The personal factors of the respondents have no significant influence on the motivation
to invest in stock market.

Table 1. Personal factors versus motivation to invest in stock market

Personal Factors Chi-square value P value Sig./Not Sig.

Gender 3.684 0.719 NS
Age 21.104 0.274 NS
Educational Qualification 28.436 0.242 NS
Occupation 28.520 0.239 NS
Number of family members 10.495 0.573 NS
Monthly income 16.481 0.559 NS
S- Significant, NS – Not Significant
Source: Computed

Table 2 has shown the chi-square analysis between the personal factors and the
motivation to invest in commodity market.

Hypothesis
The personal factors of the respondents have no significant influence on the motivation
to invest in commodity market.
246 S. Jayashree et al.

Table 2. Personal factors versus motivation to invest in commodity market

Personal Factors Chi-square value P value Sig./Not Sig.

Gender 1.116 0.981 NS
Age 32.196 0.021 NS
Educational Qualification 32.162 0.123 S
Occupation 26.167 0.345 NS
Number of family members 20.297 0.062 NS
Monthly income 22.723 0.201 NS
S- Significant, NS – Not Significant
Source: Computed

9 Findings

a. Out of the 100 respondents chosen for the study, 79% have been male, 80% of them
have been between the age group of 20–40 years representing the young population
of India.
b. Out of 100 respondents chosen for the study more than 80% have been educated
establishing their greater presence in the market. Three – fourth of the respondents
engaged in business, professionals and private sector employees had been indulging
in trading activities.
c. Respondents with the income level below Rs.40,000 have earned in the markets more
than higher income groups. Awareness level of the respondents have been more in
the stock market as compared to the commodity market.
d. Out of the total respondents, three-fourth of the investors have preferred to invest in
equity in case of stock market and the preference has been in bullion and metal in
commodity market.
e. 58% of the respondents have been trading through Depository Participants (ICICI
Bank) whereas others have been unaware about their depository participant as they
have traded through financial consultants such as Karvy, India Bulls, Share Wealth
etc.
f. More than three-fourth of the respondents have not shown any interests in trading
through on-line sites. They have preferred more of conventional trading through
brokers.
g. Out of the total respondents chosen for the study majority 88% of them have been
satisfied in investing in the exchanges, showing their greater risk taking ability and
knowledge about the markets.
h. 42.42% of the respondents have employed their funds in Reliance Groups and
14.26% of the respondents have opted to invest in bullion markets.
i. Personal factors of the respondents have no significant influence on the motivational
factor to trading in the markets.
 Stock Market vs Commodity Market- A Study on Traders’/Investors’ 247

10 Conclusion

From the study of traders/investors preferences between the stock and commodity mar-
kets a detailed note of the markets in respect of awareness, orientation and action in
decision making and satisfaction level of the respondents has been assessed.
The study has provided the following suggestions, periodical investors meet should
be organised to educate them regarding trading practices. Since most of the respondents
came to know about the stock and commodity markets through brokers, more of aware-
ness should be created among them about the markets. Effective advertisement must be
used to bring awareness among people about the stock and commodity markets. The reg-
ulatory machinery viz. Forward Markets Commission should frame regulations, which
will motivate the investors to trade in commodities with lesser margin to the intermedi-
aries with a balanced growth for the individual as well as for the economy. The study
area has provided an outline of the investment pattern of the traders and the investors
and their preferences and expectations from the market.

References
Senthil, D.: Investor’s perception regarding the performance of Indian mutual funds. J. Forecast.
11(6), 517–541 (2017)
Kumar, M.: A study of customers preference towards investment in equity share and mutual funds.
J. Appl. Corp. Financ. 30–33 (2018)
Sivarethinamohan, A.: A study of investors preference in Indian commodities market. Environ.
Plan. 25, 152–156 (2019)
Ilyas, A.: Indian investors behavior and perception: a study of commodity market. Environ. Plan.
25, 1815–1838 (2020)
Moshin Khan, M.: Commodity market – performance & prospects. Commod. Deriv. 1, 20–25
(2006)
Narasimha Rao, K.L.: Commodities has the future arrived. Treasury management, pp. 23–27,
October 2005
Venkat, G., Chiragra, D.R.: Role of open interest & volume of trends in determining market trends
www.sebi.com
www.moneycontol.com
 Is There Underpricing After IPOs

Mellisa Fitri Andriyani Muzakir and Dessy Isfianadewi(B)

Department of Management, Faculty of Business and Economics, Universitas Islam Indonesia,

Yogyakarta, Indonesia
[email protected]

Abstract. This study aims to analyze the underpricing phenomenon and financial
factors that influence underpricing, such as debt-to-equity ratio, age, and company
size. Underpricing is detrimental to the company because the funds obtained are
not optimal. When underpricing occurs, investors can get a positive initial return.
It is inversely proportional to investors. This study will use the quantitative method
with multiple regression as the data analysis method. The data used are secondary
data derived from the prospectus and the company’s financial statements after the
Initial Public Offering. The sample of this research is 151 companies listed on the
stock market in Indonesia for the period 2020–2022. This study logically wants
to educate investors to calculate and analyze before deciding to purchase initial
shares at the time of the IPO so that there are no more losses resulting from making
decisions based on psychological effects as happened to issuers with big names
but does not provide a positive initial return for investors.

Keywords: Initial public offering · underpricing · Initial return · Debt to equity

ratio

1 Introduction
Initial Public Offering (IPO) attracts much attention from the public or investors. Com-
panies that already have big names that stick in the minds of the people are usually very
much in the future for an IPO. IPO empirically has three subjects that always cause
anomalies, namely Short-Run Underpricing IPO, Market Phenomenon, and Long-Run
Performance [1]. Psychologically, investors expect to generate positive anomaly returns
on initial returns. Investors expect prices to rise in the secondary market so that there are
profits to be made. This expectation occurs because investors’ psychology plays more
of a role in purchasing decisions than logical or rational ones. Companies conducting an
IPO must issue a prospectus as an initial fundamental analysis for investors. A prospectus
will be very petrified investors. Psychological investors can lead to investment losses. In
an IPO, when the offer price is lower than on the first trading day, it is called underpricing
[2].
Prices that occur during the listing of issuers are underpricing and overpricing [3].
This mini research focuses on the occurrence of underpricing phenomena in companies
that are conducting initial offerings to the public. Underpricing is, of course, detrimental
to the company because the funds obtained are not maximal. It is inversely proportional

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 248–254, 2023.
https://doi.org/10.1007/978-3-031-26956-1_24
 Is There Underpricing After IPOs 249

to investors. When underpricing occurs, investors can get a positive initial return. The
price formed at the initial offering is the price between the underwriter and the issuer. The
shares distributed are influenced by investors, while investor sentiment in determining
the IPO price during the offering period up to the secondary market is influenced by the
underwriter [4]. The company (issuer) is interested in the IPO to meet the company’s
internal financial needs, so the issuer must minimize underpricing.
From 2022 to August 31, 2022, there were 43 new issuers to conduct initial offerings
and 23 prospective issuers until September 2, 2022. This number increased from 2021,
when only 28 new issuers were registered [5]. A large number of new issuers is two
sides of the coin. Many issuers want fresh funds according to their needs. On the other
hand, investors wish for a positive initial return. The phenomenon of underpricing IPOs
is an exciting thing for investors. The prospectus published in official IPO institutions
shows issuers’ allocation of fresh funds.
This research logically wants to educate investors to see and calculate before pur-
chasing initial shares at the time of the IPO so that there are no more losses resulting
from psychological-based decision-making as happened to issuers with big names but
does not provide a positive initial return for investors.

2 Literature Review
The IPO raises capital, allowing the company to grow to expand internationally and pro-
viding liquidity and diversification opportunities [6]. Research related to underpricing
IPOs has existed for a long time using different variables. [7] Measuring performance
after the IPO showed a significant decrease in performance as measured by ROA. Under-
pricing in China can be reduced by Confucianism [8]. The IPO is expected to have a
positive impact on investors and issuers. For issuers, IPOs play a vital role in the financial
system. Companies obtain financial capital and provide investors with tradable assets
[9]. Underpricing occurs when the price on the initial share is lower than the price on the
first day in the secondary market. In general, underpricing is explained by asymmetric
information and risk [10].
The number of stock investors in Indonesia is increasing from year to year. Data
published by KSEI [12] states that the growth in the number of investors in stocks
and other securities over the last four years was 1,104,610 in 2019, in 2020, it was
1,695,268, in 2021, it was 3,451,513, August 2022, was 4,137. 997. This number shows
the increasing interest of the Indonesian people in investing in stocks. Several countries
confirm positive initial returns in many markets [11]. Initial return is the profit investors
can obtain from the first share price lower than the opening price on the secondary market
on the first day [13]. Initial return is measured by the closing price of the first day on
the secondary market [14]. Research conducted by [15] found that underpricing occurs
in insurance companies.

3 Prepositions
3.1 Issuing Size, Age, and Underpricing
Age represents the company’s history during its operation before the IPO [16], the time
interval from the establishment to being listed on the stock exchange [17]. Size is the size
250 M. F. A. Muzakir and D. Isfianadewi

of the offer (number of issues) and is used to identify the ex-ante uncertainty associated
with the IPO issue [16]. [18] Revealed that issue size, market, volatility, and reciprocal
underwriter status of IPO prices proved to affect IPO underpricing. Underpricing also
occurs in Canada with three related variables: trade volume, the company’s business
sector, and the use of funds from the IPO [19]. Size, and age, are closely related to
underpricing on the Chittagong Stock Exchange [20]. About the proposed variable,
Firm size and age were also investigated by [21], which concluded that firm size and
age affected underpricing [22]. Suppose the size issue affects underpricing. IPOs with
high issues volume are usually less underpriced [23].

Proposition 1: Issue Size Affects Underpricing.

Proposition 2: Age Affects Underpricing.

3.2 D/E and Underpricing

Debt to Equity Ratio (D/E) is a debt ratio that reflects the company’s ability to meet all
obligations and is expressed in percentages [24]. (D/E) is used to measure financial
performance, and equity rating is used to ascertain the impact of qualitative aspects of
financial statements [25]. [26] No statistically significant evidence links initial returns
(overpricing and underpricing) with firm leverage. Findings [25, 27] underpricing is
influenced by the debt-to-equity ratio. Financial liabilities have a positive impact on
underpricing [28].

Proposition 3: D/E Affects Underpricing.

4 Propose Research Design

4.1 Data Collection

The sample of this research sample is a company that registered for a listing (IPO) in
2020–2022, has a prospectus, and is listed on the official IDX website. There are 151
companies listed on the stock market in Indonesia (44 issuers in September 2022, 53
issuers in 2021, and 51 issuers in 2020), [29]. The data used is secondary data that can
access through the official IDX website or other official websites, such as e-IPO. The
information that must seek from the sample issuers is the offering price during the IPO,
the initial opening and closing price in the secondary market, the daily price in the first
month to 12 months after the IPO, and the JCI to determine short-term performance and
to determine the phenomenon of underpricing, issue size, since.
 Is There Underpricing After IPOs 251

4.2 Variables and Measurement

IPO Underpricing
It is said to be underpricing when the offer price is lower than the first trading day of
trading [2] and can be measured by finding the initial return using the formulas [8, 26,
30].
P1 − P0
IR =
Po
IR is the initial return, where we can conclude underpricing or overpricing from the
results of these calculations. Pt is the closing price on the first day, and Po refers to the
initial offering price.

Issuing Size
Issuing size or (Size) is the total price multiplied by the bid price. Age is calculated
using the company’s age before the IPO. The formula calculates the debt-to-equity ratio
(DE) [27].
Total Debt
DE =
Total Share Equity

4.3 Methods of Data Analysis

Multiple Regression
In the analysis, the company’s or issuer’s characters are used to determine their effect
on the initial return. The equation used is as follows:
IR = α + βSize + βAge + βDE + ε
where:
IR (Initial Return) is the dependent variable of the Initial Public Offering,
α is a constant,
Size is for variable size,
Age is for variable age.
DE is debt to equity ratio.
ε is residual error.

Data Testing
Data testing consists of the Normality Test with the Kolmogorov-Smirnov significance
of 5% with the significance criteria (Sig F) > 0.05. The data is a normal distribution.
If Sig F < 0.05, the data is not a normal distribution. The autocorrelation test was
carried out by performing the 5% Run Test with the test criteria of significance (2-
tailed) > 0.05, meaning no autocorrelation symptoms, and significance (2-tailed) <
0.05, meaning autocorrelation symptoms. Heteroscedasticity was carried out with the
Park test of 5% significance with the criteria; if a significant number > 0.05, there
was no heteroscedasticity. If a significant number < 0.05 was heteroscedasticity. The
multicollinearity test was carried out with the variance inflation factor (VIF). If VIF <
10.00, there was no multicollinearity, and if VIF > 10.00, multicollinearity occurred.
252 M. F. A. Muzakir and D. Isfianadewi

5 Discussion
An IPO is an activity by a company to get funding from the public. IPOs are widely used
for research on various topics, most of which contain entrepreneurial aspects [31]. The
phenomena of underpricing, hot issue markets, and long-run underperformance have
been widespread in developed markets since the 1970s [32]. It is attractive to all parties,
namely the company and the community. Companies can get funding according to their
needs, and the public can get abnormal returns. People always hope to get a positive
return (profit), and the company also wants to fulfill the required capital. Underpricing
occurs when the bid price is lower than the price on the first day in the secondary market,
and the price difference is called initial return.
Financial factors are crucial for investors to identify before buying shares at the
initial offering. Investors must pay attention to the prospectus because the prospectus
provides holistic information related to the company, including company activities, busi-
ness prospects, information on shares offered, plans to use funds, capital structure, and
financial data. The prospectus is the most important document for investors because it
contains essential information about the company’s prospects, including risk factors, use
of funds, and creditworthiness [33]. Fundamental factors are critical to see the company’s
performance as long as it has not offered an IPO. Fundamentals provide information on
debt, assets, capital, and profits that can predict the company’s health, thus providing
confidence in investing.
Size is allegedly related to underpricing. Larger companies expected to have more
resources are more likely to push for an IPO than smaller companies [34]. The price
and size of the IPO will be determined based on the last day’s demand [35] and the size
of the supply and used to identify uncertainty [16]. Size in this study is the product of
the number of shares times the price. The firm’s age was one of the critical factors in
examining the IPO sample [25]. The assumption is that the more age the company is,
the wiser it is to manage risk, so it is hoped that during the IPO, there will be no losses
from the company’s side. The debt to Equity Ratio (D/E) is used to determine how much
money will be given to business owners as a form of debt.

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 The Application of Ta’widh and Gharamah
in the Context of Non-financial Institution

Rusni Hassan1(B) , Fatimah Mohamad Noor1 , and Jawwad Ali2

1 IIUM Institute of Islamic Banking and Finance, Jln. Gombak, 53100 Kuala Lumpur, Malaysia
[email protected]
2 Ahmad Ibrahim Kulliyyah of Laws, IIUM, Jln. Gombak, 53100 Kuala Lumpur, Malaysia

Abstract. The regulatory framework of Islamic finance in Malaysia makes it

abundantly clear that the Shariah resolutions of Bank Negara on ta’widh and
gharamah have a binding effect on Islamic financial institutions. However, the
question that needs to be answered is whether such resolutions apply to other types
of institutions that engage in financing transactions based on Islamic principles.
The main purpose of this study is to explore the concept and application of ta’widh
and gharamah in the context of a non-financial institution and its operation. The
data was obtained through a semi-structured interview at a selected State Islamic
Religious Councils Institution in Malaysia.
The findings reveal that there are two major forms of contracts that impose
ta’widh in the institution. Firstly, the contracts involve debt financings, such as
buying and selling real estate and financing for the institution’s subsidiary com-
panies. Secondly, the contracts do not involve debt, such as supply, service, and
property rental. Determining the amount of ta’widh varies according to the situ-
ations involved in the institution. Until now, there is still no internal or external
process that regulates the activities involving the implementation of ta’widh at the
institution. The findings also show that there is still no specific regulation, law, or
fatwa issued on the implementation of ta’widh in the institution. This study further
proposes a policy recommendation and actual cost determination’ parameter for
the proper implementation of ta’widh in the institution.

Keywords: Ta’widh · Gharamah · Non-Financial Institutions

1 Introduction
1.1 Background of the Study
In the context of the Islamic Financial system in Malaysia, the concept of ta’widh and
gharamah was introduced and consistently practised based on the resolution issued
by the Shariah Advisory Council of Bank Negara Malaysia and Securities Commis-
sion, respectively. According to the Shariah Committee of the Security Commission of
Malaysia, ta’widh is allowed when a customer purposely delays payment under certain
conditions.
Based on the regulatory framework of Islamic Finance in Malaysia, there is no
question about the binding effect of these resolutions on Islamic Financial Institutions.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 255–264, 2023.
https://doi.org/10.1007/978-3-031-26956-1_25
256 R. Hassan et al.

However, the question is whether such resolutions apply to other institutions practising
Islamic-based financing transactions. Presently, there is no clear guidance and fatwa
issued on this matter. The issues of ta’widh and gharamah are pertinent in the context of
financial contracts entered into by Islamic institutions with third parties, such as supplier
contracts, investment contracts and the like. Even though the concept of ta’widh and
gharamah is applied consistently in the Islamic Finance industry, there is a question
about their application to other institutions operating based on Shariah principles. The
Islamic-based institution is expected to operate based on Shariah principles, not only
when executing contractual agreements with the third party but also on the imposition
of ta’widh and gharamah in cases where parties defaulted in making payments.
Therefore, this study aims to explore the concept and application of ta’widh and
gharamah in the context of a non-financial institution and its operation. This study will
first study the ta’widh and gharamah from a Shariah perspective and how this concept
can be applied to other Islamic-based institutions. Subsequently, this paper will propose
a suitable approach to ta’widh and gharamah to be adopted and applied by other Islamic-
based institutions. It is also hoped that this paper will facilitate the issuance of the fatwa
on the ta’widh and gharamah to other institutions carrying on Islamic operations.

2 Literature Review
2.1 The Concept of Ta’widh and Gharamah
The word ta’widh is derived from the arabic word al- ‘iwad, which means ‘instead’.
The term ta’widh or shart jaza’i is interpreted as “a fine as agreed by the parties to the
contract as compensation that can be claimed by the creditor when the debtor failed
to pay or make late payment of debts” (Yaakub et al. 2014). Shart jaza’i means ‘the
agreement of the parties to do something if they failed to carry out their responsibilities.
According to the Resolution of Shari’ah Advisory Council (SAC) of the Central Bank of
Malaysia (2013), ta’widh refers to the actual losses experienced, which will be assessed
and determined by a third party, the Bank Negara Malaysia, which acts as the regulator.
As far as gharamah is concerned, gharamah is referred to a form of fine imposed on
an individual for doing something illegal. It is not prescribed in Shariah or something
contrary to the country’s law or the public system and is inconsistent with local customs
(Yaakub et al. 2014). Technically, gharamah can be defined as a penalty or charge
imposed on customers who delay financing debt settlement over and above the amount
of ta’widh (Central Bank of Malaysia 2013).

2.2 Permissibility of Ta’widh and Gharamah

Islam prohibits riba and permits halal transactions. Any excessive payment in paying
back the loan is riba. In the ta’widh case, a penalty is imposed because of deferred
payment. Question asked, does it consider riba? There are four different opinions among
scholars regarding this: -

Permissible to Charge in the Form of Money. Firstly, it is permissible to charge

compensation in the form of money. The Shariah scholars believe a penalty would be
 The Application of Ta’widh and Gharamah 257

allowed, and it will go to the bank as an income, provided that the debtor is insolvent
and causes damage to the creditor. Though they differ in terms of the type of damage to
be compensated, the method of the calculation for the compensation, the determination
of actual damage, whether the material damage or undue harm, and the decision maker
for the value, is it the court that values or estimates the amount, or would the usual
profit calculate it? (Az-Zarqa 1999; Al-Mani’, 2003; Ad-Dharir, 1985; Central Bank of
Malaysia, 2013).

Ta’widh will be Considered as Riba if a Debtor is Asked to Pay During His Insol-
vency. Secondly, there is consensus among the Fuqaha that ta’widh or shart jaza’i would
be considered as riba if a debtor is asked to pay during his insolvency, mainly when the
delay in payment does not cause any harm to the creditor. Among the Fuqaha who are
with the view that. Because riba means a conditional increase that the creditor takes
from the debtor for the delay in payment, this, too, is the fact of the shart jaza’i, which is
the increase in conditional capital on time. (Az-Zarqa 1999; Al-Mani, 2003; AdDharir,
1985; Hammad, 1985; Syaaban, 1989).

Not Permissible to Impose Compensation for the delay in Payment at All. Thirdly,
it is not permissible to impose compensation for the delay in payment. The scholars
of this view firmly believe that procrastination from the debtor is faced with legitimate
bankruptcy, which does not include financial compensation, whether it takes the form
of the specified fine or undefined compensation, and charging late payment is similar to
riba (Az-Zuhayli 1996; Al-Qurrahdaghi, 2006; Hammad, 1985).

It Should be Penalised in the Form of Money, Which Must be Channelled

to the Charity. Fourthly, the scholars opine that penalty is allowed in case of late
payment, but it must be channelled to charity based on iltizam al-tabaru’, which is per-
missible in the Maliki school of thought. This means that customers should agree to
donate (sadaqah) and appoint an Islamic bank in their stead to distribute the sadaqah if
he fails to commit to the debt payment. If the incurred penalty is surrendered to a third
party or incurred for welfare purposes, it can no longer be considered as riba (AAOIFI
2010; Usmani 2011).

2.3 The Views on the Determination Compensation Cost

Compensation Based on Actual Cost. Some contemporary scholars viewed that the
payment of damages should be according to the actual value of the loss received by
the financier. This is based on the hadith that the Prophet SAW has stated regarding the
debtor’s refusal to repay the loan and deliberately delaying the payment, even though
this act is considered an injustice to the financier. They think it is appropriate to punish
debtors who deliberately delay and do not repay their financial obligations. Although,
the punishment stated is still general and may also involve imprisonment. Furthermore,
the hadith has also clearly stated the punishment for debtors who do not seriously repay
the debt and can be punished with damages (Syaaban 1989; Al-Tabtabaie 2006). This
compensation method is allowed, which only refers to the losses that are lost, damaged
and the like (Syaaban 1989).
258 R. Hassan et al.

Compensation Based on Opportunity Loss. Az-Zarqa (1999), Ad-Dharir (1985) and

Al-Mani’ (1985) agreed that it is permissible to impose compensation charges on debtors
who are capable of paying the debt within the stipulated time but deliberately delaying
the payment by considering it as an opportunity cost lost (opportunity loss). Opportunity
loss refers to the loss of future profit opportunities due to several factors and conditions.
In their view, deliberately delaying the repayment is unfair to the financiers as they
cannot recover the capital and cannot even make use of it. Therefore, imposing the cost
of opportunity loss in determining damages is allowed according to this view (Mohd
Noor and Haron 2016).

3 Research Methodology

The research methodology adopted in this study is qualitative, and the data were obtained
from the semi-structured interview. A thematic analysis was performed for the purpose
of data analysis on the findings of the interview.

4 Findings and Discussion

This study was conducted at one of the States Islamic Religious Councils (SIRC) in
Malaysia, and the actual name of the institution is anonymous. This institution opted to
keep its actual name to safeguard its privacy and confidentiality with the information
given. This interview was conducted according to the sectors involved in implementing
ta’widh and gharamah in this institution. There are four main sectors involved in the
implementation of ta’widh; the Legal Sector, the Management Services Sector, the Real
Estate Sector and the Baitulmal sector. A total of 7 officials were interviewed from
different sectors.
Based on the interview conducted with the participants, there were four main themes
emerged and they were named and categorized as Process, Quantum, Governance and
Regulation. All these themes are discussed in the next section.

4.1 Process

Situations that Require the Implementation of Ta’widh. Practically, this institution

did not distinguish between the terms ta’widh and gharamah. In other words, they do not
differentiate between fines and compensation. Moreover, the institution did not apply
the concept of gharamah in its practice. The following were the situations that require
the institution to implement ta’widh:

Properties

a) In the sale and purchase of the real estate, ta’widh was imposed due to delays in
making payments and not making payments within the stipulated period after a sale
and purchase agreement was signed.
 The Application of Ta’widh and Gharamah 259

b) In the case of project management ta’widh was imposed due to a ‘breach of contract’
and delays in project execution.
c) In the case of property rental, no ta’widh was imposed, but it referred to a ‘double
fine’ to the tenant whose rental period has expired but who is still living on the
premises.
d) The institution also imposed a management charge if the tenant fails or is late to
settle the monthly rental along with Government Service Tax on all amounts that
must be paid according to the set date.

Supply. In the case of supply, ta’widh was imposed due to delays in supplying any
services to the institutions. The types of supplies are as follows:

i) Services supply, such as ICT services, security, and cleaning.

ii) Maintenance supply, such as building or elevator maintenance.
iii) Equipment supply, such as printing machine.

Financing for Subsidiary Companies. Ta’widh was imposed due to delayed repaying
the loan within the stipulated time. In this case, the ta’widh was imposed following the
practice of Islamic financial institutions in Malaysia.

The Method Used to Claim Ta’widh. The implementation of ta’widh follows the cur-
rent practice by considering its suitability to the situations and the contracts involved.
Until now, there are still no procedures or guidelines that require the institution to perform
ta’widh.

Buying and Selling Real Estate. Accordingly, this institution applied the sale and pur-
chase agreement for a real estate sale and purchase purposes. Ta’widh will be imposed
if the buyer fails to repay the payment within three months from the sale and purchase
agreement date. It is either in the form of full payment or the purchase balance.

Project Management. In the case of project management, the practice of ta’widh in

project management was referred to the existing Base Lending Rate following the
practice of the Malaysian Public Works Department.

Property Rental. For the case of property rental, there was no ta’widh imposed. The
institution practised a double fine which followed the current practice of the district
council. At the same time, the period of payment charged was different according to the
agreement. Usually, the period of payment specified in the contract was three months
after signing or six months. In addition, the payment period will not be extended except
with the authority’s permission. In some cases, they were unable to pay the rent, and the
buyer will request to postpone for a month or two without imposing any fine on them.
There were also cases where the committee allows for deferment, but they have to pay
50% of the total debt. The participant further stressed that the late payment charge for
rental activities was not considered as ta’widh but it was a fine due to late payment. It
means that the value of the rental fee was the same, and there was no increase in the
principal value.
260 R. Hassan et al.

Supply of Services. For the supply of services sector, a fine was imposed due to the slow
progress in in-service performance. The fine was imposed by withholding the monthly
payment that must be given to the supplier. However, it was still not regarded as a
cancellation of the contract. Moreover, the imposition of ta’widh is different according
to the types of supplies, such as ICT services, security services and cleaning services, the
supply of photocopy machines and the maintenance of lifts and buildings. The method
of calculation of ta’widh was determined by the parties involved in the contract. They
also will propose a fine rate in the offer letter, which was RM100 per day for each delay.
Some fines were charged according to percentages, such as 4%. However, it may vary
according to the type of service. The institution can also impose a fine of up to RM100
per day for each delay or a maximum rate of 10% of the contract price.

Financing for Subsidiary Companies. In financing the institution’s subsidiary compa-

nies, the ta’widh was carried out by following the existing practice of Islamic financial
institutions in Malaysia. Thus, the minimum amount of ta’widh charged was 1% of the
total loan given to the subsidiary companies. This 1% amount is based on a proposal
that the lawyers have recommended in accordance with current practices.

Channelling the Ta’widh. The amount of ta’widh is channelled to baitulmal, and the
money was regarded as an income for the institution. However, there was still no specific
use of the money as a result of ta’widh, which means that the money as a result of
ta’widh that went to baitulmal was considered clean money, not tainted money. However,
the question arose about whether ta’widh should be used for the general public or the
institution. This was due to the amount of ta’widh received was not known whether it
complied with Shariah or not. The absence of specific guidelines on ta’widh has created
a dispute in determining the proper way of channelling the ta’widh money. Due to these
doubts and disputes, the law officer believed ta’widh money can explicitly be used for
the general welfare, not for the institution to pay the salaries or emoluments of officials.

4.2 Quantum

The Amount of Ta’widh.

Buying and Selling Real Estate. Most of the amount ta’widh charged at the institu-
tion was 8%, especially in buying and selling real estate and project management. The
imposition of ta’widh in the sale and purchase process depended on the decision of the
appointed panel of lawyers who was accountable for managing the sale and purchase
agreement. The institution was also subject to the decision proposed by the panel of
lawyers since the institution did not have specific guidelines regarding the amount of
ta’widh that should be charged. The ta’widh rate set for selling and purchasing real estate
was also made following the baitulmal committee’s rulings. Usually, two committees
facilitated the institution in finance matters: the baitulmal committee and the investment
committee. Sometimes, the investment committee can also decide the amount rate that
involves investment activities.
 The Application of Ta’widh and Gharamah 261

Project Management. Meanwhile, for project management, all practices referred to the
parameters of the Malaysian Public Works Department, which was the Base Lending
Rate.

(Prime Rate/365) × Contract Value

Property Rental. For the property rental, the amount of the fine was not specified, it was
referred to a double fine.

Supply of Services. For supplies, the current rate was RM100 per day of delay, and it must
not exceed 10% of the contract price. Sometimes the ta’widh amount may vary according
to the respective parties of each department who are responsible for determining the
amount of ta’widh in the tender committee. The cumulative amount of late fines that the
Council may impose on the consultant shall not exceed 1/3 of the contract price. The
basic calculation is as follows:

Fine = (late penalty rate)% /365 × (Contract Price) × (Number of days late)

Financing for Subsidiary Companies. The amount charged for the financing of
subsidiaries was 1% of the total financing.

Determination of Actual cost. It was found that the determination of the amount of
ta’widh in the institution did not refer specifically to the actual cost or opportunity loss
that actually exists. This was due to no clear guidelines or references for the proper
implementation of ta’widh in the institution. The actual cost due to late payment was
determined by the parties involved in the ta’widh of each sector. For instance, if ta’widh
involves ICT, then the ICT department knows how much they should charge. After that,
they need to report to the legal department, and no quantum can be regarded as the actual
cost. In the case of property rental, when the first and second notices had been issued to
the tenants, but they still fail to pay, this matter will be brought to the legal department.
As a result, the legal department will issue a letter requesting that the tenant pay the
outstanding within 14 days, along with the lawyer’s cost of RM100 per day. If the tenant
fails to do so, it will be taken to court to make any claim. In the event of an outstanding
amount, the claims are only made against the outstanding rental rate. The notice will be
issued to the tenant three times. If the tenant fails to pay even though the third notice
has been issued, the lawyer will issue a notice. After that, they must make the payment
and including the cost of the lawyer’s notice. According to the participant, for the case
of renting, the cost incurred also includes the lawyer’s notice, and it was considered the
actual cost.

Actual Cost Items. It was revealed that the items that refer to the actual cost could not
be ascertained. Almost all activities and situations that applied ta’widh do not refer to the
actual cost. Only in the case of property rental clearly stated that the notice of the lawyer
is one of the actual costs that they have to bear. Furthermore, no items refer to the actual
cost claimed for the sale and purchase of the real estate. This is because the amount of 8%
is derived from the conventional practice in sales and purchase agreements. Moreover,
the amount of 8% charged did not refer to any actual cost, although it exists.
262 R. Hassan et al.

4.3 Governance
Internal and External Compliance. Regarding the internal or external compliance
process, there were still no mechanisms to ensure Shariah compliance in implementing
ta’widh in the institution. Most applications were based on mutual agreement and consent
between contracting parties. The participant explained that commonly the contracting
parties have agreed with the imposition of ta’widh, and prior notification has been made
in advance and it was mentioned in the agreement. The compliance process was under
the supervision of the respective parties involved in the contract. Even though there exists
Syariah ISO in the institution whose role is ensuring Shariah compliance in the aspect of
documentation for the institution, it was not their role to observe specific compliance in
the practice of ta’widh. On the other hand, some contracts required the respective parties
to seek advice from the baitulmal committee, such as in the case of loans with banks and
the issue of tawarruq. As a matter of fact, no party will monitor whether the contract
signed in an agreement complies with Shariah or not. The draft of the agreement was also
implemented according to common practices such as sales and purchase agreements. It
was then reviewed by a panel of lawyers appointed for this purpose.

4.4 Regulation
Laws and Enactments. At the moment, there was no specific laws or enactment that
requires the institution to perform ta’widh. For real estate sales and purchases, the insti-
tution frequently refers to the Solicitor Remuneration Orders (SRO) table. Meanwhile, in
the case of property rental the double fines were applied following the common practices
by the district council as per Civil Act 1956.

Fatwa. Regarding the fatwa, there is still no fatwa issued by any party, including the
institution’s fatwa committee, regarding the implementation of ta’widh. The participant
also added that they were only referring to the Shariah resolution of the Central bank of
Malaysia regarding the implementation of ta’widh and gharamah.

5 Conclusion and Recommendation

Based on the finding of the study, a number of conclusions can be drawn. Firstly, there are
two primary types of contracts in the institution that involve the imposition of ta’widh; the
contracts comprise debt financings, which include the purchase and sale of real estate
and financing for the institution’s subsidiary enterprises. The second type of contract
does not entail the incurring of debt, such as one for the rental of property, supply, or
service. Secondly, the amount of ta’widh that is allotted can vary greatly depending
on the circumstances that are present in the institution. Thirdly, no internal or external
mechanism governs the activities involved in the ta’widh at the institution, and this
situation has persisted up until now. Fourthly, there is still no standard regulation, law,
or fatwa on the application of ta’widh in the institution, except for renting property, for
which a double fine is imposed in accordance with the Civil Law of 1956.
 The Application of Ta’widh and Gharamah 263

Due to the lack of guidelines on the correct implementation of ta’widh, this study
suggests that the institution introduces a new policy regarding ta’widh in the form of
fatwa and internal regulation. In addition, the findings of this research suggest that the
organisation should create separate accounts in order to facilitate and govern the usage
of ta’widh money. Besides, this study suggests a parameter for determining actual costs,
and those parameters are as follows:

1. Ta’widh should be imposed based on the actual losses suffered by the institution due
to delays in payments.
2. Ta’widh is imposed only on debtors who deliberately delay payment.
3. Ta’widh can be claimed based on direct and indirect costs. Direct costs are the costs
incurred involving administrative and management costs. Indirect costs are the costs
paid to third parties, such as legal fees, taxation and the like.
4. Claims to the actual cost are implemented based on the portfolio (basis portfolio)
5. The rate of the amount claimed must follow the guidelines set by the fatwa.

Finally, since the scope of the study focused only on one particular institution in
Malaysia, future research studies can be expanded to other Islamic-based institutions
that also apply the concept of ta’widh and gharamah in their institutions. In this case,
other possible issues can be identified due to the different situations and regulations that
demand the application of ta’widh and gharamah.

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 Audit Committee and Tax Avoidance:
An Empirical Study on Palestinian Corporations

Islam Abdeljawad(B) , Jehad Al-Selkhi, and Wesam Abu-Ras

An-Najah National University, Nablus, Palestine

[email protected]

Abstract. This paper aims to study the effects of the audit committee’s character-
istics, namely independence, expertise, and size, on tax avoidance. The data was
extracted from the annual reports of all non-financial firms listed on the Pales-
tine Exchange between 2015 and 2021. Utilizing linear pooled, fixed effects, and
random effects regressions, the effect of audit committee characteristics on tax
evasion was explored. The results indicate that audit committee independence and
size have a positive impact on tax avoidance, while audit committee expertise has
a negative impact on tax avoidance. This implies a lower tax burden for companies
with independent audit committee members and larger audit committee sizes, but
a higher tax burden for companies with audit committee members with expertise.
In sum, the rules governing the formation of an audit committee have an impact on
the amount of tax a company must pay, so policymakers should pay close attention
to these regulations.

Keywords: Audit committee characteristics · Tax avoidance · Palestine

1 Introduction
By emphasizing tax avoidance behavior, the board of directors seeks to reduce tax
expenses that result in a rise in net income [1]. By exploiting tax law loopholes, this
behavior would have an important influence on the firm’s operational outcomes and
financial position [1]. The other side of tax avoidance by the taxpayer is tax aggression
[2]. Tax avoidance is when management attempts to avoid or reduce paying taxes in
order to lower the effective tax rate and increase net income [3].
Corporate governance characteristics affect a firm’s tax avoidance behavior [4]. The
audit committee (AC), whose primary responsibility is oversight and supervision, is
crucial to the firm’s board supervision of tax risks. Prior to being presented to the firm’s
board, financial and tax aspects are introduced to the AC [1]. In light of this, we inquire
whether the characteristics of the AC influence tax avoidance behavior.
Numerous studies [5–7] have examined the connection between governance prac-
tices and their influence on tax aggression. However, few studies look into the extent to
which AC characteristics influence tax aggression, particularly in the Palestinian context,
making this study an opening investigation of the impact of AC features on tax aggres-
sion. The Palestinian Corporate Governance Code, issued by the National Committee

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 265–275, 2023.
https://doi.org/10.1007/978-3-031-26956-1_26
266 I. Abdeljawad et al.

on Governance in 2009, mandates that Palestinian companies establish an AC whose

members possess independence, expertise, and experience [8]. Compared to neighbor-
ing countries, the phenomenon of tax avoidance has increased in Palestine for a variety
of reasons: the lack of control over boards and large areas within Palestine as a result
of occupation [9–11], the weakness of the tax and legal system [12–14], the difficult
economic conditions faced by Palestinian firms, and the taxpayer’s low responsibility
to bear the public burdens of the state [15]. Finally, taxes are the main source of pro-
ceeds for the Palestinian Authority Treasury, accounting for 80.2% of total government
revenues in 2020 [16].
This research highlights the negative side of enhancing control measures on the tax
burden. The composition of the AC is pertinent when discussing tax avoidance. Results
should alert regulators to formulate governance and tax laws in a manner that ensures
companies’ tax compliance. Next, the paper discusses the theoretical foundation. The
third and fourth sections present the methodology and the results, while the final section
concludes.

2 Hypotheses Development

2.1 Tax Avoidance

In an effort to maximize the company’s profits, managers may evade taxes on purpose
[17]. Tax aggression is a management technique employed in tax planning to reduce the
tax base. It may involve tax evasion [18] and may be legal or unlawful [19].
Tax avoidance activities are opaque and convoluted, making them challenging to
detect in practice. In environments with low levels of transparency, the taxpayer can typ-
ically manipulate data [20]. However, the activities conducted by management, includ-
ing tax evasion, are subject to AC and external auditor oversight [21]. Numerous studies
discovered a correlation between tax evasion and agency costs, implying that good cor-
porate governance, including the effectiveness of ACs, has a direct consequence on tax
aggression [22–24]. Moreover, information disclosure is crucial because the greater the
disclosure, the less tax avoidance and, consequently, the greater the company’s value
[24]. Nonetheless, some research indicates that tax evasion has a direct influence on
firm value and stock return because investors focus on profit size without analyzing its
components in detail [25].

2.2 Audit Committee Characteristics

The Palestinian Corporate Governance Code mandates that the boards of directors of
publicly traded companies establish an AC with oversight responsibilities over financial
matters. Therefore, the formation of this committee should reduce tax avoidance pro-
cedures [22]. Recently, the Palestinian Companies Law No. 42 of 2021, Article (188)
of the law stipulates that the board of directors of public corporations are required to
form an AC, and that the number of committee members shall not be less than three.
The committee head shall be independent, and the AC must include at least one inde-
pendent member with practical knowledge and experience in financial and accounting
 Audit Committee and Tax Avoidance 267

matters. There may be three characteristics of ACs that influence tax avoidance: com-
mittee member independence, committee expertise, and AC size. In light of the agency
problem’s conflict of interest, managers seek to increase cash flows after-tax deduc-
tion, as tax aggression represents one of the investment opportunities. However, these
opportunities may be dangerous because they may result in an increase in tax liability,
and may expose the company to penalties, thereby harming the company’s reputation if
regulatory authorities discover them. Major shareholders do not accept this type of risk
because it would have a significant impact on their wealth [23].

2.2.1 Independence of Committee Members

In order to accomplish its supervision and monitoring tasks and preserve shareholder
interests, the AC must be independent from management [27]. Companies with a high
proportion of independent AC members had a reduced incidence of tax evasion [28].
A study by Deslandes et al. [1] explains that firms with an independent AC would
be less tax aggressive, whereas [18] indicates that independent directors reduce tax
aggressiveness since the AC is constituted mostly of board members; consequently, they
all have a common interest in reducing tax. In light of this, we evaluate the following
hypothesis:

H1: There is a positive relationship between AC independence and tax avoidance.

2.2.2 Audit Committee Expertise

By guiding the management, the expertise and knowledge of the AC’s members influ-
ence the significant strategic decisions of the organization. Experience and knowledge
are crucial to the AC’s interactions with the management and board of directors [29].
The Palestinian Companies Law stipulates that at least one AC member must have
financial and accounting expertise [26]. The financial expertise of AC members gives
the committee a great deal more influence over executive management decisions [30].
Members of an AC can gain experience through interaction with other experienced
members in order to disseminate expertise and knowledge of control practices [1]. The
committee’s effectiveness will be enhanced by the diversity of cultural and practical
backgrounds, skills, and knowledge, which will provide a variety of perspectives and
experiences in monitoring the firm’s performance and strategy [31]. In general, the find-
ings of previous research indicate the significance of AC members’ practical experience
and scientific knowledge in enhancing financial control, including tax management. The
committee’s ability to make decisions that have a direct influence on the financial perfor-
mance of the company, including tax management, increases as the committee members’
experience increases. In light of this, the following hypothesis is examined:

H2: The experience of an AC is negatively associated with tax avoidance.

268 I. Abdeljawad et al.

2.2.3 Audit Committee Size

The Palestinian Companies Law of 2021 stipulates that an AC should have a minimum
of 3 members and at least one of the independent members with financial expertise
[26]. The AC’s size supports its primary function of monitoring financial reporting.
Earnings management is hampered when a significant number of members possess the
requisite skills and knowledge [32]. We expect a negative association between AC size
and earnings management [33]. The magnitude of the AC correlates positively with
the financial reporting quality [34]. The presence of a high number of AC members
facilitates the division of work, hence facilitating audits [33]. According to the resource
dependence theory, the AC is more effective as its size increases because it can spend
more resources to resolve the company’s concerns and difficulties. Consequently, we
hypothesize the following:

H3: The size of the AC is inversely connected to tax evasion.

3 Approach

3.1 Data

This study is an empirical investigation, and the sample involves all 32 non-financial
corporations listed on the Palestine Stock Exchange. The financial sector on the stock
exchange was excluded with 15 companies total due to the difficulty of tax avoidance by
these businesses, which are subject to stringent regulatory authorities. The study spans
the years 2015 to 2021 and includes 224 observations. The information required to test
the hypotheses was hand-collected from the annual reports of the listed companies.

3.2 Model and Variable’s Measurement

Table 1 displays the measurement of variables. The linear model used to examine the
relationship among ETR DIFFERENTIAL and AC characteristics was the following:

ETR_DIFFERENTIAL = β0 + β1(IND_AC) + β2(EXP_AC) + β3(SIZ_AC)+

β4(LEV) + β5(SIZE) + β6(BSIZE) + β7(CEODUAL) + β8(BSKILL) + εit
(1)
 Audit Committee and Tax Avoidance 269

Table 1. Measurement of variables

Variable Ticker Measure Empirical Expected sign

reference
Tax avoidance ETR_DIFFERENTIAL Tax avoidance = [23, 24, 35] Dependent
Statutory tax rate
– effective tax rate
where
Effective tax rate
= tax
expense/taxable
income
Independence of IND_AC The percentage of [1, 36, 37] +
Committee independent
Members members out of
the total members
Audit EXP_AC The percentage of [1, 36, 38] +
Committee members who
Expertise have financial,
accounting, or
practical
experience from
the members of
the AC
Audit SIZ_AC The total number [36, 39] +
Committee Size of AC members
Leverage LEV Total Debt/total [1, 35, 39] +
Equity
Firm Size SIZE The natural [35, 39] +
logarithm of total
assets
Board size BSIZE Number of [40–42] +
directors serving
on the board
CEO duality CEODUAL A binary variable [40, 41, 43] +
equals 1 if a head
of the board is
also the CEO of
the firm and
“Zero” otherwise
(continued)
270 I. Abdeljawad et al.

Table 1. (continued)

Variable Ticker Measure Empirical Expected sign

reference
Board skill BSKILL The proportion of [41] +
directors with a
doctoral or
master’s
qualification to the
total number of
directors

4 Empirical Results

4.1 Descriptive Statistics

Table 2 displays descriptive indicators for the response variable (ETR DIFFERENTIAL),
the explanatory variables (IND AC, EXP AC, and SIZ AC), and the control variables
(BSIZE, BSKILL, CEODUAL, SIZE, LEV). The mean of the dependent variable “ETR
DIFFERENTIAL” is 0.061, indicating that the difference between the statutory tax rate
and the effective tax rate is approximately 6.1%.
The majority of AC members are independent, with a percentage of 0.610 for IND
AC. The average percentage of the EXP AC is 0.512, indicating that nearly half of the
members have experience in finance and accounting. The mean of SIZ AC is 3.013,
indicating that the sample companies are committed to the new Palestinian Companies
Law’s recommendations.

Table 2. Descriptive indicators

Mean Median Maximum Minimum Observations

ETR_DIFFERENTIAL 0.061 0.083 2.520 −1.100 223
IND_AC 0.610 0.850 3.000 0.000 223
EXP_AC 0.512 0.660 1.000 0.000 223
SIZ_AC 3.013 3.000 11.000 0.000 223
BSIZE 8.543 8.000 15.000 4.000 223
BSKILL 0.540 0.570 0.910 0.000 223
CEODUAL 0.430 0.000 1.000 0.000 223
SIZE 7.413 7.420 9.690 4.640 223
LEV 0.627 0.460 3.020 0.012 223
 Audit Committee and Tax Avoidance 271

4.2 Correlation Analysis

The correlation coefficient is utilized to assess the direction and strength of the corre-
lations between the independent factors and the dependent variable (tax avoidance) in
Table 3.
The results reveal a positive correlation between AC member independence and tax
avoidance. However, a negative association was discovered between the tax avoidance
competence of AC members and the size of the AC. On the other hand, it was found that
(BSIZE, CEODUAL, and LEV had an inverse association with tax avoidance, although
BSKILL has no relationship. In addition, a link between SIZE and tax evasion was
identified. In general, correlations between independent variables are smaller than 0.80,
therefore multicollinearity is not an issue.

Table 3. Correlation matrix

Correlation (1) (2) (3) (4) (5) (6) (7) (8) (9)
(1) ETR_DIFFERENTIAL 1.00
(2) IND_AC 0.02 1.00
(3) EXP_AC −0.10 0.73 1.00
(4) SIZ_AC −0.10 0.38 0.49 1.00
(5) BSIZE −0.09 0.21 0.12 0.16 1.00
(6) BSKILL 0.00 0.32 0.41 0.26 0.38 1.00
(7) CEODUAL −0.13 0.04 −0.04 0.06 0.17 −0.04 1.00
(8) SIZE 0.05 0.27 0.12 −0.08 0.15 0.14 0.19 1.00
(9) LEV −0.01 0.05 0.12 0.16 0.12 0.19 −0.13 0.15 1.00

4.3 Estimation Results

Table 4 demonstrates that there is a positive effect of the AC’s independence on tax
avoidance in Models 1 and 3, meaning that increasing the AC’s independence will
increase tax avoidance. This, however, contradicts the study conducted by Boussaidi and
Hamed [18]. In all models, the expertise of the AC members has a negative impact on
tax avoidance. Increasing the experience of the AC will reduce tax avoidance, consistent
with the research of Ferreira [31]. Contrary to the findings of Fitri and Siswantoro [33],
there is a positive effect in Model 2 for the size of the AC, indicating that an increase in
the size of the AC will increase tax avoidance. In models 1 and 3, the duality of the CEO
has a negative effect, meaning that firms with a dual role for the CEO engage in less
tax avoidance. Model 2 concludes that there is a positive relationship between financial
leverage and tax avoidance, such that greater leverage increases tax avoidance.
272 I. Abdeljawad et al.

Table 4. Estimation results

Dependent Variable: Model 1 Model 2 Model 3

ETR_DIFFERENTIAL Pooled regression Fixed effect Random effect
Independent Variables
IND_AC 0.104** 0.079 0.105**
(0.051) (0.072) (0.049)
EXP_AC −0.180** −0.425*** −0.184**
(0.075) (0.098) (0.072)
SIZ_AC −0.004 0.064*** −0.004
(0.008) (0.019) (0.008)
BSIZE −0.013 0.010 −0.013
(0.009) (0.023) (0.009)
BSKILL 0.097 −0.039 0.091
(0.094) (0.135) (0.091)
CEODUAL −0.077* 0.001 −0.076*
(0.040) (0.072) (0.039)
SIZE 0.020 0.043 0.020
(0.028) (0.079) (0.028)
LEV −0.006 0.160*** −0.004
(0.034) (0.053) (0.033)
C 0.051 −0.442 0.049
(0.210) (0.594) (0.205)
R-squared 0.063 0.316 0.061
Adjusted R-squared 0.028 0.143 0.025
F-statistic 1.788 1.821 1.723
Prob(F-statistic) 0.081 0.003 0.095
Durbin-Watson stat 1.312 1.559 1.319
Total unbalanced 223 223 223
observations
Cross-section fixed Panel EGLS
effect and period fixed (Cross-section random
effect and robust effects) with Swamy
standard errors and Arora estimator of
component variances
 Audit Committee and Tax Avoidance 273

5 Conclusion
The characteristics of ACs have a significant impact on tax avoidance. While the com-
mittee’s independence and size have a positive effect on tax avoidance, experience has
the opposite effect. We advise boards of directors not to overstate tax planning as a sort
of investment that carries legal and reputational risks in its content. The audit commit-
tees should maintain fairness and equity, as well as strike a balance between increasing
shareholder wealth and meeting tax requirements. Legislators should reformulate the
tax law to reflect Palestinian reality as well as the investment promotion law, which
is viewed by some corporations as one of their legal options for tax avoidance. Data
availability was one of the limitations of this study. Some AC characteristics, like AC
meetings, are hard to get data on, so they are ignored, even though they may have an
effect on tax avoidance.

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 Social Responsibility and Corporate Financial
Performance: Theoretical Framework

Mohammed Nawaf Jallad(B)

Palestine Technical University- Kadoorie, West Bank, Tulkarm, Palestine, Israel

[email protected]

Abstract. After many countries abandoned part of their economic and social
roles, interest in corporate social responsibility has become an urgent and nec-
essary need for what goes back to society and the companies themselves. Many
studies have been conducted linking social responsibility and corporate financial
performance, including a positive, negative, or neutral relationship. Against this
background, this study aims to highlight the importance of corporate social respon-
sibility by summarizing a number of empirical studies that linked corporate social
responsibility to financial performance through knowledge of theoretical concepts
and methods of measuring both variables and then defining a comprehensive con-
ceptual model that illustrates the dimensions of this relationship which can A
number of future researchers benefit from it.

Keywords: Social responsibility · Financial performance · Market to book

value · Corporate

1 Introduction
The economic system in most countries depends on private sector institutions, which
constitute a considerable percentage. Also, interest in the concept of social responsi-
bility occupies a large area because it is of great importance in reducing economic
and social problems such as poverty and unemployment and reducing environmental
problems such as pollution and the waste of natural resources (Al. Najjar 2016). In the
year 2005, out of every ten dollars, the US invested one in professional management
as a social responsibility, and these investors with social responsibility were very inter-
ested in the responsibility of producing external factors that affect the demand for their
shares; Accordingly, conclude that corporate social responsibility can either increase or
decrease a company’s market value. Therefore, companies must increase their market
value through social schemes and a competitive stock market (Raza et al. 2012). The
social impact of business organizations is a critical issue; therefore, we always find a
prominent issue in the modern business world centered on the consideration of decision-
makers and managers of organizations and the environmental and social factors in their
decisions within institutions (Uadiale and Fagbemi 2012). This paper is crucial as it will
serve as a resource for future researchers to review and develop research that supports
the concept of social responsibility in the business organization sector by highlighting

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 276–282, 2023.
https://doi.org/10.1007/978-3-031-26956-1_27
 Social Responsibility and Corporate Financial Performance 277

several recent studies that link social responsibility and the financial performance of
companies. The profit target for companies is a legitimate right; to achieve this goal;
it must be linked to continuity. This continuity is only achieved if there is a vital incu-
bator for the company, and this incubator is CRS. The study’s significance stems from
explaining why corporate social responsibility is so valuable from the point of view of
different sectors. This study used a literature review approach and evaluated recent quan-
titative literature exploring the relationship between CRS and financial performance and
providing a comprehensive conceptual framework for future researchers. This research
consists of three parts: the first part of the study defines companies’ social responsibility
and financial performance and ways to measure these variables. In the second part, we
discussed the importance of CSR and reviewed several recent articles linking CSR to
CFP. In the last part, we designed a comprehensive conceptual framework clarifying the
relationship between the two variables.

2 Corporate Social Responsibility (CSR)

CRS is one of the most important issues that still dominates the existing literature, and
many definitions of this term contain different points of view (Karagiorgos 2010). Jones
(1980) Social responsibility in business Is the notion that companies have a societal
duty to represent classes other than shareholders beyond what is prescribed by statute
or union contract. The concept of CRS includes incorporating environmental and social
standards into business operations and in their dealings with stakeholders voluntarily
(Uadiale and Fagbemi 2012). The social performance of companies is measured using
annual reports that disclose companies’ environmental and social activities in addition
to some measures such as multi-faceted CC and CSP standards and many international
standards (Alexander and Buchholz 1978).

3 Corporate Financial Performance (CFP)

Financial Performance: Capacity to direct and manage a business’s resources; during a

certain time frame, a company’s financial performance is the total of its capital adequacy
ratio, liquidity, debt, solvency, and profitability measures. (Fatihudin and Mochklas
2018).
To find out the level of the financial performance of companies, the analysts perform
the financial analysis, which is mean: It is the process of identifying the company’s
strengths and weaknesses by analyzing the financial statements and linking its elements
to each other to extract specific percentages and then comparing the results of the analy-
sis with previous years or comparing them with other companies (Tekatel 2019). There
is no consensus on the measurement tool analysts must apply to measure financial per-
formance. Some use accounting measures that focus on the historical aspects of the
company’s performance, while others focus on market measures that look to the future
and focus on market performance which is the company’s ability to make profits in the
future (Tsoutsoura 2004).
278 M. N. Jallad

4 The Importance of Corporate Social Responsibility

Interest in CRS has increased, especially as many countries have given up some of their
economic and service roles (Elasrag 2011). Hence, companies are no longer seen as a
vehicle for making money and delivering goods and services of the highest quality and
at competitive prices. Rather, it is also seen as a tool to help local communities live at a
good level and in a healthy environment (Carrigan and Attalla 2001). The most important
benefits that companies that adopt the idea of CSR receive are: lowering operating costs,
enhanced quality of production, increased profits, enhancement of their overall reputation
in the local community, and several other benefits (Talhouni 2012).In other words, it can
be said that CSR is an investment that returns to companies in increasing profits and
productivity, increasing the loyalty of employees and customers, and reducing disputes
between management and workers and the environment in which they work (Elasrag
2011). Therefore, implementing corporate social responsibility strategies is necessary
to achieve additional benefits for companies by establishing a sustainable business at
all levels: 1- At the level of stakeholders: suppliers, investors, and customers.2- At the
administrative and organizational level: reputation, fame, brand, sales, and profits.3-
Eventually, on the environmental level (Ganescu 2012). From the researcher’s view, the
importance of corporate social responsibility is highlighted by linking it to financial
performance. We will get acquainted with this by highlighting several recent empirical
studies linking social responsibility to financial performance.

5 Literature Review

(Lin et al. 2009) was aimed to study the relationship between corporate social responsi-
bility (CSR) and corporate financial performance (CFP). The research was carried out on
33 companies in Taiwan. These companies were selected according to different require-
ments, the most important of which are those listed on the stock exchange and donated
at least two and a half million Taiwan dollars. The research model contained an inde-
pendent variable, a CRS, “Donations were used as a measure of CSR,” and a dependent
variable, the CFP. The financial performance of companies is divided into two parts:1-
Short-term financial performance “one year” and the Return on Assets “ROA” was used
as an indicator of performance. 2- Long-term financial performance-3years “The Jensen
measure, the amended Jensen measure, the Trey nor measure, the Sharpe measure, and
the MCV measure” were used as financial performance indicators. The study results
showed that social responsibility had no significant positive effect on corporate financial
performance in the short term. However, it has a significant, solid, and positive long-term
effect on corporate financial performance.
(Adeneye and Ahmad 2015) this descriptive-analytical study aimed to study the rela-
tionship between (CSR) as an independent variable, and corporate performance (CP)
as the dependent variable. This study was conducted on a sample consisting of 500
British companies. The data necessary for the study were obtained through the com-
panies’annual and other reports. CSR was measured through the CSR index, while the
following indicators, “market to book value (MBV), company size (Size), and return on
capital employed (ROCE)” were used to measure corporate performance. The results
 Social Responsibility and Corporate Financial Performance 279

showed a strong positive relationship between CSR, MBV, and ROCE. However, the
study did not find any significant connection between CSR and company size.
(Maqbool and Zameer 2018) this article also aimed to study the relationship between
CSR&CFP of Indian banks, so the selected study sample consisted of 28 private and
public banks, and the necessary data for the study was obtained through the annual
reports of companies over a period of ten years (2007–2016). The bank’s activities were
divided into four categories “community, environment, workplace & diverse” to measure
the CSR, also the following criteria “Stock Market Return(SMR), Price Earnings (PE),
Return On Assets(ROA), Return On Equity(ROE), Net Profit (NP)” was used to measure
CFP. (Capital Density, Risk, Size, Age) where used as a control variable. The results
clearly showed that corporate social responsibility had a positive impact on the financial
performance of companies.
(AL.Najjar 2016) this study was conducted on 28 companies listed on the Palestine
Stock Exchange to study the relationship between CSR and the CFP. The researcher
used a model consisting of CSR as an independent variable which consisted of four
activities related to human resource development, environmental resource development,
community service, and product quality. The model also contained a dependent variable
that is CFP, and the following indicators “ROE, ROI, ROS, assets turnover, and market
value” were used to measure CFP. The most important results of this study are that social
responsibility activity related to the environment positively affected “ROA, ROE, assets
turnover” the return despite the weakness of social responsibility activities related to the
environment among Palestinian companies; there is no effect of social responsibility on
the market value of companies.
(Akben-Selcuk 2019) this research differed from the previous three studies as it intro-
duced ownership concentration as a moderator variable for the relationship between CSR
and CFP; this analysis was conducted for the period 2014–2018 on 70 non-financial com-
panies listed on the Istanbul Stock Exchange Index (BIST) 100. CFP was measured by the
return on assets (ROA), while the sustainability index was used as a CSR measure which
included high social responsibility companies. In addition, control variables “company
size, leverage, liquidity, exports, diversification, revenue production, and the age of the
organization” were applied when testing this relation. Finally, the results showed that a
positive relationship exists between CSR and CFP, and findings also indicated that this
relationship is negatively moderated by the concentration of ownership.
The study of (Lian et al. 2019) differed from other studies in terms of variables
where the researcher used CSR as a dependent variable and used CFP as a dependent
variable in order to study the relationship between them adding “firm size, leverage
ratio” as control variables. The study was conducted on a sample of listed companies in
Taiwan, and social responsibility was measured by companies that received the Corporate
Citizenship Award through Commonwealth Magazine. While “ROI, ROA, EPS, and
Gross margin on sales” were used to measure the financial performance of companies.
This study used a quantitative approach, and the findings showed that CSR had a positive
and important relationship with the EPS, but only positive and not important for “ROA,
ROE, and Gross profit margin.”
280 M. N. Jallad

6 The Empirical Findings

The previous studies that we reviewed have reached several experimental results that
may be useful for decision-makers, the most important of which is that marketers and
managers within companies must choose their social programs carefully (Lin et al. 2009;
Akben-Selcuk 2019) and the CSR must be integrated into their business strategic plans
(Maqbool and Zameer 2018; Lian et al. 2019) which can consider as a competitive
advantage in the long run for their companies (Adeneye and Ahmad 2015).

7 Conceptual Framework
By reviewing a number of recent experimental studies in pursuit of the relationship
between CSR and CFP, we developed a detailed model (a mixture of previous literature
models examined in this study); this model demonstrates the elements and variables that
can be used by researchers to describe how CSR relates to CFP.

This model developed based on (Lin et al. 2009; Akben-Selcuk 2019; Maqbool and
Zameer 2018; Lian et al. 2019: Adeneye and Ahmad 2015).

8 Conclusion

This study focused on the relationship between CSR and CFP by reviewing several
research studies and concluding the following:

– Each researcher uses different elements and variables than other researchers, depend-
ing on the methods he follows or the available data, because each researcher has a
different style and point of view from other researchers.
– The variable of CSR can include activities undertaken by the organization and the
categories of these activities that differ from one study to another or can consist of
local or international CSR indexes.
– This is also noted because the financial performance variable includes multiple vari-
ables and is categorized into financial or accounting metrics. Their usage depends on
the researcher’s assumptions or the available data quality.
 Social Responsibility and Corporate Financial Performance 281

– Most of the research considers social responsibility as an independent variable and

the financial performance of companies as a dependent variable. Still, we may find
researchers reversing these variables in a study (Lian et al., 2019) where social
responsibility was considered a dependent variable and the financial performance
of companies as the independent variable.
– To clearly define the relationship between CSR and CFP, some researchers may use
control variables (Lian et al., 2019; Akben-Selcuk, 2019; Maqbool & Zameer, 2018;
Adeneye & Ahmad, 2015).

Overall, the previous literature we reviewed in this paper showed a positive associa-
tion between CSR (corporate social responsibility) and CFP (corporate financial results).
Most of the research recommended the necessity of activating corporate social activities
and including them in their strategic plans. The limitation of this study is centered on
the few studies that have been reviewed and their generality. Therefore, future studies
should be based on a larger sample of studies and allocate studies to groups such as
those focused on developed and developing countries or large companies and SMEs,
and compare the results to reach more accurate and generalizable results.

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 A Study in the History of Financial Crises

Rima Assaf(B)

American University in Dubai, Dubai, UAE

[email protected]

Abstract. The chapter undertakes a substantial discussion of various financial

crises prior and post the 20th century. The chapter first examines the tensions
between Efficient Market Theory and the critiques of the Behavioral school who
adopt a more psychologically informed approach to financial markets. It will
discuss the possible behavioral roots of these crises and give an exposition of the
major theories of crisis in comparison and contrast to the behavioral approach
to the matter. This will greatly remove the ambiguity surrounding the financial
decisions that investors and their advisors undertake. The existing literature on the
subject is not fully established and falls at times under conjectures. Therefore, this
chapter attempts to capture as much literature as possible and present it objectively,
providing criticisms where necessary.

Keywords: Behavioral finance · Financial crisis · Efficient market hypothesis

1 Introduction
Slowly, at the margins, increasing in popularity with every economic and financial crisis
that neoclassical economics fails to predict or account for, behavioral finance established
itself through a marriage of economics with psychology, or rather an infiltration of the
latter in the former. Observing that the neoclassical models were incapable of account-
ing for such events as crises, irrational decision making, and other factors; psychologists
such as Amos Tversky and Daniel Kahneman endeavored to find an alternative app-
roach to make sense of these events that should not even exist according to the theories
of microeconomics. However, it would be crude to assign the history of behavioral
economics such a beginning.
This study aims to highlight the possible behavioral roots of financial crises and give
an exposition of the major theories of crisis in comparison and contrast to the behavioral
approach. By presenting the various economic approaches, this study addresses how to
understand crises amid the disagreements of the different schools and do crises happen at
all? Although an extensive literature review has been conducted for this study based on
some keywords, but there might be some of the pertinent studies which have been missed
out. The study can benefit financial advisors and investors by removing the ambiguity
surrounding the financial decisions that they undertake. This study opens the door upon
a question: Who is responsible for the looming crisis in the financial markets? Is the
market structurally designed to yield such failures?

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 283–291, 2023.
https://doi.org/10.1007/978-3-031-26956-1_28
284 R. Assaf

The rest of the chapter is organized as follows: Sect. 2 reviews the literature on
behavioral finance, while Sect. 3 describes bubbles and crashes. Section 4 compares the
global crises of the modern world, while Sect. 5 discusses the theories of crises.

2 Behavioral Finance vs. Traditional Finance

Traditionally, the main proposition of the financial market has been based on the Efficient
Market Hypothesis which grants the market the final verdict in terms of outcomes at an
ultimate equilibrium and gives the investors the rational capacity to first make decisions
in line with their interests and second to value securities rationally. This hypothesis,
born in the Chicago School of Economics, dominant after the 1950s, with an immensity
of theoretical and empirical support that led the Chicago School Economist “Michel
Jensen”, in 1978, to claim that ‘there is no other proposition in economics which has
more empirical evidence supporting it than EMH’. While the EMH assumes ultimate
equilibrium in the financial market, events in the last few decades have raised the question
of whether the financial market per se, creates instability in the macro economy. The
stock market crash of year 1987 and the collapse of the financial market in year 2008
have shifted focus towards the notions of bubbles and crashes and their position in
the economic structure. Bubbles do not reveal themselves to the investor as a crisis,
rather the exact opposite, investors see bubbles as the “inevitable payback for their hard
work and virtuous behavior” (Burton and Shah 2013). But once the bubble bursts and
the catastrophe take place, the attention shifts towards moral charges of excess, greed,
corruption, foul play, and so on. This position comes as an ideological bandage to cover
the wound, to allow for the misdiagnosis that won’t threaten the market or deem it
unfit. It is the excesses of investors that have led to such a result. In the 1990s, there
was a shift from conventional analysis of equity market cycles and the profitability of
stocks into implementing cognitive psychology while trading in the financial markets.
The connotation of behavioral finance thus was created.

3 Bubbles and Crashes

In 2000, the internet stock bubble that was forming in the 1990s burst. Best (2005)
described the phenomenon by saying that the internet stocks “had acquired a form of
celebrity status”, in the sense that the prices of the stocks rose above fundamentals in a
similar manner as when the salaries of celebrities seem to “surpass the talent of the indi-
vidual involved” (Best 2005). He draws similarity between the perceptions of celebrities
among their fans entails an emotional aspect, and the attachment formed by investors
to their internet stocks. Redhead (2008) deemed the media primarily responsible for the
promotion and formulation of a ‘culture’ of internet investing. This culture viewed the
internet as representative of a new age. The internet fundamentally transformed sociality
and people’s self-perception. They came to identify with their extension into the virtual
world and the information age that indexed it all (Redhead 2008). Investment in internet
stocks came as an extension of their identification with and attachment to the internet.
Evidence indicated that internet users may have been quite naive in their investments,
particularly due to being highly “influenced by stock recommendations posted” online.
 A Study in the History of Financial Crises 285

It is suspected that such naive investments may have caused the 1990’s bubble (Hirschey
et al. 2001). It ought to be emphasized that the shift towards financial capital and the
stock market that took place in the late 20th century was not without its media promo-
tion. Shiller (2000) makes the point of how involved the media was in increasing and
enhancing its reporting of stock market news. Redhead (2008) introduces the notion
of ‘momentum’ by way of Pepper and Oliver’s suggestion that a monetary imbalance
persisting in a certain direction for long enough may lead to extrapolative expectations,
which is defined as “the tendency to expect that price changes will continue in the direc-
tion recently observed”. This tendency leads to “momentum trading” which enforces the
movement in that specific direction. Consequently, this leads to herd trading which can
“overwhelm any tendency for price trades to restore ‘efficient’ prices”. Given this stunt-
ing of any corrective mechanism, the rise in share prices may extend and attract more
people, mainly uninformed agents, to invest. These people will be under the impression,
due to their naivety, that the prices of these shares will continue to rise. The more people
invest, the higher prices are pushed.
When Fama was asked about the meaning of a ‘bubble’ in year 2013, he said that it
was meaningless. This is because under EMH “bubbles cannot exist” (Mahajan 2015).
The fact that many economists and experts hold this hypothesis so strongly, they could not
see the danger of the bubble when it was happening. They saw it as merely an opportunity
to profit from the rise in house prices. Additionally, they were incapable of predicting the
immense negative effects it would later have. This is not to claim that had economists and
people in power been aware of the shortcomings in the EMH worldview, the crisis could
have been averted. That may be a near impossible claim to make. However, it could be said
that at the very least, the manner by which it was handled could be altered. Szyszka (2010)
makes the claim that there was a clear speculative bubble forming during the period when
there was “rapid growth of property prices”, which was followed by the price rally in the
stock and commodity markets. In order for a bubble to emerge, there is a necessity for
collective participation, or as EMH shows, the irrational trade will be negated. Szyszka
(2010) points out that during the bull market stage leading to the crisis, irrational investors
were making uninformed judgments based on naive observations of “earlier increases
in prices”, a process of imitation. Ignoring the relatively high prices of the assets, their
investments were indexed by their expectation that the prices would continue to increase,
simply because they already had been. The mechanism at hand is referred to as ‘feedback
trading’. Given the fact that a collective of investors are buying stocks, other investors
will assume that it is possible for prices to continue to rise; consequently, profits to be
made (Szyszka 2010). The feedback loop, after being initiated, becomes a “self-fulfilling
prophecy”, instigating new bouts of demand and activity. DeLong et al. (1990) suspected
that rational players can foresee chances of feedback trading and may even instigate them
at times (Delong 1990). Szyszka (2010) confirms that herding does not necessarily have
to be the result of an irrational malpractice. On the contrary, herding would take place,
while everyone sustains rationality by way of “information cascades” (Szyszka 2010).
286 R. Assaf

4 Global Crises in the Modern World

4.1 History of Crises Prior to the 20th Century

The economies of the world are riddled with crises, to the extent where Kamalodin
makes the claim that not a single year has passed throughout the past two hundred years
where a crisis did not occur somewhere in the world. Kamalodin (2011) claims that
these crises are often preceded by booms and busts in housing and stock markets. He
traces the first “international financial crisis” back to 1825 following the overthrowing of
the Spanish empire in Latin America. The republics of the continent was “opening up”
to international trade, particularly with England, which resulted in an immense capital
flow moving from the English capital to fund financial infrastructure, mining projects,
and filling up government deficits in those countries (Kamalodin 2011). The result was
obviously a boom in the London stock exchange, which led to a crash in the stock market
when the “capital outflows impinged on the Bank of England’s gold reserves” leading to
the policy rate being raised and then the crash. The halt in capital inflow from London to
the Latin American countries opened the doors for debt defaults, bank crises, and crashes
in currencies. The next crisis of an international order to hit the world was that of 1873.
Initiated by a bust in the German and Austrian property markets, crisis spread through
Europe having far reaching effects that spread to the US due to European investor’s
choice to forgo US railroad stocks. The crisis once again spread to Latin America due
to the BOE’s decision to raise policy rate to halt its gold outflows, thus leading to a
series of “debt defaults across the region” (Kamalodin 2011). Less than two decades
later, in 1890, another crisis hit the world, in fact, “the world crisis the advanced world
had suffered since the end of the Napoleonic era”. Once again, the story revolves in
some sense around Latin America which at the time had been opened up to capital influx
from Western European countries. Capital went largely into infrastructure. As is the
case with any economy in the world, particularly of the third world, a sustained large
inflow of capital always finds itself in the property market. This land boom was built
on “generous lending from the BoE and other European banks” (Kamalodin 2011) thus
making it completely susceptible and open to the effects of any policy changes these
countries undertake to govern their finances. The boom finally hit bust when the funding
countries decided once again to raise their policy rates in order to cut their losses in gold
reserves. As per Kamalodin (2011), banking and currency crises accompanied by debt
defaults hit Argentina first and the repercussions bounced back unto England when the
huge English merchant bank, which happened to be “heavily exposed to Argentinean
debt” hit insolvency. The crisis spread to various Latin American countries and panic
spread across Europe, the US, Japan, Australia and New Zealand (Kamalodin 2011).

4.2 History of Crises Post the 20th Century

The 20th century was also met immediately with a crisis of its own, now shifting focus
towards the United States which suffered in Year 1907 a 40% fall in its stock market. The
fall spread to France, Sweden, Italy, and even Japan, that had become tied to Western
capital. Another crisis followed WWI during attempts by countries to control inflation
and decrease it after it had “built up” between 1914 and 1918 war years. The reductions in
 A Study in the History of Financial Crises 287

inflation encroached European economies finally leading to a financial crisis spreading

across the Netherlands, Italy, Japan, and others (Kamalodin 2011). And then appeared
the Great Depression of the 1930s. It followed a series of crashes in the US and UK
stock markets that had been experiencing a massively booming decade post-WWI. The
Event took off on the “Black Thursday”, 24th of October 1929 when US traders sold
approximately 12.9 million shares in a single day. This was followed by a 23% fall in
stock prices and the crisis officially took off (Amadeo 2018). Over the next years, a
series of banking crises took place in the US that was not successfully halted by the
US Federal Reserve. Upon the crash, investors shifted their money towards the currency
market. They traded dollars for gold which at the time was still the peg for currency
prior to the introduction of fiat. The Federal Reserve reacted by raising interest rates
in order to save the dollar’s value. This in turn, tightened the available money in the
market which eventually led to bankruptcies (Amadeo 2018). This was followed by
investors withdrawing their deposits leading to a banking failure which was ignored by
the government. The depression became worldwide given currencies were fixed to the
dollar via the gold standard leading to debt and currency crises worldwide as stated
by Kamalodin (2011). The depression was of course followed by WWII. A period
of relative stability followed WWII due to the establishment of the Bretton Woods
system which was the first monetary ‘world order’ agreed upon by the US, Canada,
Western Europe, Japan, and Australia. The agreement entailed pegging money to gold
and agreeing that all countries must regulate their monetary policies to preserve the
external value of their exchange rates at a percentage of one. However, this did not last
long; the imbalance caused by the strength of the US dollar led the system to crash.
The systems of fixed capital controls and financial regulations designed to avoid further
crises all came crashing and capital flows went wild once again, and with it, financial
crises returned as well. This was followed by bank failures across Europe and currency
crises across the “emerging world” (Kamalodin 2011). “Tight monetary policy” and
recession in Western countries opened the door for defaults in several Latin American
countries, issuing in the Latin American debt crisis of 1982 leading to bank failures across
the globe, including major US banks. The unhinging of capital under neoliberal rule
continued to push economies into crisis during the 1990’s. The fall of the Soviet Union
triggered a property bust in Finland and Sweden which had been experiencing a boom
in their markets (Kamalodin 2011), issuing the Nordic financial crisis. Other crises were
taking place simultaneously in Italy and Australia, along with the European currency
crisis and the UK leaving the European Exchange Rate Mechanism. Crises continued
during the entirety of the 1990s from Latin America to the East Asia. Over there, an
externally financed debt boom crashed abruptly “due to mounting speculation against
the Thai Baht in 1997”. This placed pressure on other Asian currencies finally resulting
in financial crises in Thailand, Indonesia, Korea, as well as Hong Kong, Malaysia,
Philippines and Taiwan. Western countries responded to the crisis by tightening their
lending policies which also saw the default of both Russia in 1998 and Brazil (Kamalodin
2011). Kamalodin claims that crises will never cease, and this is because they are due to
the impossibility of the homo oeconomicus and the reign of the psychologically driven,
largely irrational Homo sapiens.
288 R. Assaf

5 Theories of Crises

Kindleberger (1978) defines a bubble as a “a sharp rise in price of an asset or a range

of assets in a continuous process” whereby the primary rise “generates expectations”
of future rises, thus “attracting” speculators “interested in profits from trading in the
asset rather than its use as earning capacity” (De Grauwe and Grimaldi 2004). The
disagreements regarding how to understand crises, and whether they happen at all can
be divided roughly into the positions taken up by the Keynesian school, then the Chicago
school, and the Austrian school (Gradinaru 2014).

5.1 The Keynesian Position

Keynesians reject the idea that the market has any self-regulating capacities. They believe
governments are required to keep the market in check and both avoid and solve collapses
and crises. In the classical sense, a Keynesian approach would diagnose the problem as
one of insufficient demand. Such a phenomenon is triggered by a variation of causes.
Keynes points out that the market’s incapacity to self-regulate is based on two points.
First, wage rigidity and second, considering all things constant, interest is not directly
influenced “by the increase or decrease of loan funds supply”. According to Gradinaru
(2014), the primary emphasis Keynesian theory holds, is the collapse of investment in
accordance with lowered consumption. The central claim is that while interest rates
may drop, this does not imply that investment would rise. Gradinaru (2014) states that
insufficient demand is definitely central to the Keynesian understanding of crisis, and so
anti-crisis policies should be aimed at precisely that. This relates directly to income: a
decrease in investment implies a decrease in income, which means a decrease in demand
for consumer assets. This also implies a drop in demand for capital assets which lead
to a decrease of income. This forms a spiral that cannot be escaped without the direct
intervention from the governing bodies. However, as Stojanov (2009) shows, Keynes’
conception was not limited in his understanding of insufficient demand to the manner
that his predecessors were. While investment consumption was essential to the Keyne-
sian system, as it should “compensate for insufficient personal consumption,” it can be
influenced by monetary and interest rate policies. However, that is not the entire story,
as the often-neglected aspect of Keynes’ system was his ideas on the declining tendency
of marginal efficiency of capital. It is clear from passages in Keynes, “The General The-
ory of Employment, Interest and Money” (1936), that he observes a structural cyclical
movement with an upward and downward shift, the latter of which occurs violently.
Then he shifts to talk of the temporality of this movement, indicating that there is a
“time-sequence” to the upward and downward shifts. Suddenly, the upward movement
“violently converts into a crisis”. However, the process does not reverse in the same
manner; rather, it requires an external intervention (Stojanov 2009). Stojanov (2009)
concludes that crises, for Keynes, “represent the process of capital depreciation”. The
central point to be made by Keynes is that the market is neither capable of avoiding
crises nor initiating a recovery from them.
 A Study in the History of Financial Crises 289

5.2 The Monetarist Position

Monetarism is a school of which the central claim is that “the money supply is the
chief determinant of current dollar GDP in the short run and the price level over longer
periods”. In short, a monetary policy’s objective is met ideally “by targeting the growth
rate of the money supply” (Jahan and Papageorgiou 2014). At the foundation of mone-
tarism lies the Quantity Theory of Money, an identity in accounting, an uncontroversial
axiomatic assumption. As per Jahan and Papageorgiou (2014), the theory claims that
“the money supply multiplied by velocity equals nominal expenditures in the economy”.
It is precisely in the monetarist assumption that velocity is stable, which implies that
“nominal income is largely a function of the money supply” (Jahan and Papageorgiou
2014). Contrary to the Keynesians, the Monetarists hold the belief that markets “are
inherently stable in the absence of major unexpected fluctuations in the money supply”
(Jahan and Papageorgiou 2014). These fluctuations are usually caused by government
intervention, according to the Monetarists. They also believe, in contrary to the Keyne-
sians, that in the long term, the market is capable of reconfiguring itself into equilibrium
in such a manner that resolves any “trade-off” between employment and inflation as
noted by Jahan and Papageorgiou (2014). In terms of crisis, for example that of 2008,
the monetarists hold that the central issue was that central banks were giving out too
many cheap and overly-accessible loans. This has caused exponential growth in prices
of assets, in this case real estate in particular, culminating ultimately in the formation of
a bubble (Gradinaru 2014). Both consumers who could no longer pay back their loans
and the financial institutions that had purchased supposedly secured mortgages were
exposed to losses and bankruptcy. According to Gradinaru (2014), the Monetarist solu-
tion to the crisis was that the Central Banks ought to increase money supply by basically
bailing out banks through an injection of money for them to purchase state bonds that
will give them the capacity to finance state projects.

5.3 The Austrian School

Another school that believes in the efficiency of the market and the detrimentality of
government intervention is the Austrian school, of which perhaps the main proponent,
was Friedrich Hayek. They deem crises as invariably a monetary matter instigated solely
by government intervention due to its “distorted, destructive interventions” (Gradinaru
2014). The Austrians believe that state interventions support expansionism in crediting
whereby the illusion of the presence of money is supported but without there being
enough resources in the economy to account for it. This means that the economy is “in-
undated with false money” lacking support from assets and services in the real economy
(Gradinaru 2014). This leaves players in the economy with an incapability to make the
right decisions neither in terms of consumption or investment. This false money does
not even immediately find itself in the real economy by leading to an increase in prices
of goods; rather it goes into investments in real and financial assets. In such a situation,
the banks fall into a competition to provide the best loans, which allows society as a
whole to live in the illusion of abundance. As per Gradinaru (2014), the market expe-
riences record breaking heights in stocks and property prices, producing a speculative
self-maintaining boom. At some point this illusion is forced to pop due to either the
290 R. Assaf

Central bank attempting to control inflation, or because the investors are “bargaining
to increase the risks they’ve upheld”. The Austrians held the belief that the only way a
government could aid in reconfiguration of an economy in crisis is by completely staying
out of it by committing to a “rigid laissez faire policy”. What the government can do
however is focus on controlling its inflation and reducing its budget (Gradinaru 2014).

5.4 The Behavioral Approach

The schools previously discussed (with the exception of Keynesianism in some of its
strands) build upon the EMH discussed earlier, and therefore believe in the fundamental
rationality of the players in the market. In short, they believe in homo-oeconomicus,
a fully rational, personally self-interested, and structurally incapable of overcoming
the totality of the market. Though it cannot be said that the behavioralists propose a
competing theory, rather that they posit critical approaches to classical questions by
calling upon non-economic disciplines, mainly psychology and sociology to explain
behaviors that take place on the level of the individual and the collective that cannot
be deemed rational by economic standard. The Behavioralists believe that while the
proponents of EMH place the individual at the core of their theories, they fail to account
for the psychological determinants of the individual. Contrarily, they only employ the
individual as a signifier of the individualism of their theories and no more. For EMH to
work, it must postulate that the homo-oeconomicus is employing all the information at
hand in accordance with the correct rules of rationality and thereby can make correct
decisions. The profound uncertainty associated with the ‘unknown unknowns’ during
the crisis resulted in panicky selling by investors, sharp cuts in payrolls by employers,
and significant increases in households’ precautionary saving” (Kamalodin 2011). One
position that is held by behaviorists is that a bubble is usually formed when investors
come to a disagreement regarding the future prospects of a given asset and are thus faced
with an immediate short term sale constraint (Gradinaru 2014). The theory claims that in
such a situation there will generally be two kinds of investors: those who are optimistic
about the prospects of the asset at hand, and those who are reserved.
The prices at that time would generally reflect only the perspective of the optimistic
investors since the reserved ones will ‘sit one out’. As Gradinaru (2014) concluded, the
above means that the “asset will be overstated”.
Another theory states that bubbles are generally a symptom of retrospection. The
investor sees the past in the future, forming patterns that attempt to predict the future
based on what was going on thus far.

References
Amadeo, K.: When did the stock market crash?. The Balance.com (2018)
Best, K.: Celebrity.com: internet finance and frenzy at the millenium. Consum. Mark. Cult. 8,
361–378 (2005)
Burton, E., Shah, S.: Behavioral Finance: Understanding the Social, Cognitive, and Economic
Debates. Wiley, Hoboken (2013)
De Grauwe, P., Grimaldi, M.: Bubbles and crashes in a behavioural finance model. CESifo Working
Paper Series No. 1194 (2004)
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Delong, J.B.: Positive feedback investment strategies and destabilizing rational speculation. J.
Financ. 45, 379–395 (1990)
Gradinaru, A.: The contribution of behavioral economics in explaining the decisional process.
Proc. Econ. Financ. 16, 417–426 (2014)
Hirschey, M., Richardson, V., Scholz, S.: Value relevance of non financial data. Rev. Quant. Financ.
Acc. 17(3), 223–235 (2001)
Jahan, S., Papageorgiou, C.: What is monetarism? Financ. Dev. 51(1), 38–39 (2014)
Kamalodin, S.: Asset bubbles, financial crises and the role of human behaviour. Economic Research
Department. Rabobank, Utrecht (2011)
Mahajan, H.: If markets are efficient, why do crises occur?. St. Paul School, UK (2015)
Redhead, K.: Personal Finance and Investments. Routledge, London (2008)
Shiller, R. J.: Irrational Exuberance. Princeton University Press, Princeton (2000, 2001)
Stojanov, D.: Keynes and economic crisis: some reconsiderations. J. Econ. Bus. 27(2), 293–310
(2009)
Szyszka, A.: Behavioral anatomy of the financial crisis. J. Cent. Cathedra: Bus. Econ. Res. J. 3(2),
121–135 (2010)
 Tax Policy of the State as a Tool for International
Trade Regulation

Lesia Matviychuk1 , Inna Dotsenko1(B) , Oksana Melnichuk2 ,

Svitlana Kolotii3 , and Olena Pasichnyk1
1 Khmelnytskyi National University, 11, Instytuts’ka Str., Khmelnytskyi 29016, Ukraine
[email protected], [email protected]
2 Vinnitsa Institute of Trade and Economic of State University of Trade and Economic, 87,
Soborna Str., Vinnytsia 21050, Ukraine
[email protected]
3 Vinnytsia Cooperative Institute, 7, Zabolotnoho Str., Vinnytsia 21000, Ukraine

[email protected]

Abstract. The article deals with the problem of tax regulation of international
trade. In the research the concept of “international trade” and factors affecting
it were analyzed from theoretical perspectives. The authors also scrutinized the
dynamics of the balance of payments of goods and services of Ukraine for the
period 2021–2022. Besides, the dynamics of Ukraine’s foreign trade by geo-
graphical regions was the subject of analysis. The findings indicate that during
the analyzed period, the export of ferrous and non-ferrous metals, mineral prod-
ucts, engineering products, chemical industry goods, etc. dropped significantly.
Meanwhile, the share of exports of vegetable products, grain crops, fats and oil
increased. Due to hostilities on the territory of industrial regions of Ukraine the
country witnessed a decrease in the export of products of the metallurgical sector.
This led to a shift in Ukraine’s exports patterns showing an increase in exports of
crops.
It was determined that the development of Ukraine’s economy in the condi-
tions of martial law requires elaboration of tools for regulating foreign economic
activity. One of the key tools is the tax policy of the State. Tax policy is imple-
mented through the definition of taxation subjects and objects; elaborating princi-
ples, mechanisms of taxation; clarification of tax types and rates; introducing tax
exemptions, quotas, tax discounts, special tax regimes, etc.
Overall the article examines tariff and non-tariff instruments of international
trade regulation. The impact of indirect taxes on international trade is also ana-
lyzed. Changes in tax legislation aimed at stabilizing international trade under
martial law were considered in order to define and suggest a system of tax measures
to stimulate the development of international trade.

Keywords: International trade · Foreign trade relations · Export-import

operations · Tax policy · Tax instruments

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 292–300, 2023.
https://doi.org/10.1007/978-3-031-26956-1_29
 Tax Policy of the State as a Tool for International Trade 293

1 Introduction

Military actions that are taking place on the territory of Ukraine aggravate its economic
exhaustion. Nowadays it is urgent to implement such an economic model that would
contribute to providing sustainable financial backing of the main State functions not
only at the expense of the country’s internal capabilities, but also due to the support of
external allies. The economic development of Ukraine, in the conditions of martial law,
is impossible without its active involvement in trade relations with the leading countries
of the world. It is international trade that compensates for the insufficient supply of
resources and goods, especially those produced and mined in the temporarily occupied
territories of Ukraine. International trade contributes to the growth of national income as
a result of development of industrial capabilities, that is, the stabilization of the country’s
economy. The boost export-import relations, is impossible without the use of generally
accepted and proven tools. We deem that tax policy of the State plays is an important
role among the tools aimed at stabilization of international trade relations. In order to
promote the development of international trade in wartime, the State must adapt the tax
burden and tax rules to wartime conditions. Therefore, primary and foremost task for
Ukraine is to achieve a balance between tax restrictions on export-import transactions
and achieve stable revenues to the State budget.

2 Relevant Research

Currently the world economic system is impacted by various phenomena and processes
that shape content and define trends of globalization processes in economics. Analy-
sis of scientific research indicates that the current state of international trade develop-
ment is considered from the perspective of globalization transformations. According to
Ivashchenko (2016), the globalization of commodity markets involves the globalization
of both ‘end product markets’ and ‘raw material markets’. According to the author,
countries are interdependent in the global economy. Enterprises operating in the global
dimension are forced not only to export goods, but also to strive to achieve the status of
global exporters. In particular, Boyko (2022) analyze the current state of Ukraine’s for-
eign trade by considering the dynamics of the balance of payments and the development
of international trade in the context of globalization. Alaverdyan and Romanenko (2019)
analyze the development of Ukraine’s foreign trade in terms of the commodity structure
of export and import operations; consider main financial and economic indicators. The
authors highlight various globalization socio-economic and political factors influencing
foreign trade relations.
According to Pahucha (2017), free international exchange provides a variety of goods
on the market. The more goods and services a country produces for export, the better its
position in the world market. At the same time, the author defines the factors affecting
the development of international trade. Nevertheless, Pahucha (2017) does not clarify
the tools to transform State’s foreign economic activity into a real factor of the State’s
internal economic growth. Based on the above mentioned research, it is worth noting that
the intensification of international trade and the growth of globalization of commodity
markets require the compatibility of tools and practices for stimulating foreign trade.
294 L. Matviychuk et al.

In particular, Davydenko (2020) notes that the development of international trade is

impacted by various trade barriers, which has led to an increase in the use of tools for
tariff and non-tariff regulation of international trade. Taxes and fees are an effective
economic tool in Ukraine. Despite significant progress in the unification of rules for the
application of financial instruments in the sphere of taxation, the leading role is played
by national regulators of state tax policy. As Nikitishin (2016) notes: “Tax policy of a
State is a set of organizational and legal norms, principles, methods and forms, subjects
and objects of State regulation of tax relations through a system of various instruments
with the aim of ensuring the socio-economic development of the country”. Development
of Ukraine’s economy in the conditions of martial law requires a permanent search for
tools to regulate foreign economic activity. Considering the issue of tax stimulation of
international trade, Nikitishyn (2016) reflects on the most common tools of tax regulation
of foreign economic relations and defines the following: choice and setting of reasonable
tax rates; deferral of tax and fee payments; tax amnesty; international agreements on
avoiding of double taxation; tax vacations; tax deductions.
Meanwhile, Chinchyk and Golubka (2020) define the following economic and
administrative instruments of tax regulation of international trade as the most impor-
tant: the ratio of direct and indirect taxes; tax rate; tax exemptions; clear and transparent
approach to defining taxable entities; clear procedures of tax and fees charging, their
withholding and payment; clear definition of tax objects; clear procedures for deter-
mining the tax base; terms of payment of taxes and fees; tax control; tax deductions.
Thus, despite a fairly large number of scientific studies in this dimension, the strategy of
enhancing the tools for tax stimulation of international trade in wartime conditions still
requires its elaboration. Therefore, there is a task of carrying out a balanced tax policy
aimed at in-creasing and improving Ukraine’s foreign trade turnover, attracting foreign
capital to the national economy, and ensuring the State’s performance of its immediate
functions in wartime conditions.

3 Statistical Dimensions of Ukraine’s International Trade

During war time, it’s international trade relations that become a powerful channel for sup-
porting Ukraine by the world community both financially and economically. Taking into
account the sharp reduction in domestic industry output and excessive export orientation,
the use of tax instruments to stabilize international trade affects the development of the
country’s foreign economic relations.
States’ foreign policy comprises a whole spectrum of various connections and rela-
tionships of subjects and objects of policy, and a significant share of these relations are
pivoting within framework of international trade. Despite the great difficulties in the
conditions of the war, Ukraine demonstrates active foreign economic activity. It consists
of international trade in goods and services, direct foreign investment in the economy
of the state. The basis of Ukraine’s foreign economic activity is its international trade,
which is represented in two main forms: export and import. The proportional ratio of
export-import transactions helps to ensure the State’s balance of payments (Table 1).
According to the data of the National Bank of Ukraine, at the end of June 2022, the
deficit of the balance of payments of goods and services of Ukraine was USD 3,019
 Tax Policy of the State as a Tool for International Trade 295

Table 1. Dynamics of payment balance for goods and services in Ukraine (in million USD)

Item of 2021 2022

pay-ments Jan. Feb. Mar. Apr. May. Jun. Jan. Feb. Mar. Apr. May. Jun.
balance
Balance −49 − − 207 504 − 235 − − − − −
of goods 205 545 111 484 301 1102 2129 3019
and
services
Balance − − − − 196 − − − 346 − − −
of goods 388 497 884 137 346 359 975 308 1082 1840
Export of 3560 4096 4826 4909 5158 4893 5593 4966 2292 2385 2659 2947
goods
Import of 3948 4593 5710 5046 4962 5239 5952 5941 1946 2693 3741 4787
goods
Balance 339 292 339 344 308 235 594 491 − − − −
of 647 794 1047 1179
services
Export of 1245 1252 1371 1457 1372 1455 1688 1711 1051 1136 1245 1207
goods
Import of 906 960 1032 1113 1064 1220 1094 1220 1698 1930 2292 2386
goods
Source: National Bank of Ukraine 2022

million (in June 2021, the deficit was USD 111 million). In June, the deficit of the goods
balance of payments amounted to USD 1,840 million (in June 2021 it was USD 346
million). The am-mount of export of goods reached USD 2,947 million. Compared to the
same period of the previous year, the export of goods decreased by USD 1,946 million
(39.8%). The import of goods decreased in June 2022 by USD 452 million (8.6%).
Compared to the previous month, the export of goods increased by 10.8%, and their
import by 28.0%.
Considering the commodity structure of export operations (National Bank of Ukraine
2022), it is worth noting the change in the share of trade of strategically important goods
for Ukraine. The export of ferrous and non-ferrous metals dropped by 64.2%, min-
eral products–by 62.4%, engineering products–by 47.5%, chemical industry goods–by
52.4% and others decreased significantly. At the same time, the share in the total volume
of exports of vegetable products, grain crops, fats and oils increased. Due to hostilities
on the territory of industrial regions of Ukraine we are observing a drastic decline in the
export of metallurgical industry products. Therefore, there are transformations in export
patterns with an increase of the share of crops.
The volume of goods imported reached the amount USD 4,787 million. Although
the volume of imported goods decreased (compared to the same period of the previous
year), no significant changes were observed in the structure of imports in the context
of the largest categories. A significant transformation happened to energy flows and
296 L. Matviychuk et al.

distribution patterns in Ukraine. While energy imports increased by 35.4%, non-energy

imports decreased by 16.9%.
The trade deficit in services reached USD 1,179 million at the end of June 2022. The
negative balance of the import of services increased is due to the significant expenses of
Ukrainian citizens who are abroad and short-term migrants. The decrease in the export
of services was influenced by the reduction of transport services (sea, air, railway) by
38.4%. The geographical structure of Ukraine’s export-import operations has undergone
significant changes (Table 2).

Table 2. Dynamics of international trade of Ukraine (by geographical regions)

Regions June 2021 June 2022 % in rela-tion to

USD, mln % of the total USD, mln % of the total the same period of
the previous year
Exports
Europe 2010 41,1 2178 73,9 108,3
Asia 1673 34,2 452 15,3 27,0
America 203 4,2 113 3,8 55,6
Africa 365 7,5 41 1,4 11,2
Australia and 6 0,1 1 0,0 16,9
Oceania
Total 4893 100 2947 100 60,2
Imports
Europe 2358 45,0 2605 54,4 110,5
Asia 1406 26,8 1353 28,3 96,2
America 353 6,7 217 4,5 61,5
Africa 68 1,3 31 0,6 45,6
Australia and 13 0,2 3 0,1 23,1
Oceania
Total 5239 100 4787 100 91,4
Source: Authors’ calculations based on National Bank of Ukraine

In June 2022, in nominal terms, exports to Asian countries decreased the most – by
USD 1.2 billion (73.0%). As a result of military operations in Ukraine, China stopped
importing iron ore and a considerable share of Ukrainian agricultural products. Turkey
stopped importing metal products from Ukraine. Exports to the CIS countries decreased
significantly–by USD 476 million (77.7%) and African countries–by USD 324 million
(88.8%), which is due to the lack of grain export to the countries of North Africa.
Meanwhile, exports to EU countries increased by USD 270 million (14.5%). As a result
of simplification in logistics regulations, the export of Ukrainian agricultural goods to
EU countries has increased significantly.
 Tax Policy of the State as a Tool for International Trade 297

The number of Import operations decreased the most for the CIS countries - by USD
733 million (78.6%). Imports from American countries also decreased significantly–
by USD 136 million, while imports from EU countries increased by USD 337 million
(15.8%). This was due to the complete reorientation of the Ukrainian fuel market to
the European market. The signing of a free trade agreement with Great Britain became
a promising factor for expansion of Ukraine’s export-import operations. This greatly
simplified the access of Ukrainian goods to the country’s market, and also made it
attractive for the increase of exports operations.

4 Tax Policy Instruments for Regulating Foreign Trade Relations

of Ukraine

International trade is an important indicator of country’s economic development and

one of the main sources of revenue for the State budget. International trade indicators
are indicators used to determine the investment attractiveness and financial stability of a
State. Therefore, it is necessary to develop international trade, to ensure the stability of
financial inflow nominated in foreign currency. This will allow maintaining the country’s
gold and currency reserves. One of the key tools for regulating the level of international
trade is the tax policy of the State. Tax policy is implemented via the definition and
clarification of subjects, objects, elaborating principles, mechanisms of taxation, defining
types of taxes and tax rates, introducing tax exemption system, tax quotas, tax discounts,
special tax regimes, etc.
Tariff and non-tariff instruments are widely applied by the State to stimulate foreign
trade relations in the conditions of globalization and transformational processes. Tariff
instruments are based on the Customs Tariff of Ukraine (the document defines import
duty rates levied on goods imported onto the customs territory of Ukraine). Application of
tariff instruments is regulated by the Law of Ukraine “On the Customs Tariff of Ukraine”
(Law of Ukraine 2022) where special types of duties (anti-dumping, compensatory,
special) are defined. Tariff instruments are aimed at supporting and protecting national
vendors and entrepreneurs, and have a significant impact on the financial results of
entities involved in foreign economic activity. If necessary, such tools make it possible
to make exports cheaper and imports more expensive. Non-tariff instruments rely on
the following: licensing, currency restrictions, tariff quotas, subsidies, full or partial
embargoes, national and international technical regulations, standards, etc. The use of
such instruments directly or indirectly limits the import of foreign goods (services) to
the internal market of the country or prohibits it altogether.
Another form of State intervention in international trade and regulation of its volumes
is the introduction of indirect taxes. In Ukraine, indirect taxes include: value added tax,
customs duty, excise tax. To regulate international trade with the help of indirect taxes,
the following are used: differentiation of consumption tax rates, preferential taxation
and differentiation of import duty rates. If domestic prices are higher than world prices,
then the import of cheap foreign goods can harm national enterprises, lead to a decline in
production and an increase in unemployment. In order to prevent negative consequences
for national economy State authorities practice increasing the prices of certain imported
goods due to the increase in the imports duty. An excise tax is imposed on certain types
298 L. Matviychuk et al.

of goods, both domestic and foreign, which is included in the price of goods and paid by
end-consumers. In Ukraine, excise goods include: alcoholic beverages, tobacco products,
petroleum products and some types of vehicles (Zaklekta-Berestovenko 2014).
Value added tax (VAT) is an important instrument of tax regulation in international
trade. According to the Tax Code of Ukraine, the import of goods into the customs
territory of Ukraine (import) and the export of goods outside the customs territory of
Ukraine (export) are subject to value added tax. VAT is a tax on final consumption that
has turned into a tax on international trade and a tax that allows financial and political
corruption to flourish in Ukraine. Export operations are taxed at a zero rate, and therefore
the tax liability for VAT is zero, which allows you to receive significant amounts of budget
compensation. Ukraine has a leading position among European countries in terms of the
level of budgetary VAT reimbursement. Significant amounts of budget compensation
to exporters and fraudsters deplete the State budget of Ukraine and it is one of the
mechanisms of obtaining illegal benefits.
Operations on the import of goods and services are taxed at the rates of 20% or
7%. Any person or business that imports goods onto the customs territory of Ukraine in
taxable amounts is due to pay VAT tax. When importing goods, tax amounts are payable
to the State budget before/or on the day of submitting customs declaration (Tax Code of
Ukraine 2022).
In order to stabilize domestic economy of the country in the conditions of full-scale
military aggression, drastic changes to the tax policy of Ukraine were introduced. In par-
ticular, on March 24, 2022, goods imported into the territory of Ukraine were exempted
from customs duties and exempted from payment of VAT on operations involving import
of goods by tax-payers whose business operates within the simplified taxation system
of the first, second and third groups and is due to pay a single tax at the rate of 2%.
The procedure for customs clearance of such goods was also simplified. According to
the State Customs Service of Ukraine, more than 119,000 cars were imported into the
territory of Ukraine under the preferential regime, which led to a drop of revenues to
the State budget in the amount of more than UAH 13 billion. In order to prevent further
abuses, customs duties and value added tax on imported goods and customs clearance
of cars were returned as of July 1, 2022 (State Customs Service of Ukraine 2022).
Ukraine is about to introduce an additional 10% tax on the purchase of foreign
currency. The tax will be levied on all operations of importers, regardless of the type of
product. According to officials, this additional tax should encourage Ukrainians to buy
less imported goods. As a result, the rate of capital outflow from the country should be
reduced, the balance of payments is to be stabilized and the budget deficit should be
reduced as well. However, taking into account inflation rates of the national currency,
introduction of such a tax will cause a significant increase in the price of imported
goods. Additionally, a significant part of imports consists of essential goods, medicines,
fuel, fertilizers, products that are not produced in Ukraine or are produced in limited
quantities. Therefore, introduction of a new tax will not only lead to an increase in the
price of these goods, but may also cause a deficit and trigger further inflation round.
Customs duty is another indirect tax that has a significant impact on international trade.
In Ukraine, there is a rather complex system of charging customs duties, which includes
more than 115 types of customs rates. Also, according to Ukrainian legislation, customs
 Tax Policy of the State as a Tool for International Trade 299

duties can be charged depending on the price of a product or its physical parameters
(e.g. its mass), which makes the taxation process more complicated.
On July 27, 2022 the Verkhovna Rada (the Supreme Council of Ukraine) adopted
Law of Ukraine No. 2458-IX “On Amendments to the Customs Code of Ukraine about
Regulating the Procedure for Preparing Customs Declarations for Different Types of
Goods in Compliance with the Customs Code of the European Union.”. The law intro-
duces changes to the procedures of declaring different types of goods: now commodities
which belong to different categories (according to Ukrainian Classification of Goods in
Foreign Trade) shall be declared as a batch according to one classification code (Law
of Ukraine 2022). Such changes make it possible to harmonize the customs legisla-
tion of Ukraine and the European Union and facilitate the circulation of goods between
countries.
The subject of excise tax is the sales and imports of excise goods. At the same
time, operations that are not subject to taxation are export operations that, on the date
of submission of the excise tax declaration, are provided with a customs declaration, as
well as operations for the sale of electric energy produced by cogenerating power plants
and/or from renewable energy sources. As for import operations, exempted from excise
tax are the operations of importing into the customs territory of Ukraine previously
exported excise goods, which turned out to be defective, and which will not be subject
to further sale on the customs territory of Ukraine.

5 Conclusions
Effective international trade is a key factor in the economic development of any country.
It creates opportunities for expanding the sales markets of goods, stimulates the devel-
opment of innovation, contributes to the increase the inflow of foreign currency and
strengthens the country’s economy. In conditions of current challenges and Ukraine’s
exposure to war international trade is considered as a rescuer of national economy.
However, in order to stimulate the development of international trade, especially in the
conditions of martial law, it is necessary to revise the tax policy in terms of regulating
international transactions. Namely, we consider it appropriate to introduce changes to
the current legislation and regulatory mechanisms. In particular, it is worth reducing
the value-added tax rate for export-oriented sectors of the economy. Such industries in
Ukraine include agriculture, metallurgy, mechanical engi-neering, light industry, and
chemical production. It is worth establishing differentiated VAT rates depending on the
volume of exported products in the range from 5% to 10%. The reduction of the VAT
rate will reduce the burden on enterprises and will enable them to accumulate the larger
amounts of working capital, and will not have negative consequences for State’s budget
filling. It is also worth improving the VAT administration procedures, namely changing
the moment of tax liability i.e. using the single event of product shipment for taxation
procedures. Such measures will make it possible to reduce possibilities for manipulations
in obtaining a tax credit and increase revenues to the State budget. Besides, receiving
prepayments for the goods to be shipped will increase the company’s current assets and
direct them at expanding the scope of business activities. In order to increase the volume
of international trade, it is advisable to simplify the system of charging duties and reduce
300 L. Matviychuk et al.

the types of customs rates. The implementation of such changes will contribute to the
elimination of obstacles for development of international trade and will strengthen the
domestic economy.

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 The Role of Governance, Leadership in Public
Sector Organizations: A Case Study in the UAE

Samihah Bt Khalil Halim1 , Sharifuzah Bint Osman1 ,

Mohamed Matar Al Kaabi1 , Mahmoud Alghizzawi2(B) ,
and Jabir Ali Abdalla Alrayssi1
1 University Utara Malaysia, Changlun, Malaysia
2 Faculty of Business, Marketing Department, Amman Arab University (AAU), Amman, Jordan

[email protected]

Abstract. Leadership, governance, and management are among the most promi-
nent components of an organization. These components contribute to adopting
new trends and dealing effectively with the challenges by introducing, designing,
and practically implementing the organizational strategies to improve productivity.
This study also highlighted the role of leadership, governance, and management in
accelerating organizational productivity. The researcher also proposed a potential
mediation of organizational strategies in improving productivity. To empirically
investigate the proposed relationship between study variables, the researcher gath-
ered data from n = 230 individuals currently working in the UAE-based private
telecom companies. Findings indicated that leadership, governance, and manage-
ment are significantly playing their role to improve productivity. However, results
also showed a mediating role of Organizational Strategies as indirectly affect-
ing the relationship between leadership, governance, management, and improved
productivity and strengthening these relationships at maximum level. Thus, the
researcher concludes that governance, management, and leadership are the regulat-
ing agents of an organization. Here, the role of strategies is of greater significance
as they help an organization accelerate its growth, serve the interests of organiza-
tional members, reduce the risks, increase productivity, and help an organization
to achieve competitive advantages.

Keywords: Organizational strategies · UAE · Governance · Management ·

Leadership

1 Introduction
Increased organizational challenges in both national and international level business are-
nas question the survival of an organization in the best possible manner. In this regard,
increased productivity is the first and foremost consideration, that ensures the survival
of an organization [1, 2]. According to Kumar et al. (2016), our living standards and
wealth can be determined directly by our product development process. Today, improv-
ing organizational productivity is one of the mainly focused goals of every organization.
The primary reason behind the utmost importance to improved productivity is maximum

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 301–313, 2023.
https://doi.org/10.1007/978-3-031-26956-1_30
302 S. B. K. Halim et al.

individual and collective benefits for all the involved parties. For example, improved pro-
ductivity leads to an increased work performance that eventually brings out prominent
economic growth and social progress [4]. Besides, improved organizational produc-
tivity also provides the workforce with improved working conditions, better salaries,
increments, and support from the organizational stakeholders and leaders [5]. Improved
productivity also enhances organizational competitive advantage through improved qual-
ity output and cost reduction [6–8]. Besides, improved organizational productivity also
works as a positive and progressive change in work management, organization, and pro-
duction. These changes mainly involve improving the control systems, the widespread
development and recognition of automated control systems, personal and technical train-
ing of the workforce, improvement of ancillary units, and improved labor and distribution
cooperation [9]. Thus, all these factors have made organizational productivity worthy of
attention. Therefore, looking at its antecedents is very important to ensure organizational
survival and long-term success [4, 10]. Now both private and public sector enterprises
focus on their productivity as it also contributes to poverty reduction and improving
living standards [3]. However, certain factors provide a direct pathway to improve the
organization’s productivity such as strategic management, leadership, organizational
governance, policies, and workplace environment [11, 12]. Desjardins (2017) highlights
the role of leadership and its focus towards leadership tasks that further improve the
workforce performance. Similarly, good practices in governance and management indi-
cated idealistic attributes to sustain better work performance and increase organizational
productivity [14]. For example, the private healthcare sector in the United Arab Emi-
rates is famous for its strategic management and employees’ friendly policies, which are
liable for increased organizational performance and productivity. Here besides getting
an advantage from local and foreign healthcare experts, the organizational stakeholders
also facilitate their workforce by proposing improved policies and successful execution
of strategies [15]. As a result, today the United Arab Emirates is a hub of business stake-
holders, where private organizations provide equal opportunities to all and significantly
contributing to the economic development of the whole Middle Eastern region [15].
Once again, this gigantic privatization of business organizations in the United Arb Emi-
rates is due to internal cooperation, aimed at mutual benefits providing socio-economic
benefits at the collective level [16].
Hence by keeping in view the above-mentioned factors in improving organizational
productivity, this study aims to assess the direct link between governance, management,
and leadership for improved organizational productivity [17, 18]. Considerably, many
studies focused on these three factors (individually) to assess their impacts, yet the
literature indicates a gap where all these factors will be unified in a single investigation.
The researcher empirically investigated the above-mentioned link, however, the aim is to
provide in-depth details by focusing on the role of strategies when assuming a potential
relationship between governance, management, leadership, and improved organizational
productivity.
 The Role of Governance, Leadership in Public Sector Organizations 303

2 Literature Review and Hypotheses Development

2.1 Governance and Improved Productivity

Governance is a central topic of attention in both developed and emerging economies.
For organizational stakeholders, governance is a crucial factor to accelerate the growth
and development of the private sector along with the spillover effects to the local econ-
omy. To improve governance, several changes in organizational policies and practical
strategies are introduced in many countries [19]. Previous studies have introduced four
primary factors that affect and boost governance which in turn positively affect the eco-
nomic and social growth of an organization. These factors involve (i) role of human
capital in increasing organizational efficiency, (ii) altering or modifying the existing
organizational policies, (iii) in-depth understanding of the market challenges, and (iv)
ownership in determining the strengths and weakness of the organization [20]. To take
these factors under consideration and their practical implementation, organizational gov-
ernance is the main authority To further validate the role of governance in bringing out
increased productivity Liu et al. (2018) cited an example of the Chinese economy that
has remarkably increased in the year 2018. According to Liu et al. (2018), an increased
GDP implies that the Chinese private sector has greatly transformed from low income to
upper-middle-income enterprises, indicating governance quality as the primary compo-
nent for accelerating organizational productivity. Therefore, economists and organiza-
tional researchers agree that governance is the critical factor explaining organizational
productivity. Especially, during the early stages of organizational development, gov-
ernance plays an important role to sustain the organizational infrastructure on strong
foundations [22].

H1: There is a significant relationship between governance and increased

productivity

Management and Improved Productivity

Previous studies that assessed the impacts of management on organizational growth
have witnessed management practices as mainly affecting organizational performance
and productivity. Existing literature emphasizes much on raising and sustaining the firm
performance through a special consideration on management [23]. Strong management
ensures competitive advantage as they are the direct means through which an organiza-
tion can develop, and execute non-substitutable and non-imitable human capital. Many
studies also highlighted the importance of management in an organization, although
every organization has its structure, design, and budget to focus on the development of
management [24]. A survey conducted by Reenen and Bender (2016) also affirmed the
role of management in accelerating organizational performance and productivity in Ger-
many. Results showed that better-managed firms follow a systematic process for work-
force recruitment and retaining the higher average human capital. These findings also
indicated a strong significant relationship between management practices and firm-level
productivity. Ngwenya and Aigbavboa (2017) also cited a relevant example to further
maintain a strong link between management and increased productivity in the South
304 S. B. K. Halim et al.

African construction sector. According to the researchers, despite managing the work-
force is a little different than managing technology or workplace environment, manage-
ment is the fundamental component that ensures organizational success, development,
and increased output.

H2: There is a significant relationship between management and increased

productivity

Leadership and Improved Productivity

Along with the major changes in the organizational trends, today we need stronger,
democratic, focused, and less bureaucratic leadership. Indeed, leadership is one of the
primary factors that ensure the survival and progress of an organization. The impor-
tance of leadership can be determined by a fact that it has a strong, optimistic effect on
organizational productivity. Ultimately, we can find leadership as the critical factor that
practically executes the organizational strategies to meet the desired goals and fulfill the
objectives [27]. According to Tewari et al. (2019), this prominent relationship between
leadership and increased organizational productivity is due to a psychological contract
between the leaders and workforce to meet the desired organizational goals. As the more
a leader shows flexibility and effectiveness in their leadership patterns, the more work-
force will likely to perform accordingly. Consequently, this psychological contract will
bring out positive constructive outcomes.
As noted by Madaan (2015), the purpose of choosing a leader is to affect the organi-
zational environment and motivate the workforce for better performance. A leader has
different qualities that persuade, motivate and support the workforce to perform orga-
nizational functions. Besides, leadership also contains skills and expertise that help to
solve complex organizational problems, understanding a particular subject, and improv-
ing organizational productivity. Therefore, organizational productivity and success pri-
marily depend on its leadership as leaders use different professional skills to enhance
excellence and improve productivity [30, 31].

H3: There is a significant relationship between leadership and increased produc-

tivity

Organizational Strategies, Governance, Management, Leadership and Improved

Productivity
According to Nenadál et al. (2018), organizations today need to focus on creating new
approaches that can contribute to organizational development. These approaches should
be strategic and based on both long-term and short-term benefits for all. These strategies
not only ensure practical execution but also are based on increasing organizational pro-
ductivity at the maximum level. Organizational strategies are one of the most enduring
concerns, as they provide a direct pathway to achieve the desired organizational goals.
These strategies are aimed at every aspect and every individual in an organizational
hierarchal structure [33, 34].
A report represented by the United Nations Industrial Development Organization
(2010) further discussed the intervening role of organizational strategies in advancing
 The Role of Governance, Leadership in Public Sector Organizations 305

productivity. As argued that, if the stakeholder focuses on increased productivity, they

have to keep the governance, management, and leadership for designing and implement-
ing the organizational strategies under consideration. For this purpose, annual evaluations
can significantly help as organizations want both internal and external assessments. As
governance considers the incremental and instrumental organizational goals, achieving
these goals require a strong strategic plan. Once a plan is designed, managers ensure their
practical value and further obligate the leaders to execute them. As a result, organization
attains sustainable development, organizational productivity, and social-economic pros-
perity [35, 36]. For this purpose, Pacheco et al. (2014) highlighted some organizational
strategies i.e., oriented approach for the product development, modification of existing
products, improvement of bottleneck, reconsideration from the ergonomic point, and
reconsidering the functions like logistic boarding, as a pathway to increase the orga-
nizational productivity. However, it is also worthwhile to notable that, these strategies
are a collection of improvements aimed at the organizational workforce, organizational
environment, working conditions, and decision-making that can enhance productivity
by all possible means [38] (Fig. 1).

H4a: Organizational strategies mediate the relationship between governance and

increased productivity

H4b: Organizational strategies mediate the relationship between management and

increased productivity

H4c: Organizational strategies mediate the relationship between leadership and

increased productivity

Fig. 1. Conceptual model of the study

3 Research Methods

The researcher employed the cross-sectional design in this research and used structured
questionnaires with Five-point Likert scale items (Strongly disagree, disagree, neutral,
agree, strongly disagree) [39–43]. However, as the study contain a self-proposed con-
ceptual model, the researcher preferred using Structural Equation Modelling to conduct
306 S. B. K. Halim et al.

an in-depth analysis of the proposed relationship between all the study variables. In this
regard, the researcher used both Statistical Package for Social Sciences and IBM AMOS
Version 23.
Moreover, to select the study sample, we used the convenience sampling technique
and selected a sample of n = 230 individuals working in the private telecom sector in the
United Arab Emirates [44]. We mainly selected the participants from the Governance,
Human Resource, and workforce leaders from n = 3 telecom companies working in
Abu Dhabi and Ajman. After data collection, we assessed the internal consistency of
the research model by examining the reliability and validity as suggested by Alhumaid
et al. (2021). We first examined the Construct Reliability and Convergent validity of the
research model (see Table 1). We can observe that all the Cronbach Alpha values ae
ranging from .732 to .894. Similarly, all the Composite Reliability values are ranging
from .702 to .904, indicating that all the obtained CR and CA values are successfully
establishing the Construct Reliability of the research model as they are higher than the
threshold value of 0.7. Moreover, regarding the Convergent Validity, we can observe
that all the Factor Loading and Average Variance Extracted values (ranging from .741 to
.894) are also higher than the threshold value of 0.5, indicating that Convergent Validity
is also established [46, 47].

Table 1. Construct reliability and convergent validity of research model

Variables Items FL AVE CA CR

Governance GOV1 .985 .792 .805 .786
GOV2 .762
GOV3 .629
Management MGT1 .643 .741 .732 .702
MGT2 .883
MGT3 .700
Leadership LDP1 .629 .819 .728 .822
LDP2 .942
LDP3 .888
Increased productivity IPY1 .816 .894 .761 .904
IPY2 .976
IPY3 .881
Organizational strategies OTS1 .985 .825 .746 .825
OTS2 .762
OTS3 .729

After assessing the construct reliability and convergent validity, the researchers
scrutinized the divergent validity of the research model as suggested by [1, 48, 49].
For this purpose, we used two criterion scales including Fornell-Larcker Scale and the
 The Role of Governance, Leadership in Public Sector Organizations 307

Heterotrait-Monotrait Ratio Scale [50, 51]. We can observe that all the square root val-
ues of Average Variance Extracted are higher than the correlation values, indicating that
the discriminant validity is partially established (See Table 2). Besides, after applying
the Heterotrait-Monotrait Ratio Formula, we found the HTMT value at .592, which is
lower than the threshold value of 0.85, indicating that the discriminant validity is also
established (Table 3).

Table 2. Fornell-Larcker scale

GOV MGT LDP IPY OTS

GOV .627
MGT .601 .549
LDP .521 .516 .670
IPY .534 .525 .497 .799
OTS .286 .191 .275 .472 .680

Table 3. Heterotrait-Monotrait ratio scale

GOV MGT LDP IPY OTS

GOV
MGT .561
LDP .927 .460
IPY .960 .469 .919
OTS .217 .193 .163 .179 .279

After determining the internal consistency of the research model, the researcher con-
ducted a descriptive analysis of the research participants. Table 4 indicates a summary of
demographical data. We can see that a majority of respondents (61.7%) were males and
38.3% were females (M = 1.39, SD = .488). Furthermore, 43.9% of participants were 36
to 45 years old, 21.3% were 26 to 35 years old, 20.8% were 46 years of age or above, and
only 13.9% were below 25 years of age (M = 3.19, SD = 2.124). Similarly, according
to the qualification level of participants, 38.6% were having graduation degrees, 31.7%
were undergraduate individuals, 25.7% of participants were holding professional diplo-
mas or certification, and only 2.2 of respondents were having a postgraduate degree (M
= 2.33, SD = 2.127). Finally, 32.6% of respondents were having work experiences of
eight years or above, 27.8% were having 6 to 8 years of professional experience, 21.3%
of respondents were having 2 to 5 years of experience, and 18.3% of participants were
having work experience of less than one year (M = 2.75, SD = 1.010).
308 S. B. K. Halim et al.

Table 4. Demographics of respondents

Variable Constructs f %
Gender Male 142 61.7%
Female 88 38.3%
Age Below 25 years 32 13.9%
26–35 49 21.3%
36–45 101 43.9%
46 or above 48 20.8
Qualification Undergraduate 73 31.7%
Graduate 89 38.6%
Post-graduation or above 5 2.2%
Diploma/Certification 59 25.7%
Work experience Less than 1 year 42 18.3%
2–5 years 49 21.3%
6–7 years 64 27.8%
8 years or above 75 32.6%

Coefficients of Determination R2 and Hypotheses Testing: Path, Mediation

Analysis, Regression Analysis
The researcher examined the Coefficients of determination R2 to assess the predictive
value of the research model as suggested by [52]. The R2 values are showing a strong
predictive power as the values of latent variables are ranging from .617 to .848. Table 5
contains the summary of the relevant analysis:

Table 5. Coefficients of determination R2

Variables R2 value
Governance .848
Management .617
Leadership .712

Furthermore, the researcher conducted path and linear regression analyses to validate
the proposed relationship between study variables. Table 6 summarizes the relevant
results. As visible that, with the path values at .669, we found the relationship between
Governance and Increased Productivity as statistically significant (b = .927, p ≥ .000).
Similarly, with the Path values at .413, we also affirm a significant relationship between
Management and Increased Productivity (b = .984, p ≥ .000). Finally, the relationship
 The Role of Governance, Leadership in Public Sector Organizations 309

between Leadership and Increased Productivity is also significant at the Path value of
.298, indicating that the third study hypothesis is also accepted (b = .537, p ≥ .000).

Table 6. Path analysis and linear regression analysis.

H Relationship Path t Sign.

H1 GOV > IPY .669*** .265.10 .000
H2 MGT > IPY .413** 64.17 .000
H3 LDP > IPY .298* 123.02 .000

Similarly, the study also contains mediating effect of the Organizational Strategies
on all the relationships proposed between Governance, Management, Leadership, and
Increased Productivity, the research also examined the relevant mediating effect. Table 7
represents the results of the mediation analysis. We can observe that, with the signifi-
cance level of p ≥ .000 and the indirect effect value of .008, Organizational Strategies are
significantly mediating the relationship between Governance and Increased Productivity.
The significance level at p ≥ .000 and indirect value of .023, Organizational Strategies
are also mediating the relationship between Management and Increased Performance.
Finally, the mediating role of Organizational Strategies is again validated as the signif-
icance value is p ≥ .000 with the indirect effect value of .144 indicating a significant
mediating role of Organizational Strategies in the relationship between Leadership and
Increased Productivity.

Table 7. Mediation, path and regression analyses

H Relationship Path Indirect effect Sign.

H4a GOV > OTS > IPY .221, −.171*** .008 .000
H4b MGT > OTS > IPY .432−1.245* .023 .058
H4c LDP > OTS > IPY .268−.580* .144 .000

According to de Waal and Frijns (2016), existing literature much encourages better
business opportunities for the investors in the United Arab Emirates. Both the eco-
nomic and social stability of the UAE is the basic reason behind increased business
opportunities in the countries. Here the role of organizational managers, governance,
and other workforce members is distinguished as they are satisfied with the working
conditions that practically suit them [16, 54]. This research also examined the organi-
zational success in terms of the members that actively make workable plans and ensure
their execution in the best possible manner [18]. First, we found a significant relation-
ship between Governance and Improved Productivity in the UAE. These results show a
strong consistency with the study conducted by Liu et al. (2018), as they found similar
organizational excellence in Chinese organizations due to strong governance (p ≥ .000).
310 S. B. K. Halim et al.

Besides, the relationship between Management and Increased productivity (p ≥ .000) is

also consistent with the research carried out by Reenen and Bender (2016) as they also
concluded Management is one of the fundamental agents of bringing out organizational
stability and improved productivity. Thirdly, the relationship between Leadership and
Improved Productivity showed significant compatibility (p ≥ .000) with the research
conducted by Tewari et al. (2019) as they found that the relationship between Man-
agement and Improved Productivity is due to a psychological contract in which, all
the involved parties work on the principle of “Reward and Cost”. Lastly, the role of
Organizational Strategies to Mediate the previously mentioned three relationships, is
also consistent with the study conducted by Pacheco et al. (2014), as they found all the
organizational members as improving productivity through introducing, designing, and
implementing the Organizational Strategies. Thus, the primary goal of an organization
is to unite different individuals in a group to attain mutual goals for mutual benefits.
Since organizations are viewed as a system, Governance, management, and leadership
are the regulating agents of the relevant system [24]. In this regard, the role of strategies
is of greater significance as they help an organization to accelerate its growth, serve the
interests of organizational members, reduce the risks, increasing productivity, and help
an organization to achieve competitive advantages [55].

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 An Analysis of Compensation Instruments
on Employees’ Job Satisfaction
The Case of Gamo Gofa Zone Trade and Industry Development
Office

R. Divyaranjani1 , Nandini Desai2 , Gurpreet Kaur3 , Ananta Uppal4 ,

Sandeep Kumar Gupta1(B) , Elango Janakiraman1 , and Sonia Ahsan5
1 AMET University, Chennai, India
[email protected]
2 Dr D Y Patil Institute of Management Studies, Pune, India
3 Noida Institute of Engineering and Technology, Greater Noida, India
4 P P Savani University, Surat, India
5 The Institute of Cost and Management Accountants, Khulna, Bangladesh

Abstract. The research was conducted to examine the role of compensation on

employee job satisfaction in the Gamo Gofa zone Trade and Industry Development
Office. The main objective of the study was to assess the role of compensation on
employee job satisfaction in the Gamo Gofa zone Trade and Industry Development
Office. Identifying major problem areas and suggesting suitable solutions and
recommendations improve compensation strategy.
The research used both primary and secondary sources of data to attain the
above objective. The primary data was collecting questions from the employ-
ees of the organization by using questionnaires and the Secondary sources of
data were textbooks, organization documents and manuals. The researcher used
both closed-ended and open-ended questionnaires. The researcher used descrip-
tive types of research design. Because it was conducted to describe the main role of
compensation on employee job satisfaction in Gamo Gofa zone Trade and Indus-
try Development Office, the target population of the study comprises the whole
employees 50, as the topic indicates it is important for all levels of workers to
assess their satisfaction level with compensation in their jobs. The researcher used
the census sampling technique to give equal chances for all populations and make
the research free from bias. Finally, the collected data was analyzed, Presented
and interrelated by using statistical techniques such as tabulation and percentage
then analysis, conclusion and recommendations were made.
According to the respondent compensation have so many roles such as increas-
ing productivity, motivating employees to work and it gives high job satisfaction.
The majority of the respondents indicated that they have no feeling of worthwhile
and accomplishing their job as a result of the compensation system and bene-
fit plan not based on merit (performance) base. So one can conclude that there
are other methods such as seniority or experience base to compensate employees
rather than performance.

Keywords: Employees’ job satisfaction · Compensation strategy · Improvement

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 314–324, 2023.
https://doi.org/10.1007/978-3-031-26956-1_31
 An Analysis of Compensation 315

1 Introduction
There are many resources in the organization and human resources are one of the most
critical resources. They all want appropriate management techniques to achieve the
objective of the organization. Therefore, the organization must manage human resources
effectively and efficiently to achieve its objectives. There are many methods to manage
human resources such as giving better rewards to attract better employees (Gary Dessler
2003). According to R. Wayne Mondy (2010) compensation in general is the package
of awards an employee receives for his/her contribution. However, many organizations
neglected compensation management but it plays an important role in attracting new
employees to an organization and motivating them to perform well. Compensation is
a critical element of the human resource management system and should be designed
to work together with another element of the system to enhance performance. Money
not only helps people to attain their basic needs, but it is also instrumental in providing
a higher level of need satisfaction as observed by (Dullebohn and Werling 2007). At a
broad level, an organization’s reward system includes anything an employee values and
desires that an employer is able and would offer in exchange for employee contributions.
More specifically, such compensation includes both financial and non-financial rewards.
Financial rewards include direct payment such as salary plus indirect payment in the form
of employee benefits. Non-financial reward includes everything in a work environment
that enhances a worker’s sense of self-respect and esteem by others such as a work
environment that is physically, socially and mentally healthy, opportunities for training
and personal development, and effective supervision recognition (F. CASCIO 2006).
General effective compensation in organizations increases employee job satisfaction,
productivity, and responsibilities and reduces turnover. Therefore, this paper was focus
on the role of compensation on employee job satisfaction in the Gamo Gofa Zone Trade
and Industry Development office in Arba Minch Cities.
In today’s conservative fiscal climate incentive programs are becoming increasingly
popular tools not just only to improve economic performance but also to retain valuable
employees, promote on-the-job safety and encourage long-term client relationships. As
a result, the most global organization understands the role of compensation (Wayne-F-
Casio 2006). Commonly, the employee often seeks different benefits to be more pro-
ductive and achievable organizational objectives, Compensation is any financial and
non-financial benefit that can be given to employees as a reward to motivate them to
be more productive and recognize their contribution forwards the organization’s goal
achievement and Compensation is a vital tool in helping to encourage employees to be
able to work. It is acceptable that in different organizations as well Compensation plays
an important role in increasing satisfaction to employees. The organization’s objectives
can’t be achieved without satisfied employees but, most organizations in Ethiopia have
little understanding of the role of compensation in employee job satisfaction. As a result,
many employees are changing their organization to get attractive compensation. Among
this Gamo Gofa zone, the Trade and Industry Development Office In Arba Minch is the
one who has a lack of awareness of the main roles of compensation on employee job sat-
isfaction and little understanding of organizational objectives can’t be achieved without
satisfied employees. So, the researcher in this paper focus to investigate compensation
which is the best means of creating awareness about the advantage of compensation and
316 R. Divyaranjani et al.

employee satisfaction towards their jobs it also tries to identify the effect of compensa-
tion on the employee’s job satisfaction and creating awareness about the advantage of
compensation in a case of Gamo Gofa zone Trade and Industry Development Office in
Arba Minch City.
From the above description of the problem, the following leading questions were
raised in the research.

1. How Gamo Gofa Zone Trade and Industry Development office compensate their
employees?
2. Are the employees satisfied or not with the existing compensation system?
3. What are the influences of compensation in the organization?
4. Does the organization encourage the compensation strategy?

Objectives of the Study

The general objective of the study was to know the role of compensation on employees’
job satisfaction in the case of the Gamo Gofa Zone Trade and Industry Development
Office.
Specific Objectives

• To assess how Gamo Gofa zone Trade and Industry Development Office compensate
their employees.
• To find out whether the employees are satisfied or not with existing compensation
• To examine the impact of compensation in the organization.
• To know whether the organization encourages the compensation strategy

2 Research Methodology
2.1 Research Design

The researcher used descriptive types of research design. The study would focus on the
role of compensation on employees’ job satisfaction. It was conducted for the purpose
of understanding the main role of compensation on employees’ job satisfaction in Gamo
Gofa Zone Trade and Industry Development Office.

2.2 Target Population, Sample Size and Sampling Technique

The target population of the study comprises the whole employees of the organization.
The topic of this study was the role of compensation on employee’s job satisfaction. So it
is important for all levels of workers to assess their satisfaction levels with compensation
in their jobs. Among the whole population of 50, the researcher would select 40 as sample.
The researcher used censes sampling techniques. This is because of giving equal chance
for all population and makes the research free from bias.
 An Analysis of Compensation 317

Data Source and Collection Methods.

The researcher was used both primary and secondary data to conduct this research. The
primary data was collected from the employees of the organization through question-
naires and secondary data was obtained from textbooks, organization documents and
manuals. The researcher used both closed ended and open ended questionnaires.
Data Analysis and Interpretation.
The collected data was analyzed and interpreted through qualitative and quantitative
by using table and percentage.

2.3 Data Presentation, Analysis and Interpretation

This chapter deals with the result obtained from questioner filled by employees Gamo
Gofa zone Trade and Industry Development Office. In order to conduct these research
50 questionnaires were distributed to employees of Gamo Gofa zone Trade and Industry
Development Office and 40 copies were properly completed and returned by employees.
The rest of 10 questioners were not return because of various reasons such as employ-
ees have shortage of time and lack of sufficient ideas did not fill up and returned the
questionnaire on time. For simplicity and convenience, the gathered data were analyzed
using table and percentage.

2.4 Demographic Characteristics of Respondents

Before going to see the necessary part of the study, it would be appropriate to know
the respondents general background information or demographic details. It contains
respondents Sex, age and educational background.

Table 1. Respondent’s profile

No Items Alternatives Respondents

Number Percentage
1 Sex Male 24 60%
Female 16 40%
Total 40 100%
2 Age 20–30 14 35%
31–40 16 40%
41–50 10 25%
>50 0 –
Total 40 100%
3 Educational back ground Diploma 10 25%
Degree and above 30 75%
Total 40 100%
Source: questionnaire 2021
318 R. Divyaranjani et al.

As Table 1 shows regarding gender issue 24(60%) are males and 16(40%) are
females. This shows most of the employees in Gamo Gofa Trade and Industry
Development Office are males.
Concerning the age ranges of the respondent in the organization are relatively longer
number 16(40%) of them are between 31–40 years where as 14(35%)of them are between
20–30 the rest of 10(25%) of from between 41–50 age groups.so one can conclude that
majority of the employees are between 31–40 years this means that are in middle age or
productive when consider the educational states of the respondent the granter percentage
30(35%) show that they are degree and above holders, 10(25%) are having college
diploma from this, the researcher can conclude majority of employees have degree and
above this enables, the researcher to get enough and accurate information.

2.5 Respondents Reaction on Role of Compensation

Pay plans are typically used to energize direct or control employee’s behavior (Robert
con 1002). Respondents were asked to evaluate the main role of compensation on their
job satisfaction in Gamo Gofa zone Trade and Industry Development Office.

Table 2. Working in other organization before

Items Alternatives Respondents

Number Percentage
Have you ever been employees in other organization Yes 30 75%
before? No 10 25%
Total 40 100%
Source: questionnaire 2021

As Table 2 among the respondents of 30(75%) are employed in other organization

before one the rest of 10(25%) are not employed.
From this it is possible to conclude that the majority of employees in Gamo Gofa
zone Trade and Industry Development Office are employed in other organization before,
this means the organization have enough experienced employee.

Table 3. Causes of leaving ex-organization

No Items Alternative
Very high High Medium Low Very low
No % No % no % no % no %
1 Salary 0 – 11 36.7 14 46.7 5 16.7 0 –
(continued)
 An Analysis of Compensation 319

Table 3. (continued)

No Items Alternative
Very high High Medium Low Very low
No % No % no % no % no %
2 Fringe benefit 2 6.25 8 26.7 15 50 4 13.3 1 3.3
3 Job 3 10 5 16.7 11 36.7 11 36.7 0 –
satisfaction
4 Growth 0 – 5 16.7 12 40 12 40 1 3.3
opportunities
5 Learning 2 6.7 2 6.7 12 40 11 36.7 3 10
opportunities
Source: questionnaire 2021

As shown in the above Table 3 item 1, 11(36.7%), 14(46.7%), 5(16.7%) are of the
respondent replica that the salary they have got from the organization is high, medium
and low respectively, the salary gains very high and very low is not respondent A major
of employee’s salary in ex-organization is medium, one can conclude salary is cause of
leaving organization.
From the above Table 3, item 2, 2(6.25%) 8(26.7%) 15(50%), 4(13.3%) and 1(3.3%)
of the respondent said that fringe benefits that they have got from ex-organization is very
high, high, medium, low and very low respectively. So the researcher easy can conclude
fringe benefit is not a cause of leaving one organization.
In the case of job satisfaction or item 3, 3(10%), 5(16.7%), 11(36.7%), 11(36.7%)
and the rest very low is none of the respondent replied that their job satisfaction in ex-
organization, very high, high, medium. Low respectively. So one can conclude that most
of the employee’s job satisfaction is very low with ex-organization, this means less job
satisfaction cause for leaving the organization.
The researcher can consider the growth opportunities or item 4, very high is non
5(16.7%), 12(40%), 12(40%) and 1(3.3%) of the respondent said that the growth oppor-
tunities that they have is very high, high, medium, low and very low respectively. There
for the researcher can conclude that is very less growing opportunities in ex-organization
may cause easy to leave one organization.
In item 5 the case of learning opportunities item 5 2(6.7%), 2(6.7%), 12(40%),
11(36.7%), 3(10%) are said very high, low and very low respectively. So the researcher
can conclude there is a very low learning opportunities given to employees in
ex-organization, so employees leave from the organization to get learning opportunities.
320 R. Divyaranjani et al.

Table 4. Role of compensation on job satisfaction

No Items Alternatives Respondents

Number %
1 Do you think that compensation has an impact on Yes 35 87.5%
employee’s job satisfaction? No 5 12.5%
Total 40 100%
2 Are you satisfied with your job? Yes 31 77.5%
No 9 22.5%
Total 40 100%
3 Do you get a feeling of while and accomplish high your Yes 29 72.5%
job well, as result of compensation system provided to No 11 27.5%
you?
Total 40 100%
Source: questionnaire 2021

From the above Table 4, item 1, 35 (87.5%) of respondents replied that compen-
sation has its own impact on employee’s job satisfaction and the rest of 5(12.5%) said
compensation has no impact on employee’s job satisfaction. There for the researcher
concludes that compensation has its own impact on employee’s job satisfaction.
In item 2, 31(77.5%) of respondents are satisfied with their job and 9(22.5%) are
not satisfied with their job. So one can conclude that majority of the employee in Gamo
Gofa zone Trade and Industry Development Office are not satisfied with their job.
Finally, in item 3, 29(72.5%)of respondents have a feeling of worthwhile and accom-
plishing their job well, as result of compensation system provided to them and 11(27.5%)
have not a feeling of worthwhile and accomplishing their job as result of compensation
system provided to them, one can understand compensation system provide a feeling of
worth for employees.

Table 5. Level of satisfaction on the job

Items Alternatives Respondents

Number Percentage
Rate levels of your job satisfaction Very high 2 6.4%
High 20 64.5%
Medium 8 25.8%
Low 1 3.2%
Very low 0 0
Total 19 100%
Source: questionnaire 2021
 An Analysis of Compensation 321

As Table 5, show regarding level of satisfaction on the job. 2(6.4%), 20(64.5%),

8(25.8)and 1(3.2%)respondent said very high, high, medium and low respectively and
no one can replied very low. So the researcher can easy conclude the job satisfaction of
the employees is high in Gamo Gofa zone Trade Industry Development Office.

Table 6. Existence of attractive compensation strategy

No Items Alternative Respondents

Number Percentage
1 Do you believe that compensation strategy encourage Yes 36 90%
employees to work hard? No 4 10%
Total 40 100%
2 Do you believe that you organization compensate Yes 16 40%
employees based on merit (performances)to motivate No 24 60%
hard work
Total 40 100%
Source: questionnaire 2021

From the above Table 6, item 1 out of 40 total respondent 36 (90%) have said
compensation strategy encourage employees to work hard and 4(10%) replied compen-
sation strategy cannot encourage employees to work hard. So one can conclude easily
compensation strategy encourage employees to work hard.
In item 2, 16(40%) of respondents believe that their organization compensate employ-
ees based on merit to motivate hard work and 24(60%) respondent said our organization
cannot compensate employees based on performances to motivate hard work. From
this the researcher can conclude the organization have another alternative system to
compensate employees rather than performance base like Experience and seniority.

Table 7. Advantages of compensation

No. Items Alternative Respondents

Number Percentage
1 What is the advantage of Productivity increase 16 40%
compensation to employees? Increase job satisfaction 24 60%
Total 40 100%
2 How day rate the level of Very high 3 7.5%
employee’s retention as a result of
equitable compensation system?
High 21 52.5%
Medium 16 40%
(continued)
322 R. Divyaranjani et al.

Table 7. (continued)

No. Items Alternative Respondents

Number Percentage
Low 0 0
Very low 0 0
Total 40 100%
Source: questionnaire 2021

As we can see from the above Table 7 item 1, 16(40%) of respondent said advantage
of compensation is to increase productivity. 24(60%) replied it increases employee job
satisfaction. There for one can clearly understand compensation have so many advantages
to employees.
In item 2 out of 40 total respondents 3(7.5%), 21(52.5%) and 16(40%) of respondent
replied that the level of employees’ retention as a result of equitable compensation
system is very high, high and medium respectively and no one can have said low and
very low. From this the researcher concludes the level of employee’s retention as a result
of equitable compensation system is very high.

Table 8. Disadvantages of lack of fair and equitable compensation

Alternative Respondents
Number Percentage
Turn over increase 5 12.5%
Responsibility 9 22.5%
Productivity 3 7.5%
All 23 57.5%
Other 0 0
Total 40 100%
Source: questionnaire 2021

Table 8 shows that 5(12.5%) of respondent said disadvantage of compensation is

increasing of turnover in the organization. 9(22.5%) replied responsibility decrease,
3(7.5%) said productivity decrease and the rest of 23(57.5) said all are the disadvantages
of lack of fair and equitable compensation. So from this one can clearly understand all
the above factors are the disadvantages of lack of fair and equitable compensation.

Results of open ended questions analysis

There are open ended questions prepared to the respondents which are about the roles
of compensation, their feeling to accomplishing the job and does the organization
compensate employees based on merit (performance).
 An Analysis of Compensation 323

Roles of compensation on job satisfaction; According to the respondent’s compensa-

tion have so many roles such as increase the productivity, motivate employees to work
and it gives high job satisfaction.

Respondents feeling regarding to compensation system

Majority of the respondents indicated that they have no a feeling of worthwhile and
accomplishing their job as a result of compensation system and benefit plan not based
on merit (performance) base. So one can conclude that there is another method such as
seniority or experience base to compensate employees rather performance.

3 Result Analysis

This topic deals with the summary of what has been done in the research process and
point out the summary of the finding.

– Most of the employees of the organization are males and they are between the 31–40
age group. Most of them also with education background of degree and above; that
means they have young, productive and professional.
– Some employees 10(25%)have been employed in other organizations before and
they can leave the organization due to some reasons such as less satisfaction with
salary, fringe benefits, growth opportunities, leaving opportunities and having less
job satisfaction.
– The compensation strategy encourages employees to work hard and it has its advantage
and disadvantage to the employees as well as to the organization.
– - According to the respondent major 24(60%) repined advantage of compensation
increased job satisfaction among employees, it gives employees become honest and
accountable.
– Majority 23(57.5%) of the respondent replied compensation has its disadvantage when
it can provide to employees, such as a turnover increase, responsibility decrease and
also productivity of the organization decrease.
– Most of the respondents 24(60%) said the organization cannot compensate employ-
ees based on merit (performance) base and most employees disagree with such a
compensation system.
– In the organization, most of the respondents 29(72.5%) have a feeling of worthwhile
and accomplishing their job well due to sufficient compensation and benefits.
– Majority of the respondent 21(52.5%) replied when compensation is given to employ-
ees the rate of retention of employees is high and it has so many roles, such -- as the
organization getting a competitive advantage, attracting the best employees, retaining
good employees and make employees strong work ethics and good character.

As the majority of respondents, 23(57.5%) said compensation has over negative

impart when it cannot fairly provide or given to employees such as significant employees
leaving the organization. no sense of loyalty and accountability dissatisfaction with their
job and also productivity of the organization decrease.
324 R. Divyaranjani et al.

4 Conclusions

This study has attempted to investigate the role of compensation on employee job satis-
faction in the Gamo Gofa zone Trade and Industry Development Office. The researcher
wants to put the conclusion of this particular study forward to the readers as follows.

– Concerning this study, the compensation strategy encourages employees to work hard
and it has its advantage and disadvantage for the employees as well as the organization.
– According to, the employee’s response fair and equitable compensations can provide
employees job satisfaction, increase organisational productivity and decrease turnover
in the organization. Generally, a fair and equitable compensation system plays a key
role in the organization.
– According to, employee response causes of leaving one organization are less in salary,
fringe benefit, job satisfaction, growth opportunities and learning opportunities. In
generally financial as well as non-financial rewards are the cause of leaving employees.
– Concerning merit or performance base of compensation respondents disagreed
because organizations can not compensate employees based on performance.
– According to this study lack of fair and equitable compensation harms the organi-
zation such as increased turn over; employees cannot have a sense of loyalty and
accountability and decrease organization productivity.

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 The Mediating Role of Psychological Capital
Resources Between Grit and Graduate
Employability

Hartini Mashod(B) and Kabiru Maitama Kura

Universiti Teknologi Brunei, Mukim Gadong A, Brunei

[email protected]

Abstract. This paper seeks to determine the influence of grit on graduate employ-
ability (GE) and aims to extend past studies by introducing psychological capital
(PsyCap) resources (i.e., hope, self-efficacy, resilience, optimism) as the mediators
between grit-GE relationship. This study employed a cross-sectional approach;
whereby online questionnaires were distributed to graduates registered under Job-
Centre Brunei (JCB). Three hundred and three respondents were analyzed using
a partial least square-structural equation model (PLS-SEM). The findings suggest
gritty graduates are more likely to possess higher GE. Furthermore, hope was
found to mediate the relationship between grit and GE. The results obtained in
this study suggests the acquisition of personal resources such as grit and hope
could increase chances of graduate employment. Consequently, GE stakeholders
can work together to inculcate these personal resources within graduates.

Keywords: Grit · Psychological capital · Graduate employability

1 Introduction

The nature of employment has been one of the fastest-growing global phenomena ever
witnessed, owing mainly to increased globalization, rapid technological advancement,
and 4.0 industrial revolution (Herbert et al. 2020). These challenging circumstances
accentuate the need for employees to maintain their employability to retain their posi-
tions. Similarly, individuals who wish to enter the labor market, such as fresh gradu-
ates, must ensure they are equipped with versatile employability credentials to attract
employers. Graduate employability (GE) refers to “a set of achievements such as skills,
understandings, and personal attribute that make graduates more likely to gain employ-
ment and be successful in their chosen occupations, which benefits themselves, the
workforce, the community, and the economy” (Yorke and Knight 2006, p.3). As result
of massification of higher education institutions (HEIs), high graduate unemployment,
competitive labor market, and skill mismatch, GE has sparked significant interest among
policymakers, HEIs, employers, and graduates alike. In Brunei, GE is regarded as the top
national agenda to achieve the national development plan, National Vision 2035, aiming
to produce highly qualified and skilled Bruneians by 2035. However, adversities faced

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 325–333, 2023.
https://doi.org/10.1007/978-3-031-26956-1_32
326 H. Mashod and K. M. Kura

by the country today (i.e., high unemployment rate) may hinder such aspiring goals as it
limits the young generation to contribute back to the sultanate. With increasing interest in
importance of personal attributes on GE, there is evidence supporting grit as a predictor
of GE (Hora et al. 2020); Widodo and Chandrawaty (Widodo et al. 2020). Furthermore,
little is known about the intervening mechanism that contributes to grit-GE relationship.
Psychological capital (PsyCap) resources are proposed as mediators. Even though prior
research has employed PsyCap as a mediator, none has been examined between grit and
GE. Henceforth, this study aims to contribute to the existing literature by investigating
the underlying mechanism between grit and GE.

2 Theory and Hypotheses

2.1 Grit and GE

Duckworth and colleagues popularized grit as “passion and perseverance for long-term
goals”. Albeit grit possesses a stable trait-like characteristic, it can still be developed
from polishing one’s skills, having the right mindsets, and being in an encouraging set-
ting (Duckworth 2016). Recent interest has contributed to a significant increase in grit
literature – including its antecedents and outcomes. Thus far, grit has been associated
with positive outcomes such as academic achievement (Bowman et al. 2015) and remain
employed (Eskrels-Winkler et al. 2014), among others. Collectively, these studies sup-
port that being gritty is crucial for individuals to pursue goals that require one to have
long-term perseverance and passion in accomplishing the intended goal. Especially in
today’s unpredictable labor market, one needs to be consistent and persevere through
hardships – being gritty will enable graduates to accomplish more remarkable achieve-
ments than others of similar intelligence (Chen et al. 2018). However, current evidence
that associates grit and employability remain limited. For instance, study by Kasler
et al. 2017 demonstrated grit to influence employability. Based on the studies above,
it could be postulated that grit may positively influence GE. According to Schimschal
et al. 2020, grit acts as a ‘psychological driver’ that navigate individuals to the path of
success.
Human capital theory (HCT) posits the accumulation of assets (i.e. knowledge,
personality attributes, social) that enable individuals to perform labor and consequently
produce economic value (Becker 1964). Excellent discipline proficiency, exemplary
practical skills, and desirable personalities are some of the assets that would increase
graduates’ attractiveness in the labor market, subsequently enhancing their chances of
landing a job. This study specifically focuses on acquisition of grit – being able to put
consistent effort and being perseverance may allow individuals to gain success. Drawing
from HCT, acquisition of competencies including grit within graduates is more likely to
increase employability and increase the probability of performing labor. Based on the
discussion above, the following is put forward:

Hypothesis 1: Grit is positively related to GE.

 The Mediating Role of Psychological Capital Resources 327

2.2 The Mediating Role of PsyCap Resources

PsyCap is a higher-order positive psychological construct consisting of hope, self-

efficacy, resilience, and optimism. PsyCap as the first-order construct is empirically
proven to have conceptual distinctions as each resource possess unique characteristics
(Luthans et al. 2007). Since most PsyCap studies focused on understanding this con-
struct as a higher-order, this study aims to fill the gap by considering PsyCap as a
first-order construct. Consistent with positive organizational behavior (POB) criteria,
PsyCap is a state-like resource, which means that although this resource is relatively
stable, it is malleable and open to development through training interventions (Luthans
and Youssef-Morgan 2017).
Hope refers to “a positive motivational state that is based on an interactively derived
sense of successful (a) agency (goal-oriented energy) and (b) pathways (planning to meet
goals)” (p. 287) (Snyder et al. 1991). Agency and pathways are the fundamental ele-
ments of hope that operate in interlocking mechanism that helps individuals achieve their
goals. Previous studies provided compelling evidence on the positive impact of hope on
various life contexts such as academic outcomes (Day et al. 2010), workplace satisfac-
tion (Wandeler and Bundick 2011) and employability (Bakari and Khoso 2017). The
second dimension of PsyCap is self-efficacy, coined by Luthans 2002 as “an individual’s
conviction or confidence about his or her abilities to mobilize the motivation, cognitive
resources and courses of action needed to successfully execute a specific task within
a given context” (p. 669). Bandura 1995 asserts that even though self-efficacy belief
may be questionable, it influences an individual’s thinking and feeling, which conse-
quently motivate one to act based on their efficacy beliefs. Several studies on self-efficacy
have identified its influence on diverse domains, including academic performance and
achievement (Honicke and Broadbent 2016) and employability satisfaction (Austin and
Cilliers 2011).
Resilience is “positive psychological capacity to rebound, to ‘bounce back’ from
adversity, uncertainty, conflict, failure, or even positive change, progress and increased
responsibility” (Luthans 2002, p. 702). In facing adversities, resilient individuals can
better cope as they have emotional stability and flexibility in managing changes and new
experiences (Bonanno 2004). Rich empirical evidence has demonstrated the link between
resilience and various life domains – higher GPA scores (Scales et al. 2006), greater job
satisfaction (Luthans et al. 2015) and higher perceived employability (Avey et al. 2008).
Optimism has two complementary streams accepted in POB: attribution theory (Selig-
man 1998) and expectancy theory (Carver and Scheiver 2002). Drawing from attribution
theory, optimism views positive events as internal, stable, and general, while negative
events are rather external, unstable, and specific (Luthans and Youssef-Morgan 2017).
Meanwhile, optimism from the prospect of expectancy theory is about the expectation of
desired outcome due to increased effort. Past studies have also demonstrated the positive
influence of optimism on academic achievement (Solberg et al. 2009). Highly optimist
individuals are also more likely to pursue goals (Carver and Scheier 2014) and high
persistence even at the most challenging tasks (Nes et al. 2005).
Pham et al. 2019 asserted the importance of PsyCap for graduates due to fierce com-
petition among job seekers and instability of current labor market disposition. Recalling
from HCT, accumulation of personality attributes would enhance individuals’ likelihood
328 H. Mashod and K. M. Kura

of undertaking paid employment. Grit has a trait-like characteristic that is a relatively

fixed personality, which explains why this construct has been attributed to attaining long-
time achievements (e.g., getting a job). Conversely, PsyCap characteristics are malleable
and open to development, therefore more effective to unlock daily goals. With the ever-
competitive labor market witness today, there is no doubt that graduates have to go
through series of challenges and even setbacks. The process of job hunting is lengthy
and unpredictable, it requires one to have a stable personality such as grit to ensure
one remain on a long journey – which acts as a ‘stabilizer’ to the malleable PsyCap
resources. Drawing on HCT, combination of personal attributes (i.e., grit and PsyCap
resources) is proposed to act as ‘differentiating competency’ among other prerequisite
competencies, enabling graduates to hold an advantage over other graduates. Based on
these discussions, the following are hypothesized:

Hypothesis 2: Hope mediate the relationship between grit and GE.

Hypothesis 3: Self-efficacy mediate the relationship between grit and GE.
Hypothesis 4: Resilience mediate the relationship between grit and GE.
Hypothesis 5: Optimism mediate the relationship between grit and GE.

3 Method
GE was measured using scale by Rothwell et al. 2008, of which only ten items were used
in this study. Hope was measured using a 6-item State Hope Scale (Snyder et al. 1996).
10-item General self-efficacy scale (Schwarzer and Jerusalem 1995) was used to measure
self-efficacy. Resilience was measured using Brief Resilience scale (Smith et al. 2008)
that consist of 6-item. Optimism was measured using 4 items from the Life Orientation
Test scale (Scheier and Carver 1985). Lastly, grit was measured using the Short Grit
Scale (Duckworth et al. 2007) that consist of 8-item. Respondents were provided with a
5-point Likert scale to rate all questions provided, with 1 asnot like me at all to 5 as very
much like me. The data is obtained through online questionnaire distributed to graduates
that are registered under JCB, a government-based career center. The online survey was
distributed to 500 registered jobseekers, out of which only 303 responses was useable
for this study. The mean age of the respondents was 27.2 years old (SD = 3.0, range
20 – 37 years old). Out of 303 respondents, 202 were female, and 101 were male. The
majority of the respondents obtained an undergraduate degree (74.6%), while the rest
hold a postgraduate degree (25.4%).

4 Data Analysis and Results

The research model was analyzed using PLS-SEM technique and employed the two-
stage process as part of data analysis that assesses the measurement model and struc-
tural model. The software used to perform PLS-SEM analysis is SmartPLS version
3.3.3 (Ringle et al. 2015). The measurement model’s assessment includes item reliabil-
ity, internal consistency reliability, convergent validity, and discriminant validity. Hair
et al. (2014) suggested that item loadings below 0.40 should be deleted for item reliabil-
ity. Out of 42 items, 31 items were retained as they possess loadings of 0.40 and above.
 The Mediating Role of Psychological Capital Resources 329

Following the conservative threshold set by Hair et al. 2017, the constructs’ internal con-
sistency reliability is achieved since values for composite reliability were greater than
0.70. Meanwhile, convergent validity was evaluated using average variance extracted
(AVE). Findings found AVE values for every variable are above the threshold of 0.50
(Urbach and Ahlemann 2010), indicating that the convergent validity is achieved. Lastly,
an assessment of discriminant validity was performed using Fornell-Larcker and HTMT
criterion. Using Fornell-Larcker test, the constructs were acknowledged to possess dis-
criminant validity as the correlation among constructs has smaller values than the square
root of the construct’s AVE. Meanwhile, following the HTMT criterion, the constructs
were also proven to be empirically distinct as the values are below the threshold value
of 0.85 (Kline 2015).
An additional test was performed before assessing the structural model, a multi-
collinearity test using variance inflation factors (VIF). In this study, all the VIF values
were lower than the conservative threshold of 3 (Hair et al. 2010), denoting the absence
of collinearity in the current model. Henceforth, it is expected that the findings of path
analysis would produce unbiased results about the test performed. In hypothesis test-
ing, the structural model was examined by employing bootstrapping method at 5,000
subsamples. As displayed in Table 1, the result revealed a significant total effect (c =
0.24***) for the relationship between grit and GE, after controlling for gender, age and
education. Furthermore, after including PsyCap resources as mediators, the direct effect
of the grit-GE relationship is still significant. However, it has slightly decreased (c’ =
0.23***), which suggests intervening effects. Nonetheless, these findings yield support
for hypothesis 1.
As suggested by Hayes 2009, the main requirement in assessing mediating effect
is by testing the ‘a × b’ significance – path coefficient (β) product of the independent
variable to mediating variable and mediating variable to the dependent variable. The
indirect effect between grit and GE through hope (a1 × b1 ) was found to be significant
(β = 0.20, t = 5.46, CI = [0.14; 0.28]). Meanwhile, the indirect effect of self-efficacy
between grit and GE (a2 × b2 ) was not significant (β = 0.01, t = 0.30, CI = [–0.08;
0.11]). Additionally, the indirect effect of resilience on grit-GE relationship (a3 × b3 ) was
not significant (β = –0.01, t = 0.34, CI = [–0.09; 0.06]). Lastly, the indirect relationship
between grit and GE through optimism (a4 × b4 ) was not significant (β = 0.01, t =
0.27, CI = [–0.06; 0.08]).

Table1. Results of structural model

Notes: GT: grit; HP: hope; SE: self-efficacy; RS: resilience; OP: optimism; GE:
graduate employability. BCCI: bias-corrected confidence interval. Bootstrapping
based on n = 5000 subsamples.
330 H. Mashod and K. M. Kura

5 Discussion

To date, very little was found in the literature on effect of grit on GE, which this study
aims to fill the empirical gap. Similar to previous study that assessed grit-employability
relationship (Kasler et al. 2017), current study found grit to have a significant positive
relationship with GE. These results add to growing body on the importance of evidence
trait-like personality acquisition, such that grit acts as a catalyst that boosts graduates’
chances of employment. Given the challenging labor market environment faced globally,
graduates who can persevere through setbacks while maintaining consistent effort are
likely to receive fruitful outcomes due to their tenacity and determination. Consistent
with Duckworth 2016, although grit possesses stable feature, this trait can be developed
by being in an encouraging environment – which Bruneian graduates are equipped with,
as both government and industry are continuously working closely and actively to ensure
graduates are ready for the job.
The current study also extends previous studies by exploring the intervening effect
of PsyCap resources between the grit-GE relationship. This study found hope to mediate
the grit-GE relationship, thereby providing new insights into the literature. This interac-
tion may be explained using the ‘trait-state continuum’ conceptualized by Youssef and
Luthans 2007 on the malleability of various psychological resources in POB. PsyCap
resources possess a state-like resource that is malleable and open to development, while
grit is a trait-like resource that is relatively fixed and not very malleable (Luthans and
Youssef-Morgan 2017). Subsequently, these personality resources have ‘joint effects’ -
hope can be adaptable and molded according to corresponding changes. At the same
time, grit acts as a strong foundation that allows graduates to endure and remain consis-
tent even when beset with adversities. For instance, hopeful graduates are more likely
to persevere through challenges since they know how to strategically utilize their capa-
bilities depending on the situation that they are facing. In addition, hopeful graduates
leverage their capabilities by effectively portraying their skills and know-how according
to the current market demand.

6 Conclusion and Recommendations

The results obtained in this study have several implications for theory and practice. The
present findings support extant empirical studies that have established a link between
grit and GE. This study also contributes to HCT as the findings suggest that acqui-
sition of personality attributes (i.e., grit, hope) increase chances of getting economic
return through increased employability. These findings contribute to the expansion of
employability literature by emphasizing the importance of personal resources as one
of key influencers of GE. Consistent with HCT, integration of competencies is more
likely to increase employment and increase investment return in education. This finding
also presents contributions to a relatively new construct such as grit; as per the author’s
knowledge, only a few studies have attempted to investigate grit and GE. The main
practical implication is increasing knowledge and awareness on approaches that can
help graduates increase their employability. Given Brunei current labor situation, grad-
uates actively looking for a job need to instill substantial PsyCap resources to persist
 The Mediating Role of Psychological Capital Resources 331

through and achieve their goals. Since PsyCap is malleable and open to development,
GE stakeholders can work together to develop and inculcate PsyCap within graduates.
The study has its limitations which subsequently allow the area of improvements for
future research. First, our study is limited by a relatively small sample of 303 graduates
in Brunei; hence, the findings may not be generalized across other contexts. Therefore,
future research is suggested to increase the sample size to allow broader generalization.
Another limiting constraint of our study involves using self-report measures, which
posits possibility of social desirability bias and common method variance (Podsakoff
et al. 2003). Therefore, other studies may mitigate this limitation by employing non-self-
report measures and collecting data from various stakeholder perspectives (i.e., HEIs,
employers). Finally, another limitation worth noting is the cross-sectional design of this
study, which restricts the causal effect of the relationship. Henceforth, the future study
may adopt a longitudinal study approach to examine the causal relationship between grit
and GE.

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6307305562
 The Impact of Working-Life Quality on UCAS
Workers’ Performance

Mohammad Fayez Abu Sulaiman(B)

The University College of Applied Sciences, Gaza, Palestine

[email protected]

Abstract. The study aims at identifying the level of working-life quality and its
impact on the workers’ performance at the University College of Applied Science
in Gaza, Palestine. UCAS. The descriptive analytical approach was followed, and
for the data collection, a questionnaire, designed by the study, was used on a sam-
ple of 330 employees. The results showed that there is a statistically significant
impact of working-life quality on the workers’ performance, as the main influ-
ential factors are salaries and promotions, job stability and security, involvement
in decision-making, and career advancement. The study recommends providing
financial resources to enable UCAS to pay its financial liabilities to the employees,
besides increasing and promoting social visits among the employees. Also, it is
recommended that UCAS involve employees in the decision-making process, as
well as improve its promotion system to allow more potential to be explored.

Keywords: Working life quality · Employees’ performance · The University

College of Applied Sciences (UCAS)

1 Introduction

The working-life Quality is essential to management and has acquired a high position
among studies in human resources, organizational behavior, and general administration.
It consists of a group of major elements that influence the performance of any institution.
Such a concept affects employees’ personal life as well because employees are human
beings with emotions and have diverse personal interests. If such emotions and personal
interests are not considered, the employees’ performance would be directly influenced,
hence influencing the performance and production of the institutions they work at (Silenti
et al. 2018; Palestinian Society 2020).
The working-life quality describes the environment where a certain job is carried out,
and where all human needs and requirements are excellently met. If so, the employees’
performance would be positively affected. This contributes to ensuring occupational
satisfaction and job security, so the employees exert all possible efforts to achieve the
objectives of the institution and improve its performance (Barbari 2016).
Educational institutions generally depend on their qualified and distinguished staff
to achieve success, and on their ability to adapt to changes in the working environment.
Providing a good working environment is a key factor in attracting employees who can

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 334–344, 2023.
https://doi.org/10.1007/978-3-031-26956-1_33
 The Impact of Working-Life Quality on UCAS Workers’ Performance 335

do their jobs efficiently, and in improving their level of satisfaction which would improve
their performance. As a result, these institutions would win a sustainable competitive
advantage within a highly competitive market. The continuous development in work-
ing environments urges educational institutions to improve their internal environment
to increase their organizational efficiency so as to follow up with such rapid changes
(Barbari 2016). Previous studies showed that working-life quality is linked to occupa-
tional performance (Al-Dahdouh 2015), limiting burnout (Barbari 2016) and work ethics
(Shanti 2016).
Palestinian universities play a major role in investing and developing physical, human
and financial resources in Palestine, as they are the cornerstone of economic and social
development. The University College of Applied Sciences (UCAS), among these univer-
sities and a part of this society, provides its services to students, institutions, and society
as a whole. Therefore, it requires the availability of qualified manpower. To achieve their
purposes, all universities, including UCAS, focus on the quality of employees’ working
life and the development of their performance on the level of academic, administrative,
and service staff, to and enables the development of their performance and behaviors.
Since UCAS is a pioneering academic institution that seeks to provide and improve
educational services using the most recent and advanced devices, labs and curricula
to serve thousands of students, researchers and others interested from all governorates
across the Gaza Strip, the current investigation examined the level of working-life quality
at UCAS and its impact on workers’ performance, which studyThe following parts of
the article present the theoretical framework, methodology, results and discussion, and
finally the recommendations and suggestions for further study.

2 Theoretical Framework

2.1 Working Life Quality

The term working-life quality is a continuous, previously-planned process that aims to
balance the requirements of working and personal life of employees through justice and
organizational efficiency, achievement of job security and equality in paying salaries and
incentives, promotions based on efficiency, social integration at work, securing good
and safe working conditions, providing suitable organizational environment through
engagement in decision making to achieve better results and reach advanced levels. All
of these matters would make employees feel satisfied and secure, so they would exert
more effort to help the company where they work to develop and achieve more success.
Shortly stated, the extent to which the employees are satisfied with the institution’s moral
and physical working environment is important.
The literature cites the early seventies as the beginning of showing interest in
working-life quality. Lots of study studies were conducted tackling the different aspects
of working-life quality, and several administrations started improving their production
and working productivity by examining organizational influences on the working-life
quality (Biyari 2016). In brief, working-life quality can be defined as workers’ expec-
tations about the institution’s ability to achieve equality, quality, payment of salaries
336 M. F. A. Sulaiman

and compensations, provision of a healthy and suitable working environment, develop-

ment of human resources, achievement of job security and stability, and achievement of
balance between work and personal life (Biyari 2016).

2.2 Workers’ Performance

The performance of workers refers to the total work of any institution which the worker
does whether in the fields of commerce, industry, or services. It is the entire system
resulting from the institution’s interaction with internal and external factors. Workers’
performance is defined as the total outcome of organizational behavior that is linked to
the optimal utilization of the company’s resources in the accomplishment of tasks and
activities, commitment and loyalty to the company and provision of services to clients
(Ayed and Al-Shamsi 2013; Saleh 2018). The level of workers’ performance helps in
the assessment and evaluation of the efficiency of the plans, strategies, desired goals,
productivity and organizational efficiency (Darwish 2018).
In light of the above explanation and definitions of the working-life quality and the
worker’s performance, the following hypotheses were formulated:

• There is a statistically significant relation at α < 0.05 between the working-life

quality (salaries and bonuses, social relations, job security and stability, involve-
ment in decision-making, promotions and career advancement, and physical working
conditions) and workers’ performance.
• There is a statistically significant impact of the working life quality on the workers’
performance at α < 0.05.

With reference to the above-mentioned hypotheses, the following model, shown in

Fig. 1, was suggested and followed. The model highlights the study variables i.e. the
independent with its dimensions and the dependent variable with its dimensions.

Independent Dependent
variable variable
Workers’
Working-life quality Performance
- Salaries and bonuses
- Social relations - Tasks
- Job security & stability performance
- Physical conditions - Overtime tasks
(security, health) - Prioritizing
- Involvement in decision others
making - Conscience
- Promotions and career
advancement.

Fig. 1. Study model

 The Impact of Working-Life Quality on UCAS Workers’ Performance 337

3 Methodology of the Study

3.1 The Study Design and Sample
The descriptive analytical approach was followed to serve the purpose of the study
objectives. As the study population consisted of all the employees working at UCAS (i.e.,
330 male and female employees who are academic and administrative staff). Particularly,
160 were academics and 170 were administrative employees. It is worth mentioning that
the pilot sample consisted of 30 employees who were randomly selected to check the
validity and reliability of the data collection tool.
Accordingly, the simple random sampling technique was used, as the questionnaire
was sent to the study population i.e. 330 employees, however, 185 questionnaires were
retrieved (i.e. 56%).

3.2 StudyTool of the Study

A 54-item questionnaire was designed, by the researcher, to measure the impact of
working-life quality on workers’ performance at UCAS. The questionnaire contained
three main sections (demographic data, working-life quality, and workers’ performance)
and each section has its own sub-dimensions. The domain of working-life quality
included 33 items distributed over 6 sub-domains namely; Salaries and Promotions
(6 items), Social relations (6 items), Job security and stability (6 items), Physical work-
ing conditions (5 items), Involvement in decision making (4 items), and professional
advancement (6 items). On the other hand, the domain of workers’ performance included
21 items distributed over 4 sub-domains namely; perform of tasks (7 items), Additional
Tasks (6 items), altruism (4 items), and Consciousness (4 items).

3.2.1 Validity and Reliability of the Questionnaire

For external validity, the questionnaire was given to eight specialized referees in admin-
istration and entrepreneurship, as their comments were considered by addition, deletion,
and omission. The study Cronbach’s Alpha Coefficient was also used to verify the reli-
ability of the questionnaire, as the results showed that the Cronbach’s Alpha Coefficient
for the working life quality domain was 0.927, and for the employees’ performance
domain was 0.909, while the Cronbach’s Alpha Coefficient for the entire questionnaire
it was 0.847 which is high and confirm the validity and reliability of the tool to collect
the needed data.

4 Results and Discussion

4.1 Testing the First Hypothesis
(There is a statistically significant relation at α ≤ 0.05 between the working-life Quality
and workers’ performance).
To test this hypothesis, the Pearson correlation coefficient for the working-life qual-
ity (salaries and bonuses, social relations, job security and stability, physical working
338 M. F. A. Sulaiman

Table 1. The Pearson correlation coefficient

Working-Life Tasks performance Overtime jobs Prioritizing others Conscience Employees’

quality performance
correlation (Sig) correlation (Sig) correlation (Sig) correlation (Sig) correlation (Sig)
coefficient coefficient coefficient coefficient coefficient
Salaries and 0.875 0.000 0.864 0.000 0.876 0.000 0.715 0.000 0.789 0.000
Promotions
Social 0.759 0.000 0.687 0.000 0.779 0.000 0.635 0.000 0.782 0.000
relations
Job security 0.773 0.000 0.741 0.000 0.654 0.000 0.742 0.000 0.883 0.000
and stability
Physical 0.871 0.000 0.567 0.000 0.635 0.000 0.789 0.000 0.748 0.000
working
conditions
Involvement 0.775 0.000 0.631 0.000 0.691 0.000 0.881 0.000 0.866 0.000
in decision
making
Professional 0.875 0.000 0.788 0.000 0.744 0.000 0.653 0.000 0.850 0.000
advancement
Working life 0.833 0.000 0.890 0.000 0.884 0.000 0.784 0.000 0.784 0.000
quality

conditions, involvement in decision-making, promotions and career advancement and

workers’ performance) was calculated, as shown in the table below:
Table 1 shows that the correlation coefficient between salaries and workers’ perfor-
mance equals 0.789 This indicates that there is a positive correlation between salaries and
workers’ performance. The table also presents that the correlation coefficient between
social relations, and workers’ performance equals 0.782 which indicates that there is
a positive correlation between social relations. Moreover, the results reveal that the
correlation coefficient between job stability and security, and workers’ performance
equals 0.883 which indicates that there is a positive correlation between job stability and
security, and workers’ performance.
For the correlation between physical working conditions and workers’ performance,
it equals 0.748 which indicates that there is a positive correlation between physical
working conditions, as one of the working life quality and workers’ performance. The
correlation coefficient between involvement in making decisions, as one of the working
life quality domains, and workers’ performance equals 0.886 and the probability value
(sig) equals 0.000 which is less than α < 0.05. This indicates that there is a positive
correlation between involvement in making decisions, as one of the working life quality
domains, and workers’ performance. The correlation coefficient between promotions and
Professional Development, and workers’ performance equals 0.850 and the probability
value (sig) equals 0.000 which is less than α < 0.05. This indicates that there is a positive
correlation between involvement in promotions and career advancement, as one of the
working life quality domains, and workers’ performance. The correlation coefficient
between working life quality as a whole and workers’ performance equals 0.784 and
the probability value (sig) equals 0.000 which is less than α < 0.05. This indicates that
 The Impact of Working-Life Quality on UCAS Workers’ Performance 339

there is a positive correlation between working life quality as a whole and workers’
performance as a whole.
To sum up, the table shows that the average of all the dimensions of working-life
quality is 3.37 (out of 5), which means that there is a medium degree of approval by
the sample members on the items of the perceived working-life quality in general. It is
worth mentioning that the results of the current study, in terms of working-life quality,
go in line with the results of some of the previous studies such as the study of Abu
Shamala (2018) which indicated a medium degree of approval, while the results of this
study did not match the result of the study Al-Ustaz (2015), which indicated a high level
of approval. The researcher attributes this to the very importance of working-life quality
in the progress, development, and prosperity of the institution.

4.2 Testing the Second Hypothesis

(There is a statistically significant impact of the working life quality on workers’

performance at α ≤ 0.05).
To test this hypothesis, the multiple regression model following the Stepwise method
was used to identify the variables of working-life quality that affect the workers’
performance the most. Results are shown in the table below:

Table 2. The multiple regression model

Variables Regression coefficients Beta T value (Sig)

Coefficient Std error (T)

Constant 4.243 0.125 33.849 0.000

Salaries and bonuses 0.130 0.051 0.268 2.529 0.012
Job security and stability 0.138 0.062 0.282 2.231 0.027
Involvement in decision making 0.123 0.056 0.272 2.190 0.030
Promotions and career advancement 0.118 0.052 0.273 2.253 0.025
Coefficient of Determination R2 = 0.432, F test value = 3.202, probability value sig. F =
0.014

Table 2 shows that the estimated model is statistically significant at α = 0.05, as the
results show that the coefficient determination = 0.432 which means 43.2% of changes
in workers’ performance are due to the working-life quality; the remaining 56.8% are
due to other factors. The factors that influence workers’ performance the most in terms of
working-life quality are salaries and bonuses, job security and stability, involvement in
decision-making, promotion and career advancement. Therefore, the study recommends
administrative departments take into consideration the working life quality of employees
as it greatly improves the employees’ performance at the institution.
On the other hand, the results of working life quality revealed that the average of
‘salaries and bonuses’ equaled 2.92 which means that the respondents show medium
340 M. F. A. Sulaiman

agreement on the items of this domain. The salaries given to the employees at UCAS do
not fulfill their requirements but are satisfactory. Also, the average of ‘social relations’
equaled 3.80 which means that the respondents show great agreement on the items of
this domain. In other words, the UCAS administration seeks to reinforce social relations
among its employees and tries to build trust and create love between them; which gen-
erally encourages positive interaction among employees from different positions. For
the average of ‘job stability,’ it hit 3.16 which means that the respondents show medium
agreement on the items of this domain. This means that job stability at UCAS exists but
is insufficient. The UCAS is unable to deliver salaries on time due to students’ delay
in fee payment and the absence of support provided by the Ministry of Education and
Higher Education in the Gaza Strip.
Additionally, the average of ‘physical working conditions: security and health’
equaled 3.81 which means that the respondents show great agreement on the clauses
of this domain. This means that the UCAS administration seeks to offer its employees
all means of comfort and security. The average of the ‘involvement in the decision-
making domain equaled 3.37 which means that the respondents show medium agree-
ment on this domain. This means that the UCAS administration tries to involve its
employees in the decision-making process to encourage them to propose ideas nec-
essary for professional development. Finally, the average of ‘promotions and career
advancement’ equaled 3.17 which means that the respondents show medium agreement
on the clauses of this domain. UCAS’ administration offers its employees’ promotion
and career advancement opportunities but not to a satisfactory level.
With reference to the results of workers’ Performance, the average of ‘tasks per-
formance’ equaled 4.30 which means that the respondents show great agreement in
this domain. This indicates UCAS employees’ hard work and love for doing their jobs.
The average of ‘overtime job’ came to 4.24 which means that the respondents show
great agreement in this domain. This indicates UCAS employees’ desire to improve and
develop their academic institutions. Also, the average of the ‘prioritizing others’ domain
came to 4.36 which means that the respondents show great agreement on this domain.
This indicates UCAS employees’ mutual moral support and positive interaction, and
their desire to improve and develop UCAS which they belong to. Finally, the average of
the ‘conscience’ domain equaled 4.50 which indicates that UCAS employees adhere to
the UCAS goals and how committed they are to the assigned working hours. They also
inform their departments in cases of delay, which reflects their great morals and good
conscience.
In brief, the results show that the mean of employees’ performance dimensions is
4.33 (out of 5), which means that there is a high level of agreement perceived by the par-
ticipants on the items of the workers’ performance in general. It is worth mentioning that
this result is consistent with the study of Bahr and Abu Sweireh (2010). The researcher
attributes this conclusion to the fact that the UCAS administration is constantly working
on applying these dimensions and considering them. This was clearly reflected in the
working-life quality at UCAS.
 The Impact of Working-Life Quality on UCAS Workers’ Performance 341

5 Conclusion and Recommendations

There is a statistically significant relation at (α ≤ 0.05) between the working-life Quality
and its domains (salaries and bonuses, social relations, job security and stability, involve-
ment in decision-making, promotions and career advancement, and physical working
conditions) and the performance of UCAS’ employees. There is a statistically significant
impact at (α ≤ 0.05) of the working-life Quality and its domains (salaries and bonuses,
social relations, job security and stability, involvement in decision-making, promotions
and career advancement, and physical working conditions) on the performance of UCAS’
employees.
In light of the results which revealed the positive impact of working-life quality on the
UCAS employees’ performance, some recommendations were formulated as follows:

• UCAS administration should provide rewards to the distinguished employees to moti-

vate them for more outstanding performance, and to be a model for the rest of the
workers to follow.
• The competent authorities, such as the government and the Ministry of Education and
Higher Education, should fulfill their obligations towards the higher education sector
in the Gaza Strip, i.e. pay the financial allocations for universities so that they can
fulfill their obligations to their employees.
• Enhancing confidence between the staff and the college administration towards the
decisions taken by the UCAS administration regarding the rights of employees and
protecting their rights, through adopting the principle of participation in decision-
making and not being singled out for it.
• Improving the level of job performance for the UCAS employees by providing the
employees with all the material and informational needs they need to perform their
tasks efficiently and effectively, and providing training programs according to the
actual needs.
• Enhancing the employees’ sense of job immersion in transforming work, through
affording flexible organizational structures that allow delegation of powers, empow-
erment and participation; which helps them nurture their ideas and produce creative
solutions and ideas.
• Improving the system of promotions in order to allow more effort and work by
employees.

6 Suggested Research Recommendations

Based on the limitation of the current investigation, the researcher suggested the
following areas for further research:

• Conducting studies to measure the impact of working-life quality on the performance

of workers in other Palestinian universities in the Gaza Strip rather than the UCAS.
• Investigating the role of job involvement in increasing the working-life quality in
Palestinian universities in the Gaza Strip.
• Conducting more studies on the working-life quality, and linking it to other mediator
and moderator variables.
342 M. F. A. Sulaiman

Appendix 1: The Questionnaire Domains, Sub-domains, and Items

Items and sub-domains of the Working-life Quality

Salaries and promotions
1. My salary is enough to satisfy my life requirements
2. I am satisfied with the bonuses that are added to my salary annually
3. I get paid regularly without any delay
4. There is a clear and appropriate system for salaries and bonuses in my administration
5. I get a salary commensurate with my job duties
6. My department works to provide rewards to its outstanding employees
Social relations
1. The college offers a social environment based on love between staff and management
2. Collaboration and teamwork prevail between me and the college staff
3. My administration encourages me to communicate interactively between all
administrative levels
4. My department subsidizes the costs of social visits on many occasions
5. My department works to promote the principles of brotherhood and cooperation
among all employees
6. There are good friendships between me and the staff within the college
Job security and stability
1. I am willing to continue with my current job
2. I take comfort from any threat of being laid off
3. My management is working to provide its financial obligations to me on time
4. The college administration is working on training me through several training and
development programs
5. My management is always keen on motivating me
6. My department gives me the necessary compensation and insurance in case of
accidents during work
Physical working conditions
1. The college administration provides a healthy environment suitable for work in
terms of lighting, ventilation, and hygiene
2. My administration follows up on all employees to implement safety and prevention
measures during work
3. The college administration has policies and laws related to occupational health and
safety for employees
4. The college administration holds training courses for occupational health and
security for its employees
5. The college administration provides the necessary equipment to perform the work,
including offices and comfortable furniture for the employee
(continued)
 The Impact of Working-Life Quality on UCAS Workers’ Performance 343

(continued)
Items and sub-domains of the Working-life Quality
Involvement in decision making
1. The college administration is keen to familiarize the employees with the goals it
seeks to achieve
2 My management participates in my decisions
3. My management encourages me to provide suggestions and opinions for the
development of the work and take them
4. The college administration delegates part of the possible powers to subordinates
Promotions and career advancement
1. My administration applies the promotion system based on clear administrative bases
and criteria
2. My department awards exceptional promotions to employees based on the efficiency
of performance
3. The college administration is keen to put the right person in the right place
4. I have future opportunities for promotion in my job
5. My administration is keen to implement training programs that qualify employees to
advance in their career paths
6. There is harmony between the academic qualifications and the job rank of the
employees in the college

The sub-domains and items of the Workers’ Performance domain

Tasks performance
1. I make sure that I fulfill my basic job requirements on time
2. I get my job done with the least amount of resources possible
3. I do my job well by fulfilling the tasks expected of me
4. I see that I am willing to work overtime
5. I have enough experience and skills for the details of my work
6. I can manage responsibilities greater than those entrusted to me
7. I am highly skilled in carrying out my work assignments
Doing overtime tasks
1. I volunteer to do more than is required of me for my job
2. I want to do jobs that make me feel like part of my college
3. I follow the procedures and instructions of my college in all my professional matters in
order to protect its interests and its public image
4. I take the initiative personally to prevent problems that may occur between my
co-workers
5. I am keen to develop the skills required for my future career
(continued)
344 M. F. A. Sulaiman

(continued)
The sub-domains and items of the Workers’ Performance domain
6. Whenever I have a problem in my work, I find solutions directly to it
Prioritizing others
1. I do the work of my colleague on his behalf while he is away from work
2. I volunteer to help colleagues and students without an official order
3. I help my new classmates integrate into college
4. I make suggestions to my immediate superior to improve the quality of work
Conscience
1. I maintain accurate arrival and departure times for work
2. I take a break from work to go back in time
3. Notify the department in the event that I am unable to reach work for an emergency
4. I leave my job during business hours only for necessary reasons

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ESG, Accounting and Implementation
of Technology
 An Econometric Assessment on Causal Relation
Between Carbon Emissions and Economic
Growth: India’s Reference

D. Balaji1 , Mudunuru Vijay Chand2 , Cherian Thomas3(B) , N. M. Vipulkumar3 ,

M. Lokanadha Reddy4 , and K. Sivasubramanian3
1 Shree Chandra Prabhu Jain College, Minjur, Tamil Nadu, India
2 Advanced Tax Analyst, Enrst and Young, Bangalore, India
3 Kristu Jayanti College Autonomous, Bengaluru, India
[email protected]
4 REVA University Bangalore, Bengaluru, India

Abstract. This study examines the state of developing nations, particularly India
and target to explore the relationship between growth and developmental issue
on nature from the perspective of environmental stability. Considering the prob-
lems on the environmental condition, it has been revealed that numerous aspects
are included in the condition of environment, such as water contamination, emis-
sions, soil erosion, waste, and deforestation. Moreover, the carbon emission related
pollution evolved as a significant cause for the pollution and records for about
75% of greenhouse gas releases. This paper postulated the effect of development
on climate change in India. It has given that Carbon emissions will be more as
India’s GDP is increasing and also shown the reduction of emissions as the for-
est resources increases the analysis conformed the long run association between
Carbon emission and GDP in India.

Keywords: CO2 emissions · Gross domestic product · Energy consumption ·

Forest area

1 Introduction

Ecological deprivation both in number and quality is a main symbol of development

which are the key carters of financial growth. Ecological degradation is the worsening
of the atmosphere through reduction of capitals such as airborne, water and the soil.
It is defined as the breakdown of the ground or worsening of the atmosphere through
over consumption of natural resources. It is considered as any alteration or exacerba-
tion to nature’s lawn seen to be wicked or unwanted. It is also being defined as any
modification or trouble to the atmosphere apparent to be toxic or objectionable. This
paper indicates that the situation of developing nations, and aims to examine the asso-
ciation between financial growth and the compression on nature from the ecological
sustainability viewpoint.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 347–355, 2023.
https://doi.org/10.1007/978-3-031-26956-1_34
348 D. Balaji et al.

1.1 Objectives of the Study

To check the relation between carbon emissions and GDP, Forest area Covered and
Energy consumption.
To check the causal relation among the variables. Variables include, Gross Domestic
Product, Carbon Emissions, Forest area covered.
To check the long term and short-term association between Carbon Emissions and
Gross Domestic Product.
To provide suitable suggestions to improve environmental quality without compro-
mising development.

2 Literature Review
Sadi (2015), discussed about the impact of CO2 emissions and economic growth on
energy consumption in which the authors have taken the data of 58 countries using
dynamic panel data model estimating by means of the Generalized Method of Moments
(GMM) for the period 1990–2012. Sikdar and Kakali (2016), explained how popula-
tion impacts the CO2 emissions by taking the evidences from India. Nain, et al. (2015),
stressed on the long and short run causal relationships among energy consumption,
real GDP and CO2 emissions using aggregate and disaggregate energy consumption
measures utilizing annual data from 1971 to 2011. The ARDL bounds test reveals that
there is long run cointegration relationship among variables concerned at both aggregate
and disaggregate levels. Jaffe (2005), explained that the environmental market failure
has been described in terms of an externality. But R & D is associated with positive
externalities as well. Addressing both externalities is considered the dominant strategy.
Nordhaus (2010), noted that CO2 emission is not mattered for climate change neverthe-
less impacts the economic, social and political issues. Dong et al. (2017), used Extreme
learning machine (ELM) and particle swarm optimization (PSO) to predict the CO2
emissions for the development of the low-carbon economy in China. Antonakakis et al.
(2017) and Sivasubramanian et al. (2022) studied the dynamic interrelationship in the
output–energy–environment nexus.
Yang (2019) specified, the international community and the theoretical world have
remunerated great care to whether and when China’s carbon dioxide (CO2 ) releases will
reach the peak. Our study examines the subject with the Nonlinear auto regressive model
with exogenous contributions (NARX), a active nonlinear false neural network that has
not been applied earlier to this query. Sarkodie and Strezov (2019) explained, the rapid
rise in greenhouse gas emissions have become a global concern catching the attention
of policy makers and researchers all over the world.

3 Methodology
The Research methodology is considered as a precise process of methods used to classify,
select, route, and analyze data about a particular theme. In a investigation paper, the
practice section permits the reader to judgmentally assess a study’s general rationality
and consistency.
 An Econometric Assessment on Carbon Emissions and Economic Growth 349

Data collection method

Secondary data has been collected for the purpose of conducting this research paper.
The secondary data collected from various published information from both India and
China. The major sources were collected from government offices, World Bank data,
Ministry of environment and climate change.
The present study is grounded on available sources of time sequence data from 1960
to 2014 composed from numerous sources. The data is collected from the following
bases.

• Handbook of Statistics on the Indian Economy RBI

• World Bank annual reports
• Ministry of Environment, Forest and Climate Change

Data Analysis
Descriptive statistics
In the descriptive statistics, one can know the summary of the given data. It includes
Mean, Median, Maximum and Minimum values of the variables. Carbon dioxide (CO2),
Energy Consumption, Forest Area covered, and Gross Domestic Product (GDP) from
1960 to 2014 total 55 observations (Table 1).

Table 1. Descriptive statistics

CO2 ENERGY_CONSUMPTION FOREST_AREA GDP

Mean 0.722145 360.4615 627471.2 1.88E+13
Median 0.595940 323.8831 629823.0 3.62E+12
Maximum 1.727671 636.5702 705036.0 1.25E+14
Minimum 0.267634 259.2446 555123.5 1.76E+11
Std. Dev 0.396408 104.9886 44546.58 3.04E+13
Skewness 0.851438 1.047059 0.080077 2.041312
Jarque-Bera 6.808626 10.09580 2.709122 64.29160
Probability 0.033230 0.006423 0.258061 0.000000
Sum 39.71800 19825.38 34510917 1.03E+15
Sum Sq. Dev 8.485531 595221.2 1.07E + 11 4.98E+28
Observations 55 55 55 55

In the above descriptive table, the Mean, Median, Maximum and Minimum, standard
deviation, skewness values of variables CO2 , GDP, Energy consumption, and Forest area
covered and normality in distribution of the variables has also been tested using Jarque –
Bera test. The following histograms represents the distribution of given variables.
The mean and SD of CO2 (0.722145 and 0.396408) indicates that Mean is greater than
SD, we can consider the data is consistent since the carbon emission SD is comparatively
350 D. Balaji et al.

less than the graph show the right Skewness coefficient of indicates the observations are
not completely analysed. Jarque-Bera test 6.88 infers the non-normal distribution of
variables.
The mean and SD of GDP (1.88E+13 and 3.04E+13) indicates the data is inconsistent
since SD is high when compared to mean. Skewness coefficient of 2.041312 indicates
low positive skewness that means majority of the observation are less than the average.
The Fig. 2 explains the distribution of variables; it shows the right skewness of the
distribution explains that the observations are not completely taken under calculation.
Jarque-Bera test 64.29160 indicates the non- normal distribution of variable (Table 2).

Table 2. The descriptive of modified variables

L_CO2 L_ENERGY L_FOREST L_GDP

Mean −0.203191 2.540738 5.796518 12.60696
Median −0.224798 2.510388 5.799219 12.55855
Maximum 0.237461 2.803846 5.848211 14.09580
Minimum −0.572458 2.413710 5.744390 11.24633
Jarque-Bera 3.797599 5.233424 2.736349 3.722153
Probability 0.149748 0.073043 0.254571 0.155505
Sum −11.17552 139.7406 318.8085 693.3827
Sum Sq. Dev 2.933297 0.730179 0.051427 40.63623

In the above descriptive table, the ‘L’ represents the logarithmic function of given
variables, here the author has taken the log values of CO2 , GDP, Energy consumption,
and Forest area covered in order to avoid the problem of non-normality in distribution
of the variables and also to avoid differencing more than twice in the further analysis.
H0 : There is no correlation between the variables; (r = 0) (Table 3 and 4).
Regression Analysis

Table 3. Coefficients for GDP, energy and forest

Model Unstandardized Standardized t Sig Collinearity statistics

coefficients coefficients
B Std. Beta Tolerance VIF
Error
1 (Constant) −.050 3.668 −.014 .989
L_GDP .228 .029 .849 7.988 .000 .006 155.736
L_Energy .505 .076 .252 6.677 .000 .051 19.601
(continued)
 An Econometric Assessment on Carbon Emissions and Economic Growth 351

Table 3. (continued)

Model Unstandardized Standardized t Sig Collinearity statistics

coefficients coefficients
B Std. Beta Tolerance VIF
Error
L_Forest −.744 .682 −.099 −1.091 .280 .009 112.340
a. Dependent Variable: L_ CO2

Table 4. Coefficients for GDP with CO2

Model Unstandardized Standardized t Sig Collinearity

coefficients coefficients statistics
B Std. Error Beta Tolerance VIF
(Constant) −3.577 .041 −87.927 .000
L_GDP .268 .003 .996 83.125 .000 1.000 1.000

After changing the method to forward only L_GDP is taken into estimation and the
others are excluded even though the energy consumption is statistically significant.
Estimated model L_CO2 = 0.996 L_GDPi infers that as L_GDP increases by one
unit, there will be an average rise of 0.996 units in L_CO2 , test stats t = 80.125 with
significance level < 0.01. Hence, we may reject the null hypothesis β0 = 0 by saying
there is significant relation between L_CO2 and L_GDP.
Model Accuracy
Coefficient of determination R2 explains the degree of variation of Y that is captured by
the model (Table 5).

Table 5. ANOVA

Model Summary ANOVA

Model R R Square Adjusted R Std. Error of the Durbin-Watson F Sig
Square Estimate
.996 .992 .992 .0205251 .817 6836.356 .000
c. Dependent Variable: L_ CO2

Regression model is considered to be having good prediction accuracy if R2 >

0.6(60%). R2 = 0.992 (99.2%) which implies 99.2% variation of L_CO2 is explained
by the model, and the rest .8% is not captured. Hence, the model is good fit for prediction.
However, the test of sig of R2 is carried using ANOVA.
352 D. Balaji et al.

Null hypothesis H0 : R2 = 0, the model of significance is not appropriate R2 is not

significant.
F stat = 6836.356, with sig value < 0.01, hence we may reject the null hypothesis
H0 : R2 = 0. That R2 is stat significant. Durbin Watson test show the existence of positive
autocorrelation 0.817 (Table 6 and 7).

Table 6. Hypothesis test

Test Method Null hypothesis P – value Status

Autocorrelation Breusch-Godfrey test No autocorrelation 2.22383e−005 Reject
Heteroskedasticity Breusch-Pagan test Heteroskedasticity not 0.931563 Accept
present

Table 7. Augmented dickey fuller test

Series at Level First difference Second Difference

Variable name t-stat p- value t-stat p-value t-stat p-value
L_CO2 1.107 0.997 −7.56 2.318e–008 – –
L_GDP 0.9984 0.9967 −5.277 5.342e–006 – –
L_Forest –0.721 0.839 −3.621 0.005389 – –
L_Energy 5.70341 1.00 −3.24097 0.07648 −4.24675 0.003734

The above table contains the results of Augment dickey fuller test of different vari-
ables it explains the stationarity of given variables. Firstly, at series level all the variable
L_CO2 , L_GDP, L_Forest and L_Energy are accepting the null hypothesis, r = 1 or unit
root is present because the p- value of the given variables are greater than 5%.
Secondly, since at series level the data has not become stationarity, the researcher
took first difference of the variables and except L_Energy consumption, the variables
rejecting the null hypothesis r = 1 or the presence of unit root because the p-value is
less than 5% (Table 8).

Table 8. Lags model

Lags Akaike information criterion Schwarz criterion

4 −5.934 −5.51
3 −5.98 −5.64
2 −5.86 −5.60

It is very important to estimate the number of lags to make the current model. Based
on the above Akaike information criterion and Schwarz criterion, the value of lags is fixed
 An Econometric Assessment on Carbon Emissions and Economic Growth 353

as 3 because the criterion value is minimum at 3 lags. Further analysis is made using 3 lag
model, the estimated ARDL model is changed as d(l_co2) c d(l_co2(-1)) d(l_co2(-2))
d(l_co2(-3)) d(l_gdp(-1)) d(l_gdp(-2)) d(l_gdp(-3)) l_co2(-1) l_gdp(-1). The hypothesis
model of ARDL with 3 lags. Adjusted R2 = 0.3121 which means 31.21% of changes only
explained in the model and rest is nit captured by the model. Since L_GDP is statistically
significant the analysis can be taken further but to say the variables are moving together
or have an association there are some criteria to be satisfied such as no serial correlation
and stability of variable.
Serial correlation is tested by using Breusch – Godfrey test of Autocorrelation and
the results are as follows (Table 9).

Table 9. Breusch-Godfrey serial correlation LM test:

F-statistic 0.951229 Prob. F(2,40) 0.3948

Obs*R-squared 2.315506 Prob. Chi-Square(2) 0.3142

Null hypothesis H0 : there is no Autocorrelation.

The F – statistic = 0.951 with p – value 0.39 > 0.05 and the observed R2 = 0.3155
with chi- square significant value = 0.3142 > 0.05. Hence, we may accept the null
hypothesis saying there is no auto correlation.

4 Results and Discussion

The study contains total of 5 variables Carbon Emissions (CO2 ) which is calculated
in million metric tons, Gross Domestic Product (GDP) calculated in trillions, Energy
consumption calculated in Kilograms and Forest area covered in Square kilometres. The
researcher found that the skewness of above given variables is not normally distributed
which has also proven through Jarque- Bera test the values are 6.808, 64.291, 10.0958,
and 2.70 respectively. The distribution has rightly skewed as shown in Sect. 4. In order
to avoid the problem of skewness the variables are transformed into their logarithmic
function. The logarithmic variables are L_CO2 , L_GDP, L_Energy, and L_Forest area.
The skewness values that proven through Jarque- Bera test are 3.7975, 3.722, 5.233,
and 2.73 respectively shows the normality of distribution and avoidance of skewness
in model as shown in the analysis chapter. The further tests were done on logarithmic
variables.
The model states that Carbon emissions are depended upon the variables like GDP,
Forest and Energy. The relation between Carbon emissions and GDP is 0.996 which states
the high positive correlation between them and they both are moving in same positive
direction. The shape is upward curve from left to right. This interprets as the Carbon
emissions increases the GDP of the nation will also increase. The relation between
Carbon emissions and Energy Consumption is 0.983 which states the high positive
correlation between them and they both are moving in same positive direction. The shape
is upward curve from left to right. This interprets as the Carbon emissions increases the
354 D. Balaji et al.

Energy Consumption of the nation will also increase. The causation between Energy and
Carbon emissions resulted as bi-directional. It shows, Energy granger causes Carbon
emissions (L_Energy → L_CO2 ), as the energy consumed more the emissions will
increase. As the Carbon emissions increase the Energy consumption will rise is explained
by Carbon emissions granger causes Energy (L_CO2 → L_ Energy). The causation
between Energy and Forest area covered resulted as Independent. It shows, Energy
does not granger causes Forest (L_Energy → L_Forest), as the energy consumed more
there is no effect on forest. As the Forest area increase the Energy consumption will
have no effect is explained by Forest area does not granger causes Energy (L_Forest
→ L_ Energy). The causation between Energy and Gross Domestic Product resulted
as Independent. It shows, Energy does not granger causes Gross Domestic Product
(L_Energy → L_GDP), as the energy consumed more there is no effect on GDP. As
the GDP increase the Energy consumption will have no effect is explained by Gross
Domestic Product does not granger causes Energy (L_GDP → L_ Energy).

5 Conclusion
The world institutes like United Nations, World bank and so on are taking measures by
making many pro environmental policies to overcome the problems of Climate change,
but the policies implementations are not as effective as they planned. The developed
nations like the USA, etc. are escaping by blaming developing nations like India, China,
etc. for climate change and vice versa. The current study postulated the effect of devel-
opment on climate change in India. It has given that Carbon Emissions will be more as
India’s Gross Domestic Product is increasing and also shown the reduction of emissions
as the forest resources increases. The association analysis also conformed the long run
association between Carbon emission and GDP in India. The study can be concluded by
even though, India’s position in climate change is less compared with China and other
developed nation, the emissions in India is rising as the India moving towards growth. The
following suggestions can be advisable through the analysis to reduce Carbon emissions
without compromising Growth.

References
Antonakakis, N., Chatziantoniou, I., Filis, G.: Energy consumption and economic growth: an
ethical dilemma. Renew. Sustain. Energy Rev. 68(1), 808–824 (2017)
Dong, K., Sun, R., Li, H., Liao, H.: Does natural gas comsumption mitigate Co2 emission: Testing
the environmental Kuznets curve hypothesis for 14 Asian-pacific countries. Renew. Sustain.
Energy Rev. 94(1), 419–429 (2018)
Jaffe, A., Newwell, R., Stavins, R.: A Tale of Two Market Failures- Technology and Environmental
Policy. Discussion paper. Resources for the future, Washington (2005)
Nain, M., Ahmed, W., Kamaiah, B.: Economic growth, energy consumption and Co2 emissions
in India: a disaggregated causal analysis. Int. J. Sustain. Energ. 36(8), 807–524 (2017)
Nordhaus, W.D.: Economic aspects of global warming in a post-copenhagen environment. Proc.
Natl. Acad. Sci. 107(26), 11721–11726 (2010)
Sarkodie, S.A., Strezov, V.: Effect of foreign direct investment, economic development and energy
consumption on greenhouse gas emissions in developing countries. Sci. Total Environ. 646(1),
862–871 (2019)
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Sikdar, C., Mukhopadhyay, K.: The nexus between carbon emission, energy consumption, eco-
nomic growth and changing economic structure in India: a multivariate cointegration approach.
J. Dev. Area. 52(3), 67–83 (2016)
Sivasubramanian, K., Jaheer Mukthar, K.P., Raju, V., Srinivas, K.: The impact of digital learning
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Hamdan, A., Harraf, A., Arora, P., Alareeni, B., Hamdan, R. K (Ed.). Studies in Computational
Intelligence, vol. 019, 657–678 (2022). https://doi.org/10.1007/978-3-030-93921-2_34
 Strategy Implementation in a Developing
Country Multinational (Etisalat):
A Factor-Analytic Investigation

Mohamed Al Shami(B)

College of Economics and Management, Al Qasimia University, Sharjah, United Arab Emirates
[email protected]

Abstract. The study aims to explore the factors that may have a significant impact
on Etisalat’s strategy implementation in the telecommunications sector. To do so,
quantitative method approach was applied through a survey questionnaire that dis-
tributed and addressed to the employees of Etisalat. A combination of exploratory
factor analysis (EFA) and confirmatory factor analysis (CFA) was used to achieve
the study’s objective. Based on an empirical exercise, success factors in the tech-
nology strategy implementation are identified, which are planning factors; organi-
zational factors; managerial factors; and individual factors. It provides significant
policy implications for Etisalat’s successful implementation of its strategy in the
UAE telecommunications market. For example, for successful implementation of
strategies, managers must understand the factors required. Successful implemen-
tation of Strategy can also help an organization mitigate resistance to change and
improve its competitiveness.

Keywords: Etisalat · Technology strategy implementation · UAE · Factor

analysis

1 Introduction

Implementing a strategy successfully is crucial for the sustainability of any organization.

The absence of implementation strategies makes many organizations unable to sustain
their superiority position even with robust strategy formulation methods (Rajasekar
2014). Bell et al. (2010) argue that executing a strategy creates operational challenges
and is the most challenging element of strategic management, while formulating a strat-
egy is a creative and intellectual endeavor. A recent study by Čater and Pučko (2010)
showed that 80% of firms have appropriate strategies, but only 14% have successfully
implemented them. Consequently, it is crucial to understand how successful strategies
are implemented. Thus, developing effective strategic management requires people to
make daily decisions based on strategy.
In the strategy process, implementation is considered to be the second major step.
This is because of implementation is about putting the strategic plan into action effec-
tively. For this purpose, the broadly stated plan had to be broken down into a series of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 356–365, 2023.
https://doi.org/10.1007/978-3-031-26956-1_35
 Strategy Implementation in a Developing Country 357

time-phased action programs. Basically, this specifies the type and quantity of resources
needed to achieve the planned strategy at certain dates (Cohen and Cyert 1973). Also,
it is imperative to determine whether certain organizational changes will improve the
chances of successful implementation (Cohen and Cyert 1973). The implementation of
strategies is also constrained by a number of organizational attributes. Among the most
influential aspects are culture, structure, politics, and management style (Koskei 2003).
In general, implementing strategies is a key concern for all organizations, public and
private. Arguably, this kind of situation is related to several factors (Govindarajan 2017).
To be specific, in the UAE Etisalat developed a strategy to compete effectively in
the market. Putting the strategy into practice is now the challenge. More so, due to the
liberalization of the telecommunications industry, Etisalat is now facing competition
in a market that it used to dominate. Since the company recognized that competition
would soon arrive, they developed a master plan to steer them in the right direction.
In order to meet competitive challenges, Etisalat’s Master Plan comprises both grand
strategies and functional strategies to guide the company’s development. In particular, in
2005, the telecommunications market in the UAE was liberalized and a new competitor
entered the market. This paved the way for Etisalat to formulate more effective strategies
in order to compete more effectively. Considering the remarkable development in the
business history of Etisalat, it would be interesting to identify the factors involved in
implementing strategies, and bridge knowledge gaps.

2 Literature Review
In recent decades, a substantial amount of research has been conducted on the imple-
mentation of strategies (Alexander 1985; Noble 1999; Pechlaner and Sauerwein 2002;
Hambrick and Cannella 1989; Dooley et al. 2002; Repert et al. 2002; Govindarajan
2017; Kari Jalonen et al. 2018; Tawse et al. 2021). In general, scholars and practitioners
believe that after formulating a strategy, it is logical to move in the direction of imple-
menting it through short-term tactical actions (Drucker 1974; Thompson and Strickland
2001; Stonick 1982; and Pearce and Robinson 1991). It is interesting to note that strat-
egy implementation research constitutes only a small portion of all research on strategy
(Judson 1991). Despite this situation, scholars have not been motivated adequately to
focus on various issues relating to strategy implementation. Admittedly, there appears
to be acknowledgement in literature that it is more important for managers to execute
strategies than to design top-quality strategies (Kaplan and Norton 2000). In enhancing
organizational performance, strategy formulation is just the beginning of the process
(Wery and Waco 2004; Collis 2021).
The question raised by Rajasekar (2014) is whether organizations and executives
should develop innovative and novel strategies to gain a competitive advantage and
implement them, or do they first pinpoint the strengths of the organization and then
create a practical and effective strategy based on those insights? In other words, a well-
formulated strategy won’t be effective unless it is implemented correctly. Developing a
strategy that fails to consider a wide variety of factors may, however, lead to a strategy
that is not competitive and, therefore, pointless and ineffective. In their study, Zaribaf
and Bayrami (2010) discovered that most business leaders devote substantial effort and
358 M. Al Shami

energy to coming up with strategies but offer only limited input on how to execute them.
More precisely, in order to ensure successful implementation, an innovative and workable
strategy must be balanced. There are several studies that suggest that formulating and
implementing strategies is crucial to the survival and expansion of an organization (Cater
and Pucko 2010; Ashkenas and Francis 2000; Carlopio 2012; and Beer and Nohria
2000). Furthermore, they found that executing a strategy was more challenging than
formulating one. This is because formulating the strategy requires leadership skills,
meticulous preparation, and the arranging of financial support and human resources;
implementing requires creativity, business understanding, and assessment of market
opportunities and the firm’s strengths (Rajasekar 2014). As Rajasekar (2014) noted,
while top management is usually responsible for formulating strategies, middle and
lower managers are responsible for implementing them. However, top management
must prepare a strong strategy and communicate it clearly to middle managers so that
they can easily follow it.
Furthermore, the current literature indicates nearly 5% of an organization’s work-
force understands its strategy (Kaplan and Norton 2001). When employees don’t under-
stand the meaning and direction of a strategy, they can’t contribute effectively to its
implementation (Alexander 1991).
In addition, strategy implementation in a multinational firm operating in a developing
country has not been subjected to a rigorous assessment. This neglect is mainly due to the
non-availability of empirical data. Therefore, an attempt is made in this study to make an
empirical assessment of strategy implementation in Emirates Telecommunication Group
Company PJSC (Etisalat), a large telecommunications services provider in the UAE. In
addition to filling a gap in the current literature, this study is likely to have interesting
managerial implications. This study’s overarching objective is therefore to identify the
factors that will facilitate Etisalat’s implementation of its strategy.

3 Research Methodology
It would be interesting to explore which factors affect the technology strategy imple-
mentation in Etisalat. The methodology applied for this study analysis is the quantitative
approach. Further, in this study, exploratory factor analysis (EFA) is combined with con-
firmation factor analysis (CFA) in order to explore and validate the factors that may have
a significant influence on Etisalat’s technology strategy implementation.

Sampling Procedure
The study targeted Etisalat employees as the study’s population. A stratified sampling
method was used to confirm that each member of the population had equal and inde-
pendent chances of being selected and included in the study. This study collected data
using a self-administered questionnaire. This method is practical in the contemporary
work environment because of limitation of time to meet in person.

3.1 Research Instrument and Measurement

In order to survey Etisalat’s employees, a questionnaire has been developed. Using this
instrument, we were able to identify factors that contribute to successful strategy imple-
mentation. Based on an extensive literature review (Salganik and Heckathorn 2004),
 Strategy Implementation in a Developing Country 359

the survey items were developed. Additionally, seven senior managers working in Gulf
countries were asked for feedback regarding the scale items. An evaluation of the survey
instrument was conducted with 15 members of the organization before the survey was
administered. A revised and simplified survey instrument was developed after feedback
from managers and pre-testing (Hair et al. 2006). As follows, we designed the questions
so that they could be answered using Likert type scales.

3.2 Data Collection

Data was collected for this research through survey questionnaires. The questionnaires
were sent to staff via email. Etisalat has a reliable e-mail system that researchers may use
for the online survey to reduce collection time and analysis time. 750 questionnaires were
distributed. 623 questionnaires were returned. Following a process of data cleaning, 521
questionnaires were found to be usable. As shown in Table 1, we provide demographic
information about the respondents.

Table 1. Background information about the respondents

Percentage
Gender
Male 59.7
Female 40.3
Nationality
UAE 61.6
Arab Expatriate 24.4
Other Expatriate 14.0
Qualification
Undergraduate 16.1
Bachelor’s degree 50.9
Postgraduate/master’s degree 18.6
Professional Degree 8.3
Others 6.1
Work Experience
≤5 years 15.2
6–10 years 38.0
1 –15 years 27.8
>15 years 19.0
Total number of respondents 521
360 M. Al Shami

4 Analysis Results

4.1 Factor Analysis Results

We performed both exploratory factor analysis (EFA) and confirmatory factor analysis
(CFA) to ensure that the constructs and items contained in the instrument were relevant.
Statistically, CFA was conducted in order to assess composite reliability, convergent
validity, and discriminant validity. Due to cross-loading, items having loading factors
larger than 0.3 on two or more factors were deleted. As a result, 30 questions were left
to be addressed to the respondents. In the context of CFA, it needs to be pointed out that
all item loadings emerged to be greater than the minimum acceptable value of 0.5 (Hair
et al. 2006), indicating adequate validity. All factors loadings showed significant t-values
(p .001). Moreover, all the loadings were above 0.5, which was indicative of acceptable
convergent validity (Hair et al. 2006). As illustrated in Tables 3 and 4, we computed the
average variance extracted (AVE) and composite reliability of the measures to determine
their convergent validity. In statistical terms, these were found to be above the cut-off
levels: C.R > .70 (Chin 1998) and AVE > .50 (Fornell and Larcker 1981) (Tables 2).

Table 2. Principal component factor analysis (varimax rotation), factor loadings, and AVE*

Construct Items Factor Loadings Cronbach α Composite reliability AVE

Planning factors Q1 .591 0.915 0.867 0.621
Q2 .628
Q3 .709
Q4 .665
Organizational Q5 .794 0.869 0.853 0.575
factors Q6 .792
Q7 .686
Q8 .683
Q9 .744
Q10 .649
Managerial Q11 .688 0.826 0.849 0.573
factors Q12 .668
Q13 .707
Q14 .692
Individual Q15 .730 0.813 0.571
factors
Q16 .756
Q17 .703
Q18 .707
(continued)
 Strategy Implementation in a Developing Country 361

Table 2. (continued)

Construct Items Factor Loadings Cronbach α Composite reliability AVE

Q19 .639
Q20 .641
Q21 .649
Q22 .748
Q23 .762
Q24 .775
Q25 .760
Q26 .691
Q27 .638
Q28 .647
Q29 .639
Q30 .637
* Cronbach’s alpha > 0.7 (Peterson 1994); CR > 0.70 (Chin 1998); AVE > 0.50 (Fornell, and
Larcker 1981).

Table 3. Inter-construct correlations

F1 F2 F3 F4
F1 1
F2 .636** 1
F3 .064 .092* 1
F4 .576** .609** .130** 1
** . Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

The discriminant validity of the model was also tested. Generally, discriminant valid-
ity is assessed by comparing AVEs of measures along with correlations associated with
those measures (Fornell and Larcker 1981). It is interesting to note that discriminant
validity has also been established in empirical exercises when the square root of the
AVE of each construct is significantly larger than its correlation estimate and all other
inter-construct correlations. The measures in our study were explicitly proven to be dis-
criminantly valid. A four-factor CFA measurement model used in this study had GFI,
AGFI, and CFI values that exceeded the benchmark of .90, indicating that it fits well
(Nunnally 1978).
362 M. Al Shami

4.2 Finding Discussion

This study has found, through an empirical exercise, that successful strategy implementa-
tion is affected by planning, organizational, managerial as well as individual factors. The
findings are in line with extant literature (e.g., Pechlaner and Sauerwein 2002; Alexan-
der 1985; Dooley et al. 2002; Hambrick and Cannella 1989; and Repert et al. 2002) and
positively address the research questions posed in this study. These factors need to be
examined and studied carefully because strategy implementation is a complex process
and the factors affecting it may not necessarily be the same across organizations and busi-
ness sectors. An empirical study of this kind has certainly enriched existing knowledge
and can help practicing managers take effective decisions (Kaplan and Norton 2001).
Based on the results of this study, it can be concluded that constructs related to strategy
implementation are interrelated and interdependent. It is important for researchers to
consider the process of developing and implementing strategies holistically. Despite the
fundamental function of strategy in any organization is to carve a competitive edge,
engaging all stakeholders in strategy implementation is also vital. The employees, in
particular, must be engaged in interesting and useful discussions and dialogues to make
strategy implementation a successful exercise.
Strategic planning poses a challenge, particularly in the context of a smart
technology-oriented organization such as Etisalat. The factors identified in this study
may be used to evaluate the performance of the organization (Kaplan and Norton 2001).
The factors identified in this study can of course help Etisalat to realign its activities
in a competitive environment. As the regional and global markets for Etisalat become
increasingly competitive, the questions posed in this study are quite relevant. A virtual
majority of experts in focus groups suggested that the organization lacked appropriate
measures and strategies or, more seriously, had ineffective international competitive-
ness strategies. Indeed, the findings of this study suggests that the constructs related to
strategy implementation can of course enhance both international competitiveness and
business sustainability.
The constructs and the wide array of factors therein that emerged through an empirical
survey were mainly due to the fact that Etisalat possesses enormous human capital,
financial, technological and various other resources, allowing it to implement strategies
that smaller and medium-sized firms hardly afford. Similarly, practicing such activities as
strategic planning requires tactical control in a very coherent and formal manner. Etisalat
has a robust system of producing a comprehensive strategic plan and implementing it
across the organization.

4.3 Managerial Implications

A carefully crafted dynamic strategy implementation can also help address the orga-
nizational resistance to change and innovation. The dynamic approach that managers
can of course adopt includes a mix of strategy implementation activities that set the
stage for organizational learning in terms of technological projects, pilot programs in
the Gulf region and indeed elsewhere in the world and applied learning programs for the
employees. The dynamic approach may lead to desired deliverables and value, particu-
larly in the early stages of an implementation effort, enhancing organizational learning,
inter-functional alignment, and positive organizational climate across.
 Strategy Implementation in a Developing Country 363

4.4 Research Constraints and Directions for Future Research

The study examined a number of factors related to implementing technology-based

strategies, but further studies could take up the thread from here to address, for instance,
organizational culture and strategic implementation. Scholars of strategy may consider
this as an additional research topic in order to understand the role innovation-driven
technology acceptance plays in the context of strategy implementation (Davis et. al.
1989; Collis 2021).

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 The Association Between the Structure
of the Capital and Profitability in Palestinian
Local Banks

Mohammed Maali(B) and Tamer Sabri

Palestine Technical University, Tulkarm, Palestine

[email protected]

Abstract. The current study was meant to investigate the association between the
structure of the capital and profitability in the six local Palestinian banks listed on
the Palestine Stock Exchange for the period 2011–2020. The researchers aimed
to investigate whether there are differences in the financial structure between the
banks that have a large returns on assets and those that have little returns on assets;
whether there are differences in the debt ratio between the banks that have large
returns on assets and those that have little returns on assets; and finally if there
are differences in the structure of the capital between the banks that have lofty
share of earnings per share and those that have a little share of earnings per share.
The researcher used a non-parametric test. The Mann-Whitny U test indicated
that Z-value (−2.070) is significant at 5%. Therefore, the researcher reject the
null hypothesis and accepts the alternative hypothesis, which states that there is a
statistically significant difference in the structure of the capital between the banks
that have great returns on assets and those which have little return on assets, is
accepted. However, the Mann-Whitny U test for the other hypotheses did not show
statistically significant differences.

Keywords: Profitability · Capital structure · Leverage · ROA · EPS · Debt ratio

1 Introduction
Banks are not likely to proceed in the actions and transactions they carry out unless
they have the needed or required funds to finance their current as well as fixed assets.
Unlike the industrial, commercial and service companies and firms, banks differ from
in the degree of their dependence on external fund sources due to the different nature
of their actions and their use of various sources of financing. Therefore, banks resort to
differentiating between financing sources in terms of costs, risks, returns, time period,
participation in management and the obligations arising from it in terms of interests and
installments reach the optimal financing structure, which maximizes the cost/value of
the facility, as that value is, generally speaking, the value of debt plus the value of equity.
The financing decision in corporations or companies in general, and in banks in
specific, is one of the most significant decisions that affect the cash flows of the cor-
poration/company, its profitability, and its liquidity. This decision is associated with

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 366–374, 2023.
https://doi.org/10.1007/978-3-031-26956-1_36
 Palestinian Local Banks 367

determining the percentage of financing from short-term and long-term sources, as well
as determining the appropriate mix of debt and ownership sources. The use of the opti-
mal financing mix is deemed significant because it minimizes the cost of capital in the
company, thus maximizing its value and increasing the profitable investment chances
that are available to the company.
The Palestinian banking system is considered one of the most important pillars of the
Palestinian economy, as it plays a crucial role in supporting the Palestinian economy and
stimulating development processes, by playing a mediating role between the surplus par-
ties (savers) and the deficit parties (borrowers) in the economy. Besides, the Palestinian
banking system has achieved real successes in accumulating the savings of Palestinians
at home and abroad, and using them to provide the necessary credit to finance various
economic projects through the processes of providing loans on the one hand and direct
contribution to these projects on the other hand, as well as providing credit to the families
and government sectors for consumption and investment purposes.

1.1 Statement of the Problem

Financial management of the institution faces a critical decision regarding financing.
The institution can use short-term together with long-term commercial debt and bonds
for financing, or it can use typical shares, compulsory reserves, voluntary reserves, and
the profits that are undistributed as equity. The association between the structure of
the capital and the value of the facility has considerably motivated many researchers,
academics, facility management and employees to investigate the topic. Consequently,
this study was meant for find out how equity to assets and liabilities to assets relate to
the capital structure of Palestinian banks listed on the Palestinian Stock Exchange. We
analyzed the performance of those banks by measuring or comparing them against the
return on assets and net profit share, in order to develop some useful results and present
recommendations that would enhance Palestinian bank performance. Thus, the main
promise of this power is to find out whether there is an association between the capital
structure and profitability among Palestinian banks? In order to discuss this problem
more easily, the researchers tried to answer the following sub-questions:

1 Are there significant differences in the capital structure of banks that have a great
return on assets and those banks that have a little return on assets?
2 Are there significant differences in the debt ratio for the banks that have a great return
on assets and those that have a little return on assets?
3 Are there significant differences in the capital structure between the banks that have
a great share of earnings per share and those that have a little share of earnings per
share?
4 Are there significant differences in the capital structure between the banks that have
a high share of earnings per share and those that have a low share of earnings per
share?

1.2 Importance of the Study

An important indicator for measuring the financial conduct/performance of banks and
companies is their profitability, which measures how well they use their resources to
368 M. Maali and T. Sabri

maximize profits for shareholders and to increase the value of their businesses. Financing
decisions are crucial to public financial management in public facilities or companies
and in the banking sector in specific. The public sector constitutes among the most
important Palestinian economic sectors due to its important role in accumulating savings
and redirecting them to various economic activities and individuals; moreover, this sector
constitutes a link between the domestic, local economy and foreign economies.
It is expected that the results of the current paper, which attempts to demonstrate
the association between the capital structure and the financial conduct/performance of
Palestinian banks, to attract the attention of or be of great interest to bank administra-
tions, shareholders, investors, creditors, financial analysts, and supervisory authorities
represented by the PA.

1.3 Study Hypotheses

1 There are no significant differences in the capital structure between banks that have
a great return on assets and those that have a little return on assets
2 There are no statistically significant differences in the debt ratio between banks that
have a great return on assets and those that have a little return on assets.
3 There are no statistically significant differences in the capital structure between the
banks that have a high share of earnings per share and those that have a low share of
earnings per share.
4 There are no significant differences in the structure of the debt ratio between the
banks that have a high share of earnings per share and those that have a low share of
earnings per share.

1.4 Study Population and Sample

The study population consisted of the local banks that are listed in the Palestinian Stock
Exchange, except for Al-Safa Bank, due to a lack of financial data. The six banks that had
adequate financial data during the period from 2011 to 2020 included Bank of Palestine,
Al-Quds Bank, Palestine Investment Bank, The National Bank, The Arab Islamic Bank,
and Palestine Islamic Bank.

2 Review of the Literature

An empirical investigation of the effect of capital structure on firm conduct/performance

was undertaken by Ebrati et al. (2013) in order to find out the association between
leverage level and firm performance using multiple regression analysis. Based on data
from the Karachi Stock Exchange, (Saeed, et al., 2013) examined how capital structure
affected Pakistani banks’ performance from 2007 to 2011. While in Ghana, Awunyo-
Vitor and Badu (2012) carried out an empirical study to assess the relation between
the capital structure of the listed banks and their conduct/performance over the period
2000–2010. During the period between 2006 to 2009, (Umar, et al., 2012) examined
how capital structure impacts the financial conduct/performance of best 100 consecutive
 Palestinian Local Banks 369

Karachi Stock Exchange companies. They used exponential generalized least square
regression to examine the relation between capital structure and firm profitability.
Based on an investigation of the relation between market efficiency and capital
structure of Palestinian financial institutions, Abbadi and Abu-Rub (2012) developed a
model to find out the influence of capital structure on the efficiency of the bank which
can be measured by ROE, ROA. The capital structure of a corporation or a firm can
be one of its most important choices, and its success can be determined by its capital
mix and structure (Luper and Isaac, 2012). In his study of Egypt as one of the recent
emerging economies, Ebaid (2009) conducted a study to estimate the association between
leverage level and firm performance using the multiple regression analysis. As a result of
using three accounting-based financial performance measures (return on assets, return on
equity, and gross profit margin), the researcher concluded that choosing capital structure
does not affect firm performance as much as it does on financial performance.
A comparative analysis of 167 Jordanian firms between 1989 and 2003 was con-
ducted by Zeitun and Tian (2007), the researchers showed that a firm’s capital structure
negatively affected its performance measures. Besides, the capital structure of banks
in Ghana was analyzed by Amidu (2000) using a panel regression model to examine
the dynamics involved in determining this structure. According to the study, profitabil-
ity, growth, asset structure, corporate taxation, and bank size all affect bank and deci-
sions related to its capital structure. Utilizing the framework of fixed-and random-effects
techniques, Kyereboah-Coleman (2007) examined how microcredit institutions’ capital
structure impacts performance using the Panel data durinng the period between 1995-
2004. Joshua (2005) carried out a study to find out the relationship between capital
structure and profitability of the companies listed in Ghana Stock Exchange.

3 Methodology
3.1 Dependent Variables of the Study
Financial ratios are useful indicators that reflect the financial performance of institutions,
and they can be calculated depending on financial statements.

1 Return on assets (ROA)

Return on Assets is usually measured by dividing the net profit after interest and
tax on the total assets.
2. Earning Per Share (EP)
It is measured by dividing the net profit after interest and tax by the number
of ordinary shares issued to the bank; this measure indicates the amount of profits
achieved by one share.

3.2 Independent Variables of the Study

The independent variables include the capital structure ratios (Capital Structure Ratios)
and these ratios are used as a tool to assess the bank’s ability to meet its obligations,
especially long-term. High financial leverage increases the bank’s exposure to insol-
vency, bankruptcy and liquidation risks, but at the same time it causes a conflict of
370 M. Maali and T. Sabri

interest between creditors and owners. Creditors want low-risk investments to secure
their rights, while owners look for investments that bring them high profits.

1- Total Liabilities to Total Assets Ratio (Leavrage Ratio).

This ratio is among the most widely used indicators to measure the degree of use
of external sources of financing in the bank’s financing structure, and to determine the
amount of debts per dinar of total assets.
2- Total Liabilities to Total Equity (capital struc ratio).
This ratio shows the ratio of debt to equity; it is considered an indicator of the
potential risks faced by the bank in terms of debt burden.

4 Statistical Analysis

Descriptive Statistics and Normality Test

In this part, some descriptive statistics related to the study sample will be identified
the normal distribution test is also identified here. There are many statistical tests that
examine the consistency of the data in terms of achieving the condition of the normal
distribution. We made up our minds to use Jarque-Bera test in this study to identify the
extent of the normal distribution of the data.

Table 1. Descriptive statistics and test of normality

Descriptive statistics
N Mini Ma.xi M SD
Capital 60 0.01 11.88 0.7986 2.16441
Leverage 60 0.09 7.8 0.822 0.96283
Eps 60 0.35 12.4 6.1804 3.22984
Roa 60 0.01 0.87 0.0588 0.1109
Valid N (listwise) 60

Table 1 above shows that the minimum capital structure ratio was (0.01).
As for earnings per share (EPS), it ranged between 12.4 and 0.35, and on average it
has reached 6.1804. This is a good percentage and it indicates that companies are able to
create value. As for the ratio of debt or financial leverage (LEV), it ranged between 7.8
and 0.09, and this shows an apparant discrepancy in the process of debt management in
banks. This averaged return on assets (ROA) was about 0.0588, with a standard deviation
equal to 0.1109 (Table 2).
In case the value is more than 5%, the researcher accpets the null hypothesis; this
means that the data are distributed normally. It is clear from the Jarque-Bera test that
the avaliable data is not normally distributed; this calls for the use of other means to
 Palestinian Local Banks 371

Table 2. Jarque-Bera test

CAPITAL EPS LEV ROA

8137.331 1505.732 5382.294 5647.304
Probability 0 0 0 0

address this problem. The researchers decided to use the nonparametric measures to test
hypotheses.

Pearson Correlation Matrix for the Study Variables

Table 3 the first variable, which is the ratio of the capital structure CAPITAL, and the
other variables vary in terms of strength and direction. There is a negative association
with the return on assets - .043 and a positive association with both the financial leverage
0.007 and the earnings per share 0.069. In terms of strength, the lowest was the financial
leverage ratio.
The correlation coefficients between the third variable, earnings per share (EPS),
also varied in strength and consequently there is a positive association with the return
on assets, financial leverage and capital structure.

Table 3. Pearson correlation matrix for the study variables

Correlations
Capital Leverage eps Roa
Capital Pearson Correlation 1 0.007 0.069 −.043−
Sig. (2-tailed) 0.957 0.598 0.746
N 60 60 60 60
Leverage Pearson Correlation 0.007 1 0.048 0.073
Sig. (2-tailed) 0.957 0.717 0.582
N 60 60 60 60
Eps Pearson Correlation 0.069 0.048 1 0.188
Sig. (2-tailed) 0.598 0.717 0.15
N 60 60 60 60
Roa Pearson Correlation −.043− 0.073 0.188 1
Sig. (2-tailed) 0.746 0.582 0.15
N 60 60 60 60

Testing the Null Hypotheses

1 There are no significant differences in the capital structure between banks that have
a great return on assets and those that have a little return on assets.
372 M. Maali and T. Sabri

Table 4. Test statistics

Test Statisticsa
leverageroa capitalroa Leverageeps capitaleps
Mann-Whitney U 444.000 310.000 401.000 325.000
Wilcoxon W 909.000 775.000 866.000 790.000
Z −.089− −2.070− −.724− −1.848−
Asymp. Sig. (2-tailed) .929 .038 .469 .065
a. Grouping Variable: VAR00003

The Mann-Whitny U test results indicated that Z (−2.070) in the second column of Table
4 is significant at 5%, and accordingly, the null hypothesis is rejected and as a result, the
alternative hypothesis, which states that there are significant differences in the capital
structure between banks that have a great return on assets and those that have a little
return on assets, is accepted.
2- There are no significant differences in the debt ratio between banks that have a great
return on assets and those that have a little return on assets.
The Mann-Whitny U test results indicated that Z (−.089) in the second column of
Table 3 is found to be insignificant at 5%, and accordingly, the null hypothesis, which
states that there is no significant difference in the debt ratio between Banks that have a
great return on assets and those that have a little return on assets, is accepted.
3- There are no statistically significant differences in the capital structure between the
banks that have a high share of earnings per share and those that have a low share of
earnings per share.
The Mann-Whitny U test results indicated that Z (−.089) in the second column of
Table 4 is found to statistically insignificant at 5%, and therefore the null hypothesis,
which states that there is no significant difference in the debt ratio between Banks that
have a high return on assets and those that have a low return on assets, is accepted.
The results of the Mann-Whitny U test also showed that the value of Z (−1.848) in
the fourth column of Table 4 is insignificant at 5%, and consequently, the null hypothesis,
which states that there is no significant difference in the capital structure between Banks
with high earnings per share and low earnings per share, is accepted.
4- There are no significant differences in the structure of the debt ratio between the banks
that have a high share of earnings per share and those that have a low share of earnings
per share.
The Mann-Whitny U test results indicatd that Z (−.724) in the third column of Table
4 is not significant at 5%, and therefore the null hypothesis, which states that there is no
statistically significant difference in the structure of the debt ratio among the banks that
have high earnings per share and low earnings per share, is accepted.
 Palestinian Local Banks 373

5 Conclusion

Some descriptive statistics for the sample (e.g., mean, median, standard deviation, highest
value, lowest value) and the normality test were calculated. The EPS amounted to 6.1804,
and this is good as it indicates that companies were able to create their own value. As
for the ratio of debt or financial leverage (LEV), it ranged between 7.8 and 0.09, and
this shows an apparent discrepancy in the process of debt management in banks. The
first hypothesis examined the differences in capital structure between banks that have a
great return on assets and those that have a little return on assets.
The Mann-Whitny U test results indicated that Z (−2.070) is significant at 5%, and
accordingly, the null hypothesis is rejected and as a result, the alternative hypothesis,
which states that there are significant differences in the capital structure between banks
that have a great return on assets and those that have a little return on assets, is accepted.
As for the other hypotheses, the results showed.

6 Recommendations
Based on the findings of the current study, the researchers would like to suggest the
following recommendations.
Decision makers and interested people should spare no efforts to develop a culture
and mechanisms for dealing with financial performance indicators, show the danger of
its absence, and highlight its negative repercussions.

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 ESG Policies for Financial Institutions:
Comparative Studies Between Malaysia, United
Arab Emirates and United Kingdom

Ieman Huda binti Adnan1 , Siti Nursyawani binti Misman1 ,

Syarah Shahirah binti Mohd Yusof1 , Rusni binti Hassan1(B) ,
and Nurul Afifah binti Che Basir2
1 IIUM Institute of Islamic Banking and Finance, Jln Gombak, 53100 Kuala Lumpur, Malaysia
[email protected], [email protected]
2 Fong Yap and Gan, Kelana Jaya Centre Point, 47301 Petaling Jaya, Selangor, Malaysia

Abstract. Environmental, social and governance (ESG) practices are imperative

to all stakeholders in the financial institutions. Good ESG performance is vital
in mitigating financial risk and encouraging financial institutions’ commitment
towards good governance and environmental practices. It could reduce the finan-
cial uncertainty when the financial institutions are committed towards reducing
the risks associated with ESG matters. The ESG factors and climate change are
now being acknowledged as one of the major threats to the financial stability of
the financial institutions and the countries. In response, the authorities are actively
working towards establishment of robust regulatory frameworks and policies to
strengthen the ESG adoption as well as its implementation in all financial institu-
tions. In this paper, three countries have been selected namely Malaysia, United
Arab Emirates (UAE) and the United Kingdom (UK) to examine their countries’
ESG policies for financial institutions and further provide comparative analysis
on its adequacy. This comparative study between these countries is necessary to
recognize and identify the differences and pinpoint the progression stage in each
country. Based on the analysis, Malaysia and the United Kingdom have more
comprehensive and exhaustive ESG policies as compared to the United Arab
Emirates.

Keywords: ESG · UAE · UK · Malaysia · Regulatory framework · ESG policies

1 Introduction
Financial Institutions (FIs) play a vital role in the society serving as intermediaries
bridging the household spendings with the deficit units in the economy (Scholten and
van’s Klooster 2019). However, the role of FIs is not limited to serve only as financial
intermediaries between the surplus and deficit units in the economy but also as the main
players in the financial sectors. Along with the climate change initiatives, SDG goals
and ESG, the aim for a sustainable finance is becoming more certain and achievable (De
Franco et al. 2021).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 375–388, 2023.
https://doi.org/10.1007/978-3-031-26956-1_37
376 I. H. binti Adnan et al.

Throughout the years, contributions of financial sectors towards climate change and
SDG targets are undeniably large. It is anticipated that trillions of dollars would need to be
invested globally to combat climate change, with infrastructure spending alone needing
nearly $6 trillion year by 2030 (IMF 2019). The aim of zero net-carbon emission by
2050 proposed by the United Nations, along with the Paris Agreement treaty of which all
three chosen countries in this paper were a member of, had boosted the worldwide effort
for more positive and greener finance initiatives (UNFCC 2022). Globally, each country
had different approaches and strategies in their economic transitions towards sustainable
finance that is much more ESG and SDG-related. While the economic approach taken
upon the government or corporate entities such as the issuance of green sukuk and bonds
are important from an economic perspective, the regulatory approach is also important. A
proper and holistic approach by the related bodies in adopting global recommendations
in their by-laws will result in a resilient and sustainable governance.
Continuously being ranked first in global islamic economy indicator report had made
Malaysia to be globally recognized and being referred to in terms of having a strong
and developed Islamic Finance governance framework (Islamic Finance Development
Report - Refinitiv 2021). With the great reputation being held by Malaysia in the category
made Malaysia among the countries that is under the attention for its ESG related policies
and initiatives. United Arab Emirates (UAE) had also been progressing in their Islamic
Finance development that it had successfully marked its place in top three ranking of the
development in its Islamic Finance governance. Apart from that, UAE is also has been
leading in ESG related initiatives in the Middle East and North Africa Regions (MENA)
(Martini 2022). While UK, has also being recognized as leading country in green financ-
ing initiatives and is also part of commonwealth country practicing common law that is
the same being practiced in Malaysia. Therefore, the comparison between Malaysia and
UK in their regulatory adoption with the international standard and recommendations
are always being eyed to.

2 Research Methodology
This study applies doctrinal legal research and adopts a qualitative study using the
content analysis approach. The data used for this research are mainly from the relevant
regulatory reports of each selected countries (Malaysia-UK-UAE) on their ESG policies
including sustainable finance and financial climate change policies. These policy reports
are extracted from the official websites of the regulatory authorities responsible for the
issuance of the reports. These resources are analysed critically to examine the countries’
efforts towards establishing ESG related policies for their financial institutions and to
analytically compare the ESG policies between them for the purpose of recommending
the way forward for the respective countries.

3 Literature Review
3.1 Regulatory Initiatives on ESG in Each Country
Malaysia. As of November 2019, approximately 11.7% of Malaysian financial players’
assets were in sectors potentially vulnerable to climate change. It is a logical step for
 ESG Policies for Financial Institutions 377

Malaysian FIs to take in managing climate risk as they construct and prepare a more sus-
tainable and climate-resilient Malaysian financial system. The Bank Negara Malaysia
(BNM) has gradually addressed climate risk since 2019 in order to establish the foun-
dations for a strong framework in climate risk management for the financial sector. As
the central bank of Malaysia, one of its objectives is to establish proper regulations and
oversight to make sure that FIs are properly assessing, mitigating, and buffering against
climate risks associated with various efforts in Malaysia.
In an effort to improve the financial sector’s climate resilience, authorities and indus-
try participants formed JC3 in September 2019. BNM, the Securities Commission, Bursa
Malaysia, and 21 business players make up JC3. The JC3 necessitates the growth of
capacity through the sharing of information, experience, and best practices in evalu-
ating and managing climate-related risks, identifying issues, challenges, and priorities
confronting the financial sector in managing the transition to a low-carbon economy,
promoting cooperation among stakeholders in pushing coordinated solutions to meet
emerging challenges and issues, and aiding the financial sector in integrating identified
solutions. The JC3’s five subcommittees—Risk Management, Governance and Disclo-
sure, Product and Innovation, Engagement and Capacity Building, and Bridging Data
Gaps—undertake its activities and priorities.
Next, BNM introduced Value-based Intermediation Financing and Investment
Impact Assessment Framework in November 2019. The document’s goals included facil-
itating the implementation of an impact-based risk management system for assessing
Islamic financial institutions’ financing and investment activities in accordance with
their respective VBI commitments, as well as serving as a reference for other FIs look-
ing to incorporate ESG risk considerations into their own risk management system
(Value-based Intermediation Financing and Investment Impact Assessment Framework
- Guidance Document - BNM 2019).
The Bank later issued CCPT on April 15, 2021 that offers a framework and guidelines
to aid in the transfer of economic activities that do not contribute to the goals of combating
climate change. Besides, the Bank further published Climate Risk Management and
Scenario Analysis, Exposure Draft on December 27, 2021. In order to increase the
financial sector’s resilience to climate-related risks and allow a smooth transition to a
low-carbon economy, the proposed particular standards and expectations specified in
this exposure draft are meant to be implemented by FIs.
Recently, following the formation of JC3, in order to help Malaysian FIs adopt
climate-related disclosures gradually and to speed up efforts to manage climate-related
risks and opportunities, JC3 released the TCFD Application Guide for Malaysian FIs
on June 29, 2022 (JC3 Issues the TCFD Application Guide for Malaysian Financial
Institutions - Bank Negara Malaysia 2022).

United Arab Emirates. In the meanwhile, as the global financial center, the UAE is
committed towards addressing opportunities and risks associated with climate change
impacts and ESG through issuance of regulatory frameworks and policies focusing on
sustainable finance. These efforts have been implemented across all sectors in UAE
and have got active response from both Dubai Financial Services Authority in Dubai as
well as Financial Services Authority in Abu Dhabi. Active roles played by these two
prominent financial regulatory institutions have enabled and smoothen the development
378 I. H. binti Adnan et al.

of sustainable finance in the UAE. In addition, active involvement from ministries in

UAE such as the Ministry of Climate Change and Environment has further pushed
the significant role of sustainable finance in addressing the current issues presented by
climate change and ESG.
One of the ‘sustainability’ policies being introduced by the UAE government is The
UAE Green Agenda 2015–2030. This 15 years plan aimed to establish the UAE as
a sustainable global hub with five key objectives and goals aimed at encouraging the
financial sector to invest in green projects, financial products and services (UAE Green
Agenda 2015). Apart from that, UAE Ministry of Climate Change and Environment
(MOCCE) also plays significant role in supporting sustainable finance through issuance
of its Sustainable Finance Framework 2021–2031 with the aim to create a more conducive
environment for innovative sustainable product development as well as supportive use
of private capital in investments that are more environmentally sustainable and climate
resilient.
Three key pillars have been developed under this framework which include the incor-
porating of sustainability in the companies’ decision-making process and risk manage-
ment, increasing supply and demand for sustainable finance products and green invest-
ment projects as well as providing conducive and enabling environment that promotes
sustainable finance practices through collaboration between financial and sector stake-
holders (UAE MOCCE 2021). Furthermore, the UAE regulatory authorities’ efforts to
ensure sustainable finance are also reflected in the Abu Dhabi Sustainable Finance Dec-
laration 2019, which aims to encourage green and sustainable investment in Abu Dhabi,
the UAE, and the wider MENA region. (“The Abu Dhabi Sustainable Finance Declara-
tion,” 2021). The Framework was later adopted by the UAE government, regulators and
local as well as international UAE companies.

United Kingdom. On the contrary, the United Kingdom and England used a very
exhaustive approach in strategizing their transition towards ESG-aligned initiatives. The
formation of a solid regulatory framework by the government and related authorities
such as the UK Financial Conduct Authority (UK FCA) has gone through rigorous steps
before it is finally implemented to the industry. UK has long before played a critical
role in fostering growth and establishing the green finance agenda and was also the first
country in the world to formally incorporate the carbon reduction goals into their regu-
latory framework through the adoption of the Climate Change Act 2008 by the United
Kingdom Parliament (Green Finance Strategy 2019).
In November 2020, the then Chancellor of Exchequer had announced the commit-
ment of the nation to make the climate-risk disclosures entirely mandatory across the
economy, making the UK the first government in the world to do so (HM Treasury
2021). Following the announcement, FCA as the regulatory body had actively played
their role in integrating the climate-risk disclosures into their standards and guidelines.
As such, immediately in December 2020 FCA issued a policy statement requiring the UK
premium listed companies to include some climate-related disclosures in their annual
financial reports, or to explain why they have not (PS20/17 | FCA 2020).
In November 2021, the FCA had released a comprehensive strategy document titled
‘A strategy for positive change: our ESG priorities’. In the strategy document, it had
outlined the freshened ESG strategies setting out further plan on the better delivery on
 ESG Policies for Financial Institutions 379

the target ESG-related outcomes (A Strategy for Positive Change: Our ESG Priorities |
FCA 2022) (Table 1).

Table 1. The table shows the summarized list of ESG related policies introduced by each country

Malaysia United Arab Emirates United Kingdom

Establishment of CCPT issued on 15 Not yet established UK Green Taxonomy
Taxonomy April 2021
Task Force and JC3 released TCFD No specific national TCFD-aligned
Climate-Change Application Guide for TCFD application disclosure rules
Financial Disclosure Malaysian Financial guide introduced by
(TCFD) Institutions the regulatory
authorities
Regulatory Initiatives • JC3 was founded • UAE Green Agenda • UK FCA ESG
on ESG • VBIAF 2015–2030 Handbook
• CCPT • Sustainable Finance • UK FCA Strategy
• Climate Risk Framework Document: ESG
Management and 2021–2031 Priorities
Scenario Analysis, • Abu Dhabi • UK FCA
Exposure Draft Sustainable Finance Discussion Paper
• TCFD Application Declaration 2019 on Sustainability
Guide for Malaysian Disclosure
Financial Institution Requirement
Emphasis on Maqasid Discussed and Neither specific Neither specific
Al-Shariah in embedded in VBI and policy nor express policy nor express
ESG-related VBIAF term of Maqasid term of Maqasid
regulatory framework al-Shariah being used al-Shariah being used
in the UAE in the UK sustainable
sustainable finance finance policies
policies

3.2 Establishment of ESG-Aligned Taxonomy

ESG-Aligned Taxonomy in Malaysia. In Malaysia, the authority through BNM has

introduced Climate Change and Principle-based Taxonomy (CCPT) which embedded
five guiding principles focusing on the existing and prospective customers. CCPT was
established to guide FIs to ensure their economic activities meet climate objectives; and
to promote the transition to a low-carbon economy (Climate Change and Principle-based
Taxonomy - Bank Negara Malaysia 2021). CCPT came into effect on 30 April 2021.
The first principle is climate change mitigation where the objective is to help FIs
have economic activities that avoid, limit and enable others to avoid and limit the amount
of greenhouse gas (GHG) emitted into the atmosphere or put a stop on it. CCPT further
laid down a few examples in applying this principle such as International Financial
380 I. H. binti Adnan et al.

Institutions approach GHG accounting in wind power generation projects that aids in
reducing the emission of Carbon dioxide into the environment. Following this, CCPT
guides FIs implement measures and actions to lower the negative effects and/or escalate
resilience to tolerate and endure existing or coming climate change effects. This makes
climate change adaptation as the second principle in CCPT.
Next, the third principle is no significant harm to the environment because unin-
tended harm to the wider ecosystem may occur while the first two guiding principles are
applied. Specifically, the FIs are expected to engage in economic activities that prevent,
reduce and control pollution on the nature, protect healthy ecosystems and biodiver-
sity and use natural resources in a livable and coherent manner (Environmental Quality
Act 1974 (ACT 127), Regulations, Rules & Orders 2018). Hence, remedial measures
to transition become the fourth guiding principle that intends to foster a smooth transi-
tion by eliminating any obvious exclusion of existing economic activities that are not
complementing the target of combating climate change and/or are not sustainable.
The last guiding principle is prohibited activities. Among the existing environmental
laws that the economic activity should be in line with are, included but not limited to
National Forestry Act 1984, Wildlife Conservation Act 2010, National Parks Act 1980,
Fisheries Act 1985, Environmental Quality Act 1974, Employment Act 1955, Children
and Young Persons (Employment Act 1966) and Minimum Wages Order 2018.

ESG-Aligned Taxonomy in United Arab Emirates. Unlike in Malaysia, the UAE is

yet to establish its specific sustainable finance taxonomy. Nevertheless, its importance
is highlighted in the Guiding Principles on Sustainable Finance (GPSF) in UAE, intro-
duced in January 2020, in the second principle. The GPSF is based on the United Nations
Agenda for Sustainable Development, and they serve as a guide to implement and inte-
grate consistent sustainable practices in UAE financial entities, including banks (ADGM
2020). The GPSF was developed by the Abu Dhabi Global Market (ADGM) and was
the first collaboration between ten (10) financial regulators and exchanges, ministries
and environmental bodies in UAE (the Authorities) including its central bank.
The second Principle emphasizes on the minimum eligibility requirements of what
constitute ‘sustainable’ financial products or instruments. Under this principle, the
Authorities do recognize the importance of adopting certain common terminology (a
taxonomy) and minimum eligibility requirement of what is regarded as ‘sustainable’.
Nonetheless, since the Authorities are yet to develop its own taxonomy and there is
no other national taxonomy on sustainable finance in UAE, the Principle encourage the
adoption of internationally recognized taxonomies for ‘sustainable’ and ‘green’ products
and instruments such as Principles for Responsible Banking (UNEP Finance Initiative
2019) and the European Commission Action Plan on Sustainable Finance (European
Commission 2018). If the financial institutions intend to adopt ‘sustainable’ criteria
other than the established taxonomies, they must disclose the departure and reason for
the adoption to all relevant parties (ADGM 2020).
The GPSF consists of three Principles. The first Guiding Principle focuses on the
institutions’ overall responsibility to incorporate ESG factors into their risk management,
governance and strategy. This can be done by the FIs identifying and considering oppor-
tunities, risks and threats afforded by ESG compliant investing as well as to exercise
high level due diligence in lending and investment decisions (ADGM 2020). The next
 ESG Policies for Financial Institutions 381

step is for the FIs to incorporate such opportunities and risks into business strategy and
financial planning at all levels of the organization. Lastly, the FIs need to enhance their
ESG performance through suitable product development and to promote sustainability
in all activities conducted inside the organization (ADGM 2020). This first principle also
emphasizes the role of the Board of Directors and senior management as top management
in incorporating ESG considerations into the institution’s governance.
The third principle is on the promotion of appropriate ESG related reporting and
disclosures. Disclosure on ESG matters promotes greater transparency to the relevant
stakeholders. It allows them to assess the FIs’ ability in managing and adapting with
ESG related issues, fulfilling obligations under ESG and ability to meet their finan-
cial obligation. The principle also emphasizes on the need for the ESG specific risks,
processes, initiatives and performance to be reported in parallel with international rec-
ognized reporting standards on ESG matters as well as to be consistent with national
disclosure obligations (ADGM 2020).

ESG-Aligned Taxonomy in United Kingdom. The United Kingdom (UK) has taken
highly significant steps to advance towards ESG initiatives in the financial sectors. While
Malaysia has VBIAF and UAE has Sustainable Finance as one of their ESG strategy
approaches, the same techniques had also been adopted by the UK since years back with
the Green Financing initiatives. While the Green Financing Strategy focused generally
on climate change approaches, in recent years, the UK government had updated its Green
Finance Strategy to also include a portion of ESG initiatives especially in the disclosure
requirements (Green Finance Strategy 2019).
However, with the exhaustive approach used by UK in adopting ESG related ini-
tiatives means that until now, there is no specific ESG related taxonomy or even UK
Green Taxonomy issued by the government yet as the discussion still ongoing before it
is to be fully designed and ready to be implemented (UK GTAG 2022). Even with no
specific issued ESG-related taxonomy yet, The UK Financial Conduct Authority (UK
FCA), an independent regulatory body that oversees all financial matters in the UK, has
actively taken progressive steps to issue and update its rules and regulations to incorpo-
rate ESG initiatives and priorities. This is in addition to the UK government’s inclusion
of ESG-related initiatives in its national Green Financing Strategy.
As such, UK FCA had issued a strategy document titled “A strategy for positive
change: our ESG priorities,” in which presented a detailed approach and updated ESG
strategies taken up by UK FCA, including further plans for better achieving the desired
ESG-related goals (A Strategy for Positive Change: Our ESG Priorities | FCA 2022).
Besides that, UK FCA also issued a number of discussion paper and policy statements
incorporating ESG related disclosures to further expand their exhaustive regulatory app-
roach in ESG related initiatives such as UK FCA Discussion paper on Sustainability
Disclosure Requirements and investment labels and Policy Statement on enhancing dis-
closure to be extended to life insurers, asset managers and pension providers (Hancock
et al. 2022).
In addition, the FCA implemented new Listing Rules in April 2022 that require
issuers to publish a statement in their annual financial report outlining whether they have
fulfilled particular board diversity targets. This is in relation to diversity and inclusion.
Additionally, continuous disclosure duties result from, among other things, the Market
382 I. H. binti Adnan et al.

Abuse Regulation. The FCA has stated that since many issuers’ assets are financially
relevant to risks and opportunities related to climate change, information regarding them
may constitute insider information and must be disclosed (FCA 2022).

3.3 The Task Force on Climate-Related Financial Disclosures (TCFD)

TCFD-Aligned Initiatives in Malaysia. In Malaysia, the Joint Committee on Climate

Change (JC3) issued the Task Force on Climate-related Financial Disclosures (“TCFD”)
Application Guide for Malaysian Financial Institutions in June 2022, which explains crit-
ical recommendations includes pertinent justifications, instructions, suggestions, and
illustrations that can be utilized as beneficial materials to aid the Malaysian FIs adoption
of the TCFD Recommendations. This policy was divided into four categories: gover-
nance, strategy, risk management, and metrics and targets. According to their exposure to
climate risk and operational complexity, all FIs will adhere to the basic recommendations
stated in the Application Guide and are urged to adopt stretch recommendations.
To begin, TCFD encourages companies to disclose their climate governance in stages.
In the early stages, FIs may highlight the boards’ sustainability credentials, disclose
sustainability capacity building for board members and management, and reveal core
features such the board’s oversight and management’s participation in assessing and
managing climate-related challenges. FIs may think about creating a distinct climate-
related committee, exposing discussions about climate change during board meetings,
and incorporating sustainability into the board’s and top management’s key performance
indicators (KPIs) in the ensuing phase.
Second, disclosures about strategies should include information about the kind, mag-
nitude/amount, and duration of exposure to significant climate issues, as well as the
potential results/effects of climate-related risks and opportunities. Identifying climate
risks and opportunities is the first step for FIs, which should then evaluate how such risks
and opportunities influence their business strategy and performances before disclosing
their climate risk strategy and risk attitude. FIs with advanced capabilities may analyze
climate scenarios to make sure their values and business strategy are aligned with the cli-
mate. Subsequently, the present risk management procedures used by FIs should include
climate-related risks by disclosing how it identifies, assesses, and characterizes climate-
related risks, measures, monitors, manages, including decision-making in mitigating,
transferring, accepting, or controlling them, and reports them.
And at last, as part of their efforts to decarbonize their financing or investment port-
folios, FIs should implement climate-related metrics and targets. In order to effectively
connect the aforementioned TCFD key aspects and their corresponding recommended
disclosures, as well as their performance and transition plan, these metrics and targets
should be created in such a manner that they both inform and are informed by the
institution’s governance, strategy, and risk management processes.

TCFD-Aligned Initiatives in United Arab Emirates. While Malaysia already has its
own TCFD Application Guide, UAE is yet to develop its own TCFD guidance. Never-
theless, in respect of sustainability disclosure, the UAE through the UAE Sustainable
Finance Working Group (SFWG) has encouraged and emphasized such disclosure to
 ESG Policies for Financial Institutions 383

be implemented across UAE financial institutions. Rigorous efforts on setting up UAE

own’s TCFD application guide have been highlighted by its working group such as UAE
SFWG.
The UAE SFWG in its Statement on Sustainable Finance issued in November 2021,
has outlined a roadmap on sustainable finance specifying the UAE SFWG’s journey
towards achieving sustainable finance. The roadmap consists of three deliverables which
includes: 1) examine the implementation of corporate disclosure standards across the
UAE; 2) encourage companies to practice good corporate governance and 3) establish
a UAE taxonomy of sustainable activities, which is critical for the UAE’s long-term
economic transition (“UAE Regulators and Exchanges Issue High-Level Statement on
Sustainable Finance,” 2022).
With regard to the first deliverable, the SFWG aimed to strengthen the ESG corporate
disclosure standards across UAE to be parallel with UAE national and international best
practices. It was stressed out that corporate disclosure on the sustainability risks by the
companies are required to enable relevant investors and stakeholders to evaluate the
company’s long-value creation and sustainability risk exposure. This step would further
promote the company’s transparency towards its customers, investors and other relevant
stakeholders in terms of their management on the sustainability risks and opportunities.
This deliverable signifies the effort taken by UAE to ensure ESG disclosure regardless
of the absence of national TCFD guidance.
For the second deliverable, the SFWG aimed to examine current corporate gover-
nance standards and practices in order to incorporate sustainability into UAE corporate
governance structures. Meanwhile, for the third deliverable, the proposed taxonomy will
provide a clear guidance on which activities that can be classified and considered as ‘sus-
tainable’ (UAE Regulators and Exchanges Issue High-Level Statement on Sustainable
Finance 2022). In this respect, an effective allocation of funds into selected sectors for
sustainability purposes could be achieved as a result of clear guidance of taxonomy.
In addition, effort towards developing standardized guidance on ESG and climate
related reporting and disclosure at the UAE national level is also reflected in the First
Pillar of UAE Sustainable Finance Framework 2021–2031, introduced by its MOCCE
(UAE MOCCE 2021). The recommendation on establishing this standardized ESG
disclosure also emphasizes for its practices or guidelines to be aligned with TCFD
Recommendations.

TCFD-Aligned Initiatives in United Kingdom. On the other hand, the ESG-aligned

approach taken by the United Kingdom such as the formation of the UK Green Taxonomy
heavily relied on the FSB TCFD recommendations. As such, the UK Green Taxonomy
will serve as a framework for Sustainability Disclosure Requirements (SDR), defining
the criteria on certain economic activities which must be fulfilled in order to be considered
ecologically sustainable and ‘Taxonomy-aligned’ (Green Finance Strategy 2019).
In July 2021, in the Mansion House Speech the then Chancellor Rishi Sunak
announced new Sustainability Disclosure Requirements (SDR). SDR will provide an
integrated framework for decision-useful sustainability disclosures across the economy
(HM Treasury 2021). For the first time, it will bring together existing sustainability-
related disclosure obligations under one integrated framework based on leading
384 I. H. binti Adnan et al.

worldwide standards and best practice, and it will go even farther with additional
requirements.

3.4 Emphasis on Maqasid Al-Shariah in Sustainable Finance Framework

Malaysia. In collaboration with the VBI Community of Practitioners (CoP), Bank

Negara Malaysia finalised and released its Strategy Paper on Value-based Intermedi-
ation (VBI) in March 2018. VBI is described as a role and contribution that seeks to
reorient Islamic finance business models toward realising Shariah objectives that pro-
vide good and sustainable impacts on the economy, community, and environment through
practises, procedures, products, and behaviour compatible with the shareholders’ sus-
tainable returns and long-term interests. Beyond merely adhering to Shariah regulations,
VBI encourages a more comprehensive observation of Shariah, making sure that Islamic
banking offers and practises not only do so but also meet the goals set forth in Shariah.
In VBI, among the proposed underpinning thrust that embedded the concept of
Maqasid Al-Shariah is good self-governance that incorporate the principle of consulta-
tion (istisharah) that improves perspective, understanding, and expectations for islamic
banking institutions (IBI) that will influence or determine the outcome of their business
plans and principles of righteousness (ihsan) and as a result of the common moral outlook
for the ultimate good, the IBI would be held to a higher standard of accountability and
integrity. In order to safeguard the interests of the contractual parties, IBI is furthermore
obliged to develop methods that enhance its services, procedures, and interactions with
its stakeholders while still being somewhat compliant with Shariah law.
Meanwhile in VBIAF, the principle of attainment of benefit and prevention of harm is
in line with the goal of Shariah. According to this concept, Islamic financial institutions
(IFI) are required to describe their methodology for assessing the benefits and risks
of any financing and investing activities. The implementation of Shariah is consistent
with this concept, which is ingrained in the demands of Islam. The Quran and Islamic
teachings, which expressly endow people with the custodianship of the earth’s resources
and set out specific rights and guidelines for human social interactions and activities,
provide a clear definition of “vicegerency” on the earth.
The integration of Shariah is another principle covered by VBIAF. IFI specifies how
it will incorporate Shariah into its business strategy and operational design in a way that
goes beyond compliance to actually alter IFI. Instead of creating a Shariah checklist that
focuses on exceptions, policy and procedure design as well as capacity development
should attempt to enable a Shariah mindset that focuses on effect.

United Arab Emirates and United Kingdom. Contrastingly, both UAE and UK do
not have any specific national ESG policies developed based on Maqasid al-Shariah. Nev-
ertheless, the elements of Maqasid al-Shariah that encompasses Daruriyyah, Hajiyyat
and Tahsiniyyat are indirectly incorporated in the UAE and UK sustainable policies.
This is because sustainable finance does not only benefit this planet but also the lives in
it. Sustainable finance is aimed at protecting lives through social impact financing, envi-
ronmental preservation and conservation for future use and others. Despite the absence
of a specific term of ‘Maqasid al-Shariah’ being mentioned clearly in the UAE policies,
 ESG Policies for Financial Institutions 385

the Guiding Principle on Sustainable Finance in the UAE has emphasised that all the
principles introduced have taken into consideration Shariah law requirements, principles
and guidelines.

4 Findings and Discussion

Malaysia is still in the early stages of implementing and adopting ESG standards, but
it is outperforming its ASEAN peers. The country has made significant progress in
terms of policy and regulatory activities pertaining to sustainability risk management
and disclosures, the development of the sustainability index, and the implementation of
sustainability finance. Furthermore, being one of the top IF countries, Malaysia has devel-
oped an ESG policy for IFIs that incorporates Maqasid Al-Shariah. While Malaysia is
doing reasonably well in comparison to other ASEAN countries, sustainability is a jour-
ney rather than a destination. Malaysia is still establishing these rules and innovations,
which bodes well for the advancement of ESG in Malaysia.
With a strong regulatory environment and considerable government initiatives, the
UK has been taking a more thorough and all-encompassing approach to improving
the implementation of the nation’s ESG strategy. However, because the technique calls
for extensive discussions and the instillation of confidence and commitment among
stakeholders, delays may be the most important issue and hurdle in terms of execution.
UAE progressive commitment towards issuing ESG policies for financial sectors can
be seen through the establishment of the country’s national policies aimed at incorporat-
ing ESG elements into the companies’ management, operational frameworks, business
operation and investment across all sectors. Nevertheless, ESG policies for the UAE
financial institutions are still developing like in Malaysia and the UK.
Presently, there are no independent policies and regulations introduced solely from
the UAE Central Bank. Most of the ESG policies for the financial institutions issued are
collaborative efforts from numerous regulatory authorities including ministries, stock
exchanges, financial services and the Central Bank of UAE. This is reflected through
the issuance of the first of its kind in the UAE, the Guiding Principles on Sustainable
Finance in the UAE 2020. Nonetheless, it is expected that the UAE’s current supportive
regulatory environment on sustainable finance will push the country’s Central Bank and
other authorities toward a comprehensive and robust regulatory framework.
It is observed that UAE and UK policies on sustainable finance taxonomy and TCFD
Recommendations are not yet established. There are no specific national policy guide-
lines on TCFD Recommendations unlike in Malaysia. Nevertheless, encouragement on
ESG and financial climate-related disclosure and reporting has been made clear through
its Guiding Principles on Sustainable Finance in the UAE 2020 and in UK FCA policy
statement on enhancing UK TCFD aligned disclosures in the company’s annual report
(PS20/17 | UK FCA 2020).
Apart from that, UAE and UK have yet to establish its own national taxonomy on
sustainable finance. In contrast, Malaysia has already established their own national
taxonomy namely CCPT 2021 and UK Green Taxonomy respectively. Despite that,
the UAE and UK are continuously putting effort towards developing their own national
386 I. H. binti Adnan et al.

taxonomy. In addition, unlike the Malaysian VBI and VBIAF that expressly use the term
of Maqasid al-Shariah, UAE and UK does not have specific sustainable finance policies
that are based on the intended outcome of Shariah. Nevertheless, the word ‘Shariah
requirements, principles and guidelines’ have been used in the Guiding Principles on
Sustainable Finance in the UAE, specifying that the principles introduced are based
on those Shariah requirements. Thus, it is applicable to both Islamic and conventional
financial institutions.

5 Conclusion and Recommendation

The progress in implementing and adapting ESG practices has certainly been made
noteworthy in Malaysia, UAE and the UK. However, it is still a long path for the countries
to have strong policies and regulatory framework. Having said that, a mind frame and
viewpoint transition is important to steer financial institutions in the respective countries
toward self-regulation and better internalization of sustainable practices and adoption of
ESG principles.
With each of the countries preparing to implement the ideas and strategy moving for-
ward after the discussions and consultations are through and the shareholders’ commit-
ment has been confirmed. Depending on how well-suited their strategy is to embracing
ESG-aligned activities and green finance, the countries can choose the model. Therefore,
to ensure that sustainability is at the heart of business strategies and operations, boards
and management must be made aware of their role and participation. As a result, it is
vital that each financial institution have ESG-competent boards and directors.
This paper concludes that all the three countries are committed towards issuance of
ESG policies for their countries’ financial institutions. This can be observed through the
issuance of various countries’ ESG policies for the good ESG performance of the finan-
cial institutions. Nevertheless, most of the policies are focusing on the ‘E’- environment
and ‘G’- governance and less emphasis on the ‘S’- social.
Hence, this paper emphasizes on the need for the policies issuance to be balanced
between E, S and G respectively. In addition, it can be observed that Malaysia and the
UK have more comprehensive policies on ESG for financial institutions as compared
to UAE. The absence of UAE’s own taxonomy on sustainable finance and national
guideline application on TCFD need to be resolved quickly so that the financial players
in the industry can take proactive steps in pursuing sustainable investment and enhancing
transparency through sustainability disclosure.

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 Accounting for Climate Change in Light
of the IFRS Foundation Movements:
A Systematic Review and Future Research
Agenda

Mohammad A. A. Zaid(B)

Faculty of Business and Economics, Palestine Technical University-Kadoorie, Ramallah,

Palestine
[email protected]

Abstract. Motivated by the growing demands for global sustainability and cli-
mate change disclosure practices, this review article intends to primarily explore
the emerging trends of climate change related disclosures in light of the recent
initiatives of IFRS Foundation by epitomizing and mapping the perspectives of
prior literature. Hence, this study is a literature review in nature. In this vein, 27
research articles published during 2020–2022 in high-quality academic journals
are randomly selected for the analysis. The reviewing process was restricted to the
academic papers available in the leading databases, namely, Scopus, Web of Sci-
ence, Chartered Association of Business Schools (hereafter ABS), and Australian
Business Deans Council (hereafter ABDC). In this context, to generate a profound
knowledge, this research casts the light solely on prior studies that published after
a while of proclaiming the consultation paper on sustainability reporting by the
IFRS Foundation “In September 2020”. The findings reveal that the overwhelm-
ing majority of the analyzed papers used empirical techniques. Furthermore, the
results unveil that the most widely keywords were climate change, carbon report-
ing/disclosure, greenhouse gas disclosure corporate climate change disclosure
respectively. For future research directions, the analyzed papers suggest further
indirect investigations of the effect of board diversity, professional shareholders,
audit committee, green innovation, cost of capital on climate change related dis-
closures. Accordingly, the study findings provide multidimensional insights for
future researchers to bridge the gaps in the current literature.

Keywords: Accounting for climate change · Climate change disclosure ·

Carbon disclosure · Greenhouse gas disclosure · Climate risk disclosure · IFRS
Foundation

1 Introduction
During recent years, climate change and global warming have emerged as the most
remarkable global environmental issues (Daradkeh et al. 2022). In this context, cli-
mate change has encountered dramatical and global growing concerns as a phenomenon

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 389–403, 2023.
https://doi.org/10.1007/978-3-031-26956-1_38
390 M. A. A. Zaid

reflects the influence of the firms’ activities on the environment, society, and economy.
In the strict sense of word, the chronic and forked changes in climate patterns will have
socio-economic effects (Huiskamp et al. 2022). Consequently, firms are continuously
pressured by different parties of stakeholders to disclose information on their activities
and actions that affect climate change (Shen et al. 2020).
Considering the aforementioned, academic scholars have casted a considerable light
and massive attention to investigate climate-change related topics in various fields.
Notwithstanding, this contemporary topic attract the accounting researchers for fur-
ther investigation to explore the impact of climate change on firms’ accounting behavior
(see, Guo et al. 2022; Gulluscio et al. 2020; de Grosbois and Fennell 2022; Panfilo and
Krasodomska 2022; Maji and Kalita 2022; Lin and Wu 2022; Attenborough 2022).
From an accounting disclosure context, there is a deeply-rooted practices of climate
change reporting in the overwhelming majority of countries worldwide. The underlying
logic stands behind these practices is to communicate sustainability information to a wide
range of stakeholders. In this sense, reporting on climate related information enables
entities to distinctly understand the challenges they face and expedite the adaption to
climate change, and therefore mitigating the potential for future business disruption
(O’Dwyer and Unerman 2020). Climate change affects the business environment, and
firms need future oriented information to build climate resilience (Huiskamp et al. 2022).
Moving to the global initiative on setting climate disclosure standards, the Financial
Stability Board (FSB) launched a global initiative, the Task Force on Climate-related
Financial Disclosures (TCFD) to improve and upgrade reporting of climate-related finan-
cial information by developing consistent climate-related risk reporting recommenda-
tions (Demaria and Rigot 2021). From the international framework, the Paris Agreement
was launched and adopted in 2015. This agreement entered into force in 2016, and pur-
poses to strengthen the global response to the threat and detrimental effects of climate
change, in the context of sustainable development (United Nation 2015).
Moreover, in September 2020, the IFRS Foundation issued the consultation paper on
sustainability reporting which handled sustainability disclosure and whether there is a
need for global set of sustainability reporting standards (IFRS Foundation 2020). More
importantly, in November 2021, as the world leaders meet in the UN Climate Change
Conference in Glasgow (COP26), the UN global summit to overcome the sensitive and
urgent issue of climate change (European Parliament 2021). As consequence, the pub-
lication of prototype general requirements for disclosure of sustainability-related finan-
cial information and climate-related disclosure1 were issued by the Technical Readiness
Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake
preparatory work for the ISSB (IFRS Foundation 2021a; IFRS Foundation 2021b).
The contribution to knowledge of this review research provides fruitful insights
into corporate’s climate change disclosure literature. First, to the best of the author
knowledge, this is the only literature review study that sheds the light onto the progress
in setting reporting standards of climate-related matters by running a systematic review
of the academic papers, which are published after a while of proclaiming the consultation

1 In March 2022, the ISSB released two exposure drafts for public comment due July 29, 2022. (i)
IFRS S1-General Requirements for Disclosure of Sustainability-related Financial Information.
(ii) IFRS S2-Climate-related disclosures.
 Accounting for Climate Change in Light of the IFRS Foundation Movements 391

paper on sustainability reporting by the IFRS Foundation “September 2020”. Second,

a stream of recent calls (see, Shui et al. 2022; IFRS Foundatio2020) arouses by ESG
organizations and prior researchers worldwide perspicuously unveil that the current
situation needs to develop a unified set of global reporting standards for managing
climate change risks, therefore this current study well responds to the more recent calls
presented by ancestors. Third, the current literature on climate-related disclosures has
been struggled to provide a cogent summary of the prior works and the most critical
issues experiences in paving the way for reporting of climate-related matters.
In light of the aforesaid, this study primarily purposes to fulfil these principal objec-
tives: First, to provide a coherent view of what has been done in climate change disclo-
sures and what the challenges remain ahead. Second, propose future research avenues,
which, in turn, help to open the black box of corporate climate change disclosure.
The rest of this review article is organized as follows. Section 2 presents the research
methodology. Section 3 outlines the literature search approach. Section 4 provides expla-
nation about the data collection. Section 5 reports the study findings and discussion. The
conclusions and future research agenda are given in the final section.

2 Research Methodology

From an analytical standpoint, a systematic literature review of a random sample of pub-

lished prior works “academic papers, ESG organizations’ reports, and leading accounting
firms in the globe” has been done. The systematic literature review provides holistic and
unbiased synthesis of large number of prior studies within solely one research document.
More importantly, the light has been casted on works published during the period of time
“2020–2022”. The entrenched logic behind the selection of these years was motivated
by the following points: (1) the global has witnessed a burgeoning movements and ini-
tiatives towards sustainability-related matters, particularly the urgent demands of high-
quality reporting on climate change issues. (2) the globe needs for a common language
to measure and report on sustainability issues by setting a unified set of high-quality
sustainability standards. (3) the widespread of climate change dangers in popular press.

3 Literature Search Approach

Following Gil-Marín et al. (2022), a prior literature search was conducted in rigors man-
ner, the reviewing process was restricted to the academic papers available in the leading
databases, namely, Scopus, Web of Science, (ABS), and (ABDC). More minutely, the
search has been included all articles published in academic journals indexed in Scopus,
Social Science Citation Index (SSCI), Science Citation Index Expanded (SCIE), Emerg-
ing Sources Citation Index (ESCI), (ABS), and (ABDC). Beyond that, and following
Koutoupis et al. (2021), the author also included prior studies not listed in aforemen-
tioned databases when they were heavily cited by other researchers. Furthermore, to
generate solid and sturdy findings, Table 1 presents a set of keywords and search strings
used by the author for search process:
392 M. A. A. Zaid

Table 1. Keywords used to identify articles on climate change-related matters

1 Climate change disclosure/reporting

2 Climate change risk
3 IFRS and climate change-related disclosure
4 Greenhous gas/greenhouse gas disclosure
5 Global warming
6 CO2 emissions/Carbon emissions
7 Carbon disclosure

4 Data Collection

The keywords were entered into the selected databases. Afterwards, the publication
timespan was restricted to the period of time for each keyword “2020–2022”. The author
used 2020, as the starting year of the analysis in this period of time. The underlying
logic stands behind the starting year is that in September 2020, the IFRS Foundation has
announced the consultation paper on sustainability reporting. More importantly, only
peer-reviewed studies in English were included in the review.
Given the aforesaid processes and to meet the objectives of this review study, the
searched studies have been initially scrutinized by the author based on four criteria “title,
abstract, key objectives, related field of knowledge, keywords”. As a consequence, to
generate solid findings, a stream of prior studies has been dropped. To mitigate selection
bias, a simple random sample was used, in which sample is chosen strictly randomly.
This approach provides equal odds for each paper of the population to be chosen. In this
context, and after the scrutinizing steps, the number of research papers that formed the
final sample was 27 articles2 published in 22 journals, which included in the systematic
review in this current study.

5 Results and Discussion

5.1 Overview of the Literature

As shown in Table 2, the crushing majority of journals of reviewed papers are indexed
in Scopus, Web of Science, ABS, and ABDC databases. Moreover, in terms of publisher
distribution, the findings of the analysis reveal that approximately 37% of the sample
research papers was published by “Wiley”, followed by “Emerald” 18.5%. Moving to
the publication timespan, the findings unveil that the overwhelming majority of articles
covered in this literature analysis published in 2022.

2 The primary sources used by the author of the 27 reviews (research papers) are listed in Table 11
and presented in the appendix.
 Accounting for Climate Change in Light of the IFRS Foundation Movements 393

5.2 Content Analysis

This subsection presents a comprehensive set of content analysis of 27 selected articles.
More specifically, the analysis is performed according to database distribution, journal
and publisher distribution, year of publication, keywords, research methods, author’s
affiliation, and future research opportunities. In this context, to accomplish the study
purposes, the following subsections present each theme in a separate manner:

- Database distribution

According to Table 2, the overwhelming majority of journals of the analyzed articles

are indexed in Scopus, Web of Science, ABS, and ABDC databases. More plainly, 17
journals out of 22 are indexed in the four aforementioned well-reputed databases. This
implying, that 72.2% of the reviewed articles covered by the study sample were published
in high-quality academic journals. Moreover, 4 journals out of 22 are indexed solely in
Scopus and Web of Science.

Table 2. Database distribution

Scopus Web of Science ABS ABDC ESG organizations’

websites/ research
organizations
Freq 21 21 17 17 1
Percentage 95.4% 95.4% 72.2% 72.2% 4.5%

– Year of publication distribution

Table 3 presents a summary of the year of publication, As shown from the table, the
general trend of publishing articles in the year of 2022 was greater than 2021, and 2020,
respectively. The findings of the study sample support the argument that accounting for
climate change have witnessed a reasonable increased awareness from the researchers
worldwide. More minutely, while 2 (7.4%) articles of the study sample were published
2020, 16 (59.3%) articles were published in 2022.

– Journal distribution

In terms of the journal distribution, Table 4 reports that 3 papers were published
in the Business Strategy and the Environment, 2 research papers were published in
Sustainability, and 2 articles were published in both Journal of Cleaner Production and
Carbon Management. In this vein, we can argue that the underlying logic stands behind
these findings is that journals interested in more than one research area or category
have the considerable load of publications, particularly, journals that cover accounting,
business, management, and environmental science areas simultaneously.
394 M. A. A. Zaid

Table 3. Year of publication

Year Freq %
2020 2 7.4
2021 9 33.3
2022 16 59.3
Total 27 100

Table 4. Journal distribution

Journal name Freq Journal name Freq

Sustainability 2 Meditari accountancy research 1
Journal of corporate accounting & 1 International review of economics & 1
Finance Finance
Accounting, auditing & Accountability 1 Carbon management 2
journal
Business strategy and the environment 3 European business organization law 1
review
Sustainable development 1 Corporate governance: an international 1
review
Tourism management 1 Journal of cleaner production 2
European management review 1 Accounting & Finance 1
British journal of management 1 Strategic management journal 1
Accounting in Europe 1 Corporate governance: the international 1
journal of business in society
Society and business review 1 Swiss finance institute 1
Accounting research journal 1 Review of accounting studies 1

– Publisher distribution

The distribution based on publisher shows that which publisher have most articles
covered by the study sample. As presented in Table 5, the most analyzed papers were
published in journals working under the umbrella of “Wiley”, followed by Emerald,
Elsevier, Taylor & Francis, MDBI, Springer, and Swiss Finance Institute, respectively.
Notably, approximately 37% of the reviewed articles were published in Wiley journals.
However, these statistics are not a benchmark to evaluate the different publishers regard-
 Accounting for Climate Change in Light of the IFRS Foundation Movements 395

ing the climate change related disclosures. The plausible logic behind that is that the
study analysis based solely on a random sample.

Table 5. Publisher distribution

Publisher Freq %
MDBI 2 7.4
Wiley 10 37.1
Emerald 5 18.5
Elsevier 4 14.8
Taylor & Francis 3 11.1
Springer 2 7.4
Swiss Finance Institute 1 3.7
Total 27 100

– Keywords distribution

As shown in Table 6, the total authors’ keywords related to climate change disclo-
sure was 27 keywords. More plainly, the most widely keyword was climate change, this
keyword was used by 11 of the reviewed articles. Denoting that, on average, approxi-
mately forty-one hundredths 40.7% of the analyzed papers have the climate change in
the keywords list. The second most widely keyword in the reviewed articles was carbon
reporting/disclosure 33.3%, followed by greenhouse gas disclosure 18.5%, corporate
climate change disclosure 14.8%, greenhouse gas emissions 14.8%. These content anal-
ysis findings attributed to the logic that the climate change is the primary umbrella of a
stream of different keywords.

Table 6. Keywords

Keywords Freq % Keywords Freq % Keywords Freq %

Climate 11 40.7 Carbon Disclosure 1 3.7 Dependencies 1 3.7
change regulation reporting
Corporate 4 14.8 Carbon reporting/ 9 33.3 Climate-related 1 3.7
climate change disclosure opportunities
disclosure
Sustainability 3 11.1 Greenhouse gas disclosure 5 18.5 Climate risk 5 18.5
accounting disclosure
(continued)
396 M. A. A. Zaid

Table 6. (continued)

Keywords Freq % Keywords Freq % Keywords Freq %

Sustainable 2 7.4 Greenhouse gas emissions 4 14.8 Climate-change 1 3.7
development financial
disclosure
Sustainability 3 11.1 CO2 emissions/disclosures 3 11.1 CSR 2 7.4
reporting and
disclosure
Sustainability 1 3.7 Carbon disclosure project 3 11.1 TCFD 2 7.4
accountability
Environmental 2 7.4 Carbon transparency 1 3.7 TCFD 1 3.7
disclosure recommendations
SDGs 2 7.4 Non-financial disclosure 3 11.1 Greenwashing 1 3.7

– Research methods distribution

In terms of research methods disclination, Table 7 displays an overview of several of

the research methods and approaches. Unsurprisingly, empirical methods were the most
widely adopted methods by prior researchers in the reviewed articles. More specifically,
74.1% of the analyzed papers used empirical techniques and methods, including, but are
not limited to, ordinary least squares (OLS), two-steps system GMM, two-stage least
squares (2SLS), and three-stage least squares (3SLS). Furthermore, literature review
studies accounted for 22.2% of the study sample, while the remaining 3.7% of the
analyzed articles was case study.

Table 7. Research Methods

Adopted method Freq %

Case/Field study 1 3.7
Interviews - -
Survey/questionnaire - -
Content analysis/Empirical 20 74.1
Literature review/Theoretical 6 22.2
Total 27 100

– Authors affiliation distribution

Table 8 provides a detailed view of the authors’ affiliation distribution, As shown from
the table, the overwhelming majority of reviewed papers were written by academicians
and scholars. More specifically, the table shows that 96.3% of the analyzed papers
 Accounting for Climate Change in Light of the IFRS Foundation Movements 397

were academic papers. This result was not surprising, since the academicians are more
interested in writing research than their practitioners’ counterparts. The entrenched logic
behind this finding is to achieve the promotion requirements.

Table 8. Authors affiliation

Freq %
Academic 26 96.3
Practitioners
ESG organizations’ reports/research organizations 1 3.7
Total 27 100

– Categories of journal distribution

In relation to the main categories of journals, we can articulate that all journals
are marked and classified in one or several subject fields. Accordingly, this subsection
provides a clear spectacle of the most widely categories of climate change disclosures.
Considering the aforementioned, Table 9 provides a summary of the main areas that the
journals of the reviewed articles are classified and indexed in. More distinctly, Table 9
shows that the most widely category of climate change related disclosures were account-
ing and management nearly 77.7% of journals under investigation, followed by business,
environmental science, economics, sustainability, respectively.

– Subject area/categories of journals

Table 9. Main categories of climate change disclosure

Rank Category Freq % Rank Category Freq %

1 Management 21 77.7 5 Finance 8 29.6
1 Accounting 21 77.7 6 Sustainability 5 22.2
2 Business 20 74.1 7 Planning and development 6 18.5
3 Environmental science 10 37 7 Engineering 5 18.5
4 Economic 9 33.3 8 Policy and Law 4 14.8

– Future directions distribution

We can argue that identifying the future directions and gaps in the current literature
help in enriching the knowledge and contributes theoretically and practically to the
398 M. A. A. Zaid

corporate climate change related issues. In this vein, Table 10 presents a summary
of future avenues and research trends which were manually identified by reviewing
articles included in the study sample. More clearly, the results show that the more recent
literature of the climate change related disclosures denote that the climate change risk,
disclosure of climate change information, determinants of carbon disclosure practice,
climate change mitigation are fertile ground for future research and merits more attention
and recognition by the researchers.

Table 10. Future research proposals of reviewed studies

Future directions Freq Future directions Freq

Climate change mitigation 2 Corporate governance committees and 1
climate change disclosure
Climate change risk assessments 2 Professional shareholders and climate 1
change disclosure
Climate risk disclosure 4 Professional shareholders and 1
greenhouse gas emissions
Quality of TCFD reporting 1 Disclosure of greenhouse gas emissions 1
Corporate climate change disclosure 4 Indirect nexus between greenhouse gas 1
disclosure and cost of equity capital
Determinants of disclosure of 2 Cultural dimension and greenhouse gas 1
climate-related information reporting
Determinants of carbon disclosure 3 Indirect nexus between board diversity 1
practice and carbon disclosure
Quality of carbon disclosure 2 Managerial ability and climate change 1
disclosure
Indirect nexus between climate 1 Corporate greenwashing and voluntary 1
change-related disclosure and firm environmental disclosures
performance
Top executives’ attributes and 1 Carbon disclosure and IFRS 1
voluntary climate change disclosure

6 Conclusion and Future Research Directions

In the contemporary business context, there is a global increasing importance of the
climate change information disclosure. In this light, this review study intends to analyzes
the prior research to extract fruitful insights for future studies. More specifically, this
review article inclines to explore the emerging trends of climate change related disclosure
in light of the recent initiatives of IFRS Foundation. In this context, this study contributes
to the current knowledge of climate change disclosure by providing broad evidence about
the most widely and recent topics that recently addressed by accounting scholars. To
 Accounting for Climate Change in Light of the IFRS Foundation Movements 399

accomplish the aforesaid points, a content analysis technique was used by the author
to minutely epitomize the prior perspectives and trends in climate change disclosure
literature.
Based on the study analysis, it’s clear that the following avenues reflects contempo-
rary research concepts nowadays; climate change risk disclosure, climate change risk
assessments determinants of carbon and greenhouse gas disclosures, the nexus between
corporate governance dimensions and climate change related disclosures. Accordingly,
this study encourages the researchers to empirically investigate the influence of board
diversity, ownership structure, audit committee, green innovation, biodiversity, cost of
capital on climate change related disclosures. Drawing on the aforesaid, this review study
also encourages the researchers for considering the moderating and mediating effects
since the overwhelming majority of current literature was restricted to investigate the
direct nexus.
Although this review article intends to provide a multifaceted view of the accounting
for climate change, we acknowledge that this study has a few limitations and the results
should be interpreted cautiously. First, our sample was restricted solely to prior academic
articles available in the leading databases, namely, Scopus, Web of Science, ABS, and
ABDC. Second, the publication timespan was bounded to the period of time 2020–2022.

Acknowledgements. The author would like to express sincere appreciation and thanks to the
Palestine Technical University–Kadoorie for supporting and funding this research.

Appendix

Table 11. List of reviewed articles

Authors Year of publication Article title

Gulluscio et al. 2020 Climate Change Accounting and Reporting: A
Systematic Literature Review
Guo et al. 2022 Theories applicable to corporate climate
change disclosure
O’Dwyer, & Unerman 2020 Shifting the focus of sustainability accounting
from impacts to risks and dependencies:
Researching the transformative potential of
TCFD reporting
Demaria, & Rigot 2021 Corporate environmental reporting: Are
French firms compliant with the Task Force on
Climate Financial Disclosures’
recommendations?
(continued)
400 M. A. A. Zaid

Table 11. (continued)

Authors Year of publication Article title

de Grosbois & Fennell 2022 Determinants of climate change
disclosure practices of global hotel
companies: Application of institutional and
stakeholder theories
Shui et al. 2022 Climate change disclosure and the promise of
response-ability and transparency: A
synthesizing framework and future research
agenda
Panfilo & Krasodomska 2022 Climate Change Risk Disclosure in Europe:
The Role of Cultural-Cognitive, Regulative,
and Normative Factors
Maji, & Kalita 2022 Climate change financial disclosure and firm
performance: empirical evidence from Indian
energy sector based on TCFD
recommendations
Lin & Wu 2022 Climate risk disclosure and stock price crash
risk: The case of China
Khalid et al. 2022 Carbon disclosure project: Chinese chief
executive officer background and corporate
voluntary climate change reporting
Attenborough 2022 Corporate Disclosures on Climate Change: An
Empirical Analysis of FTSE All-Share British
Fossil Fuel Producers
Daradkeh et al. 2022 Does managerial ability matter for corporate
climate change disclosures?
Mateo-Márquez et al. 2022 An international empirical study of
greenwashing and voluntary carbon disclosure
Borghei 2021 Carbon disclosure: A systematic literature
review
Flammer et al. 2021 Shareholder activism and firms’ voluntary
disclosure of climate change risks
Cosma et al. 2022 Sustainable governance and climate-change
disclosure in European banking: the role of the
corporate social responsibility committee
Ilhan et al. 2021 Climate risk disclosure and institutional
investors
Downar et al. 2021 The impact of carbon disclosure mandates on
emissions and financial operating performance
(continued)
 Accounting for Climate Change in Light of the IFRS Foundation Movements 401

Table 11. (continued)

Authors Year of publication Article title

Gerged et al. 2021 Mandatory disclosure, greenhouse gas
emissions and the cost of equity capital: UK
evidence of a U-shaped relationship
Chen et al. 2021 Voluntary disclosure of greenhouse gas
emissions by cities under carbon disclosure
project: A sustainable development approach
Benlemlih et al. 2022 Institutional Ownership and Greenhouse Gas
Emissions: A Comparative Study of the UK
and the USA
Hansen et al. 2022 The status of corporate greenhouse gas
emissions reporting in the food sector: An
evaluation of food and beverage manufacturers
Muttakin et al. 2022 Democracy, national culture and greenhouse
gas emissions: An international study
Lahyani 2022 Corporate board diversity and carbon
disclosure: evidence from France
Luo et al. 2022 Product market competition and carbon
disclosure: Evidence from China
Lee et al. 2021 Voluntary disclosure of carbon emissions and
sustainable existence of firms: with a focus on
human resources of internal control system
Abhayawansa & Adams 2021 Towards a conceptual framework for
non-financial reporting inclusive of pandemic
and climate risk reporting

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 Islamic Private Equity: A Hybrid Equity-Debt
Structure as an Alternative Investment Structure

Aiman Aizuddin Abdul Rashid(B) and Rusni Hassan

IIUM Institute of Islamic Banking and Finance (IIiBF), Kuala Lumpur, Malaysia
[email protected], [email protected]

Abstract. This paper (“Paper”) aims to assess and evaluate the prevailing issue
faced by the Islamic Private Equity (“IPE”) market in its market growth and find
a certain alternative Shariah structuring solution to address such impediments.
Historically, the IPE industry is often faced with “opportunity access” limitations
particularly in the selection of underlying assets which comply with the de facto
Shariah equity-based contract requirements as adopted such as financial screening
ratios, cash management policies and hedging techniques among others. As a
result, IPE industry continues to remain in its conundrum which inevitably affects
its traction and performance. This Paper shall establish the fact that it more of
a structuring issue rather than a Shariah guideline issue which can actually be
resolved using alternative structuring solutions. Therefore, an alternative Shariah
structure will be proposed to move forward without implicating the adherence to
the respective Shariah guidelines as applicable.

Keywords: Islamic Private Equity · Islamic finance · Shariah investment

guidelines

1 Introduction

Islamic Private Equity (“IPE”) is an important component within the overall Islamic
financial market. It plays a major role within the overall economy and accelerates the
growth of small medium enterprises (“SMEs”) through financing, sharing of experi-
ence, skills and professional network (Chatti and Yousfi 2010). Despite comprising a
smaller portion of the total Shariah compliant banking and financial assets worldwide,
IPE, remains an integral contributor within the USD 2.875 billion total asset size of
Islamic fund component which accounts to around 5% of the total Islamic finance assets
as per the 2019 statistics (Refinitiv 2020). Shariah compliant investors such; Islamic
banks (whether via full-fledged or Islamic Window operations), Islamic pension funds,
Islamic fund managers, family offices and Shariah compliant individual investors would
still require suitable alternative avenues to invest their funds, spread the risks and even-
tually meet their desired target of returns and to answer to their relevant stakeholders.
Historically, statistic of returns generated from the IPE segment has always been lower
compared to the returns of their conventional private equity counterparts (Hayat and
Kraeussl 2011; Nainggolan, How, and Verhoeven 2013). Upon scrutiny, it is found that

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 404–414, 2023.
https://doi.org/10.1007/978-3-031-26956-1_39
 Islamic Private Equity 405

the main issue faced by the relevant Islamic fund managers is the limited options avail-
able as most of the assets do not meet the relevant Shariah screening requirements
imposed upon them to equally participate in quality investment opportunities and assets
worldwide. Such Shariah screening filtering process would typically result in the reduc-
tion of the investable universe and consequently, less favourable risk-return trade-offs
(Renneboog, Ter Horst, and Zhang 2008).
This limited option issue is even faced in Shariah compliant friendly jurisdictions
such as South East Asia and Middle East region what more in other western jurisdictions
such as in Europe and North American where Islamic private equity market can almost
be viewed as non-existent or negligible. This causes the biggest disadvantage to the IPE
market as these western jurisdictions often offer better quality and performing assets
especially within a more established and matured regulatory and governance framework.
In light of the above, this Paper aims to analyse and examine the root cause and prevailing
issues faced by the IPE industry in facing the abovementioned issues which is seen to
persist till date. At the end, this Paper aims to devise a solution that may finally address
such impediments and serve as a much needed breakthrough in order for IPE and the
conventional private equity market to be competing at a level playing field, similar to
what is already enjoyed by the banking and capital market industry.
This Paper aims to achieve the following objectives:

1. To assess/evaluate the on-going restrictions faced by IPE investors when utilizing

the available pure Islamic equity investment structures against the fund manager and
underlying companies’ investment requirements.
2. To assess/evaluate the need for an alternative investment structure which may solve
the issues faced from such restrictions but at the same time maintain the sanctity of
the Shariah standards applied.
3. To devise and establish the need for such alternative investment framework structur-
ing solution as a way to move forward for the IPE industry (the “Industry”). A hybrid
debt-equity structure comprising of Commodity Murabahah, Wa’ad and Commod-
ity Musawamah structure shall be established as the ideal solution to address the
prevailing issues faced via a pure Islamic equity investment structure in accessing
the conventional markets while at the same time serve the same economic objective
of the business strategy.

2 Literature Review

The overall Islamic finance industry nowadays is argued to rely extensively on Islamic
banking products and services which are overwhelmingly dominated by debt-based
modes of transactions (Anwer et al. 2019). Statistics have shown that Shariah contracts
utilized in Islamic transactions are predominantly, Murabahah (more than 78% of total
assets) and Ijarah (11%) while equity based contracts of Musharakah and Mudharabah
merely constitutes around 6% of the market share (Hakeem 2019). This is opposed
to the popular argument that the main substance of Islamic finance is supposed to be
equity-based, by promoting wealth creation, risk sharing participation and social justice,
amongst others as the ideal way to move forward (Smolo and Mirakhor 2010). IPE has
406 A. A. A. Rashid and R. Hassan

always been claimed to be the nearest to the above concept involving direct participation
in the real economy and accordingly, the concept of profit-loss sharing is more realized in
substance rather than form (Elsiefy 2014). Mudharabah (profit sharing) and Musharakah
(partnerships) is often claimed to be the preferred Shariah structure which uphold the
principles of equity-based investments in its true essence (Anwer et al. 2019).
The underlying basis behind the emergence of the IPE market is due to the desperate
need of funding by primarily small and medium entrepreneurs (SME) segment of the
market which are unable, or rather unqualified to tap into the banking sector liquidity
(Hakeem 2019). Amongst the reasons are because of; early idea generation stage, no
or lack of assets and no track record. IPE seeks to address these gaps by providing the
much-needed funding sources and support the growth of these SME which is hoped to
eventually turn into larger and more stable corporations in the future, and accordingly,
be eligible to the banking products and services. The typical investors who are willing
to take these risks are institutional investors or high net worth individuals (HNWI) who
do not pose strict risk framework constraints and more risk takers unlike the banking
institutions which are more risk averse.
IPE economic objectives do not differ from conventional private equity, except is
almost entirely the same. The main difference between the observance of a set of certain
additional set of rules which is typically referred to as the Shariah guidelines which must
strictly be adhered to by IPE. This Shariah guidelines among others dictates among oth-
ers; certain prohibited sectors, Shariah investment contracts to be utilized, engagement
with Shariah advisors for on-going monitoring, purification process and the requirement
of Shariah audit exercises, amongst others. Further explanation on the main difference
between IPE and conventional private equity under the Shariah guidelines are as follows:

1. Core business activity screening: IPE excludes investment into companies, which
perform activities which are prohibited by Shariah for example; related to alcohol,
pork, gambling, arms, tobacco, pornography and conventional financial services,
amongst others.
2. Financial screening: IPE prohibits investment into companies which has the follow-
ing financial ratio thresholds: a) total conventional debt over total assets exceeding
33%, total interest-bearing investments/securities over total asset exceeding 33%
and total Shariah non-compliant income/tainted income (from sources as per the
above mentioned Shariah non-compliant core business activities) over total revenue
exceeding 5%.

All of these is to make sure that the IPE business conforms to the relevant Shariah
principles i.e. investment within the boundaries of faith requirements.
The IPE industry (the “Industry”) is often faced with limitations when it comes to
its investment requirements. Islamic investments differ from conventional investment
whereby it includes additional guidelines to comply with for example the requirement
for financial screening requirements on the underlying target assets, assessment on its
cash management policies and hedging techniques among others. These Shariah require-
ments are applicable since IPE investors are naturally treated as a standard equity investor,
hence all Shariah compliant investment requirements of an equity-based structure such
as Wakalah, Mudharabah and Musharakah will be applicable accordingly. When such
 Islamic Private Equity 407

equity-based structuring model is adopted, in most circumstances, it will result in the

underlying target assets/companies (the “Company”) not being able to meet the rele-
vant Shariah financial screening requirements as stated above as adopted and approved
by the fund manager’s Shariah Supervisory Board (“SSB”). The rationale behind the
imposition of these ratios is to discourage excessive use of leverage and interest-bearing
income which is a Shariah non-compliant instrument (Derigs and Marzban 2008; El-
Gamal 2006). Further to the above, more often than not, the Company will also not be
able to comply with the other Shariah requirements such as on hedging techniques, cash
management policies, short term investments, bridge financing, etc. which all have to
be strictly on a Shariah compliant basis. For the fund managers, these requirements are
too cumbersome especially in jurisdictions where the Islamic finance infrastructure and
framework is very weak or almost in non-existent. As a result, investment sourcing will
be hampered, negotiations will fail, and IPE investors will remain stuck with its limited
options in the limited jurisdictions which are only able to meet its requirements, albeit
also with the narrow choice of selections. Therefore, despite the enormous potential,
the IPE Industry is seen to be stuck in this “lack of viable investment opportunities”
conundrum.
One needs to understand that in order for a business to run and thrive, it has to be
compatible within the boundaries of the applicable laws and regulatory framework of
that particular country (Ahmad and Hassan 2009). This would therefore appear as the
main issue faced when the IPE market wishes to explore and have access to investment
opportunities in non-Muslim majority countries particularly within in the Western world.
In this regard, it must be noted that despite being different in terms of the structure and
underlying contracts, Islamic financial activities, e.g. Islamic banking, still submits and
is subject to the same single banking regulatory framework in that particular country. The
common regulatory framework seeks to regulate and protect the bank’s account holders,
shareholders, other stakeholders and community at large in ensuring overall efficient
banking system and averting systematic lending risks. Islamic Banks and Islamic Finan-
cial Service Providers, while having the need to ensure that their activities complies
with the relevant Shariah requirements, bear a greater responsibility to ensure that their
activities is financially sound and that promotes economic and political stability within
the country of operation (Wilson 2003). For example, Islamic banking activities in Aus-
tralia would still need to be interpreted and submit to the regulations of the Australian
Prudential Regulation Authority (APRA) and the Financial Conduct Authority (FCA)
in the United Kingdom.
When a regulator in a certain non-Muslim majority country is not familiar with
the Islamic finance framework, therefore licenses for such Islamic financial activity
is not given, or if granted, comes with various restrictions. Consequently, the overall
Islamic financial industry is seen to be very small in size and effectively, making it
uncommercially viable for players to subscribe to such products to satisfy the relevant
certain Shariah compliance requirements. The same would be seen in the IPE market
where for example, if SME wishes to penetrate into the IPE investor market, its financial
activities need to fulfil the Shariah compliant financial screening requirement including
the conventional debt threshold which should be less than 33%. One should remember
that the private equity market is often highly leveraged as it typically consists of SMEs
408 A. A. A. Rashid and R. Hassan

which include start-up companies which are very capital light. These SMEs may indeed,
if given a choice, wish to raise debt in a Shariah compliant format, however, the main
issue that arises is then whether such Shariah compliant facilities even exist or available
in the jurisdiction that they operate. When the answer is the negative, they therefore have
no other choice but to resort to conventional banking facilities and thus, making them
automatically ineligible to access the IPE investor market. This has in fact, been cited as
the main issues by Islamic investment analysts as the reason why they are unable to tap
into the private equity market outside of Muslim majority countries where the private
equity market is much bigger, more established and matured, hence offering a variety of
quality private equity asset selection options compared to the limited options that they
face for example in Malaysia and Middle East only.
By proper understanding of the above impediment, one should be able to easily
realize that such an issue faced is more of a structuring issue rather than a Shariah issue
which can actually be resolved using alternative structuring techniques. A complete
understanding of the various other Shariah contracts available and the applicable rules
will allow a person to apply innovation in the transaction structuring process and find
a reasonable way out. Accordingly, a combination of a debt structure embedded in the
overall economic nature of such intended equity investment purpose may serve as an
alternative-innovative solution whereby such debt structure may ease the underlying
Shariah restrictions of a pure equity investment structure requirements. This “hybrid
debt-equity structure” may therefore offer a new horizon to IPE investors to move forward
and grow the industry bigger by giving it access to markets in which it would have
otherwise been almost entirely precluded.

3 Research Methodology

This Paper employed a qualitative research methodology which emphasized on read-

ings and assess/evaluate on various reading materials such as journals, research papers,
articles and books with the aim to assess perceptions and understandings. Specific infor-
mation was gathered from data centres and libraries and a thorough analysis were made
therein. This qualitative method and paradigm is an approach which depends on inves-
tigative people’s words and actions in narrative or descriptive ways (Maykut and More-
house 1994). Overall, textual analysis method was applied where data are looked at from
the angles of texts, passages, expressions and detailed wordings (Bryman 2004). This
was to achieve an authentic understanding which Gubrium and Holstein (1997) referred
as one that reflects fairly the various perspectives of participants in that setting.
Besides reading and analysis of the above sources, references and analysis will also
be made to the relevant Shariah standards and resolutions of Shariah scholars in Islamic
finance and authoritative Shariah bodies which forms the third source of Islamic sources
i.e. Ijtihad (reasoning efforts) and Ijma’ (consensus). The current state of the Islamic
finance industry is already richly flourished with various Shariah standards, guidelines
and fataawa (Shariah pronouncements) by eminent authorities. Reference is made to
the religious authoritative bodies/organization dealing with the Islamic finance industry
worldwide e.g.; the Islamic Fiqh Academy, Accounting and Auditing for Islamic Finan-
cial Institutions (AAOIFI) and then to the nationwide regulating bodies e.g.; the Shariah
 Islamic Private Equity 409

Advisory Council of each country and finally the regulating bodies on institutional basis
i.e. the Shariah Supervisory Board of respective financial institutions. This is because in
extracting the core principle and understanding the underlying foundation of the issue
from the grassroots, main reference will be made to the ontological and epistemologi-
cal source of Islam itself which includes the Ijma’ (Dusuki 2012). Comparative studies
on different views from these focus groups will be conducted as Khan and Mander-
son (1992) described this qualitative process as a way of understanding issues from the
group’s participants’ perspective.

4 Recommendation and Result

After understanding the prevailing issues faced by the IPE market, it can be verified
that the issues of lack of available IPE assets is rather due to Shariah structuring issues
which enables the participation of Islamic investors rather than the availability of the
assets themselves. This can be addressed using suitable Shariah compliant techniques
within the parameters of the Shariah compliance framework and blessed by the relevant
Shariah scholars.
The proposed solution involves utilizing Murabahah structure in the beginning. In a
Murabahah debt investment structure, the financier (i.e. investor) need not comply with
the Shariah financial screening requirement. According to almost all Shariah standards
as applicable, a Murabahah financier need only ensure that the financed party (customer)
utilizes such financing facility for Shariah compliant purposes. Therefore, this can be
ascertained by applying the Shariah core business activity screening as stated above.
There is no further requirement to ensure that the financed party fulfils the Shariah
financial screening requirement as the intention is not to invest into the company but only
to act as a creditor. The same can be seen in all Islamic banking cash financing facilities
offered by Islamic banks or Islamic window operations to their customers whereby
the assessment made by the banks are only in relation to the core business activity of
the customer to ensure that they are not repugnant to Shariah hence implicating the
bank from a reputational risk perspective. Continuous utilization for Shariah compliant
purposes is also made as an undertaking requirement by the customer to the bank as
per the provision of the legal agreement and any breach would result in a ground for
termination of the facility.
If one were to apply the same requirement from in the IPE market, many of the assets
would certainly meet the requirement as many companies for example in North America
or Europe do conduct their business activities within the Environmental, Social and Gov-
ernance (ESG) or ethical business space which significantly overlaps with the Shariah
compliance activity requirements. This would therefore give a good start for IPE players
to be afforded with a wide variety of quality asset options in these markets and therefore
develop their portfolio-base. Of course, the above is not the only the filtering requirement
as IPE would still need to impose other Shariah investment requirements such as contin-
uous oversight of the activities, an annual Shariah audit exercise, endorsement process
by a Shariah Supervisory Board etc. but these are rather achievable by the companies to
comply with, rather than the stricter pre-Shariah financial screening requirement itself.
In the meantime, while it must be also realized that the economic objectives which is
410 A. A. A. Rashid and R. Hassan

desired to be achieved here is an “equity” type of return rather than a fixed debt type of
return, such realization of actual profit based on “actual performance” of the underlying
asset can be achieved by way of the subsequent commodity Musawamah to be entered
between the company and the IPE investor vehicle which allows for the nett commercial
effect to be transferred between the parties. The obligation to enter into this subsequent
commodity Musawamah is secured by way of a unilateral Wa’ad (undertaking) given
by each party in favour of each other upfront during the Murabahah transaction stage.
Accordingly, the detailed proposed Structure is illustrated and explained as follows
(Fig. 1):

Fig. 1. The hybrid debt-equity Structure

The summary of the investment Structure (“IPE Funding Arrangement”) is as

follows:

1. Islamic investor (the “Investor”) will enter into an agency agreement and the relevant
agency request and acceptance (“Wakalah Agreement”) with the SPV Financier and
will commit to fund its capital commitment (“Capital Commitment”) indirectly to
the fund (the “Fund”), as and when called pursuant to the Fund’s Limited Partner-
ship Agreement (“Partnership Agreement”). Based on the Wakalah Agreement, the
Financier will conduct and enter into the IPE Funding Arrangement as agent for the
Investor with the investment company (the “Investment Company”).
2. The Investment Company will enter into the Limited Partnership Agreement, Sub-
scription Agreement and the relevant conventional investment documentation to
become a Limited Partner in the Fund with a Capital Commitment equal to the
Investor’s indirect capital commitment to the Fund.
 Islamic Private Equity 411

3. The Investment Company and the Financier (as the Investor’s agent) will enter into
a Master Murabahah Agreement, pursuant to which the Financier will commit to
concurrently fund the Investment Company at the times the Fund calls capital from
the undrawn Capital Commitments of its limited partners (“Limited Partners”). The
Financier, as Investor’s agent, shall fund to the Investment Company an aggregate
amount equal to its capital commitment to the Fund as per the pre-agreed Muraba-
hah arrangement, and enables the Investment Company to drawdown on the Master
Murabahah Agreement, on an as-needed-basis, in order to fund its Capital Commit-
ment to the Fund as and when required pursuant to the terms of the Fund’s Partnership
Agreement.
4. The Financier, as Investor’s agent and the Investment Company, will also enter into a
Master Musawamah Agreement. The Musawamah transactions will be entered into
to either 1) capture any additional returns (upside) as realized by the Fund over and
above the Capital Commitment of the Investor and as per the Murabahah transac-
tion(s) or 2) to capture any loss (downside) attributable to the Capital Commitment
of the Investment Company as per the Murabahah transaction(s), and subsequently
the indirect investment by the Financier (on behalf of the Investor) in the Fund.
5. The obligation to enter into the Master Musawamah Agreement is secured by way
of a Wa’ad given by each, the Financier and the Investment company in favour of
each other. Each Wa’ad will be a unilateral undertaking and mutually exclusive.
6. Murabahah Transaction Mechanics:

i. The Investment Company will request the Financier to purchase, as principal, a

quantity of commodities from commodity broker seller on immediate payment
terms for a price equal to that portion of the Capital Commitment being drawn
down by the Investment Company from the Financier (“Cost Price”), which will
coincide with each capital call made by the Fund.
ii. Pursuant to the request, the Financier will purchase the commodities and imme-
diately thereafter, offer to sell the same commodities to the Investment Company.
The Investment Company will accept the purchase of such commodities for a
price (the “Deferred Purchase Price”) which consists of the Cost Price and a
pre-agreed profit element (the “Profit”). The Deferred Purchase Price will be
due and payable on the “Deferred Payment Date” set out in the documents.
iii. Once a Murabahah transaction has been concluded, the Investment Company
will on-sell the commodities it now owns to commodity broker buyer and deposit
the proceeds of such sale to the designated account of the Investment Company.
The proceeds of such sale will be an amount equal to the Cost Price. The
Investment Company will then utilise these funds to satisfy the applicable capital
call to the Fund with respect to its Capital Commitment thereto.

7. Pursuant to the above, the investments made by the Investor is based on a debt
instrument rather than an equity instrument. As such, a side letter will be entered
into between the general partner (“General Partner”) of the Fund, the Investment
Company and Investor (the “Side Letter”), which will outline that whilst for the
purpose of Shariah the Investor’s indirect Capital Commitment to the Fund is a
debt instrument, for all other intents and purposes, the Investor’s indirect Capital
412 A. A. A. Rashid and R. Hassan

Commitment to the Fund made through the Investment Company will be treated as,
and will have all the rights and obligations of, a Limited Partner in the Fund.
8. The Fund shall have a legal obligation to ensure that the investment made by the Fund
utilizing the Capital Commitment of the Investment Company, which is indirectly
attributable to the Investor to comply with the relevant requirements as provided
under the Shariah guidelines (“Shariah Guidelines”) described in the Side Letter.
The compliance to such requirement shall be continuously monitored by the Fund’s
appointed Shariah Advisor. If determined to be necessary by the Shariah Advisor,
the General Partner will consult with the Investment Company and use reasonable
efforts to excuse the Investment Company from participating in the investment of
the Fund that operates in Shariah non-compliant core business activities/industries
pursuant to the requirements as applicable in the Shariah Guidelines.
9. Upon receipt of the actual returns from the Investments, the following pay offs will
happen:

i. Fund will receive income from investments;

ii. Fund will make periodical dividend payment to the Investment Company as a
Limited Partner (equity shareholder) based on the investment performance;
iii. Investment Company will thereafter use the dividend proceeds to pay its
Murabaha deferred payment obligation to the Financier; and
iv. Financier will pay to the Islamic Investor the Wakalah investment returns.

The abovementioned proposed alternative structuring solution utilizing the IPE fund-
ing arrangement would therefore serve as solution to the IPE market in solving the
Shariah equity investment guidelines and restrictions as faced. It gives a much breathing
space to the IPE market players to open their arms wider, competing with the conven-
tional private equity market and serve the objectives of Islamic economy which should
be based on equity and risk participation as mentioned earlier on.
Besides the above, it would be much useful if this alternative structure would be
adopted as a standardized structure for the Islamic Private Equity market moving forward
ensuring consistency in terms of structure and documentation used by the fund managers.
This will also enable familiarity and consequently, facilitate a more speedy decision
making process by end investors. Product documentation standardization is no longer
something new and in fact, has worked very well within the overall Islamic finance
industry as we have seen various Islamic hedging products being standaridized under the
Master Tahawwut Agreement as developed by the International Swaps and Derivatives
Association (ISDA)-International Islamic Financial Market (IIFM) collaboration and
become the first choice of market players.

5 Conclusion

The Paper has presented and discussed the prevailing issues faced by the Islamic Private
Equity industry. It started by explaining the issues and challenges faced by existing IPE
players in sourcing quality underlying assets for the purpose of its investment due to the
relevant restrictions faced by adopting the pure Islamic equity investment structures. As
 Islamic Private Equity 413

a result, IPE investment returns have historically been underachieving compared to its
conventional counterparty and data has also affirmed that market segments that exclude
Shariah screening requirements would generate superior risk-adjusted returns (Hong and
Kacperczyk 2009). From the analysis, it is discovered that such restriction faced by IPE
players are mainly due to the structuring issues rather than Shariah issues which remains
a misconception that needs to be clarified. As such, an alternative Shariah structuring
solution which is built on a hybrid debt-equity structure model adopting the Shariah
contract of Commodity Murabahah, Wa’ad and Commodity Musawamah is seen as the
best alternative for such purpose whereby the Shariah financial screening requirements
would not apply for such private equity investment purposes and only adopt the Shariah
requirements applicable to such contracts. At the same time, the returns to be generated
from such debt Shariah structures may be benchmarked against the performance of the
desired underlying assets, hence in the end, achieving the same commercial results of
an equity investment. As a result, this structure will be able to positively address the
prevailing issues while at the same time maintaining and respecting the Shariah rules
and principles as applicable.
It must be noted however that this alternative structure is only intended to be used
for so long as the Islamic finance infrastructure is still weak in matured private equity
markets and where Islamic financing solutions are not available or commercially viable.
In the event that the market has developed, which will definitely take time as it involves
various macro considerations, the full Islamic equity structure should be resorted which
remains the true essence of Islamic equity investments. Until then, the application of
this proposed IPE Funding Arrangement structure should be seen as a breakthrough to
the on-going issues faced by the IPE players which would have otherwise hampered the
progress of the Industry and eventually not attracting sufficient interest from the Muslim
community itself, what more to the much larger non-Muslim community which should
also be the aim in the propagation of the Islamic principles. Future additional researches
on this Islamic private equity subject matter which is often marginalized in terms of
importance within the overall Islamic finance industry, should also be afforded extra
attention. Academic centres should cultivate increasing interest from students to explore
the Islamic private equity market other than the more popular banking and capital market
segments. Perhaps then, more alternative options may be designed backed by concrete
Shariah basis and legal certainty. If the Islamic market has seen tremendous growth in
the banking and capital market space even to the extent of its significant penetration to
the non-Muslim market due to its various innovation, this therefore should be the similar
case for the Islamic Private equity market and starting this mission by finding a solution
to the prevailing issues faced is the key in achieving this ultimate objective.

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 The Role of Corporate Governance in Managing
Risks: An Applied Case on Companies Listed
on the Palestine Stock Exchange

Mohammad Kamal Abuamsha(B) and Bahaa Razia

Palestine Technical University - Kadoorei, Tulkarm, Palestine

[email protected]

Abstract. This study aims to examine the role of corporate governance (charac-
teristics of board management) and its role in dealing with systematic and unsys-
tematic risks. This study includes 44 companies listed in the Palestinian stock
market distributed in 5 sectors. The panel research method was used for data
collection and analysis. Results show that there is a significant role of corporate
governance (characteristics of board management) in dealing with systematic and
unsystematic risks in companies listed in the Palestine stock market.

Keywords: Corporate governance · Risk · Systematic risk · Unsystematic risk ·

Characteristics board

1 Introduction
Following corporate scandals like Enron, corporate governance has gained international
attention. Its importance has further grown in the wake of the 2007–2008 global financial
crisis. Corporate governance is considered a comprehensive strategy to effectively man-
age business affairs and safeguard and advance the interests of shareholders while also
taking into account those of other stakeholders (Tarraf and Majeske 2013; Quang Trinh
2022). Corporate governance suffers when the risk is not adequately managed (OECD
2009). As a result, financial firms suffer enormous losses, like those that worsened the
global financial crisis (Bebchuk et al. 2009). The likelihood of financial crises tends to
decline with improved corporate governance (Claessens and Yurtoglu 2013).
Risk management behaviour that affects a company’s success is influenced by
the agency conflict between shareholders and managers (Jenson and Meckling 1976).
Numerous research has looked at the connection between corporate governance and
business performance to comprehend this conflict and the ensuing firm performance,
but the findings have remained contradictory. However, little research has been done to
examine the empirical connection between risk management and corporate governance.
Since there is little literature on both corporate governance and risk management, one
can wonder if risk management belongs in the category of corporate governance (Ger-
icke 2018). The board of directors of a firm is ultimately in charge of risk management
(McNulty et al. 2012; Aslam et al. 2021). Risk management is a mediating variable to

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 415–427, 2023.
https://doi.org/10.1007/978-3-031-26956-1_40
416 M. K. Abuamsha and B. Razia

determine if risk significantly influences the relationship between corporate governance

and a firm’s financial success.
Most studies on corporate governance only took into account commercial banks, but
this leaves out significant players in the financial sector and does not give a complete
picture of corporate governance and risk management. The lines separating different
financial institutions have blurred. As a result of developments in the financial mar-
ket. Additionally, the majority of the risks that financial institutions (commercial banks,
investment banks, and insurance businesses) confront are similar. Therefore, this study
aims to investigate the impact of corporate governance on managing risks in the compa-
nies listed on the Palestine stock exchange. These companies include the Banking and
financial market, services sector, industrial sector, Insurance Department and investment
sector.
The structure of this study contains the First literature review about the characteristics
of the board, second the methodology and the hypotheses of the study, third the statistical
analysis and finally the results and conclusion.

2 Literature Review

Corporate Governance includes the rules and regulations required to operate the business
in the interests of the shareholders. Additionally, it identifies the rights of directors and
managers and clarifies the steps owners take to influence the choices of the company.
Khan et al. (2018) indicated that the major role is played by corporate governance, a
growing field, in the overall operation of a firm. An association between shareholders
and senior management is a straightforward way to describe it and leads to success in
organisations (Mathew et al. 2018). Corporate governance is an organization that brings
together all relevant parties, including management, the board of directors, sharehold-
ers, employees, consumers, and investors (Ltifi and Hichri 2021). By providing checks
and balances between the administration and investors, effective Corporate governance
helps to resolve agency issues. Companies with effective governance practices should
experience fewer agency issues in the future (Nakpodia and Olan 2022).
Risk management (RM) is “a process of recognising, evaluating, and prioritising
risks of various types.” Once the risks are identified, the risk manager develops a plan to
reduce or eliminate the impact of unfavourable events (Altaf et al. 2021). Because risk
management is integrated into the credit administration division, banks do not have risk
management units (Munawar et al. 2022). Risk management procedures and policies are
crucial for the stability of a long-term investment environment. Investors and partitioners
need to be aware of the potential risk that may affect their business, to avoid losing money
or facing business failure (Polinkevych et al. 2021). The Risk management practices of
companies and businesses depend on the management’s strategies, so the investor’s
confidence is maintained in the accompanying corrective actions (Mathew et al. 2018).
Several factors positively or negatively impact managing and dealing with risks.
These factors are classified into dependent and independent variables. Independent
variables include board size, board independence, gender diversity, CEO turnover and
audit committee independence (Nakpodia and Olan 2022; Maher and Aquanno 2022).
Independent variables include capital risk, credit risk and liquidity risk.
 The Role of Corporate Governance in Managing Risks 417

The ideal board size is considered a function of the directors’ and the firm’s char-
acteristics (Elbahar 2016). Firm risks and Board size has a good working relationship
since they shared information with the board’s associates. Allam and Ali Shah (2013)
also confirmed that Board size and firm risk are strongly correlated to each other. Larger
boards are associated with lower risk, while smaller boards are associated with higher
risk. There is evidence from previous literature indicating that risks and board size have
a bad and strong relationship (Khan and Ali 2018; Nakpodia and Olan 2022).
Numerous studies demonstrated that risk-taking and board independence are posi-
tively correlated (Koerniadi et al. 2014; Khan et al. 2019). Mathew et al. (2018) indicated
that board independence is negatively associated with risks. In large companies, the lower
capital risk is one of the major benefits that can be created in companies with a larger
number of independent or external directors who are not part of the executive team (Khan
and Ali 2018). Maher and Aquanno (2022) confirmed that there is a positive relationship
between risk related to firms and board independence.
Gender diversity including females and males is related to firm risk. Khan and Ali
(2018) stated that women are more willing to take risks compared to men in business
at different levels of management. However, female employees are required to abide by
the company’s rules, which lowers the risk level for the company. Mathew et al. (2021)
demonstrated that there is a positive relationship between the number of female employ-
ees on board and risk management. Gender diversity inboard also impacts corporate
governance and is linked with lower risk levels (Green and Homroy 2018). Another
variable that affects managing risks is related to audit committee independence. Several
adit members indicated that they had increased their direct engagement with manage-
ment, and they suggested altering the kind and degree of their inaccuracy to enhance the
company’s performance and deal with risks effectively (Khan and Ali 2018). In many sit-
uations, investors encourage bank management to finance high-risk projects based on the
options theory. Because of the high amount of risk, this could lead to management taking
the chance of making money from underperforming investment projects that don’t yield
the high returns that were anticipated (Kyere and Ausloos 2021). Through risk analysis
and risk management errors, Audit Committee independence is anticipated to have an
impact on management decisions (Maher and Aquanno 2022). The risk-taking of banks
with high audit committee independence efficiency is anticipated to be correlated with
bank performance in banks with poor audit committee independence efficiency. The
final independent variable is CEO turnover, where CEO leaves or resigns from the firm
and another person takes their place and duties (Saeed and Saeed 2018).

3 Research Hypotheses
Depending on the above arguments, the following hypotheses were formulated: The
first main hypothesis: There is a negative and significant relationship between the
characteristics of the board of directors and systemic risks in the Palestinian stock market.

H1: There is a negative and significant relationship between the number of boards (NB)
and Systematic Risk in the Palestinian Stock Market (PEX).
H2: Independence Board (IB) and Systematic Risk in the (PEX) have a negative and
significant relationship.
418 M. K. Abuamsha and B. Razia

H3: There is a negative and significant relationship between several meetings (NOM)
and Systematic Risk in the (PEX).
H4: There is a negative and significant relationship between Director’s independence
(DI) and Systematic Risk in the (PEX).

Second Main hypothesis: There is a negative and significant relationship between

Board characteristics and unsystematic Risk in the (PEX).

H1: There is a negative and significant relationship between the (NOB) and Unsystematic
Risk in the (PEX).
H2: Independence Board (IB) and Unsystematic Risk in the (PEX) have a negative and
significant relationship.
H3: There is a negative and significant relationship between (NOM) and Unsystematic
Risk in the (PEX).
H4: There is a negative and significant relationship between (DI) and Unsystematic Risk
in the (PEX).

3.1 Data and Methodology

3.1.1 Data
This paper aims to test whether corporate governance mechanisms (CGM) (Board char-
acteristics) affect the Risk management (RM) of Palestinian firms listed in (PEX). Rel-
evant Data to Board characteristics were taken from the annual reports of firms listed on
the (PEX), during 2016–2021. Every listed firm is bound to organize its financial state-
ments by the company’s laws in Palestine Territories. Relevant data from (PEX) were
taken according to calculate Systematic and Unsystematic Risk the researchers collected
data from (PEX) about monthly Closing prices. There are 48 companies listed in (PEX),
we element 4 companies because data is incomplete, consisting of 264 observations for
44 firms over a period of six years. Firms included in the sample belong to five sectors
such as industrial, investment, banks, services and insurance.

3.1.2 Variables
In this study, the research objectives and variables (dependent and independent) used
in this study and their definitions were adopted from the literature. Notably, market-
based risk measures such as systematic risk computed by (Beta), and non-systematic
risk computed by (Std. Dev.) were used as dependent variables. The main independent
variables (CGM) are board characteristics (NOB), (IB), (NOM), and (DI). Furthermore,
we use two control variables, leverage (LEV) and firm SIZE are also included in the
estimation model to control for company-specific characteristics that may affect systemic
and unsystematic risk.
The definitions of these variables are listed in the methodology of Table 1. This
examination is to consider the effect of the components of board characteristics on
systemic and systemic risk: Board characteristic information was collected from annual
reports of Palestinian organizations registered in PEX covering the period from 2016 to
2021, and researchers used the information board for a period of six years in an average
 The Role of Corporate Governance in Managing Risks 419

period as board characteristic information yields more enlightening information, greater

uncertainty, less linear relationship between factors, more levels of opportunity and more
productivity, board characteristic information is better prepared to identify and identify
unperceived influences in an area pure transpiration or time-series information that is
not falsified again (Jager 2008).
The free factors in this investigation are the distinctive tools of the board that were
identified with the Palestinian organizations registered in the Palestine Exchange. They
can be predicted with previous checks, and we use some factors as shown in Table 1.
The table shows the factors used and their estimates. It also hints at the concentrations
at which these estimates are used.

3.1.3 Limitation
The data was collected from annual reports concentrating on the Board characteristic of
Systematic and Unsystematic Risk for 44 firms listed in PEX from 2016 to 2021.

4 Methodology
This analysis aims to investigate how Board distinctive elements affect Systematic and
Unsystematic Risk. The analysts used board information for six years because it provides
more illuminating information, greater inconstancy, less collinearity among the factors,
more levels of opportunity, and higher productivity. Board characteristic information was
gathered from the annual reports of the Palestinian organizations recorded in the PEX
covering the period from 2016 to 2021. Additionally, board characteristic data is easier
to recognize and measure. Unadulterated cross-area or unadulterated time-series data
do not reveal impacts that cannot be felt (Jager 2008). The Board identifying elements
associated with the Palestinian groups included in the PEX serve as the investigation’s
free variables. We use a few variables that are shown in Table 1 and are predictable based
on past tests. The factors used and their estimates are listed in the table. Additionally, it
makes references to the concentrations where these estimations are applied.
The variable adopted in this investigation is systemic and non-systemic risks. In
general, systemic and non-systemic risks can be estimated by calculating them in the
beta of systemic risk and the standard deviation of the firm. Since no direct quantitative
measure of these traits can be traced, and various tests are followed by Kyere and Ausloos
(2021), the supply is estimated as market risk as the sensitivity to change in a stock caused
by a change in the market, and the unsystematic risk of deviation of values from its mean.
We recommend that the risks be linked to the characteristics of the board of directors and
practice how to reduce them to the lowest possible level. Since the risk is obtained from
the nature of the market and the company that was calculated from the closing prices of
companies listed on the Palestine Exchange, the risk is estimated in the market and for
the stock by calculating it from the data collected every month and computed for each
year. This is consistent (Abuamsha 2021). In light of this view, the higher the degree
of the independence of the board, the lower the risks, both systemic and informal, and
the results presented in it are assumed, accordingly, the higher the independence of the
board, the lower the risks in the business sectors presented by the organization (Shumali
and Abuamsha 2023).
420 M. K. Abuamsha and B. Razia

Table 1. Variables

Dependent variable Measuring method reference

Systematic Kamal Abu Amsha, (2017)

Measurement by Beta =
Ρa,m: Covariance between stock returns and market portfolio
returns
σA: Standard Deviation on stocks
σM: Standard Deviation on Portfolio

Unsystematic σA: Standard Deviation on stocks Kamal Abu Amsha, (2017)

Independent variable

Number of Board The number of board members Aslam, al. et. (2021)
Altaf, al. et. (2021)

Independence Board It is measured by the percentage of members who are outside Khan, S al. et. (2019)
the executive management Koerniadi, H., al. et. (2014)

number of meetings The number of board meetings Kyere, M. (2021)

Shumali, & Abuamsha. (2023).

Director's independence It is measured by giving a dummy variable with a value of (1) Abuamsha, M. K. (2021).
if the manager combines the positions of CEO and Chairman of Kyere, M. (2021)
the Board of Directors, and a value of (0) otherwise. Shumali, & Abuamsha. (2023).

Control Variable

Size Calculating the natural logarithm of total assets Shumali, & Abuamsha. (2023)
Abuamsha, M. K. (2021).

Leverage It is measured as total liabilities divided by total assets Khan, S al. et. (2019)

4.1 Research Model

Literature Consistent (Kamal Abu Amsha (2017), Shumali and Abuamsha (2023),
Abuamsha (2021)), we developed the following model to examine the effect of Board
characteristics on Risk.

Systematic Risk = α + β1 NOB + β2 IB + β3 NOM + β4 DI + β5 LEV + β6 SZ + ε

Unsystematic Risk = α + β1 NOB + β2 IB + β3 NOM + β4 DI + β5 LEV + β6 SZ
+ε

The information obtained must be investigated and disclosed to be of value to the

achievement of exploration objectives and to answer their inquiries. In the analysis,
the researchers used charm measurements to depict key features and summarize a par-
ticular arrangement of information as follows. First, of all, researchers present mean,
standard deviations, least value, largest value, skew, kurtosis and F-test, B-P LM test
(X2), Hausman test (X2), Breusch-Pagan/Cook Weisberg test (X2), Wooldridge test,
 The Role of Corporate Governance in Managing Risks 421

For each model of the investigation. Second, the Pearson correlation matrix is used to
check whether there is a linear multi-linear problem between the independent factors and
the force measure and the address of the connection between the free and wing factors.
Finally, due to the non-stationary framed information, generalized random regression
was used to test the screening predictions.

5 Applying Study

The study used a random-effects panel data regression model to examine whether cor-
porate governance mechanisms (CGMs) act as SV drivers are corporates listed in the
Palestine Stock Exchange distributed over five sectors. The preference for using the
random-effects model over the pooled ordinary least squares and the fixed-effects models
researchers was a result of the F-test and B-P LM estimates for all panel data regression
models. The study used a random-effects panel data regression model to examine whether
CGMs act as SV drivers are corporates listed in the Palestine Stock Exchange distributed
over five sectors. The preference for using the random-effects model over the pooled
ordinary least squares and the fixed-effects models researchers was a result of the F-test
and B-P LM estimates for all panel data regression models. The estimates of the Haus-
man specification test for all panel data regression models were not significant as shown
in Table 2. The table also shows that the estimates of the BreuschPagan/Cook-Weisberg
test for the panel data models were not significant, indicating that elastic covariance is
not likely to be a problem in all models. For the Wooldridge test for models in Table 2,
the values are large, which indicates that the models are affected by autocorrelation in
models 1 and 2.

Table 2. Estimations for tests of the appropriate model selection

Types of Tests Model 1 (Dep. Var: EVA-Ln) Model 2 (Dep. Var: EVA-Ln)

F-test 6.43*** 2.76***

B-P LM test (X2) 78.26*** 55.01***

Hausman test (X2) 9.76 18.10

Breusch-Pagan/Cook Weisberg test (X2) 0.025 2.84

Wooldridge test 0.979 2.41

Notes: (i) ***, **, and * indicate the p-value is statistically significant at 1%, 5%, and 10%, respectively.
(ii) F-test refers to the F-test in a fixed-effects model.
(iii) The B-P LM test (X 2 ) refers to Breusch and Pagan’s Lagrange Multiplier test.
(iv) The Hausman test (X 2 ) refers to the Hausman specification test.
422 M. K. Abuamsha and B. Razia

Table 3. Summary of descriptive statistics for variables

Variables No. of Obs. Mean Min Max Std. Dev.

Systematic risk (Beta) 264 0.5757932 0 1.78 0.3818835

Unsystematic risk (Std. Dev.) 264 0.1120506 0.026 0.3469142 0.0808487

Number of Board 264 8.844444 5 15 2.195323

Independence Board 264 0.2382307 0.05 0.6 0.1441085

number of meetings 264 6.208889 2 12 1.624563

Director's independence 264 0.373333333 1 0 0.484633099

Size 264 6.661648 3.8 8.48 0.9174641

Leverage 264 0.1435622 0 1.239175 0.1796287

Table 3 summarizes the descriptive statistics. First, dependent variables: Systematic

risk (Beta) averaged 0.576 and standard deviation 0.382 Unsystematic risks (Std. Dev.)
averaged 0.11 per cent, with standard deviations of 0.082, respectively. Second, Board
Characteristic: The average board size was 8.84 members, independent directors were
0.238 per cent of boards and the average number of meetings was 6.21. The Director’s
independence averaged 0.373.

Table 4. Pearson correlation matrix

Variables Systematic risk Unsystematic risk (Std. Number of Independence Board number of meet- Director's independence Size Leverage
(Beta) Dev.) Board ings

Systematic risk (Beta) 1

Unsystematic risk (Std. 0.380*** 1

Dev.)

Number of Board 0.176* 0.371*** 1

Independence Board 0.120 0.055 -0.012 1

number of meetings -0.021 -0.121 0.182** -0.209*** 1

Director's independence 0.024 0.022 0.261*** 0.375*** -0.073 1

Size 0.013 -0.129 0.10 -0.330*** 0.201** -0.291*** 1

Leverage 0.343*** 0.181** 0.302*** 0.102 0.332*** 0.091 -0.149* 1

VIF 1.89 2.21 1.72 1.41  2.89

TOL 0.521 0.489 0.599 0.810 0.499 0.399

Table 4 shows that Director’s independence and Size have a weak positive correlation
with systemic risks and several meetings have a weak and negative correlation with sys-
temic risks, as Table 4 shows that Independence Board and Director’s independence have
a weak and positive correlation with unsystematic risks. The table also shows the cor-
relation coefficients (positive/negative) across the variables less than 0.64 in the matrix,
 The Role of Corporate Governance in Managing Risks 423

indicating that there is no severe linear problem. Table 4 also shows that the variance
inflation factor (VIF) and the statistics for tolerance (TOL) have the highest values of
3.24 and 0.912, respectively, confirming that the data set is devoid of multicollinearity
(Table 5).

Table 5. Random-effects regression estimations: CGMs as the drivers of SV

Model 1 Dependent variable: Systematic risk Model 2 Dependent variable: unSystematic risk

Chi 2 50.5 175.1

Prob Chi 2 0.0001 0.0000

R 2 (within/between/overall) 0.658 0.677

No. of observations 264 264

Number of Board 0.021 (0.01) -0.008 (0.000)

Independence Board 0.1831 (0.0424) 0.0373 (0.0226)

number of meetings 0.0995 (0.0325) 0.059 (0.0013)

Director's independence -0.0218 (0.0035) -0.0018 (0.0003)

Size 0.6042 (0.1517) 0.0056 (0.0162)

Leverage -0.0065 (.0089) -0.0002 (.0011)

It is clear from Table 6 that it has a statistically significant relationship with System-
atic risk, and we reject the hypothesis that there is no effect of governance mechanisms
(characteristics of the board of directors) on systemic risks. This result indicates that
the number of boards as a corporate governance mechanism contributes to reducing
systemic and non-systematic risks. Similar to Swami (2011) and Matari et al. (2012),
Models 1 and 2, however, reveal consistent results with the results for systematic risk
and non-systematic risk in that there is a statistically significant positive effect of the
Number of Board on regular risk and nonsystematic risk at p < 0.01 and p < 0.000,
respectively, so We reject the hypothesis that there is no effect. The results also indicate
that the Independence Board acts as a driving force in the impact of reducing systemic
and irregular risk in the market and the company, as measured by beta and standard
deviation. Again, a statistically significant effect of several meetings on regular risk and
disorganised risk was reported in Models 1 and 2. Therefore, these results reject the
hypothesis of no effect. The results also indicate that there was a statistically signifi-
cant negative Director’s independence effect on systemic and non-systemic risks at p
< 0.0035 and p < 0.0003, rejecting the hypothesis that there was no effect. This result
indicates that the independence of directors is a governance mechanism that increases
the systemic and informal risks if the directors are not independent. The study reveals
that Size is not statistically significantly associated with systemic and non-systemic risk,
424 M. K. Abuamsha and B. Razia

as reported in Model 1 and Model 2. Thus, this result accepts the assumption that size
has no effect on systemic and informal risks, which contradicts the study of……. This
result indicates that the size of companies as a controlling variable is not one of the
mechanisms of governance. Models 1 and 2 show evidence of Leverage’s statistically
significant negative effect on regular and non-systemic risk at p < .0089 and p < 0.0011,
respectively. Thus, these results also reject the hypothesis that debt does not affect risk,
as the researchers explain that the higher the financial leverage, the higher the risk.

Table 6. Random-effects regression estimations: CGMs as the drivers of SV after alternative

measurement of companies’ size

Model 1 Dependent variable: Systematic risk Model 2 Dependent variable: unSystematic risk

Chi 2 60.15 138.69

Prob Chi 2 0.0002 0.0000

R 2 (within/between/overall) 0.72 0.76

No. of observations 264 264

Number of Board 0.032 (0.001) 0.042 (0.010)

Independence Board 0.542 (0.0021) 0.0373 (0.0013)

number of meetings 0.4521 (0.0021) 0.059 (0.0031)

Director's independence -0.532 (0.0001) -0.965 (0.0002)

Size 0.7215 (0.0105) 0.0056 (0.010)

Leverage -0.0102 (.001) -0.0002 (.0095)

Sensitivity and Durability Check

The sensitivity of the main results to the proxy measure of the firm’s size variable—
initially triggered by the natural logarithm of total assets (Size-Ln) in the sample during
a fiscal year—was validated, and all regressions restarted. The results shown in Table 6
are similar to the main results.
 The Role of Corporate Governance in Managing Risks 425

Table 7. FGLS regression estimations: CGMs as the drivers of SV

Model 1 Dependent variable: Systematic risk Model 2 Dependent variable: unSystematic risk

Chi 2 87.72 150.70

Prob Chi 2 0.000 0.000

R 2 (within/between/overall) 264 264

No. of observations 0.752 (0.004) 0.21 (0.0009)

Number of Board 0.552 (0.0252) 0.298 (0.0012)

Independence Board 0.49 (0.0043) 0.15***(0.0003)

number of meetings 0.6231 (0.0011) 0.19 (0.0024)

Director's independence 0.165(0.001) 0.51 (0.0014)

Size 0.777 (0.0057) 0.246 (0.00185)

Leverage - 0.112 (0.00568) - 0.1651 (0.0059)

The original results were also confirmed using an alternative regression model, a
feasible generalized least squares (FGLS) regression model at the heteroscedasticity
point and AR(1) autocorrelation within the panels, to ensure their robustness. The results
presented in Table 7 are consistent with the original. In general, the results are consistent
with the main findings.

6 Discussion

It is clear from the results of the two models that were tested that governance mech-
anisms (characteristics of the board of directors) play a driver in risk management,
resulting from the risks to which the company is exposed (unsystematic risks), and mar-
ket risks (systematic risks). This study shows that only one mechanism of corporate
governance, which is the presence of board meetings or the independence of directors,
or the size of the board, or the independence of the director, acts as a real driver in
managing risks and working to reduce them to the lowest possible level. The positive
finding of manager independence, director independence, board size Management and
several meetings help disseminate impartial accounting information promptly to share-
holders, resulting in lower risk of agency costs and information asymmetries, and thus
creating shareholder value. One reason may be that the board members have extensive
experience in the outside business environment, which makes them able to bring in
diverse knowledge and skills and create business contacts from different backgrounds.
The result of the independent non-executive directors can be explained by the fact that
426 M. K. Abuamsha and B. Razia

they were chosen from individuals who have no social or family ties to the group of
controlling shareholders. Thus, it is possible that they played a vital role in the board of
directors and made independent decisions.

7 Conclusion
The results show that governance mechanisms (characteristics of the board of directors)
have a positive relationship with risk management, because of the independence of the
board of directors, the independence of managers, the number of board meetings and the
number of board members, who tend to apply more efficient and effective measures to
enhance the company’s management through disclosure, transparency and independence
of several members The board of directors and managers, are working to reduce the levels
of risk through good management of the company and its work in the market, which in
turn will be reflected in the company’s continuity and profitability. The other result is that
the characteristics of the board of directors also have a positive relationship to raising
the returns of stocks, and this is as mentioned earlier because of the better understanding
and information that foreign investors have compared to local investors and because
the Palestinian Stock Exchange is a relatively new market. Most of the traders in this
market are less experienced than foreign investors. The final result is that the board of
directors’ characteristics positively impact risk management and work to reduce it by the
company’s management. According to the researchers, this is due to the development
in the application of the concept of governance in Palestine over time, and this focuses
on the decision-making process either in a group that has experience and competence in
The concept of risk management. This reflects positively on investor returns.

Acknowledgement. We are indebted to Palatine Technical University Kadoorie, for their support
in completing this paper.

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 The Issue of Providing State Guarantees
on a Portfolio Basis by the Legislation of Ukraine

Sudarenko Olena1 , Shevchenko Olena1 , and Sydorenko Dmytro2(B)

1 State University of Trade and Economics, Kioto str. 19, 02156 Kyiv, Ukraine
2 Taras Shevchenko National University of Kyiv, Volodymyrs’ka str. 60, 01033 Kyiv, Ukraine

[email protected]

Abstract. The article is devoted to the place determining of the state in legal
relations that are new for Ukraine, and, on the one hand, which are aimed at sup-
porting the state’s economy, reducing the state debt, and, on the other, at attracting
funds to the state budget: state guarantees on a portfolio basis. Also, the article
is dedicated to the determination of the subject composition of the specified legal
relationship. In order to balance private and public interests, the attention was
drawn to the need to change the approach of banks to their customers during crisis
events, such as a full-scale war, since the lack of funds from business entities can
lead to an aggravation of hunger as a world problem. The article proposes the
ways to improve legislation both at the international and national levels.

Keywords: State guarantees on a portfolio basis for loans · State guarantee ·

Public funds · State Budget funds · State debt

1 Introduction
Each state is looking for new mechanisms for attracting resources to public funds, thus,
during the times of crisis. In addition to the global financial crisis and the COVID-19
pandemic, more severe trials beset Ukraine. In 2014, it was the annexation of the part
of territories of our state, and, from February 2022, the active phase of Russia’s war
against Ukraine. It is no secret that after the end of the war, the state is faced with the
problem of population impoverishment, loss of land fertility and hunger. Therefore, it is
time to investigate the state programs aimed at supporting the state’s economy, reducing
the state debt, and involve attracting funds to the state treasury. One of these programs is
the program of providing state guarantees on a portfolio basis (next – state guarantees),
introduced in Ukraine in 2020. It is characteristic of the state guarantee on a portfolio
basis that the state partially guarantees the fulfillment of obligations to the bank not
of a specific business entity, but of a portfolio of credit obligations at the level of 80%.
Since the mentioned relations are new for Ukraine, there are no comprehensive scientific
studies in our country in the indicated area, therefore it is urgent to study the relevant
social relations; to determine their subject composition, to highlight the place and role
of Ukraine in these legal relations, thus, during crisis events; to correlate the private-law
and public-law aspects of relations in the field of providing state guarantees; to identify

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 428–437, 2023.
https://doi.org/10.1007/978-3-031-26956-1_41
 The Issue of Providing State Guarantees 429

the gaps in legislation, to develop proposals for improving the legislation in this area at
the international and national levels.

2 Source Review
H.P. Bortnikov found the subject for the research in the issue of the prerequisites for
the introduction of the institute of state guarantees in Ukraine, as well as the experience
of some European states in the field of providing the specified type of guarantees [1,
p. 75–90]. J.F. Navrotskyi noted in his work the use of the mechanism of state guarantees
for the development of the agricultural machinery market [2, p. 24–26]. General issues
regarding the types of guarantees were investigated in the work of Bruno Robino [3]. At
the same time, the authors found useful the works of scientists who studied the issue of
financial and legal regulation of the state guarantees: L.K. Voronova, S.O. Nischymna
[4, p. 255–290], O.O. Dmytryk and K.O. Tokarieva [5, p. 53–61], V.O. Radins’ka and
S.V. Nef’odov [6].
It is scientifically determined that the state guarantee in the form of raising funds
is one of the forms of state debt, therefore scientific works in the field of public debt
are also investigated, thus, Davide Furceri, Prakash Loungani, Jonathan D. Ostry and
Pietro Pizzuto (studied the general issues of managing and maintaining public debt at an
appropriate level with minimal losses to the country) [7], Ludger Schuknecht, Anthony
J. Makin (investigated the rise in global public debt as a result of the fiscal response of
EU governments around the world to the COVID-19 crisis) [8]. In 2007, I. Zaverukha
conducted a comprehensive study of the public debt management within the framework
of the study “Legal Regulation of the Public Debt of Ukraine”. During this time, there
were changes in state policy, global financial crises occurred, the active phase of the war
began, therefore the issue of legal regulation of public debt management is relevant [9].

3 Purpose of Study
The purpose of the article is to study social relations in the field of providing state
guarantees, to identify the subjects participating in the specified relations, to investigate
the practice of applying the relevant legal norms, to single out the problematic issues
and to propose the ways of improving the legislation in the specified field.

4 Methodology
The methodological basis of the research consists of a set of philosophical, general sci-
entific and special approaches, principles and methods of scientific knowledge. Thus,
dialectical, formal-logical, structural-functional, formal-dogmatic methods, as well as
the method of system analysis, synthesis and others were used during the research. Thus,
in order to assess the quantitative characteristics that illustrate, on the one hand, the inter-
est of creditor banks and, on the other hand, the amount of state aid to sectors of the
economy, a statistical method was used. Based on real knowledge, personal observation,
processing of publications and data from the Ministry of Finance of Ukraine, certain
430 S. Olena et al.

aspects of providing state guarantees were studied. The main provisions and conclu-
sions are based on the study of domestic and foreign scientific literature, as well as the
legislative acts.

5 Discussions
In 2020, during the period of the COVID-19 pandemic, our state introduced a new mech-
anism that, on the one hand, attracted funds to the State Budget of Ukraine (hereinafter
referred to as the SB), and on the other hand, supported micro, small and/or medium-
sized enterprises, residents of Ukraine (hereinafter referred to as business entities), and
provided the state guarantees [10]. The legal mechanism for providing state guarantees is
defined by the Budget Code of Ukraine [11] (hereinafter BC) and Government resolutions
“Some issues of providing state guarantees in 2020” [12] (hereinafter Resolution-2020),
“Some issues of providing state guarantees” [13] (hereinafter Resolution-2021). In 2022,
the Resolution-2021 was amended due to the war and the negative consequences that the
war brought to Ukraine. Thus, the list of individuals whose obligations to creditor banks
can be guaranteed by the state portfolio guarantees has been increased to farmers for
sowing [14], extended the state guarantee program on a portfolio basis not only for the
loans granted by banks, but also for loans granted by the Entrepreneurship Development
Fund, therefore, it is extended to entities that use state support under the 5-7-9 program
[15].
“The credit guarantee mechanism, on the one hand, enables entrepreneurs to attract
financing that is several times higher than their available pledge, on the other hand, it
enables banks to share with the state the risks associated with financing SMEs, stimulat-
ing the development of this business segment” [1, 78]. Therefore, the provision of state
guarantees differs from the relations of state guarantees as well as from the relations
of bank lending with the compensation of obligations partly at the expense of budget
funds (budget lending). In the legal relationship of the provision of state guarantees,
there is a combination of public law (we are talking about public funds - SB funds) and
private-law regulations (banks’ credits for business entities).
The public-law aspect of the legal relationship of providing state guarantees is man-
ifested in the subject structure. Thus, the state directly belongs to the subjects of public
law as the Guarantor and as the owner of the funds of the SB of Ukraine. The state
in relation to the provision of state guarantees is represented by the Parliament, the
Government and the Minister of Finance of Ukraine (until the election of the Head of
the Debt Agency of Ukraine). It should be noted that it is the Minister of Finance of
Ukraine on behalf of the state enters into legal relations with creditor banks. The legal
act certifying the existence of legal relations between the Guarantor and the creditor
bank is a concrete contract of the provision of a state guarantee on a portfolio basis. The
Antimonopoly Committee of Ukraine, the State Treasury Service of Ukraine, and and
control bodies – the State Audit Service of Ukraine and the Accounting Chamber of
Ukraine belong to the public entities that participate in these legal relations, but whose
powers are not registered in the Resolution-2020 and Resolution-2021. Thus, the Anti-
monopoly Committee decides on the admissibility for competition of the relevant state
aid, therefore its legality [11, Part 4 Art. 35; 16, clause 8 Art. 1]. The relevant decision
 The Issue of Providing State Guarantees 431

[17] was adopted by the specified entity on 04/22/2021. The State Treasury Service of
Ukraine provides treasury service of State Budget funds [11, Art. 43]. As an example, it
should be noted that “Southern Bank” and “International Investment Bank” did not sign
contracts and were dropped from the Treasury’s list for 2020 [18].
The joint-stock company “State Export-Import Bank of Ukraine” (hereinafter Ukrex-
imbank) acts as an agent in the legal relations of the state guarantees. It should be noted
that Ukreximbank acted as an agent in other programs “servicing foreign loans received
under the guarantees of the Cabinet of Ministers of Ukraine” [4, p. 256]. The legal
form certifying the relationship between the state and Ukreximbank as an agent is the
“Agency agreement concluded between the Guarantor and the agent on 12.23.2020”
[13]. The Agent’s powers include the preparation of a decision on the possibility of
providing appropriate guarantees by the state, carrying out activities to identify loan dis-
crepancies, checking the reports of creditor banks regarding the condition of granting,
repayment and servicing of loans within the framework of loan portfolios, controlling
the total amount of the share of the loan portfolio of creditor banks, the amount, deter-
mined by the parliament in the law “On the State Budget” for the relevant year [12, 13,
19]. From the analysis of the norms of Resolution-2020 and Resolution-2021, it can
be concluded that Ukreximbank, as an agent of the state, acts on its behalf and in the
interests of the state. However, Ukreximbank does not act at the expense of the state, the
funds of Ukreximbank are paid by creditor banks for its performance of the functions of
an agent. Thus, banks pay a one-time commission for the preparation of a guarantee (in
the amount of 0.05% of the guarantee limit, including VAT) and a commission for the
management of the guarantee (at the rate of 0.25% of the annual amount of guaranteed
obligations from the principal debt at the end of the calendar month in accordance with
the register, including VAT). The agreement method is used in the relations between the
Agent and the Guarantor. So, it can be noted that Ukreximbank, as an agent of the state,
acts under the control of the state. At the same time, the legal analysis of the Regulation-
2020 and Regulation-2021, taking into account the provisions of the standard contract,
confirms the absence of norms that would regulate the issue of “conflict of interests”,
since Ukreximbank, on the one hand, acts as an agent of the state, and, on the other hand,
it acts directly as a creditor bank.
Subjects of private law, which participate in the relations of providing state guaran-
tees, include creditor banks and business entities, the requirements of which are deter-
mined by the Procedures for providing state guarantees. Strict requirements for banks are
conditioned the need to ensure the efficiency and economic expediency of using budget
funds, directing them to those programs that have a greater economic profit. Deter-
mining the appropriate conditions for banking institutions, the state ensures equality,
transparency, openness of participation in the specified legal relations of those entities
that meet the requirements identified in Clause 6. Granting the bank the right to par-
ticipate in the program of state guarantees, the state determines for each specific bank
the maximum amount in hryvnias that will ensure partial fulfillment of debt obligations
under the portfolio of loans. Thus, the Government’s decision determines the list of
banks that, according to the Agent’s opinion, meet the requirements for providing state
guarantees. To calculate the limit volume, it is taken into account the indicators of the
total amount of liabilities for the principal debt for the loan portfolio of the creditor bank
432 S. Olena et al.

(should not exceed 50%) and for each individual loan. As a rule, it should not exceed
70%. The exceptions concern, firstly, with the loans for the purchase of agricultural land
(must not exceed 50% of the outstanding amount of the principal debt for each individual
loan). Secondly, with the loans for farmers during martial law (no more than 80% of the
total amount of obligations for the principal debt for the loan portfolio of the creditor
bank, as well as for each individual loan).
The state guarantees the fulfillment of the obligations not of any economic entity,
but of entities that belong to residents of Ukraine, that are entities of micro-enterprise,
small and/or medium-sized enterprises, which “do not have sufficient security for cred-
itor banks” [17], who “suffered losses due to the introduction of quarantine restrictions
and overcoming their consequences caused by the respiratory disease COVID-19 caused
by the coronavirus SARS-CoV-2” [17], and today we can talk about the negative con-
sequences of the war, as well as those engaged in activities for which there is no ban on
receiving state aid and/or receiving state guarantees. Therefore, the state clearly defines
those entities in respect of which a decision can be made to provide state guarantees. At
the same time, in order to ensure the protection of bank secrecy, creditor banks provide
information about their borrowers in the form of a corresponding loan portfolio without
specific identification of the specified entities.
As mentioned above, the state is gradually increasing the entities that are supported
through the application of the mechanism of state guarantees. For each groups of entities-
borrowers of banks, the state determines the target purpose of the corresponding state
guarantee on a portfolio basis. So, business entities have the right to receive a correspond-
ing guarantee only if the loan is provided by the bank to finance investment projects and
investment goals, working capital and refinancing of the business entity’s debt. Separate
requirements are defined for entities wishing to purchase an agricultural plot of land and
for farmers.
From December 2020 to June 2022, 12,729 loans were issued for a total amount of
UAH 39,830 billion [20]. Summary statistics of the provision of state guarantees under
the 2020 Program are shown in Table 1.
During the war, loans for agriculture prevailed. In January 2022, 5 banks took part
in the Program-2021, in February – 11, in March – 12, in May – 24, in July – 27 [20,
23, 25–27]. Accordingly, the loan portfolio increased from 33% (UAH 12.014 billion)
in February to 73% (UAH 35014 billion) in May. Therefore, the obligation under the
principal debt, which is partially secured by a guarantee, increased from UAH 3.950
million in February to UAH 25,468 billion in May. At the same time, 8,057 loans (89%)
were granted under the 5-7-9 program in February, and 7,997 (65%) in May.
Anyway, this statistic increased due to the allocation of funds by creditor banks for
sowing according to the Resolution of the Government of Ukraine “On Amendments to
the Resolution of the treasury dated July 14, 2021. № 723” [14]. Thus, 5,201 loans were
issued in the amount of UAH 23,766 million, covering 60% of all loans [20], provided
in the period from 03/28/2022 (date of entry into force of the resolution). From March
to May 2022, banks issued only 576 loans for agriculture (excluding funds for sowing).
Also, the data for May show that the geography of lending has changed, so Odesa region
took the first place, comparing to 5th position in February, Kirovohrad region - 15th,
Dnipropetrovsk region - 2nd, Kyiv region - 9th [25]. Owing to the support of the state,
 The Issue of Providing State Guarantees 433

Table 1. Statistics on the provision of state guarantees under the 2020 Program

Data from Ministry of Finance of Ukraine from

April 2021 [21] November 2021 [22] January 2022 [23, 24]
Number of 6 11 11
participating banks
Number of loans 891 2175 2652
granted
Loan portfolio UAH 1,193 m UAH 6,5 bn 7,35 bn
Interest from the 15% (UAH 3,93 bn) 73% (UAH 3,93 bn) 81% (UAH 3,93 bn)
limit
Regions with loans Volynska oblast – 110, Kyiv – 188 (UAH 795 Kyiv – 243 (UAH
under guarantees Dnipropetrovska obl. bn); Lvivska obl. – 141 1,042 bn); Lvivska
(number of loans – 109, Odeska obl. - 83 (UAH 378 m); obl. – 196 (UAH
granted), amount Dnipropetrovska obl. 446 m;
– 137 (UAH 404 m) Dnipropetrovska obl.
– 185 (UAH 442 m)
Types of economic Wholesale and retail WRT, RMVM – 760 WRT, RMVM – 998
activity for which trade; repair of motor (UAH 2,07 bn); Agr. (UAH 2,4 bn); Agr.
banks provided vehicles and – 594 (UAH 2,01 bn); – 664 (UAH 2,15 bn);
loans motorcycles (further - PI – 337 (UAH 1,48 PI – 418 (UAH 1,66
WRT, RMVM) – 432 bn) bn)
(36% of the total
volume of loans
issued); agriculture
(further – Agr.) - 288
loans (24%),
processing industry
(further - PI) - 173
(15%)
Source: authors’ (developed by the authors based on [21–24]).

“farmers from Odesa and Dnipropetrovsk regions threshed more than 2 million tons of
grain each, 5 other regions exceeded the million mark of grain collection” [28].
However, the war showed that banks were “reluctant” to enter into legal relations with
farmers. Thus, “banks refused to lend to farmers from Mykolaiv, Kharkiv, Chernihiv,
Kyiv regions and other regions where hostilities took place or still taking place”, “as
of April 7, Donetsk, Zhytomyr, Luhansk, Mykolaiv, Sumy, Kharkiv, Chernihiv regions
received no credit under the “80% State Program of Portfolio Guarantees” and “continue
to use peacetime principles in assessing clients’ risks” [29]. Apparently, this is a question
not so much for the banks of our country, but for international institutions that are trying
to solve the food crisis. Will the impossibility of the agrarians of the “granary of the
world” to obtain loans from banks for sowing in the following post-war years lead to an
aggravation of the problem of hunger, taking into account that banks will be guided by
norms regarding the prevention of risks in their activities?
434 S. Olena et al.

6 Conclusions
Despite the difficult economic situation in Ukraine, the de-occupation of the territories
of independent Ukraine, the COVID-19 pandemic, a full-scale war, our state is trying to
support micro-, medium and small businesses, including farmers, by introducing various
support programs. Thus, at the end of 2020, the program of providing state guarantees
on a portfolio basis began to operate in Ukraine. It is characteristic of the state guarantee
on a portfolio basis that the state partially guarantees the fulfillment of obligations to
the bank not on a specific economic entity that lacks funds, but on a portfolio of credit
obligations at the level of 80%. The State as the Guarantor and as the owner of the State
Budget funds in these legal relations is represented by the Parliament, the Government,
the Minister of Finance of Ukraine authorized to enter into agreements with creditor
banks and the Agent - Ukreximbank. In this legal relationship, Ukreximbank acts in
two roles. Firstly, it is an Agent, an entity that acts on behalf of the state preparing
materials for the possibility of allocating funds from the State Budget of Ukraine to
the corresponding bank, and, secondly, it is directly a creditor bank that receives the
specified funds. However, there are no regulations in the legislation that would regulate
the issue of “conflict of interests”.
During the martial law, the problem of protecting the interests of creditor banks
(regarding the prevention of risks in their activities by banks) and protecting the interests
of borrowers (lack of funds for sowing and other types of activities) become more acute.
The war is still going on, the destruction and devastation on the territory of our country
are increasing as well as the list of business entities that will need the support of the
state and banks. Therefore, the question of changing the approaches of banks to their
creditors is timely. Also, in our opinion, the obligations of farmers should be guaranteed
for a longer period, since it is not possible to grow a crop and sell it at market prices
within the period currently defined by the legislation.

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 The Impact of Ownership Structure on Risk
Disclosure: Evidence from Jordan

Mohammed Hassan Makhlouf(B) and Dania Al-Ghosheh

Faculty of Business, Isra University, Amman, Jordan

[email protected]

Abstract. The current study seeks at inspecting the ownership structure’s impact
on risk disclosure. A data collection obtained from 39 firms listed on the Amman
Stock Exchange (ASE) is analyzed using content analysis of annual financial
reports, as the current study is conducted over 5 years (2016–2020). The out-
comes of the multiple linear regression analysis indicate that institutional owner-
ship, administrative ownership, and foreign ownership have positively impacted
the risk disclosure. Besides, family ownership has negatively impacted risk dis-
closure. On the other hand, the results reveal no significant impact of directors’
ownership and concentrated ownership on risk disclosure. It is worth mentioning
that this study is applicable and gives much insight into the ownership structure’s
role in improving the financial reports’ quality, alongside the risk disclosure’s sig-
nificance in increasing stakeholders’ confidence in financial reports. In view of
these findings, the efforts of regulators to develop further instructions and policies
to ensure the reliability of the financial statements are encouraged.

Keywords: Ownership structure · Risk disclosure · Amman Stock Exchange

(ASE)

1 Introduction

Given the significance of risk disclosure to curb the problem of information asymmetry
and the decision-makers’ reliance on information disclosed by firms, the extent of the
ownership structure’s impact on the nature of disclosures, and the reduction of conflict
between management and stakeholders, corporate governance has emerged to reduce
the difficulties associated with the conflict of the interests between the management and
the owners, shareholders or stakeholders relating to it.
Thanks to many financial systems collapse and crises impacting the reliability and
validity of financial statements and reports caused by the lack of disclosure and trans-
parency, and the level of disclosure affected by the needs of stakeholders such as owners
in their various forms, this work pinpoints the stakeholders’ impact “Ownership Struc-
ture” on the risk disclosure level. Accordingly, the study problem revolves around the
exposure of companies in general to risks, both financial and non-financial, including the
industrial firms under study, and among these risks are liquidity and credit risks, natural
disasters, wars, and others, negatively affecting the company’s position and existence.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 438–448, 2023.
https://doi.org/10.1007/978-3-031-26956-1_42
 The Impact of Ownership Structure on Risk Disclosure 439

The significance of the study is demonstrated by highlighting the impact of the own-
ership structure with its different patterns on risk disclosure, which creates a positive
impact on the industrial sector, the investors, and shareholders through taking appro-
priate decisions away from the information gap. In terms of transparency and clarity
of presentation and disclosure, the ownership structure and the board of directors are
among the key mechanisms that help in implementing corporate governance efficiently
to reduce conflict in decisions. And so, the significance of the study rests in identify-
ing the ownership structure’s impact on risk disclosure, as this impact still needs more
analysis in light of the Jordanian environment known by the ownership diversity.
Finally, this paper is divided into five main sections apart from the introductory
section. The second section discusses the present literature and produces the research
hypotheses. Third Section describes the study methodology. Section 4 discusses the
empirical findings. Fifth section shows the conclusion.

2 Literature Review

2.1 Ownership Structure

The ownership structure has recently aroused the interest of researchers and those inter-
ested in public shareholding companies due to its effects on various aspects of the firms
performance, as the behavior of investors is affected by the signals given by the differ-
ence and ownership structure’s diversity. The composition of the ownership structure
has become one of the effective tools in applying or unapplying the rules of corporate
governance (Mosmah 2018).
Given the manifestation of the importance of the ownership structure on the compa-
nies’ performance and its impact on the strength and success of companies to achieve the
maximum possible profits and returns for shareholders, studies have emerged to study
the quality of the ownership structure and its impact on the performance and continuity
of companies. As the ownership structure is a necessity in determining the objectives
of firms and the wealth of shareholders, both managers and shareholders shall have one
goal reflected in the increase in the profitability of the company. Precisely, related studies
have demonstrated that the nature of shareholders, i.e. the quality of ownership affects
the performance of companies, and the structure of ownership affects the profitability
of companies.
The ownership structure is a combination of the shares of a group of owners who
have different interests and objectives and expresses those categories who own a share
of the company’s shares. The percentage of ownership of each category is determined
by dividing the shares’ number owned by this category by the total number of shares of
a company (Makhlouf and Al-sufy 2018). In detail, ownership structure includes two
dimensions; owner identity and ownership concentration. Furthermore, the difference in
the right to vote and the right of capital enables shareholders to control the company with
low participation in shares through several mechanisms, such as hierarchical structures
and the presence of two categories of shares that allow large owners to control the
company through voting rights, at the same time they retain a small share of ownership
through rights of cash flow (Ghazi 2021).
440 M. H. Makhlouf and D. Al-Ghosheh

2.2 Risk Disclosure

A high level of attention and interest is continuously given to risk disclosure in devel-
oped and developing countries thanks to the necessity to improve the transparency of
the financial data, solve conflicts of agency, and deliver reliable annual reports. The
contradictory results of past work and research papers open a new venue to explore the
intervening variables affecting management behaviors and the association between risk
disclosure and the company’s value to study the association from numerous viewpoints,
particularly those related to the board of directors members and those liable for dis-
closures. The board of directors’ composition, i.e. the independence level increases the
confidence of the stakeholders, moderates the asymmetries of the information among
market contestants, and thus lessens risks (Makhlouf et al. 2018; Al-Kurdi et al. 2019).
Moreover, information asymmetry is mitigated by risk disclosure, increasing the
company’s value. Conversely, several firms, mainly those in developing countries, reject
to elaborate on risk disclosure, arguing that most countries regard risk disclosure as
a voluntary act, and such disclosures generally include sensitive data and information,
putting their economic and business situation at risk. For that reason, the dispute between
firms and venture capitalists concerning risk disclosure has stimulated the significance
of the association between disclosures and the company’s value in developing markets
(Maklouf et al. 2020).
Nonetheless, the desired goal of disclosure in the financial reports issued by com-
panies is to transparently show the information and increase confidence by the relevant
parties in the financial position of the company. It is noteworthy that disclosures have not
attained sufficient consideration and attention by professional organizations, whether
local or international organizations. For instance, local or international organizations
have not developed an accounting standard that regulates and defines patterns of risk
disclosure within companies, whether financial or non-financial, which is reflected in
the disparity and gradation in the level of risk disclosure in the financial reports issued
by companies (Al-Mallah 2018).

2.3 The Association Between Risk Disclosure and Ownership Structure

Habtoor et al. (2019) indicate that the existence of a strong influemaknce of ownership
structure on risk disclosure and that the degree and course of this effect depend on the
category of the influence. It is also found that higher-owned government ownership
and companies disclose much risk information, adding that firms with a high level of
institutional ownership and family ownership incline to disclose less risk information,
while the ownership of executives and the ownership of non-executive managers do not
affect risk disclosure (Habtoor et al. 2019). The findings indicate that some controlling
families are known by the same motives and characteristics for practicing risk disclosure.
Furthermore, Saggar et al. (2017) indicate that the total number of keywords denoting
positive risks exceeds keywords denoting negative risks. The following five related
relationships are derived from the association between risk disclosure and ownership
structure.
 The Impact of Ownership Structure on Risk Disclosure 441

2.4 The Association Between Concentrated Ownership and Risk Disclosure

Concentrated ownership represents the ownership of major shareholders for each person,
especially those who possess five percent or more of the capital of the firm. Concentrated
ownership is one of the pillars that determine the behavior of senior management in
making decisions related to the financial reporting process, including determining the
nature and scope of the disclosed risk information in financial reports. Therefore, the
senior management of companies is required to expand the scope and nature of the
information disclosed in the financial reports to meet the disclosure requirements by
major shareholders.
In the same context, the extent of the impact of concentrated ownership of major
shareholders depends on three things, namely the voluntary disclosure’s level of the
non-financial risks, and maximizing the value of the company on the extent of the
discrepancy between the rights of cash flows and the voting rights of shareholders.
The impact of concentrated ownership leads to different techniques and methods of
control over decisions based on reports submitted by senior management, including
the company’s issuance of shares, allowing the controlling owners to ensure control
of the company through the voting rights they originally own. On the other hand, the
voting rights of owners with a small ownership stake in the company may not affect
the decisions made by the major shareholders. As said by Al Samadouni (2020), a
negative association is available between voluntary disclosures of non-financial risks
and concentrated ownership. However, Al-Bassam et al. (2018) support the existence of
a negative association between the level of voluntary disclosure and the ownership of
major shareholders. Therefore, Hypothesis No. 1 can be:

H1: There is a statistically significant impact between concentrated ownership and risk
disclosure.

2.5 The Association Between Family Ownership and Risk Disclosure

Families signify a unique category of shareholders by owning financial portfolios charac-

terized by the lack of diversity in the financial instruments held, and the long investment
period resulting from these portfolios for the transfer of ownership to subsequent gen-
erations. Furthermore, families’ control of institutional ownership may lead to effective
control over all corporate activities, as family members are often motivated to better
control their corporations.
In this take and give discussion, related studies indicate that the ownership-
administration association results in reducing the costs of a traditional agency, improving
performance and making long-term investment decisions, and preserving the reputation
and identity of the company, thanks to the desire of families to pass on companies to
future generations. Makhlouf et al. (2018) show that families own 25% of the companies’
shares, dominating a quarter of the board of directors’ seats in the companies in Jordan,
denoting that the characteristics of the board, i.e. the independence level) may chiefly
impact the voluntary disclosure’s level in risk disclosure. Likewise, in a survey study
by Al-Samadouni (2020) comprising the hypothesis of the availability of a statistically
negative and significant influence of family ownership on the voluntary disclosure’s
442 M. H. Makhlouf and D. Al-Ghosheh

level of non-financial risks, and after applying the study sample and analyzing it, it is
concluded that the family ownership negatively impacts the voluntary disclosure’s level
of non-financial risks. Therefore, Hypothesis No. 2 can be:

H2: There is a statistically significant impact between family ownership and risk
disclosure.

2.5.1 The Association Between the Ownership of Board Members and Risk
Disclosure
The responsibility of the board of directors’ members rests in attending the meetings,
as it is the main element in the effectiveness of the directors’ board. The board of
directors meeting is an opportunity for the members of the board of directors to gather
to discuss issues related to the company and is an important means of making effective
decisions for the company. However, Al-Samadouni (2020) indicates the availability
of an insignificant and positive influence of administrative ownership on the level of
voluntary disclosure of non-financial risks, and there is a positive and important impact
of the independence and size of the directors’ board on the level of voluntary disclosure
of non-financial risks.
Yet, the number of board meetings is one of the determinants of governance that
has two conflicting sides regarding its effect on the risk disclosure level with a positive
association between the number of board meetings and the voluntary disclosure level
(Al-Samadouni 2020). On the other hand, Makhlouf et al. (2020) explain that the board
of directors’ independence has significantly contributed to supervising the association
between risk disclosure and the value of the company. Therefore, Hypothesis No. 3 can
be:

H3: There is a statistically significant impact between the ownership of the members of
the board of directors.

2.5.2 The Association Between Instituational Ownership and Risk Disclosure

Institutional ownership is the investment bodies whose owners have usually experienced
investors and have advantages in requesting and operating information and drawing better
results compared to individual investors, resulting in less management exploitation of
inside information to obtain more private gains at the price of other stakeholders. From
the perspective of agency theory, institutional investment plays an important role in
monitoring the management behavior that investors need in these companies to ensure
the management’s performance in their interests, as fulfilling the investors’ desires gives
management the right to excel, advance, and encourages it to be more transparent in the
practice of disclosing public information and risk disclosure in particular.
Therefore, as put by Al-Samadouni (2020), a positive association is available between
institutional ownership at the voluntary disclosure’s level of non-financial risks. Likw-
wise, Al-Bassam, et al. (2018) elucidate that a positive association is evident between the
degree of voluntary disclosure, each of the institutional ownership, the size of the board
of directors, and the audit committee, alongside the presence of a statistically positive
 The Impact of Ownership Structure on Risk Disclosure 443

and significant association between the voluntary disclosure’s level and the ownership
of major shareholders. Additionally, Kamaruzaman et al. (2019) demonstrate that insti-
tutional ownership impacts the risk disclosure of firms in general. Therefore, Hypothesis
No. 4 can be:

H4: There is a statistically significant impact between institutional ownership and risk
disclosure.

2.5.3 The Association Between Foreign Ownership and Risk Disclosure

Foreign ownership is represented by the rights of shareholders who hold foreign national-
ities and own a percentage of shares, entitling them to influence the results of companies’
business. Besides, foreign ownership seeks to achieve the company’s benefits and max-
imize its value to the extent that they have an effective supervisory role in the company,
resulting to reduce administrative motives for opportunistic behavior that would harm
the value of the company. Accordingly, Al-Meligy (2017) indicates that foreign own-
ership constitutes pressure on management to increase the volume of information that
discloses risks to attract new investments due to the presence of a positive association
between foreign ownership and risk disclosure. Therefore, Hypothesis No. 5 can be:

H5: There is a statistically significant impact between foreign ownership and risk
disclosure.

3 Methods
3.1 Population and Sample Study

The study population comprises the entire (54) public shareholding industrial firms listed
on the ASE. The exclusion of (15) companies is because of insufficient data, their merger,
or liquidation. The data is collected by referring to the financial reports published and
announced on the official website of ASE during the five-year period from 2016 to 2020.

3.2 Variables Measurement

The measurement method of the study variables is shown in Table 1.

444 M. H. Makhlouf and D. Al-Ghosheh

Table 1. Measuring the study variables

Variable Symbol Measurement method

Concentrated Ownership CO The ratio of shares owned by major
shareholders to the total number of shares
Family Ownership FO The ratio of the shares owned by the family to
the total number of shares
Institutional Ownership IO The ratio of shares owned by corporations to
the total number of shares
Ownership of Board Members BO The ratio of shares owned by members of the
board of directors to the total number of
shares
Foreign Ownership FRO The ratio of shares owned by foreign
shareholders to the total number of shares
Dependent Variables
Risk Disclosure RD Number of disclosed sentences expressing
financial and non-financial risks in the
Linsley and Shrives Index (2006)
Firm Size FSIZE Company’s total assets
Leverage LEV The ratio of total debt to total assets

4 Statistical Analysis and Hypotheses Testing

4.1 Study Variables and Descriptive Statistics
The results of the analysis of the descriptive statistics represented by the mean, the lowest
value, the highest value, and the standard deviation are shown in Table 2. Importantly,
these statistics provide substantial information about the nature of the study sample
characterized by the Jordanian companies listed on the (ASE) from 2016 to 2020.
The findings of the dependent variable “risk disclosure” show that the mean of this
variable is 0.325 with a standard deviation of 20%, indicating that the companies do
not adequately disclose the risk indicators. Concerning the findings of the descriptive
study of the independent variables, the findings related to the first independent variable
represented by concentrated ownership show that the mean value is 0.61, as this ratio
signposts that the majority of industrial firms in Jordan listed on the ASE are owned by
major shareholders.
Relating to family ownership, the mean of this variable is 0.14, where the lowest
value is 0.00, while the highest value is approximately 0.85, demonstrating that there
is no concentration of any specific family members within the company. Concerning
the results of the third independent variable, which is institutional ownership, the mean
value is 0.43, as this percentage indicates that industrial firms in Jordan are owned by
a large percentage of institutions, which designates the diversity in the study sample
and the variation of companies. Pertaining to the fourth independent variable, which is
the ownership of board members, Table 2 shows that the ownership of board members’
 The Impact of Ownership Structure on Risk Disclosure 445

Table 2. Descriptive statistics

Variable Obs Mean Std. Dev. Min Max VIF

RD 195 0.325 .209 0.000 1.000 3.812
CO 195 0.614 .251 0.057 0.987 3.215
FO 195 0.144 .205 0.000 0.846 2.163
IO 195 0.430 .325 0.000 0.987 1.418
BO 195 0.387 .273 0.000 0.974 1.253
FRO 195 0.153 .278 0.000 0.987 1.19
FSIZE 195 7.237 .616 5.556 8.633 1.074
LEV 195 0.336 .212 0.019 1.278 1.924
RD: Risk Disclosure, CO: Concentrated Ownership, FO: Family Ownership, IO: Institutional
Ownership, BO: Ownership of Board Members, FRO: Foreign Ownership, FSIZE: Firm Size
LEV: Leverage

mean in industrial firms in Jordan is approximately 39%. With regard to the foreign
ownership, the mean of the ownership of foreign members who are shareholders in
Jordanian industrial firms is approximately 15% as shown in Table 2.

4.2 Multiple Linear Regression Analysis and Hypotheses Testing

In a review of the diagnostic tests of the estimated model, it is found that the statistical (F)
value is (120.55) with the probability value (0.000), which is less than the significance
level of (0.01), demonstrating that the model is statistically acceptable and appropriate
based on the significance of this statistic. However, the coefficient of determination’s
value or R-squared (R2) is (0.16), and this can be elucidated by the fact that the inde-
pendent variables together explain an amount (16%) of the changes that occur in the
dependent variable (risk disclosure). With that being said, this percentage is relatively
acceptable in this type of study, as put by (Oroud 2019) (Table 3).
According to concentrated ownership, it is found that the statistical value (t) corre-
sponding to the estimated coefficient is (0.050) and with a probability value of (0.966),
which is higher than the significance level of (0.05). The absence of a association between
concentrated ownership and risk disclosure can be justified because the ownership of
these companies belongs to specific people, who are directly aware of these risks and
have no desire to disclose these risks. This finding is consistent with the study (Sag-
gar et al. 2017) confirming that the concentration of ownership in the hands of major
shareholders has little effect on risk disclosure.
Concerning the regression analysis of family ownership and risk disclosure, it is
found that the estimated value of the coefficient is (−0.387) with a probability value
(0.003), which is a negative value with high statistical significance, indicating that family-
owned companies do not pay much attention to risk disclosure confronting the company.
This finding is consistent with several previous studies, as these studies found that family-
owned companies tend to disclose and reveal less information about the risks that the
446 M. H. Makhlouf and D. Al-Ghosheh

Table 3. Multiple linear regression analysis results

RD Coef. Std. Err. P-value

CO 0.002 0.039 0.966
FO −0.387 0.063 0.003
IO 0.151 0.017 0.001
BO −0.067 0.031 0.101
FRO 0.161 0.010 0.000
FSIZE 0.034 0.009 0.022
LEV 0.008 0.023 0.740
_cons 0.678 0.069 0.001
R2 0.16 F 120.55 (P = 0.000)
RD: Risk Disclosure, CO: Concentrated Ownership, FO: Family Ownership, IO: Institutional
Ownership, BO: Ownership of Board Members, FRO: Foreign Ownership, FSIZE: Firm Size
LEV: Leverage

company may face. In this mood, Al-Samadouni (2020) indicates that there is a negative
impact of family ownership on the level of voluntary disclosure of the risks. As detailed
in the study by Makhlouf et al. (2018), the characteristics of the board of directors affect
the level of voluntary disclosure in the risk disclosure in particular. Likewise, Habtoor
et al. (2019) show that family ownership tends to disclose less information related to
risks.
Concerning the hypothesis result for the independent variable represented in the
ownership of board members and risk disclosure, it is found that the value of the estimated
coefficient is (0.067 -) with a probability value (0.11), which is a negative value that has
no effect. The absence of a association between the ownership of board of directors
and risk disclosure can be justified by the unwillingness of the members of the board of
directors to disclose the risks for fear of accountability by the rest of the shareholders. As
shown by Al-Meligy (2017), there is a negative correlation with a significant significance
between the ownership of the members of the board of directors and risk disclosure.
Regarding the analysis of the hypothesis of the association between institutional
ownership and risk disclosure, it is found that the value of the estimated coefficient is
(0.151) with a probability value of (0.001), which is a positive value with high statisti-
cal significance, indicating that corporate-owned companies are significantly interested
in disclosing the risks faced by the company. The related statistical results confirm the
presence of a statistically positive and significant effect on the percentage of institutional
ownership on risk disclosure. This result is on the line with previous works that acknowl-
edge that increasing the shares owned by institutions rather than individuals enlarges the
risk disclosure in financial reports and prevents hiding them. As put by (Al-Samadouni
2020; Al-Bassam et al. 2018), there is a positive association between the level of risk
disclosure and institutional ownership. In the same mood, Kamaruzaman et al. (2019)
show the effect of institutional ownership on risk disclosure in general.
 The Impact of Ownership Structure on Risk Disclosure 447

On the subject of the association between foreign ownership and risk disclosure, it
is found that the estimated value of the coefficient is (0.161) with a probability value
of (0.000), which is a positive value with high statistical significance, indicating that
foreign-owned companies are significantly interested in disclosing the risks facing the
company. This result indicates that the owners of foreign ownership are interested in risk
disclosure due to the outcome of their experiences, and the diversity of their cultures in
managing companies and risk disclosures. This result is consistent with previous studies
such as Al-Meligy (2017), which concludes that foreign ownership constitutes pressure
on management to increase the volume of information that discloses risks to attract new
investments. It is also found that increasing the shares owned by foreign investors who
have the expertise and tend to control the work of executive management increases the
quality of financial reports, resulting in a rise in risk disclosures that companies may
face.
On the topic of the control variable (FSIZE), the findingsindicate that there is a
positive and significant value at the significance level (0.05). About the second control
variable (LEV) indicate that there is a positive value and not statistically significant.

5 Conclusion
In a nutshell, this study seeks at inspecting the ownership structure’s impact, i.e. major
shareholders, family ownership, board members’ ownership, institutional ownership,
executive management ownership, and foreign ownership) on risk disclosure. To achieve
the study objectives, answer the study questions raised, and test the articulated study
hypotheses, the descriptive statistics methods, namely: the cross-sectional time-series
analysis (Panel Data) have been appropriately used.
Importantly, the findings thoroughly show the relationships between ownership struc-
ture and risk disclosure. The findings of the multiple linear regression analysis demon-
strate that institutional ownership, administrative ownership, and foreign ownership pos-
itively affect risk disclosure, while family ownership negatively impacts risk disclosure.
Conversely, the results reveal zero significant impact of concentrated ownership and the
ownership of the board members on risk disclosure.
In light of the discussion of the results of the study, the study mainly recommends
the decision-makers encourage investment by attracting foreign investors to be part of
the ownership of Jordanian companies thanks to their knowledge and competence in
managing companies, imposing effective control, and motivating companies investing
in them to disclose risks. More importantly, the study recommends that decision-makers
among investors use the indicators of the ownership structure in industrial firms when
making future investment-based decisions.

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 Board and Audit Committee Structure
and the Quality of Corporate Environmental
and Social Responsibilities Disclosures
in Malaysian Companies

Sulaiman Tahajuddin, Abdul Wahid Mohd Kassim(B) , Raman Noordin,

and Junainah Jaidi

Universiti Malaysia Sabah, 88400 Kota Kinabalu, Sabah, Malaysia

{sulaiman,abdulwah,roman,nenjaidi}@ums.edu.my

Abstract. The objective of this paper is to study the relationship between five
factors of board and audit committee characteristics and the quality of Corpo-
rate Environmental and Social Responsibilities Disclosures Environmental and
Social Responsibilities Disclosures (CESRD) in Malaysian annual reports. Using
a dataset from Bursa Malaysia main board, this study adopted content analysis
method. Based on regression analysis with the five variables, mixed results were
obtained. The results confirm that only two of the independent variables Bumiputra
Muslim Controlled Board and Bumiputra Muslim CEO’s ethnicity have influenced
on the quality of CSERD. However, the impact of the three of variables, Bumiputra
Muslim Chairperson of the board and Audit Committee, and Bumiputra Muslim
controlled Audit Committee are found to be statistically not significant.

Keywords: The quality CESRD · Bumiputra Muslim · Annual reports

1 Introduction
There is an increasing attention on the issue of Corporate Social and Environmental
Responsibilities (CSER) around the world by observers in the world of business and
academia. One aspect of CSER that is viewed critically is its reporting. Many observers
view that the traditional financial reporting fails to adequately capture the firm’s CSER
activities (Yongvanich and Guthrie, 2006; Darus et al., 2009). Therefore, Corporate
Social and Environmental Responsibilities disclosure (CESRD) is a means of furnishing
information on affairs between firms regarding social, environment, economics, and
governance issues (Gray et al. 2001). In other words, it involves in delivering information
on the social, economic, environmental, and governance setting either in the form of
financial or non-financial. A comprehensive CESRD will thus offer valuable information
to wide selection of stakeholders.
In emerging economies countries, including Malaysia the topic of CSER is princi-
pally imperative because CSER is still at an early development, transparency and disclo-
sure among firms is comparatively still low compared to developed countries (Anuforo

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 449–456, 2023.
https://doi.org/10.1007/978-3-031-26956-1_43
450 S. Tahajuddin et al.

et al., 2018; Darus et al., 2009; Esa and Ghazali, 2012; Fatima et al., 2015; Haji, 2013;
Othman et al., 2011; Sundarasen et al., 2016; Thompson and Zakaria, 2004). Further-
more, the quality of information was considered at low level. Some of the reasons stated
are the information was either non-disclosure or the information was laconic, more
qualitative in nature, in turn, deficient in quantitative information (Bakar et al., 2019;
Buniamin, 2010; Mutalib et al., 2014; Razak et al., 2022).
Therefore, the aim of this paper is the to seek those determinants which are posi-
tively linked with the quality CSERD in Malaysian firms. The remainder of the paper
is structured as follows. First, the review of literature. The discussion on the research
methodology. Next, the research findings and discussion are presented. Finally, it ends
with the conclusion and recommendation.

2 The Review of Literature

2.1 Corporate Environmental and Social Responsibilities (CSER)
CSER is a critical subject area in business ethics. So, what is CSER? Due to lack of con-
sensus, there is no clear universal definition of CSER. Different authors have described
it in a variety of ways. In the past, it has been a range of terms all evidently referring to
the same process. So, we have corporate accountability, corporate citizenship, corporate
ethics, corporate philanthropy, corporate responsibility, corporate social responsibility,
corporate sustainability, sustainability, and triple bottom line. CSER is essentially the
way in which businesses’ decisions integrate social and environmental concerns toward
the betterment of the society and a sustainable environment. In other word current con-
cepts on CSER believe that firm relied on society for its continuous survival, going
concern, and growth. If firms treat its community fairly, then the community probably
have an optimistic impression of the firms (Singh and Misra, 2021).

2.2 Bumiputra Muslim Controlled Board and Audit Committee

It is well known that religion influences and imposes ethical behaviour among its adher-
ences. For example, Islam lay emphasis on fairness, faithfulness, justice, truthfulness,
and honesty on societies. In turn, these values also transpired in Islamism’s financial
and business practices. According to several scholars such as Badshah et al., (2013),
Gray (1988) and Perera (1989), culture is one of the factors that influences of account-
ing practices. Hofstede (1997) has claimed that culture is the shared indoctrination of
the mind which differentiates the members of one group from another, and oversees
how persons recognise their responsibilities and discharge their duties. If culture shapes
accounting practices than religion as one of the important components of culture may
also has impact on accounting especially in Islamic societies. in Islam there is no sepa-
ration of business affairs from religion, including accounting practices (Badshah et al.,
2013; Perera, 1989). Based on a Hofstede–Gray theoretical framework, Mazzi et al.,
(2018) claimed that found that cultural qualities influence financial disclosures in dif-
ferent countries. It also determined the managers internal and external preferences of
the choices financial reporting adopted in their companies (Mazzi et al., 2018). Mus-
lim managers or board members come to recognise that they are held accountable to
 Disclosures in Malaysian Companies 451

their stakeholders besides liable to God in the afterlife; then, they take the necessary
steps and actions to fulfil their accountability. Furthermore, Haniffa and Cooke (2005)
stated that firms who boardroom or committee are controlled by non-Bumiputra Mus-
lim are predicted to communicate less CSERD information compared to firms that are
controlled by Bumiputra Muslim. Most of non-Bumiputra are non-Muslim. Conversely,
Bumiputra Muslim, as Muslims, their way of life and thinking are influenced by their
Islamic religion. Some of the values promoted by Islam are collectivism, law abiding
citizen, subscribed to idea of social equality, and business ethics that valued transparency
and full disclosure (Baydoun and Willett, 1995 and 1997; Gambling and Karim, 1991).
Therefore, Bumiputra Muslim is predicted to communicate more CSER information and
more transparent in business dealings (Haniffa and Cooke, 2002). Therefore, examining
the role of Islam and Muslims in shaping disclosure practice is deemed promising. Thus,
we hypotheses:
H1: The is a positive relationship between the proportion of Bumiputra Muslim
controlled board and the quality of CSERD.
H2: The is a positive relationship between the proportion of Bumiputra Muslim
controlled audit committee and the quality of CSERD.

2.3 The Ethnicity of CEO, the Board of Directors’ Chairperson and Audit
Committee’s Chairperson

According to Khan et al., (2019) race or ethnicity as part of the components of culture
acts an important catalyst in boards’ conducts and disclosure practice of companies.
It can be seen as one of valuable resources racial of a firm in achieving a competi-
tive edge (Fitzsimmons, 2013; Khan et al., 2019). Each culture is different regarding
to attitudes, principles, views, behaviours, and ethical tenets that influence companies’
strategic decisions (Zhang, 2012). In addition, on personal level, Chuah (1995) sug-
gests that the important factors that shape most of Malaysian managers’ way of thinking
are race, culture, and education. In turn it will influence their decision on companies’
strategic decisions. Past literature on the impacts of ethnicity on disclosure practice give
mixed result. The study done by Anifowose et al., (2017) in Nigeria showed that eth-
nicity impact negatively on the extent of disclosure. Rashid et al. (2012) investigate the
influence of ethnicity on disclosure in Malaysia. Their finding shows that no significant
relationship the ethnicity of boards members and disclosure practice of a company. How-
ever, two research done the same authors gives positive results of the linked between
ethnicity and disclosure. In their studies on the effect of ethnicity on disclosure, Haniffa
and Cooke (2002; 2005) claimed the existence of a significantly and positively relation-
ship between Bumiputra Muslim controlled boards and disclosure. Haniffa and Cooke
(2002) imply that Bumiputra Muslim directors are predicted to provide full disclosure as
part of their religious duties and to conduct business in conformation to Islamic business
ethics. Thus, we hypotheses:
H3: The is a positive relationship between the ethnicity of the CEO and the quality
of CESRD.
H4: The is a positive relationship between the ethnicity of the Board’s Chairperson
and the quality of CESRD.
452 S. Tahajuddin et al.

H5: The is a positive relationship between the ethnicity of the Audit Committee and
the quality of CESRD.

3 Research Methodology
The data is obtained utilising the content analysis method from the annual reports of the
sample of 347 firms listed in the main board of Bursa Malaysia. The annual report of
these companies is the main source of data for this research. In accord with past CSER
research annual reports and content analysis are used to measure CSERD (Buniamin,
2010; Amran and Devi, 2008). There are five independent variables and one dependent
variable, tested in this study.

3.1 The Dependent and the Independent Variables of This Study

Past studies over accentuate on investigating the extent and type of disclosures only
(Buniamin, 2010 and Guthrie et al., 2008). Yet, there has been deficiency of study that
take into account the quality of CSERD (Buniamin, 2010). Therefore, the present study
adopted a CSR disclosure index developed by Ghazali (2007) to measure the quality of
CSERD.
The independent variables which represent five board structure variables outlined
in Table 1. The table also presents the measurement of the variables of this study, both
dependent and independent variables.

4 Results and Discussion

The results for our model of CSERD after the regression analysis are shown in Table 2
below. The regression produced R-squared of 0.346 and statistically significant. This
suggests that the amount of variability in CSERD, as described by the variables, is
about 34.6%. it is implied that our model R-squared is quite substantial has a reliable
explanatory power. Our model is sufficiently robust which significant at 0.01 level with
F-ratio of 36.018. All the values of the tolerance coefficient of are more than 0.10, while
the VIF values are less than the threshold of 10.000, thus, indicating no intolerable
multicollinearity in interpreting the regression results (Gujarati, 2003).
The study finds that Bumiputra Muslim Controlled Board (BPMBOD) has a signifi-
cant and positive relationship with CSERD at one per cent level. This result does support
H1, it is a confirmation that the greater number of Bumiputra Muslim boardroom mem-
bers, the higher the tendency for firms to report on the CSERD in the annual report. The
result is consistent with Haniffa and Cooke (2002 & 2005) findings. As reported by Han-
iffa and Cooke (2005), companies which boardrooms controlled by Bumiputra Muslim
are expected to disclose more CSER information compared to other ethnic groups’ con-
trolled boardrooms. The motivation for such behaviour is that the boardroom directors
are influenced by their own cultural values in their management principles. Consecu-
tively, as Muslim, the BPM behaviours, normally adherence to the Islamic ethics and
teaching. It is well known that Islam teaching subscribed to the idea of philanthropy and
the full disclosure principle (Lewis, 2001).
 Disclosures in Malaysian Companies 453

Table 1. The independent variables and measurement

No Variable Variable acronym Variable type Measurement

1 Bumiputra Muslim BPMBOD Independent The ratio of Bumiputra
Controlled Board Muslim directors to total
directors on the board of
directors
2 The ethnicity of the BODCHR Independent Board’s Chairperson is a
Board of Directors’ Bumiputra Muslim - 1 =
Chairperson Yes 0 = No
3 Ethnicity of CEO BPMCEO Independent CEO is Bumiputra
Muslim -1 = Yes 0 = No
4 Audit Committee BPMAUD Independent The ratio of Bumiputra
controlled by Muslim directors to total
Bumiputra Muslim directors on the Audit
directors Committee
5 The ethnicity of the AUDCHR Independent Audit Committee’s
Audit Committee’s Chairperson is Bumiputra
Chairperson Muslim -1 = Yes 0 = No
6 Quality of Corporate QCSERD Dependent CSERD Checklist by
Social and Ghazali (2007)
Environmental
Responsibilities
Disclosures

The finding on BPMCEO also gives the result as BPMBOD. This indicates the
appointment of the Muslim CEO can promote the improvement of the quality of CSERD
produced by the companies and support H3. The result is in lined with Al Arussi et al.,
(2009)’s finding. Muslim have the tendency to follow Islamic ethics such as integrity,
trustworthiness, and transparency. Consequently, they have the tendency to fully fur-
nished information concerning their firm’s performance, and not neglecting the duties
toward the society and the environment (Al Arussi et al., 2009).
The results of this study provide evidence that BPMAUD, BODCHR, and AUDCHR
have no impact on the quality of CSERD. Audit Committee controlled by Bumiputra
Muslim directors (BPMAUD) is found to be not significant and positively related to
the quality of CESRD. This result does not support H2, which asserts that the higher
the ratio of Bumiputra Muslim directors on the audit committee, more information on
CSER will be provided. One of the explanations given by Alkdai and Hanefah (2012)
is the numbers of members does guarantee that the quality of CESRD will improved.
They further explained that that the type of Muslim membership is more important (i.e.,
independent directors) to boost the effectiveness of the audit committee’s role (Alkdai
and Hanefah, 2012).
454 S. Tahajuddin et al.

Even though in the predicted directions of the linked between the variable BODCHR
and the quality of CSERD is accurate but it is not statistically significant. So, the hypoth-
esis H4 that the ethnicity of Boardroom chairperson linked to the quality of CSERD is
not supported. This is an indication that the appointment of chairperson from BPM does
not improve the quality of CSERD. This finding does not support the past studies done
by Al Arussi et al., (2009) and Haniffa and Cooke (2002). Both studies maintained that
the ethnicity has an impact to disclosure practice in Malaysia. Nevertheless, Al Arussi
et al., (2009) finding related to the audit committee instead of board of directors.
Finally, the variable AUDCHR has also been found to be is not statistically signifi-
cant. Furthermore, the relationship between the audit committee chaired by Bumiputra
Muslim is negatively related to the quality of CESRD. This finding does not support H5.
This finding showed that the appointment of Bumiputra Muslim. In audit committee of
companies will not improve the quality of CESRD but lower the quality of disclosure of
CESR information. As of the H4, this finding diverges form the past studies by Al Arussi
et al., (2009) and Haniffa and Cooke (2002). These studies asserted that the ethnicity has
an impact to disclosure practice in Malaysia. Therefore, H1 and H3 are accepted while
H2, H4, and H5 are rejected.

Table 2. Multiple regression

Variables Expected sign of Standardized t-value p-value VIF Tolerance

coefficient coefficient
(Constant) 0.286 17.921 0.000
BPMBOD + 0.161 3.225 0.001 5.813 0.172
BPMCEO + 0.126 4.217 0.000 2.823 0.354
BODCHR + 0.013 0.667 0.506 1.494 0.669
BPMAUD + −0.043 −1.016 0.310 2.834 0.353
AUDCHR + 0.000 0.005 0.996 1.566 0.638
R2 0.346
F-Test 36.018***
* , **, *** = Significant at the 10%, 5% and 1% level respectively using a two tailed test

5 Conclusion and Recommendation

The aim of this paper is to explore the association between five of variables of boardroom
structure and the quality of CSERD by Malaysia companies. It uses a content analysis
procedure and disclosure score to explore the content of individual company annual
report. The results for the sample of 347 firms listed in the Malaysian Stock Exchange
verified that two of the determinants BPMBOD and BPMCEO are linked with the quality
of CSERD in the predicted directions. Both these variables BPMBOD and BPMCEO
are statistically significant at the one percent level.
 Disclosures in Malaysian Companies 455

On the other hand, the three of variables, BPMAUD, BODCHR, and AUDCHR are
recognised to be not significant when regression analyses are executed. This study’s
results confirmed that to certain extend ethnicity do influence the quality of CSRD.
Therefore, looking into the facts, it can be concluded that board structure may be more
successful and effective with combination of members with diversified ethnicity, culture,
and gender, not just dominated by one culture or ethnic. It is what defined Malaysia as
a country which rich with multicultural, religion, and ethnicities.
The findings of this current study should be considered with more care in view of
several limitations. First, the data that was utilised in this research based on cross section
analysis. Hence, a longitudinal analysis is more beneficial and productive that might help
to uncover the trend of CSERD. Second, the study only examines the quality of CSERD.
In the future, the study should investigate both quantity and quality of CSERD together
to be more comprehensive result.

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 Sustainability and Operational Challenges
of Islamic Microfinance in Nigeria: The Case
of Al-Hayat Microfinance Bank

Adnan Opeyemi Salaudeen1(B) , Auwal Adam Sa’ad2 , and Hassan Suleiman3

1 Center for Islamic Finance, University of Bolton, Bolton, UK
[email protected]
2 IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia,
Kuala Lumpur, Malaysia
[email protected]
3 Kulliyah of Islamic Revealed Knowledge and Human Science, International Islamic
University Malaysia, Kuala Lumpur, Malaysia
[email protected]

Abstract. Nigeria’s economy is currently the largest in Africa and the world’s
26th, with a Gross Domestic Product (GDP) of US$600 billion (roughly N81
trillion) in 2017. Unfortunately, the prevalence of poverty in Nigeria is also grow-
ing. According to the World Bank estimate, poverty accounts for more than 70%
of the population, implying that over 130 million people live below the poverty
line. Microfinance is one of the most successful strategies for eliminating poverty
since it provides access to financial resources that can assist in reducing poverty
by fostering financial involvement and empowerment. Despite the fact that there
are over 800 microfinance banks in Nigeria, their contribution to the country’s
economy is less than one percent. In addition, the basic objective of eradicating
poverty has not yet been attained. Therefore, the extant literature has projected
Islamic microfinance banks as a feasible solution to alleviate poverty in Nigeria,
especially by looking at many Muslims in the country. Hence, Islamic micro-
finance banks continue witnessing minimal or no development in Nigeria. This
study examines the obstacles impeding the growth of Islamic microfinance banks
and their commercial viability. It also aims to provide solutions and recommen-
dations to assist Islamic microfinance banks in regaining the public’s trust by
expanding their financial inclusion through various Islamic micro-credit products
as a viable alternative to the existing conventional microfinance banks that offer
high-interest loans. This study uses qualitative research techniques to fulfil its
objectives. The data for this study were gathered using a semi-structured inter-
view. The research reveals several regulatory concerns, such as licence processes
and substantial paid-up capital, which is one of the most significant obstacles.
Similarly, awareness, misconception, and compliance continue to be the most
critical obstacles for IMFBs in Nigeria. Implications of the study for microfinance
institutions, policy regulators, and recommendations have been provided in line
with the main findings.

Keywords: Islamic microfinance · Poverty alleviation · Financial inclusion ·

Al-Hayat Microfinance Bank · Nigeria

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 457–473, 2023.
https://doi.org/10.1007/978-3-031-26956-1_44
458 A. O. Salaudeen et al.

1 Introduction
Nigeria is Africa’s most populous country, with more than 200 million people. A GDP
of US $600 billion (i.e., approximately N81 trillion) makes Nigeria the largest economy
in Africa and the 26th largest economy globally as of 2017. (World Bank 2018). How-
ever, unfortunately, poverty keeps increasing even faster than the population in Nigeria.
According to the World Bank (2019) report, poverty accounts for more than 70% of the
total, indicating that more than 130 million people live below the poverty line. The report
concludes that Nigeria now occupies the second position in poverty capital worldwide
after India.
Microfinance is one of the effective methods in combating poverty because it offers
access to financial resources that can aid in poverty reduction by promoting financial
engagement and empowerment. Microfinance is argued to be a worthy circle for breaking
the poverty chain. Micro-credit infusion facilitates self-employment for the borrower and
raises livelihood consumption, saving, and purchasing power. Many impact studies (El
Hadidi 2018; Oluyombo and Ogundimu 2017; Seibel 2005; Srinivasan and Sriram
2003) show that microcredit enables recipient households to achieve a higher standard
of living, better accommodation, a higher level of human growth, more assets, and a
turn away from moneylenders. Several microfinance platforms have been established
to combat the threat of poverty using conventional and Islamic microfinance. Despite
several microfinance programmes, poverty remains a concern for Nigeria’s government,
the business sector, and non-governmental organisations (NGOs) since a large proportion
of the population lacks access to financial services. The National Bureau of Statistics
(NBS) (2020) statistics show that microfinance institutions in Nigeria support fewer
than one million people out of a total of 40 million potential borrowers. Furthermore, in
Nigeria, total microcredit facilities account for just 0.2% of GDP and less than 1% of
total credit to the economy.
Therefore, Islamic societies, NGOs, and researchers in Nigeria have introduced
Islamic microfinance banks (IMFB) as a feasible alternative to conventional micro-
finance. As a result, some Islamic microfinance banks were established in some states
with a notable effect (Onakoya and Onakoya 2013). Nevertheless, some factors still delay
the development of Islamic microfinance banks to expand all over Nigeria. Notwith-
standing that, the existing literature has projected that Islamic microfinance banks are
a feasible solution to alleviate poverty in the country. Several studies have been con-
ducted on how Islamic Microfinance Banks (IMFB) can eradicate poverty in Nige-
ria (Olalekan Yusuf and Hakeem Mobolaji 2012; Oluyombo and Ogundimu 2017;
Sodiq 2010). Some also analyse the existing framework of Microfinance banks in Nige-
ria (Dogarawa 2012) Mhammed and Hasan 2012; Noibi 2011). At the same time, some
explore how Microfinance banks in Nigeria can improve micro-credit facilities and finan-
cial inclusion (Michael and Sharon 2014; Oyekolade Sodiq and Taofiki Ajani 2019;
Oyesanyaa and Salako 2018).
The Al-Hayat foundation is situated in Ogun State, a state in the southwestern region
of Nigeria. In February of 1976, the old Western State was renamed Ogun State. The
southern, northern, eastern, and western boundaries of Lagos State are Oyo and Osun
States, Ondo State, and the Republic of Benin, respectively. According to the World
Population Review, Ogun State has a population of 4,864,322, including more than 2
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 459

million Muslims (2019). Oyesanya (2013) investigates Islamic microfinance organisa-

tions in the Nigerian state of Ogun, with the Al-Hayat Relief Foundation in the lead.
He asserts that Al-Hayat was established to advance the path of the Islamic economic
system on a case-by-case basis and through various help packages by offering interest-
free loans to its registered members. The story notes that Al-Hayat has expanded to six
states in Nigeria: Ogun, Lagos, Osun, Oyo, Ondo, and Kwara. Furthermore, he asserts
that there are forty branches with over 6,000 members.
However, Islamic Microfinance Banks have witnessed minimum development in
Southwest Nigeria, with only one Islamic microfinance bank located in Ogun state
(Al-Hayat Microfinance Bank). Even with the current numbers of microfinance banks in
Nigeria, it is disheartening to note that the lack of growth in these institutions has made it
very difficult to notice their impacts on alleviating poverty in Nigeria, particularly Ogun-
state with over two million Muslims (World Population Review 2019). Furthermore,
Nigeria has fewer than ten Islamic microfinance banks out of a total of 800 microfinance
institutions. Additionally, Islamic microfinance institutions in Nigeria continue to have
minimal or no growth. Consequently, financial exclusion, lack of awareness, mistrust,
the high cost of operating a unit microfinance bank (due to CBN capital requirements),
liquidity pressure, insufficient human resources, and a lack of Islamic banking-based
financial technology are likely the root causes of this low development, amongst other
factors. (Dogarawa 2012; Gumel et al. 2014; Onakoya and Onakoya 2014). In addition,
some individuals still lack confidence in microfinance institutions due to several other
financial concerns.
Therefore, this study investigates the operational obstacles impeding the growth of
Islamic microfinance institutions in Nigeria. It also aims to provide solutions and recom-
mendations to help Islamic microfinance banks restore the public’s trust by expanding
their financial inclusion through various Islamic micro-credit products as an alternative
to conventional microfinance institutions.

2 Literature Review
According to the CBN’s Revised Regulatory and Supervisory Guidelines for Microfi-
nance Banks in Nigeria, a microfinance bank (MFB) is defined as any company licensed
by the CBN to engage in the business of providing various financial services such as
deposits, loans, payment services, money transfers, and insurance services at micro-
levels for households of poor and low income and their microenterprises (Central Bank
of Nigeria 2005, 2012). These financial services include credit, savings, micro-leasing,
money transfer, and payment services. In addition, microfinance is distinct from other
formal financial products by the small loans and savings collected with no collateral and
easy processes.
Similarly, Nwanyanwu 2011 described microfinance as a relatively basic framework
that has been proven worldwide to empower impoverished people and alleviate them out
of poverty. It can be concluded from the above definitions that microfinance is a poverty
alleviation mechanism that provides credit and other financial resources for poor, low-
income households and SMEs. Microfinance assists the vulnerable in increasing their
wages, developing sustainable businesses, reducing exposure to shocks, and creating
jobs to accomplish the goal of poverty alleviation (Yakubu et al. 2018).
460 A. O. Salaudeen et al.

Microfinance is an ancient cultural institution in Nigeria, extending back several

centuries. Traditional microfinance organisations provide loans to rural and urban low-
income households. They consist mainly of informal Self-Help Groups (SHGs), rotating
savings and credit associations (ROSCAs), accumulating credit and savings associa-
tions (ASCAs), and borrowing directly from friends and family. In addition, savings
groups and cooperative organisations provide microfinance services. However, informal
financial institutions typically have a restricted reach due to a lack of funds and other
micro-financial products to give to their consumers (Egboro 2015; Nwanyanwu 2011;
Olomola 2002; Oluyombo and Ogundimu 2017).
Seibel 2005 adopts a qualitative approach starting from the historical background of
microfinance banks in Nigeria, development, and transformation, elucidating the gov-
ernment’s impact on linking and converting all informal microfinance institutions into
government cooperatives and formal institutions in the late’80s. The finding elaborates
the linkage as a method with a long history in Nigeria, linking informal to formal financial
organisations and self-help organisations to banks. Caxton-experience Idowu’s “mod-
ernising” an Esusu in Ondo paved the way for broader replication in Lagos, where he
had been elevated to the Registrar of Cooperative Societies status. Acha 2012 com-
bined Esusu’s rotating collecting and allocation of deposits with Ajo’s doorstep savings
collecting. Itinerant collectors paid by the bank gathered daily savings and deposited
them as security for Esusu members’ microloans. However, neither study explored the
challenges affecting MFB’s efficiency and performance during this early time.
Microfinance is regulated and overseen in Nigeria by the Central Bank of Nigeria
(CBN), whose policy framework is specified in (Central Bank of Nigeria 2005) and
updated by new regulatory guidelines (Central Bank of Nigeria 2012). A change to
the supervisory and regulatory framework was implemented in (the Central Bank of
Nigeria 2012) in an apparent effort to address noted flaws in the 2005 system. The updated
framework is groundbreaking in its definitions of MFB target customer, micro-enterprise,
and microfinance loan. Additionally, it covers acceptable and banned activities in an MFB
and ownership and licensing requirements. The Board and Management of MFBs are
also covered in fundraising, accounting, and associated problems.
Mohammed and Hasan (2008) conducted one of the earliest investigations on why
conventional MFBs have not attained considerable financial inclusion and how Islamic
MFBs may fill the space in the fight against poverty. The study used a qualitative method-
ology to depict Islamic MFB as a necessary alternative in the government’s quest to
alleviate poverty. The study concludes that the existing microfinance in Nigeria serves
less than 1 million people out of 40 million, being the potential number that needs the
service. Sodiq 2010 also finds that conventional microfinance institutions charge interest
rates as high as 100% for lending and pay as low as 5% on savings and deposits. How-
ever, challenges such as share capital, awareness, and Islamic fintech hindering Islamic
MFB from becoming a feasible alternative to conventional MFB need more study.
Al-Ameen 2016 studied the implementation of Islamic microfinance in Nigeria as a
matter of equity and social justice, explaining why Muslims deserve an adequate Islamic
microfinance system and how Muslims in Nigeria were marginalised from MF indus-
tries during the foundation and establishment of the section. The study discusses the
need for an Islamic MFB for the Muslim community in Nigeria because several poor
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 461

and low-income Muslims in need of microfinancing cannot benefit from the government
microcredit schemes. After all, the loan conditions contradict their faith. Still, Opera-
tional challenges delaying Islamic MBF from achieving sustainable financial inclusion
need discussion. Additionally, Dogarawa 2013; Ishaaq et al. 2020) critically review
the NIFI guidelines and regulation and supervision of non-interest (Islamic) microfi-
nance banks in Nigeria. The studies claim numerous provisions justify the application
of Islamic banking and finance in Nigeria. However, these provisions need to be consol-
idated into proper legislation in a National Assembly Act that will adequately allow for
the transparent operation of Islamic banking and finance.
Oyesanya (2013) examines Islamic microfinance organisations in Ogun State, Nige-
ria, particularly on Al-Hayat Relief Foundation. The study believes that Al-Hayat was
established to encourage the provision of interest-free loans to its registered members,
the application of the Islamic economic system on a case-by-case basis, and other support
programmes. Al-Hayat has expanded to six states in Nigeria, including Ogun, Lagos,
Osun, Oyo, Ondo, and Kwara, with over forty branches and a total membership of 6,000
people.
Adepoju and Oyesanya (2014) evaluate the poverty reduction techniques of the Al-
Hayat relief foundation, highlighting a number of the organisation’s accomplishments,
such as the training of customers o Islamic financial literacy and the construction of
the Yatwater plant. In addition, the establishment of Al-Hayat Microfinance Bank, the
establishment of Al-Hayat Medical Centre Ltd, and several achievements in real estate
allowed members to purchase plots of land by buying in bulk and allocating them to
members with deferred payment, thereby contributing to the economic and financial
activities of the country (“Achievements – AL-HAYAT RELIEF FOUNDATION,” 2019).
As a microfinance organisation, the study concludes that Al-Hayat Relief Foundation
has been proactive in alleviating poverty among the Muslim population through several
interrelated strategies. However, The Foundation needs more in-house study on all its
investments and subsidiary (Al-Hayat micro-finance bank e.t.c.) on their challenges and
prospects.
In 2014, the foundation established Al-Hayat Microfinance Bank Limited to extend
its micro-credit facilities and expand its financial inclusion tactics beyond the organisa-
tion’s members (Noibi and Adewole 2015; Salako and Azeez 2018). The major aim is
to include non-NGO Muslims and non-Muslims in Ijebu-ode, Ogun State, and beyond
in their mission and desire to alleviate poverty. Several studies, such as Adepoju and
Oyesanya (2014), Bilqis (2012), and Salako and Azeez (2018), have identified and pre-
dicted numerous bank initiatives to promote sustainable financial inclusion in Ogun
State. However, there have been minimal studies on the hurdles and difficulties limiting
Al-Hayat Microfinance Bank (AMFB) from reaching its primary aims after 8years of
existence (Salaudeen and Zakariyah 2022). This study seeks to analyse and investigate
these obstacles and to suggest viable solutions.

3 Conceptual Framework

This study examines operational challenges thwarting Islamic microfinance banks’ sus-
tainable financial inclusion, employing Al-Hayat microfinance bank in Nigeria as a
462 A. O. Salaudeen et al.

case study. Previous studies have observed that Islamic banks’ challenges are opera-
tional. The following diagram illustrates these challenges and opportunities for Islamic
Microfinance in Nigeria (Fig. 1).

60% Nigerians are liv-

ing below poverty line

Microfinance as poverty alleviaon

Increase in
Exisng
poverty and
MFBs only
decrease in Over 800 MFBs in contribute
microcredit Nigeria 0.2% of the

Adopt-
ing Islamic
Operang MFB as a Only 10
under conven- feasible Islamic MFBs
onal MFBs in the whole
legal and opera- 35 states
onal frame-
Only one Islamic MFB in Ogun State
(Al-Hayat Microfinance Bank)

Founded by an Islamic NGO (Al-Hayat Relif

Foundaon) Main aim: Financial Inclusion

Challenges
lack of Islamic banking
Paid-up Capital (CBN)
based FINTECH.

Financial Inclusion Awareness Inadequate human re-

sources

Fig. 1. Conceptual framework on IMF’s challenges in Nigeria.

4 Methodology

This study explored and fulfilled its objective through qualitative research techniques
and was majorly based on primary data collection due to the limited research on Nigeria’s
Islamic microfinance bank. Therefore, a purposive non-probability sampling technique
is adopted. For data collection, a semi-structured interview was done. In this instance,
five AMFB members were chosen, two from the board and three from the staff. Each
informant got an email with a consent letter and recommended interview questions, to
which they replied with their desired interview day and time. All respondents’ identi-
ties were encrypted, and English was the discourse language. All conversations were
recorded and fully transcribed. In addition, data reduction, integration, and visualisation
stages were adequately applied to analyse data efficiently (Table 1).
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 463

Table 1. Participant’s profile: ID, position, educational background, and level.

Participants’ id Position at AMFB Educational background Level of education

SH1 Founding Member/Board Islamic studies PhD
member
SH2 Board member Islamic studies PhD
BS1 High ranking officer Accounting MSc
BS2 Credit facilitator Computer science MSc
BS3 Marketing officer Marketing BSc
Source: Researcher’s

5 Finding and Discussion

Several challenges impeding Al-Hayat MFB’s financial inclusion, including operating

licence, regulatory and supervisory framework, misperception, and Islamic fintech, as
determined by the results originated from the analysed data.

5.1 Share Capital (One Unit MFB)

The Central Bank of Nigeria categorises Non-Interest Microfinance Banks (NIMFBs)

into three categories according to their paid-up capital. This determines how many
branches the bank can open, the capacity of its outreach, product and credit facility
it can offer.
The CBN indicated that the guideline (Central Bank of Nigeria (CBN) 2017) would
authorise three types of NIMFBs: a Unit NIMFB, which would be permitted to operate
in a single location and would be required to have a minimum paid-up capital of N20
million. According to the amended criteria, the unit NIMFB is authorised to have a
single branch outside the head office within the same Local Government Area, so long
as it has at least N20 million in accessible free funds and meets the minimum prudential
standards. AMFB belongs under the NIMFB category because it began with N20 million
upon its inception.
BS1 mentioned AMFB’s share capital as one of their significant challenges:

“Firstly, I want to say something that is hindering us: fund and share capital. We
started with just N20 million because that was the requirement, but Al-Hayat is
just trying its best to make it, but we need funds for us to be able to promote this
Islamic finance. We have not attended to some applications because of funds, so
funds are vital because we are limited.”

The second classification is the State NIMFB, which is permitted to operate in a

single state or the Federal Capital Territory (FCT) and must have a minimum paid-up
capital of N100 million. The CBN indicated that this category will be authorised to open
branches within the same State or Federal Capital Territory, provided the availability of
unrestricted funds and prior to CBN authorisation of new branches or cash facilities.
464 A. O. Salaudeen et al.

The third kind, the National NIMFB, is permitted to operate in all federation states,
including the FCT, with a minimum paid-up capital of N2 billion. This category is
authorised to open branches in all federated states and the FCT, subject to the availability
of free currency and prior approval by the CBN for each new branch or cash centre.
However, the Central Bank of Nigeria may periodically revise the mandated
minimum capital requirements for each category of NIMFB (Table 2).

Table 2. CBN’s categorisation of NIMFB

Category Capacity Branch Capital (Naira)

1 A Unit NIMFB Local government 20 million
2 State NIMFB Single-state 100 million
3 National NIMFB All states 2 billion
Source: Researcher’s (Deduced from CBN’s guidelines)

AMFB credit and financing product facilities are limited to their minimal capital
share. The bank’s determination to extend its outreach and open more branches. However,
according to the revised guidelines, any Unit NIMFB may convert to a State NIMFB by
surrendering its license and obtaining a State NIMFB license, subject to compliance with
the licensing conditions specified in the guidelines. Likewise, a state NIMFB that wishes
to convert to a National NIMFB must have at least five (5) branches scattered across the
State’s Local Government Areas. “This guarantees that the State NIMFB develops the
required experience to operate a National NIMFB. Additionally, it will be compelled
to renounce its State NIMFB license and comply with all other licensing requirements
specified in the guidelines,” the CBN stated.
In the process of expanding and opening more branches, SH2 affirmed the bank’s
effort toward this:

“The next thing for our expansion plan is share capital, as at that time (during the
licencing), the Central Bank of Nigeria was requesting 20 million naira for share
capital for a unit microfinance bank, and from Al-Hayat, we brought 30 million to
start. This 30 million, 90%, belongs to Al-Hayat foundation branches and individ-
ual members. Insha Allah, before next year we will have raised N100 million; after
that, we want to get that license, a full state-level Islamic microfinance bank.”

AMFB are on the verge of getting both an Islamic licence and a state-level NIMFB.
However, when asked concerning these encounters, if AMFB has reached out to other
sources, specifically international Islamic financial institutions such as Islamic Devel-
opment Bank (IsDB), Islamic Financial Services Board (IFSB), International Islamic
Liquidity Management (IILM), for assistance and support. SH1 responded.

“We believe that before you ask people for help, you have to help yourself out first,
and immediately we get that Islamic license, we are good to reach out, we are
waiting to have the license, and that is why we have gotten enough share capital
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 465

for the one unit Islamic microfinance bank and immediately we get the license we
can now reach out to them.”

Furthermore, BS3 stated that AMFB has been familiarising and getting in touch with
several international bodies:

“Firstly, we have attended several international conferences with Institutions from

Malaysia, Pakistan, and the likes, and approached IFSB that we needed support.
However, we are currently addressing our in-house issues such as license, adequate
staff, e.t.c. Insha Allah, before next year we would have raised N100 million, and
after that, we want to get that license, a full Islamic microfinance bank, from there
we can reach out to other cooperation about what we are doing that they should
assist us.”

5.2 Islamic Bank Operational License

According to (the Central Bank of Nigeria (CBN) 2017), Non-Interest Islamic Financial
Institutions (NIIFs) must be licensed in line with the CBN’s current standards. Any
application for a license should be supported by documentation of the promoters of the
proposed institution entering into a technical agreement with an established and respected
Islamic bank, financial institution, or Islamic cooperation such as the Al-Hayat relief
foundation. The agreement shall expressly define the roles of the two parties and shall
be in effect for not less than three years from the licensed IIFS’s commencement of
operations (Dogarawa and Uthman 2019). This clause guarantees that licensed NIIFs
receive technical assistance and experience from existing Islamic banks or cooperation
to create such an institution since such expertise may lack the required skills.
The lack of access to an Islamic operating licence and processing setback has been the
most significant hindrances for Islamic financial institutions. According to the Central
Bank of Nigeria’s (CBN) Guidelines for Regulatory and Supervisory Of Non-Interest
Microfinance Banks, published in 2017: “No individual, corporate, or their subsidiaries
shall own or control any non-interest microfinance bank (NIMFB), except with approval
and licence from the Central Bank of Nigeria.” However, obtaining an Islamic licence
(Non-interest) is not feasible as a conventional licence. According to SH1 (Stakeholder),
one of the foundation’s founding members (Al-Hayat Relief Foundation) established
the microfinance bank with the primary objective of poverty alleviation and financial
inclusion among and beyond the foundation through Islamic microcredit products. SH1
gave the following details during the interview on the licence issue:

“I’m one of the founding fathers of Al-Hayat Relief Foundation, an organisation

that gave birth to Al-Hayat microfinance bank limited. In history, the Al-Hayat
relief foundation started about 24 years ago, and right from its inception, it was
part of our aim and objective to establish an Islamic bank, and that is our goal; we
started thinking about how to achieve our goal. We know that our capacity cannot
go for a commercial bank, so we decided to go for a microfinance bank, but it
should be an Islamic bank; that was our aim and objective. So when we set out
for the ambition, I was appointed committee chairman to establish a microfinance
bank, the committee of seven. These people are the seven-man committee set up
466 A. O. Salaudeen et al.

by the Al-Hayat relief foundation, and they were working seriously on how to
get the licence for operation. So the first thing we did was SWOT analysis to
analyse the capability of the al-Hayat foundation at that time to establish a bank,
but Alhamdulilah, after a year, we achieved it. Although we could not attain an
Islamic microfinance bank license when we tried out all possible means, we could
not move forward due to some political and social stigma. A suggestion came
from a member of the CBN licencing committee - o you guys take the conventional
license and operate the Islamic banking inside, they will not disturb you once you
get the license. Whatever you operate will be on your own- and finally, we decided
to go for the conventional license of a microfinance bank.”

The committee followed the advice, applied for the conventional licence, and
obtained it quickly. As a result, Al-Hayat Relief foundation got its Islamic Microfi-
nance Banks licenced in August 2013 and launched operationally in February 2014. The
dearth of financial inclusion of the bank starts with its foundation of operating Islamic
microfinancing with conventional licence. The potential to achieve the bank’s primary
objectives is limited due to the contradiction of the license. All other themes of this
study are interrelated to licencing issues, from misconceptions issues to limited Islamic
financing products. BS1 informant also gave a recent update on the steps and efforts
taken to change the licence to an Islamic licence:

“Although we start a bit rough and tough with conventional microfinance bank
license. However, Alhamdulillah today, we have an Islamic non-interest microfi-
nance bank for which we are struggling to have the Islamic certificate and should
be licensed before the end of the year, Insha Allah…”

The statement from BS1, a high-rank bank staff, confirms that AMFB has not con-
ceded nor given up on its ambition to Islamise its license after 7years of operation with
a conventional license.

5.3 Misconceptions About Islamic Financial System

In Nigeria, there are several misconceptions among Muslims about Islamic Finance.
Moreover, non-Muslims have faith-based biases and lack clarity about the Islamic
banking system, which hinders their acceptance.

5.3.1 Islamic Finance is Only for Muslims

Islamic finance is a way to generate money through wealth creation and distribution.
Non-Muslims are not prohibited from utilising Islamic Financial services or owning
Islamic Financial institutions. While Islamic Finance is founded on the principles of
Islamic law, its quality promotes social justice for all, making it appealing to Muslims
and non-Muslims alike. SH2 stated:

“Another one is faith-based bais, whatever you call Islam some people will never
go there, once they have a little trace back to an Islamic organisation some
customer will never go there because they have islamophobia and it a problem
today.”
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 467

In contrast, Citigroup, HSBC, Standard Chartered, and BNP Paribas are among
the most notable financial organisations that provide Islamic financial services. This
indicates that the ideals of Islamic Finance are not exclusive to Muslims. Moreover, in
Nigeria, several existing conventional banks, such as Sterling Bank and Stanbic IBTC,
have established an Islamic banking window, which attracts a growing number of non-
Muslim investors attracted by the favourable returns offered by Islamic Finance services.

5.3.2 Islamic Financial Institutions (IFI) Are Charitable Organisations

SH1 expressed concern over several customers’ misconceptions regarding AMFB as
a charity organisation:

“Another point is the misconception about Islamic banking generally. Many people
think that you are going there for a free fund when you go to an Islamic bank. They
don’t intend to repay, and these are the major problem we are facing internally.”

Islamic finance is based on wealth accumulation and profit-driven like other busi-
nesses. Islamic Financial Institutions are accountable to their shareholders and investors,
who have invested money in the firm to obtain a satisfactory return, which the institu-
tion must provide in accordance with Shariah principles. As previously said, Islamic
Finance is not a capitalist-driven financial system. In Islam, built-in mechanisms encour-
age Islamic Financial Institutions to engage in corporate social responsibility, such as
the required Zakat, Waqf, and optional Sadaqah (donations), which may be used to aid
in societal development.

5.3.3 Islamic Finance is an Islamisation Project

Several Islamic-oriented, good initiatives such as Sukuk, Islamic banks, and OIC mem-
bership have been seen as a mission to Islamise Nigeria by non-Muslims. However,
Islamic finance comprises less than 1% of the world’s financial system. Additionally,
over 1.5 billion Muslims worldwide, making them much too diverse to share a unified
objective. Muslims worldwide come from a variety of races and cultures. It is almost
unlikely that such diversity could form a single administration with the common objec-
tive of world dominance. Islamic finance can be compared to halal foods, which have
existed for centuries, are available globally, even in non-Muslim nations, and are enjoyed
by Muslims and non-Muslims. Islamic Finance should not be seen differently since the
availability of halal food has not resulted in the extinction of non-halal foods or the
establishment of global domination.

5.4 Islamic Fintech

Fintech is a relatively new notion that refers to technology facilitating financial services,
operations, business models, and customer engagement. In contrast, financial inclusion
refers to ensuring the accessibility, availability, and use of formal financial services
(Kovid et al. 2022). Inadequate Islamic financial technology continues to be a serious
concern for all Islamic financial institutions operating in Nigeria. They are all propelled
468 A. O. Salaudeen et al.

forward by established fintech platforms to compete with conventional financial insti-

tutions in the market (Zakariyah et al. 2022). However, these platforms expose all IFIs
Sharia non-compliance risk, excessive third-party charges and high maintenance costs.
AMFB staff and stakeholders highlighted fintech concerns, and the bank is now
providing online services to consumers through a third-party platform named Bank
One. This exposes them to an extra service charge and the possibility of engaging with a
consumer via non-compliance. SH2 identified fintech as a significant AMFB challenge::

“Another challenge we are facing is applications software for banking services.

In other Islamic countries that are making use of Islamic fintech, they have the
capacity, unlike us, that we are using fintech which is not Islamic.”

Additionally, BS2 expressed concern about the compliance of the fintech they are
currently utilising and multiple client complaints regarding the third-party traditional
software application’s high charges:

“as I said earlier, the software we are using is not 100% compliant with what
we are doing, so we receive calls from people accusing us of things that are not
Islamic.”

Furthermore, BS3 explained AMFB’s inability to acquire an Islamic fintech platform

for bank services:

“What I will be adding is the invalidity of affordable Islamic banking software, so

when we are talking of the fintech, we are talking about money, and even commer-
cial banks that are being licensed, they still have one or two issues concerning this
software talk less of Islamic microfinance bank. we did not have that huge amount
of money to develop software, so we just had to ride on a third party, and “bank
one” was developed for the conventional banking system, but we have to manage
and pave our way through.”

Nonetheless, AMFB is pursuing a full Islamic microfinance license, intending to

adopt an Islamic fintech and phase out their present conventional fintech platform, Bank
One. However, the worry continues to be the absence of an Islamic fintech company in
Nigeria with which to partner.

5.5 Awareness

The dearth of Islamic Financial Literacy (IFL) remains a significant challenge to global
Islamic finance industries, specifically in Africa, where most Muslims cannot differenti-
ate the Islamic banking system from the conventional system. How Islamic banks work,
the products, requirements, and all are still in infancy in Nigeria. According to this study,
the lack of awareness in Nigeria’s IBF industry is two-level consumer and government
awareness. Consumer awareness “is a process of knowledge, persuasion, decision, and
confirmation before consumers are ready to use a product or service.” (M. Saad 2012).
This implies that clients must be aware of its existence, function, and purpose for
them to accept and utilise a product efficiently and successfully.
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 469

All of the interviewees cited awareness difficulties as a formidable obstacle, making

awareness a common theme. Therefore, BS1 made the following clarification:

“one of the challenges we are facing as an Islamic bank in Nigeria is the wrong
perception; as you said earlier, there is no awareness to people by the government,
and coming down to the Islamic organisations and community, it is a problem.
Without the perception of IBF in Nigeria, there is no way we can grow, so perception
is a big problem. So we all must unite and continue creating awareness; maybe
the government can also have orientation and advocate awareness.”

Furthermore, SH2 said:

“I’m telling you that there are numbers of Muslims that are a customer of the
microfinance bank (AMFB) that still could not differentiate between Islamic bank-
ing and conventional banking. So that is why we are saying there is a knowledge
gap., many people cannot see the difference to the extent that some people have
that hatred and bias to cover their judgment about how our bank works. So the
knowledge gap is one of the reasons.”

BS3 did give some opinions on the duty and responsibility of AMFB to tackle the
low level of awareness among non-Muslims and Muslims in Ijebu Ode about the Islamic
banking system:

“It is our duty, not only to finance but also to educate people. We cannot progress
until we have the means, capability, and ability to educate these people, and now
we have more Christian patronising us than Muslims, but once we have the power
and ability to educate people about what we are doing and this is the benefit,
people will patronise us.”

Finally, BS2 detailed the efforts and initiatives done by AMFB to address the Aware-
ness obstacles. First, AMBF explains to Islamic spiritual leaders, academics, and Imams
how they might use various organisations and congregations to advance Islamic financial
literacy:

“There are many steps. We had several excellent discussions with the imams in
Ogun state. That we are well known for using their various mediums to promote
us. Firstly, we are developing a perfect relationship with Ijebu Ode residence and
Ogun state in general. Once the CBN issues our Islamic license, we should educate
or reorientate the scholars about the Islamic banks.”

In its objective to expand the IBF market and encourage current traditional banks to
adopt the IBF window at their branches, the Central Bank of Nigeria should also embark
on the journey to employ more IBF experts and provide adequate training modules at
the Islamic finance unit of the CBN, to train its staff and supervisors.

5.6 Limited IBF Training Institutions

Currently, Nigeria has only one university that offers Islamic banking and finance at the
master’s and doctoral levels (none at the degree level): Bayero University Kano (BUK)
470 A. O. Salaudeen et al.

in the country’s northern area. However, AMFB is located in the country’s southern
region, more than 900 kms south of Kano. Nigeria’s developing Islamic banking industry
desperately needs a new player and fresh graduate to fill the void of professionalism.
Other universities in other parts of the country should provide degrees in Islamic finance.
AMFB has had extensive collaboration with BUK via physical and virtual sessions
despite the distance. According to SH1:

“We have an excellent relationship with the triple IBF (The International Institute
of Islamic Banking and Finance, Bayero University, Kano). We have invited them
twice to Ijebu Ode.”

Although several Islamic finance institutes, such as the Institute of Islamic Finance
Professionals in Lagos and the Certified Islamic Banking and Finance Institute in Ibadan,
have been established in the country’s southern region to train Islamic financial specialists
and professionals. However, training with these schools will incur additional costs for
AMBF, which they can avoid if they hire people with IBF experience. BS3 testify to this
with the following statement:

“One other thing I will say is the unavailability of an Islamic institute nearby for
a bank to have a well trained and professionals working in the bank if the bank
actually have an institution very close by. But it is quite unfortunate that most of
these institutions are actually in the north, so if you have to get the full required
training, you have to go to the north or travel out of the country.”

In conclusion, Nigerian universities offering finance, accounting, economics and

Islamic studies should be urged to contribute their quota to the growth of Islamic banking
and finance by offering Islamic finance-related courses and degrees to produce more IBF
players and professionals in the industries.

6 Conclusion

Islamic microfinance is a new emerging discipline resulting from conventional micro-

finance theory and practice system constraints. These issues resulted from the demand
of the Muslim countries and communities because Islam forbids taking and offering
interest-bearing loans, Garar and Maysir. Alternatively, Islamic microfinance converged
with conventional microfinance to eradicate poverty in Nigeria. Therefore, the current
study investigated the challenges affecting Islamic microfinance banks, the bank’s sus-
tainability, and its relevant financial inclusion opportunities in Nigeria. In addition, the
study proposes feasible solutions and modifications to Islamic microfinance’s existing
issues. The primary advantage of the Islamic microfinance model is that it satisfies
both the economic and religious criteria of adhering to Shari’ah’s financial guidelines.
However, in Nigeria, financial inclusion projects of Islamic microfinance banks are hin-
dered by the legal structure (i.e., Islamic operating licence), lack of knowledge, and
misperceptions regarding Islamic financial institutions. Similarly, Islamic microfinance
confronts operational challenges associated with Share capital, suitable Islamic financial
technology for retail services, easy access for the unbanked, and human capital.
 Sustainability and Operational Challenges of Islamic Microfinance in Nigeria 471

Regulators and policymakers must seek to adjust the Nigerian banking standards and
regulatory framework to increase Nigeria’s financial inclusion and accommodate the effi-
cient functioning of Islamic microfinance banks. This research can assist regulators who
may not be familiar with Islamic finance regulations and concepts. Nonetheless, Nige-
ria’s Islamic banking industry will not be able to compete with the existing conventional
banks unless the regulatory structure is amended to incorporate Islamic financing into
the Nigerian landscape. Islamic financial institutions in Nigeria must prioritise Shari’ah
compliance throughout all operations, including licensing, product, service, and tech-
nology. Although Nigeria’s regulatory climate is inhospitable to IFIs, IFIs can learn
from Malaysia how to adapt and grow Islamic finance in a conventional context. Addi-
tionally, IFIs in Nigeria should embrace innovative financial inclusion strategies such
as micro Takaful, crowdfunding, and product integrations. Finally, IFIs should improve
their recruitment practices and hire more Islamic finance specialists and graduates rather
than relying on conventional staff training.
Lastly, the Muslim population in Nigeria is substantial, and their need for Islamic
retail banking products to fulfil their religious commitments is essential. Therefore, the
Nigerian government is primarily responsible for satisfying the needs of its people.
Nigeria can emulate Malaysia, Turkey, the United Arab Emirates, and Indonesia, among
others, which have effectively adopted Islamic banking and finance, innovative Islamic
Fintech platforms, Islamic social finance, and Takaful as methods for addressing and
eliminating financial exclusion in their respective nations.

7 Limitation and Reccomendation

No customers were invited to the interview, nor were all AMFB stakeholders and employ-
ees. Consequently, some obstacles and concerns facing AMFB and its consumers may
have been neglected. In addition, this study concentrated on one Islamic MFB in Nige-
ria’s southern region. However, some have been established in the north, which is not
covered by this study. Similarly, Al-Hayat microfinance bank continues to be owned by
Al-Hayat Relief Foundation, an Islamic organisation based in Ijebu Ode. Therefore, this
study excludes the connection and functional tie between the foundation and the bank.
However, the majority of bank clients are foundation members. In addition, the scope
of this study was limited to a few regulatory and supervisory issues and operational
difficulties; public awareness and a few legal issues were mentioned but not thoroughly
studied.
In addition, this study recommended some initiatives to the Nigerian financial regu-
lators, policymakers, Islamic financial institutions in Nigeria, the Nigerian government,
and the Muslim community. First, the Nigerian government is the first body that must
take action to meet the demands of its population. In addition, the Nigerian govern-
ment can learn from Malaysia, Turkey, the United Arab Emirates, and Indonesia, all
of which have successfully implemented Islamic banking and finance, Islamic social
finance, and Takaful as tools for addressing and reducing financial exclusion in their
respective countries. Secondly, Islamic financial institutions in Nigeria must prioritise
shariah compliance throughout all aspects of their operations, including licensing, prod-
uct, service, and technology. Finally, regulators and policymakers must strive to amend
472 A. O. Salaudeen et al.

the Nigerian banking standards and regulatory framework to sustainably enhance the
financial inclusion of Islamic microfinance institutions in Nigeria. Moreover, this inves-
tigation was limited to a single Islamic financial organisation. However, future academics
will be able to do comparative evaluations of all existing Islamic financial institutions
to determine their growth and achievements.

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 Tone Management

Roaa Bilal AL-Zyoudi(B) , Raneem Mohammad Fawarseh, and Salah AL-Kayed

Department of Accounting Factually of Economics and Administrative Science, Hashemite

University, Zarqa, Jordan
[email protected]

1 Introduction
The tone is a term meaning tampering with the tone and is used to describe the general
ethical climate of companies legally. Managers and professionals describe the financial
performance of their companies in front of stakeholders such as investors and auditors
as determined by the board of directors, the audit committee, and senior management
carry it out. Tone manipulation can be described as the terminology a manager uses
to express the company’s financial performance as the word “strong”, an example of
manager-specific optimism impacting investors’ interpretation of disclosures made in
conference calls (Davis, Ge, Matsumoto and Zhang 2015). The legal manipulation of
tones strongly influences the decisions of investors in firms; hence, the tone is highly
essential in the economic sector.
A. Tone accents
The tone is considered qualitative information, so it is important to study the subject of
tone because of its important effects on companies. Several measurements are used to
measure tone management example optimism and pessimism were assessed differently.
Loughran and Macdonald’s (2011) classification of positive vs negative terms, Net opti-
mism is calculated as the difference in the frequency of positive and negative terms in
earnings news releases.
About quantitative performance reports in corporations, the tone of the qualitative
content, i.e. the tone of earnings news releases, may be unduly optimistic or gloomy.
Managers may seek to generate positive impressions to increase confidence in stake-
holders by using management impression techniques to attract a wide range of stake-
holders, including potential lenders and investors. It also suggests that managers of
profitable firms disclose more information to boost their compensation (Abd-Elsalam,
1999). However, due to lower profits and budgets in companies, the manager may reveal
less information regarding profits so as not to fail.
B. Positive and negative words in the tone
Table 1 shows some of the words that are classified as positive tone or negative tone.
The Positive statements that managers reveal are terms that reflect favorable out-
comes in the company’s financial performance and reports, and through which the man-
agement obtains the trust of investors and lenders, however, the negative statements of
managers are the least that are disclosed, so that the manager, in this case, prefers not
to be clear about disclosure because they are terms that reflect negative results in the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 474–476, 2023.
https://doi.org/10.1007/978-3-031-26956-1_45
 Tone Management 475

Table 1. Positive statements and Negative statements

Positive tone Negative tone

Good Loss
Gain Bad
Best Problem
Opportunities Difficult
Despite Claims
Able Poor
Success Against
Achieved Mistake

company’s financial performance and its reports, through which management can get a
doubt, uncertainty and dissatisfaction with investors and lenders.
C. Tone studies
Many researches have been conducted on the topic of positive and negative tone;
some of these studies:

A) Study Schleicher and Walker (2010)

The results of which indicated that tone is a response to a variety of managerial incentives.
They find that losing companies, risky companies, and companies with analyst earnings
forecasts are more optimistic, while companies with limited, recent earnings have a more
pessimistic tone.

B) Study Huang, Teoh and Zhang (2014)

An unusually optimistic tone predicts future profitability; they also found that when
institutions have high incentives to bias, an overly optimistic tone is more positive than
investors have a “positive outlook”. The unnaturally optimistic tone is often greater when
companies earn earnings, match, or exceed analyst estimates. Their findings suggest
that tone manipulation deceives investors and that this effect is in addition to that of
receivables management. In addition, the excessive optimism in the quick response to
the stock price raises an “extraordinary” enthusiastic tone. Finally, companies that engage
in tone management are more likely to be older, younger, and have greater resources.

C) Study Davis et al. (2015)

Investigates the effect of a manager’s optimism on the tone of group calls. They discover
evidence that the principal’s characteristics are essential and influence tone. They also
found a role in determining the optimism or negative tone of conference call earnings.
Understanding tone drivers in conference calls indicates that tone represents not only a
476 R.B. AL-Zyoudi et al.

manager’s confidential information about the company’s future performance or strategic

motivations. Rather, the manager’s attitude toward optimism or pessimism is reflected
in the tone used in conference calls. They also provided hints of several important
factors (e.g., early professional experiences, charitable involvement) associated with a
manager’s tone. They also discovered that particular managers’ tone patterns affect the
overall tone of conference calls.

2 Conclusion

There is so far disagreement about tone in our time because it is based on the measure of
tone. While most studies indicated that tone manipulation is due to achieving the interest
of management, the tone may be not only about manipulation and can be a sign of the
future and future facts that are correct, and this means that tone is not always revealed
by manipulation that can provide information in the future.

References
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accounting disclosure regulations of a capital market in a developing country. Heriot-Watt
University Edinburgh (1999)
Davis, A.K., Ge, W., Matsumoto, D., Zhang, J.L.: The effect of manager-specific optimism on the
tone of earnings conference calls. Rev. Acc. Stud. 20(2), 639–673 (2015). https://doi.org/10.
1007/s11142-014-9309-4
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40(4), 371–390 (2010)
 A Study on the Culture of Accountability
in Non-profit Organizations in the State of Qatar

Abdullh H. Alnameh1,2(B) , Habeebullah Zakariyah2 ,

and Mustafa S. Abdul Karim AL-Wahaib3
1 IIUM, Kuala Lumpur, Malaysia
[email protected]
2 IIUM Institute of Islamic Banking and Finance, Kuala Lumpur, Malaysia
[email protected]
3 AYAM Center, Istanbul, Turkey

[email protected]

Abstract. Despite the tremendous size of non-profit organizations in Qatar, there

are a lack of studies that consider the application of accountability in these orga-
nizations. In this study, the concept of accountability in non-profit organizations
in Qatar is studied and benchmarked with its counterparts in UK and Canada.
Particularly, accountability is qualitatively evaluated and analyzed in three repre-
sentatives non—profit organizations. The results suggest that some social cultural
aspects may have negative impact on the applications of accountability in Qatar.

Keywords: Accountability · Transparency · Non-profit organizations · Qatar

1 Introduction
Non-Profit Organizations (NPO’s) are widely growing worldwide and that arises serious
concerns pertaining to the governance in these NPO’s. These concerns are essential
to establish “trust” in the validity and transparency of the operations of these NPO’s.
Here, the practice of the accountability plays major role in establishing the trustiness
in these NPO’s as shown in some studies [1 ?2 ], which emphasize the importance of the
accountability in the structure of NPO’s. In Gulf countries (including Qatar), the culture
and religion motivate serving the society in many ways at which NPO’s play major
social roles. Thus, studying the accountability in Qatari NPO’s is significant, given the
continuous increasing in the amount of their funding, the expansion of Qatari NPO’s
worldwide and the high impact of these NPO’s on a variety of humanitarian areas.
Unfortunately, the accountability in Qatari NPO’s is not considered in current lit-
erature. Generally, this lack of study includes the general aspects of accountability,
1 Vangen, Siv, and Chris Huxham. Nurturing collaborative relations: Building trust in interorga-
nizational collaboration. The Journal of applied behavioral science. 39(1), 5–31 (2003).
2 Gibelman, Margaret, and Sheldon R. Gelman. A loss of credibility: Patterns of wrongdo-
ing among nongovernmental organizations. Voluntas: International Journal of Voluntary and
Nonprofit Organizations 15(4), 355–381 (2004).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 477–484, 2023.
https://doi.org/10.1007/978-3-031-26956-1_46
478 A. H. Alnameh et al.

including its concept and the application in the Qatari NPO’s. Therefore, this study aims
at studying the concept of accountability in Qatari NPO’s. In particular, the cultural side
of accountability is considered.
Here, a systematic qualitative study is conducted on three major Qatari NPO’s. The
staff of these NPO’s were interviewed and the interviews focused on the cultural percep-
tion of the accountability among them. The analysis of these interviews reveals that there
is a negative perception related to practice of accountability among all the interviewees.
Particularly, and from the interviewes cultural point of view, the accountability (tenta-
tively as a practice and regardless of its results) is directly connected to the lack integrity
or lack of trust in the people being accountable. Hence, the practice of accountability
might be avoided due to that negative perception.
The rest of this study is organized as follows. Section 2 presents the related literatures.
The general concept of accountability is presented in Sect. 3. The methodology and study
community are presented in Sect. 4, followed by the results of the interviews in Sect. 5
and their analysis in Sect. 6. This study is concluded in Sect. 7.

2 Previous Studies
In this section, relevant literature was surveyed and divided into two categories. The first
category includes studies in accountability in first world countries, namely, the UK and
Canada, for comparative purposes. The second category covers emerging countries like
Malaysia, and GCC countries and Qatar.

2.1 Accountability in First World Countries

In British studies, accountability is seen as a way to reduce corruption in the non-
profit sector, contributing to increased trust, efficiency and revenue. Peter Bird and Peter
Morgan-Jones clarified the need to develop financial reports for charitable organizations
which led to the development of the Statement of Recommended Practice (SORP). [3 ].
In crisis cases that require urgent humanitarian aid, the application of accountability
is more complicated than the agreed-upon principles [4 ]. The HAP International project
(established in 2003) plays a critical role in determining the concept of “accountability”
and practicing humanitarian aid during conflicts and disasters in a responsible way.
In Canada’s case, the credibility of charitable organizations has been the subject
of public debate. Societal and organizational scrutiny led to the increased need for
independent regulatory organizations in order to develop trust and accountability within
the sector. [5 ]
3 Chew, C., & Osborne, S. P. Strategic positioning in UK charities that provide public services:
Implications of a new integrating model. Public Money and Management, 28(5), 283–290
(2008).
4 Gross Stein, J. Humanitarian Organizations: Accountable? Why, to Whom, for What, and How?
In Humanitarianism in Question: Politics, Power, Ethics. (2008).
5 Coyne, A. Take the politics out of charity? Far better to just cancel the tax
break. National Post. https://nationalpost.com/opinion/andrew?coyne?take?the?politics?out?
of?charity?far?better?to?just?cancel?the?tax?break. (2017).
 A Study on the Culture of Accountability 479

Several studies were interested in viewing the contents of financial reports, such
as the studies of Boyne and Laws [6 ], [7 ]. These studies conclude that accountability
requires more information.

2.2 Accountability in Emerging Countries and GCC Countries

There are many studies which have investigated the issue of accountability and trans-
parency in emerging countries such as Malaysia [8 ], [9 ]. Those studies suggested that
the level of information provided by the organizations are not sufficient to the stock-
holders. While the culture of integrity needs to be promoted to enhance accountability
in non-profit organizations in Malaysia. In Saudi Arabia, it is suggested that the com-
mercial sector shows increased awareness about accountability, however, the practice of
accountability is still limited [10 ].
As for Qatar, a study in profit sector considered the problem of the accountability
found [11 ] that it focused on the suitability of the application of international standards
on profitable organizations in order to achieve the accountability. The study suggested
that the aforementioned standards can be applied to Qatari commercial companies in
general.
To the best of our knowledge, no further studies related to the accountability in
the non-profit sector in Qatar were found. Therefore, we try to fill that gap using the
methodology mentioned in Section 4.

3 Related Theoretical Concepts

The concept of accountability evolved from a means to improve effectiveness and effi-
ciency of public administration to be an essential component of organizational gover-
nance. Hence, the existence of a rational governance system cannot be conceived without
accountability, which is close to the necessary trust to receive donations from a local
society.

6 Boyne, G., & Law, J. Accountability, and local authority annual reports: The case of Welsh
district councils. Financial Accountability & Management, 7(3), 179–194 (1991).
7 Blanco, Huguette, John Lennard, and Sylvain Lamontagne. “Annual reporting and accountabil-
ity by municipalities in Canada: An empirical investigation.” Accounting Perspectives 10, no.
3 (2011): 195–224.
8 Roslan, Nurfarahin, Roshayani Arshad, and Nur Farahah Mohd Pauzi. Accountability and
governance reporting by non-profit organization. In: SHS Web of Conferences, vol. 36, p. 00041.
EDP Sciences, (2017).
9 Atan, Ruhaya, Md Mahmudul Alam, and Jamaliah Said. Practices of corporate integrity
and accountability of non-profit organizations in Malaysia, International Journal of Social
Economics (2017).
10 Alshehri, Amer Mohammed A. An investigation into the evolution of corporate governance
and accountability in Saudi Arabia, PhD diss., King’s College London, (2012).
11 Wadi, Roula Salman, and Ghassan H. Mardini. IFRS Suitability to Emerging Markets: Empir-
ical Evidence from Qatar. In: Qatar Foundation Annual Research Conference Proceedings, p.
SSHAPP2468. Hamad bin Khalifa University Press, HBKU Press, 2016.
480 A. H. Alnameh et al.

The factors associated with accountability are varied and have been clarified in
various definitions. In [12 ], the accountability was described as “the process of giving the
actors the responsibility for their actions”. Four basic components of accountability have
been identified, and those are: transparency, responsibility, compliance, and penalties
[13 ].
The accountability theory can be reviewed from three aspects: the first is related to
who has the right to implement accountability, i.e., to study the stakeholders ‘who?’.
The second is about the content of accountability “what?”, while the third is related to
the means to achieve the accountability ‘how?’.
We found that accountability is often associated with transparency and they are
exchangeable complement to each other. Accountability has been studied in various
areas, such as the legitimacy theory [14 ], stakeholder theory [15 ] and principal age theory
[16 ].
On the other hand, accountability intersects with cultural issues, as concluded by
[17 ]. Two psychological emotions are assumed to be connected, namely, the feeling of
guilt and the feeling of shame. Both of which affect accountability and information
detection, which confirms the culture effect on accountability. This is referred to as “the
cultural resistance to accountability”. The same resistance to the accountability due to
cultural reasons is found in [18 ], which proposes methods to overcome that resistance.

4 Study Community
The problem of this study is associated with a negative social perception of account-
ability in Qatari society. Hence, there is no methodologically acquired data that can
be objectively studied about accountability. In addition, the few available and reliable
online digital data could not be used for a valid conclusion. Thus, we chose to compile
data by interviewing individuals from various esteemed NPO’s in the country.
In particular, three non-profit Qatari organizations with a wide presence have been
chosen. The three organizations have different funding methods and functions.
12 Fox, Jonathan A., Jonathan A. Fox, and Lloyd David Brown, eds. The struggle for accountabil-
ity: The World Bank, NGOs, and grassroots movements. MIT press, (1998).
13 Ebrahim, Alnoor. The many faces of nonproof accountability. The Jossey-Bass handbook of
nonprofit leadership and management 102–123 (2016).
14 Gray, Rob, Reza Kouhy, and Simon Lavers. Corporate social and environmental reporting: a
review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing &
Accountability Journal (1995).
15 Gray, Rob, Reza Kouhy, and Simon Lavers. Corporate social and environmental reporting: a
review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing &
Accountability Journal (1995).
16 Laughlin, Richard. “A Model of Financial Accountability and the Church of England.” Evans
and Percy op cit, 49–73 (2000).
17 Velayutham, Sivakumar, and M. H. B. Perera. The influence of emotions and culture on
accountability and governance. Corporate Governance: The international journal of business
in society (2004).
18 O’Hagan, Joshua, and David Persaud. Creating a culture of accountability in health care. The
health care manager 28(2) 124–133 (2009).
 A Study on the Culture of Accountability 481

The methodology of this study includes conducting of interviews with a targeted

individuals who occupy high administrative positions and have the necessary background
to answer the questions. All interviewed individuals were informed about the purposes
of the interviews and their replies were recorded and analyzed.
Generally, the set of interview questions is divided into three general sections. The
first section covers the awareness and knowledge of the concept of accountability.
In the second section, questions are about the effect of accountability on other aspects,
such as the trust and revenue. The general pattern of the questions in this section is “what
is the impact of accountability on..?”.
The third section assumes that accountability is a dependent variable on other related
factors (such as the effect on stakeholders, interest mechanisms, factors that stimulate
accountability, and the effect of transparency on accountability). Hence, the general
pattern of questions is “What is the effect of on accountability.

5 Review and Analysis of the Interview Results

The analysis of the collected data is divided into seven aspects. These aspects are (1)
the concept of accountability and the culture of society; (2) the relationship between
accountability and trust in the organization; (3) the relationship between accountability
and the revenues of the organization; (4) the stakeholders and those who have the right
to hold accountability; (5) the factors that stimulate accountability; (6) accountability
mechanisms, and; (7) the relationship between accountability and transparency.

5.1 The Concept of Accountability and the Culture of Society

The data collected from the interviews shows that accountability (as a value) is high in
NPO’s and, accountability is a stakeholders ‘right’. Also, it found that there is a problem
in society in realizing accountability and there is a culture of resistance in general.
The word “accountability” in Arabic has a negative connotation regarding pub-
lic opinion. In particular, practicing accountability is negatively perceived and related
to scrutiny, inspection, and censorship. All interviewees mentioned that the negative
language used to refer to accountability as a reason to avoid applying it. Hence, self-
accountability is supposed to be practiced (as motivated by the religion and values).
This is compatible with study [19 ], which founds that accountability is to respond to the
outside and interact with the inner self.

5.2 The Relationship between Accountability and Trust in the Organization

The interviews have shown that accountability is related to the trust/reputation of the
NPOs. In particular, the interviewees have unanimously agreed that accountability
enhances trust in non-profit organization and creates a positive relationship with the
financiers and beneficiaries. Also, they mentioned that accountability is enhancing the
rationalization of resources in the organization, and also, enhancing work procedures
and policies.
19 Chisolm, Laura B. Accountability of nonprofit organizations and those who control them: The
legal framework. Nonprofit Management and Leadership 6(2) 141–156 (1995).
482 A. H. Alnameh et al.

5.3 The Relationship of Accountability and Revenues

The interviewees showed that the accountability is exchangeable related to the revenues
of NPO’s. This is because accountability increases the trust in NPO’s and hence donators’
satisfaction. They are more likely to continue donating. However, this is not an essential
factor, as accountability is not widely practiced as previously mentioned.
On the other hand, the increase in organization’s revenues often reflects the need for
an increase in accountability mechanisms, as concluded from interviews.

5.4 The Stakeholders and Those Who Have the Right to Hold Accountability

The Interviewees agreed that accountability shall be practiced. However, they disagreed
on who shall perform it. Some interviewees think that the all stakeholders have the
right to practice the accountability. Some think that government or those who appointed
by the government should monitor accountability (Higher stream accountability). Other
interviewees think that the accountability is a responsible of the beneficial society (Lower
stream accountability).

5.5 Factors that Stimulate Accountability

The interviewees think that some factors might motivates NPO’s to practice the account-
ability. That includes the size, performance, and volume of the revenues, and the maturity
of the organization. On other hand, any situation directly affects the reputation of the
NPO might highly motivate practicing the accountability. The interviewees mentioned
other factors that stimulates practicing the accountability in Qatar, such as the stan-
dardization of NPO’s in accordance with international standards and need to preserve
the credibility of NPO’s. In which indicate the importance of the external factor for
enhancing accountability.

5.6 Accountability Mechanisms

The interviewees consider auditing and financial reports as the most important way of
monitoring accountability. Those reports are imposed by the Supervisory Authority in
Qatar and is published on the Internet. However, the reports are not clear nor sufficient and
do not reflect the true image of the organization as expressed by the interviewees. There
is a necessity to develop these reports to reflect more transparent and understandable
information by the stockholders.

5.7 Accountability and Transparency

The interviewees shed light on the current lack of transparency in existing organizations.
They referred to the local Qatari culture which still does not consider accountability as a
positive practice. On the other hand, NPO’s in Qatar fear the misuse of their information
if they get publicly published.
 A Study on the Culture of Accountability 483

6 Conclusion

This study, to our knowledge, is the first that considers the culture of accountability in
non-profit organizations in Qatar, which is investigated through a systematic interview,
to obtain data from the local Qatari society. In particular, those who occupy executive
positions in NPO’s and have sufficient background were interviewed.
The results suggest that the concept of accountability in society is associated with
negative connotations due to cultural and linguistic reasons. In addition, practicing
accountability might affect the reputation and position of that whose work is being
investigated for accountability purposes.
In future work, we would like to study the effect of the context and the characteristics
of each individual domain or field, in which an NPO is active, on accountability in order
to find any possible intercorrelation.

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 Unlocking True Potential of Zakat

Roshaiza Taha1(B) , Zalailah Salleh1 , Mimi Aizreen Hamzah1 ,

Norsiah Ahmad2 , and Riswadi Azmi3
1 Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu,
Kuala Terengganu, Malaysia
[email protected]
2 Faculty of Business and Management, Universiti Sultan Zainal Abidin, Kuala Terengganu,
Malaysia
3 Centre for Fundamental and Continuing Education, Universiti

Malaysia Terengganu, Kuala Terengganu, Malaysia

Abstract. The capital assistance program (CAP), one of the distribution meth-
ods by zakat institutions to allocate zakat funds has been used to produce new
entrepreneurs. Through CAP, these entrepreneurs will receive either seed fund
or in kind to start their business. The ultimate aim of CAP is to improve asnaf’s
economic condition and quality of life. However, there is not much evidence that
being highlighted to show the effectiveness of CAP. Does this program really help
asnaf? Is it really works to bring out the recipients from poverty? Thus, this paper
observes the recipients’ opinions on CAP and how this program affects their life.
To achieve this, questionnaires were distributed to 150 CAP recipients. Overall,
results show that the recipients satisfied with program and agrees that CAP able
to assist them in improving their quality of life. However, they believed that there
is a room for improvements for CAP executions. The findings are important to
provide some insights to the zakat institutions to revisit the existing program for
further improvements.

Keywords: Zakat · Asnaf · Entrepreneurship · Capital Assistance Program

1 Introduction
Poverty is the main problem of world population. Studies on either determinant [1] or
solution [2] regarding poverty has been extensively conducted. Poverty issue is not only
faced by low-income or lower-middle income country, but also by upper-middle income
and high-income country [3]. The definition of poverty also varies among countries and
being revised accordingly depending on the recent situation in that specific country. There
is a long list of solutions being identified by previous scholars which able to eradicate
poverty. One that being labelled works in the long term is through entrepreneurship [4].
Although entrepreneurship is receiving growing attention, less effort has been devoted
in the previous study to explore that entrepreneurship as a tool to resolved poverty issue.
Entrepreneurs are the catalyst for the growth and development of the country’s econ-
omy. The economic achievement of a country depends on their entrepreneurs who are

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 485–495, 2023.
https://doi.org/10.1007/978-3-031-26956-1_47
486 R. Taha et al.

always dynamic and moving forward [5]. Entrepreneurs not only develop the company
and themselves, but they also bear the responsibility to develop society and the country.
As a result of their actions, they are able to create new opportunities that can be explored
by the general public. Businesses built on the foundation of helping and benefiting many
people are capable of producing extraordinary achievements.
Noticing their potential in the economy, in Malaysia for instance, there are many
assistances that being given to develop new entrepreneurs either in the form of seed
money, in kind assistance or structured training. However, the main issue is about the
survival of these entrepreneurs in the economy. What more worrying is, 580,000 busi-
nesses representing 49 percent of micro, small and medium enterprises (MSMEs) which
is small businesses were reported ceased their businesses due to the outbreak of COVID-
19 in 2020 (Department of Statistics Malaysia (DOSM), 2021). This is happened when
they are not permitted to operate during Movement Control Order (MCO). Thus, there
is a need to look into the form assistance that might assist these affected entrepreneurs
to restart their business. Many of them fall under category of poverty.
By looking into this issue, this paper aims to observe recipients’ opinions on the cap-
ital assistance program (CAP), which was provided by zakat institutions to the existing
and new entrepreneurs and how it affects their lives. This paper is organized as follows;
Sect. 2 presents the discussion on the past study on zakat and assistance. Section 3
describes the methodology used, and Sect. 4 discusses the results. Section 5 finally
concludes.

2 Literature Review

Managing zakat fund is not an easy task. Accusation received by zakat institution on
how they mismanage zakat can only be dismissed by detail record on the flow of money
received and distributed. Public are concern on how zakat is being distributed, as this
money being used to provide welfare of the poor and needy group and their needs is being
taken care of [6]. One approach that can be considered is distributing zakat as a capital
source or seed money. This has been proven works to improve the recipient’s standard
of living in Bangladesh [6]. Capital assistance is also known as interest free loan [7],
which is provided to the eligible asnaf in order to increase recipients’ income through
entrepreneurship activities. It is merely different with microcredit which the borrower
needs to pay both principal and interest. According to [8], microcredit acts as a social
innovation to assist the targeted group, usually women to create financial freedom for
better quality of life. Recipients use the money received to start their desired business.
The distribution of zakat, especially business capital assistance, needs to be evalu-
ated for its effectiveness, especially in terms of its ability to produce asnaf entrepreneurs
who can be independent and further may improve their socio-economic status. Assess-
ing the effectiveness of a program which aimed at improving the socio-economic status
of the target group is essential and should be done [9, 10, 11]. Evaluation of effective-
ness is essential for assessing program performance [12] in identifying problems and
weaknesses and improving program performance.
Various factors such as economics development and social perspectives should be
considered in evaluating the effectiveness of a development program, especially for
 Unlocking True Potential of Zakat 487

the poor and needy. CAP indeed helps in improving recipients’ life and secure them
with better income for their living. According to [13], CAP does help and improve three
elements in the recipient’s life: economic condition, quality of life and the spiritual aspect
of the recipients. This make them feel more confident to be in the community and they
will feel more welcome. [14] stated that capital assistance is an interest-free assistance
and non-financial services are provided to help the poor and needy in transforming their
lives by embarking on business activities which help them to be out of poverty.
CAP is a relatively new zakat distribution program in Malaysia, where only few zakat
institutions run this program. It is a bold move by zakat institutions to help asnaf improve
their standard of living. However, according to [15], the failure of CAP implementation
is due to the background of the recipient and the effort of zakat institution during the
monitoring process. The recipient’s weaknesses in talent, self-motivation, business idea
generation and attitude are the leading causes of failure in sustaining the business [15,
16]. Adding to this, [15] and recently by [17] stated that the failure of CAP from the
zakat institution is due to a lack of staff and expertise in monitoring the recipients in
running the business and using the fund provided wisely. The recipients have to survive
on their own without any additional support such as close monitoring and structured
training organised by zakat institutions. It cannot be denied that entrepreneur attitude,
recognition received, and desire to transform to better quality may lead to the survival
of the business [18].
The weakness of monitoring CAP has been highlighted previously by [19]. In
Malaysia, Amanah Ikhtiar Malaysia (AIM) and Yayasan TEKUN Nasional (TEKUN)
were created to help entrepreneurs in terms of financial assistance. These two bodies
offer a periodically and systematically monitored programs, which is different from
CAP. Participants of AIM and TEKUN will undergo structured training and they have
to pay back the money received. CAP seems lacking in the monitoring aspect. The other
shocking reason is the thought that CAP is a charitable aid and the poor’s right to receive
it. Therefore, they do not feel obliged to pay the money back. Thus, determining the suc-
cess or failure of such a program is not an important task. Blending all these factors will
lead to the failure of the program, and in the end, the recipients will have low motivation,
no commitment and end up with a business collapse. Thus, it is worth to look into the
performance of CAP run by zakat institutions to overview the success and failure story
for better improvements of the program.

3 Methodology

The data was collected through questionnaire distributions to 295 recipients under CAP
in East Coast Region, Malaysia. The list of registered CAP recipients is provided by
Majlis Agama Islam Dan Adat Istiadat Melayu Kelantan (MAIK), Majlis Agama Islam
Dan Adat Melayu Terengganu (MAIDAM) and Majlis Ugama Islam Dan Adat Resam
Melayu Pahang (MUIP). In Malaysia CAP recipients are entrepreneurs that own small
scale of business. Some of them are selling food, decorative items, grocery items or
any business which requires low capital to start with. They can be in the category of
just starting or already own a business before receiving capital assistance. We are only
able to obtain 150 feedbacks from the survey distributed. The surveys include fifty-three
488 R. Taha et al.

questions asking the respondents the various information pertaining to the assistance
received. One of the sections in the questionnaire is about the respondents’ information
on their business including the reason on why they start the business as well as how
they market their products. in order to obtain the information on respondents’ status
whether they are still eligible for such assistance, they are also being asked on their
financial ability and how structured they manage the business. The rest of the questions
measured items are illustrated in the following framework. Performance of CAP was
determined by the economic development and social development, as per visualised in
Fig. 1. Economic development can be influenced by internal and external factors. For
social development, it is determined by human capital, social network and community
development. The question was designed to see the agreements of the statements on how
CAP assist them to have a better quality of life with the use of 5 Likert scale from 1 to 5.

Economic
Development
Effectiveness of
CAP
Social
Development

Fig. 1. Research framework

4 Results and Discussions

Table 1 shows demographic background of the respondents. Most of the recipients are
below 45 years old, which is the normal age in the work force. 86% of the respondents
received less or equal to RM2,500 amount of CAP. Nowadays, the amount is considered
low if the cost of doing business is taken into consideration. It is even below the poverty
line if it is converted into monthly income received by household in Malaysia. It must
be understood that the recipients are receiving CAP as a one-off payment, not on the
monthly basis. For the level of education, nearly 80% the recipients stop their education
at secondary school. This data is quite interesting if we can further investigate the reason
why they stop pursuing to the higher level of education. Is it because of the financial
problem or they do not believe that by having a better education may be able to help
them to improve their standard of living.
Next, participants need to provide information pertaining their business. We ask them
whether they have officially registered their business. The authority is being informed of
their official existence if they registered with the registrar of company or local authority.
For Business evidence in Table 2, if the answer is Others, it means that they either not
register at all or only verbally informed the head of village. For the Reason to establish
 Unlocking True Potential of Zakat 489

Table 1. Demographic background.

Item Description Frequency %

Gender Male 97 64.7
Female 53 35.3
Age 25–30 25 16.7
31–35 10 6.7
36–40 43 28.7
41–45 55 36.6
45 and above 17 11.3
Marital status Single 15 10.0
Married 82 54.7
Widow/Widower 34 22.7
Divorced 19 12.6
Number of household 0–1 68 45.3
2–3 45 30
4–5 27 18
6 and above 10 6.7
Education level Primary school 71 47.3
Secondary school 45 30
Vocational School/Technic 19 12.7
College/Maktab 12 8
University 3 2
Amount of CAP received Less than RM1000 40 26.7
RM1001–RM2500 89 59.3
RM2501–RM4500 14 9.3
RM4501–RM6000 5 3.3
More than RM6001 2 1.4

business, 57% of them are really aim to have their own business. Based on the result, the
participants that do business seem to try their luck or no other choice to do for living,
usually do not have a proper planning and run the business with low profit. They also do
not own any unique product, which cause them to struggle and compete with others in
the market. Among the good aspect that we can see is they have so much potential and
the quality of the product cannot be denied.
Table 3 gives us the overview of the recipients’ financial status as we want to see the
direct impact of the recipients get after involved in CAP. The question such as their asnaf
status as well as their financial management also being asked. 5% of them requested to
be removed from asnaf category as they not only able to survive on their own but also
able to hire workers to help them run the business. They also manage to expand, by
running the business in more than one premises. Based on the information reported in
Table 3, the recipients under CAP need to improve their financial management skills as
1/3 reported that no changes on their income after they received CAP and they do not
490 R. Taha et al.

Table 2. Business information

Item Description Frequency %

Business evidence Registrar of company 80 53%
Local authority 45 30%
Others 25 17%
Reason to establish business Trial and error 24 16%
Passion 85 57%
No choice 41 27%
Business level Small 105 70%
Medium 43 29%
Big 2 1%
Quality product High quality 136 91%
Medium 14 9%
Low 0 0%
Product competition Many 82 55%
Low 61 41%
No 7 5%
Business potential High potential 85 57%
Able to sustain 65 43%
No potential 0 0%
Ownership of premise Own 60 40%
Rent 35 23%
Lease site 23 15%
No premise 23 15%
Government site 9 6%
Condition of premise (Cleanliness) Clean 55 37%
Average 68 45%
Not satisfying 27 18%
Business performance Outstanding 37 25%
Stable growth 18 12%
Static 94 63%
Ceased operation 1 1%
Method of payment Cash and on credit 25 17%
(continued)
 Unlocking True Potential of Zakat 491

Table 2. (continued)

Item Description Frequency %

Cash only 125 83%
Promotion strategy Yes 64 43%
No 86 57%

keep a proper financial record to track their income and expenses. When we compile
the detail information about the sales, capital incurred and profit and loss generated,
the range of sales is between RM80 and RM24,000, the capital range from RM100 to
RM10,000 and the highest loss that they incurred are –RM5,000. The data need to be
further scrutinized as most of the recipients do not have basic knowledge in financial
management. They hardly keep the financial information as there is no requirements for
them to report the financial performance of their business. Furthermore, no monitoring
has been made after the money was distributed.

Table 3. Recipient financial status

Item Description Frequency %

Status Asnaf 143 95%
No longer asnaf 7 5%
Financial record Proper recording 41 27%
No record 109 73%
Owner salary Specifically, being allocated 40 27%
No allocation 110 73%
Income after CAP receipts No changes 100 67%
Increase 50 33%
Hiring workers Yes 43 29%
No 107 71%

The next section of the question is to see their opinion from the economics perspec-
tives, and the result is as shown in Table 4. The lowest mean 0f 2.77 was recorded, and
this is to determine whether the recipients kept their money earned. Similar with the
information provided in Table 3, we can generalize that something needs to be done to
improve the financial management knowledge among these recipients. They also agree
that their financial condition is much better before they started their business and the
assistance provided by zakat institutions make them able to run a business comes true.
The important thing is, they run a business in order to get a better opportunity to earn a
higher income as compared to being employed. They also able to improve their standard
of living and adding more new assets. Another significant finding from their answer is
492 R. Taha et al.

the need of continuous training and monitoring to ensure that they are on track in their
business.

Table 4. Economic perspectives

Question statements Mean

I had the opportunity to run this business due to the program organized by the Pusat 4.72
Zakat
My income level is now better than it was 10 years ago 4.50
My job level is now better than it was 10 years ago 4.50
The main factor that drives me to open my own business is to seize opportunities from 4.23
economic progress
Business courses/training are the most important help to improve my standard of living 4.11
My assets are more than 5 years ago due to business assistance provided by the Pusat 3.92
Zakat
My current income is sufficient 3.30
Before opening my own business, I had experience working elsewhere 3.03
I keep the monthly income earned 2.77

Financial ability may change the perspective on how people being perceived in the
society. People with money normally received more respect from other people. There
are situations where the poor people decide to isolate from the community as they have
very low self-esteem due to their condition. Thus, we also ask the recipients about their
association with the community, as shown in Table 5. In general, most recipients mostly
agree that the way they communicate and mingle around is different with their status as
an entrepreneur. As a business owner, it changes the way people looked at them and how
they interact with people. They also feel welcomed by the society. They believed that
they have the power to change themselves. In other words, they are the one that should
be blamed for unable to change their life.
Table 6 is the overview of the Effectiveness of CAP. CAP was developed with the aim
to provide a new method of zakat distribution. The idea is to ensure that the recipients
able to transform themselves from the zakat recipients and later become the zakat payers.
Does this really work? The next section of questions addresses this issue. Based on the
question and their feedback, most of the respondents agree with the fact that CAP does
help them to achieve better a living standard. They also noticed that their family received
better treatment in the community, increase household incomeand manage to improve
their education level. The most important thing is they believed that CAP is a powerful
tool that being used by zakat institutions to eradicate poverty. They also have a better
job opportunity after joining CAP as the recipients.
 Unlocking True Potential of Zakat 493

Table 5. Social perspectives

Question statements Mean

The level of relationships in my community is very good 4.41
After getting help, I feel more confident to reach out to the community around me 4.20
I am confident that I can continue my life after this without getting help from the 4.05
Pusat Zakat
I feel accepted as a member of the community now 4.01
I get involved in associations in my community 3.99
The area where I live have improved in the last ten years 3.94
Through the assistance received, participants can together increase their source of 3.90
income independently
Since getting help, I have participated in activities held at my place of residence 3.89
Failure to change is due to me 3.74
Since receiving help, I feel my self -esteem has increased 3.67
This assistance program allows me to actively interact with the local community 3.65
Most community members in my place are generally trustworthy 3.31

Table 6. Effectiveness of capital assistance programme

Question statements Mean

Useful as capital and to advance the business 4.97
The standard of living of the family improved 4.67
Me and my family’s life situation is better than 10 years ago in terms of human 4.51
capital
Me and my family’s life situation is better than it was 10 years ago in terms of 4.23
participation in community activities
Me and my family’s life situation is better than it was 10 years ago in terms of 4.23
material increase/asset ownership
Family income is more satisfactory 4.01
Pusat Zakat assistance succeeds in reducing poverty 3.78
Me and my family’s life situation is better than it was 10 years ago in terms of 3.77
jointly developing the community
My life situation and family are better than compared to the last 10 years in terms 3.63
of job opportunities
494 R. Taha et al.

5 Conclusion

The objective of this study is to see how the effectiveness of CAP, which was designed
by zakat institutions that manage to transform recipient’s quality of life. Based on the
findings, we can see that most of the recipients satisfied with the execution of CAP. How-
ever, comparing the answer given by them, we can see somehow contradict respond were
given. The recipients seem unsure on how to see whether CAP do change them. Although
their answer stated that the income level increased after join CAP, it is questionable as
they do not have proper financial records to show the evidence. Their answer is roughly
based on the way they perceived their changed of lifestyle. Overall, with a proper moni-
toring process on the recipients’ business performance after the money was distributed,
CAP can be a powerful tool to change the asnaf life in the long term. Monthly money
distribution is not healthy to the recipients as they become too dependent and not able
to survive if there is no assistance provided to them. Currently, the findings only pro-
vide basic information on how the recipients opinion towards CAP. The recipients not
being asked whether the assistance received is sufficient to help them with their busi-
ness. Despite this limitation, in summary, CAP is an effective distribution method that
should be implemented to ensure that zakat fund distribution is able to transform the
recipient’s quality of life and to dignify the economy of Muslims. It is recommended
that the future research to look into the breadth and depth of CAP management from
zakat officer point of view as they have deeper understanding on the program. Further,
focus group discussion with selected CAP recipients also shall be conducted to look
into detail their experience, benefits, sufficiency of fund provided and loopholes of the
existing program for better improvements.

Acknowledgement. The authors are gratefully acknowledge the financial assistance pro-
vided by the Ministry of Education Malaysia through Fundamental Research Grant Scheme
(FRGS/1/2021/SS01/UMT/02/7).

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golongan asnaf fakir dan miskin. PhD Dissertation, Universiti Kebangsaan, Malaysia (2011)
 Ways to Improve the Performance
of Accountants in the Workplace

Heba Tayseer Shereer(B) and Rahma Ali AL-Tarawneh

Department of Accounting Factually of Economics and Administrative Science,

Hashemite University, Zarqa, Jordan
[email protected]

1 Introduction
Performance is one of the most difficult aspects of employee management, so when we
talk about the performance and productivity of any company, this means that we will
talk about the performance of employees because it is the main factor for the success of
any company. Therefore, it has become important to pay attention to improving the level
of job performance because it is considered one of the ways to develop work. Both the
company and the employees depend on each other to achieve their goals and objectives,
thus, business owners often want some ideas to develop employees in order to improve
their performance.
This paper is a short paper that aims to provide tips for improving the performance
of accountants in the workplace from our point of view.The main purpose of this paper
is to provide advice to business owners also leadership, to improve the performance of
accountants in the workplace, and This paper contributes to spotlight on the importance
of maintaining the performance of the accountant, as he/she has an effective role in the
performance of the company.
Here are some ways that business owners can follow to improve the performance of
employees in the workplace that leads to better efficiency and higher performance.
A. Finding out the Reason for Poor Performance
The reason for poor performance can be known by collecting data or by addressing the
person directly. There may be external factors that affect the employee’s performance,
or the employee is not well trained or has not been sufficiently prepared. Therefore, it is
important to understand what the problems are to be treated better instead of trying to
cover them up or looking for some quick solutions, which is useless and unsuccessful
to solve the problems.
One of the reasons for the poor performance of the accountant lies in the lack of the
necessary documents and invoices that help the accountant in setting restrictions and
knowing account balances. There may be another reason, which is the management’s
interference in the accountant’s work.
B. Providing a Suitable Work Environment
The workplace environment has a significant impact on the level of motivation and
performance of employees, as it affects the morale, productivity and participation of
employees, whether positively or negatively (Chandrasekar, 2011).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 496–498, 2023.
https://doi.org/10.1007/978-3-031-26956-1_48
 Ways to Improve the Performance of Accountants in the Workplace 497

Some business owners may consider this point a little expensive because it is con-
sidered from a financial point of view only if you are a business owner you have to
think again; because it may be considered the basis in developing the performance of
employees, so if you expect your employees to produce work at the global level, you
must provide them with the appropriate environment in terms of providing comfortable,
quiet spaces, bonuses, holidays programs and equipment. Workplaces that provide this
environment, are classified as the best among other companies.
The programs used can be slow or full of errors. Also, the equipment may be old and
unusable. Therefore, providing high-quality programs and equipment helps accountants
to increase their performance in the workplace. Providing these programs and equipment
is an essential thing for the accounting profession, as he/she spends most of their time
using them since the accounting profession depends on entering and analyzing financial
data.
C. Employee Training
Investing in employee skills enhances loyalty to the company and ensures the company’s
long-term success. Therefore, every company must have a plan to develop employees,
whether through formal training or targeted training. Follow-up training and applying
what has been learned will increase employee motivation and increase their produc-
tion. Both personal skills and the training methodology play an important role in the
employee’s performance in their job, meaning that there is a positive relationship between
training and work performance (Ibrahim, Boerhannoeddin, & Bakare, 2017).
Paid or unpaid training is a useful experience for the accountant. Training is an
essential thing for the accountant. This helps him to develop his skills in accounting.
Among these skills is the preparation of financial statements, and at the same time,
training helps to learn accounting programs.
D. Avoid Discriminating Between Employees
When you distinguish between employees as types and categories, this divides the team
and kills the spirit of teamwork, and this increases problems and problems instead of
improving performance. Therefore, to ensure the coexistence of employees, care must
be taken to treat employees on an equal basis, which allows for creating an environment
that contributes to the development of each employee and raises the productivity of the
work team.
Managers believe that comparing accountants and distinguishing them from each
other may stimulate work and increase the accountant’s production, but on the contrary,
this generates illegal competition between accountants and also the absence of coopera-
tion and thus this leads to the accountant being preoccupied with other matters and this
results in poor performance of the accountant in the workplace.
E. Obtaining Professional Certifications
When you invest in your employees and provide learning opportunities, this, in turn, can
lead to career development opportunities and thus will pave the way for the company’s
long-term success. Therefore, employees can be encouraged to attend some conferences
related to the field of work or to present in some institutes to obtain professional cer-
tificates that may improve their thinking abilities and at the same time increase their
performance in the workplace.
498 H. T. Shereer and R. A. AL-Tarawneh

The accountant can be encouraged to obtain a master’s degree, as it includes admin-

istrative courses that include topics related to auditing, finance and taxation. At the same
time, it is important to get courses in accounting, management and auditing. All of these
things increase the accountant’s performance in the workplace and develop himself.

2 Conclusion

The employee is a valuable resource for the company, meaning that the success or failure
of the company depends on the employee’s performance (Hameed and Waheed 2011).
That is why the company must recognize its employees are important to it and not only
achieve profits because without these employees the company will not be able to achieve
any of its goals. Also when the company has the best resource and tools, it will reach
the best performance for employees.
This paper is presented to business owners and leadership. It can play a major role
in company performance; due to the importance of employees. Therefore, what can be
understood from this paper is that the employee’s performance plays a major role in
the success of the organization and that business owners should use or consider the
previous viewpoint provided in this paper; in order to develop a high level of employee’s
performance success in the workplace.

References
Chandrasekar, K.: Workplace environment and its impact on organisational performance in public
sector organisations. Int. J. Enterp. Comput. Bus. Syst. 1(1), 1–19 (2011)
Hameed, A., Waheed, A.: Employee development and its affect on employee performance a
conceptual framework. Int. J. Bus. Soc. Sci. 2(13), 224–229 (2011)
Ibrahim, R., Boerhannoeddin, A., Bakare, K.K.: The effect of soft skills and training methodology
on employee performance. Eur. J. Training Dev. (2017)
 Factors that Influence Profit Sharing Investment
Account Holders (PSIAHs) to Patronise Islamic
Banks in Nigeria: An Empirical Study

Ya’u Isah1,2(B) , Romzie Rosman1 , and Ashurov Sharofiddin1

1 Institute of Islamic Banking and Finance (IIiBF), International Islamic
University, Kuala Lumpur, Malaysia
[email protected]
2 Central Bank of Nigeria, Abuja, Nigeria

Abstract. Islamic banks (IBs) known as non-interest banks (NIBs) in Nigeria

obtain majority of their deposits from profit-sharing investment accounts (PSIAs)
(also known as mudarabah accounts). Jaiz bank was the first Islamic bank licensed
in Nigeria and commenced operation in 2012, while Sterling bank was established
as an Islamic banking window in 2013. At the initial years of their operations, the
two banks attract over 60% of their deposits from PSIAs. However, in later years,
a gradual but consistent decline in the contribution of PSIAs to the total deposits
of the banks was observed. This is despite the share of profit that the banks paid
their PSIAs which was higher than the average interest paid by conventional banks
for savings account deposits of similar tenor during the period under review. Con-
sidering the importance of mudarabah account to Islamic banks, any decrease
in its contribution to their total deposit is a source of concern, because it might
indicate a gradual loss of confidence in the Islamic banks and a preference for a
guaranteed deposit (that is likened to conventional banks’ deposits). Therefore,
the aim of this study is to examine the behavioural intention of PSIAHs to patro-
nise IBs in Nigeria. With the objective of understanding the factors that caused
the reduction of PSIAs in the total deposits of the banks for the period 2012–
2020 using the Theory of Planned Behavior (TPB). TPB was especially chosen
because of its flexibility and robustness in predicting the intention of people to
perform a particular behaviour. Data was collected from 420 respondents and was
analyzed using the Analysis of Moment Structures-Structural Equation Modelling
(AMOS-SEM). 10 hypotheses were tested, and results obtained showed that 5 of
the constructs including attitude, perceived behavioural control, religiosity, ser-
vice quality, and deposit insurance have positive and significant influence on the
intention of PSIAHs to patronize Islamic banks in Nigeria. The study makes the-
oretical and practical contributions and contributed to the literature on the study
of deposit mobilization practices by Islamic banks which have been reported to
be scarce. Findings of this study is important to Islamic banks in Nigeria because
it revealed factors that are important in attracting and retaining their customers
especially PSIAHs.

Keywords: Nigeria · PSIAHs · Mudarabah accounts · Islamic banks · Isah Ya’u

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 499–531, 2023.
https://doi.org/10.1007/978-3-031-26956-1_49
500 Y. Isah et al.

1 Introduction
The principal relationship that exists between banks (conventional) and their customers
as mentioned in the celebrated case of Foley v. Hill, is that of a debtor and creditor
(Campbell et al. 2009). When the customer deposits money with the bank, he impliedly
lends the money to the bank (for safe keeping) with a promise by the bank to pay back
the money whenever the customer demands repayment of such loan. The relationship is
reversed when the customer’s account is overdrawn, the bank becomes the creditor, and
the customer the debtor. This relationship continues to subsist until the customer repaid
back the loan (Pallavi 2015).
For Islamic banks (IBs) on the other hand, the relationship between them and their
customers involves multiple contractual relationship, depending on the nature of the
product and the contract between the parties (Mahinar et al. 2019). The relationship
could take the form of depositor-custodian, debtor-creditor, investor-entrepreneur, agent-
principal, vendor-purchaser, principal-agent, lessor-lessee, and between partners in a
business venture (Chatered Institute of Management Accountants 2007). Mahinar et al.
(2017) observed that for deposit account, the relationship between IBs and their depos-
itors could be agent-principal (in a wakalah deposit), depositor-custodian (in a wadiah
deposit), lender-borrower (in a qard deposit), investor-entrepreneur (in a mudarabah
deposit) as well as between fellow partners in a joint investment project (a musharakah
deposit) respectively.
This implies that Islamic bank customers may have different motives for patronising
the banks depending on the contractual relationship that subsist between them and the
banks. Studies abound on factors that influence the patronage of Islamic banks by their
customers. However, review of existing literature revealed that the studies do not take into
account these obvious differences in the contractual relationships that subsist between
the banks and their clients. Results of such studies assumed the customers are the same
and would be influenced by the same factors.
Profit Sharing Investment Accounts (PSIAs) which operate under the profit/loss shar-
ing (PLS) scheme, where neither capital is guaranteed nor any pre-fixed return, is a one
of the unique products offered by Islamic banks (Kaleem and Isa 2003). It was estimated
that IBs mobilise over 60% of their deposits from PSIAs (Sundarajan 2007). In Nigeria,
the first two Islamic banks (that is Jaiz bank and Sterling bank non-interest window estab-
lished in 2011 and 2013 respectively) in their early years of operations (2013–2015),
mobilised majority of their deposits from Profit Sharing Investment Account Holders
(PSIAHs).
For Jaiz bank plc, the share of PSIAs as a percentage of total deposit dropped from
59.9%, 60.6% and 60% in 2013, 2014 and 2015, to 51.4%, 50.5%, 45.96, 45.27% in
2016, 2017, 2018 and 2019 before suddenly increasing to 57.5% 2020 respectively. For
Sterling bank non-interest window on the other hand, the share of PSIAs fell from 53.4%
and 58.9% in 2014 and 2015 to 51.7%, 48.8%, 23.3% in 2016, 2017, 2018, respectively
before increasing to 55% in 2019 and subsequently decreasing to 25% in 2020 of the
bank’s total deposit. of Islamic finance of profit sharing and loss bearing that mudarabah
deposits symbolize.
This is even though both Jaiz bank and Sterling NIB window had paid their PSIAHs
a share of profit that is higher than the average interest paid by conventional banks on
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 501

savings accounts during the period under review. Jaiz bank paid its PSIAHs an average
of 4.19% from 2012 to 2020. Sterling NIB window on the other hand disbursed an
average of 16.59% to its PSIAHs as their share of profit for the period under review
while the average prevailing savings account deposit interest rates for the same period
under review was 3.43%.
This might not be a good for the budding Islamic banking industry in Nigeria,
because mudarabah accounts are considered the flagship of Islamic banking and finance
and the most desirable by Shariah than other types of deposits (Sobol 2019). A decline
in the proportion of PSIAs compared to other types of deposits could indicate loss of
confidence in PSIAs that are unique Islamic banking products and that are preference for
other types of guaranteed deposits (qard), closely related to conventional deposits. This
could defeat the rationale behind Islamic banking that encourages risk sharing against
risk transfer.
If despite paying PSIAHs return on their investment that is higher than the average
savings account interest rate for the period under review, IBs could still not attract PSIAs
in higher proportion than qard based deposits, this could indicate that PSIAHs in Nigeria
patronise IBs for reasons other than profit motive. Could it be due to the fear of loss
of their investment as confirmed by the study of Alaeddin et al. (2017) that PSIAHs
stand the chance to lose part of or all their deposits if the return on their investment is
negative? Or could it be due to other factors that the IBs are not aware of and need to
probe further?
It is, therefore, the objective of this paper to determine the factors that influence
PSIAHs to patronise Islamic banks in Nigeria with the aim of understanding the reason
behind the decline in PSIA deposits in the total deposits of Islamic banks in Nigeria. To
achieve this objective, the paper is divided into 6 sections. Following the introduction
is Sect. 2 which is on literature review, hypotheses development and brief history of
Islamic banking in Nigeria. Section dwells on research methodology and data analysis,
while Sect. 4 discusses findings of the study. Section 5 concludes the paper and makes
recommendations.

2 Literature Review

2.1 Historical Background of Islamic Banking in Nigeria

The amendment of the banking law in Nigeria, (that is, Banks and Other Financial Institu-
tions Act (BOFIA)1 ) in 1991 paved the way for the introduction of Non-Interest (Islamic)
banking by the Central Bank of Nigeria (CBN) (Central Bank of Nigeria, BOFIA 1991).
This is because the BOFIA recognizes profit and loss sharing bank as a bank which
transacts investment or commercial banking business and maintains profit and loss shar-
ing accounts. It was based on this that Habib Nigeria Bank (HNB) obtained a license to
operate a non-interest (Islamic) banking window in 1992 which only commenced oper-
ation in 1999. However, HNB’s operations were terminated in 2005, because the parent
bank-HNB transformed into Bank PHB after a merger with Platinum Bank and was
1 A new BOFIA was issued in 2020 which categorically recognised non-interest (Islamic) bank
as a specialised bank licensed by the CBN.
502 Y. Isah et al.

liquidated in 2011 (Standing Committee for Economic and Commercial Cooperation

2016).
In 2011, the CBN issued the Guidelines for the regulation and supervision of non-
interest (Islamic) financial institutions in Nigeria guidelines for the Central Bank of
Nigeria (Central Bank of Nigeria 2011). The guidelines spelt out the licensing require-
ment for the registration of Islamic banks in Nigeria as well the supervisory and pruden-
tial requirements for the effective supervision of the banks. Another key objective of the
guidelines was to provide a level playing field between conventional banks and the new
Islamic banks and to provide the public an alternative banking system that operates on
profit and loss sharing principles that could engender healthy competition in the Nigerian
banking space and to bring to the formal financial system, individuals and corporates
that avoid the conventional banking system due to religious or cultural affiliations.
The release of the guidelines facilitated the licensing of Jaiz bank Plc as a full-fledged
non-interest (Islamic) bank and Stanbic IBTC bank as a window of conventional bank
(though it closed the window in 2018). In 2013 Sterling bank window was licensed
also. Currently, there are three full-fledged non-interest (Islamic) banks, two windows
of conventional banks and three full-fledged non-interest (Islamic) microfinance banks
operating in Nigeria (Central Bank of Nigeria 2019). As at December 31, 2020, the total
deposits of the non-interest banking sub sector stood at N 240.35 billion (approximately
$633 million) up from N28.628 billion as at December 31, 2014 (approximately $93.57
million) (Central Bank of Nigeria 2020).

2.2 Theory of Planned Behaviour

This paper used the theory of planned behaviour (TPB) by Ajzen (1991) to examine
the factors influencing the behavioural intention of PSIAHs to patronise IBs in Nigeria.
TPB was an extension of the Theory of Reasoned Action (TRA) developed by Martin
Fishbein (Vallerand et al. 1992). According to TRA, the intention (I) to perform a given
action is a function of two factors, that is the person’s attitude (ATT) towards performing
the behaviour, (defined as one’s overall positive or negative feeling about personally
performing the behaviour), and/or the person’s subjective norm (SN) in relation to his
or her performance of the behaviour (i.e. the person’s perception of how other people
close to him think he or she should or should not perform the action).
Ajzen extended TRA in 1991 by introducing additional variable called “perceived
behavioural control” (PBC) as an antecedent to behavioural intention and called it The-
ory of Planned Behaviour (Madden et al. 1992). Ajzen believes the inclusion of PBC
was based on the idea that behavioural performance is determined jointly by motiva-
tion (intention) and ability (behavioural control) (Montano and Kasprzyk 2008). Ajzen
opined that the more a person believes his performance of certain action would lead to
positive outcome or would at least preclude negative consequences, the more the person
is inclined to pursue and perform such action.
Although TPB traditionally uses three (3) variables of ATT, SN and PBC to predict
the intention to perform a given behaviour, Ajzen (1991) opined that TPB is open to the
inclusion of additional predictors if it can be established that the additional variables
capture a significant proportion of the variance in intention or behaviour of interest after
the theory’s current variables have been taken into account. In the same vein, Mahmoud
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 503

and Abduh (2014) observed that Ajzen and Fishben (1980) allowed improvement on
TRA by introducing some external variables such as demographic variables, attitude
toward target, and personality traits in the model which could have an indirect effect on
a person’s attitude and thus upon behavioural intention.
Considering the unique features of PSIAHs (the respondents of the study) whom
Lahrech et al. (2014) observed do not meet the basic characteristics of depositors,
because neither their capital investment nor return on their investment is guaranteed by
the bank. Grais and Pellegrini (2006) also described PSIAHs as principals who entrust
their resources to an agent that is appointed by another principal. Therefore, this paper
extended TPB by introducing seven (7) additional variables (that have been proven by
previous studies to predict the intention of people to patronise IBs) as shown in the
figure below with the aim of better understanding the intention of PSIAHs to patronise
IBs in Nigeria. The additional variables include: knowledge and awareness proposed by
Kaakeh et al. (2019) and Shome et al. (2018); service quality by proposed by Mahadin
and Akroush (2018) and Al-Hunnayan and Al-Mutairi (2016), religiousity by Suhartanto
et al. (2019a, b) and Baba et al. (2018); return paid to PSIAHs Kasri and Kassim (2009)
and Arshad and Nurfadilah (2017); Deposit Insurance by Hamisu (2018) and Soledad
et al. (2001); Transparency and disclosure by Lahrech et al. (2014) and Muhammad
(2010); Reputation by Basheer (2018) and Gait and Worthington (2008) (Fig. 1).

2.3 Literature Review and Hypotheses Development

Ranjit (2011) defines a hypothesis as a conjectural statement of the relationship subsisting
between two or more variables (dependent and independent variables). It involves set
of propositions set forth as explanation for the occurrence of some phenomena to guide
the investigation of some probable facts (Kothari 2004). The following hypotheses were
tested based on the framework of the study.
Attitude Towards PSIAs: Muhammad (2010) defines Attitude (ATT) as one’s overall
positive or negative feeling about personally performing a behaviour. Attitude towards
a particular behaviour is largely dependent on the assessment made by individuals on
whether or not the implementation of such a behaviour is favourable or otherwise (Fish-
bein 2008). It is a measure of the degree of a person’s likes or dislikes of an object which
is determined by the set of beliefs the person holds about performing the referenced
behaviour (Wahyuni 2012). Several past studies have confirmed that attitude have pos-
itive and direct influence on the intention of people to perform a certain action. Such
studies include Amin et al. (2011a, b) who confirmed that attitude influences peoples’
intention to use Islamic personal financing in Malaysia. Also, Husin and Rahman (2016)
in their study of the determinants of intention to adopt takaful in Malaysia confirmed
that attitude plays a significant role on people’s intention to adopt takaful in Malaysia.
Similarly, Kaakeh et al. (2019) who investigated the effects of attitude, awareness and
service, religious motivation, and pricing on the intention to patronise Islamic banks
among Muslim minority in Spain, found that attitude is an important factor that affect
the intention to use Islamic banking services among Muslim minorities in Spain. In
the same vein, Zauro (2017) who studied the intention to accept Islamic finance prod-
ucts (IFPs) in Nigeria confirmed that attitude has positive and significant influence on
intention to accept IFPs.
504 Y. Isah et al.

Research Framework Based on the Theory of Planned Behavior

Attitude

Subjective Norm
TPB Variables

Perceived Behavioral Control

Risk Tolerance

Quality of Service
Generic Variables

Knowledge and Awareness

Behavioral Intention
Religion

Size and Reputation

Return
PSIA Specific Variables

Deposit Insurance

Disclosure and Transparency

Source: Researcher, 2022

Fig. 1. Research framework

This paper therefore hypothesized thus:

H 1 : Attitude (ATT) has significant and positive influence on the Intention of PSIAHs to
patronise Islamic banks in Nigeria.
Subjective Norm: Montano and Kasprzyk (2008) defines Subjective Norm (SN) as a
person’s belief that referents think he should (or should not) perform a certain behaviour,
and his/her motivation to comply (MC) to that referent. It is a measure of the influence
of one’s family, friends, relatives and other close associates on a person’s intention to
perform a given task (Perugini 2004). Result of a number of past studies including Mah-
moud and Abduh (2014) who studied the behaviour of Mauritanians to patronise IBs
confirmed that the intention of Mauritanians to patronize Islamic banks was influenced
by their SN. Also, findings by Bin et al. (2019) who studied factors that persuade individ-
uals’ behavioral intention to opt for Islamic banking services in Malaysia, confirmed that
SN is significant in persuading depositors’ behavioral intention to choose Islamic bank-
ing services. Other studies that established the significant influence of SN on intention
include Taib et al. (2008); Al et al. (2014) to mention a few.
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 505

Therefore, this paper hypothesized as follows:

H2: SN has significant and positive influence on the intention of PSIAHs to patronise
Islamic banks in Nigeria.

Perceived Behavioural Control (PBC): Kiriakidis (2017) defines Perceived

Behavioural Control (PBC) as people’s perception of the ease or difficulty of performing
a given behaviour of interest. Madden et al. (1992) believes the more the resources and
opportunities that individuals believe they have, the more their perceived behavioural
control over the behaviour and the more inclined they are to perform such act. The the-
ory of planned behaviour differs from the theory of reasoned action in its addition of
perceived behavioural control.
Results of past empirical studies on the significance of PBC on the intention of
Islamic bank customers patronage have shown mixed results. For example, the result
of the study by Taib et al. (2008) and Husin and Rahman (2016) showed that PBC has
significant influence on people’s intention to patronise Islamic banks. However, findings
by Alam et al. (2012) showed that PBC does not significantly influence the people’s
intention undertake Islamic home financing in Klang Valley, Malaysia.
Thus, this paper hypothesized that:
H 3 : PBC has significant and positive influence on the Intention of PSIAHs to patronise
Islamic banks in Nigeria.

Religiousity: Religious obligation refers to the role played by religion in affecting one’s
choices, behaviours and activities (Amin et al. 2011a, b). Wiebe, and Fleck (1980) in
their study on the on personality, correlates of intrinsic, extrinsic, and nonreligious ori-
entations observed that religious obligation and religious consideration are the ultimate
determinant that influence people’ behavioural intentions to perform actions.
Findings by Amin, et al. (2011a, b) confirmed the significance of religiosity in deter-
mining customers’ intention to use Islamic personal finance. Also, the result of the study
by Sharma et al. (2016) who examined the effects of religiosity, generational cohorts
and buying attitudes of Muslims in Bangladesh confirmed the significant influence of
religion on the intention of Islamic bank customers. Other studies that confirmed the
significance of religion in influencing customers’ decision to patronise Islamic banks’
products include: (Suhartanto et al. 2019a, b; Shome et al. 2018; Sayani and Miniaoui
2013).
Therefore, the current paper hypothesized as follows:
H 4 : Religiosity has significant and positive influence on the Intention of PSIAHs to
patronise Islamic banks in Nigeria.

Knowledge and Awareness: It is believed that when people have sufficient knowledge
about a given product or service, they become more aware about it and will be more
willing to either support or oppose any action for or against such product or service
(Mahmoud and Abduh 2014). Knowledge is defined as the skills and expertise acquired
by a person or group of people through practical or theoretical understanding of a given
subject (Abd Rahman et al. 2015). Awareness on the other hand is having or showing
realization, perception or knowledge of a situation or fact. In Islamic finance, awareness
506 Y. Isah et al.

is consumers’ knowledge about the existence of Islamic finance and how it differs with
conventional finance (Jaffar and Musa 2014).
Several past studies have confirmed the influence of knowledge on the intention to
patronise Islamic banks. These studies include Husin and Rahman (2016) in his study of
the intention of Muslims in Malaysia to participate in Islamic insurance confirmed the
significance of knowledge in influencing the intention participate in Islamic insurance.
Also, the result of the study by Wahyuni et al. (2013) confirmed the significance of
knowledge of a product or service on the usage of such product or service. Other studies
that confirmed the influence of knowledge in influencing the patronage of Islamic banks
by their customers include: Shome et al. (2018); Kaakeh et al. (2019); Mahmoud and
Abduh (2014); Ezeh and Nkamnebe (2019); and (Fadhli Bassir et al. 2014).
Thus, this paper hypothesized that:
H 5 : Knowledge and awareness has significant and positive influence on the Intention
of PSIAHs to patronise Islamic banks in Nigeria.

Return Paid to PSIAHs: Return is that part of profit paid by an Islamic Financial Insti-
tution (IFI) as the fund manager (mudarib) to PSIAHs as funds providers (rabbul maal),
which is an amount earned in excess of the capital invested, the percentage of which must
be explicitly stated at the time of concluding the contract (AAOIFI, Accounting, Audit-
ing and Governance Standards for Islamic Financial Institutions 2010). Since mudarabah
as the underlying contract in PSIA offers neither capital protection nor fixed return, PSI-
AHs are expected to receive much higher returns as compared to other depositors whose
deposits are guaranteed by the bank (Sadique, 2009).
Findings by Haron and Ahmad (2000), Hasan et al. (2012) and Metawa and Almos-
sawi (1998) have shown that depositors in Islamic banks are motivated by the amount
of returns they receive on their deposits, such that the higher the returns received (in the
immediately preceding year) the higher the deposits mobilised and vice versa.
Therefore, this paper hypothesized as follows:
H 6 : Return paid by Islamic banks has significant and positive influence on the Intention
of PSIAHs to patronise Islamic banks in Nigeria.

Bank’s Reputation: A Bank’s reputation is the foundational element of a bank’s ability

to inspire and instill trust amongst its clients (Bassig, 2019). It connotes a bank’s image
and reputation as perceived by its customers (Irwani and Wajdi 2006). Rehman (2012)
who studied customers’ tendency towards the selection of islamic banks in Pakistan
confirmed that a Bank’s reputation plays significant role in the selection of banks among
customers of Islamic banks. Other studies that established the significance of banks’
reputation in the patronage of islamic banks include (Tara et al. 2014; Muhammad
(2010).
However, the result of the study by Sayani and Miniaoui (2013) showed that bank’s
reputation does not have significant influence on the selection of Islamic banks among
surveyed residents of the UAE.
Consequently, this paper hypothesized as follows:
H 7 : Bank reputation has significant and positive influence on the Intention of PSIAHs
to patronise Islamic banks in Nigeria.
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 507

Service Quality: Quality is defined as the totality of features and characteristics of a

product or service that bears on its ability to satisfy customers’ needs (Samuel 1999).
Khafafa and Shafii (2013) observed that customers’ satisfaction is important to the
survival of any organization, and the quality of service delivered by an organisation is
important in measuring customers’ satisfaction level and customers’ loyalty.
Result of the study by Al-hadrami et al. (2017a, b) who studied factors that affect
the selection of Islamic banks among Bahrainis confirmed the significant influence of
the quality of service as an important selection criterion. Also, result of the study by
Al-Hunnayan and Al-Mutairi (2016) confirmed the significance of service quality in the
selection of Islamic banks among Kuwaitis.
Therefore, this paper hypothesized as follows:
H 8 : Quality of Service offered by Islamic banks has significant and positive influence
on the Intention of PSIAHs to patronise Islamic banks in Nigeria.

Deposit Insurance on PSIAs: Nigeria Deposit Insurance Corporation (2020) defines

deposit insurance as a system established by governments to protect depositors against
the loss of their deposits with banks and other financial institutions. Hamisu (2018)
opined that the objective of deposit insurance system is to protect bank depositors who
risk losing their life savings should the bank where they save their monies fail. Arshad
(2011) defined Islamic deposit insurance as an arrangement to protect the insured depos-
itors against the loss of their insured deposits placed with Islamic banking institutions
in the event of the failure of an Islamic bank. Abubakar et al. (2016) observed that the
role of both Islamic and conventional deposit insurance is the same because the deposit
insurer seeks to protect the insured depositors in the event of the failure of their banks.
Result of the study by Soledad et al. (2001) on the interaction between market
discipline and deposit insurance and the impact of banking crises on market discipline
confirmed that the presence of deposit insurance gives depositors the comfort to keep
their monies with the banks even during crises. Also, Hamisu (2018) confirmed that
the introduction of deposit insurance in Nigeria that covers deposits of Islamic banks
significantly improves the total deposit of Islamic banks.
Therefore, this paper study hypothesized that:
H 9 : Deposit insurance paid on PSIAs has significant and positive influence on the
Intention of PSIAHs to patronise Islamic banks in Nigeria.

Transparency and Disclosure: Islamic Financial Services Board (2007) defines trans-
parency as an arrangement where material and reliable information about an Islamic
financial institution is made available on a timely and accessible manner to its customers
and other stakeholders. Muhammad (2010) confirmed that PSIAHs usually refer to the
disclosures contained in their banks’ account statements as the basis for opening the
account with the banks in the first place, and further require additional voluntary dis-
closures with respect to the basis of calculation and distribution of profit between the
PSIAHs as rabbul maal and the Islamic bank as mudarib. Other studies that confirmed
the significance of transparency and disclosure on the intention of PSIAHs to patronise
Islamic banks include (Alaeddin et al. 2017; Alhammadi et al. 2018).
This paper hypothesized thus:
508 Y. Isah et al.

H 10 : Transparency and disclosure by Islamic banks has significant and positive influence
on the Intention of PSIAHs to patronise Islamic banks in Nigeria.

3 Research Method and Data Analysis

The current study adopted quantitative method towards determining the relationship
between the intention of PSIAHs to patronise Islamic banks in Nigeria (the dependent
variable) and the IVs. As observed by Umeh (2018) in a research on causes of social
phenomenon, quantitative research method is most suitable in eliciting responses from
respondents. The study collected data from 450 respondents and utilised structural equa-
tion modelling (SEM) to analyse the data. SEM was described by Walliman (2011) as
statistical technique that makes it possible to examine a set of relationships between
one or more dependent variable (s) and one or more independent variables and allows
questions that involve multiple regression to be answered.

3.1 Sampling Technique

The convenience sampling technique was utilised to collect data from the PSIAHs of
Jaiz bank plc and Sterling bank NIB window from the three states of Lagos, Kano,
and the Federal Capital Territory (FCT), Abuja. The convenience sampling technique
was adopted (despite the claim against it that could be limited in representing the entire
population) because of the provision of the Central Bank of Nigeria (2016) consumer
protection framework that requires banks to treat their customers’ information in strict
confidence and not to divulge it to third parties. Given the unique characteristics of the
target respondents (PSIAHs of the above two banks), the questionnaires were distributed
through the branch managers of the two banks in the above states who in turn distributed
them to their PSIAHs.
Although convenience technique is not the most desirable method of data collection,
however, Bassir et al. (2014) opined that it is the best viable alternative for getting
feedback on trends among bank clients. Also, several past studies including (Haque
et al. 2009; Irwani and Wajdi 2006); Amin and Isa 2008) that studied the behavioural
pattern of Islamic bank customers in different jurisdictions have confirmed the robustness
of the convenience technique as a sampling method towards eliciting unbiased responses
from bank customers.

3.2 Respondents and Study Area

The respondents in the current study consisted of PSIAHs of Jaiz bank plc and Sterling
bank NIB window from the states of Lagos, Kano, and the Federal Capital Territory
(FCT), Abuja. Abuja was chosen because of its cosmopolitan nature, which according
to the World Population Review, (2020) attracts people from all parts of Nigeria, and
includes all the various ethnic groups, tribes and religious affiliation found throughout
Nigeria. Also, Jaiz bank has its headquarters in Abuja while Sterling bank NIB window
has several branches there. Kano and Lagos States on the other hand were chosen because
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 509

according to the National Bureau of Statistics (2017) they are the most populous states in
Nigeria with a population of 13,076,892 people (thirteen million, seventy six thousand,
eight hundred and ninety two) and 12,550,598 (twelve million, five hundred and fifty
thousand, five hundred and ninety eight) people respectively. The two states are adjudged
the business hubs of Nigeria that attract people from all around the country thereby
making residents of the respective states a good representative of Nigerian population.
Also, the two banks have several branches in the states.
Selection of the target population in the current study was restricted to Jaiz bank and
Sterling bank NIB window because they were the only ones that have been in operation
for good number of years (Jaiz from 2012 to date and Sterling NIB Window from 2013
to date) and from whom it would be much easier to obtain data from their PSIAHs. The
other three Islamic banks; SunTrust bank NIB window, Taj bank and Lotus bank only
commenced operations in August 2019, December 2019 and May 2021 respectively, and
could not have good PSIAHs. As such the banks do not have PSIAHs that have transacted
with them for a long time to be able to share their experiences reasonably, while the
remaining three Islamic banks (Tijarah, I-Care and Halal Credit) are microfinance banks
who have only micro-savers that don’t fit into the definition of PSIAHs that the current
study intends to understudy.

3.3 Survey Instrument

Questionnaire was deployed in obtaining information from the respondents of the study.
The questionnaire was developed in English and respondents were requested to indicate
their responses using a five-point Likert scale, with 1 being (strongly disagree) and 5
(strongly agree). The choice of the 5-point scale over other was informed by the evidence
in the literature that 5 and 7 points scales were more valid and reliable than shorter
or longer scales (Krosnick 1991). Its adoption was equally to make the questionnaire
shorter and less complex to elicit the desired responses. Questions contained in the
questionnaire were adopted from previous studies with slight contextual modifications
to suit the objectives of the study. The studies from which the instruments were adopted
established the validity and reliability of the instruments. The instrument contained 66
items that measured 11 constructs as shown in Table 1 below.
To ensure high response rate and in line with the recommendation of Sekaran and
Bougie (2016) emails, phone calls and short messages (SMS) were sent as reminders to
the branch managers so that they follow up on the respondents.

3.4 Data Analysis

The Analysis of Moment Structures-Structural Equation Model (AMOS-SEM) path
modelling software was used in analysing the data collected in the current study. Bentler
(2013) described SEM as a collection of statistical methods that allow the analysis of the
relationship between one or more independent variables (IVs) and one or more dependent
variables (DVs) to be measured and tested in a study. Suhr (2006) expatiated further that
SEM is a hypothesized pattern of directional and nondirectional relationships among a
set of measured and latent variables. Data cleaning (to eliminate missing data) and the
identification of outliers (both multivariate and univariate) were conducted to reaffirm the
510 Y. Isah et al.

Table 1. Summary of Constructs and Items

Construct Type Source No of Items

Intention IV Obeid and Kaabachi (2016); Zauro 5
(2017); Gangwal and Bansal (2016)
and Aziz and Afaq (2018)
Attitude DV Amin et al. (2011a, b) and Kaakeh 5
et al. (2018)
Subjective Norm DV Zauro (2017), Al-hadrami et al. 5
(2017a, b) and Taib et al. (2008)
Perceived Behavioural Control DV Al-majali and Mat (2018) and 5
Al-Debei et al. (2013)
Religiosity DV Amin et al. (2011a, b), Bananuka 5
et al. (2019) and Sharma et al. (2017)
Return Paid to PSIAHs DV Muhammad (2010) 8
Knowledge and Awareness DV Kaakeh et al. (2018) and Jaffar and 6
Musa (2014)
Reputation DV Rehman (2012), Naser et al. (2013) 8
and Muhammad (2010)
Service Quality DV Othman and Owen (2011); Alnaser 6
et al. (2018); Amin and Isa (2008);
Lomendra et al. (2019) & Mahadin
and Akroush (2018)
Deposit Insurance DV Hamisu (2018) and Muhammad 6
(2010)
Transparency and Disclosure DV Lahrech et al. (2014a) and 7
Muhammad (2010)

integrity of the data. Thereafter, several significant statistical tests including normality,
linearity and multicollinearity tests were conducted. After the data satisfied the above
statistical tests, the exploratory and confirmatory factor analysis were conducted. The
reliability and the validity of the items were also determined. Thereafter, exploratory
factor analysis (EFA) and confirmatory factor analysis (CFA) were conducted.
EFA helps to reduce variable set and to determine major dimensions of interest and
proof of the potential indicators of factors in the study (Bentler 2013). EFA provides
a tool for consolidating and grouping together correlated variables and for generating
hypotheses about underlying processes (Tabachnick and Fidell 2013). Wipulanusat et al.
(2019) opined that EFA assists the researcher to determine the number of factors to
retain and those to delete from the model of the study. CFA on the other hand is used to
confirm interdependence between observed variables, particularly where the researcher
is interested in finding out the major issue that creates the commonality among variables
of a given study (Kothari 2004). Hair et al. (2018) observed that CFA is a way of
measuring how well variables and factors in a research fit the model of the study as
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 511

measured by the collected data collected. The CFA was performed in the following four
steps: factor loadings, model goodness of fit, reliability test, as well as convergent and
discriminant validity tests and the required thresholds were met.

4 Findings and Discussions

4.1 Exploratory Factor Analysis

In the current study, sixty six (66) observed variables were used to conduct the EFA in
order to determine the pattern of the TPB based on the perception of the PSIAHs in the
respective study areas. The following tests: multicollinearity, sampling adequacy and
the proportion of variance explained Kaiser meyer olkin (KMO) and the Bartlett’s test
of sphericity were conducted to ensure that the data meets the minimum requirements
necessary for factor analysis. During the process, seventeen (17) items were deleted
because they had loading values < 0.4, leaving forty-nine (49) items under ten (10)
latent constructs, extracted for further analysis as shown in Table 2 below:

Table 2. Factors extracted

S/N Factor Items extracted

1 Attitude 5
2 Subjective norm 5
3 Perceived behavioural control 4
4 Knowledge & awareness 5
5 Religion 5
6 Service iuality 8
7 Return 4
8 Deposit insurance 4
9 Reputation 3
10 Transparency & disclosure 6
Total 49

Appendix 1 contains details of the items extracted and number of items loaded under
each of the 10 constructs.
Table 3 shows the requirement for EFA tests, and the results obtained in the current
study, which confirmed that the variables met all the statistical requirements:

4.2 Confirmatory Factor Analysis

CFA was deployed for scale validation using SEM. AMOS was used to perform SEM to
estimate the model of the study using the 10 factors extracted from the EFA. The model
512 Y. Isah et al.

Table 3. Summary of the results of EFA statistical requirement tests

S/N Items Requirement Results obtained

1 Determinants >0.00001 0.00005397
2 KMO, >.60 0.952
3 Bartlett’s Test of Significant @ .05 Significant @ .000
Sphericity
4 Anti-image Diagonal values >.50 All diagonal values >.50
5 Communalities matrix >.60, but >.50 is acceptable All values >.50
6 Proportion of Variance >60% Cumulative % = 70.058%
Explained (PVE)
7 Rotated Matrix >.30 All values were >.30
Explained

was identified with a Normed Chi-square (CMINDF) of 2.260, and was significant at
1% with a P-value of 0.000, which satisfies the recommendation of Lomax (2012) and
Tabachnick and Fidell (2013). In the same vein, a Comparative Fit Index (CFI) of 0.903
and Root Mean Square Error Approximation (RMSEA) of 0.062 were obtained which
satisfied the recommendations of Awang and Bangi (2015) and Bryne (2010) who opined
that the closer the value of CFI is to 1 the better the model fit, and an RMSEA value of
0.08 represent reasonable and acceptable fit. This shows the fitness of the model and the
adequacy of the sample size of the study (Fig. 2). Table 4 below summarised the results
obtained vis-à-vis the recommended criteria and confirmed the model fitness.

Table 4. Summary of model goodness fit

S/N Items Requirement Results obtained

1 Normed Chi-square (CMINDF) <5 2.260
2 P-value <0.05 0.000
3 CFI >.90 0.903
4 RMSEA <.08 0.062

Also computed in the study was the Coefficient of Determination (R2 ) which accord-
ing to Sekaran and Bougie (2016) measures the percentage of variance in the DV of a
study that is predicted by the variation in the IVs. An R2 value of 0.645 was obtained
which according to Monecke (2012) confirms the predictability of the model.

4.3 Reliability Assumption

According to Awang and Bangi (2015) reliability assumption is concerned with the
ability and reliability of the model to measure the latent constructs of the study. An
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 513

instrument is reliable if it gives the same result when tests were repeated with the same
instrument under constant condition (Ranjit 2011). For the current study, Cronbach’s
Alpha > 0.70 as contained in a Appendix 2 were obtained for all the variables, which
confirmed the reliability of the measures of the study.

4.4 Validity Assumption

Awang and Bangi (2015) defined validity as the ability of an instrument to measure what
it is supposed to measure and nothing else. Two types of validity namely convergent and
discriminant validity are expected to be achieved in an instrument and the recommended
threshold by of 0.5 (for convergent validity) and 0.85 (discriminant validity) by Awang
and Bangi (2015) and Hair et al. (2018) were achieved as shown in Table 4 below (Table
5):

4.5 Results and Discussions

Attitude and Behavioural Intention of PSIAHs to Patronise Islamic Banks

H1 predicted that attitude has significant and positive influence the intention of PSIAHs to
patronize Islamic banks in Nigeria. Result obtained as presented in Table 6 below showed
that attitude had significant and positive influence on the intention of the respondents at
1% (β = 0.620; S. E = 0.105; CR = 5.910; p = 0.06). This is consistent with the results
obtained by several past studies including Bin et al. (2019) who confirmed that attitude
has significant influence on the intention of the respondents in his study in selecting
which Islamic bank to patronise. Also, Amin (2017) who used TRA to study the effects
of attitude; social influence; religious obligation; government support; and pricing, on
the intention to use Islamic personal financing in Malaysia confirmed that attitude has
significant influence on the intention of the respondents to use Islamic personal financing.
Other empirical studies whose findings are also consistent with the result obtained in
this study include: Zauro (2017); Jaffar and Musa (2014); Mahmoud and Abduh (2014).
This indicate that PSIAHs believe that patronising Islamic banks will positively
impact their lives and showed the significance of attitude in influencing the intention
of Islamic bank customers and particularly PSIAHs towards patronising Islamic banks.
Therefore, it is imperative for the Islamic banks in Nigeria to intensify public enlighten-
ment to its customers on the advantages of mudarabah accounts as savings and investment
platforms in order to sustain the positive attitude shown by PSIAHs in patronising IBs
in Nigeria.

Subjective Norm and the Intention of PSIAHs to Patronise Islamic Banks

H2 hypothesized that SN has significant and positive influence on the intention of PSI-
AHs to patronize Islamic banks in Nigeria. However, results obtained (β = 0.002; S. E =
0.030; CR = 0.071; p = 0.943) do not support the hypothesis. This is consistent with the
findings by Zauro (2017) who investigated the determinants of the intention to accept
Islamic financial products (IFPs) in Nigeria and concluded that there is no significant
and direct relationship between SN and the intention to accept IFPs in Nigeria. Other
514 Y. Isah et al.

Fig. 2. Measurement model

studies that confirmed the insignificant influence of SN on people’s intention to patro-

nise Islamic banks include (Husin and Rahman 2016; Ali et al. 2015). Also, findings
by Husin and Rahman 2016 who studied Muslim’s intention to participate in family
takaful in Malaysia revealed that SN does not influence Malaysian Muslims’ intention
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 515

Table 5. Convergent and discriminant validity

CR AVE MSV MaxR(H) DIS SQL KAW TAD REL SN AT PBC RET REP
DIS 0.858 0.603 0.554 0.866 0.777
SQL 0.932 0.630 0.496 0.933 0.704 0.794
KAW 0.928 0.720 0.601 0.930 0.511 0.676 0.849
TAD 0.904 0.612 0.585 0.909 0.744 0.681 0.541 0.783
REL 0.927 0.719 0.540 0.933 0.516 0.677 0.718 0.492 0.848
SN 0.905 0.704 0.319 0.908 0.347 0.402 0.230 0.461 0.330 0.839
AT 0.918 0.691 0.569 0.919 0.551 0.701 0.652 0.615 0.735 0.455 0.831
PBC 0.891 0.672 0.569 0.896 0.490 0.627 0.739 0.559 0.704 0.336 0.754 0.820
RET 0.859 0.553 0.585 0.877 0.627 0.563 0.377 0.765 0.502 0.565 0.656 0.516 0.744
REP 0.878 0.706 0.601 0.880 0.537 0.609 0.775 0.541 0.569 0.284 0.601 0.668 0.502 0.840

to participate in family takaful. In the same vein, results obtained by Ali et al. (2015)
who studied factors that influence investors’ behaviour in Islamic unit trust in Malaysia,
found that friends and family have no effect on the intention of respondents to patronise
unit trusts. However, the result obtained in the current study contradicted findings by
(Forward 1997; Bin et al. 2019).
One thing that could explain the reason for the lack of significant influence of SN on
the intention of PSIAHs to patronise IBs could be attributed to the few number of Nige-
rians currently using Islamic financial products and services (IFPS) whom Enhancing
Financial Innovation and Access (2015) in its survey on Access to Financial Services in
Nigeria reported to be less than 1% of the Nigerians and that only about 7.5% are familiar
with IFPs. This implies that family and friends of PSIAHs may not be knowledgeable
enough about the products and services offered by the IBs to influence their intention
to accept the products. This still underpins the importance of increased awareness about
the benefits of IFPs to Nigerians.

Perceived Behavioral Control and the Intention of PSIAHs to Patronise Islamic

Banks
H3 predicted that PBC has significant and positive influence on the intention of PSIAHs
to patronise Islamic banks in Nigeria. Result obtained (β = 0.159; S. E = 0.089; CR =
1.779; p = 0.075) confirmed that the hypothesis was supported at 5% significance level,
thus confirming a positive and significant relationship between PBC and the intention of
PSIAHs to patronise Islamic banks in Nigeria. This is consistent with results obtained
by (Taib et al. 2008; Bin et al. 2019) who confirmed the significance of PBC on the
intention to patronise Islamic banks.
516 Y. Isah et al.

The finding of the current study, which is in line with that of several previous studies,
have confirmed that PSIAHs have positive attitude toward Islamic banks based on the
resources and opportunities available to them. The result has also buttressed the position
of Ajzen (2011) who emphasized that resources available to a person, the person’s past
experiences of performing a particular task and his future expectation of performing
similar task to some extent dictate the possibility of achieving a particular behaviour.
The positive disposition shown by the respondents towards IBs, measured by their
PBC is a good indication that they believe they have the resources to patronise the
banks. Also, their future expectation of using the same product is positive. Islamic
banks in Nigeria are thus encouraged to ensure the positive disposition exhibited by the
respondents is sustained into the future by increased public awareness and improved
quality service delivery.

Religiosity and the Intention of PSIAHs to Patronise Islamic Banks

H4 predicted that religiosity has positive and significant influence on the intention of
PSIAHs to patronise Islamic banks in Nigeria. The result obtained (β = 0.396; S. E
= 0.103; CR = 3.844; p = 0.000) showed that the hypothesis was supported at 1%
significance level. The finding of this study corroborated some of past studies including
Amin et al. (2011a, b) who confirmed the significance of religiosity in determining
customers’ intention to use Islamic personal finance. Other studies that confirmed the
significance of religion on the intention to patronise Islamic banks include (Suhartanto
et al. 2019a, b; Shome et al. 2018).
The finding of this study shows the importance of religion in influencing the intention
of PSIAHs to patronise Islamic banks in Nigeria which could be based on their desire
to serve Allah in their worldly activities and to avoid transactions involving interest,
gambling, alcohol, speculations, and other non-permissible activities that Islamic banks
avoid. The result is consistent with the findings by Maiyaki (2011) who under studied
factors influencing bank’s selection in the State of Kano Nigeria, and found that the
banks’ branches and loan chargeswere not among the determinants of bank selection.
Maiyaki attributed the insignificance influence of loan charges in the selection of banks
among Kano State residents based on religious grounds, because majority of Kano
residents were Muslims, and do not care much about the loans offered by conventional
banks irrespective of the amount of interest charged on the loans. The findings in the
current study is also consistent with the findings by Zauro (2017) who confirmed positive
relationship between religious obligation and intention to accept IFPs in Nigeria. The
implication of the findings is that religion play a key role on the intention of PSIAHs
to patronise IBs in Nigeria. Therefore, IBs and other stakeholders should strive to put
in place robust governance structure that would ensure the banks comply with Shari’ah
principles in their entire operations.

Knowledge and Awareness and the Intention of PSIAHs to Patronise Islamic Banks
H5 hypothesized that knowledge and awareness has positive and significant influence on
the intention of PSIAHs to patronise Islamic banks in Nigeria. However, results obtained
(β = −0.99; S. E = 0.152; CR = −0.652; p = 0.514) did not support the hypothesis,
because negative and insignificant relationship was observed between knowledge and
awareness and the intention of PSIAHs to patronise Islamic banks in Nigeria. This
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 517

contradicts the result of the study by Abd Rahman et al. (2015) who confirmed the
significant influence of knowledge on the attitude and intention towards halal cosmetic
products in Malaysia. However, the result obtained is consistent with the findings by
Abdullahi (2021) who confirmed an insignificant relationship between awareness and
the intention of respondents in his study on the enhancement of financial inclusion
through the adoption of microfinance bank in Nigeria. Also, findings this study are
consistent with the results obtained by (Zauro 2017; Abiah and Wabekwa 2012).
The implication of the findings of the current study is that adequate knowledge
and awareness about Islamic banking products and services in general and mudarabah
products is low among the respondents. This could be explained by the result of the survey
on Access to Financial Services in Nigeria by the Enhancing Financial Innovation and
Access (2015) which showed that less than 1% of the Nigerians use IFPs and only about
7.5% of Nigerians are familiar with IFPs. Therefore, IBs and other stakeholders must
increase awareness and public enlightment on the benefits of Islamic banks in general
and PSIAs through collaboration with local radio houses, and other media houses with
mass appeal to educate Nigerians about Islamic banking and its benefits.

Return Paid to PSIAHs and the Intention of PSIAHs to Patronise Islamic Banks
H6 hypothesized that return paid by Islamic banks to their PSIAHs has positive and
significant influence on the intention of PSIAHs to patronise the banks. However, results
obtained (β = −0.79; S. E = 0.102; CR = −0.773; p = 0.440) did not support the
hypothesis, because although a positive relationship was observed between return and
intention, the relationship was not significant enough to support the hypothesis. This is
contrary to several past studies such as (Muhammad 2010; Abduh and Sukmana 2011;
Hasan et al. (2012). However, result of this study is supported by results obtained by
(Abdullah 2016; Mobin and Masih 2014) who confirmed that Islamic bank customers
are more concerned with their banks’ compliance with Shari’ah principles than the share
of profit paid to them by the banks.
Also, result of H4 of the current study that showed the significance influence of
religion on the intention of PSIAHs could explain the result of this hypothesis, because
the respondents might be more concerned with the compliance of the banks to Shari’ah
than receiving higher returns on their investment. They would prefer to forego receiving
higher return than to sacrifice the compliance of the products to the Shariah Principles.
However, IBs in Nigeria and other stakeholders should not be carried away by this finding
because when we consider the increase in the number of Islamic banks in Nigeria (from
the initial two banks to five as at December 2021), in the future, PSIAHs are likely to
patronise the banks based on the return they stand to get from their investments due
to increase in competition. In the same vein, IBs’ corporate clients (not considered in
the current study) patronise banks based on the share of profit they could get from their
investments and the banks’ image and reputation as confirmed by (Gait and Worthington
2008).

Banks’ Reputation and the Intention of PSIAHs to Patronise Islamic Banks

H7 hypothesised that Islamic banks’ reputation has positive and significant influence on
the intention of PSIAHs to patronise islamic banks in Nigeria. however, result obtained (β
= 0.034; S. E = 0.079; CR = 0.430; P = 0.667) although indicated positive relationship
518 Y. Isah et al.

between banks’ reputation and intention, the influence was found to be insignificant. this
contradicts the findings by (Rehman 2012; Gait and Worthington 2008) who established
the existence of positive and significant relationship between islamic banks’ reputation
and the intention of their customers to patronise them. Conversely, the result of the
study by (Sayani and Miniaoui 2013; Hasan et al. 2012) support the result obtained in
the current study, because they established that banks’ reputation was not an important
determinant in the selection of Islamic banks.
The result obtaineed under this hypothesis showed that reputation and image of IBs
in Nigeria do not have significant influence on the intention of PSIAHs to patronise the
banks. IBs are therefore advised to pay much attention to such other variables like like
compliance with Shari’ah in its operations, better quality service delivery and the likes
that have been confirmed to influence the intention of PSIAHs.

Service Quality and the Intention of PSIAHs to Patronise Islamic Banks

H8 study predicted that the quality of service offered by Islamic banks has positive and
significant influence on the intention of PSIAHs to patronise Islamic banks in Nigeria.
Results obtained indicated that quality of service has significant influence on the intention
of the respondents at 1% (β = −0.271; S. E = 0.110; CR = −2.472; p = 0.013)
thereby supporting the hypothesis. Result of the current study corroborates the findings
by Al-Hadrami et al. (2017a, b) who confirmed the significance of quality of service
as an important selection criterion of Islamic banks among Bahrainis. Also findings by
(Egresi and Belge 2017; Al-Hunnayan and Al-Mutairi 2016) are consistent with the
result obtained in this study. The result revealed that PSIAHs in Nigeria place great
emphasis on the quality of service received from their banks.
Therefore, aside being compliant with Shari’ah principles, Islamic banks in Nigeria
must always strive to ensure that they offer their clients in general and PSIAHs in
particular, the best quality of service in order to retain existing clients and attract new
ones. Also, giving the fact IBs in Nigeria operate alongside conventional banks, it is
imperative that the banks pay attention to the quality of services they offer to their
clients, so that even if they could not surpass the quality of the services offered by the
conventional banks, they could at least match it. Because as observed by Saad (2012) and
Ali et al. (2010) there is strong and positive relationship between quality of service and
the level of customer satisfaction both in Islamic and conventional banks, and that the
relationship is is stronger for Islamic bank customers compared to conventional banks.

Deposit Insurance and the Intention of PSIAHs to Patronise Islamic Banks

H9 predicted the existence of significant and positive relationship between deposit insur-
ance paid on PSIA deposits and the intention of PSIAHs to patronise Islamic banks in
Nigeria. Result obtained (β = −0.079; S. E = 0.059; CR = 1.339; p = 0.181) showed
that the hypothesis was supported at 10% significance level. The result obtained agrees
with the findings by Hamisu (2018), who reported that the introduction of deposit insur-
ance that covers deposits of Islamic banks has significant impact on the total deposit of
Islamic banks in Nigeria. This implies that withdrawal of deposit insurance on PSIAs
that have mudarabah as its underlying contract that expected the account holders to bear
any loss from investing their deposits may lead to significant reduction in PSIAs in the
total deposits of Islamic banks.
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 519

Implication of this finding is that although PSIAHs whose deposit is based on

mudarabah contract are expected to bear losses that could arise from the investment
of their funds, the respondents are not ready to bear such losses yet. This might be due
to the fact that Islamic banking is still new in Nigeria and as reported by Enhancing
Financial Innovation and Access (2015), only about 7.5% of Nigerians are familiar with
IFPs and as such could not be familiar with the specificities of the products, hence the
influence of deposit insurance on their intention to patronise IBs. Therefore, the Central
bank should not be in a hurry to reclassify PSIAs to investments as was done by Bank
Negara Malaysia (BNM) in 2013 with the enactment of the Islamic Financial Services
Act (IFSA) (Bank Negara Malaysia 2013). This is because even in the Malaysian case it
took 30 years from the beginning of the operation of Islamic banks in the country (1983–
2013) before mudarabah accounts were fully classified as investments that should bear
losses that could arise from the investment of their depsoits.

Transparency and Disclosure and the Intention of PSIAHs to Patronise Islamic

Banks
H10 of the current study postulated that transparency and disclosure by the Islamic
banks has positive and significant influence on the intention of PSIAHs to patronise the
banks in Nigeria. However, results obtained (β = 0.129; S. E = 0.102; CR = 1.265; p
= 0.206) showed a positive but insignificant relationship between the variables which
goes contrary to the results of the some past studies including (Alaeddin et al. 2017;
Alhammadi et al. 2018) which showed significant relationship between transparency
and disclosure and the intention of PSIAHs to patronise Islamic banks, because PSIAHs
as investors (not ordinary depositors) have incentives to monitor the performance of their
respective Islamic banks in order to protect their investment and to also ensure that the
share of profit the banks pay them is fair and is based on the banks’ actual net profit.
However, the result obtained is consistent with the findings by Abdallah and Bahloul,
(2021) who studied the impact of disclosure and shariah governance on the financial
performance of Islamic banks in MENASA region and concluded that disclosure has
negative impact on the profitability of Islamic banks. Abdallah and Bahloul (2021)
expatiated further that PSIAHs might not be happy when their banks disclose the return
they earn because other potential investors might exploit the opportunities, thereby dilute
their earnings.
520 Y. Isah et al.

The result obtained implied that that PSIAHs in Nigeria who have been likened to
investors than depositors are not significantly influenced by the level of transparency
and disclosure by their respective Islamic banks. Consequently IBs in Nigeria should
understand that although PSIAHs share some characteristics with investors, that should
be significantly influenced by their banks’ level of transparency and disclosures and
the share of profit from their investment accounts, they are more concerned with the
banks’ compliance with Shari’ah principles (measured by the religiousity construct),
the quality of service offered by the banks’ and safety of their deposits (measured by
deposit insurance construct).

Table 6. Results of hypotheses testing and decisions

Hypothesis IV DV Estimate S.E. C.R. P-value Decision

H1 Attitude Intention 0.620 0.105 5.910 ***0.000 Supported
H2 Subjective Intention 0.002 0.030 0.071 0.943 Not supported
norm
H3 P B control Intention 0.159 0.089 1.779 0.075** Supported
H4 Religiosity Intention 0.396 0.103 3.844 ***0.000 Supported
H5 Knowledge Intention -0.99 0.152 -0.652 0.514 Not
& awareness supported
H6 Return Intention 0.79 0.102 0.773 0.440 Not supported
H7 Reputation Intention 0.034 0.079 0.430 0.667 Not supported
H8 Quality of Intention 0.271 0.110 2.472 ***0.000 Supported
service
H9 Deposit Intention 0.079 0.059 1.339 0.181* Supported
insurance
H10 Transparency Intention 0.129 0.102 1.265 0.206 Not supported
& disclosure

The findings by the current study provided useful and significant insights into factors
that affect the intention of PSIAHs to patronise Islamic banks in Nigeria. Results obtained
as shown in table 6 above showed interesting results. It showed that PSIAHs have positive
attitude towards Islamic banks and believed they have what it takes in terms of resources
to patronise the banks, while friends and relatives play no significant role in influencing
the intention of PSIAHs to patronise the banks. In the same vein, the result showed that
religious belief, deposit insurance and the quality of service offered by Islamic banks
positively and significantly influence PSIAHs’ intention to patronise Islamic banks,
while the return paid to the PSIAHs as their share of profit, their level of knowledge and
awareness of Islamic banking products and service and about mudarabah contract, and
disclosure and transparency by the Islamic banks have no significant influence on the
intention of PSIAHs to patronise the banks.
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 521

5 Conclusion and Recommendations

5.1 Conclusion
The current study examined factors that influence the intention of PSIAHs to patronise
Islamic banks in Nigeria by obtaining data from the PSIAHs of Jaiz bank plc and Sterling
bank NIB window (being the oldest surviving Islamic banks in Nigeria) from three states
of Nigeria that are adjudged the most populous, the commercial hubs of Nigeria and
where the banks have the most branches and more customers. The study found that
attitude, PBC, religiousity, service quality and deposit insurance have significant and
positive influence on the intention of PSIAHs to patronise Islamic banks in Nigeria.
On the other hand, the study found that SN, return paid to PSIAHs, knowledge and
awareness, reputation and ransparency & disclosure have negative and insignificant
influence on the intention of PSIAHs to patronise Islamic banks in Nigeria. The findings
are in line with the findings by previous studies in other jurisdictions as highlighted
above.

5.2 Recommendations
From the findings of this study, we recommend that Islamic banks in Nigeria and other
stakeholders should increase efforts towards educating the public in general and Islamic
bank customers in particular on the advantages and the value proposition of PSIAs
(mudarabah based account) as a saving and investment platform. Because based on
the findings of this study, there is little knowledge and awareness about the concept of
mudarabah and its benefits and about Islamic finance in general among the respondents
of the study, hence the negative and insignificant relationship observed between knowl-
edge and awareness and the intention of PSIAHs. Also, the findings of the current study
showed that PSIAHs cared more about the compliance of their banks to Shari’ah prin-
ciples and the quality of service they receive from the banks, than they care about the
returns they earned from their investment, their bank’s level of transparency and their
banks’ reputation. Consequently, it is recommended that Islamic banks in Nigeria should
ensure that their operations always comply with the principles of Islamic commercial
jurisprudence because their customers are very much interested in their compliance with
Shari’ah principles than with anything else. The banks also need to improve on the qual-
ity of the services they offer their customers especially giving the fact Islamic banks
in Nigeria operate alongside conventional banks and compete with them for customers’
patronage.

5.3 Contribution of the Study

The findings of this study have practical, theoretical and methodological implications.
The current study extended TPB by introducing seven (7) new variables of Religiosity,
Knowledge and Awareness, Deposit Insurance, Returns paid to PSIAHs, Reputation,
Quality of Service, and Disclosure & Transparency as precursors to people’s intention.
The findings showed that attitude and PBC have positive and significant influence on
the intention of PSIAHs while SN has insignificant on PSIAHs’ intention to patronise
522 Y. Isah et al.

Islamic banks. Also, religiousity, service quality and deposit insurance were found to
have positive and significant influence on the intention of PSIAHs. The findings also
have practical influence to both the Islamic banks and the CBN. For the Islamic banks,
the findings have identified variables that matter most to their customers especially PSI-
AHs. The banks’ future strategies and marketing campaigns in attracting new customers
and retaining existing ones need to consider these important variables. For the method-
ological contributions, the current study is also unique and novel because to the best
of the researcher’s knowledge, it is the first to understudy the behavioural intention of
PSIAHs especially in Nigeria using AMOS-SEM.

5.4 Limitations of the Study and Implication for Future Research

The study focused only on PSIAHs from of Jaiz bank and Sterling bank NIB window in
the states of Lagos, Abuja and Kano. Therefore, it is difficult to generalize the findings
among all Nigerians given that Nigeria has 37 states. It is therefore expected that future
researchers would expand the scope of the study to reach other states not covered in the
current study Also, the current research only elicited data from individual PSIAHs and
did not include corporate clients. The findings and conclusions of the study may not
be appropriate for generalization of all customers and PSIAHs of all the Islamic banks
in Nigeria, especially now that we have three (3) full-fledged Islamic banks and two
Islamic windows (of conventional banks). Consequently, a broader study that covers the
PSIAHs of all the Islamic banks in Nigeria including both individuals and corporates
with an increased sample is recommended for generalization in Nigeria. It is equally
recommended that future studies that cover clients of all the existing Islamic banks
should try the model of the study again, because there is the possibility that hypotheses
not supported currently might be supported in the future, because as the industry grows,
it is expected that knowledge and awareness would increase among the banks’ clients,
and as the customers become more knowledgeable about Islamic banking products and
services, they would demand for more accountability and transparency from the banks
before deciding which bank to patronise. The banks’ reputation might also play key role
in the selection of banks among Islamic banking customers. The banks would compete
in paying their investors and their PSIAHs higher returns.

Appendix

Appendix 1: Rotated Matrix

 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 523

Appendix 2: Reliability Test (Result of Cronbach’s Alpha Test)

524 Y. Isah et al.

Construct Items Corrected Cronbach’s Cronbach’s Sample size

Items total alpha if item alpha
correlation deleted
Religiosity Religion 1 0.704 0.705 0.778 30
Religion 2 0.505 0.751
Religion 3 0.503 0.750
Religion 4 0.413 0.787
Religion 5 0.566 0.734
Religion 6 0.538 0.741
Reputation Rep 1 0.606 0.712 0.772 30
Rep 2 0.684 0.680
Rep 3 0.670 0.682
Rep 4 0.655 0.690
Rep 5 0.149 0.841
Knowledge and KaAw 1 0.083 −0.178 −0.126 30
awareness KaAw 2 0.206 −0.314
KaAw 3 −0.206 0.100
KaAw 4 −0.045 −0.107
KaAw 5 −0.200 0.231
KaAw 6 0.140 −0.407
Return Ret 1 0.805 0.839 0.863 30
Ret 2 0.695 0.849
Ret 3 0.357 0.867
Ret 4 0.444 0.867
Ret 5 0.560 0.857
Ret 6 0.558 0.857
Ret 7 0.644 0.851
Ret 8 0.543 0.858
Ret 9 0.535 0.858
Ret 10 0.576 0.856
Ret 11 0.435 0.865
Ret 12 0.545 0.858
Deposit DepI 1 0.723 0.932 0.934 30
insurance
DepI 2 0.671 0.934
DepI 3 0.773 0.926
DepI 4 0.807 0.923
(continued)
 Factors that Influence Profit Sharing Investment Account Holders (PSIAHs) 525

(continued)
Construct Items Corrected Cronbach’s Cronbach’s Sample size
Items total alpha if item alpha
correlation deleted
DepI 5 0.852 0.921
DepI 6 0.887 0.915
DepI 7 0.844 0.919
Transparency TaD 1 0.741 0.794 0.848 30
and disclosure TaD 2 0.447 0.882
TaD 3 0.731 0.800
TaD 4 0.647 0.821
TaD 5 0.781 0.785
Attitude Att1 0.830 0.703 0.826 30
Att2 0.622 0.794
Att3 0.587 0.823
Att4 0.610 0.799
Subjective SN1 0.933 0.943 0.960 30
norm SN2 0.876 0.953
SN3 0.885 0.951
SN4 0.809 0.964
SN5 0.942 0.942
Perceived PBC 1 0.693 0.850 0.874 30
behavioural PBC 2 0.641 0.864
control
PBC 3 0.604 0.877
PBC 4 0.786 0.836
PBC 5 0.863 0.820
PBC 6 0.591 0.867

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 The Evolution of the National Strategy
for Integrity and Anti-corruption in Jordan
From 2008 to 2025

Rahaf Ibrahim Alkhalaileh(B) , Hanadi Ahmad Kamum, and Hashem Alshurafat

Department of Accounting, Faculty of Economics and Administrative Sciences, The Hashemite

University, P.O. Box 330127, Zarqa 13133, Jordan
[email protected]

1 Introduction

The phenomenon of corruption is one of the most negative and paramount phenomena
facing all countries. This phenomenon motivates the demand for the provision of insur-
ance against its risks, which could destroy the country’s economy. Countries worldwide
agreed on the need to develop an institutional framework to fight against this problem
through anti-corruption development [1].
Jordan is making great efforts to prevent corruption. The Anti-Corruption Commis-
sion was established as an independent body in line with the Political Anti-Corruption
Department of Jordan, following the United Nations Convention against Corruption Rat-
ification Act No. 28 of 2004 and the Ombudsman Bureau in 2008. His Majesty King
Abdullah II Ibn Al-Hussein sent a royal letter to the Prime Minister on the 26th of
June 2005, in which a law was promulgated to establish an anti-corruption commission.
Accordingly, the Anti-Corruption Commission Act No. 62 was promulgated in 2006,
and a national anti-corruption strategy (2008–2012) was launched at a national confer-
ence in August 2008 [2]. Furthermore, the Integrity and Anti-Corruption Commission’s
vision was a national environment that upholds integrity and rejects corruption [3].

2 The Objectives of the Commission

The commission tries to prevent corruption by shutting down its sources through effective
and proactive measures. National integrity standards include the rule of law, account-
ability, liability, transparency, justice, equal rights, equal opportunities, and good gover-
nance [2]. Therefore, the Anti-Corruption Commission is associated with the following
strategic objectives.

• Strengthening the sound application of codes of conduct in public administration and

ensuring its integration.
• Handle complaints and grievances by the law.
• Prevent nepotism and favoritism.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 532–535, 2023.
https://doi.org/10.1007/978-3-031-26956-1_50
 Integrity and Anti-corruption in Jordan From 2008 to 2025 533

3 The National Strategies of Integrity and Anti-corruption

This research aims to present the stages of development of the National Integrity and
Anti-Corruption Strategy from 2008 to 2025 [2–5] according to reports, research, and
studies as follows:
Part 1: The National Strategy of Integrity and Anti-corruption 2008–2012.
Part 2: The National Strategy of Integrity and Anti-corruption 2013–2017.
Part 3: The National Strategy of Integrity and Anti-corruption 2017–2025.
Part 4: The (Updated) National Strategy of Integrity and Anti-corruption 2020–2025.
According to National Strategies of Integrity and Anti-Corruption, Table 1 shows
the themes of each strategy separately.

3.1 The National Strategy of Integrity and Anti-corruption Strategy 2008–2012

The commission focused in this period (2008–2012) on the success of preventing corrup-
tion through a set of policies and tools that varied between research and studies aimed at
identifying forms of corruption in Jordan. Methods for preventive action have also been
implemented, and scrutiny committees such as local councils were set up. The commis-
sion also worked to guide scientific research in the field of combating and preventing
corruption. In implementing these efforts, a national conference was held in coopera-
tion with the University of Jordan, entitled “Corruption and its effects on economic and
social development”. One of the most important measures to prevent corruption is to
make citizens aware of the devastating effects of corruption on the country. To that end,
the commission has strengthened the participation of national institutions in efforts to
combat and prevent corruption by signing several memorandums of understanding with
a range of official bodies. It also amended the schools’ tenth-grade curricula by including
topics on the Anti-Corruption Commission to raise the new generation to the concepts
of integrity and transparency [2].
Although the taken measures are important, they might not be sufficient to prevent
the perpetrators of corruption. This requires legal action to enforce the provisions of
the law. The prosecution of the perpetrators of corruption is carried out either based
on communication or complaint by a whistleblower or an investigation conducted by
the commission. In the case of communication or complaint of a corruption crime, the
commission investigates the information received after verifying its reliability, which
may lead to the preservation of the complaint in the absence of evidence of corruption
[2].

3.2 The National Strategy of Integrity and Anti-corruption Strategy 2013–2017

This strategy extended and developed the previous strategy by assessing the risks and
causes of corruption in Jordan, the spread of nepotism and favouritism, and society’s
tolerance of this phenomenon. A complete plan was prepared for the implementation of
the 2013–2017 strategy, including a mechanism to issue regular reports on the situation
of corruption, the development of events to enhance integrity and transparency in schools
and universities, the development of a methodology for assessing the risks of corruption
and strengthening the role of internal control [4].
534 R. I. Alkhalaileh et al.

Table 1. The national strategy of integrity and anti-corruption

Period The themes

2012-2018 1. Strengthening the capacity of the Anti-Corruption Commission
2. Corruption prevention
3. Raising awareness and education on the phenomenon of corruption and efforts
to combat it. 4. Law enforcement
4. Coordinating efforts to fight corruption
5. International cooperation
2017-2013 1. Raising awareness and education on the phenomenon of corruption and efforts
to combat it
2. Strengthening corruption prevention
3. Strengthening the capacity of the Anti-Corruption Commission
4. Enabling community participation in anti-corruption activities and promoting
integrity
5. Efficiently investigating and prosecuting corruption cases
6. Strengthening international anti-corruption cooperation
7. Developing national legislation in line with international anti-corruption
standards and requirements and ensuring its efficient implementation
2025-2017 1. Activating the code of national integrity and consolidating integrity principles
and standards to create a national anti-corruption environment
2. Creating a national environment that contributes to the fight against corruption
by raising national awareness of society, institutions and individuals
3. Prevent corruption by shutting down its sources and limiting its impact through
applying effective preventive measures
4. The dedication to the enforceability of the Integrity and Anti-Corruption Act
5. Improve the provisions of current and future legislation provisions by bridging
existing gaps that could lead to corruption
6. Strengthen partnerships and integrate efforts with all national ones and
international partners
7. Strengthening media and communication channels
8. Developing the commission’s institutional capacity and improving its
performance in ways that reflect the achievements of the commission
2025-2020 1. Activate the national integrity system and ensure compliance by public
administration
2. Enhancing the efficiency of preventive action against corruption
3. Strengthening the management of local and international family partnerships
4. Institutional and human capacity development

3.3 The National Strategy of Integrity and Anti-corruption 2017–2025

Based on the instructions of His Majesty King Abdullah II Bin Al Hussein regarding
the importance of preventing corruption resources, the strategy (2017–2025) was in
line with national plans to activate the National Integrity and Anti-Corruption System.
A participatory approach was followed in developing the strategy, which ensured the
involvement of all affected parties in strengthening and promoting the national integrity
and anti-corruption system. Many resources were used as a frame of reference for the
 Integrity and Anti-corruption in Jordan From 2008 to 2025 535

strategy and several discussions between the working team and the experts through
brainstorming sessions [3].

3.4 The (Updated) National Strategy of Integrity and Anti-corruption 2020–2025

Based on the Integrity and Anti-Corruption Commission’s belief in the importance of the
strategic approach and its effective role, the Strategy for the years (2017–2025) has been
developed and updated. The update has been based on the developments, changes, and
new information from the local and international environment, as well as on the require-
ments for continuous improvement in the organizational performance of the commission.
This also comes as a re-evaluation of the strategic projects of the commission. Further-
more, the Strategy for the years (2017–2025) has adopted a participative approach while
reviewing the updated strategy, as it has been prepared by involving the stakeholders
engaged in promoting the integrity and anti-corruption system on the national level [5].

4 Conclusion

The objective of this study is to present the stages of development of the National
Integrity and Anti-Corruption Strategy. This study showed significant results by com-
paring the national strategies implemented from 2008 to 2025. With the results of this
study, all stages of the development of the National Strategy have been shown to have
the same objective of combating corruption and continuous improvement, regardless
of the variety of methods. Future researchers could investigate the effectiveness of the
National Integrity and Anti-Corruption Strategies in detecting and deterring corruption.
In addition, future researchers could conduct a comparative study between national and
international strategies for detecting and deterring corruption.

References
1. Aldmour, A.M.: Reforming the legal and institutional frameworks to fight corruption in Jordan:
an introduction of judicial reform and economic development. Available at SSRN 2750982
(2014)
2. Report, A.-C.C.A. Legal regulation of the anti-corruption commission. The Hashemite
Kingdom of Jordan, p. 69 (2010)
3. Anti-Corruption, N.S.f.I. National strategy for integrity & anti-corruption, p. 86 (2017–2025)
4. Strategy, N.A.-C. National anti-corruption strategy, p. 45 (2013–2017)
5. Strategy, U.N.I.a.A.-C. Updated national integrity and anti-corruption strategy, p. 92 (2020–
2025)
 Tax Burden in the System of Investment Appeal
Assessment of an Enterprise in the Context
of Globalization and Transformation of National
Economy

Inna Dotsenko1(B) , Lesia Matviychuk1 , Viktoriia Klochkovska2 ,

Oleksandr Klochkovskyi2 , and Liudmyla Sachynska1
1 Khmelnytskyi National University, 11, Instytuts’ka str., Khmelnytskyi 29016, Ukraine
[email protected], [email protected]
2 Vasyl’ Stus Donetsk National University, 21, str. 600-richchia, Vinnytsia 21021, Ukraine

Abstract. Modern challenges of Ukrainian tax legislation force a new approach

to the issue of assessing the investment attractiveness of Ukrainian enterprises.
The method of assessing the investment attractiveness of the enterprise depends
on the goals facing the investor. To determine the main components of the enter-
prise’s investment attractiveness, it is worth applying the method of expert assess-
ments. Indicators of the enterprise’s investment attractiveness include indicators
of profitability, liquidity and solvency, business activity, financial stability. It is
effective to apply an integral approach to assessing the investment attractiveness
of the enterprise, taking into account the level of the tax burden. The approach
is based on a set of interconnected stages and the application of the method of
calculating financial ratios. An integral approach makes it possible to evaluate
the relevant general indicator of the investment attractiveness of the enterprise,
determine its level and create a basis for making effective management decisions.
The level of investment attractiveness of the enterprise using a scale. The scale
includes five levels: high, sufficient, satisfactory, low, unattractive. The specified
levels include a description of the state of the enterprise in accordance with the
established level of investment attractiveness and tax burden. The practical appli-
cation of the proposed scale will improve the effectiveness of the implementation
of the enterprise’s financial strategy for the long term and will enable continuous
monitoring and evaluation of the state of investment attractiveness. The practical
significance of the proposed approach was tested on the example of a Ukrainian
company – «Podillia-Invest City» LLC.

Keywords: Investments · Investment appeal · Assessment of investment appeal ·

Tax burden · Integrated indicator · Assessment of tax burden · Liquidity ·
Solvency · Financial stability · Profitability

1 Introduction
Investment appeal is a key factor in ensuring an effective investment process at all lev-
els. Modern challenges of Ukrainian tax legislation force a new approach to the issue of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 536–546, 2023.
https://doi.org/10.1007/978-3-031-26956-1_51
 Tax Burden in the System of Investment Appeal Assessment 537

assessing the investment attractiveness of Ukrainian enterprises. The assessment of the

level of investment appeal is one of the most controversial issues in scientific literature
and depends on the goals facing the investors. Despite the significant scientific achieve-
ments, there are still many unresolved issues to assess the level of investment appeal of
the enterprise. Based on the analysis of economic sources (Meshkov and Mentel 2014;
Korytko and Kruk 2015; Matyushenko 2013), we can distinguish various approaches
to assessing the investment appeal of the enterprise: the method of coefficients, the
method of complex estimation, the method of enterprise ratings sum, financial indica-
tors analysis method, objective analysis. However, the practical implementation of these
approaches is complicated by the high requirements for the quality and volume of the
primary information base, the preparation and processing of which requires special addi-
tional research, significant time and money resources. The objective of the research is
to substantiate the nature and approaches to assessing the level of investment appeal of
the enterprise based on the indicators of financial condition of the business entity and its
level of tax burden. The object of the research is the investment appeal of the enterprise
in modern business conditions. The subject of the research is the assessment model of
the investment appeal of the enterprise.
The article examines the essence of investment appeal and tax burden on enterprises.
The indicators of profitability, liquidity and solvency, business activity, financial stability
are considered to be the main components of investment appeal of the enterprise. The
level of investment attractiveness “Podillya-Invest City” LLC (Ukraine) was assessed
based on the calculation of the integral indicator, taking into account the level of the tax
burden. A four level scale for assessing the investment appeal of the enterprise (high,
sufficient, satisfactory, low) is suggested. It indicates the state of the enterprise activity
in accordance with the established level of investment appeal and tax burden.

2 Relevant Research
An integral part of the development of any modern enterprise is to ensure its investment
appeal. In the economic literature there are many definitions of the concept of “investment
appeal of the enterprise”. Economic sources offer us many definitions of the concept of
“investment appeal of the enterprise”. Vinichenko (2010) determining the investment
appeal of the enterprise, uses a comprehensive approach which takes into account the
following factors: image of the enterprise, financial condition, financial result, investment
risk, intensity of innovative activity. He claims, the better the financial condition of the
company is, the higher is the level of its investment appeal. However, this identification
is quite controversial. It is believed that positive financial results can be obtained in some
period of time, based on the effective use of investment resources.
Sidorov (2019) considers the investment appeal of the enterprise from the standpoint
of a comprehensive assessment of the impact of exogenous and endogenous factors, and
the investment risk level in the process of enterprise development. Thus, he expands this
concept, taking into account the influence of the external impact factor of the enterprise
activity. Yurieva (2022) regards the investment appeal as reaching a compromise of
interests between investor and enterprise. It should be mentioned that the compromise
of interests between the investor and the company’s representatives is the result of certain
538 I. Dotsenko et al.

mutually beneficial agreements. In practice, it is quite often, only indirectly affects the
investments appeal of the enterprise. Blanc (2011) gives the clearest definition of the
concept of “investment appeal of the enterprise”. He noted the importance of the analysis
of the investment attractiveness of the company based on such as financial indicators as
financial stability, profitability, asset liquidity and asset turnover.
In the conditions of economic transformation, integration of the country into the
world community, implementation of large investment projects, the issue of the tax
burden impact on the investment appeal of the enterprise becomes a priority. Despite
the fact that some tax rates related to investment projects are at a level lower in Ukraine
than in many countries, business representatives consider the high tax burden as one
of the main destructive factors hindering investments. This contradiction is due to the
ambiguity of approaches to the interpretation of the concept of “tax burden” and its
assessment. A review of the scientific economic literature suggests that there is no
consensus among domestic scholars on the nature and economic content of this concept,
which complicates its understanding and rises up different methodological approaches
to calculating the tax burden. For example, in the financial dictionary the tax burden is
defined as the share of all tax payments for a certain time (fiscal year) for income of the
taxpayer (Bryukhovetskaya and Buleev 2019).
Analyzing the concept Novikov (2011) determines the tax burden as a measure of the
impact of tax payments on the financial condition of the enterprise. Kolisnichenko (2010)
argues that the tax burden is part of business income, which is irrevocably withdrawn by
the state through the system of taxes and fees. Sokolovskaya (2006) considers the tax
burden as the effects of taxes on the economy as a whole and on its individual payers as
well. It is associated with economic constraints arising from the tax payments and funds
diversion from other possible uses.
Tyshchenko and Yenina-Berezovska (2011) claim that data analysis of the tax burden
on previous periods is the basis for an operating enterprise in the process of making
sound management decisions in future. The tax field of the enterprise allows to predict
the impact of the tax burden on the financial result and cash flows when changing the
conditions of economic activity, which is one of the important indicators of investment
appeal of the enterprise. Proper use of instruments provided by tax legislation can ensure
not only the safety of financial savings, but also the ability to finance business expansion,
new investments by saving on tax payments or even by returning part of the funds paid
to the budget.
Thus, we propose to interpret the tax burden as the level of tax pressure on the
company by the state, which affects its investment appeal, as it changes the amount
of income that an investor can receive when investing in this sphere. Authors define
the “investment appeal of the enterprise” as a comprehensive assessment of the future
investment medium in terms of efficient use of available financial resources as well as
the tax burden level in global challenges.
Various aspects related to the assessment of the investment appeal of the enterprise
are analyzed in the scientific works of both domestic and foreign economists. Goryacha
(2016), assessing the investment appeal of the enterprise, focuses on market activity
indicators of the enterprise and defines indicators of return on equity, market value of
securities, the amount of dividends paid. Bardadin (2017) considers the importance of
 Tax Burden in the System of Investment Appeal Assessment 539

financial condition indicators, indicator of property status of the enterprise, indicators of

production and human resources, in addition to indicators of market appeal of the enter-
prise. To assess the investment appeal of the enterprise, we suggest using the method
of calculating the integrated indicator on the basis of financial ratios evaluation. The
components of the proposed approach are: elements of the statistical method (additive
convolution, root mean square deviation, coefficient method); method of expert evalu-
ations. It is considered to be the simplest and the least time consuming method which
allows you quickly tracking negative trends in the company’s activities.

3 Obtained Research Results

The method of integral assessment includes the analysis of financial indicators char-
acterizing the investment attractiveness of enterprises. In order to determine the most
significant groups of financial ratios, we used the method of expert assessments based
on a questionnaire survey. The survey was conducted at 20 Ukrainian enterprises. Enter-
prises were selected according to the random observation method. Questionnaires were
processed using MS Excel software. According to the results of the survey, four groups
of financial indicators were distinguished. The first group includes indicators that char-
acterize the efficiency of the enterprise (88% of experts), thus: profitability, profitability
of sales, return on equity, and return on assets. The second group includes financial
indicators that characterize the liquidity and solvency of the enterprise (93% of experts):
absolute liquidity ratio, quick liquidity ratio, current liquidity ratio, coverage ratio. These
indicators indirectly assess the probability of return on investment. The investment appeal
of the enterprise is guaranteed by the reliability of the financial condition. Therefore,
the third group of indicators is about financial stability (89% of experts): autonomy
ratio, attracted capital ratio, financing ratio and financial stability ratio. The last group
of indicators includes the assessment of the business activity of the enterprise (91% of
experts): the turnover ratio of assets, the turnover ratio of equity, the turnover ratio of
accounts payable, the turnover ratio of receivables.
All groups of indicators for assessing the investment appeal of the enterprise, as well
as inner indicators of these groups, are assigned weighting factors. Weighting factor is a
numerical relative indicator that characterizes a weight or importance of its manifestation
on the investment appeal of the enterprise. Like the cut-off values, the weighting factor
can be adjusted. It depends on the time, the specific political and economic situation in
the country, and other factors. Therefore, its determination has a probable origin.
The method of expert assessments is considered to be the most common for measur-
ing weighting factor. The experts determine the importance of financial indicators and
groups of indicators, by assigning them a weighting factor. To summarize the experts’
assessments, we propose to use the method of additive convolution, which is used in the
case when the indicators are independent in their significance and can be measured on
a quantitative scale.
540 I. Dotsenko et al.

The value of relative significance of indicators (weight coefficient) is determined by

the following formula:

m
aij
i
vi = (1)

m 
n
aij
i j

where aij – is the score of the significance of the i-indicator which is given by the j-expert;
j – Expert assessment;
i – Value of a criterion;
n – Number of indicators;
m – Number of experts.
It is advisable to use the concordance coefficient to assess the consistency of experts’
responses. The value of the concordance coefficient ranges from 0 to 1. With a ‘zero’
value of the coefficient, there is no connection between the assessments of different
experts, i.e. there is no consistency of opinion. If the value is ‘one’, the opinions of experts
are unanimous. The value of the total score for each financial indicator (Rij ) in the group
of indicators is defined as the product calculated by the indicator belonging to the group
and the weights that determine the degree of influence of the criteria on investment
appeal. The next step is quantitative analysis of the group of financial indicators of
investment appeal of an enterprise. The generalizing level of the i-group of financial
indicators of investment appeal of the enterprise is to be calculated by the formula:

n
vi · wi 
i Rij
Rj = or Rj = (2)
ni ni
where Rj – is the general level of the j-group of financial indicators of investment
appeal of an enterprise;
Rij – Generalized level of the i-indicators in the j-group;
vi – Weighting coefficient of the i-indicators;
wi – The value of the i-indicators in the group of financial indicators;
ni – The number of indicators of the i-group.
To obtain integrated estimates, the initial values of each group of indicators are
reduced and unified to a form suitable for comparison. Primarily, this is due to the
diversity of indicators i.e. stimuli-indicators tend to increase, and disincentive-indicators
tend to decrease. Besides, each indicator relies on their own calculation strategy. To
ensure the comparability of indicators, they should be normalized, which is a transition
to such a scale of measurements, when the “best” value of the indicator corresponds to
the value of ‘1’, and the “worst” to the value of ‘0’:

lj = 1 − Ri (3)

where lj – is the integrated indicator of the j-group of financial indicators of investment

appeal of the enterprise.
 Tax Burden in the System of Investment Appeal Assessment 541

Concretization of weight coefficients of groups of financial indicators (xj ) of invest-

ment appeal of an enterprise is carried out on the basis of expert assessments method,
which was described above. We propose to calculate the value of the final assessment
of the investment appeal of an enterprise using an integrated indicator, by summing
the product of the generalized level and the weighting factor by groups of financial
indicators. Thus, the calculation of the integrated indicator of investment appeal of an
enterprise is carried out according to the formula:

n
IP = lj · xj (4)
i=1

where IP – an integrated indicator of investment appeal of an enterprise;

xj – represents weight coefficients of the j-group of financial indicators of investment
appeal of an enterprise.
Taking into account the importance and impact of taxes on the behavior of enterprises,
the level of tax burden is one of the indicators of investment appeal of an enterprise.
Tax deductions reduce the amount of current assets of an enterprise, as well as limit the
ability to invest retained earnings in its further development. The level of tax burden
of different categories of legal entities is one of the factors that determine the policy of
investor’s capital allocations.
To measure the level of tax burden of an enterprise the following formula is used:
T
TB = (5)
GR
where TB – tax burden;
T – Taxes paid by an enterprise;
GR – Gross revenue of an enterprise.
The practical application of the proposed assessment of investment appeal of an
enterprise was tested and verified at “Podillya-Invest City” LLC, Ukraine.
“Podillya-Invest City” LLC is involved in construction of residential and non-
residential buildings. The scope of residential buildings includes one-apartment build-
ings, multi-apartment buildings, including multi-storey blocks of flats. Non-residential
buildings are represented by industrial-purpose buildings, such as factories, plants, work-
shops, assembly shops, etc., hospitals, schools, office premises, hotels, shops, shop-
ping arcades, restaurants, airport buildings, indoor sports complexes, garages (including
underground ones), warehouses, religious buildings. The company is also involved in
installation and erection of prefabricated structures on construction sites; reconstruction,
restoration and redecoration of residential buildings.
The results of calculations of general level for the group of financial indicators of
investment appeal for “Podillya-Invest City” LLC in 2021 are represented in Table 1.
Table 2 shows the investment appeal index of “Podillya Invest City” LLC in 2021.
“Podillya-Invest City” LLC (Ukraine) performs its activities according to a simpli-
fied taxation system and is a single-tax payer in the third group. The company pays a
single tax at the rate of 3% as well as VAT. Based on the analysis of the company’s
financial statements and using formula (4), the level of tax burden of “Podillia-Invest
City” LLC, Ukraine, was determined. Its value in 2021 was 0.3. The study of the tax
542 I. Dotsenko et al.

Table 1. Calculations of the general level of the group of financial indicators of investment appeal
for “Podillya-Invest City” LLC (Ukraine) in 2021

Indicator group Financial indicators by Value (wi ) Weight coefficient General level
groups (vi ) (Rj )
Enterprise Cost Effectiveness = 0,20 0,1 0,226
returns Net Income/Net
Revenue
Sales Return = Net 0,05 0,2
Income/The Amount
Of Revenue Received
From The Sale Of
Products
Return On Equity = 0,44 0,3
Net Income/Average
Annual Cost Of Equity
Assets Return = Net 0,15 0,4
Income/Average
Annual Value Of
Assets
Business Assets Turnover Ratio 3,68 0,3 0,827
activity = Net Sales/Average
Total Assets
Equity Turnover = 0,43 0,3
Revenue From The
Sale Of
Products/Average
Annual Amount Of
Equity Capital
Accounts Payable 3,85 0,2
Turnover = Net
Income Sales/Average
Accounts Receivable
Accounts Receivable 5,53 0,2
Turnover Ratio = Net
Credit Sales/Average
Accounts Receivable
(continued)
 Tax Burden in the System of Investment Appeal Assessment 543

Table 1. (continued)

Indicator group Financial indicators by Value (wi ) Weight coefficient General level
groups (vi ) (Rj )
Liquidity and Absolute Liquidity = 0,35 0,4 0,486
solvency Cash And Current
Financial
Investments/Current
Liabilities
Quick Liquidity = 2,23 0,2
Liquid Assets/Current
Liabilities
Current Liquidity = 1,79 0,3
Current Assets/Current
Liabilities
Coverage Ratio = 1,56 0,1
Current
Assets/Short-Term
Liabilities
Financial Self-Sustainment Ratio 0,51 0,4 0,398
stability = Equity/Total Capital
Debt Capital = 0,49 0,1
Current And
Long-Term
Liabilities/Assets
Financing Ratio = 0,79 0,2
Liabilities/Equity
Financial Stability = 0,66 0,3
Equity And
Long-Term
Liabilities/Liabilities
Source: Authors’ calculations based on financial reporting “Podillya Invest City” LLC (Ukraine)

Table 2. Integral index of investment appeal of “Podillya-Invest City” LLC (Ukraine) in 2021

Indicator group Enterprise Business activity Liquidity and Financial

returns solvency stability
Weight coefficient 0,3 0,2 0,2 0,3
(xj )
Integral index of 0,449
investment appeal
Source: Authors’ calculations based on financial reporting “Podillya Invest City” LLC
544 I. Dotsenko et al.

burden of the company proves that the company has chosen the optimal taxation system
i.e. taxes and fees are paid on time, without penalties and without accounts payable to
the budget and extra budgetary funds. The accounting policy meets the requirements
and norms of international accounting standards and financial reporting, national reg-
ulations (standards) of accounting and other accounting regulations. To reduce the tax
burden, “Podillya-Invest City” LLC (Ukraine) uses modern management tools, includ-
ing staff outsourcing. This allows the enterprise to optimize the costs of the enterprise
by elaborating own tax payment policy including a single social fee.

4 Conclusions and Recommendations

The proposed methodological approach based on measuring of integral index of invest-
ment appeal of the enterprise which takes into account the level of tax burden allows
not only to make a generalized comparative assessment of performance of an individual
enterprise for the given period, but also provides multi-dimensional comparative analysis
of investment appeal of several enterprises operating in one industry.
According to the results of the research, level characteristics of the of investment
appeal of the enterprise are identified on the basis of Podillya-Invest City LLC determined
by quantitative and linguistic evaluation of the scale (Table 3). The assessment scale
of investment appeal of the enterprise ranks its level in terms of financial stability,
solvency, profitability and liquidity of the enterprise. There are four levels of investment
appeal of the enterprise (high, sufficient, satisfactory, low), which influence the enterprise
investment decision.
Practical application of the proposed scale will improve the effectiveness of the
financial strategy of an enterprise for the future and will enable continuous monitoring
and evaluation of investment appeal. The investment appeal of “Podillya-Invest City”
LLC is sufficient, which allows us to consider the company as a subject with investment
potential. However, based on the analysis, it should be noted that the company still needs
to pay attention to the inventory management system, review its credit policy, which will
reduce receivables and increase working capital of the company. Implementation of the
suggested measures will strengthen the market position of the company and increase
the level of its investment potential. In order to consistently and clearly implement the
concept of tax planning at the enterprise, application of technological checklist for tax
planning is proposed. In order to consistently and clearly implement the concept of tax
planning at the enterprise, it is advisable to use technological maps of tax planning, taking
into account the level of investment attractiveness of the enterprise. The development of
which will be the object of future scientific research.
 Tax Burden in the System of Investment Appeal Assessment 545

Table 3. Level characteristics of investment appeal of the enterprise based on the assessment of
financial indicators and tax burden

Levels of investment appeal Level of tax burden Name Enterprise activity

characteristics according to
the established level of
investment appeal
0,76–1,00 0,2–0,1 High The enterprise is profitable
for a long period, financial
stability, liquidity and
solvency are ensured, the
optimal taxation system is
chosen
0,41–0,75 0,21–0,3 Sufficient Moderate and stable
enterprise development,
characterized by
self-financing and long-term
debt capital, the effective tax
policy of the enterprise is
developed
0,26–0,4 0,31–0,4 Satisfactory The enterprise is
characterized by a low level
of payment discipline,
accounts payable and
financial risks. The company
attracts the vast majority of
short-term loan resources to
ensure financing. There is a
significant level of tax risks
0,00–0,25 0,41–0,6 Low The company’s activity is
unprofitable, characterized
by the high risk of
insolvency and financial
instability. There is a
significant tax burden, tax
policy requires serious
changes

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 Evaluation of the Exercise of the Performance
Assessment System

Lalit Prasad1 , Neha Nagar2 , D. Rajsekar3 , Ananta Geetey Uppal4 ,

Priyanka Mishra5 , Sandeep Kumar Gupta3(B) , Renu6 , and Natalia Kornieva7
1 Dr. D. Y. Patil Institute of Management Studies, Pune, India
2 Greater Noida Institute of Technology, Greater Noida, India
3 AMET University, Chennai, India
[email protected], [email protected]
4 P P Savani University, Surat, India
5 Sri Balaji University, Pune, India
6 Central University of South Bihar, Gaya, India
7 V. O. Sukhomlynskyi Mykolaiv National University, Mykolaiv, Ukraine

Abstract. Performance evaluation is a crucial instrument for evaluating the

frameworks provided by any firm for its personnel. It is used to monitor individual
efforts and performance against organisational objectives to highlight strengths
and flaws for future improvements and to analyse if organisational goals are
reached or act as the foundation for future planning and growth of the firm. The
government would benefit from applying this evaluation method to police per-
sonnel. Since these law enforcements are obligated not merely to carry out their
responsibilities but also to safeguard society from crime. Nonetheless, the practise
of evaluating the work of police personnel has certain obstacles. The researcher
has thus attempted to explain these difficulties. This research intended to evaluate
the practise of performance evaluation at police stations in Dessie.
The study has generated important research issues on the key roles of per-
formance assessment practise and the obstacles of appraisal in the workplace. To
answer the questions, a descriptive research approach was used. Data was gath-
ered using stratified sampling. The final responders were cops from the five police
stations in the city. We have used both primary and secondary methods of data
collection.
The survey participants have assessed the core mission of the performance
appraisal practise of the police office, namely that the assessment criteria of per-
formance are not connected to the professional atmosphere of the officer police, the
assessment did not sense personal value, the government cannot attain its interests,
no training is provided, and the appraisal practise is lengthy. Hence, the current
approach of performance evaluation is ineffective. In conclusion, various reme-
dies were given based on the results. Eventually, the researcher has recognised
the most significant obstacles posed by the practise of performance evaluation in
the workplace and suggested potential remedies. Suitable performance evaluation
criteria should be developed, the evaluation should be connected to incentives,
good Training should be offered, and assessment should be conducted in a timely
manner.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 547–559, 2023.
https://doi.org/10.1007/978-3-031-26956-1_52
548 L. Prasad et al.

Keywords: Performance Appraisal Practice (PAP) · Effectiveness of PAP ·

Dessie Police Office · Amhara Regional State Police Commission

1 Introduction

According to Harrington (1994) measuring something is essential for improvement.

Without measurement, we can’t understand anything whether it is correctly implemented
or not. There are different mechanisms managers’ can use in measuring the behaviours
and practices of their employees to contribute to organizational success. Among these
methods, evaluation of performance is the most prevalent and applicable in most orga-
nizations. Harrington (1994) elaborates on his idea by following saying: “Measurement
is the first step that leads to control and eventually to improvement. If you can’t measure
something, you can’t understand it. If you can’t understand it, you can’t control it. If
you can’t control it, you can’t improve it.” Atiomo (2000) defines performance appraisal
as a technique that enables businesses to determine not that whatever level of perfor-
mance is, but also in which categories such values must be improved to maximise the
use of people management. As per Atiomo, in order for performance appraisals to be
successful, every firm needs guarantee that each employee is informed of his duties and
obligations. Appraisal of performance is an important undertaking in administration of
human resources practise. In any organization, whether it is a profitable, non-profitable,
charity organization or governmental organization, its human resource plays a critical
role in organizational success. This is because it is the human factors that make decisions
concerning all the other resources of the organization. As according Mathis and Jack-
son 2011, appraisals of performance are intended to evaluate a workers’ effectiveness and
give a forum for comments about past, present, and future performance objectives. Even
though DeCenzo and Robbins (2010) explain, performance evaluations must express to
workers how successfully they have met predetermined objectives. Consequently, any
review of employee performance might be emotionally fraught. In accordance with this,
companies’ performance evaluation methods should be conducted with care. Appraisal
of performance enables firms to tell workers about their development rates, compe-
tences, and potential. It helps workers to create their particular development objectives
intentionally, hence fostering their personal progress (Sapra 2012). There is no doubt
that a well-executed performance evaluation serves a crucial purpose in harmonising
the demands of the person with those of the business (Cleveland et al. 1983; Conry and
Kemper 1993; Grote 1996). Utilized effectively, performance assessment is an effective
organisational tool for organising and coordinating the efforts of every employee toward
the fulfilment of the organization’s strategic objectives (Grote 2002; Lewis 1996). Grote
notes that if performance evaluation is executed poorly, it may become a mockery. Essen-
tial to the efficacy of Human Resource Management, performance assessment assists
businesses in rewarding and promoting strong workers and identifying poor performers
for developmental programmes or other personnel actions. Since around 1990, there
has been a growing emphasis on police performance across the globe, but notably in
the United Kingdom (Collier 2006; van Sluis et al. 2007). (2008). In the United King-
dom, performance metrics were streamlined at the national level in 2007 to concentrate
 Evaluation of the Exercise of the Performance Assessment System 549

almost exclusively on consumer confidence and trust, and there has been a recent trend
toward regressing accountability for performance assessment as from federal to the rein-
forcement ratio (Barton and Barton 2011). The significance of performance evaluation
for police personnel is indisputable. Officers of the law provide a service to society.
T their projects is socially relevant. According to Gul (2013), police personnel collab-
orate alongside the cities they oversee to preserve order of law and stability, protect
the community and their possessions, prevent criminality, reduce the apprehension of
criminality, and enhance the quality of life for all residents. Performance assessment, as
per Bayley (1996), is beyond just an intellectual challenge, a question of techniques and
data. The way performance is assessed influences public’s opinions about the police,
as well as the nature of enforcement activities and the environment of management.
Since performance evaluations determine objectives, incentives, and criteria, they are
too crucial to be left to technologists. The measuring of performance should be seen as
an inherent and continuing component of police management. The police officers are the
ones who have guns legally. These police officers may misuse their guns intentionally or
unintentionally. They may abuse their power for non-legal duties. Sometimes they are
harmful. To minimize such kinds of risk, a continuous performance appraisal should be
used to make sure they are carrying out their duties based on the law. The success of every
firm is contingent on its human resource - its employees. Therefore, each organization’s
administration needs to be mindful of employee performance. To this end, organisations
conduct periodic performance evaluations at a frequency decided by the organisation.
Occasionally, certain businesses do the evaluation if it is required for scenarios such
as elevation, relocation, wage increase, etc. Evaluation of police performance is thus
essential to enhancing the quality of services provided to society. A formal performance
evaluation system that is well-designed gives the capability to achieve these objectives.
(Gul and O’Connell 2013). As per Mackenzie and Hamilton-Smith (2011), however, a
discussion has evolved over the applicability of simple, user-friendly, numerical ‘Modern
Community Management’-style performance systems to the police context. Moreover,
according to the knowledge of the researcher, there is no recorded study that has been
conducted in the Dessie city police office department in particular to evaluate the prac-
tise of the system of performance assessment for police officers, the duration of the gap
between two consecutive appraisals is short (15 days). Thus, Taking the problems with
the aforementioned performance appraisal practice, the study tried to give answers to
the following basic questions:

• How successful is the current method of performance evaluation at the Dessie

municipal police department?
• Does the existing performance appraisal procedure measure police officers’ perfor-
mance?
• Does the evaluation criteria correspond to the working conditions of police officers?
• Do officers recognise the significance of performance review for their promotions,
transfers, and compensation increases?
• Does the appraisal practice applied at the level the government seek?

To address the research questions, the accompanying hypotheses were created.

550 L. Prasad et al.

HO1: The Dessie municipal police department’s current performance evaluation

procedure successfully assesses officer efficiency.
HO2: The present performance evaluation process of the Dessie municipal police
department corresponds to the officers’ working environment.
HO3: The police officers of the city of Dessie think that performance review is crucial
to their professions.
HO4: The present performance evaluation process of the Dessie municipal police
department aligns with the priorities of the government.

The aim of the research has been to evaluate the practise of the performance
evaluation system for police officers at the Dessie municipal police office.
Besides the previous basic purpose, the succeeding particular research objectives are
initiated:

• To evaluate the efficacy of the present performance assessment procedure in the Dessie
municipal police department.
• To examine whether the existing performance appraisal procedure measure police
officers’ performance
• To assess whether the measurement criterion matches the working condition of police
officers.
• To assess the extent to which officers link performance appraisal with their future
careers.
• To assess the government’s criterion in the process of undertaking performance
appraisal for police officers.

2 Methodology

Research Design: Design of research is the conceptual framework through which inves-
tigation is performed; it is the blueprint for data collection, measurement, and analysis.
Since, this research aims to find and investigate the current practise of performance
evaluation, it may be classified as a descriptive study. According to Kothari (2004), the
principal purpose of descriptive research is to describe the current condition of circum-
stances. In this research project, the researchers have attempted to evaluate and explain
the practise of performance evaluation inside the Dessie municipal police department.

Research Approach: In this study, The practise of performance evaluation at the Dessie
municipal police department was evaluated through using qualitative and quantitative
methods. The combination of both study methods resulted in a more accurate inter-
pretation, since one may address facts that the other does not, and as a consequence,
the analysis may provide an improved and unified outcome. As a consequence, both
methodologies were used to determine the efficacy of this investigation.

Population: This study’s population consists of police personnel employed at the five
police stations under the Dessie municipal police office. These five police stations are
now staffed by 317 policemen.
 Evaluation of the Exercise of the Performance Assessment System 551

Sampling Methods and Techniques: The Dessie city police department comprises
five stations. In this analysis, all five police stations were taken into account. This provides
an improvement in the data’s dependability and validity. Further; taking data from all
five stations helped to get a good representation of the situation under consideration.
The sampling method used in this study was proportional stratified sampling. Each
police station represents a stratum within the framework of this study. Using basic
random sampling, a representative sample was obtained from each stratum. Thus, the
total sample size was established, and a proportionate number of persons were picked
from each police station.

Sampling Frame: One of the considerations in sampling is the sample frame. For this
study, the complete lists of officers serving in the five police stations were prepared from
the data that were obtained from Dessie City Administration Police Office.

Sample Size Determination: According to the Dessie city police office, there are 317
police officers within the five stations. In estimating sample size for a limited population,
the researcher uses the formula provided by Kothari (2004):

n = (z2 . p. q. N)/(e2 (N–1) + z2 . p. q) (Kothari 2004: 179).

where N = size of the population.
n = size of the sample, z = as per the table of the area under a normal curve for the
given confidence level, p = sample proportion, q = 1 – p;
e = acceptable error (the precision).
In the event when p is unknown, Kothari recommends using a value of 0.5 such that
the sample size is maximised and the sample delivers at least the acceptable accuracy.
This study used a confidence level of 95% and a permissible error margin of 5%.
Consequently, the following describes the sample size for this research study:

n = ([[(1.96)]]2 × 0.5 × 0.5 × 317) ([[(0.05)]]2 × 316 + [[(1.96)]]2 × 0.5 × 0.5) ≈ 174

Consequently, 174 people comprised the study’s sample size. Therefore, information
was gathered from police personnel operating in the five police stations. The table below
shows the distribution of officers among the five police stations.
Police Stations Population- One 65, Two 71, Three 68, Four 60, Five 53, Total 317
(Source, Dessie City Police Office).
Kothari (2004) states the following: “In stratified sampling, when calculating the
number of items to be picked from each stratum, proportional allocation is often used to
ensure that sample sizes are proportionate to stratum sizes. Specifically, if Pi denotes the
proportion of the population contained in stratum I and n represents the entire sample
size, then the number of items taken from stratum I equals n × Pi.” In accordance with
this and determined by the number of officers in the preceding table, the number of
police officers to be sampled from each station is estimated proportionately as follows:
The number of officers in Police station 1 = 65, therefore n1 (the sample size from
police station 1) is.

n1 = 65/317 × 174 ≈ 36
552 L. Prasad et al.

The number of officers in Police station 2 = 71, therefore n2 (the sample size from
police station 2) is.

n2 = 71/317 × 174 ≈ 39

The number of officers in Police station 3 = 68, therefore n3 (the sample size from
police station 3) is.

n3 = 68/317 × 174 ≈ 37

The number of officers in Police station 4 = 60, therefore n4 (the sample size from
police station 4) is.

n4 = 60/317 × 174 ≈ 33

The number of officers in Police station 5 = 53, therefore n5 (the sample size from
police station 5) is.

n5 = 53/317 × 174 ≈ 29

The accompanying table provides a summary of the number of police station

personnel involved in the research.
Police Stations Population Proportion Sample Size.
One 65 20.5% 36, Two 71 22.4% 39, Three 68 21.5% 37, Four 60 18.9% 33.
Five 53 16.7% 29, Total 317 100% 174.

Data Source and Collection Methods: This research included both primary and sec-
ondary data. Numerous secondary data sources, such as public performance evaluation
reports and office papers, have been used. Open-ended and closed-ended questionnaires
have been used to obtain the main data. T to fulfil the specified research, the survey ques-
tionnaires have been employed. These surveys were drafted in English before being
translated into Amharic, the local language. This was a crucial step to prevent uncer-
tainties, hassles, and communication hurdles in the data collection process. In addition
to that, HR officials were offered formal and semi-structured interviews.

Variables and Measurements: Independent (explanatory) variables are variables that

describe one or more other variables, whereas dependent (explained) variables are vari-
ables that are explained by other variables (Kothari 2004). Consequently, “Effective
Performance Appraisal Practice” was used as the dependent variable in this research.
This dependent variable was hypothesised to be influenced or accounted for by four vari-
ables: “Perception of Operational Performance Appraisal Practice,” “Conformance with
Working Environment,” “Perceived Individual Importance,” and “Conformance with
Government Interest.” Consequently, these four variables were classified as independent
research variables.

Data Processing and Analysis: Following the gathering of data, it must be processed
and evaluated in accordance with the study plan’s outlined procedure. This is necessary
for a scientific investigation and for confirming that we contain all pertinent informa-
tion for the comparisons and analyses we want to conduct (Kothari 2004). In a technical
 Evaluation of the Exercise of the Performance Assessment System 553

sense, processing involves editing, coding, categorising, and tabulating acquired data so
that they may be analysed (Kothari 2004). After the primary and secondary data were
collected, they were edited and organized through the standardized procedure to make
them suitable for analysis. Data analysis entails the technique of transforming raw data
into information which is helpful for user decision-making. In order to respond to ques-
tions, test hypotheses, or refute ideas, data is gathered and examined (Judd et al. 1989).
According to the author, descriptive and inferential statistics may be used to examine
data. Additionally, the studied data may be presented utilising tables, charts, and graphs
in addition to descriptive comments.

Descriptive Analysis: Descriptive statistical analysis are employed in order to charac-

terise the fundamental characteristics of the study’s data. They provide straightforward
overviews of the sample and measurements. In conjunction with rudimentary graphical
analysis, they provide the foundation of practically all quantitative data analysis (Judd
et al. 1989). Using tabulation and measures of central tendency (mean and standard
deviation) and measures of central tendency (mean and standard deviation), descriptive
analysis was used to summarise the data (mean and standard deviation). In addition, sev-
eral charts were employed to illustrate the data. The purpose of descriptive statistics has
been to evaluate various elements. In addition, descriptive narratives have been examined
concurrently with the interview questions as part of a contemporaneous triangulation
technique.

Inferential Analysis: Using inferential statistics, we attempt to draw inferences that go

beyond the immediate facts. In this study, the researcher employed inferential statistics
to draw conclusions about more general situations based on our data. Specifically, the
t-test and correlation analysis have been applied to sample data to determine the research
population. One Sample T-test: A one-sample t-test analyses if the sample mean sub-
stantially deviates from a reported or declared mean (Cramer and Howitt 2004). In this
research, one sample t-test was used to analyze whether police officer perception of the
existing PAP is effective or not. Karl Pearson’s Coefficient Correlation: The correlation
coefficient is an index of the linear or straight-line relationship between two variables
(Cramer and Howitt 2004). Correlation can be analyzed using various methods, among
methods; Karl Pearson’s coefficient of correlation is the most widely used (Kothari
2004). The coefficient of correlation (r) developed by Karl Pearson is also known as the
product-moment correlation coefficient. r has a value between 1 and 1. Positive values of
r demonstrate a positive association between the independent and dependent variables
(i.e., changes in both variables occur in the domain of the statement), while negative
values of ‘r’ indicate a negative correlation, i.e., changes in both variables occur in
the opposite direction. A value of zero for ‘r’ demonstrates that there is no correlation
between the factors (Kothari 2004). In this study, the strength and degree of the corre-
lations between the dependent and independent variables were determined using Karl
Pearson’s coefficient of correlation.

Validity and Reliability: The extent to which a test assesses what it claims to measure
is its validity (Creswell 2009). Hammersley (1987) said, “An account is genuine or
truthful if it properly depicts the characteristics of the phenomenon that it is meant to
554 L. Prasad et al.

describe, explain, or theories.” In terms of validity, there are two primary concerns:
if the measuring equipment are exact and whether they assess what is intended to be
measured (Winter 2000). According to Ritchie and Lewis (2003), research validity is
defined as the accuracy or accuracy of the study result. It is known the amount to which
the results of this research may be duplicated if another study that employs the same
research methodologies is conducted (Ritchie and Lewis 2003). It was affirmed that “the
reliability of the findings depends on the likely recurrence of the original data and the
way they are interpreted” (Ritchie and Lewis 2003). For making the research valid and
reliable, the focus has been given to the following issues, Firstly; the questionnaire was
distributed based on proportion i.e. equal chance was given to each police station police
officer to obtain reliable and representative data. In addition to this, each police station’s
heads and HR officers were interviewed. Besides, the secondary sources were gathered
from the Dessie city police office. On the other hand, SPSS software has been used to
minimize errors. Generally, the researcher used primary data by interviewing the office
heads & HR officers and distributing questionnaires for police officers and secondary
data from different published and unpublished documents.

3 Result Analysis

The majority of DCAPO respondents agreed that a police officer’s performance evalua-
tion should include both personal characteristics and professional performance. Further-
more, successful evaluation techniques should include job-related information. Every
six months, performance evaluations should be conducted. Self-assessment, the direct
supervisor, and peers should assess the performance review. The research demonstrates
that good evaluation systems should give consistent, dependable, and accurate informa-
tion on job-related activities at stations. Forms, processes, delivery of techniques, rating,
etc. should be standardised for a successful evaluation system. In addition, evaluation
procedures must be feasible to administer, feasible to implement, and cost-effective for
ongoing use. However, the interview findings indicate that the performance evaluation
method is not cost-effective. One may infer from the research that successful perfor-
mance assessment procedures must be practicable to administer, feasible to execute, and
cost-efficient to be carried out continually. Honest conversations between the appraiser
and the appraised is necessary for effective performance evaluation methods. Effective
performance assessment processes should allow police officers to get proper construc-
tive criticism, as well as the opportunity to clarify their disagreement with the criticism.
The study’s findings indicate that the current approach of evaluating the performance
of Dessie police officers is not fair nor reliable. This occurs as a result of the raters’
favouritism and partiality. This suggests that the current process of performance evalu-
ation does not prioritise the office’s fundamental strengths. And it does not adequately
explain to police personnel the performance evaluation criteria and essential capabili-
ties. In Dessie city police stations, the present performance evaluation approach involves
constant feedback. The raters lack appropriate skills and understanding regarding per-
formance assessment methods, and they have not received professional education on the
management, motivation, and evaluation of employee performance. The criteria used to
 Evaluation of the Exercise of the Performance Assessment System 555

evaluate performance at the Dessie municipal police station are irrelevant for both the
administration and the officers, and the reviewers are unmotivated during the evalua-
tion periods. As per the results of the t-test, the Dessie municipal police department’s
current performance evaluation does not accurately evaluate officer performance. There
are performance evaluation and ongoing supervision methods in place at police stations.
The results of the research indicate that the performance evaluation criteria do not cor-
respond to the police officers’ working environment. The duration of the performance
evaluation evaluation period is insufficient. In the practise of PAP, the organisational cli-
mate of the Dessie municipal police department is cooperative rather than competitive.
Respondents are unaware of the raters’ understanding of the peculiarities of police offi-
cer occupations. There is formal and regulated communication between a subordinate
and supervisor. As per the t-test result, the present performance evaluation of the Dessie
municipal police department does not appropriately reflect the officers’ working envi-
ronment. The existing method of performance evaluation does not encourage workers
to establish objectives for improved performance. In addition, it has little correlation
with benefits like as wage raises, bonuses, and/or promotions. Moreover, the assess-
ment system does not assist officers in recognising their own weaknesses and areas for
improvement; as a result, it is inadequate at identifying poor performers who may need
counselling, demotion, termination, or pay cuts. The plurality of voters stated that the
current performance evaluation process at the Dessie municipal police station did not
result in future and continuing performance improvement for the police officers and the
office. The achievement of performance goals and objectives has no direct beneficial
impact on a Dessie municipal police officer. According to the results of the t-test, the
majority of Dessie municipal police officers do not feel that performance review is essen-
tial for their professional prospects. The current performance evaluation method used
by the Dessie municipal police station does not let police personnel to accomplish their
tasks at the desired level, quality standards, and cost. Furthermore, it cannot identify
the strengths and flaws of police personnel to enhance their future performance. The
present performance evaluation method is ineffective in identifying the training require-
ments of Dessie municipal police personnel. The stations would not promote rewarding
employees depending on their performance. The performance evaluation method did not
allow the administration of Dessie police stations to make administrative choices based
on concrete proof -based data. The procedure of performance evaluation at the Dessie
police station is not transparent. According to the t-test result, the current performance
evaluation methodology of the Dessie municipal police department does not align with
official priorities.

4 Conclusion

Performance evaluation is a continuous practise of assessing employee performance.

Performance appraisals are assessments of personnel performance and reliability; thus,
performance appraisals are just one component of performance management. A suc-
cessful performance assessment system should drive workers to perform better and
generate more, allow managers to identify growth and training requirements, under-
stand how they may develop and progress, boost employee morale, promote excellent
556 L. Prasad et al.

communication between the personnel and the employee, and identify bad performers
and assist them in getting back on track. Effective performance evaluation systems are
dependable and valid, have work relevance, uniformity, practical feasibility, transparent
interaction, provisions relating to findings, and adhere to formal protocols. This research
evaluates the implementation of the performance evaluation system for Dessie munic-
ipal police personnel. The research also analyses the efficacy of the current practise of
performance evaluation, the compatibility of evaluation criteria with the professional
atmosphere of law enforcement officers, the significance of evaluation for police officer
careers, and the consideration of the government. This research included both primary
and secondary data. The major information was collected through surveys and inter-
views. The questionnaire was designed for police officers, whereas the interview was
designed for DCAPO department chiefs and HR department directors. In addition, sec-
ondary data were collected from public performance evaluation outcomes, performance
evaluation guidelines, office proclamations, and papers. According to the secondary data
and question and answer session replies, the Dessie City Administration Police Agency
is an office that is in order. The office is divided into four basic processes: society-
based crime deterrence, criminal investigation, road traffic safety assurance, and human
resource management. There are five police stations underneath the police office. These
police stations serve distinct neighbourhoods of the city. Since this community has a
huge population, the DCAPO structure is functionally organised. The most of partici-
pants in Dessie City Administration Police Stations stated that performance evaluation
processes should evaluate both work performance and personality qualities. The inter-
view also revealed that each police station evaluates the work performance and personal
characteristics of its personnel. This is because police officers are disciplined and possess
other admirable attributes.
The majority of those surveyed (about 41%) believe performance evaluations should
be conducted every six months, while between 21 and 20% believe they should be con-
ducted quarterly and every fortnight, respectively. About 14% and 5% of respondents
believe it should be performed monthly and annually. In addition, secondary data reveal
that performance evaluations are conducted every fifteen days. According to the respon-
ders, there is insufficient time to complete the project. Furthermore, based on the study’s
results, the most of the survey participants said that the current performance assessment
process of the Dessie city police department did not accurately evaluate the performance
of officers. The final responders assessed the efficacy of the office’s performance eval-
uation procedure as ineffective. There is favouritism and prejudice of reviewers in the
current performance appraisal practise, and reviewers did not receive education or expe-
rience on the management procedure. Therefore, it can be argued that the current process
of performance evaluation for Dessie municipal police officers is ineffective. In contrast,
the current practise of performance appraise involves continual feedback. It may have
a favourable impact on the practise of performance evaluation inside the Dessie police
department. In addition, based on the responses of the top police officers, it has been
determined that the current performance evaluation of the Dessie municipal police sta-
tion does not adequately represent the officers’ working environment. Their rationale
was that the performance evaluation standards did not reflect the police officers’ working
environment. For example, the criteria of performance assessment are developed based
 Evaluation of the Exercise of the Performance Assessment System 557

on civil servants; as a result, it is difficult for a police officer to execute the criterion
based on the police officer employment environment, and the evaluation period of the
performance appraisal (every 15 days) is not permissible because it does not provide suf-
ficient time to begin and complete a task. This also suggests that the present performance
evaluation of the Dessie municipal police department does not correspond to the officers’
working environment. Even though the preceding obstacles have a negative influence on
the effectiveness of the PAP in the workplace, the following difficulties have a beneficial
impact. There are continuous supervision practises tied to performance appraisal, and
there is formal and structured interaction between a subordinate and supervisor. The
organisational employment situation of the Dessie city police department is coopera-
tive, as opposed to competitive, in the practise of performance evaluation. In addition,
based on study’s results, police officers do not feel performance review is essential for
their future employment. Their main motives are that the present performance eval-
uation method discourages workers to establish objectives for improved performance
and that it lacks ties to incentives such as salary raises, bonuses, and/or promotions.
Furthermore, as per the interview results, not only did performance assessment find-
ings weigh promotion, but it may also be a condition for career advancement or other
professional opportunities., it does not bring future and continuous improved perfor-
mance, completion of performance aims and reasons has no immediate positive impact
on a police officer, and it is unsuccessful in detecting underperforming employees. Who
may necessitate some kind of counselling, demotion, or dismissal. This also suggests
that police personnel do not value performance assessment for their future jobs. The
Dessie municipal police department’s current performance evaluation procedure does
not align with government interests. The reason for this is because the present perfor-
mance assessment method employed by Dessie city police station does not allow police
officers to properly execute their tasks by the desired level, quality standards, time and
cost, it might not recognise police officers’ weaknesses and strengths to enhance their
future performance, it is ineffective in assisting to identify training requirements, It does
not do business in such a way that awards are provided on the basis of outcomes, and it
is ineffective in recognizing training needs. Furthermore, the replies to the open-ended
questions revealed that the findings were influenced by racism, distinctive approaches,
friendship, and other such characteristics. As a consequence of the government’s level
of participation, the PAP did not allow the Dessie police station’s management to make
fact-based administrative decisions. As per their reaction, if the government requires a
successful performance evaluation procedure, it must concentrate on the impression of
performance appraisal among police officers. According to the analysis and conclusions
of the research, the organisation structure of the Dessie city police office is functionally
structured, but the office is ineffective in conducting the core performance evaluation
practise owing to the police officer’s issues and obstacles.

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 The Effects of Cyber Crime on E-Banking

Mohamed Fareed Ghazi Rafea1 , Allam Hamdan1(B) , Ruaa Binsaddig2 ,

and Esmail Qasem3
1 Ahlia University, Manama, Bahrain
[email protected]
2 College of Business Administration, University of Business and Technology, Jeddah 21448,
Kingdom of Saudi Arabia
3 The Islamic University of Gaza, Gaza, Palestine

Abstract. This research paper is intended to raise awareness of cybercrime on our

daily transaction. In the introduction we will state brief issues that occurs during
these threats and how it effects banks and other monetary firms. Lastly, we will give
a few briefs on important definitions of Phishing, Malware and other sorts of risky
viruses. In the body we will go more into details. Firstly, we will state the ordeals
of banking sector during these threats. We will explain the use of online services
and how it may have risk services. A detailed methodology will be conducted on
the use of artificial intelligence in the banking industry and how it may mitigate
internal risks. We will explain these vigilances of Identity Theft and what harm it
can cause to an individual use and even and in an industry perspective. We will
go more into details in the process of Phishing on how to be aware and to avoid
these threats. Case studies will be conducted with the support of the United States
Federal State laws. The jury and prosecutions that have happened mentioned in
detail below. Lastly in the body we will explain how we can take safety measures
in avoiding these threats and how to report when it does occur to act. Lastly a brief
summary will be giving a prompt explanation for the goal of this research paper.

Keywords: Cyber crime · Finance · Banking

1 Introduction

In the growing high-tech industry of the online world, how safe are we really, and are we
secure enough? Considering the amount of tech, we use in our daily lives from computers
to mobiles or tablets; are we using it safely guarded alone, or is there a non-physical
criminal lurking behind our screens? In the 21st century financial entities are undergoing
an elevated risk of cyber threats that is losing the integrity of the firms. During these
past years, reports showed a rapid growth in victims that went under the vigilance of
cybercriminals. Many victims have been robbed with their credit card information being
stolen under online Phishing, malware, social networks, etc. (M. 2022).
These criminals tend to use identity theft for their own personal needs. Which of these
needs can be opening a store, stealing from the daily transactions, getting a loan, and
many more! Considering today’s statistics, these criminals come from many countries

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 560–569, 2023.
https://doi.org/10.1007/978-3-031-26956-1_53
 The Effects of Cyber Crime on E-Banking 561

that are under poor consent. Some of these high rated countries to be stated are mostly
from Morocco, parts of Eastern Europe like Bulgaria or Armenia, and some from parts
of East Asia (M. 2022).
For example, let us take one case study that was conducted by the Chief Security
Officer (CSO) Magazine in cooperation of the U.S. Secret and Computer readiness team.
The case showed statistics in 2004 had an estimate cost of $666 Million cyber-attacks
than it was proclaimed back in 2003. The ancillary losses were due to identity and
property theft. All losses bulged and exceeding the figure of $ 47 Billon. The advent
hood of lose showed the relines of many business companies on using the internet as the
go through tool of marketing and sales, fast high-speed communication networks, and
the encouragement of remote services between the employee and the costumer or vice
versa. (F.A. 2022)
The Federal Bureau of Investigation (FBI) has established a group called the Crime
Complaint Center (IC), to handle another problem called Identity Theft. Another study
case accounted by Unisys, victims of Identity theft were more of the age group of below
34 which showed the 30 percent, the High-class commodity of the 27 percent that have an
annual gross of $75,00 plus, college educators of the 28 percent and lastly metropolitan
residuals at 21 percent. (F.A. 2022)
One of the commonly used tactics is called online phishing. The perpetrator cons
the victim by the usage of spoofing. Spoofing is a sub tactic in phishing that mimics a
legitimate corporate or government-based e-mail, website, or any type of communication
to the recipient in giving out any confidential information. The information can include
credit card password or whole identity theft. This crime is more conveyed of being fraud.
Where now a days more banks have created a specialized department just for bringing
out FRAUD (F.A. 2022).
The common type of Malware virus is the Trojan Horse. It is based on the roman
methodology of when an attack procures an entering gift. What it means is that criminals
tend to use links of foreign entities purveying the recipient to click on it. Thus, causing
harm in a virus attack that steals information and shuts down the electronic host. Where
the recipient has no control of it whatsoever. Many large corporations such as nuclear
plants were shut down due to one click. This based method was once used as a beneficial
practice of ethical hacking. Although not all use it as good conduct. Technology is
immersive within the cyber community between using ethics and not using morals.
Protection strategies are being adopted specially by banks. These methods are set to
implement procedure and practices to monitor critical information and technology assets
in a cost-effective manner. Banks can implement prevention tactics that will throw away
any threats. Some of these prevention ways are firewalls, anti-spy ware procedures, and
intrusion detection systems (F.A. 2022).
One of the best assessment methods done is called RISK ASSESMENT, it has a
more effective cost on analyzing and tracking the issue. This means that the entity is
willing to prioritize the threat in a manner where the cost will have a less down-effect
on the company. This strategic method helps recover a company’s losses evidently (F.A.
2022).
562 M. F. G. Rafea et al.

2 Banks and Their Ordeal with Cyber Security

In 2016 a survey showed that cybercrime has cost the economy globally an enormous
amount of $450 Billion with the Asiatic Organizations that hold accountability ranging
to more than $81 Billion. More than 70% of CEO of banks and the Capital market
hold accountable the damage of cyber threats to their developments. Security breached
incidents have impacted financial service firms more majorly than of those compared to
the business in various other industries (Sony 2022).
It is said that financial firms are more likely to be targeted of cyber-attacks by 33
percent. The development of security defense programs is a key role that each firm
plays to enhance an efficient working environment. In the past years, reports of ransom
attacks have been impacting financial firms. Approximately $360 billion (about $1,100
per person in the US) damaged the global banking industry last year (Sony 2022).
Advanced security automation analyzes sufficiently as integration and diverse prod-
uct can identify the profile key advantages. Security engineers can identify these issues in
a good response duration even with scarce resources that are involved in the enhancement
of productivity. With innovative research, humans can develop artificial intelligence.
These developments are able identify and encounter any evolving threat inside the cyber
network. Especially in banks, the egger concentration in cybercrime is highly prioritized.
Now a days bank firms increase in unlimited budget for mitigating cyberthreats because
they know the great risks that is caused by (Sony 2022).

2.1 What are Online Services?

In a rapidly growing world, online services have become an added feature in the banking
industry. It gives the benefits to consumers to conduct online transactions on secure
websites or mobile phone applications at ease without any physical attendance. Online
banking gives the full related cash flow summary of money transfer, cash deposit, cash
withdrawal of individual use or even a whole corporation in just one easy step of a click.
With the fast providences of easy Internet access these days, one can keep a consistent
log of one’s daily financial life (Sony 2022).
In corporate business some mandatory office supplies have been eliminated with the
ease of online banking. In addition to this it has given a good gross balance due to cutting
unnecessary costs. All this information sounds good, although there is always a dark
side to any effective use. Security has always been the main obstacle that some financial
own entities always oversee to overcome. In many cases and rapid growth of technology,
immoral use of online hacking skill gives the vulnerability of users to be victimized of
identity theft (Sony 2022).

3 The Advantages and Advantages of Using Artificial Intelligance

in the Banking Industry!
So Artificial Intelligence now a days is contributing to our daily lives. Although when
it comes to banks what are the benefits? Customers’ data can be easily tracked bases on
his or her expense. A full budgeting plan can be evaluated and based for the customer
 The Effects of Cyber Crime on E-Banking 563

due to past present and future. To give a better understanding of a customer’s behavior
and needs, AI (Artificial Intelligence) helps to track related resources of data that will
enhance the costumer’s experience better (Sony 2022).
AI can play a significant role in Fraud. Abundant financial service providers are
involved in the involvement of artificial intelligence and engineered learning solutions
to identify fraud in real-time. The popularity of 24/7 access to banking transactions plays
a major vital role in our daily lives. For example, the banking company of benefit from
the Kingdom of Bahrain, it became the main leading online monetary transactions in the
country. People are commuting to their services daily. Even a small transaction with a
minimum of $0.01 can be made (Sony 2022).
Now let us look more into the disadvantages. Maintenance and conduction of Artifi-
cial Intelligence is a major investment. This makes it very costly for the banking sector
to provide. As Software is always an immersed topic, updates will be needed depending
on the needs. AI cannot always make good judgement. With enhanced techniques, it
can only learn and improve. With the role of employment depending on the state, it can
have a negative impact. In a state where already employment rate is already down, it can
cause more harm where it can dehumanize a whole sector (Sony 2022).

3.1 What is Identity Theft?

Identity theft happens when the criminal conveys the victim’s total confidential informa-
tion to access financial accounts. These criminals tend to use two common ways, which
are phishing and pharming. Phishing links that bait the recipient through bulk e-mails
tend to steal all personal information. It can be personal address, credit card details, or
identification information. The other way, which is pharming, cast a grouped link which
can be shared through online commercials or proclaimed online surveys that tricks the
grouped recipients to go and click. These days more tactics are enhanced to make it
harder to catch (Ug 99).
Reports done by the United States Postal Service, the Federal Bureau of Investigation,
the Office of the Inspector General, and the National Crime Prevention Council showed
that the highest crime rate falls under Identity Theft. Due to multiple investigations, the
reports showed that these perpetrators were able to open bank accounts, make loans,
rent, or buy houses and apartments all on the behalf of the individuals names (Ug 99).
Many individuals and businesses were open to identity theft due to the disclosure of
many levels in the personal information given to immersed sights. Just think about it!
In today’s online transactions any online purchase or online transaction, they all require
personal information. Hackers are given ease of information due to our relines on online
support. It means that they are given the ease of tracking down any personal information
(Ug 99).
One huge cost of identity theft is the loss of costumer trust in a financial firm. When
a customer goes through Identity Theft, he or she will not be client on their services
and more. So, this will have a major impact on the firm which will create major crucial
economic loss. According to Edward McNicholas, a partner in the law firm Sidley Austin,
“if you experience a security breach [of customers’ personal information], 20% of your
affected customer base will no longer do business with you, 40% will consider ending
the relationship, and 5% will be hiring lawyers!” (Friedenberg 2006) (Ug 99).
564 M. F. G. Rafea et al.

3.2 Process of Phishing

As stated above, phishing is the process of initiating bulk e-mails to the recipient in
persuading them to give out personal information. Spam emails that sell products are
less insidious than phishing emails. Twenty-nine point five days is the average time for
spammers to target e-mails. On the other hand, identity thieves process the responses of
the recipient just merely within 14 hours of the incitation (Ug 99).
Lures are cast out into cyberspace by phishing e-mails to bait the vulnerable. For
example, the sender can mask a trusted business firm as of a trusted bank sending out
millions of e-mails. Due to their trust, they will comply as customers. Some identity
criminals tend to use big name companies such as Apple, Amazon, E-Bay, PayPal, etc.,
which globally are known for high security and high-level revenue. Even with those big
names who are less steamily relevant to fall under the category of phishing, yet a security
breach could happen! (Ug, 99).
Another sub-category of phishing is called Spoofed websites. They are fraudulent
web-based sites that entice the consumer to reveal their personal information. One way
is the recipient receives a phishing e-mail that tricks the recipient into a persuasive
argument that leads to a serious matter. Which the matter is obviously fake. To rectify
the proposed issue, a private link that mimics an official banks site is sent to verify all
the personal information to be leaked. The criminal or in other words the phisher can
tend to use the stole credentials and passwords to empty the whole bank account (Ug
99).
Another dilemma is where the phisher can profit out of the crime is to sell the stolen
information out in the dark web. The dark web is where high profile hackers tend to
sell illegal products or services where no physical monetary is required. These web sites
tend to be run on computers that are still connected from the era of the Soviet Union.
In the dark cyber space high profile traders earn titles, reputations, and ratings all from
the stolen goods. There are actual malicious-code writers who provide phishers with a
binding contract to generate sophisticated spam e-mails in the chance of gaining shared
revenue (Ug 99).
Another lethal version of phishing is called spear-phishing. This so-called hybrid
version has raised large alerts and alarms to the cyber world of vigilance.
This version is used to target high profile individuals. It is much to say that it is
extremely hard to detect and track down. The messages that are sent seem to mimic a well-
known organization but with a twist. It targets both parties of the sender and the receiver
that have a trust bonding relationship. It means that it fakes it out of being a trustworthy
communication. This version is organized by highly organized groups mostly seeking
financial gains, trading secrets, or even seeking highly confidential military secrets (Ug
99).

4 Pharming
A more sophisticated version of phishing is called pharming. It is said that it uses high-
tech based malware where the perpetrator installs it into the computer secretly. This
process lures its pray into a fake website. Thus, perpetrating the victim into his written
bank information and Stelling it. As mentioned, this type of mimicry is different and
 The Effects of Cyber Crime on E-Banking 565

more dangerous. For it hosts a fraudulent site which deceives the victim but is on a
domain where the dark web is lurked (Ug 99).
One of the risks of the vigilance is that all it takes is to just open the pharmer’s e-mail
for causing immerse damage. When the victim is about to open it, a stealth application
redirects him or her to the fraudulent website.
The major downside of it is when the users tend to unintentionally download the
malicious program even without cowing a click or viewing an attachment (Ug 99).
Another way a virus can attack is by using key logger though MSN (Microsoft
Messenger). This type of virus uses a tracking log called keystrokes. It is when the
criminal hacks and tracks user’s credentials through legitimate websites. Users who
tend to use the same credentials of profiles and passwords on various platforms are more
vulnerable to this type of attack (Ug 99).
Spelling mistakes, does that sound any familiar in computer language? Throughout
the years of studying computer, any simple spelling mistake could cause major harm!
This is how pharmers tend to take advantage to build domain names. To put in means,
pharmers construct a website based on a missing simple mistake in the domain address.
This is how they trick the victims into believing the legitimacy of the site (Ug 99).
What is (DNS (Domain Name System))? It stands for Domain Name Server, con-
siders to be server poisoning. It converts the web address into internet protocol address
and routes the computer to the correct location. To illustrate it, once a URL is typed
into the web-browser, the DNS server is accessed to retrieve a numeric IP address that
corresponds to the URL. Thus, it will request it to display the desired web page. Local
servers operated by Internet Service Provider (ISP) are the ones targeted by pharmers
(Ug 99).

4.1 Malware Vigilance

Most significant type of threat caused is due to Malware. It can come in viruses, worms,
trojan horses, and other threats. This is utilized by criminals to get access to unautho-
rized accounts to gain financial data, and other sensitive confidential information. The
evolution of malicious software is due to the ever-rapid growth of development of mobile
phones. Perpetration of computer fraud is supported by malicious applications that draw
an enormous amount of money from business sectors. One software platform that is cur-
rently being targeted is Android. This is due to the amount of low security measures that
are enhanced with into the platform. Although many computer engineers find their way
to use sophisticated built-in protection, hackers still find a way to penetrate it. Defense
mechanisms are still under great process to protect targeted online banking services and
other online financial firms (M. 2022).

5 Lottery Fraud Scams

Everyone would like to win the lottery and become instantly famous. Although not
everything that seems is always real! In India, one of the highest frauds that has happening
is called Lottery Fraud. These fraudsters will tend to call you or send you fake messages
stating that you have won the Lottery. Then you will be asked to transfer your payment
566 M. F. G. Rafea et al.

online in the taxed name. The other option is you will be asked to make your payment
by visiting a fake website. When your payment is done, all your credit card details be
stolen. These crimes tend to happen in countries where the unwary are targeted. (Patel
2022)

6 Social Networks

The most common platform available for fraudsters are social networks. It gives them
easy access to the information of the account holders. When information is gained it
gives them unauthorized access for theft use. Some main social networks are Instagram,
Facebook, Twitter etc. When the perpetrator tries to send a private message faking of
something not being, which is a link. By clicking on it, the victim is redirected to a
trapped website. This can lead to many things, it can be malware, or even stealing
whole information. As personal experience, when I open my Instagram account, I tend
to get fake direct messages that proclaims to be about Bitcoin or NFT. Where in today’s
age it is considered as a trending topic to attract consumers in gaining instant money.
Cybercrimes tend to change is evolve due to time and trend. (M. 2022)

6.1 Case Studies

In the following paragraphs. We are going to do various case studies about the effects
of cybercrime on bank firms.

I. Case Study: Pisciotta Versus Old National Bancorp

The case was argued and filed in the United States of America on May 21st , 2007.
Luciano and Daniel Mills, filed a complaint to court representing as the victims on
behalf of the customer and future customer of Old National Bancorp. They accused
Bancorp. in obtaining personal information through applications for banking services,
which they failed to secure. This resulted in a hacker stealing information of all ONB
customers (Bancorp 2022).
The hacker was able to utilize the stolen credit card information and make transac-
tions. As a result, the court closed the case by finding ONB guilty, and wanted to pay
a sum of $5 Million in damages, because the corporation did not meet high security
standards. This cost the corporation so much that it was about to go bankrupt (Bancorp
2022).

II. Case Study: Plaintiffs Marsha and Michael versus Defendant Citizens Finan-
cial Banks.

The case was filed in the United States Illinois.

In American court language plaintiff is the entity who files the argue against.
The defendant is the entity who is accused by.
Citizens Financial Bank (The defendants) is an insured saving bank that is federally
stated. It has branches located in Chicago and Northwest Indiana. The Plaintiffs Michael
 The Effects of Cyber Crime on E-Banking 567

and Marsha were regular customers of the defendant. Tell them when they have fallen
victims of identity theft. An unknown hacker gained access to their online account and
stole from their equity approximately $26,500. The Citizens bank reported their account
as criminal to the National Credit Bureaus and threatened to evict them from their
residence, when they claimed that they were unable to pay off the loss (Bank 2022).
After further investigation, reports were made that the hacker was able to make vari-
ous transactions. He was able to buy and sell products based on credit card information.
Allegedly due to the defendants having somewhat of security measures, the court ended
the case with fairness. The court closed the case of the defendants pleading guilty to
some parts only. As mentioned above security is a costly matter, investments and updates
must be made to avoid these cases (Bank 2022).

III. Case Study: Jonathan B Nates on Behalf of the Alleged Victims Versus Care
First inc.

The Case was File in the United States, District of Columbia

Care First Inc. is an insurance company that serves an approximate of one million
customers in Maryland, Columbia. In 2014, it suffered a major cyber-attack. This attack
has leaked confidential information of its customer to pharmers. The intruders were able
to enter 21 computers of the company, which they were able to reach their database.
The company did not discover this until a year later. Although as the company was just
storing only address holds, surnames the court dismissed the case due to no monetary
injury caused (Attias 2022).
How to be Aware and Adopt Security Measures
There are many techniques that online banking should know to prevent any cyber-attack
and secure their data. When a user provides his or her information to platform research
must be done. Online banking users should learn how to encrypt their personal data, for
example banks and returned tax. The usage of strong passwords is always recommended.
There are multiple ways a fraud criminal could use to crack down profile and accounts.
Your password is recommended not to be written down anywhere. Strong passwords
should include capitalized alphabets and numerical figures (M. 2022).
Try to stay more secure when you are online. Keeping your profile private will be
least likely to be vulnerable to cyber threats. Never open questionable links and e-mails
from unknown sources. Try to upgrade your system and software more often to avoid
any security breaches. When in doubt of a foreign number specially outsourced calls,
never pick up! (M. 2022).

7 Conclusion

In today’s lives as humans we tend to rely more on our enhancements of electronics than
the physical world. Our mobiles, tablets, computers etc. have given us the ease of making
our online transaction commodities at our comfort. Stating again that every benefit of
use always comes consequences. Not everyone tends to have their morals placed within
this sector of banking. People are always at risk of theft behind the eyes of their screens
(M. 2022).
568 M. F. G. Rafea et al.

We have showed statistics of how badly banks can get harmed under cyber threats of
financial banking. One survey that was conducted in 2016, a global economy lost more
than 450 billion in revenue due to financial harm. CEO of banks and the capital market
are held accountable for their cyber threats in developments (Sony 2022).
We have talked about the benefits of online services. Which tends to play a leading
role in our daily lives and in the banking industry. It gives us the opportunity to make
our daily transactions in our own households. All our cash flow in money transfers, cash
deposit, and cash withdrawal can be done in one click (Sony 2022).
Artificial Intelligence has contributed to many sectors of the world. Especially in the
banking sector it tends to have a major impact. The advantage is that it gives customers
ease in data tracking of expenses. Budgeting plans can be evaluated. It even enhances
the customer experience. The other disadvantages are the drawbacks of fraud or hacking
into the systems which damages a financial firm (Sony 2022).
In this report we have talked about the damage what can be caused when identity
theft occurs. It is when the victims get robbed by his or her personal information. Which
can be credit card or bank account information. The criminal tends to use the two most
common ways, which are phishing and pharming. Where both are two dangerous tactics
of luring their pray (Ug 99).
Phishing is the process of initiating bulk e-mails to the recipient in persuading them
to give out personal information. Spam emails that sell products are less insidious than
phishing emails. Twenty-nine point five days is the average time for spammers to target
e-mails. On the other hand, identity thieves process the responses of the recipient just
merely within 14 h of the incitation (Ug 99).
Pharming uses high-tech based malware where the perpetrator installs it into the
computer secretly. This process lures its pray into a fake website. Thus, perpetrating the
victim into his written bank information and Stelling it (Ug 99).
We have stated many other cases of how Cyber Threat can cause damage to an
induvial and a firm. Lastly, we should stop and prevent these cases from happening in
many ways. This method can be complex passwords, not to click on unknown sites, and
not to accept malicious emails.
 The Effects of Cyber Crime on E-Banking 569

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 Risk and Return Analysis of Crypto Currencies
in India

Arockia Stalin(B) , Annie Stephen, and Aakash Kumar

Department of Professional Accounting and Finance, Kristu Jayanti College Autonomous,

Bengaluru North University, Bengaluru, Karnataka, India
[email protected]

Abstract. The term Cryptocurrency, also referred to as crypto-currency or crypto,

is the currency that is digital in nature and traded virtually in a secure manner.
Although there is no regulatory body to monitor the issue or regulation of the
digital asserts, they have been making the news of late and have captured the hearts
of the investors. In recent days, Crypto currencies are the major players in the Coin
Market. Today everyone investing in Crypto currencies and they analyses that the
Crypto market is efficient or not. This study is based on the Crypto Currencies
Market. In this study we used Descriptive statistics, Correlation Matrix test and
GARCH Model for the period of 1st Jan, 2015 to 31st Dec, 2021. The study
concludes that Crypto currencies in India are highly volatile and traders can able
to forecast both Risk and Return in future.

Keywords: Cryptocurrency · Correlation · Descriptive statistics · GARCH ·

Risk and return

1 Introduction

Cryptocurrency, also universally termed as crypto is a system of digitalized payment

system that does not depend on banks for its transactions. It is a peer-to-peer system
which facilitates the receipts and payments from anywhere around the world. They exist
solely in digital form and pave its way virtually.
A remarkable financial reforms have been emerged in the past few years due to grow-
ing number of online transactions. The Finance Minister stated that currently Crypto cur-
rencies are unregulated in India. “Reserve Bank of India does not issue Cryptocurrency.
Traditional paper currency is a legal tender and is issued by RBI in terms of provision of
RBI Act 1994. A digital version of traditional paper currency is called Central Bank Dig-
ital Currency (CBDC)”.1 Minister also replied that ‘RBI is on the job for working out an
implementation strategy for introduction of CBDC and also looking at implementation
with hassle free solution”.
Three terminologies, Block chain, Decentralization and Cryptography need to be
understood. It is digital money that is decentralized in nature and is based on block

1 Rajaysabha Proceeding, March 14, 2022.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 570–580, 2023.
https://doi.org/10.1007/978-3-031-26956-1_54
 Risk and Return Analysis of Crypto Currencies in India 571

chain technology secured by cryptography. With the help of cryptography, data is being
secured from unauthorized access. The personal private keys of the participants are
assigned to the transactions in a network. If there is alteration in a record, the signature
then becomes invalid and the information is passed on to the peer network. Further
damage can be prevented by early notification. Maximum claims that block chain makes
like privacy and immutability are enabled the cryptography.
Despite getting banned from few nations, crypto currency is spreading in every part
of the world. Insight survey revealed that the western region of India like Mumbai and
Pune has the highest number of investors for popular Cryptocurrency.
Present research explores the risk and return aspects of crypto currency attempting
to answer the important question that ‘Whether crypto currency be the next currency
platform’? As the fame is high for crypto currency throughout the world.

2 Literature Review

In a study made by Peter D. DeVries (2016), on ‘An Analysis of Cryptocurrency, Bitcoin,

and the Future’, the study revealed the growth of the digital currency market and the
future prospects of the same and concluded that the Bitcoins are here to stay and that a
niche market is being carved out, which may lead crypto currency into the mainstream;
Crypto currencies were set to revolutionize the trade markets, illuminating a shift in
economic paradigms.
Aleksander Berensten and Fabian Schär (2018) made a study on ‘A Short Introduction
to the World of Crypto currency, that The Bitcoin creators’ also felt that the Bitcoins led
to a decentralized cash-like electronic payment system. However, there existed certain
challenges and obstacles due to the price volatility which could pose a threat in future
for the investors ad users of digital currencies.
A recent study titled “Bitcoin and Cryptocurrency: Challenges, Opportunities and
Future Works”, was done by Muhammad Ashraf Fauzi et al. (2020), and the study
revealed that the crypto currencies would become more popular and widely used due to
certain advantages including- security aspects, low transaction cost and higher returns
on investments. The study also highlighted certain flaws such as laws and regulations
surrounding the crypto currencies and the possibility of a crash and bubble, as well as
attacks on network and the like.
Rejeb, A et al. (2021), in the study ‘Crypto currency in Modern Finance: a Literature
Review’, focused on the challenges of crypto currency in modern business which include
the lack of regulatory framework, criminal activities and frauds, higher energy costs,
possible bans on the usage, privacy issues and in particular the high volatility of the risk
and return tradeoff.
Fan Fang (2022) had conducted a study on ‘Cryptocurrency trading: a comprehensive
Survey’, and the study provided a comprehensive and detailed survey report of Crypto
currencies, the risk and return factors, construction of a portfolio of assets involving
Crypto currencies and technical hiccups. Moreover, the study also provides an analysis
of volatility trends, risk and return analysis and opportunities available in trading in
Crypto currencies.
572 A. Stalin et al.

In a study conducted by Klaus Grobys and Niranjan Sapkota (2019), on ‘Crypto

currencies and Momentum’, the researcher investigated into the existence of momen-
tum effects while dealing with Crypto currencies. The findings of the study reveal that
there is no evidence found on the significant momentum payoffs with relation to the
cryptocurrency market and the study also highlighted that the Crypto currencies were
found to be more efficient that the traditional and tradeable assets existing in the market.
Paul Delfabbro et al. (2021), conducted a study on cryptocurrency trading and their
risk factors and found similarities between the online sports betting and day trading.
The similarities cited were a round the clock trading availability, globalized nature, and
social media effects and price movements. The respondents had tremendous faith in
the advent and wide usage of Crypto currencies in future although the volatility of the
instruments posed a severe challenge.
Ingolf G. A. Pernice and Brett Scott (2020), studied the monetary role of Crypto
currencies and the evolution of the Bitcoins in the market. The Crypto currencies were
to be made a centralized system of payments and the trust factor of the persons dealing
with the crypto currencies were to be restored.
In a study made by Saman Adhami et al. (2018), on ‘Why do businesses go crypto?’
found out that the probability of ICO’s success is high as it brought in more profits.
Initial Coin Offerings (ICOs) allowed companies to raise capital through crypto cur-
rencies. Doubts were raised on the investor protection especially from frauds as well
as speculation bubbles and other illegal practices through crypto currencies. The study
concluded that despite the challenges, crypto currencies were set to rule the markets in
future.
Jakub Bartos (2015), attempted a study on ‘Does Bitcoin follow the Hypothesis of
Efficient Market?’ and found that the prices of crypto currencies are highly volatile and it
is not possible to have a perfect knowledge on the price movement unless one possessed
insider information and also a great deal of luck. Although the respondents are of the
view that the crypto currencies should replace the paper currency yet they were unable
to state with certainty and that the efficient markets could be a big challenge with Crypto
currencies.
Aaron W. Baur et al. (2015), attempted to study whether the Bitcoins posed a chal-
lenge and would end up causing Disruption. The study revealed that the respondents
expressed their confidence in Bitcoins and felt that the future of Bitcoins was very bright
and it would dominate the market. The respondents expressed their interest in having
Bitcoins to replace the traditional system of dealings.
Fauzi, Muhammad Ashraf et al. (2020) made a study on Challenges, Opportunities
and Future Works of Bitcoin and Cryptocurrency: in order to understand the challenges
and difficulties faced by the investors while investing in Crypto currencies. It was found
that the awareness levels of the investors are low and therefore the confidence levels
of the people also seemed to be low. People did feel that the digital currencies though
would be certainly replaced by the traditional paper currencies and they looked forward
to trading with crypto currencies on having more clarity on the same.
Zdenek Smutny et al. (2021), in his study on “Motivations, Barriers and Risk-Taking”
investigates into the factors affecting the motivational levels and also the barriers exist-
ing in the minds of the investors for risk taking and uncertainty. Lack of information
 Risk and Return Analysis of Crypto Currencies in India 573

was considered to be one of the biggest barriers for investments in digital assets. The
experiences of the investors with regard to crypto currencies were also studied and the
it was found that the negative experiences were at a low degree in proportion to the lack
of information, one possessed with regard to crypto currencies.

3 Scope of the Study

Crypto currencies are growing at a rapid speed and are becoming more and more popular
in the market. Although the same is no yet legalized, the crypto currencies are gaining
momentum and are being widely used too. One among the major threats in dealing
with crypto currencies is the high volatility of the currencies and uncertainty on traders’
willingness to buy or sell. This study helps the investors in taking decisions. The study
is focused on analyzing the Risk and Return of Crypto currencies in India.

4 Objectives of the Study

The main aim of the study is to analyze the Risk and Return of Crypto currencies in
India. Therefore the main objectives are as follows:

1. To examine the volatility of select crypto currencies in India

2. To analyze Risk and Return of select crypto currencies in India
3. To offer suggestions to the Investors on the best traded crypto currencies.

5 Hypotheses of the Study

In an attempt to study the Risk and Return Analysis of Crypto currencies in India the
following hypotheses was framed.

H01: There is no normal distribution among the select Crypto currencies in India.
H01: There is no correlation among the select Crypto currencies in India.
H01: There is no relationship between Risk and Return of select Crypto currencies in
India.

6 Research Methodology
a. Period of the study
The period of the sample ranges from 1st Jan, 2015 to 31st Dec, 2021.
b. Sources and Collection of Data
The study mainly depends on secondary data. The daily average closing prices of
Crypto currencies were gathered from www.yahoofinance.com and other secondary
sources.
574 A. Stalin et al.

c. Sample Selection
Top 15 Crypto currencies in India based on the Market Capitalization were
selected for the purpose of the study. Therefore, the Crypto currencies selected for the
purpose of study are Bitcoin (BTC), Ethereum (ETH), Tether(USDT), Binance Coin
(BNB), USD Coin (USDC), Ripple (XRP), Cardano (ADA), Solana(SOL), Terra
(LUNA), Avalanche(AVAX), Polkadot(DOT), Binance USD(BUSD), Dogecoin
(DOGE), Shiba Inu (SHIB) and Polygon (MATIC).
d. Tools for Analysis
The data was analyzed through statistical methods. The following tools were
used for the analysis.
1. Descriptive Statistics (to find out the normal distribution of select Crypto currencies
in India)
2. Correlational Matrix (to examine the relationship of select Crypto currencies in
India), and
3. GARCH Model (to analyze the Risk and Return among the select Crypto currencies
in India).
4. Return analysis:

The daily return calculated as follows,

 
Rlt = Ln Clt /Clt−1

where:
Rlt = the daily return on day t for Crypto l.
Clt = closing values for Crypto l.
Clt−1 = closing values for Crypto l on day t − 1.
Ln = natural log.
These tools were used for testing the Risk and Return analysis of the select Crypto
currencies in India and also to study the volatility of the Crypto currencies. The statistical
tools for the study was made with the help of E-Views (Version 9.0) and Microsoft Excel.

7 Data Analysis and Interpretation

Figure 1 shows that Risk and Return Analysis of Crypto currencies in India.
Out of the 15 select Crypto currencies under study, 10 Crypto currencies such as,
ADA USD, AVAX INR, BNB BUSD, BNB USD, BTC USD, DOGE USD, ETH USD,
LUNA1 USD, MATIC USD and SHIB USD are highly volatile. In the case of the remain-
ing 5 Crypto currencies such as, SOL USD, USDC USD, USDT USD and XRP USD,
moderate price movements were exhibited. The assessment of the Crypto currencies
also revealed the DOGE USD (1.52) recorded the highest return. On the hand the lowest
return as well as the most Risky crypto currency appeared to be MATIC USD (−0.72).
Table 1 shows that Descriptive statistics of Selected Crypto currencies in India. The
mean value of the ADA USD, AVAX INR, BNB BUSD, BNB USD, BTC USD, DOGE
USD, ETH USD, LUNA1 USD, MATIC USD and SHIB USD, SOL USD, USDC USD,
USDT USD and XRP USD are 0 0.001706, 0.004474, 0.004957, 0.004957, 0.003139,
 Risk and Return Analysis of Crypto Currencies in India 575
ADA_USD AVAX__INR BNB_BUSD BNB_USD
1.2 .6 .6 .6

.4 .4 .4
0.8

.2 .2 .2
0.4
.0 .0 .0
0.0
-.2 -.2 -.2

-0.4
-.4 -.4 -.4

-0.8 -.6 -.6 -.6

250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750

BTC_USD DOGE_USD ETH_USD LUNA1_USD

.4 1.6 .4 .8

1.2 .6
.2 .2
.4
0.8
.0 .0 .2
0.4
-.2 -.2 .0
0.0
-.2
-.4 -.4
-0.4 -.4

-.6 -0.8 -.6 -.6

250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750

MATIC_USD SHIB_USD
.8 2.0

1.5
.4
1.0

.0 0.5

0.0
-.4
-0.5

-.8 -1.0
250 500 750 1000 1250 1500 1750 250 500 750 1000 1250 1500 1750

Fig. 1. Risk and return analysis of crypto currencies

Table. 1. Descriptive statistics of Crypto currencies.

Source: Compiled from Eviews 9

0.001367, − 0.000283, 0.003156, 0.002530, 0.005257, 0.009221, − 1.53E−06, −

1.35E−05, and 0.001159 respectively. On the basis of Mean, it is noticed that other
than USDC USD, USDT USD and ETH USD all other Crypto currencies reflect a
positive mean. The coefficients of the skewness were also found to be significant and
positive for majority of the returns. The coefficients of the Kurtosis was positive and
is remarkably higher than 3, which indicates a high leptokurtic distribution compared
to the normal distribution for all the returns. The Jarque-Bera test goes above to the
probability values. Hence, the null hypothesis There is no normal distribution among
the select Crypto currencies in India is rejected and the alternate hypothesis is accepted
i.e., There is a normal distribution among the select Crypto currencies in India.
Table 2 presents the Correlation Matrix of Crypto currencies from 1st Jan, 2015 to
st
31 Dec, 2021. The Correlation Matrix of Crypto currencies are ADA USD, AVAX
INR, BNB BUSD, BNB USD, BTC USD, DOGE USD, LUNA1 USD, MATIC USD
and SHIB USD, SOL USD, USDC USD, ETH USD, USDT USD and XRP USD shows
36 lags during the period. From the overall analysis of the returns of Correlation Matrix
576 A. Stalin et al.

Table. 2. Correlation matrix of Crypto currencies.

Source: Compiled from Eviews 9

of Crypto currencies, it is clear that Correlation Matrix of Crypto currencies had more
number of lags with positive autocorrelation values whereas the remaining coefficients
recorded low number of lags with positive significant during the study period. Hence,
the Null hypothesis - There is no Correlation between the Risk and Return of select
Crypto currencies in India is rejected and the alternate hypothesis accepted i.e., there is
a Correlation between the Risk and Return of select Crypto currencies in India.

Table 3. GARCH model of Crypto currencies

Coefficient Std. Error z-Statistic Prob.

ADA USD Constant 0.00008 0.001372 0.058351 0.9535
C 0.000202 0.000020 9.976048 0.0000
α 0.125005 0.007074 17.67014 0.0000
β 0.835567 0.007926 105.4277 0.0000
AVAX INR Coefficient Std. Error z-Statistic Prob.
Constant 0.000012 0.002888 0.004050 0.996800
C 0.000114 0.000014 7.901626 0.0000
α 0.123411 0.016935 7.287179 0.0000
β 0.869773 0.015158 57.38143 0.0000
BNB BUSD Coefficient Std. Error z-Statistic Prob.
Constant 0.001976 0.001205 1.639576 0.1011
C 0.0001010 0.0000133 7.6337590 0.0000000
α 0.1295700 0.0083310 15.5520900 0.0000000
β 0.8523300 0.0090780 93.8853900 0.0000000
BNB USD Coefficient Std. Error z-Statistic Prob.
Constant 0.0019760 0.0012050 1.6395760 0.1011000
(continued)
 Risk and Return Analysis of Crypto Currencies in India 577

Table 3. (continued)

Coefficient Std. Error z-Statistic Prob.

C 0.0001010 0.0000133 7.6337590 0.0000000
α 0.1295700 0.0083310 15.5520900 0.0000000
β 0.8523300 0.0090780 93.8853900 0.0000000
BTC USD Coefficient Std. Error z-Statistic Prob.
Constant 0.0024570 0.0008990 2.7328350 0.0063000
C 0.0001110 0.0000129 8.6019050 0.0000000
α 0.1020800 0.0096810 10.5442800 0.0000000
β 0.8411250 0.0151950 55.3560700 0.0000000
DOGE USD Coefficient Std. Error z-Statistic Prob.
Constant 0.002376 0.000831 2.859049 0.0042
C 0.0005430 0.0000293 18.5192200 0.0000000
α 0.7842560 0.0169360 46.3061300 0.0000000
β 0.4869660 0.0090470 53.8241400 0.0000000
ETH USD Coefficient Std. Error z-Statistic Prob.
Constant 0.001311 0.001274 1.029077 0.3034
C 0.0001730 0.0000285 6.0601280 0.0000000
α 0.0820180 0.0076130 10.7730600 0.0000000
β 0.8584230 0.0162710 52.7572900 0.0000000
LUNA1 USD Coefficient Std. Error z-Statistic Prob.
Constant −0.0001460 0.0022120 −0.0659280 0.9474000
C 0.0003060 0.0000465 6.5788910 0.0000000
α 0.1755750 0.0233040 7.5342520 0.0000000
β 0.7988160 0.0249040 32.0759900 0.0000000
MATIC USD Coefficient Std. Error z-Statistic Prob.
Constant 0.0026530 0.0021370 1.2414370 0.2144000
C 0.0005850 0.0000925 6.3271440 0.0000000
α 0.2624180 0.0236710 11.0860600 0.0000000
β 0.6984740 0.0260950 26.7664100 0.0000000
SHIB USD Coefficient Std. Error z-Statistic Prob.
Constant 0.001390 0.005413 0.256835 0.797300
C 0.0002100 0.0000185 11.3960400 0.0000000
α 0.1008470 0.0124790 8.0814950 0.0000000
(continued)
578 A. Stalin et al.

Table 3. (continued)

Coefficient Std. Error z-Statistic Prob.

β 0.8879300 0.0103000 86.2064700 0.0000000
SOL USD Coefficient Std. Error z-Statistic Prob.
Constant 0.0042700 0.0028600 1.4928730 0.1355000
C 0.0014440 0.0003610 3.9957720 0.0001000
α 0.1721020 0.0268940 6.3991610 0.0000000
β 0.6185740 0.0718310 8.6114680 0.0000000
USDC USD Coefficient Std. Error z-Statistic Prob.
Constant −0.0000062 0.0000161 −0.3854120 0.6999000
C 0.0000000 0.0000000 6.8459330 0.0000000
α 0.3396180 0.0256210 13.2553200 0.0000000
β 0.7469030 0.0128330 58.2033100 0.0000000
USDT USD Coefficient Std. Error z-Statistic Prob.
Constant 0.0000098 0.0000131 0.7486190 0.4541000
C 0.0000000 0.0000000 2.5224420 0.0117000
α 0.4796740 0.0280960 17.0726800 0.0000000
β 0.6918430 0.0124560 55.5428600 0.0000000
XRP USD Coefficient Std. Error z-Statistic Prob.
Constant −0.001669 0.001143 −1.460138 0.144300
C 0.0001890 0.0000176 10.7615800 0.0000000
α 0.2443320 0.0126540 19.3092000 0.0000000
β 0.7623010 0.0113740 67.0199600 0.0000000
Source: Compiled from Eviews 9

The ARCH effect is significant for the selected Crypto currencies and GARCH
effect also significant for all selected Crypto currencies. According to Log-l values are
Negative (Lower) and AIC & SIC values are positive (Higher) for the selected Crypto
currencies. Therefore, the values are opposite to GARCH (1,1) effect. To find out the
asymmetries in terms of positive and negative implication, the GARCH (1,1) model
was used. The result shows that the asymmetric values are positive shock (at 5% level
of significance) has high impact on conditional variance compared to negative shock.
Hence, the Null hypothesis, “There is no relationship between Risk and Return of Select
Crypto currencies in India” is rejected (Table 3).

8 Limitations of the Study

1. The study was confined to India only.
2. The sample size was restricted to 15 top Crypto currencies in India.
 Risk and Return Analysis of Crypto Currencies in India 579

3. This study aims at Risk and Return analysis of Crypto currencies in India only. Other
aspects of analysis have not been considered.

9 Findings and Suggestions

The findings of Descriptive statistics, Correlation Matrix and GARCH Model are applied
to test the Risk and Return analysis of crypto currencies in India. According to the
Descriptive statistics return series have been distributed normally. The Correlation Matrix
and GARCH model also examined for Risk and Return analysis of crypto currencies in
India and it was found that there is a correlation between Risk and Return of select crypto
currencies. Therefore, the study concludes that crypto currencies are highly volatile and
traders stand a chance to earn high returns on the investments. Based on the analysis,
the research study reveals that the highly performing crypto currencies are Bitcoin,
Ethereum, Terra, Solana, Cardano, Tether, Binance Coin and Ripple (XRP). Therefore,
these crypto currencies can be invested on a long term basis and the remaining crypto
currencies can be traded on a short term basis.

10 Conclusions

The modern times trade calls for speed acceleration. The new era witnesses millions of
transactions within a range of seconds. With Crypto currencies, transactions are dealt
with at a lightning speed and this acceleration can result in development of the economy
as well as flourishing business houses. The benefit of internet speed has taken the digital
space to new levels and the economy has witnessed a paradigm shift as the digital
transactions are growing at a random speed. The transactions are now taking the route
of the digital space and therefore there is a growing trend of digital currencies witnessed
despite the fact that the same has not been regularized and is not yet under the regulatory
radar. Bulk transactions are now made possible due to the onset of the digital currencies.
Despite challenges have been witnessed especially with respect to the volatility of the
Crypto currencies and the environment of risks and uncertainties that pose a greater
challenge, the growth of digital currencies has still been tremendous.

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 Risk Assessment of Islamic Banking Products:
A Case Study of Murabaha and Ijarah

Adnan Yusoff1 , Rusni Hassan2 , and Syed Ahmed Salman3(B)

1 Universiti Tenaga Nasional, Jalan Ikram-Uniten, Kawasan Institusi Bangi, 43000 Kajang,
Selangor, Malaysia
2 IIUM Institute of Islamic Banking and Finance, 53100 Jalan Gombak, Selangor, Malaysia
3 Lincoln University College, Wisma Lincoln, No. 12-18, Jalan SS 6/12, 47301 Petaling Jaya,

Selangor Darul Ehsan, Malaysia

Abstract. There are several implications for the risk management strategy of any
financial organization that has adopted the Islamic banking philosophy. Generally
speaking, Islamic banking is exposed to the same risks as traditional banking,
such as credit, market, liquidity, and operational risks. On the other hand, the
sources of risk and risk mitigation strategies differ from those used in conventional
banking. Many agreements may be subjected to the same risks, but how those
risks influence each contract may vary. Islamic banks are obligated to follow
Shariah principles in their business activities. According to Islamic law, loans
and deposits with a predetermined fixed return are not permitted under Shariah
principles. Consequently, Islamic banks’ resource mobilization and funding are
based on profit-sharing and risk-sharing arrangements. While risk is a necessary
component of Islamic business dealings, uncertainty (Gharar) is illegal. This article
aims to assess the specific risks associated with contracts issued by international
financial institutions (IFIs), emphasizing two types of Shariah contracts, namely
Murabaha and Ijarah. It has been established that both Murabaha and Ijarah, sale-
based contracts, will subject the financial institution to the same risks, including
credit, operational, market, and liquidity risks.

Keywords: Islamic banking · Risks · Assessment · Murabaha and Ijarah

1 Introduction

The sub-prime crisis precipitated the financial crisis in 2008, which was caused by greedy
investment bankers’ desire to make quick money by selling CDO or securitized assets to
other bankers without considering the consequences to the bank and market. It ultimately
led to the collapse of a few big institutions on Wall Street, including Lehman Brothers,
Bear Stearns, and AIG (Longstaff 2010). Because these large corporations were not
adequately governed and considered, they failed to see the critical role of risk man-
agement in financial institutions, which has ramifications for the entire human-centered
system (Crouhy and Bank 2009). Since then, regulations have established and expanded
risk instruments and techniques to ensure that the financial market remains healthy and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 581–592, 2023.
https://doi.org/10.1007/978-3-031-26956-1_55
582 A. Yusoff et al.

sound (Hamilton-Hart 2008). Islamic banking and finance are among the participants in
the financial markets, and they face the same risks as the conventional banking system.
However, because Islamic banking and finance employ shariah principles and different
underlying contracts from their counterparts, they face additional risks (Sari et al. 2022;
Helmy 2012). The other risk, also known as unique risk, requires the management’s
close attention and treatment to ensure the resilience of the Islamic financial institution
(IFI) on its day-to-day operation risk. Examples of unique risks include rate of return
risk, shariah non-compliance risk, equity investment risk, and commercial displacement
risk, and they are all critical.
Damodaran (2008) states that financial risk is “the variability of the actual return on
investment around the expected return, even when those returns imply good outcomes”.
A risk is an unknown event that can interfere with attaining a well-planned goal in
strategy, operations, finance, and compliance regarding banking. Bank assets and lia-
bilities are exposed to various financial risks, each resulting in a direct financial loss to
the assets or liabilities (Iqbal and Mirakhor 2012). Failure of borrowers to make loan
payments on time, price fluctuation in a specific investment or property, fraud in doc-
uments, insufficient expertise or human resources, and system failure are all examples
of unpredictability in a financial institution setting. The ability of a financial institution
to effectively manage its risks will result in a competitive advantage and gain for the
institution as a result of the risk-reward relationship.
Credit risk, market risk, liquidity risk, and operational risk are all risks that are
typically linked with financial organizations (Meera et al. 2012). The associated risks
are recognized as generic risks inherited by practically all financial institutions (Iqbal
and Mirakhor 2012).
Risks may never be eradicated, but proper, efficient, and effective risk management
can provide us with possibilities to profit from them in the long run. Banks are subject
to unique hazards, with some of these risks resulting in financial losses and possibly
a liquidity shortage. Conventional banks and Islamic Financial Institutions (IFIs) are
subject to the same risks. However, due to the nature of their operation, IFIs are subject
to several additional risks specific to IFIs only. The risks connected with Islamic financial
institutions (IFIs) are associated with particular business strategies and contracts. This
article evaluates the specific risks related to the warrants issued by IFIs, emphasizing two
forms of Shariah contracts, namely Murabaha and Ijarah. It has been determined that both
Murabaha and Ijarah, sale-based contracts, will expose the financial institution to the
same risks, including credit, operational and market risks, and liquidity risks. According
to the researchers’ knowledge, there are many papers on assessing risks particular to
Islamic banks; however, very little research has been conducted regarding the mitigating
mechanisms. Thus, this paper will fulfill the lacuna.
There are five sections in this paper. The second section covers the several hazards to
which financial institutions are susceptible. The third section focuses on the associated
risks with Murabahah and Ijarah transactions. The fourth section includes guidelines
and solutions for mitigating the risks associated with Murabahah and Ijarah. The last
section concludes the paper.
 Risk Assessment of Islamic Banking Products 583

2 Financial Institutions Are Subjected to Several Risks

Whether the financial institution is conventional or Islamic, all financial institutions are
exposed to risks in their everyday business operations (Butt et al. 2022). These dangers
can be classified in a variety of ways. According to Akkizidis and Khandelwal (2007),
the significant types of risk associated with the financial industry can be divided into
three categories: financial risk, which includes market, credit, and liquidity risk, business
risk, which provides for managerial and strategic risk, and finally operational risk, which
is related to people, process, and system. Financial risk includes market, credit, liquidity,
business, managerial and strategic, and operational risk related to people, processes, and
procedures. As a result of these risks, the survival of financial institutions is determined,
as bank operations rely heavily on the money they receive from depositors and lend it
to others to earn a profit. As a result, managing these risks is critical to prevent the bank
from failing in an unforeseen incident.

2.1 Credit Risk

Regarding credit risk, defaults or delays in either payment or delivery of products are
commonly referred to as defaults or delays. It is hazardous for conventional banks when
their customers are late or default on their payments, which is the situation with many of
them. In the case of Islamic banks, this risk can be caused by two main factors: the first is
due to the customers’ failure to pay on time or defaulting on their payments. The second
is when the suppliers fail to deliver the goods on time or fail to produce products that
meet the specifications specified by the customers. One more risk factor is an inefficient
and inadequate management information system. The system should alert the credit risk
manager if there is any discrepancy between the actual and predetermined times. If the
system does not, it is difficult for the person in charge to manually identify the cases
(Kusnandar 2022; Shah et al. 2021; IFSB 2005; Elgari 2003, BNM 2009; Varotto 2011).
Neither Islamic nor traditional banks are exempt from this risk.

2.2 Market Risk

The risk associated with the volatility in the market values of stocks, bonds, Sukuk, and
other money-market instruments is the market risk (also known as market exposure).
Usually, banks hang onto their portfolios of these assets with the expectation of receiving
a more significant and favorable return. Although it is possible to lose money by holding
these assets, earning a lesser return than anticipated is also possible. As a result, banks
should exercise extreme caution when selecting assets. The investment choice should
only be made after all relevant observations and tests have been completed and evaluated
(Reserve Bank of Australia Bulletin 1996; Hasan and Antoniou 2004; IFSB 2005).
Neither Islamic nor traditional banks are exempt from this risk.

2.3 Operational Risk

The inefficiency and ineffectiveness of a bank’s operations are caused by internal man-
agement failure, referred to as “operational risk”. Information technology systems and
584 A. Yusoff et al.

human resource management that are not up to par can contribute to this problem (Htay
and Salman 2014). To put it another way, this risk can potentially inflict significant
financial loss on financial institutions. To avoid this danger, it is critical for financial
institutions to properly monitor their staff (IFSB 2005; Izhar 2010; Htay and Salman
2013). Neither Islamic nor traditional banks are exempt from this risk.
More critical risks are associated with the financial industry, especially Islamic
finance, and the three principal concerns are briefly discussed above. Commodity risk,
country risk (changes in country rating), equity market risk (changes in the value of
equity instruments), reputational risk (an adverse event that may have an impact on the
organization’s behavior), legal risk (relates to issues on legislation), political risk (neg-
ative changes in political situation), concentration risk (grouping of several unfavorable
risks together), regulatory risk (relate to non-compliance with regulatory requirements),
and systemic risk are examples of such risks (relates to inter-connected damaging events
across the industry).

3 Risks Involved with Islamic Financial Transactions

It should be mentioned that many different Islamic finance concepts are available on the
market. This article will focus on two types of Islamic contracts, namely Murabaha and
Ijarah, for this paper.

3.1 Murabaha Contract

Murabaha is an Arabic term that refers to profit. In contrast, technically, it is understood in

Shari’ah to refer to the contractual sale of a specific commodity in which there would be
an explicit agreement between the parties involved (Ibn Mandhoor 2003). In other words,
a profit is made when a particular commodity is sold (the buyer and seller). Aside from
that, the phrase is also being used by Islamic banks today because it is considered Shari’ah
compatible. It is recognized as Shariah-compliant because it enables the financing of a
product to be supplied upon the client’s request and the ability for the consumer to defer
making payments.
The Murabaha contract is one of the most often employed structures in Islamic
finance. A Murabaha is a sale-based contract concerning commodities or goods pur-
chased on credit (Usmani 2005). In a trustee sale, the seller must disclose the purchase
cost and any markup or profit to the buyer. When it comes to the financial industry, a
Murabaha agreement will typically involve three parties: the financial institution, which
will act as an intermediary between the seller and buyer, the customer (as the buyer),
and the seller. The financial institution will serve as an intermediary between the seller
and buyer. Before engaging in Murabaha, the customer will enter a Wa’ad agreement to
undertake or purchase an asset from the financial institution (El Gamal 2007). Following
the customer’s request, the financial institution will buy support from the provider in
exchange for a one-time payment. After that, the asset will be given to the financial
institution, which will result in the financial institution becoming the legal owner of the
property. Subsequently, the purchase will be sold to the client at cost plus a markup or
 Risk Assessment of Islamic Banking Products 585

Fig. 1. The identification of risks in the Murabaha contract

profit. The customer will make a deferred payment to the bank by the contract terms
(Resolutions of Securities Commission Shariah Advisory Council 2006). (Fig. 1)
Like any other sale or credit-based contract, a bank that enters into a Murabaha
transaction will be exposed to credit, operational, market, and liquidity risks, among
other things (Ahmed and Khan 2007). The customer designates the bank to act as a
wakil or agent on his or her behalf to purchase a specific type of asset from a particular
supplier during the first phase of a Murabaha transaction. A wa’ad, or promise, will be
entered between the customer and the bank holding the specific asset, and the purchase
requisition will be executed. With the wa’ad, the buyer is guaranteed not to breach his
or her pledge without providing an adequate justification. The following step will be for
the bank to acquire the specific asset from the specified supplier, who will, in turn, give
it to the bank. Right now, the asset is owned by the bank in its entirety. As a result, the
bank will sell the asset to the client and disclose the price (at cost plus a markup) that the
customer will be required to pay on a delayed basis over a period that has been mutually
agreed upon. Banks will be subject to various risks, the most significant operational and
market risks during this cycle. The first is that, even if the client has entered into a wa’ad
to purchase an asset from the bank, there is always a chance that the customer will be
unable to honor the wa’ad and will refuse to accept delivery of the item.
A consequence of this exposure is that the bank will be exposed to physical assets
and fluctuations in the asset’s market price. On the other hand, the bank is the legal owner
of the asset if the client honors the wa’ad before executing the Murabaha contract. As a
result, the bank will be responsible for assuming and bearing the asset’s operational and
market risk (Ahmed amd Khan 2007). The bank will be liable for damages, flaws, and
spoiling before the asset is transferred to the client. During this stage, the bank will be
exposed to market risks due to the fluctuation in the asset price.
At this point, both parties (bank and client) have agreed to the terms and conditions of
the Murabaha transaction, with the consumer agreeing to the duration of the tenor and the
number of installment payments to be made to the bank. There is still a possibility that the
consumer will fail to make his or her credit payment as stipulated in the agreement. If the
586 A. Yusoff et al.

customer cannot repay his obligation and fails to make his payment on time, the bank will
be exposed to credit risk. The bank will be exposed to liquidity risk due to the customer’s
default. The anticipated incoming cash flow from the customer’s installment has ceased,
and the bank’s ability to repay its other financial obligations may be compromised.
If both the bank and the client agree to reschedule the contract and extend the payment
duration, the bank’s potential loss may be reduced to the greatest extent possible. Despite
this, the bank will continue to be exposed to credit risk. The client may continue to have
problems making the payment, and, as a result, the bank will be exposed to liquidity
risk, which will impact the bank’s liquidity management.

3.2 Ijarah Contract

Ijarah comes from the verb ajara, meaning to reward or compensate in Arabic. The
word ijarah is derived from the Arabic word ‘al-ajr,’ which translates as “compensation,
recompense, consideration, return, or counter value” (al-’iwad) in exchange for the use
of an object. The term “ijarah” is defined by Al Zuhayli as a contract to profit from a legal
advantage in exchange for monetary consideration in Islamic law. If you hire something
in ijarah, you are renting the right to use the object, not owning it. The sale of usufruct
rather than a tangible entity is reflected in the term “ijarah”.
It is a lease or commission contract involving the exchange of usufruct or advantages
of an asset or a service for a fixed amount of rent or commission for a predetermined
time. If we are talking about Islamic finance, the notion of ijarah is generally used in
financing contracts, such as real estate loans, vehicle loans, project loans, or even personal
loans. Under an ijarah contract, the bank will acquire the required asset(s) based on the
customer’s needs and lease the asset to the customer for a predetermined amount of time
in exchange for an agreed-upon lease rental payment in most cases. Currently, two types
of lease financing are available: operating leases and financial leases. Operating leases
are the more common type of lease financing. The asset will be returned to the bank (as
the original owner) (Marie Hurley 2010; Usmani 1998).
In contrast, during the term of a financial lease, asset ownership will be transferred
to the client after the contract’s tenure period. The concept of al-ijarah thumma al bai or
al-ijarah muntahia bi al-tamlik (AIMAT) allows customers to lease assets from banks to
purchase the leased assets at the end of the lease term. On the other hand, ijarah leasing
structures enable customers to lease assets from banks with the option to purchase the
leased assets at the end of the leasing term (AITAB). In both cases, asset ownership at the
end of the tenure is the most significant difference. The purpose of the bank and customer
is to enter into a sale and purchase agreement (AITAB) at the end of the contract tenure
for the operating lease. In contrast, the bank and customer intend to provide the asset as
a gift to the customer at the end of the contract tenure for financial leasing (AIMAT).
The operating lease will be the subject of this paper’s discussion for simplicity (Marie
Hurley 2010; Usmani 1998).
At the beginning of the process, the bank (as the lessor) will enter into an ijarah
agreement with the customer. The bank will be aware of the precise asset required by
the client, such as a machine or a vehicle, for the customer’s business operation under
the terms of this agreement. Following this, the bank will acquire the relevant asset from
the supplier, and the supplier will then deliver the asset to the bank, completing the
 Risk Assessment of Islamic Banking Products 587

transaction. As soon as the bank has gotten the asset from the supplier, the bank will
provide the leased asset to the client (as lessee). Following that, the customer will make
the rental payment for the leased asset by the ijarah contract that was previously entered,
which will, among other things, detail the rental amount and the length of the lease.
The customer is responsible for returning the leased asset to the bank at the end of the
contract’s term or the conclusion of the leasing period (Fig. 2).

Fig. 2. Identification of risks in the Ijarah operation

While the Ijarah contract differs from a standard lease in several ways, its risks are
comparable to those associated with the latter. Furthermore, the risks faced under an
Ijarah contract are similar to those encountered under a Murabahah contract. The bank
will be subject to market, credit, operational, and liquidity risk, among other things. The
rental rate determined by the bank under an operating ijarah contract will be based on
or benchmarked against the current market price. The rent can be fixed for the duration
of the agreement, or the bank can determine it at a fluctuating rate agreed upon by both
parties. If the bank agrees to charge the customer a fixed rental payment, there is a
possibility that the rate charged will be less than the market rate. It may occur if the bank
makes an incorrect forecast or projection of future economic conditions and behavior.
In this case, the bank will be exposed to market risk and suffer a loss due to charging
a lower rental rate than the benchmark. If the bank charges a floating rental rate in this
case, it may limit its exposure to market risk since the bank will have the flexibility to
vary the rental rate in response to changes in the market and economic conditions of the
country. Although this is the case, charging a floating rental rate may expose the bank
to market risk during periods when economic development is predicted to be sluggish.
As a result, the rental rate is expected to decrease.
The bank will be exposed to credit and liquidity risks whenever a customer cannot
satisfy his or her financial obligations. It could be attributed to a variety of factors.
Among the others are the following:
588 A. Yusoff et al.

• The customer’s business operation has failed for various reasons.

• A client’s rental payment may be delayed because the customer is experiencing cash
flow difficulties, mainly if the company is a fresh start-up whose revenue stream is
insufficient to meet its operational expenses.
• A customer’s company has not yet achieved a breakeven point, at which point the
company will be profitable.
• When a customer decides to cancel a contract before the contract’s expiration date,
the deal is said to be “earlier terminated.“

These situations could expose the bank to credit and liquidity risks. The bank’s ability
to manage liquidity will be hampered due to a disruption in the expected cash flow to
be received by the bank.
The bank is the legal owner of the asset when operating ijarah transactions. As a
result, damage to the asset may be possible in the event of a disaster or catastrophic
condition such as a hurricane or earthquake. Because of this, the bank will be subject to
operational risk, which means that the bank may suffer losses due to the incident. Aside
from that, any damage to an asset that a customer may cause during the lease term will
expose the bank to operational risk. There is a potential operating loss that the bank will
be required to incur in providing services for the asset’s upkeep.

4 Mitigation of Risks in Islamic Financial Contracts

As previously discussed, various risks are associated with Islamic finance offerings.
In specific contracts, Islamic finance products are deemed riskier than conventional
bank products because the former will be exposed to equity risk for Mudharabah and
Musharakah contracts and commodity risk for Murabaha contracts, whereas the latter
will not. Since hazards can never be eradicated, this section will address risk mitigation
strategies that a bank may implement to mitigate or minimize risk exposure.

4.1 Risk Mitigation strategies in Murabaha and Ijarah

Credit Risk
The Murabaha and the Ijarah contracts exposed the bank to the same risks, namely credit,
operational, and market risks, which will impact the bank’s liquidity risks in the long
term. It is a problem when a customer cannot meet his or her responsibility to make
payments on time, as is the case with credit risks, widespread in both Murabaha and
Ijarah contracts. As a result, one of the bank’s procedures is to undertake a thorough
assessment of the applicant from the beginning of the application process. This credit
evaluation of the potential consumer will be similar to that of a traditional bank. Using
the credit evaluation, the bank can determine whether or not to proceed with financing
offerings, or vice versa, depending on the circumstances. While the process may be
comparable to that of a conventional bank, the Islamic bank will need to confirm that
the applicant’s business operations will not conflict with the principles of Shariah before
approving the application.
 Risk Assessment of Islamic Banking Products 589

Even though the applicant has been evaluated, the bank may nevertheless seek col-
lateral as a security to pledge the transaction that has been completed. The bank can
liquidate the asset pledged as collateral to recoup the loss if the asset is used as collateral
and its beneficiary ownership has been transferred to the bank; however, this is unlikely.
When a bank accepts an asset as collateral, it must be sure to retain its value and not
depreciate over time. In a typical housing financing transaction, the bank will hold the
house being financed as collateral.
An interbank money market repo transaction occurs when a bank that requires fund-
ing pledges its asset (often a highly liquid investment product) as collateral to the lending
bank in exchange for the funds it receives from the lender. In addition to requiring an
asset as collateral, the bank may also need the customer to have a guarantor who will
guarantee the financing transaction if the situation changes unexpectedly and the cus-
tomer cannot meet his or her obligations under the loan terms. On the other hand, the
bank must evaluate the guarantor to ensure and establish that he is capable and willing to
settle the payment obligation of the guaranteed person. While an inadequate assessment
of the guarantee will result in the bank being exposed to credit and liquidity risk, the
bank may still be able to recover some of its losses from the guarantor.

Operational Risk
Suppose the customer decides not to honor the promise or wa’ad after the bank has
bought the specific asset based on the customer’s wishes. In that case, the bank may face
operational risks under the Murabaha contract. Wa’ad, from the standpoint of Shariah,
is a unilateral contract, and as such, it is not legally binding. Despite this, from a legal
perspective in Malaysia, wa’ad is considered critical as long as the contractual parties
agree to the terms and conditions before executing the relevant transaction. For this
reason, when it comes to Murabahah, the bank will need to ensure that the customer
is aware that the wa’ad that he enters into is legally binding and that failure to comply
with this will result in the customer being required to pay the bank the cost of asset
acquisition as well as other costs incurred during the process of purchasing the asset.
This procedure does not violate the Shariah concept in any way.
To keep this from happening, one way to ensure that the asset is insured correctly
is to ensure that the bank is responsible for it before executing the Murabaha contract
and bears the costs of any damage or spoilage to it. Another way to avoid this is to
ensure that the Murabaha contract is performed with the customer as soon as possible
after completing the sale of the asset from the supplier. It will lower the risk to the
bank associated with potential market risks that may arise due to fluctuations in the
commodity’s price. Exemplification: the execution of crude palm oil (CPO), utilized as
a raw material in Malaysian banks’ commodity Murabaha transactions for their financing
or term deposits, takes less than a minute. As a result, the time it takes for a bank to
purchase CPO from a supplier through the Bursa Suq Al Sila’ (BSAS) platform to finalize
the financing arrangement can be finished in minutes.
Because the bank is the legal owner of the asset in an operational Ijarah contract, it
is highly advised that the bank obtains coverage from the takaful operator on the asset
being leased to protect its interests. If there is any damage to the asset, the bank will
be compensated by the takaful operator, and the bank’s cash flow situation will not be
adversely affected. As a lessor, the bank, on the other hand, should state that any damage
590 A. Yusoff et al.

or soiling to assets caused by the customer or the lessee shall be borne by that customer
and not by the bank as a lessor in the contract. To ensure that the asset is returned in
good shape at maturity, the bank should implement a systematic service plan and may
also undertake periodic inspections of the leased asset. To guarantee that the asset is
returned in excellent shape upon maturity, the bank should implement a frequent service
schedule and may also perform periodic inspections of the ijarah asset.

Market Risk
Market risk is typically connected with the commodity or asset used as the underpinning
of Murabaha and Ijarah contracts. It is valid for both types of arrangements. While other
criteria are considered when determining the profit rate charged to the client under a
Murabaha contract, one of the considerations is the price of the commodities that the
bank purchases and sells to the customer. As a result, the bank must have the most
appropriate “best fit” technique or system to stimulate, analyze, predict future market
prices, and blame those in the current fee. It is critical for a Murabaha contract since the
markup or profit portion is fixed and must be disclosed upfront before the agreement
can be executed. Both contractual parties must also agree upon it.
Under the terms of the Ijarah contract, the bank must be able to foresee or estimate
the economy’s future growth rate, which will indirectly impact the expansion of business
in the economy. It is particularly significant when dealing with contracts with a defined
payback duration. Inaccurate forecasting and appraisal of economic growth and trajec-
tory can easily result in the bank not realizing the asset’s total economic value since
the rental rate charged may be lower than the market rate. The bank’s ability to conduct
or stimulate future growth while maintaining that flawless stimulation or prediction of
future economic growth is not achievable may. As a result, it reduces the bank’s exposure
to market risks.

Risk Mitigation in Murabaha and Ijarah: Views from the Perspectives of Regula-
tors
The bank will be required to develop risk management policies and procedures (P&P),
including safeguards against the risks inherent in Islamic finance transactions (such as
Ijarah and Murababaha transactions). This P&P shall apply during the pre-contractual
period, during the contractual time frame, and at the termination or settlement of the
agreement. Because the bank will have to own the asset before selling or leasing it to the
customer, adequate risk management for inventory is required during the pre-contractual
time. It is also necessary to have a system for assessing collateral and guarantor quality
to value the quality of collateral and guarantor accurately. As part of the ijarah contract’s
contractual time, the bank is highly encouraged to conduct frequent asset inspections. The
bank will be obligated to monitor any substantial ijarah asset (for example, a machine).
However, the bank may conduct sampling for generic assets (for example, a car) asset
monitoring. A bank is expected to have an exit strategy during the settlement period to
deal with the likelihood of a dire circumstance. It may involve the loss of legal capacity of
the lessee, in which case the bank is highly encouraged to allow the lessee has permitted
successors to continue the contractual transaction with the bank.
 Risk Assessment of Islamic Banking Products 591

5 Conclusion

Whoever is involved in business cannot avoid the possibility of encountering risks during
their operations. The same can be said for conventional and Islamic banks alike. In reality,
human beings are exposed to a wide range of risks daily in their daily lives. To avoid
it, we must work to find a solution, or at the very least reduce the risks if they cannot
be eliminated. Both conventional and Islamic banks are exposed to liquidity, credit,
operations, and the financial markets. However, there is a distinction in how these risks
affect financial institutions because traditional banks’ activities focus on interest and
lending.
In contrast, Islamic banks’ operations are more asset-based and share profit and loss.
Each transaction in an Islamic bank has its own set of features that distinguish it from
the others. As a result, the contracts for each transaction are unique as well. As a result,
Islamic banks will be subjected to additional risks, such as equity investment risk, return
on equity risk, and various other risks. Some of the contracts may be exposed to the
same risks, but how each contract is affected by those risks may differ. All contracts,
including the Murabaha and Ijarah contracts that have been detailed above, are affected
by risks associated with operations, liquidity, credit, and the market.
On the other hand, the approach taken to each of the contracts differs. As a result,
Islamic banks must have an effective risk management strategy. However, this research
has limitations because it covers risks associated with Murabahah and Ijarah. Also,
no comprehensive study has yet been conducted on Islamic banking products and
their unique risks. Consequently, future research will fill the void.

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 Enhancing the Role of Audit as an Effective
Governance Mechanism via Digital
Transformation

Nurul Afidah Mohamad Yusof(B) , Zam Zuriyati Mohamad,

and Vikniswari Vija Kumaran

Universiti Tunku Abdul Rahman, 31900 Kampar, Perak, Malaysia

[email protected]

Abstract. This paper aims to examine the digital transformation process of audit
practices in Malaysia, and to examine how it could improve the role of audit as a
governance mechanism. This study applied qualitative research methodology by
conducting in-depth semi-structured interviews with six experts in the auditing
field. The discussions were made in the following themes: 1) Overview of digital
transformation in the audit practices in Malaysia; 2) Digital technologies as tool to
improve the role of audit as a governance mechanism; 3) Challenges in the digital
transformation of audit practices. The findings of this research mainly indicate
that the digital transformation of audit practices in Malaysia is still in its infancy.
Through this research, the audit practitioners can be informed of the potential
of digital transformation to enhance the role of audit as a governance mechanism
and its respective challenges. Therefore, necessary actions to accelerate the digital
transformation process can be carried out by the audit industry in Malaysia.

Keywords: Audit · Digital transformation · Digitalization · Corporate

governance · Technology

1 Introduction
For many of us, the world that we live in today is no longer the same as how it was in
the past few decades. It is an era where technology and society evolve faster than what
businesses and organizations could adapt to – an epoch known as the ‘digital Darwinism’.
Businesses and organizations are left with no choice but to find solutions to catch up
with the agile technology environment; and this can be done by implementing digital
transformation of the organizations.
There is a growing fear that the digital transformation in the accounting and audit
industry will cause the human resources to be obsolete by the end of the decade. However,
experts believed that while increasing the efficiency in the use of data and information,
digital revolution will not be able to completely replace human intelligence in the analy-
sis (BDO Malaysia 2020). The question of human intelligence vs. machine intelligence
has been debated in the past few decades. People used to fear that computer would have
replaced the human job functions, yet history had proved it wrong. Today, people fear

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 593–602, 2023.
https://doi.org/10.1007/978-3-031-26956-1_56
594 N. A. M. Yusof et al.

similar threat from the artificial intelligence technology, and only time will tell. How-
ever, the optimist view remains that digital transformation would complement rather
than replicate humans (Brown 2020). Although it may render some jobs obsolete, but it
may also create new jobs at a rate that is higher than the job losses. Human intelligence
would remain as valuable commodity, as long as humans are able to adapt to the disrup-
tions. Thus, digital transformation should be viewed as a positive disruption which lets
machines to do all the time-consuming and difficult tasks while allowing the workforce
to focus more on the important critical decisions as well as soft skills via genuine human
interactions.
A study on the role of technology in the auditing industry is important because as
digitalization speeds with the proliferated use of technology in business process, the audit
profession is expected to follow and move together with the technological advancement
due to two main factors. Firstly, as the audit clients are exploring and implementing
digital technologies in their operations, the audit firms need to respond to these changes.
Auditors are now required to have a thorough understanding on these new technologies
in order to perform their audit duties with due diligence. Secondly, as organizations
themselves, audit firms also need to leverage digital technologies in order to increase
efficiencies and to grasp many more benefits from digital transformation. Furthermore,
in the case of Malaysia, digital transformation of the auditing industry is viewed as
crucial to ensure that its development is aligned with the Malaysia Digital Economy
Blueprint, and the MyDigital initiatives that were launched in 2021.
In view of the above discussion, this paper aims to examine the digital transforma-
tion process of audit practices in Malaysia, and to examine how it could improve the
role of audit as a governance mechanism. The remainder of the paper is structured as
follows. Section 2 presents the literature review. Section 3 elaborates on the research
methodology. The research findings are discussed in Sect. 4, followed by the conclusion
in Sect. 5.

2 Literature Review

The technology-organization-environment (TOE) theory proposed by Tornatzky and

Fleisher (1990) is used in this investigation. Based on the TOE theory, this study consid-
ers three factors that are thought to affect organization in adopting digitalization namely
technological, organizational, and environmental. Firstly, the theory describes the inter-
nal and external technologies that are pertinent to a corporation in the focused on the
technological setting. This encompasses the existing firm practices (Lin and Lin 2008)
as well as the external technologies that are available. Finally, the environmental context
describes how the organization does its business and includes the nature of the industry,
government inter-actions, and its competitors. The organizational context is defined as
the organization’s scope, managerial structure, and size (Tornatzky and Fleischer 1990).
Past studies proved that to understand how new technology can transform the world,
it is important to remember that technology develops new traits on its own (Zuboff 1988).
Holley (2004), with the support of Arsenie-Samoil (2010) and studies from FAR (2015;
2016), concludes that digitization of businesses is an unavoidable outcome that the audit
profession cannot escape. In fact, the audit profession is already under pressure to change
 Enhancing the Role of Audit as an Effective Governance Mechanism 595

in order to build trust in both audited reports and the profession itself (Power 2003;
Caster and Verardo 2007). Nearon (2005) and Bierstaker et al. (2014) argue that the
audit profession will need to adapt even more as a result of information technology’s
effects (IT).
Although auditors will profit from the use of digital technologies in terms of produc-
tivity, they must also be flexible to changes in society’s expectations (Bierstaker et al.
2014; Caster and Verardo 2007). Changes in the audit profession are unavoidable as the
profession undergoes a paradigm shift toward a more digital organisation (Breman and
Felländer 2014; Byrnes et al. 2015; Caster and Verardo 2007; FAR 2016; Spraakman
et al. 2015).
Auditors’ working methods have not advanced much, although digitalization is said
to make documentation and communication easier (Nearon 2005). Alles (2015), Iuliana
and Tugui (2005) investigate if prior financial scandals such as Enron-Andersen and Par-
malat have welcomed digitization of working processes. They believe that using digital
information improves the efficiency and credibility of the auditor’s work, impacting their
working techniques. Some also anticipate that in the near future, the audit profession
will be completely reliant on digital data and working methods (Bierstaker et al. 2001;
Granlund 2007; Spraakman et al. 2015). Technology, according to Tarek et al. (2017),
has transformed auditing from a traditional audit to an IT audit. Large audit firms, such
as the Big Four, have invested in technology to assist auditors in carrying out audits
as effectively and efficiently as possible. In order to complete an audit, information
technology is required.
Thus, numerous academics have attempted to comprehend how new digital technolo-
gies, primarily Big Data and Artificial Intelligence, affect businesses in terms of data
analysis and external reporting (Al-Htaybat and Von Alberti Alhtaybat 2017). However,
there is still little research on audit businesses (Issa et al. 2016). Some have investigated
how digital has affected audit firms’ performance or risk analysis (Krahel and Titera
2015; Cao et al. 2015). Others have investigated how these technologies affect the accu-
racy of the auditors’ conclusions (Brown-Liburd et al. 2015). For instance, Vasarhelyi
et al. (2015) found that while audit firms (external audit) have not advanced at the same
rate, the adoption of digitalization and analytics is growing for the internal audit environ-
ment. Hence, there are a few studies analysing the impact of digital on the transformation
of audit firms and the audit process (Appelbaum et al. 2018; Manita et al. 2020).
Besides, researchers proved that even though auditors can often rely on consultants
or outside third parties to implement new technology, a thorough understanding of the
technology is still required before auditors can use the results for auditing purposes
(Venkatesh et al. 2012). Hence, this study has a double interest. Firstly, this study expands
on previous literature and fills a gap in the literature of accounting by evaluating how the
digital transformation process of audit practices in Malaysia and how it could enhance
the role of audit as a governance tool. Second, on the theoretical side, it can enrich
the literature on governance and audit quality by bringing TOE elements impact into
auditing process.
596 N. A. M. Yusof et al.

3 Research Methodology

This study applied qualitative research methodology by conducting an in-depth interview

with the experts in auditing field. It is notable that conducting interview will enable the
researchers to achieve applied research objectives especially in terms of implementing
new technology (Holter et al. 2019) where little is known on this subject. Furthermore,
interviews give participants the opportunity to express their idea freely compared to
close ended questionnaire in quantitative research methodology. This study applied a
semi-structured interview with questions prepared in advanced but flexible to change
during the interview.
Principally, the selected participants should be able to give information on the
crucial components and perspective associated to the phenomenon being studied
(Sargeant 2012). In the current study, the participants are selected due to their expe-
rience and expertise in auditing task. It is divided into external and internal auditor.
External auditor performs a vital function to the credibility of financial reports and the
effectiveness of internal control (Baatwah et al. 2021). On the other, the internal auditor
is a person who understands the audit procedures commended by the company (Rohaeni
et al. 2022).
This study employed a purposeful sampling strategy with the criteria that the partici-
pants should have at least one-year experience in the auditing profession. The recruitment
method includes sending e-mails to the firms in Perak, Selangor and Kuala Lumpur
that listed in Malaysian Institute Accounting (MIA) directory. Besides, social media
platforms such as Whatsapp and Facebook have been used to advertise the recruitment.
The present study was conducted with the compliance of research project/protocol
ethical (U/SERC/160/2021) and the participants gave their consents prior to the interview
session. Six participants have agreed to be interviewed and their details are presented in
Table 1.

Table 1. Profile of participants

Participant ID Position Experience

Auditor 1 External auditor Big 4 and Small & Medium Practitioners (SMP)
Auditor 2 External auditor Big 4 and Small & Medium Practitioners (SMP)
Auditor 3 External auditor Big 4 and Small & Medium Practitioners (SMP)
Auditor 4 External auditor Big 4 and Small & Medium Practitioners (SMP)
Auditor 5 Internal auditor Banking industry
Auditor 6 Internal auditor Energy, manufacturing, health industry

The sample size is the determined using the saturation evaluation. Guest et al. (2006)
indicates that saturation is derived when there is a constant pattern in participants’ feed-
back is obtained. The current study performed the data analysis after each interview
 Enhancing the Role of Audit as an Effective Governance Mechanism 597

session. The information obtained was transcribed from rough transcription to fine tran-
scription. An inductive coding approach was conducted to quantify the scripts and cate-
gories it into appropriate theme. After six interviews, the feedback from the participants
shows a constant pattern. Hence, the themes were summarized to produce the outcomes
for this study.

4 Findings
The findings were analyzed according to the following themes: 1) Overview of digital
transformation in the audit practices in Malaysia; 2) Digital technologies as tool to
improve the role of audit as a governance mechanism; 3) Challenges in the digital
transformation of audit practices.

4.1 Overview of Digital Transformation in the Audit Practices in Malaysia

All interview respondents unanimously agreed that the digital transformation landscape
of audit practices in Malaysia is still in its infancy stage. In some companies, the audit
workspace is still confined to digitization, whereby it centers on converting informa-
tion and data from a physical form to an electronic form. As of now, other advanced
technologies which offer highly practical solutions such as artificial intelligence (AI),
blockchain, etc. are still not seen in the Malaysian audit practice.
The extent of digital transformation differs between companies or audit firms. It
depends mainly on the company size and the vision of the top management. In particular,
digital transformation in audit practices in Malaysia differs between the big audit firms
and the small & medium practitioners (SMP). For big audit firms, the digitalization in
audit practices in Malaysia is not far behind compared to other countries. Whatever audit
and analytics tools being implemented at the global level such as in the U.K. or U.S.,
will be implemented in Malaysia too. For instance, Auditor 1 shared his experience in
Big 4 using a powerful analytics tool which enables the auditors to extract all general
ledger items, detect any unusual items, as well as set parameters to detect anomalies or
items that could lead to fraud. Meanwhile, SMPs are found to be more familiar with
audit software tools, but less with analytics tools.
Similarly, industry maturity plays a role in the extent of digitalization of the internal
audit practices. Having audit experience in three different industries, Auditor 6 shared
that working in a global energy company had provided him more exposure in using data
analytics for auditing.
Thanks to the pandemic, audit practices have somewhat been forced to step up its
digital transformation process. Auditor 6 pointed out that the pandemic serves as a wake-
up call for companies to pursue digitalization in order to ensure the business stay running
as a going concern. Auditor 4 further supported:

“The digitalization landscape in Malaysian audits is quite barren, in my opinion.

We had to go through MCO 1.0, 2.0 and 3.0 to understand how far back and
unprepared we were for a working from home (WFH) environment. The only digi-
talization we can pride ourselves in is reviewing work digitally through PDF and
e-mails, as well as having virtual meetings on Microsoft Teams or Zoom.”
598 N. A. M. Yusof et al.

From the interviews, a few examples of digitalization process and applications cur-
rently used by the audit industry were highlighted. One of the first mentioned was audit
software. This is particularly applicable to big audit firms, but the medium-sized firms
are catching up as well. However, Auditor 4 cautioned that there are trade-offs between
convenience and audit quality when using audit software. With compliance being the
crux of the audit matter, eventually it boils down to individual auditor’s skills, skepticism,
and critical thinking.
Second, the test using Computer Assisted Audit Techniques (CAATs). This is an
internal control procedure which runs the test-of-one that is normally conducted by the
information technology (IT) team. If the test-of-one is successful with no exceptions
to note, the entire automated internal control is concluded to be effective. Therefore, it
reduces substantive work by the auditors in that particular area.
Third, the e-Confirm system. This system is the initiative of Malaysian Institute of
Accountants (MIA) which aims to facilitate communication between audit firms and
financial institutions. The system allows requesting and receiving audit confirmations
via a single and standardized platform which ultimately helps to reduce paper waste,
reduce errors/omissions, and saves time.
Fourth, data analytics. Despite digital transformation that is generally moving at the
speed of glacier, data analytics is seen to be finding its way to audit practices faster than
others. Data analytics seems to be thriving well in bigger firms because of the financial
feasibility of investing in such software and expertise.
Fifth, Audit Command Language (ACL). It refers to a prototype language for design-
ing a feasible interactive conversational language for auditing purposes (Will 1983). As
pointed out by Auditor 5, ACL enhances the audit process, specifically in fraud detec-
tion. It is able to spot the theft case for forgery or tempered documents by imposing the
fraud risk profiling for every submission. Unlike previously, auditors had to manually
extract and scrutinize the data to find any irregularities.

4.2 Digital Technologies as Tool to Improve the Role of Audit as a Governance

Mechanism
Another topic which emerged from the interviews was how digitalization could be used
as a tool to improve the role of audit as a governance mechanism. Auditor 4 and Auditor
6 suggested that vouching and any other procedure which involves manually looking at
invoices will benefit the most from digital technologies. With a particular reference to
the potential use of artificial intelligence (AI), it is seen to reform the audit playing field.
AI will learn to pick up the many types of possible discrepancies or anomalies, and no
misstatement will go undetected. Subsequently, auditing would be able to give clients
absolute assurance instead of reasonable/limited assurance.
Auditor 5 pointed out that digitalization plays a role as governance mechanism in
audit process especially in terms of time efficiency in inspecting the documents and
expedite the audit process, which saves costs and time. Nevertheless, the whole audit
process still could not be completed without the deliberations by higher-level auditors
such as managers and directors, especially for the more technical areas. This is because
these technical areas require critical thinking and application of “substance over form”
which need human intervention.
 Enhancing the Role of Audit as an Effective Governance Mechanism 599

Meanwhile, Auditor 6 felt that digitalization could benefit the planning stage of
auditing. With technologies, management may not want to rely on the sampling method
anymore. It is possible that with the advancement of technologies, the audit could be
carried out on full population.

“Sometimes, auditors conduct audit more than what we need to do. Current prac-
tice, we did apply risk-based auditing. We focus on high and medium risk. However,
if we can scope down a little more to what really matters and important, it will
benefit us. It’s not that we want less things to do, but better we do things what
matters, wasting time and tiring. At the end of the day, we want management to
benefit from the audit work we do.”

Auditor 1 shared that in certain Big 4, they are using drone system to observe the stock
count process, which is one of the substantive procedure auditors have to perform. When
it was first conducted in Malaysia, they were assisted by experts from other countries.
This is however, may not be applicable to the SMP yet due to the different type of
clientele. In Big 4, the client base is normally larger corporations with higher needs and
capability to develop and to use advanced digital technologies in their operations.
Meanwhile, Auditor 2 brought the attention to two main angles of digitalization
in audit namely, safekeeping of documents (storage), and execution of procedures. It
was highlighted that digitalization helps in terms of safekeeping documents with the
advent of cloud storage. With that, data are well-organized and easily retrieved whenever
required. In terms of performing the audit procedures, digitalization really helps in the
planning, execution, and concluding process. For example, the use of analytic tools not
only assists auditors to perform audit procedures, but more importantly it helps auditors
to gain understanding of the auditee’s business process.
In view of the above issue, digitalization is seen to be a useful tool which could
be used to overcome the problem and hence improve the role of audit as a governance
mechanism. Auditor 4 highlighted:

“With digitalization, you cannot beat machines most of the times because a
machine has no emotions. It doesn’t recognize fatigue like humans do. Digi-
talization will definitely elevate audit as a governance mechanism in financial
markets.”

The finding is illustrated in Fig. 1. It depicts that the digital transformation in audit
practice will enhance the audit role as governance mechanism.
600 N. A. M. Yusof et al.

Digital Transformation

Audit Practices

Detect Time Full Execute

Population Safekeeping
Misstatement Efficiency Procedure

Fig. 1. Proposed model on digital transformation in audit practices

4.3 Challenges in the Digital Transformation of Audit Practices

The interviews revealed a few main challenges that delayed the digital transformation
progress in auditing. First, getting the right tone set at the top management level. To a cer-
tain extent, governance could be a double-edge sword. On the one hand, it ensures things
are done properly and systematically. On the other hand, it slows down business due
to various compliance procedures, hence affecting profits. Therefore, the management
needs to have the right balance between governance and profitability.
Second, the challenges in terms of resources. Auditor 4 highlighted that the decision
to invest in advanced technologies must be based on the cost-benefits analysis which takes
into account the nature of firm’s business itself. While some Big 4 firms are piloting such
technologies to improve audit quality, the cost of investment can be too hefty such that
the costs outweigh any potential benefits for the smaller firms. Smaller firms generally
have smaller clientele with less complex transactions, in which case there is less urgency
for such advanced technologies to be in place.
Third, the incomplete process of digitization and digitalization. For companies which
only issue e-invoices, it is easier to adopt data analytics for auditing. However, many
companies in Malaysia are still issuing physical invoices due to habit, convenience and
ease of access. Therefore, with documents still in physical form, it remains a barricade
to digital transformation. Information must be digitized prior to it being processed and
analyzed digitally. This will result in high financial cost to the parties involved. In view
of this challenge, advanced digital technologies such as AI and machine learning could
be years away from penetrating audit industry.

5 Conclusion

With current trend of organizations moving in the trajectory of digital transformation, the
audit industry is left with no choice but to follow suit. This paper highlights the overview
of digital transformation in the audit practices in Malaysia, how digital technologies
can be used as tool to improve the role of audit as a governance mechanism, and the
challenges in the digital transformation of audit practices. Through this research, the
 Enhancing the Role of Audit as an Effective Governance Mechanism 601

audit practitioners can be informed of the potential of digital transformation to enhance

the role of audit as a governance mechanism and its respective challenges. Therefore,
necessary actions to accelerate the digital transformation process can be carried out
by the audit industry in Malaysia. Opportunities exist for fellow scholars to examine
different perspective of digital transformation in audit practices such as from the client
and government authorities’ point of view. Specifically, future researchers may explore
the client readiness to use digital tools for preparing their audit documents, or to conduct
research on the preparedness of government authorities towards digital transformation
in audit. In addition, other research could extend our approach to quantitative research
design and examine the factors that leads to digital transformation in audit practices.

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 Promoting the Adoption of Islamic Microfinance
in Nigeria: The Moderating Role of Religiosity

Abdurrahman Abdullahi1(B) , Anwar Hasan Abdullah Othman2 ,

and Salina Hj Kassim2
1 Central Bank of Nigeria, 33 Abubakar Tafawa Balewa Way, Abuja, Nigeria
[email protected]
2 International Islamic University Malaysia, 53000 Kuala Lumpur, Selangor, Malaysia

Abstract. Islamic microfinance banks are generally known for promoting finan-
cial and social inclusion, especially in areas with low level of financial access
resulting from either voluntary or non-voluntary factors. This paper, thus, exam-
ined the determinants of intention to adopt Islamic microfinance (IMF) in Nigeria,
and the moderating role of religiosity between the constructs. The paper employed
the proportionate stratified random sampling technique to collect data from 450
respondents, using close-ended questionnaires. The data was analyzed using Anal-
ysis of Moment Structures-Structural Equation Modeling (AMOS-SEM). The
decomposed theory of planned behavior (DTPB) was used as the underlying theory
to test six hypotheses. Results showed that intention to adopt Islamic microfinance
is high in Nigeria, and attitude, subjective norm and perceived behavioral control
were positive and significant in influencing the intention to adopt Islamic micro-
finance. Furthermore, religiosity was found to moderate the relationship between
subjective norms and behavioral intention. Consequently, the study recommends
the need for stakeholders in the Nigerian financial system to enhance advocacy
aimed at improving public attitude towards Islamic microfinance banks. On their
part, Islamic microfinance banks Islamic microfinance banks needs to expand their
marketing operations, in order to promote adoption and social inclusion. Overall,
the study provided additional insights to the growing literature of Islamic finance
in Nigeria, which will assist in shaping Islamic microfinance policy. The study
also showed the role of referents among highly religious people, in influencing
the behavioral intention to adopt Islamic microfinance.

1 Introduction

Islamic microfinance is the provision of financial services among the low income based
on Islamic Sharia. It operates based on “Islamic jurisprudence which prohibits dealing in
interest, the avoidance of gharar (ambiguity), participating in risk-sharing activities, and
ensuring the welfare of all members of the society” (Nabi, Islam, Bakar and Nabi 2017).
It is therefore the “Shari’ah-compliant way of providing financing to those rejected by
the mainstream financial services, to help them start up microenterprises or maintain
their existing businesses” (Hassan 2015). In addition, Islamic microfinance is beyond
the provision of financial inclusion (Ali 2015; Hassan 2015), it also provides social

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 603–618, 2023.
https://doi.org/10.1007/978-3-031-26956-1_57
604 A. Abdullahi et al.

inclusion through the twin tools of lending and zakat. In addition to financial inclusion,
it also provides social inclusion through the social instruments of zakat, Sadaqat and
waqf.
Consequently, the Central Bank of Nigeria approved the Guidelines on the Reg-
ulation and Supervision of Non-interest (Islamic) Microfinance Banks (NIMFBs) in
Nigeria. This is to ensure that NIMFBs play an important role of enhancing financial
inclusion by bringing individuals, communities and corporations that may not be cap-
tured by conventional MFBs into the formal financial sector. The target clients of these
banks are “the poor and low-income, unbanked and the under-served as well as other
microenterprises” (Central Bank of Nigeria 2017). This is due to their role in reaching
out and bringing into the formal financial system, individuals, communities and corpo-
rations that may have been excluded from conventional microfinance sub-sector through
the provision of alternative microfinance financial products and services to consumers
based on profit and loss sharing principles.
As such, the CBN intends to leverage on the NIMFBs to further promote financial
inclusion, as well as reduce the disparity, in terms of access to financial services, between
the predominantly Muslim population in Northern Nigeria, and the rest of the country.
For instance, while in the south-east, south-south and south-west, more than half of their
adult population (59.0, 55.0 and 78.0%, respectively) were accessing formal financial
services by end-2016, in the north-west, north-east and north-central, only 24.0, 25.0 and
48.0%, respectively, enjoy formal financial services in 2016. Furthermore, “only 33% of
adults in north-east and north-west (combined) are financially included” (Central Bank
of Nigeria 2019). Thus, while 36% of Nigerian adults are excluded from accessing formal
services, 55% and 62% are excluded in the north-east and north-west, respectively. This
is far above the national average.
The objective of this study is therefore to examine the determinants of intention to
adopt Islamic microfinance (IMF) products, to promote financial inclusion, and the mod-
erating role of religiosity in the usage of these financial products. The paper is structured
into five sections, with the introduction as Sect. 1. Section 2 reviewed relevant literature
and developed the research hypotheses. Section 3 contained the research methodology
and methods of data analysis, while Sect. 4 presented and discussed the major findings
of the study. Section 5 concludes the paper with recommendations and areas for future
research. Results of the study showed that attitude, SN and PBC are positively and sig-
nificantly influence the use of Islamic microfinance banks, and highly religious people
are more likely to adopt IMFPs based on the advice of referents.

2 Literature Review and Study Hypotheses

2.1 Religiosity and Adoption of Islamic Financial Products
Religiosity is a multi-dimensional concept pertaining diverse aspects of the religion in
question. These includes belief, practice, knowledge, experience and how they affect
the daily activities and choices individual adherents. It is “a multi-dimensional term that
describes belief, practice, knowledge, experience and consequences” (Hussein, Ehab and
El-Bassiouny 2015; Zaid 2019). It affects the consumption pattern of individuals through
enhancing or weakening his choice of a particular product, service, brand, possession,
 Promoting the Adoption of Islamic Microfinance in Nigeria 605

causes or issues, among others. From the Islamic perspective, religiosity is manifested
in the behaviors of a Muslim, including his economic activities and choices. Thus, a
Muslim is expected to avoid prohibited economic activities, as enshrined in the Qur’an
and Sunnah of the Prophet (SAW).
Several studies were carried out to examining the relationship between religiosity
and the choice of Islamic financial products and services, and for a religious person, the
relationship between religiosity and attitude is expected to be positive and significant
(Ozturk 2020; Setayesh, Momtazian and Rajabdoory 2017). This assertion has been
verified by several studies. Nugroho, Hidayat and Kusuma (2017) found that religiosity
significantly influences customer decision in choosing Islamic bank services. Earlier,
Thambiah, Ismail, Ahmed and Khin (2013) examined the moderating effect of religious
reasons and regional differences on the intention to use Islamic retail banking prod-
ucts and services in Malaysia. The study found that religion moderates the interaction
between relative advantage, complexity, compatibility, and the intention to use Islamic
retail banking, proving the importance of religion in influencing the choice of Islamic
financial products and services. Similarly, Farouk, Md Idris and Saad (2018) examined
the moderating effect of religiosity on intention to comply with the Zakat on employ-
ment income (ZEI) in Nigeria. While the results showed that the moderating role of
religiosity between attitude and behavioral intention was not significant, the moderating
effect of religiosity on the relationship between subjective norm and behavioral intention
was positive and significant. As such, religiosity strengthens the relationship between
subjective norm and behavioral intention.
Another study by Zaid (2019) found that religiosity has a positive impact on attitudes
towards Islamic banks in Pakistan. As such, the more religious a person is, the more he or
she is inclined towards Islamic banks. Banunaku, Kasera, Ssekiziyivu and Kimuli (2020)
also concluded that attitude significantly mediates the relationship between religiosity
and intention to adopt Islamic banking in Uganda. In addition, Oladapo, Omar, Muda
and Abdurraheem (2019) found that awareness, knowledge and religion positively and
significantly influences attitude towards participation in Islamic banking in Nigeria.
Ajetunmobi, Aminat TitilayoIbrahim and Hamid (2018) also studied the adoption of
Islamic home financing in Nigeria, and the results showed that religion moderates the
relationship between attitude, subjective norm and perceived behavioral control, on the
one hand, and intention on the other.

2.2 The Decomposed Theory of Planned Behavior

The Decomposed Theory of Planned Behavior (DTPB) was used as the underlying the-
ory in this study. The DTPB was developed by Taylor and Todd (1995) in order to
“have a better understanding of the relationship between beliefs and intentions”. It was
a decomposition of the Theory of Planned Behavior, which disintegrated the three belief
structures of Attitude, Subjective norms (SN) and Perceived behavioral control (PBC)
into multi-dimensional constructs, in order to make the relationships between the con-
structs “clearer and more readily understood”. It also provides a stable set of beliefs
that could be applied to different settings in order to provide more specific guidance
in examining factors influencing intention or its determinants. This makes it more use-
ful to applied researchers and practitioners. Furthermore, the DTPB employs the three
606 A. Abdullahi et al.

dimensions of TPB with an additional dimension to study behavioral intentions towards

IT using multidimensional constructs (Aziz and Afaq 2018). Taylor and Todd (1995)
came up with nine constructs. These are: “Attitudinal Beliefs decomposed in to: Relative
advantage, Complexity and Compatibility; Subjective Norm: explained by Normative
beliefs; and Perceived Behavioral Control decomposed as: Efficacy and Facilitating
conditions” (Fig. 1).

Religiosity
Atude

Subjecve Behavioral
Norms Intenon
to Adopt
IMF

Perceived
Behavioral
Control

Fig. 1. Conceptual framework based on the decomposed theory of planned behavior

2.3 Review of Literature and Development of Study Hypotheses

Attitude Towards Islamic Microfinance
According to Ajzen (2012), attitudes “are formed by a series of beliefs which results
in an individual placing a value on the outcome of a certain behavior”. Thus, if the
outcome of a behavior is considered positive or desirable, a person’s attitude will be
favorable to adopting it, which results in the person engaging in that behavior. Several
studies were conducted, and the results indicated a positive relationship between attitude
and behavior. A. D. Muhammad, Haneef and Mohammed (2016) found that Attitude
directly and positively influences behavioral intention to use Islamic micro investment
instrument in Nigeria. Similarly, Aziz and Afaq (2018) found a positive relationship
between attitude and intention to use Islamic banking in Pakistan. Also, using DTPB,
Echchabi and Azouzi (2015) found that Attitude had a significant and positive influence
on Intention to adopt Islamic banking in Tunisia. Zauro (2017) employed TPB to examine
the determinants of intention to accept IFPs in Nigeria, using financial inclusion as a
moderating variable. He found that attitude had a positive and significant influence on
intention. Similarly, Ucar (2020) examined intention towards the use of, and found a
positive and significant influence between consumers’ attitudes and intention to use
interest-free financing models in Turkey.
In contrast, Maulana, Razak and Adeyemi (2018) found that attitude does not influ-
ence the adoption on Islamic microfinance in Indonesia. Despite the negative relation-
ship, results showed that customers perceived Islamic microfinance to be less burden-
some due to its low cost of usage compared to conventional microfinance. Therefore, the
 Promoting the Adoption of Islamic Microfinance in Nigeria 607

belief in the advantages of Islamic microfinance influences the customers’ willingness

to participate in Islamic microfinance. Thus, this paper hypothesized that:
H1: Attitude has a positive effect on the behavioral intention to adopt Islamic
microfinance.
Subjective Norms
Subjective norm “is determined by the total set of readily accessible normative beliefs
concerning the expectations of important referents” (Ajzen 2012). Individuals that are
motivated to comply with or perform a certain action or behavior due to societal pressure
from others will have subjective norm. SN is determined by normative beliefs, which
is the expectation to engage in a behavior as required by certain people that society
hold in high esteem. Several studies have examined the relationship between SN and
intention, and most of them found that they are positively and significantly related. These
include Aziz and Afaq (2018) in Pakistan; Ajetunmobi, Aminat TitilayoIbrahim and
Hamid (2018) in Nigeria; Echchabi and Azouzi (2015) in Tunisia; and A. D. Muhammad
et al. (2016) also in Nigeria. However, Maulana et al. (2018); Shih and Fang (2004);
Ucar (2020); and Zauro (2017) found that SN do not significantly influence customers’
intention. This paper therefore theorized thus:
H2: Subjective norm has a positive effect on the behavioral intention to adopt
Islamic microfinance.
Perceived Behavioral Control.
Perceived behavioral control (PBC) is the person’s perspective on how easy or difficult
it is for him to perform a behavior. Hence, resources and opportunities available to a
person “will have a certain degree of control on the likelihood of behavioral achievement”
(Ajzen 1991). The relationship between PBC and intention is expected to be positive, as
evidenced by several studies. These include Maulana et al. (2018) who studied factors
affecting customers’ participation in Islamic microfinance in Indonesia; Zauro (2017)
in his study on Nigeria; and Ajetunmobi, Aminat TitilayoIbrahim and Hamid (2018)
also in Nigeria. Additionally, Shih and Fang (2004) obtained a similar result in Taiwan.
However, Aziz and Afaq (2018) found that the relationship between PBC and intention
to use Islamic banking was positive, but insignificant. Similarly, Echchabi and Azouzi
(2015) using DTPB found that PBC does not have a significant influence on the Intention
to adopt Islamic banking in Tunisia.
H3: Perceived behavioral control has a positive influence on the behavioral intention
to adopt Islamic microfinance.
Religiosity
Previous studies were able to establish the positive influence of religion towards the adop-
tion of Islamic financial products. For instance, Zaid (2019) found that the more religious
people are, the more inclined they will be towards Islamic banks in Pakistan. Banunaku
et al. (2020) concluded that attitude significantly mediates the relationship between reli-
giosity and intention to adopt Islamic banking in Uganda. In addition, Oladapo et al.
(2019) found that awareness, knowledge and religion positively and significantly influ-
ences attitude towards participation in Islamic banking in Nigeria. Ajetunmobi, Aminat
TitilayoIbrahim and Hamid (2018) also studied adoption of Islamic home financing in
608 A. Abdullahi et al.

Nigeria, and found that religion moderates the relationship between attitude, subjective
norm and perceived behavioral control, and intention.
Consequently, religiosity influences attitude, subjective norm and perceived behav-
ioral control. It also moderates the relationship between attitude, SN and PBC, and the
intention to adopt Islamic financial products. This, in essence, indicates that the relation-
ship between attitude, subjective norm and perceived behavioral control, and intention
will be strong if the person’s level of religiosity is high. In this study, it is expected that
respondents with high level of religiosity should be more inclined to adopt IMFPs. This
paper theorized thus:
H4: Religiosity moderates the positive relationship between attitude and behavioral
intention to adopt Islamic microfinance.
H5: Religiosity moderates the positive relationship between subjective norms and
behavioral intention to adopt Islamic microfinance.
H6: Religiosity moderates the positive relationship between perceived behavioral
control and behavioral intention to adopt Islamic microfinance.

3 Research Method
3.1 Sampling Technique and Respondents

This paper employed the quantitative approach to determine the moderating influence of
religiosity in the relationship between attitude, SN and PBC, and the behavioral inten-
tion to adopt Islamic microfinance in Nigeria. Proportional stratified random sampling
technique was used to collect data from the adult population in the study area – compris-
ing Bauchi, Kano and Katsina states - in Nigeria. In selecting the sample for this study,
each of the three states was stratified based on existing local governments areas (LGAs).
Three LGAs were selected from Kano State, while two each were selected from Bauchi
and Katsina states. The selection of three LGs in Kano was to adhere to the proportional
principle, given that the state is almost half of the total sample size.
Furthermore, local governments within the state capitals were selected as part of the
strata for data collection because of their heterogeneous. This gave a fairer representation
of different ethnic, income and occupational groups. Four enumeration areas (EAs) were
randomly selected from each local government, giving a total of twenty-eight EAs. Sam-
ple population for the study was randomly selected based on the sampling frame obtained
from the Office of National Population Commission. The data was also collected from
both rural and urban areas, enabling the study to collect and analyze data from a more
diverse and varied sample, which is a requirement for stratified sampling. Accordingly,
Bauchi and Ganjuwa LGs were selected in Bauchi state; Dala, Kano Municipal and
Kura LGs were selected in Kano state; and Katsina and Batagarawa LGs were selected
in Katsina state. In total, data was collected from 450 respondents in the study, who form
the potential customers of Islamic microfinance banks in the study area. The choice of
the adult population is in line with a study conducted by Zauro (2017) in Kano, Nigeria.
Structural equation modeling (SEM) was used for data analysis.
 Promoting the Adoption of Islamic Microfinance in Nigeria 609

3.2 Survey Instrument

Questionnaire was used to elicit information for this study. The questionnaire was devel-
oped in the English language but also translated into the Hausa language (the dominant
language of communication in the area of study) for easy completion by respondents.
Responses were collected from the sample using a five-point Likert scale. The various
dimensions measured by the questionnaire were adopted/adapted from previous studies
to suit the objectives of the study. To achieve high response and ensure timeliness, the
questionnaire was distributed by hand. This “gives a higher response rate in Nigeria
because the research culture is still evolving” (Zauro 2017). The questionnaire has 11
constructs (factors) and 53 items adapted from previous empirical studies in the subject
area, summarized in Table 1 below.

Table 1. Summary of adapted constructs

Construct Type Source Items no.

Behavioral intention IV Aziz and Afaq (2018) 4
Attitude DV Maulana et al. (2018) 5
Relative advantage DV Maulana et al. (2018) 6
Complexity DV Aziz and Afaq (2018); Maulana et al. 5
(2018)
Compatibility DV Maulana et al. (2018) 5
Awareness DV Maulana et al. (2018); Zauro (2017) 5
Subjective norms DV Maulana et al. (2018); Zauro (2017) 4
Normative beliefs DV Maulana et al. (2018); Shih and Fang 5
(2004)
Perceived behavioral control DV Aziz and Afaq (2018); Shih and Fang 5
(2004)
Self-efficacy DV Maulana et al. (2018); Shih and Fang 4
(2004)
Facilitating conditions DV Aziz and Afaq (2018) 5
Religiosity MV Sharma et al. (2016) 5

3.3 Method of Data Analysis

Confirmatory Factor Analysis (CFA) was used for scale validation using SEM. The
analysis was performed using Analysis of Moment Structures (AMOS). SEM is a com-
bination of measurement and structural models. The “measurement model links the
observed variables to a smaller set of latent variables, while the structural model links the
610 A. Abdullahi et al.

latent variables “through a recursive and non-recursive relationships” (Ramakrishna and

Trivedi 2018). Accordingly, the measurement model enables the researcher to evaluate
how well data of the observed variables combine to identify the underlying hypothesized
constructs, while the structural model helps in specifying and verifying the hypotheses
in the study. SEM therefore helps in discovering “the most parsimonious summary of
the relationship among variables which reflects the associations observed in the data”
(Weston and Gore Jr. 2006).

4 Findings and Discussions

As stated earlier, SEM was employed for data analysis, while SPSS was used to clean the
data collected, as well as conduct significance tests to ensure that its stable and suitable
for analysis. After that, confirmatory factor analysis (CFA) was conducted using AMOS.

4.1 Model Identification

The model was identified with chi-square of 985.38 and 574 degrees of freedom. A
normed chi-square of 1.717 was attained, and according to Hooper, Coughlan and Mullen
(2008), meets the recommendations of a ratio of up to 5% by both Wheaton (1977) and
Tabachnick and Fidell (2007). According to Adeyemi, Mustafa and Oladipo (2013), “the
ratio of <5.0 was most reported in SEM studies”. Furthermore, the model was significant
at 1%, with a p-value of 0.000. The comparative fit index (CFI) was also considered to
test the fitness of the model. It ranges from 0–1, and measures variation in the data. The
closer the CFI is closer to 1, the better the model fit, and a CFI of >.90 is considered
acceptable (Suhr 2006; Weston and Gore Jr. 2006). A CFI value of ≥0.90 was also
considered acceptable by Ramakrishna and Trivedi (2018). Adeyemi et al. (2013) also
reported that the threshold found for CFI in most existing studies using SEM is .90. For
this study, a CFI of .937 was attained.
The Root Mean Square Error of Approximation (RMSEA) was also calculated to
determine the model fitness. According to Bryne (2010), RMSEA is identified as one
of the most informative criteria in structural modeling as it tests the factorial validity
of the theoretical construct in relation to model misspecification. It thus, guides the
researcher in measuring the model and helps in building confidence intervals around
RMSEA values. A cut-off value of close to .06 was reported by Suhr (2006), while
Bryne (2010) suggested a cut-off value of <.05 for model fitness. Values above the
suggested cut-off indicates inadequate sample size. For this study, .045 was attained,
confirming the model fitness and adequacy of the sample size in the study. Table 2 below
summarized the criteria met for model fitness (Fig. 2).
Finally, an R2 of 0.45 was obtained. According to Hair, Hult, Ringle and Sarstedt
(2017), determining an acceptable level of R2 is difficult because R2 values “depends
on the model complexity and the research discipline”. Whereas R2 values of 0.20 are
considered high in disciplines such as consumer behavior, in success driver studies such
as customer satisfaction or loyalty, values as high as 0.75 are expected. In general, “R2
values of 0.25, 0.50, and 0.75 for target constructs are considered as weak, medium, and
substantial, respectively” (Hair et al. 2017).
 Promoting the Adoption of Islamic Microfinance in Nigeria 611

Fig. 2. The measurement model

Table 2. Summary of model goodness fit

S/N Items Requirement Results obtained

1 Normed Chi-square <5 1.717
2 P-value >.05 0.000
3 CFI >.90 0.937
4 Parsimony-adjusted index (RMSEA) <.05 0.045

Reliability Assumptions
According to Sekaran and Bougie (2016), reliability “is a measure that tests both con-
sistency and stability”. Cronbach’s Alpha assess reliability by measuring “how well the
items in a set are positively correlated to one another”, and the closer the value is to 1,
the higher the internal consistency. Hair et al. (2017) also recommended a Cronbach’s
Alpha of 0.70 as acceptable, while a score of 0.60 is acceptable in exploratory research.
Cronbach’s alpha values of >0.70 were attained for all the latent variables in this study,
thus affirming the internal reliability of the measures in this study.
Validity Assumptions
Validity assumptions are concerned with the random and systematic error in a model.
Validity is the “ability of a measuring device or instrument to measure what it is expected
to measure – and nothing else” (Pandey and Pandey 2015). A model is thus expected
to achieve both convergent and discriminant validity. Convergent validity represents the
ability of a latent variable to correlate with other measures, and is measured by computing
the average variance extracted (AVE) for the latent variables under consideration in the
model. Hair et al. (2017) recommended that each latent variable under consideration is
required to achieve a minimum AVE score of 0.50. They further suggested that indicators
with loadings of 0.40–0.70 should be removed only if that increases the reliability of the
construct.
Discriminant validity on the other hand is “the ability to ensure that distinct concepts
are uncorrelated to each other” (Sekaran and Bougie 2016). In other words, it measures
the extent to which a particular latent variable differs from the rest of the latent constructs.
612 A. Abdullahi et al.

This is attained when “the square root of each constructs’ AVEs in the model is larger
than its correlation with other constructs” (Hair et al. 2017). In this study, all the latent
constructs exhibited an AVE loading higher than 0.50. Appendix 1 summarized results
of the validity tests, confirming the achievement of both convergent and discriminant
validity in the model.

4.2 Results and Discussions

Attitude and Behavioral Intention
This paper hypothesized that attitude is positively related with behavioral intention to
adopt Islamic Microfinance in Nigeria. The estimation outcome supported this hypoth-
esis (β = 0.147; S.E = 0.078; p = 0.06), where a positive and significant relationship
(at 10%) was attained, an indication indicates that respondents expect positive benefits
from the adoption of Islamic microfinance. This is consistent with the findings of several
empirical studies, including A. D. Muhammad et al. (2016), Zauro (2017), Ajetunmobi,
Aminat TitilayoIbrahim and Hamid (2018) and Oladapo et al. (2019) in Nigeria. Other
studies with similar results include Aziz and Afaq (2018) in Pakistan and Ucar (2020) in
Turkey. However, a study by Albashir, Zainuddin and Panigrahi (2018) which examined
the factors affecting acceptance of Islamic banking and its usage by customers in Libya,
discovered that attitude is not significant in influencing the intention to accept and use
Islamic banking.
These findings revealed the importance of positive consumer attitude in the adoption
of financial products and services, leading to higher adoption. Positive attitude indicates
that the product or service in question is affordable, useful, easy to use, and conforms
to the culture and beliefs of the potential users. Consequently, major stakeholders in
the Nigerian financial system should embark on enlightenment campaigns that will
improve the public attitude on the role of Islamic microfinance banks in the promotion of
financial inclusion and poverty reduction. In addition, states and local governments must
collaborate with other stakeholders to support existing Islamic microfinance institutions
and encourage the formation of new ones.
Subjective Norms and Behavioral Intention
Results obtained supports the proposition that subjective norm has a positive and signif-
icant influence on behavioral intention to adopt IMFPs in the study area (β = 0.241; S.E
= 0.052; p = 0.000) at 1% level of significance. This is consistent with the findings of
Albashir et al. (2018) in Libya; Aziz and Afaq (2018) in Pakistan; and Zauro (2017) in
Nigeria. Other studies by Echchabi and Azouzi (2015); Shih and Fang (2004) and Ucar
(2020) in Tunisia, Taiwan and Turkey, respectively, obtained similar results.
The results established the role of societal influence on individuals to engage in
certain behavior, by showing the role of family, peers and community leaders in the
adoption of Islamic microfinance in the study area. This is an important finding, because
according Rhule (2016), one of the major Islamic microfinance institutions use the
concept of kafalah (otherwise known as responsibility, amenability or surety-ship) to
mobilize beneficiaries and ensure that loans are repaid – similar to the ‘group liability’
approach used by conventional microfinance institutions. As such, Islamic microfinance
banks could utilize the positive influence of family and community leaders through
‘Kafalah’, to encourage re-payments, thereby making the IMFBs more sustainable.
 Promoting the Adoption of Islamic Microfinance in Nigeria 613

Perceived Behavioral Control and Behavioral Intention

This paper also proposed that perceived behavioral control will influence behavioral
intention to adopt IMFPs. Results supported this assertion (β = 0.505; S.E = 0.077; p =
0.000) at 1%, therefore validating previous studies that made similar proposals. These
include studies by Maulana et al. (2018) in Indonesia; Albashir et al. (2018) in Libya; Aziz
and Afaq (2018) in Pakistan; and Zauro (2017) in Nigeria. However, results obtained by
Ucar (2020) in Turkey contradicted the above. His study found that perceived behavioral
control does not influence customer’s intention to adopt non-interest financing (Fig. 3).

Fig. 3. Hypotheses testing

This result shows the positive disposition of respondents towards Islamic microfi-
nance in Nigeria. More so, conventional financial products and services could be costly,
thus inhibiting financial access among the poor and low-income groups. As a result of
this positive disposition of the public, it is of import that government encourage the
use of Islamic microfinance in order to promote financial inclusion among the poor and
underprivileged through increased financial literacy, the promotion of conducive envi-
ronment for the expansion of digital financial services, provision of stable regulatory
and supervisory environment, and continued engagement and collaboration among all
the stakeholders in the financial space (Table 3).

Table 3. Hypotheses tests and decision

Estimate S.E. C.R. P-value Decision

Behavioral intention Subjective norms 0.241 0.052 4.612 *** Supported
Behavioral intention Attitude 0.147 0.078 1.884 0.06* Supported
Behavioral intention Perceived behavioral 0.505 0.077 6.554 *** Supported
control
614 A. Abdullahi et al.

Moderating Influence of Religiosity

The study tested the moderating influence of religiosity between attitude, subjective
norm and perceived behavioral control, and the behavioral intention to adopt Islamic
microfinance. This is in line with previous studies that used religiosity as a moderator
between an independent and a dependent variable, among whom is Thambiah et al.
(2013), who examined the moderating effect of religiosity and regional differences on
the intention to use Islamic retail banking products and services in Malaysia. The study
found that religion moderates the interaction between relative advantage, complexity,
compatibility and the intention to use Islamic retail banking. Similarly, Farouk et al.
(2018) examined the moderating effect of religiosity on intention to comply with the
Zakat on employment income (ZEI) in Nigeria. However, results obtained showed that
the moderating role of religiosity between attitude and behavioral intention was not
significant, but the moderating effect of religiosity on the relationship between subjec-
tive norm was positive and significant. As such, religiosity strengthens the relationship
between subjective norm and behavioral intention.
Another study by Zauro (2017) introduced financial inclusion as a moderating vari-
able between attitudes towards IFPs, subjective norms, perceived behavioral control
among others, and intention to accept IFPs in Nigeria. Other studies that used modera-
tors to test the relationship between latent variables include Ajetunmobi, Aminat Titi-
layoIbrahim and Hamid (2018) who used the decomposed TPB to determine the effect
of religion on attitude, subjective norm and perceived behavioral control on the intention
to adopt Islamic home financing in Nigeria. Results showed that religion moderates the
relationship between attitude, subjective norm and perceived behavioral control, on the
one hand, and intention on the other. Zaid (2019) analyzed the moderating role of public
trust towards Islamic financial institutions in Pakistan, and results showed that religiosity
has a positive impact on attitudes towards Islamic banks. As such, the more religious a
person is, the more he or she is inclined towards Islamic banks. Also, the study found
that trust in Islamic financial institutions influences the attitude of customers towards
them.
To measure religiosity, this study collected data using a 5-Likert scale, and catego-
rized into two levels: Low and High using SPSS. It is expected that respondents with
high level of religiosity should be more inclined to adopt IMFPs (Table 4).

Table 4. Moderating influence of religiosity

Dependent Independent Low High Decision

variable variables
Estimate P Estimate P z-score
Behavioral Subjective 0.095 0.217 0.342 *** 2.404** Supported
intention norms
Behavioral Attitude 0.061 0.625 0.098 0.266 0.241 Not supported
intention
Behavioral PB control 0.523 0.002 0.345 *** −0.955 Not supported
intention
 Promoting the Adoption of Islamic Microfinance in Nigeria 615

Results obtained showed that H5 which postulated that religiosity moderates the
relationship between subjective norm and behavioral intention was supported (z-score
= 2.404) at 5%, attesting that highly religious people a more likely to adopt IMFPs
based on the advice or perceived belief of people they afford respect to.
The other two hypotheses: H4 (z-score = 0.241) which theorized that religiosity
moderates the relationship between attitude and behavioral intention to adopt IMFPs;
and H6 (z-score = −0.955) which theorized that religiosity moderates the relationship
between perceived behavioral control and intention to adopt IMFPs were not supported.
The inability of religiosity to moderate the relationship between attitude and behav-
ioral intention to adopt Islamic microfinance could be that in making financial decision,
individuals consider the financial implications of their actions, insofar as they do not
contradict their religious beliefs and practices. Thus, attitude and PBC could directly
influence the intention of the respondents to adopt Islamic microfinance because the
respondents could directly assess the compatibility of the products to their beliefs, the
benefits of the products to their well-being, as well as their ability to use the products and
services offered by these institutions without resorting to religiosity. As such, religiosity
is not considered a good moderator of the relationship between attitude and PBC, and
intention to adopt Islamic microfinance in the study area. Finally, the result showed that
highly religious people tend to be more influenced by community leader and religious
leaders, as well as people they hold in high esteem in adopting IMFPs.

5 Conclusion and Recommendations

5.1 Conclusion

This paper examined the effect of attitude, SN and PBC on the behavioral intention
to adopt Islamic microfinance banks in Nigeria, as well as the moderating influence
of religiosity between attitude, subjective norm and perceived behavioral control, and
behavioral intention to adopt Islamic microfinance in Nigeria. Results disclosed that
attitude, SN and PBC are positively and significantly influence the use of Islamic micro-
finance banks. However, in terms of moderating effect, religiosity could only moderate
the relationship between SN and behavioral intention, indicating that highly religious
people a more likely to adopt IMFPs based on the advice or perceived belief of peo-
ple they afford respect to. The moderating influence of religiosity between perceived
behavioral control and behavioral intention was, however, found to be negative and
insignificant.

5.2 Recommendations

Based on the findings of this study, several recommendations were made. These include
the need to enhanced enlightenment campaigns to improve public attitude on the role
of Islamic microfinance banks in poverty reduction and deepening financial inclusion.
There is also the need for government to ensure the provision of basic infrastructure
such as road network, sustainable power supply and other amenities to ensure easy
access to financial institutions and services for prospective users. Similarly, the CBN
616 A. Abdullahi et al.

needs to ensure the development of varied of non-interest products under the CBN
interventions program, and the need to encourage Islamic financial institutions to market
the products. On the part of Islamic microfinance banks, they should develop low-cost
products, in order to favourably compete with their conventional counterparts, as well
as use ‘Sadaqat’, ‘Zakat’ and benevolent loan as complementary tools to encourage
social inclusion. These are expected to promote the adoption of Islamic microfinance in
Nigeria.

5.3 Areas for Further Research

The main objective of this study is to examine the moderating influence of religiosity
between consumer attitude, SN and PBC on the one hand, the intention to adopt Islamic
microfinance products (MFPs) among prospective customers in some selected states
in Nigeria. Results obtained should however be interpreted with caution due to some
limitations of the study. For instance, the study was carried out in some selected states
in the Northern part of Nigeria that is predominantly Muslim. The finding, and indeed
conclusions of the study, may not be suitable for generalization to other parts of the
country. A more generalized study covering the whole fabric of the Nigerian nation
may be required for generalization across the country, especially, where the Muslim
population is in the minority. Furthermore, there is the need for future studies to research
more on the moderating role of religiosity on attitude and PBC using different sample
in order to have a deeper understanding of this phenomenon.

Appendix

Appendix 1: Convergent and Discriminant Validity

CR AVE MSV MaxR Attd Rel Compa Awrnes Sub Nor PB Self FCon BInt Comp
(H) Adv s Norm Belf Contl Effi d x
Attitude 0.751 0.502 0.373 0.756 0.709
Relative Advantage 0.735 0.581 0.082 0.856 0.204 0.762
Compatibility 0.762 0.521 0.376 0.906 0.611 0.141 0.722
Awareness 0.856 0.598 0.334 0.941 0.259 0.287 0.338 0.774
Subjective 0.777 0.538 0.332 0.951 0.391 0.242 0.518 0.344 0.733
Norm
Normative 0.856 0.544 0.332 0.962 0.346 0.257 0.393 0.299 0.576 0.738
Belief
Perceived Behavioral 0.739 0.587 0.376 0.966 0.477 0.062 0.613 0.335 0.446 0.437 0.766
Control
Self-Efficacy 0.721 0.565 0.334 0.969 0.293 0.167 0.439 0.578 0.313 0.436 0.537 0.752
Facilitating Conditions 0.899 0.694 0.167 0.978 -0.076 0.236 -0.138 0.364 -0.088 0.082 -0.087 0.271 0.833
Behavioral Intention 0.817 0.528 0.339 0.980 0.380 0.177 0.557 0.353 0.483 0.533 0.582 0.522 0.003 0.726
Complexity 0.915 0.685 0.167 0.984 -0.173 0.182 -0.226 0.109 0.019 0.051 -0.165 0.106 0.409 -0.041 0.828

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 « 2 °C Finance» and Green Bonds Challenges

Mohamed Bechir Chenguel(B)

Kairouan University, Kairouan, Tunisia

[email protected]

Abstract. Since the industrial revolution, the planet has experienced warming,
and this has been scientifically proven by natural systems and particularly high
anthropogenic greenhouse gas emissions between 2000 and 2010, which will
lead to a warming of 3.7 °C to 4.8 °C by the end of the century. Therefore,
extreme heat waves and risks related to water resource availability are expected.
Rising sea levels, more intense storms, droughts, and floods threaten the world’s
poorest and most vulnerable population. The financial sector, a key sector, must
certainly intervene by acting on the carbon footprint, which passes the level of
capital allocation towards investments, favoring renewable energies and low co2
emissions. This is in line with the “2 °C finance”, which is compatible with the
limited warming scenario. Green financial intervention involves the development
of green bonds. The objective of our paper is to present the new concept of 2 °C
finance, its role in ecological transition, and attempt to unveil the problems for
the financial system to assess the carbon footprint. To this end, we present a
new indicator: the indicator of co2 emissions avoided. Indeed, this indicator can
be calculated to give the levels of co2 not emitted and the gain brought by the
investments financed by the green bonds. For further implications, we suggest
that future research focus on and empirically test the impact on 2 °C finance and
the financial sector.

Keywords: Green finance · Finance 2 °C · Green bonds · CO2 emissions avoided

1 Introduction

The scientific community is unanimous regarding the scale of the climate and ecolog-
ical crises. Faced with the urgency to act, an international will was carried out by the
Paris Agreement in 2015, which resulted in the need to direct financial flows towards
ecological investments in order to limit global warming below 2 °C. Finance, now at the
heart of climate negotiations, has become aware of its responsibility to anticipate risks
and support opportunities linked to ecological transition. However, this mobilization
must be accelerated because the situation continues to deteriorate and the “cost of inac-
tion” continues to increase. To achieve these objectives, climate issues must be properly
integrated into the financial decision-making process, which requires redesigning the
financial industry’s tools. It is of paramount importance to develop harmonized and con-
vergent climate risk measurement models that can be used by all economic and financial
actors. The financial sector integrates sustainable development issues by referring to

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 619–630, 2023.
https://doi.org/10.1007/978-3-031-26956-1_58
620 M. B. Chenguel

environmental, social, and governance (ESG) criteria to analyze the impact of financing
and investment activities on the real economy. Thus, players in the sector can register
their activities in the transition to a low-carbon economy and play a driving role by redi-
recting financial flows in line with the Paris Climate Agreement and the United Nations
Sustainable Development Goals, which is a challenge for sustainable finance. Thus the
financial sector must certainly intervene by acting on the carbon footprint, especially at
the level of capital allocation, which corresponds to “2 °C finance” compatible with the
scenario of limited warming. Indeed, the question for donors is how a project is “benefi-
cial to the climate and what evaluation criteria will be. On the one hand, you have to ask
yourself to what extent the reduction in emissions from a project will contribute to the
overall objective, that is, to limit global warming to 2 °C. Green financial intervention
involves the development of green bonds. Through this research work, our contribution
and to clarify the confusion between 2°c finance and green finance, and also to make
the distinction between “less CO2” and “a level of CO2 making it possible to limit the
increase in the temperature at 2 °C. These concepts differ in terms of the objectives and
plans for the tools used. We have also focused on a problem that has not been solved
until now, that is the co2 valuation problem, because in reality, it is almost impossible
to attribute the 2 °C target to individual investments. Several attempts to evaluate and
create indicators have been made, and our contribution is to take a closer look at the
indicator of co2 emissions avoided, and their interactions with green investments. The
remainder of this paper is organized as follows. We started with the definition of a new
concept, namely 2 °C finance, is distinct from green finance. Second, we present the
roles of green bonds and the climate impact problem. Third, we present and rank the
avoided emission indicators used to identify green investment. Finally, the conclusions
are presented.

2 The «2 °C Finance»
Many financiers do not consider the climate when allocating capital for projects and
investments, and they generally settle for financing projects that fit the risk/return pro-
file that suits them [27]. Many are not interested in orienting their projects with a 2 °C
trajectory “2 °C Finance” is an allocation of capital that minimizes the carbon footprint
and limits the impact of climate change [5]. This allocation allowed a certain number of
investments to be made, in line with the maintenance of the 2 °C trajectory. Owing to the
complexity of the definition and magnitude of the assumptions required, estimating the
scale of financing required for a +2 °C world is more art than science. Thus, financial
resources must come not only from the public sector but also, to a large extent, from pri-
vate actors. For finance to become “2 °C finance”, the compatibility of capital allocation
with the development of low-carbon energy sources must be analyzed [26]. To reduce
co2 emissions, the amount of carbon emitted from investment must be reduced. The
most difficult task is to measure the reduction in CO2 emissions and identify the link
with the emissions of green bonds. However, although everyone agrees on the disastrous
consequences of global warming, the allocation of necessary capital remains inefficient
for several reasons [20].

– Fossil fuels are least expensive.

 « 2 °C Finance» and Green Bonds Challenges 621

– Renewable energy, which is used in energy, is expensive.

– The cost of renewable energy varies greatly depending on the country and region.

Policy guidelines are important for encouraging transitions. However, this varies
across the countries. Several countries have encouraged the development of renew-
able sources of energy. However, many other countries continue to subsidize carbon-
rich products, either directly or indirectly [14]. These subsidies were intended to pro-
tect the purchasing power of consumers. However, these sudden consequences include
anti-environmental effects, particularly high energy consumption, which discourage the
development of renewable energy sources. Despite the weak incentives for 2 °C financ-
ing, certain indications show that this new concept is beginning to develop, albeit slowly,
but that there is growth [18]. With a clear focus on allocating capital in the right direc-
tion, especially with industries and companies that have realized the need to do business
with respect to environmental conditions, with an achievable goal and a challenge to
maintain and strengthen “2 °C finance” [17]. However, to encourage this, it is necessary
to strengthen the “risk/return on investment ratio, which is more favorable. This can only
be obtained by increasing the return and/or reducing risk. Increasing efficiency means
minimizing the additional costs associated with CO2 abatement or removing current
subsidies for carbon emissions. Certainly, in the long term, the price of carbon should
increase, which will favor low-carbon projects. In addition, the price of carbon should
increase with the strengthening of climate policies and removal of subsidies. However,
carbon pricing is a slow process [6].
During this process, returns can be improved by supporting low-carbon investments
through mechanisms, such as feed-in tariffs. Consistent and sustained political com-
mitment is essential, because politicians can send signals to grow markets and improve
project performance.

3 Green Finance” or “2 °C Finance?

There are several reasons why “2 °C financing is not well known. One of them is the
confusion of terms, definitions, and qualifications used in environmental and climate
matters [13]. Thus, “green finance” is a concept different from “2 °C finance”. Even
if the term “green finance” has existed for longer than “2 °C finance”, it also suffers
from a problem of definition. In fact there is no widely accepted definition of what
is called ‘green’, although some issues such as abatement are more obviously called
environmental than others. Some green projects are compatible with promoting a +
2 °C world (and vice versa) by limiting temperature and/or integrating resilience into
impacts. However, this is not always the case in green finance. Beyond the links between
numerous environmental and climatic themes (such as renewable energy and energy
efficiency) and their similarities, the environmental and climatic factors are not identical
[24].
A Green projects do not always contribute to meeting the 2 °C objective; the differ-
ence between the environment and the climate is difficult to identify, but climate change
goes beyond environmental considerations and also concerns humanitarian areas, such
as access energy, food security, and climate-related migration. Political factors, such as
energy security, can influence climate change decisions.
622 M. B. Chenguel

The definition and lack of information on the contribution of projects to a small

increase in temperature or preparation for the impacts of higher temperatures constitute
additional problems [12]. Regardless of the problem of definition, ‘2 °C finance’ remains
underdeveloped, and additional finance is needed to bridge the gap between today’s
investments and those needed to embark on the path to change a world at +2 °C.
However, to achieve its objectives, 2c finance requires green finance instruments,
namely good greens. These instruments are basic and effective tools for reducing the
impacts of global warming.

3.1 Green Bonds and Climate Action

From a financial point of view, and on bond markets, green bonds are an effective tool
that financiers have developed to contribute to the development of “2 °C finance” [17].
In recent years, global bond markets have raised large sums of financing in low-carbon,
green economies.
Financing sustainable modes of transport (such as railways) and clean energy (such
as renewable energy) are priorities. This type of specific bond, that is, green bonds, has
developed rapidly over the past ten years. These green bonds are classic bonds, whose
financing is explicitly allocated to a series of environmental and climate investment
objectives. Emission growth is driven by both the supply and demand. On the supply
side, the market has been helped by major international financial institutions committed
to promoting green economy financing and aspiring to foster the mobilization of private
capital. To this end, they resorted to issuing green bonds, thus contributing to creating
a new market segment within the world’s main asset class [21]. These issuers initially
made up of supranational organizations have expanded to include other public and para-
public issuers (in particular, agencies and sub-sovereign entities) while, alongside these
public issuers, other companies have begun to appeal to this market segment to raise
funds and diversify their investor base and include environmentally sensitive institutions
[9]. The demand for eco-responsible investment funds is growing and traditional institu-
tions are interested in this new market segment. This development was made possible by
an increase in the volume of issues and financial characteristics that were very similar to
those of conventional bonds issued by the same institutions. In addition, a growing pro-
portion of institutional investors have pledged to invest in a climate-responsible manner
[29]. Thus, several groups in the Asia-Pacific, Europe, and North America have pledged
to encourage investors to fully integrate climate change into investment practices and
facilitate low-carbon investments by institutional investors. The United Nations Backed
Principles for Responsible Investment have been adopted worldwide. One of the key
commitments is to integrate ESG factors into the management of all the asset classes.

3.2 Green Bond and the Regulatory Problem

Currently, no legal regulations exist for green bonds or for the issuance of impact reports.
Indeed, emissions are only framed by Green Bond Principles or associations, such as
the Climate Bond Initiative [22]. Green bonds are a new determinant of sustainable
green financing, energy-efficiency investments, and economic growth from a global
perspective. Environmental Science and Pollution Research, 1–16. The Green Bond
 « 2 °C Finance» and Green Bonds Challenges 623

Principles are a set of guidelines that guide issuers of green bonds. However, no entity
was responsible for verifying the correct application of these recommendations. These
guidelines recommend writing an impact report, which must be updated annually until
all funds have been allocated [18].
This report must present at least the following information:
List of funded projects and descriptions of each project.

• Amount allocated to each project.

• Impact of various projects

When financing many projects, it is advisable to group them by sector (renewable

energy, energy efficiency, green mobility, etc.) to facilitate the writing and reading of
the reports.
For the environmental impact of projects, the Green Bond Principles recommends
the use of qualitative and quantitative indicators with, in this case, a clear explanation of
the method used for the calculation. Among the quantitative indicators mentioned, we
found the following.

• Installed energy capacity.

• Amount of electricity generated.
• Avoiding greenhouse gas emissions.

Number of beneficiaries.

• Reduction in water consumption.

• A decrease in the number of vehicles on the roads.

It is recommended that a third party determines the green character of financed

projects before issuing a green bond. Beyond the general transparency of reporting, it is
interesting to emphasize the first level of transparency in the description of the funded
projects. For example, investing in projects related to fossil fuels seems contradictory
to the objective of a green bond despite the fact that it is possible to calculate positive
environmental impact indicators (yield improvement projects, energy efficiency, etc.)
[23]. The Green Bond Principles then defines a list of “green” sectors and projects.
These practices were voluntary and mandatory. Therefore, it is important to examine
these issuers’ actions.

4 Finance 2 °C and the Problem of CO2 Assessment

It is useful for releasing fewer greenhouse gases in absolute terms, but the real challenge
is to reduce greenhouse gas (GHGs) to a level that limits the temperature increase
to 2 °C [1]. The distinction between “less CO2” and “a level of CO2 allowing the
temperature increase to be limited to 2 °C” amounts to evaluating the absolute and
relative reduction of emissions. A number of lenders seek to determine whether a project
is climate beneficial. The methodologies used, different, have in common the justification
624 M. B. Chenguel

of the reduction of emissions linked to the project in its various forms (by generating
less, by controlling emissions) and the process making it possible to determine whether
the project is “additional” that is i.e. it guarantees an additional reduction [9]. If each
project is evaluated based on its own merits, the distribution of capital is compatible
with the world at +2 °C. It is relevant to determine the extent to which a project’s
emissions reduction will contribute to the global objective and limit global warming
to 2 °C. However, in reality, it is almost impossible to attribute the target of 2 °C to
individual projects. Although it is difficult to estimate the investments to be made, it
is even more difficult to assess the additional cost to make the investment compatible
with a low-carbon economy [28]. Various organizations have attempted to quantify the
costs of reducing emissions. Adaptation assessment is more accurate at regional and
local levels. In 2010, the World Bank (2010) concluded that the cost of adapting to a
2 °C warmer world was $70 billion to $100 billion per year between 2010 and 2050,
but that these “costs could be higher, once sectoral impacts are taken into account” [18]
determined that clean energy investment policies to address the climate challenge and
consistent with a 2 °C climate change goal would require more than $800 billion per
year. Thus, according to several studies, estimates indicate that there are many ways to
calculate the cost of maintaining low temperatures and preparing for the consequences
of climate change [8].

4.1 Avoided Emissions: An Important Climate Indicator

Many impact indicators are used and are often specific to certain sectors, such as the
installed capacity and annual production for renewable energy projects. However, the
volume of avoided emissions is by far the most common climate indicator in impact
reports. Avoided emissions are climate impact indicators that are expressed in tons of
CO2 equivalents. This corresponds to the difference between the emissions induced
by the project studied and those induced by a fictitious situation, called the reference
situation, in which the project would not have been conducted [24]. The reference sit-
uation completely determines the result obtained, which is why it must be chosen in
such a way as to be as credible as possible and consider changes over time (emission
factors, improvement in efficiency, etc.).). Avoided emissions were calculated and used
in reports published by monetary authorities in several countries. We can conclude that
calculating the avoided emissions linked to a green bond is now the norm and proof of
seriousness and transparency on the part of issuers. Avoiding emissions is an effective
way of measuring the environmental benefits of a project. It is also a common indicator
that can be calculated for all types of projects and sectors [15]. However, the ratio of
emissions avoided per million euros invested per year differs greatly from one green
bond to another (from less than one ton of CO2 avoided per million euros invested per
year to more than 1,000 tons). Today, the absolute value of avoided emissions is probably
not a criterion of choice for the majority of investors: the green bond market is boom-
ing and issues are mostly of the time largely oversubscribed [4]. The positive impact
of a project is sufficient to attract investors. As advised by the Green Bond Principles,
the vast majority of reports calculating avoided emissions contain an explanation of the
methodology used. However, the level of detail varies from report to report.
 « 2 °C Finance» and Green Bonds Challenges 625

• It is simple to note that briefly explains key assumptions.

• This is a detailed presentation of a method, which is sometimes explained in a separate
report.

Market methods already exist in certain sectors, and are used by issuers. This is the
case, for example, for the method used in the renewable energy sector or the SNCF-
Réseau method in France, which was developed by the SNCF for the transport sector
and is now used by several issuers [2]. However, not all renewable energy sources and
transportation players use these methods. In general, the methods used lack detail and
are transparent. For the construction sector, for example, no method seems to stand
out today, and actors use their own methodology, which is not always well-detailed.
Rigor in the method used may arise if it is not explained well. These methods may
appear incomplete and demonstrate that they are not correlated with an increase in the
calculation of avoided emissions. Thus, from the perspective of transparency and the
performance of green bonds, external support to clearly define the calculation method
can prove both urgent and beneficial [30] (Table 1).

Table 1. Avoided emissions: their methods, their advantages and disadvantages

Avoided emissions
Definitions Avoided emissions are thus a tool that allows companies to measure and value
the contribution of their solutions to the reduction of GHG emissions
Methods Principles for calculating avoided emissions:
Basic principles:
1-A calculation of avoided emissions per action aims to compare two situations:
- emissions without the action considered: reference situation
- emissions with the action considered: assessed situation
2-define the action that can avoid emissions
3- the emissions of the entire life cycle are taken into account
4-the calculation of the avoided emissions of the system in reference
5 avoided emissions are calculated annually
Advantages It gives the net difference between the reference situation (old) and the new
assessed situation
Inconvenient The calculation methods may vary according to the actors and the sectors of
activity of the company
Source: author redaction

4.2 Effectiveness of Green Bond to Improve Climate Impact

The issue of investor confidence is central to the development of green bonds as an effec-
tive means of financing in the fight against climate change [25]. Fear of green washing
(the dishonest use of the environmental argument in the communication of an actor)
can dampen investors’ enthusiasm for green bonds. Transparency on the environmental
626 M. B. Chenguel

impact of investments (with regard to climate change) is therefore necessary to validate

the “green” character of the projects financed [10]. The role of greenhouse gas (GHG)
emissions in climate change has been well established. Therefore, the ability of a project
to avoid these emissions is an effective means to combat climate change. Quantification
of avoided emissions is the main indicator for validating the positive impact of new
projects. Thus, a large quantity of avoided emissions testifies to the good climate perfor-
mance of the financed project, which contributes to building and maintaining investor
confidence in the environmental strategy of the issuing entity [19]. Currently, investor
demand for green bonds (and more broadly, for financial products with a positive impact
on the environment) is stronger than supply. Thus, the implementation of a method for
quantifying avoided emissions is more important than the value obtained. However, the
supply of green bonds and “green” financial products is also increasing. Therefore, in
the near future, indicators such as avoided emissions will become major criteria in the
process of selecting these investors. Improving the climate performance of financed
investments is the next step in the methodological development of these financing tools
[3]. The implementation of a robust method for calculating avoided emissions con-
tributed to this improvement. This quantification should make it possible to distinguish
investments that appear similar at first sight but present a significantly different impact
in reality. For example, investments in renewable energy projects in different contexts
(e.g., geographical areas and energy types). Depending on the carbon content of the
energy replaced by renewable energy, the impact in terms of avoided emissions will be
different.
In the case of French emissions, two emitters using the same method on projects that
are a priori comparable report very different avoided emissions related to investments
[7]. Admittedly, the information generated on avoided emissions will be useful not only
for judging the performance of the green bonds issued, but also for the selection of
projects, which will improve the performance of future green bonds. This is ready in
the future, when the market is more competitive. The introduction of this calculation
method as soon as possible and in a favorable context is very important for future
obligations and the development of the issuer’s climate strategy. The analysis of the
reporting of green bonds issued worldwide in recent years reveals wide differences, both
in terms of the values of emissions avoided and the calculation method used [16]. Some
reports have presented incomplete or questionable methodologies that often lead to low
impact figures. One cannot question the good faith of issuers in the choice of calculation
method, but this choice and its justification appear to be essential for transparent and
effective reporting. Calculation methods that differ in substance and complexity are often
used depending on the investment sector. Different methodologies can be applied in the
context of financing various projects using green bonds, and it can be difficult to find
a way to offer solutions [11]. Some methods are prevalent in certain sectors, whereas
others vary, such as in the real estate sector. It is important to select a calculation method
adapted to the type of project financed that reflects the impact of green-bond financing
as faithfully as possible, thus demonstrating a desire for transparency and continuous
improvement. For some actors, it was preferable to develop a new methodology to
better consider the specificities of financed projects (e.g., renovation of railways). These
solutions and the proposed methods can constitute obstacles for the issuer, particularly
 « 2 °C Finance» and Green Bonds Challenges 627

in the first issue. Some players, such as railway companies, have assisted in developing a
reference methodology to assess the carbon impact of railway infrastructure investments.
Therefore, a methodological guide was published to create a calculation standard for
transport infrastructure projects (Table 2).

Table 2. Comparison between green finance and finance at 2 ◦ C

Green finance Finance 2 ◦ C

Objective Financing public and private green Reduction of greenhouse gases
investment in environmental goods
and services and prevention of
damage to the environment
Policies Financing of public policies that Assess emission reductions
encourage the implementation of Integration of resilience
environmental and environmental
damage mitigation or adaptation
projects and initiatives
Instruments Components of the financial system Calculation of avoided emissions,
that deal specifically with green sequestration of emissions, lower
investment: financial instruments production of emissions, and controlled
and structured green funds emissions
Targets Energy efficiency, renewable Reduce the impact of extreme
energies, climate change temperatures, drought, storms, sea level
adaptation, biodiversity protection, rise
industrial pollution control
Source author redaction

5 Conclusion
Since the industrial revolution, the planet has experienced warming, which has been
scientifically proven by natural systems and particularly high anthropogenic greenhouse
gas (GHG) emissions between 2000 and 2010, which will lead to a warming of 3, 7 °C to
4.8 °C by the end of the century. Therefore, extreme heat waves and risks related to water
resource availability are expected. Rising sea levels, more intense storms, droughts, and
floods threaten the world’s poorest and most vulnerable population.
The financial sector, a key sector, must certainly intervene by acting on the carbon
footprint, which passes the level of capital allocation towards investments, favoring
renewable energies and low co2 emissions. This is in line with the “2 °C finance”, which
is compatible with the limited warming scenario. Issuers in the financial world continue
to be involved in the green bond market, accompanied by progress in the availability and
quality of impact reports. Given the green nature of green bonds, it is important to assess
the overall environmental impact of new projects financed by these instruments. Green
bonds already fulfill one of the objectives of “2 °C finance,” and they can help ensure that
628 M. B. Chenguel

capital is allocated to finance investments that adapt to new climatic conditions. However,
reporting obligations should not be an obstacle to issuers embarking on green bonds. It is
important to keep in mind that clear and transparent reporting is beneficial for issuers as
it allows them to improve climate performance and strengthen investor confidence. This
certainly goes hand-in-hand with the introduction of rigorous regulation of green bonds.
It should also be noted that most of these bonds did not raise any controversy over fund
allocation, which helped maintain investor confidence in the financial markets. However,
some companies in the field of energy transition (renewable energy and recycling) use
green bonds to finance the development of their activities, and do not target projects.
Therefore, it is necessary to examine the use of funds linked to green bonds in the annual
activity reports. It is important that clear and transparent reporting be beneficial for the
issuer, allowing it to improve its climate performance and strengthen investor confidence.
Therefore, to differentiate between green finance and 2 °C finance, indicators must be
established.
Our contribution is to present a new indicator: the avoided emissions indicator.
This is an essential indicator of the bond climate performance. Avoided emissions are
a leading indicator of green-bond performance, whereas other indicators may provide
useful information about the environmental impact of investments. It is also essential to
choose a validated calculation method adapted to the projects and to clearly explain this
method in the performance report. Thus, following a multitude of methods for estimating
the carbon footprint of investments, harmonization of methods according to sectors, or
the creation of market methods by sector that would be usable by all emitters will
undoubtedly make it possible to simplify both reading and writing reports for investors.
Issuers must not overcome the difficulty in creating new calculation methodologies.
For future implications, we suggest that future research empirically verify the
effectiveness of indicators to quantify the effect and impact of green bonds on CO2
emissions.

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 IFRSs Adoption and Earnings Management,
Earnings Persistence, and Value Relevance:
Evidence from Selected Telecommunication
Companies of Saudi Arabia

Gagan Kukreja, Abdulla Al-Jalahma, Raj Bahadur Sharma(B) ,

and Ali Abdulaziz Almanasef

College of Business Administration, University of Bahrain, Sakhir, Kingdom of Bahrain

{gkukreja,aaljalahma,rsharma}@uob.edu.bh,
[email protected]

Abstract. The focus of this research is to see if the quality of financial data from
Saudi telecommunication companies has improved since the adoption of Interna-
tional Financial Reporting Standards (IFRSs) in 2017. The study assesses financial
reporting quality using three metrics: Earnings Management, Earnings Persis-
tence, and Value Relevance. The financial data was gathered over the previous ten
years, which were divided into two periods: pre-adoption of IFRSs (2012–2016)
and post-adoption of IFRSs (2017-present) (2017–2021). These figures were com-
piled from a variety of sources, including annual reports from selected companies
and other websites. In this study, regression analysis was used to investigate the
quality of financial information using Earnings Management, Earnings Persis-
tence, and Value Relevance. According to the findings of this study, there was an
improvement in the quality of financial reporting in Saudi Arabia following the
mandatory adoption of IFRSs. In the post-IFRSs period, this study discovered an
increase in Earnings Persistence and greater Value Relevance in the reported finan-
cials of selected Saudi telecommunication firms, indicating improved earnings
quality. The study’s findings, however, showed no evidence of improved financial
reporting quality in the Earnings Management dimension. The findings will be
used in future studies to better understand the benefits of adopting International
Financial Reporting Standards (IFRSs). This research would also help regulators
emphasise the importance of adopting IFRS as soon as possible. Because this study
only used three criteria, Earnings Management, Earnings Persistence, and Value
Relevance, it is suggested that other metrics be used to assess the effectiveness of
presented financials.

Keywords: International Financial Reporting Standards (IFRSs) · Earning

Management (EM) · Earnings Persistence (EP) · Value Relevance · Earning
quality

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 631–642, 2023.
https://doi.org/10.1007/978-3-031-26956-1_59
632 G. Kukreja et al.

1 Introduction

The International Accounting Standards Board (IASB) developed the International

Financial Reporting Standards (IFRSs) as a single set of globally applicable accounting
requirements that demand transparency and comparability in reported financial infor-
mation to aid users of financial statements in making critical economic decisions [32].
Financial statements are produced in line with IFRSs to facilitate comparability between
businesses and nations. Additionally, one of the most significant elements affecting the
accuracy of financial statements is the effect of accounting standards on the calibre of
accounting information provided by the company.
The quality of financial data was evaluated in the study using accounting- and market-
based indicators. In this study, accounting-based criteria called earnings management
(EM) and earnings persistence (EP) were employed to assess the accuracy of finan-
cial reporting (EP). Earnings management is the practise of management attempting
to modify reported earnings using particular strategies, such as modifying accounting
procedures to modify short-term earnings [2]. On the other hand, earnings persistence
refers to a steady flow of money and revenue, which increases earnings predictability
and, as a result, results in trustworthy valuation inputs [9].
As one of the largest telecom markets in the Middle East, this study focuses on
examining the implications of IFRS adoption on the quality of financial statements for
a few selected Saudi telecom companies. Additionally, numerous published works have
looked at the standard of financial reporting following the implementation of IFRSs in
many industrialised nations. However, because there have been no prior studies done to
look at the quality of financial reporting in Saudi Arabia following the adoption of IFRSs,
this study adds to the body of knowledge regarding the effects of implementing IFRSS on
the reliability of financial statements in Saudi Arabia. Therefore, the primary research
goals are to use Earnings Management, Earning Persistence, and Value Relevance to
evaluate the quality of financial reporting of a chosen telecommunication corporation
before and after its adoption of IFRSs.

2 Literature Review

The quality of financial reporting in many industrialised countries after the introduc-
tion of IFRSs has been the subject of numerous published studies. [8] measured Earn-
ings Persistence, Timely Loss Recognition, Accruals, and Conditional Conservatism to
assess the accuracy of financial reporting. Market-based and accounting-based metrics
are the two categories into which these metrics fall [15, 29, 31]. While the Value Rel-
evance dimension employed a market-based method to investigate accounting quality,
Earnings Management and Earnings Persistence are accounting-based measures used to
assess the quality of financial information in this study. However, earlier research dis-
covered variations in the impact of IFRSS adoption on financial statement quality. [27]
found that, generally speaking, the implementation of IFRSs did not raise the calibre of
financial information in Europe and Brazil. [6] showed that the adoption of IFRSs by
Spanish stock market operators had no impact on the usefulness of financial informa-
tion. On the other hand, a number of studies have noted improvements in the calibre
IFRSs Adoption and Earnings Management, Earnings Persistence, and Value Relevance 633

of financial information as a result of IFRS implementation. According to [30, 32], the

financial reporting quality of Indian listed businesses has improved in the phase after the
implementation of IndAS, as evidenced by better Value Relevance as a market-based
metric and improved Earnings Persistence. Additionally, [19] claimed that by limiting
the application of Earnings Management in the UK, the adoption of IFRSs had enhanced
accounting information. As a result, it is still unclear if the introduction of IFRSs has
enhanced the calibre of financial reporting. Furthermore, no such study evaluating the
calibre of financial information following the IFRSs’ compulsion implementation has
been done in Saudi Arabia. This study aims to close the gap by investigating the impact
of adopting IFRSs on the quality of financial information provided by Saudi telecom
companies.
[1] Using independent variables such company size, leverage, profitability, liquidity,
and audit firm size, the study found an improvement in the quality of financial disclosures
for Ghanaian listed companies when they adopted IFRSs. The adoption of IFRSs did
not raise the calibre of accounting data in Europe or Brazil. The research’s independent
variables were earnings and cash flow persistence, conservatism, and earnings manage-
ment. It is crucial to keep in mind, nevertheless, that the financial crisis that started
in 2009 might have had an impact on how soon after the implementation of IFRSs
companies were evaluated. [32] It was found that the adoption of Indian Accounting
Standards increased the quality of financial reporting (IndASs). The study found that
market-based models, which use value relevance as a market-based indicator, more
accurately reflect the quality of accounting information for Indian listed companies than
accounting-based models do. [33] used a variety of matrices, including Value relevance,
Management earnings, financial performance, and accounting conservatism, to assess
the validity of financial statements. There is evidence that IFRS adoption in Indonesia
has raised the calibre of financial statements. The following topics were looked into:
Value relevance, Management earnings, Financial Performance, and Accounting Con-
servatism [24]. Consolidated financial statements that have been prepared using IFRSs
are more useful than those that have been presented using national regulations. The
study finds that since the mandatory implementation of IFRSs, the calibre of consoli-
dated financial statements has improved. Due to the implementation of IFRSs in Europe,
the OECD Governance Principle of high-quality disclosure and transparency has been
enhanced. The study also found that group accounts produced higher quality surplus than
parent firm individual accounts once IFRSS adoption became required for consolidated
financial reporting. [20], Only one of the four earnings management metrics yields a
substantial result, the study’s findings show. The study found in particular that financial
reporting quality declined following the implementation of earnings management and
timely loss recognition analysis, which helped accounting standards convergence with
IFRSs. The study found that although there is a stronger link between accounting num-
bers and stock prices with the adoption of IFRSs, the quality of financial reporting has
declined in terms of prompt loss recognition and earnings management. [28] It looked
at the relationship between financial information opacity and idiosyncratic risk in stock
returns. According to pre- and post-adoption IFRSs statistics, firm size has a significant
impact on IFRSs effects in the UK. As a result, the quality of financial reporting for large
companies in the UK has improved after the adoption of IFRSs. Furthermore, since the
634 G. Kukreja et al.

IFRSs were implemented, the standard of financial reporting in France has not increased.
[20], The study’s conclusions indicate that the UK’s adoption of IFRSs has raised the
calibre of financial reporting because doing so has reduced the scope of earnings man-
agement and increased value relevance, both of which point to higher calibre financial
reporting and aid investors in making decisions about their investments based on unbi-
ased information. [6] examined the distinctions between SAS and IFRSs using important
metrics and ratios (25 variables). The completed implementation of IFRSs in Spain did
not demonstrate any improvement in the usefulness of financial information when com-
pared using interim data. [1] used three criteria to compare the quality of accounting
in Palestine before and after the adoption of IFRSs: earnings management, timely loss
recognition, and value relevance; the results showed mixed results, with greater value
relevance, less timely loss recognition, and more earnings management evidence. The
accounting quality of Bombay Stock Exchange (BSE) firms in the year of adopting
IFRSs was discovered to have greatly improved using Earnings Management indicators.
[4, 5] found that the adoption of IFRSs increased the quality of financial information
in Greece since there was less earnings management, greater value relevance, and ear-
lier loss recognition. [16] determined that there is no indication of an improvement in
accounting quality following the convergence to IFRSS in Brazil after using Earnings
Management as a measurement technique to investigate the influence of Brazilian con-
vergence to IFRSS on the quality of financial information. [23] found that after China
adopted IFRSs in 2007, Earnings Management has dropped and Value Relevance has
increased, indicating an improvement in the quality of accounting information.

H 1 : Adoption of IFRSs in Saudi Arabia improves the financial statements quality

of selected telecommunication companies.

3 Research Methodology
To evaluate the accuracy of financial information using the three criteria of earnings
management, earnings persistence, and value relevance after the required adoption of
IFRSs? The study uses qualitative analysis to learn more about the reliability of financial
statements in Saudi Arabia after IFRSs were made required there. The secondary data
used in this study includes things like annual reports. Saudi Telecommunication Com-
pany (STC), Etihad Etisalat Company (Mobily), Mobile Telecommunication Company
of Saudi Arabia (Zain), and Etihad Atheeb Telecommunications Co. Made up the sample
for this study (Go telecom). The data used for this analysis spans the most recent ten
years, from 2012 to 2021.

3.1 Sample Construction and Data Collection

The sample for this study consists of four Saudi telecommunications firms that in the 2017
fiscal year prepared their maiden financial statements using the IFRSS. In addition to that,
Saudi Telecom market is considered one of the largest telecom markets in Middle East.
This study uses 10 years available data to examine the quality of financial information
pre-adoption of IFRSs (2012–2016) and post-adoption of IFRSs (2017–2021). Financial
data for the selected companies were derived from financial statements published on
IFRSs Adoption and Earnings Management, Earnings Persistence, and Value Relevance 635

the websites of these companies. Other websites that provided financial data such as
financial statements, ratios, dividends, earnings, and other analysis related to the firm’s
performance and operations during the year were used to extract other financial elements
related to the metrics used in analysing the quality of financial information. Argaam
and Investing.com websites both are used in this study as a main source to perform
this research as these two websites which provides the financial information as well as
financial market news analysis.

3.2 Quality of Reported Financial Information

Earnings quality (EQ) reported as financial information which can be assessed using
various metrics such as persistence, accruals, timeliness, and investor relevance [9, 10].
Accounting-based metrics and market-based metrics are the two types of metrics used
to evaluate earnings quality [14]. Earnings management, Accruals quality, and earn-
ing smoothness are the most popular accounting-based metrics, according to previous
research. While value relevance and asymmetric timeliness are the most popular market-
based metrics [12, 32]. Three earnings quality criteria will therefore be used in this study,
as they have in prior ones: Earnings Management (EM), Earnings Persistence (EP), and
Value Relevance (VR).

3.3 Earnings Management

One of the often utilised criteria in earlier research to assess the accuracy of finan-
cial information given is earnings management. As a result, it is anticipated that IFRS
adoption will limit the application of earnings management and improve the calibre of
financial statements. The modified [17, 21] model has been utilised in this study to assess
the level of financial information quality utilising this dimension.
For each year and company, the earnings management model is estimated as follows:
1 (Revit − Recit ) PPEit
ADAit = αi + β1 + β2 + β3 + εit (1)
TAi,t−1 TAi,t−1 TAi,t−1

where:
ADAit The absolute value of the firm i’s discretionary accruals in year t is known as
ADA. Total accruals less non-discretionary accruals equal discretionary accruals.
TAi,t−1 : Company I’s total assets at time t−1.
Revit : The variation in revenues from year t to year t minus 1.
Recit : The difference between year t and year t minus 1 in receivables.
PPEit : The value of the company I’s property, plant, and equipment in the specified
year.

3.4 Earnings Persistence

By delivering accurate and timely data that can be utilised to value businesses and assess
management’s performance, the financial reporting system should satisfy the needs of
those who use financial statements [34].
636 G. Kukreja et al.

Earnings Persistence is examined using Sloan (1996) model as follows:

EPSit = β0 + β1 IFRSt + β2 EPSit−1 + β3 IFRSt ∗ EPSit−1 + εit (2)

where:
EPSit : stand form company’s earning per share (EPS) for the t year.
IFRSt : A dummy variable that is coded as one after the implementation of IFRSs
and 0 before.
For β3 variable, if the coefficient is significant and positive after the adoption of IFRSs
this indicates that earnings are more persistent and thus will result in better quality in
earnings.

3.5 Value Relevance (VR)

Value relevance refers to the capacity of financial information to identify and reflect infor-
mation that establishes the firm’s value [14, 18]. Adopting IFRSs is therefore anticipated
to have greater value relevance, which will improve the quality of financial information
reported.
By regressing stock prices on book value of equity and earnings, the price earnings
model has been utilised [25]. The following estimate is made for the linear regression
model:

MPSit =β0 + β1 IFRSt + β2 EPSit + β3 IFRSt ∗ EPSit + β4 BVPSit

+ β5 IFRSt ∗ BVPSit + εit (3)

where:
MPSit : At time t, the market price per share of the business I.
EPSit : Earnings Per Share (EPS) for business I at time t.
BVPSit : Company i’s book value (BV) per share at time t.
IFRSt : dummy variable with a pre-IFRSs adoption code of zero and a post-IFRSs
adoption code of one.

4 Data Analysis and Interpretation

Microsoft Excel was used to analyse the data collected in order to determine the effect
of implementing IFRSs on the calibre of financial information. The quality of financial
information has been investigated using three metrics: Earnings Management, Earnings
Persistence, and Value Relevance. Regression analysis was used to analyse the data
acquired for this inquiry.
Earnings management refers to the management’s attempts to adjust reported earn-
ings through the employment of specific tactics, such as changing accounting practises
to affect short-term profitability [2, 22]. High-caliber financial reporting is measured
using reduced earnings management [20].
Table 1 shows the results of model (1) showed that the coefficient for IFRSs is
not significant as the P-value for IFRSs is 0.733 which is greater than the significance
level; This stated that despite Saudi Arabia adopting IFRSs, Earnings Management
IFRSs Adoption and Earnings Management, Earnings Persistence, and Value Relevance 637

Table 1. Regression analysis of model (1)

Regression statistics
Multiple R 0.1173
R2 0.0138
Adjusted R2 0.0990
Standard error (SE) 0.0209
No. of observations 40

procedures have not changed. Additionally, the results revealed that the total fluctuation
of independent factors accounts for 1.38 percent of the variation in discretionary accruals
(1/TA, (Rev−Rec)
TA , PPE/TA, and dummy variable IFRSs).

Table 2. Regression coefficients of model (1)

Coefficients Standard error T-state P-value Lower-95% Upper-95%

(SE)
Intercept 0.035 0.011 3.180 0.003 0.013 0.057
(Revit −Recit )
TAi,t−1 2432.740 20893.687 0.116 0.908 −39983.701 44849.180

1/TA −0.052 0.197 −0.263 0.794 −0.451 0.348

PPE/TA −0.010 0.028 −0.358 0.723 −0.066 0.046
IFRSs −0.002 0.007 −0.344 0.733 −0.016 0.011
*significance level is 5%.

The findings of model (1) are represented in Table 2. The results of model (1) showed
that the coefficient for IFRSs is not significant as the P-value for IFRSs is 0.733 which is
greater than the significance level; this indicates no change in the practices of Earnings
Management after the adoption of IFRSs in Saudi Arabia. In addition, the findings
showed that 1.38% of variation of Discretionary Accruals is explained by the combined
variation of independent variables (1/TA, (Rev−Rec)
TA , PPE/TA, and dummy variable
IFRSs).

4.1 Earnings Persistence

Presence of earnings persistence refers to a consistent flow of cash and income, which
improves the predictive capacity of earnings and, as result, leads to reliable valuation
inputs [9]. Accordingly, earnings quality will be high if earnings become more persistent.
Table 3 illustrates the model (2)’s results. According to model (2)’s findings, the
fluctuation in the independent variables IFRSs, EPS, and IFRSs*EPS together account
for 61.08 percent of the variation in earnings per share. Additionally, because the P-
value for the variable was below the significance level, the coefficient for IFRSs*EPS is
638 G. Kukreja et al.

Table 3. Regression analysis of model (2)

Regression statistics
Multiple R 0.782
R2 0.611
Adjusted R2 0.578
Standard error (SE) 2.070
No. of observations 40

Table 4. Regression coefficients of model (2)

Coefficients Standard errors T-state P-value Lower 95% Upper 95%

Intercept 0.804 0.471 1.709 0.096 −0.150 1.759
IFRSs −0.581 0.677 −0.858 0.397 −1.954 0.793
EPS 0.452 0.091 4.961 0.000 0.267 0.637
IFRSs*EPS 0.534 0.197 2.709 0.010 0.134 0.934
* significance level is 5%.

positive and significant, indicating that earnings are more persistent after the adoption
of IFRSs in Saudi Arabia and that earnings quality has improved since the adoption of
IFRSs in the Kingdom of Saudi Arabia (Table 4).

4.2 Value Relevance

Value relevance is considered as market-based approach of evaluating earnings quality of
financial information [32]. Accounting information become relevant only if this financial
information is capable of influencing financial statements users’ decisions.

Table 5. Regression analysis of model (3)

Regression statistics
Multiple R 0.933
R2 0.871
Adjusted R2 0.852
Standard error (SE) 12.211
No. of observations 40

Table 5 shows 87.07% of variation of Market per Share is explained by the combined
variation of independent variables (IFRSs, EPS, IFRSs*EPS, BVPS, and IFRSs*BVPS).
IFRSs Adoption and Earnings Management, Earnings Persistence, and Value Relevance 639

Moreover, coefficient IFRSs*EPS is positive and significant as the P-value for the vari-
able was less than the significance level, which indicates that Value Relevance has
improved after the adoption of IFRSs in Saudi Arabia thus will result in better earnings
quality post-IFRSs adoption period. EPS coefficient is significant and positive which
indicates generally higher value relevance of earnings reported. In addition, the results
showed that IFRSs*BVPS is not significant which indicates that no change in its Value
Relevance after the adoption period of IFRSs in Saudi Arabia. In addition, the results
showed that BVPS variable is insignificant as P-value of the coefficient is higher than
the level of significance (Table 6).
Hence, hypothesis (H 1 ) accepted and denotes that the mandatory adoption of IFRSs
in Saudi Arabia will improve the financial statements quality of Saudi Telecommunication
companies.

Table 6. Regression coefficients of model (3)

Coefficients Standard t Stat P-value Lower Upper Lower Upper

error 95% 95% 95.0% 95.0%
Intercept 30.998 4.567 6.787 0.000 21.716 40.280 21.716 40.280
IFRSs −23.330 8.319 −2.804 0.008 −40.236 −6.423 −40.236 −6.423
EPS 5.832 0.777 7.506 0.000 4.253 7.411 4.253 7.411
IFRSs*EPS 5.977 1.411 4.236 0.000 3.109 8.845 3.109 8.845
BVPS −0.035 0.110 −0.322 0.749 −0.259 0.188 −0.259 0.188
IFRSs*BVPS 0.688 0.346 1.986 0.055 −0.016 1.392 −0.016 1.392
*significance level is 5%.

5 Conclusions and Suggestions

This study has been done to examine the effects of Saudi Arabia’s required adoption
of IFRSs on the calibre of financial reporting by Saudi telecommunication companies.
Three metrics—Earnings Management, Earnings Persistence, and Value Relevance—
have been used to assess the calibre of financial information. The study has concentrated
on determining whether the telecommunication company’s financial information has less
Earnings Management practises, more Earnings Persistence, and more Value Relevance
as a result of the adoption of IFRSs. These three factors are all indicators of superior
earnings quality.
The results of this study have demonstrated that the adoption of IFRSs improved
the accuracy of the financial data provided by Saudi telecom companies. The study
demonstrated increased Earnings Persistence and an increase in Value Relevance in the
reported financials of Saudi telecommunication companies in the post-IFRSs period,
clearly indicating an improvement in earnings quality in these two dimensions. As the
Profits Management procedures remained unchanged following the adoption of IFRSs
640 G. Kukreja et al.

in Saudi Arabia, the research results did not reveal any indication of improved earn-
ings quality in this area. Previous studies have similarly discovered an improvement in
reported financial data quality in the post-IFRS era [3, 7, 11, 13]. A number of aca-
demic studies, however, have not discovered any improvement in the calibre of financial
information following the implementation of IFRSs [6, 18, 26].

5.1 Suggestions for Further Research

Since this study solely evaluated the quality of financial information, the effects of
IFRSs on both financial and non-financial information quality were investigated. Addi-
tional measures can be utilised to examine the impact of IFRS adoption on the quality
of financial information since this research only looked at three of them: earnings man-
agement, earnings persistence, and value relevance. Market-based or accounting-based
methods can both be used to evaluate the value of financial information. It is necessary to
evaluate the amount of financial information in these countries, especially in those that
have just recently embraced the IFRSs, like Saudi Arabia, as there have only been a few
studies in this field in the Arab region and GCC nations. The consequences of adopting
IFRSs in the Arab region and GCC countries should be examined on a larger sample to
achieve better findings, as this research only chose the Saudi Arabian telecoms industry,
which is composed of only four companies.
Future studies in this area will be conducted within the borders of the Saudi Arabian
kingdom, and a good place to start would be to assess the level of financial data after
the country’s obligatory adoption of IFRSs. However, there are certain limitations to
this study that could affect the outcomes. First, despite the fact that a bigger sample
would have been more appropriate, this study picked a small sample of just four Saudi
Arabian telecommunications companies to examine the accuracy of financial reporting
before and after the application of IFRSs. Additionally, only three metrics—earnings
management, earnings persistence, and value relevance—have been used to measure the
quality of financial information, which is one of the study’s potential limitations because
it is advised to use additional metrics in addition to these ones for better outcomes.
Other researchers in Saudi Arabia including GCC may use this study as a jumping-
off point for further investigation in the same area. Instead of using the three metrics
employed in this study, Earnings Management, Earnings Persistence, and Value Rele-
vance, they can examine the effects of IFRS adoption on the quality of reported financials
using a larger sample and carry out these studies using additional metrics to increase
the accuracy of the results. Other measures, like Timely Loss Recognition, Conditional
Conservatism, and Earnings Response Coefficient, can be utilised in addition to the ones
used in this study to evaluate the accuracy of financial data.

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 Impact of Corporate Governance on Financial
Performance: Empirical Evidence of the Selected
Telecommunication Companies of GCC

Raj Bahadur Sharma(B) , Abdulla Al-Jalahma, Gagan Kukreja,

and Zahra Sayed Mohamed Almoosawi

College of Business Administration, University of Bahrain, Sakhir, Kingdom of Bahrain

{rsharma,aaljalahma,gkukreja}@uob.edu.bh,
[email protected]

Abstract. The impact of corporate governance (CG) on a company’s financial

performance (FP) has been acknowledged by researchers and accounting experts.
Studies on the effects of corporate governance frameworks on business perfor-
mance usually ignore the possibility that directors can inflate reported profitability
in an effort to achieve a variety of objectives. This study explores the relationship
between corporate governance on corporate financial performance of selected
telecommunication companies in GCC. The selected GCC telecoms companies’
annual reports and Thomson Reuters were utilised to collect the data, which was
analyzed using univariate OLS multiple regressions. The data collection period
included 2012 to 2021. According to the study’s findings, when performance is
taken into account along with managers’ opportunistic tendencies, the effect of
corporate governance on financial performance is negligible. It is advised that
rather than placing more emphasis on the proportion of independent directors to
total board members, the appointment of independent directors should be based
on the historical performance of such directors. This study will aid in the under-
standing of the impact of CG on FP by academics, accountants, regulators, and
policymakers.

Keywords: Corporate governance · Financial performance · Board size · Audit

committee independence · Board gender · Board independence

1 Introduction
Global corporate catastrophes, like Worldcom and Enron from US, Wirecard from Ger-
many, Luckinn Coffee from China, and others from across the world, have highlighted
the importance of quality of financial reports. The boards of directors and senior execu-
tives have primary responsibility to produce the reliable financial reports which reflect
true and fair view of enterprise. The serious disadvantages of decision-making concen-
tration and unprofessional work ethics at the senior management level [12, 16]. Financial
economists and accountants have observed that the primary reason for many corporate
failures is a lack of thoroughness in the accounting rules and management frameworks

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 643–655, 2023.
https://doi.org/10.1007/978-3-031-26956-1_60
644 R. B. Sharma et al.

that generate the financial statement. To prevent such future regulatory failures, most
governments throughout the globe have set new standards for advocating corporate gov-
ernance procedures that match executives’ objectives to enhance wealth of the share-
holders in sustainable manner. The research concentrates on the relevance of corporate
governance characteristics such as Audit Committee Independence, board independence
(Composition) and, broad size, Board Gender Diversity because these variables affect
business performance based on past research.

2 Literature Reviews
Much past research [3, 9, 10, 15] indicates the connection between corporate gover-
nance characteristics and corporate performance. In addition, these studies contributed
to enhancing understanding of the impact of this association. According to [5], cor-
porate governance has aided the organization in improving operational performance.
Companies with better corporate governance will have an advantage and outperform
companies with inadequate corporate governance in terms of operational performance.
Besides, excellent corporate governance is expected to enhance investor confidence.
According to other studies, inferior corporate governance relates to a greater chance of
insolvency.

2.1 Board Size

According to Bredart [4], the board size that selects legal protection is noticeably various
from that of other enterprises, in this manner, in the situation of financial hardships, gov-
ernance considerations and board size have a favorable (positive) influence on business
performance. Besides, [7, 12] studied for three years on ten insurance enterprises found
the positive impact of these variables such as Leverage, Board Gender Diversity (Board
in Women), and Firm Size.
H 1 : The performance of a company is positively correlated with the size of the board.

2.2 Audit Committee Independence

The effectiveness of the monetary role of the board depends on the number of times
meets during the year by the audit committee. Due to studies done by Ahmed and
Hassan (2012), conclude that may be completely based on a range of meetings [1, 9,
11]. As a result, it is anticipated that there will be a negative association between it
and profit manipulation, and most definitely a relationship with performance within a
pre-controlled budget.
H 2 : The performance of the company and the independence of the audit committee
are positively correlated.

2.3 Board Gender Diversity

The rate of female CEOs on boards (% of women) has been used in several research
papers to measure changing gender diversity [10, 17]. According to [14] gender diversity,
 Impact of Corporate Governance on Financial Performance 645

in particular, has received a lot of attention recently, because of the growing desire for
legislation in many industrialized nations to ensure that women have greater and equal
participation in corporate directors.
H 3 : There is a positive relationship between Gender Diversity and Firm Perfor-
mance.

2.4 Board Composition (Independence)

Board composition refers to the number of directors on the board, their mix of executive
and non-executive (independent) roles, and other desired qualities like gender diversity
[8]. It is believed that companies with a high percentage of outside directors on their
boards have fewer agency issues, which results in a better alignment of management and
shareholder interests [6, 15].
H 4 : There is a positive relationship between Board Independence and firm
performance.

3 Research Methodology
This study is a correlative examination linking corporate governance styles such as board
size, board composition, gender diversity in the board, and degree of audit committee
governance to pre-managed business performance. To attain this purpose, explanatory
factors must be connected to (3) dependent variables: ROA, ROE, and EPS. The sample
consisted of five telecom companies listed in the GCC countries from 2012 until 2021.
The selection of a sample of companies was influenced by the availability of data from
the business sample for all variables included in the model. All data was gathered from
the annual reports of the firms listed and Thomson Reuters.

Table 1. Dependent variable definition and measurement

Variable Description
ROA [Y1] Return on assets
ROE [Y2] Return on equitu
EPS [Y3] Earning per share

Table 1 shows dependent variables: ROE, EPS, and ROA [1, 4, 13]. These financial
metrics are used in a variety of empirical research to assess the association between
corporate governance (CG) and business performance. According to the study conducted
by [9], These metrics are applicable to both accounting and market metrics. Accounting
procedures such as ROA and ROE are the most common variables in previous corporate
governance research [4].
As illustrated in Table 2, The control variables, which are used to account for the like-
lihood of their impact on the dependent variables of the sample firms, are presented along-
side the corporate governance variables and their proxies. In addition to simple multiple
646 R. B. Sharma et al.

Table 2. Explanatory variable definition and measurement

Variable Description
BI [X1] Board independence (Composition)
BS [X2] Board size
AI [X3] Audit committee independence
BG [X4] Board gender diversity
FS [D1] Firm size
Leverage [D2] Leverage

regression, which attempts to identify a mathematical correlation across variables.The

univariate multiple regression equation model is:

Y1−3 = ∝0 + ∝1 X1it + ∝2 X2it + ∝3 X3it + ∝4 X4it + D1 + D2 + εit )

where Y1–3 are the dependent variables of ROE, EPS, and ROA. ∝0 is the intercept, ∝1−4
is the coefficient of the independent variables, X1, X2, X3, and X4 are the independent
variables of BS, BI, BG and AI score respectively, D1 andD2 are the control variables
of FS and leverage while the ε is the regression residual.

4 Data Analysis and Interpretation

The findings of the study are outlined and discussed in this section. The presentation of
the descriptive statistics is followed by the presentation of the regression results.

Table 3. Descriptive statistics (Dependent Variables)

Statistics
ROA ROE EPS
N 5 5 5
Mean .58710 1.23459 7.51800
Std. deviation .330484 .598169 6.722014
Minimum .263 .486 1.540
Maximum 1.001 1.927 15.690

Table 3 result reveals that the average signed ROA is 0.58710 which can be changed
with a standard deviation of around .330484. Additionally, this average is ranging
between 0.263 and 1.001. However, in general, some telecommunication companies
suffer from some shortcomings when it comes to the formation of net income, as the
minimum ROA is 0.263%. Although, this value was affected by the negative numbers of
 Impact of Corporate Governance on Financial Performance 647

some companies, and this will lead to companies being less profitable compared to the
rest of the companies that make a positive ROA. Furthermore, it sustained a $0.263 gain
for every $1 spent on the firm’s assets, indicating that the company does make effective
use of its resources. Further, the value of the reported ROE is 1.23459, ranging from
0.486 to 1.927 with a standard deviation equal to 48.9%. So, the higher the ROE, will
lead to more investments drawn into the business, the higher the provider of capital that
enhances operations in the company will be and the more benefits will be enjoyed by
the shareholders. The value for all the years from 2012 to 2021 of EPS that calculates a
company’s market profit, which is 7.51800 and confined between 1.540 to 15.690. It was
also noted that the average minimum to EPS in most years was a negative sign, which
affected it and made it small amount as well and this will lead to reducing the profit of
the firm.
The results demonstrate that there is a positive relationship between CG and reporting
financial performance as the manipulation leads to enhancing the image of the firms.

Table 4. Descriptive statistics (Explanatory Variables)

Statistics
BS BG BI AI FS Leverage
N 5 5 5 5 5 5
Mean 104.2 .20455 5.41764 5.97857 237.04448 4.73427
Std. deviation 10.917875 .326989 1.056593 3.363010 4.921622 1.243360
Minimum 86.000 .000 3.866 .476 231.164 2.833
Maximum 114.000 .750 6.688 9.333 241.919 6.167

Table 4 is the summary statistics of the explanatory variables for the years 2012 to
2021. The value of size board is ranging 104.200 in the ten years with the minimum
of 86 and a maximum of 114. The result indicates that there is a strong presence of
independent and dependent directors on the board of directors of the sample firms. Board
Gender Diversity the average for the ten years in overall is 0.20455, ranging from the
extreme values of 75% of total equity ownership. The average of the Audit Committee
Independence score of the sample firms is 5.97857that ranging from .476to 9.333while
the board independence average 5.41764. Further, two variables were selected as control
variables which are firm size and leverage with averages of 237.04448 and 4.73427
respectively.
The correlation matrix Tables 5 show the relationship among all explanatory variables
in the study model for the consolidation ten years from 2012 to 2021. The result reveals
that the board size is positively correlated with two of the control variables during the
ten years which are firm size and leverage. In addition, the relationship between firm
size and leverage is positively correlated with the leverage since the larger the size of
the company, the more loans and leverage it takes, so this positive relationship between
them resulted. Moreover, the board size is moderate negatively correlated with the board
gender diversity at 1% significant level.
648 R. B. Sharma et al.

Table 5. Correlation matrix

Correlations ROA EPS ROE BS BG BI AI FS Leverage

ROA Pearson 1
Correlation
Sig.
(2-tailed)
EPS Pearson 0.005 1
Correlation
Sig. 0.994
(2-tailed)
ROE Pearson .922* −0.124 1
Correlation
Sig. 0.026 0.842
(2-tailed)
BS Pearson 0.273 0.252 0.215 1
Correlation
Sig. 0.657 0.682 0.728
(2-tailed)
BG Pearson 0.144 −0.662 0.313 −0.769 1
Correlation
Sig. 0.817 0.224 0.608 0.129
(2-tailed)
BI Pearson −.937* −0.002 −0.739 −0.189 −0.1 1
Correlation
Sig. 0.019 0.998 0.153 0.761 0.873
(2-tailed)
AI Pearson 0.12 0.749 −0.062 0.797 −.958* −0.135 1
Correlation
Sig. 0.848 0.145 0.922 0.106 0.01 0.828
(2-tailed)
FS Pearson 0.578 0.499 0.67 0.593 −0.337 −0.326 0.537 1
Correlation
Sig. 0.308 0.393 0.216 0.292 0.579 0.593 0.35
(2-tailed)
Leverage Pearson 0.214 0.354 0.313 .882* −0.636 0.012 0.691 0.814 1
Correlation
Sig. 0.73 0.558 0.608 0.048 0.248 0.985 0.197 0.093
(2-tailed)

*Correlation is significant at the 0.05 level (2-tailed)

4.1 ROA Link with Explanatory Variables

As it is observed from the table above that ROA and board size has, the relationship
between these two variables is a positive one and has a coefficient of 0.3894, and this
number indicates that the greater the number of members of the managers in the company,
the greater the returns from the assets that the company will receive. Besides, it has a
0.144 coefficient. Furthermore, for the audit committee independence had a positive
association with ROA and having 0.120 the value of correlation which means more
of the audit committee independence result in more in the ROA. While for the board
 Impact of Corporate Governance on Financial Performance 649

independence (Board Composition) has an inverse association in regard to return of

assets this means that the ROA ratio decreases with the increase in the independence of
the board and will have a coefficient of −0.298.

4.2 ROE Link with Explanatory Variables

The relationship between ROE and BS is a direct association and this is inferred from the
positive value of the correlation which is equal to 0.215. This is evidence that the more
the size of the board leads to the rise in the returns on equity. Besides, the reference to
gender diversity in the council has a positive connection with this dependent variable and
has the value of the coefficient of 0.313, thus both variables grow in the same direction
together as well as reduced. While for the audit committee independence through the
data shown in the table, it was concluded that ROE found a negative correlation with
the audit committee independence and board independence with a correlation of −0.062
and −0.739 respectively.

4.3 EPS Link with Explanatory Variables

The link between EPS and BS and AI is positive and has a coefficient of 0.215 and 0.749
orderly indicating that the bigger the number of members of the management team, and
audit committee in the firm, the better the EPS that the company will earn. However,
gender diversity and board independence has an inverse connection with ROE the value
of coefficient −0.662 and −0.002 orderly, this indicates that the EPS ratio diminishes
as gender diversity rise (Table 6).

4.3.1 ROA is the Dependent Variable (ROA Regression)

Table 6. ROA model summary

Model R R-Square Adjusted R square S. error of the estimate

1 .728a .529 .059 .320622
a. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

As stated in the figure ahead, the adjusted R2 result of 0.059, indicates that the factors
employed in this study exemplify 5.9% of the variation in operational performance. The
remaining 94.1% is described by factors external to this research. Hamdan, and Ahmed
(2015). The figure is less than fifty percent, which is aligned with the ex-research on the
subject.
650 R. B. Sharma et al.

Table 7. ROA ANOVA table

Model Sum of squares df Mean square F Sig

Regression .231 2 .116 .125 .0471b
Residual .206 2 .103
Total .437 4
a. Dependent Variable: ROA
b. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

Table 7: the result of the F-value as it appears in the schedule is equal to 0.125
and 0.0471 for the P-value reflecting relevance in the association across the averages of
variables.

Table 8. Regression results and ROA is the dependent variable

Model Unstandardized Standardized coefficients t Sig.

coefficients
B Std. error Beta
1 (Constant) −17.529 12.463 −1.406 .295
FS .080 .056 1.198 1.434 .288
Leverage −.203 .222 −.762 −.912 .458
BG .279 .498 .276 .132 .917
BS .811 .177 1.323 1.385 .398
BI −.264 .667 −.843 −3.425 .181
AI .005 .521 .005 .005 .997
a. Dependent Variable: ROA

Table 8 presents the results of multiple regression analysis for the consociated ten
years where absolute return on asset (ROA) is the dependent variable. The results demon-
strate that BS is positively related with opportunistic accounting in the study period. Also,
the board size is insignificant related with performance at 5% significant level. There-
fore, H1 is accepted. The relationship between board gender diversity and the ROA has
also been revealed to be positive.
A positive association between AI score and ROA has emerged through the study
period. Furthermore, the impact is robust at 1% significant level. This association is
incompatible with hypotheses stated “H 2 : There is a positive relationship Audit com-
mittee independence and firm performance.” Then, H2 is accepted. It is also perceived
that the relationship among BI and ROA is economically significant. Moreover, this
relationship has been revealed to be negative. The impact of FS and the leverage on
performance is not robust as the statistics recorded and the result found that a negative
relationship for the leverage while the relationship is positive for the FS.
 Impact of Corporate Governance on Financial Performance 651

4.3.2 ROE is the Dependent Variable (ROE Regression)

Table 9. ROE model summary

Model R R square Adjusted R square Std. error of the estimate

1 .781a .610 .219 .528570
a. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

Table 9 shows the Adjusted R2 is 0.291 in the table, indicating that the vari-
ables engaged in this analysis describe 29.1% of the diversity in financial success,
although the remaining 70.9% is represented by elements outside the model. Further-
more, the proportion is “<50%”, which is aligned with another research (Velnampy,
2013) (Table 10).

Table 10. ROE ANOVA table

Model Sum of squares df Mean square F Sig.

1 Regression .872 2 .436 1.561 .390b
Residual .559 2 .279
Total 1.431 4
a. Dependent Variable: ROE
b. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

The result of the F-value as it appears in the ANOVA model is equal to 1.561 and 0.390
for the P-value reflecting relevance in the correlated across the averages of variables.
Table 11 above is the summary of consolidated ten years regression results where the
impact of corporate governance on ROE is examined. The coefficients of BS are positive
which is consistent with the hypotheses mentioned earlier that state “H1 : BS related
with firm performance positively”. Therefore, the H1 is accepted. However, it is not
statistically significant when ROE is considered. This implication of this is a high extent
of directors associates positively with the firm performance. The relationship between
BG and ROE in this case is positive. However, it is not significant when ROE is the
explained variable. The study results support the hypotheses assumed and generated in
the literature review which stated “H3 : BG related with financial performance positively.”
Therefore, the H3 is accepted. The relationship between AI strength and ROE, the study
documents negative but insignificant relationship between the two in both regressions.
Therefore, there is no statistical evidence to establish the influence of audit committee
and performance regardless of the performance measure.
According to the influence of BI on the ROE, board independence appears to have
negative and insignificant influences on ROE measures. Thus, the higher the BI the lower
the ROE of the firm which is compatible with the hypotheses that assumed that “H4 :
BI related with financial performance positively.”. Therefore, the H4 is rejected. The
652 R. B. Sharma et al.

Table 11. Regression results and ROE is the dependent variable

Coefficients
Model Unstandardized Standardized coefficients T Sig.
coefficients
B Std. error Beta
1 (Constant) −32.704 20.547 −1.592 .252
FS .150 .093 1.233 1.619 .247
Leverage −.332 .366 −.691 −.908 .460
BG 1.251 .498 .684 .868 .545
BS .354 .177 .526 .379 .770
BI −.331 .667 −.585 −.848 .552
AI −.547 .521 −.473 −.653 .632
a. Dependent Variable: ROE

FS which is one of the control variables that reveals a positive insignificant relationship
with ROE. In contrast, leverage shows a negative significant relationship in case of ROE
at 5% significant level.
Overall, the adjusted R2 value is 21.9% in the case of ROE which means that CG
variables explain the ROE to the extent of 21.9%, while 78.1% Other factors not incor-
porated in the model explain the variation in the ROE. The F-statistic values are 1.561
in along with an insignificant relationship as the p-value is 39%.

4.3.3 EPS is the Dependent Variable (EPS Regression)

Table 12. EPS model summary

Model R R square Adjusted R square Std. error of the estimate

1 .506a .257 −.487 8.196825
a. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

Table 12 demonstrated the adjusted R2 findings of −0.487 the negative sign means
there is a small or non-existent relationship. As a result, the negative sign denotes the
insignificance of explanatory factors. The proportion is less than fifty percent, which is
consistent with a previous study on the issue [2] (Table 13).
 Impact of Corporate Governance on Financial Performance 653

Table 13. EPS ANOVA table

Model Sum of Squares Df Mean Square F Sig.

1 Regression 46.366 2 23.183 .345 .743
Residual 134.376 2 67.188
Total 180.742 4
a. Dependent Variable: EPS
b. Predictors: (Constant), Leverage, FS, BS, BG, BI, AI

The result of the F-value as it appears in the ANOVA model is equal to 0.345 and
0.743 for the P-value which is more than 5% significant. As a result, the association
between these factors is not significant, and EPS is still not regarded a strong predictor
of company success, which is consistent with past findings [13].

Table 14. Regression results and EPS is the dependent variable

Model Unstandardized Standardized coefficients T Sig.

coefficients
B Std. error Beta
1 (Constant) −9.407 8.627 −.598 .611
FS .852 1.435 .623 .593 .613
Leverage −.829 5.680 −.153 −.146 .897
BG −24.346 .498 −1.803 −2.096 .283
BS .049 .177 .100 .049 .969
BI −2.927 .667 .460 .301 .814
AI .836 .521 .998 1.522 .370
a. Dependent Variable: EPS

Table 14 illustrate the summary of regression result where the impact of EPS is
examined. The relationship between board size and EPS in this case is positive. However,
it is not significant when EPS is the explained variable. The study results compatible
with the hypotheses mentioned earlier which stated “H1- 1: Board size related with firm
performance positively”. Therefore, the H1 -is accepted.
However, the impact is robust only when reported performance is the explained
variable. Thus, the study supports the hypotheses assumed previously which argued that
“H2 : AI related with financial performance positively”. Therefore, the H2 is accepted.
According to the influence of BG on the EPS, board gender diversity appears to have
insignificant influences on the performance measures and have a negative association
with ROE. Therefore, the study found result with the regarding the hypotheses that stated
“H3 : BG related with financial performance positively”. Thus, the H3 is rejected.
654 R. B. Sharma et al.

The research supports the premise that neutral external directors may be more eager
to impress people who nominate them to the board than to carry out their primary
monitoring role with the highest level of integrity. It may thus be argued, contrary
to popular belief, that external directors have a conflict of interest with management,
resulting in the theft of shareholders’ capital. In addition, the results are incompatible
with the hypotheses generated according to the research evaluations, the H4 is rejected.
One of the control variables, company size, shows a positive but negligible connection
with EPS. This observation adds to the conclusions of [5]. It is so determined that,
among other causes, large enterprises have greater investment options, it is capable of
making profits higher than that of their smaller counterparts. In contrast, leverage shows
a negative insignificant relationship in EPS.

5 Conclusion and Suggestions

There is evidence in the literature of a relationship between corporate governance and
firm performance. A somewhat complex scenario, however, occurs when these two liter-
ary strands are combined and calls for more research. The five listed telecommunication
companies in GCC were selected as a sample of the study for the period between 2012
to 2021. Moreover, the relationship among CG and the reported financial performance
seems to be significant. Relevant facts and hypotheses applied in this research, it is
determined that ROA is an indication of company performance, implying that the under-
lying hypothesis is accepted the entire hypothesis except H4 according to the results
of the analysis. However, for the dependent variable ROE it founded that accepted two
hypotheses H1 and H3 and reject H2 and H4 . In terms of EPS, the data shows indicate it
exhibits an insignificant link with the selected independent variables and conclude that
accepted only H1 and H2 while the other hypotheses are rejected. To summarize the
theory that about BS is all accepted which mean that it is the most important variables.
There are some constraints emerged as a result of this study report. Some of the GCC’s
designated telecommunications businesses have been dissolved or are temporarily sus-
pended. As a result, the study encountered the issue of not having access to all annual
reports for publicly traded businesses during the study period. Furthermore, due to the
variances in nature across the countries, it cannot be generalized.

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 Artificial Intelligence (AI) in the Education
of Accounting and Auditing Profession

Sara Mohammed Ali1 , Zainab Jawad Hasan1 , Allam Hamdan2(B) ,

and Mohammed Al-Mekhlaf3
1 College of Business and Finance, Manama, Bahrain
2 Ahlia University, Manama, Bahrain
[email protected]
3 Accounting Department, College of Business Administration, University of Business and
Technology, Jeddah 21448, Saudi Arabia
[email protected]

Abstract. The study aimed to explore the impact of artificial intelligence on the
performance of counting and checking operations. This work provides a review
of the literature on artificial intelligence and its use in the accounting and auditing
professions. A narrative approach was used to analyze related articles and micro-
research to provide a comprehensive overview of the topic. Particularly with regard
to the accounting and auditing professions, artificial intelligence has lately under-
gone earlier breakthroughs that have caused a shift in their attention from paper
to computer entries. The goal of artificial intelligence is to demonstrate how com-
puter technology can execute activities as effectively and efficiently as humans,
if not better. The future of the accounting and auditing professions depends criti-
cally on artificial intelligence technology since it gives us the means to perform our
duties more effectively and efficiently. AI has significantly improved operations,
reporting, and decision-making processes in accounting and auditing, among other
fields.

Keywords: Artificial Intelligence (AI) · Accounting education

1 Introduction
The development in artificial intelligence has changed the way in which the world oper-
ates, which also includes the world of business. Technology is changing so much of our
lives, and businesses are now using technology and Artificial Intelligence to discover
and make use of new opportunities for having better business operations and increasing
profitability and return while reducing costs of business operations and aiming to be
more sustainable and competitive in the market.
Artificial Intelligence (AI) is quickly changing how financial institutions operate.
Artificial Intelligence is now used in relation to the accounting and auditing profession,
changing how financial institutions operate, switching their operations from paperwork
to computer data and software entries. Artificial Intelligence can be referred to as the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 656–664, 2023.
https://doi.org/10.1007/978-3-031-26956-1_61
 Artificial Intelligence (AI) in the Education 657

application of computational tools which once required human intelligence [1]. The
accounting field has incorporated Artificial Intelligence for over 25 years, mainly in the
areas of financial and auditing reports [2]. Nowadays, Artificial Intelligence is applied
in all accounting and auditing operations, which has led to the diminishing of the use
of human accountants in organizations, possibly eliminating their relevance in the near
future [3]. Accountants are on the verge of losing their jobs with their roles being taken
over by computers and machines. With the progression in technology, many jobs and
professions are eliminated as others are created. The use of Artificial Intelligence now
is making the accounting profession easier, more precise, and much more efficient.
Accounting is a main field in business where information technology (IT) is applied
in all aspects of basic accounting systems, financial software, and analytical account-
ing aspects. The speed in which information technology is advancing has allowed the
integration of technology in all business aspects and operations. Artificial Intelligence
is now a core part of the technology industry and a main function in the technological
era we all live in. It is used to conduct more sophisticated human projects and respon-
sibilities, competing them with less risk and more efficiency. Lombardo (2015) found
that the power of computer technology lies within its energy trust and not only in its
complexity and intelligence [4]. Artificial Intelligence and computers are bringing in
other technologies and changing the way in which businesses function and operate. All
businesses, big and small, are now being supported by technology, with both the public
and private sectors now using Artificial Intelligence for regulatory compliance, quality,
data entries, operations, and the detection of fraud [1]. Accounting and auditing systems
have moves from paper entries and ledgers to the use of computer-based data formats
and system entries powered with Artificial Intelligence to reach optimal results.
Technological changes and advancements are continuously increasing [5]. The inte-
gration of more advanced Artificial Intelligence has resulted in more enhanced systems.
New technologies are now leading to more changes in the business world, affecting how
they operate and sustain themselves in their respective fields. Artificial Intelligence has
increased flexibility and efficiency and improved data-based systems, resulting in more
effective and efficient reporting, and increasing the speed of reporting and operations.
The changes in technology are changing how accounting and auditing operations are
conducted. The Association of Chartered Certifies Accountant (ACCA 2013) found that
Artificial Intelligence is de-skilling the accounting human profession. The continuous
use and reliance on Artificial Intelligence has highlighted the fact that technological
changes and advancements may lead to new skills being focused on, while also rethink-
ing the concept of “work” in the accounting world [6]. Accountants may be at risk of
being replaced by artificially intelligent software and expert systems, making Artificial
Intelligence one of the top five threats facing the accounting and auditing professions [6].
Murungi and Kayimba (2015) found that the failure to incorporate and make effective
use of systems technologies in businesses may reflect on inaccurate financial information
which is required as a means of gaining competitive advantage in the business world [7].
Through the application and adopting of the right Artificial Intelligence technolo-
gies, the entry and transmission of information and data can be significantly improved
through the increase of speed, reduction of error and risk, reducing costs, and overcom-
ing problems. The adoption of Artificial Intelligence technologies can provide cheaper
658 S. M. Ali et al.

and more accessible data for more effective and applicable idea generating and decision
making, and to spend less time on data collection and system entries and more time of
more important tasks and aspects such as the need for better critical thinking, problem
solving, setting effective strategies to be applying for more actual and functioning oper-
ations, more enhanced relationship building methods, and better methods of leadership
within the organization.
This paper aims at presenting how Artificial Intelligence technology has affected the
accounting and auditing professions, assessing whether the professions are to remain the
same or change, and to show what changes have occurred in those professions. The study
contributes to existing literature as it presents relevant literature related to the use and
application of Artificial Intelligence in the accounting and auditing professions while
showing how Artificial Intelligence has major potential in those professions.

2 Literature Review and Theoretical Framework

Artificial Intelligence has played a crucial role in improving the roles and proficiencies
of auditing and accounting professionals, with the potential of furthering the possibilities
of the accounting processes [8]. Artificial Intelligence covers a broad area, though not
all functions and uses of Artificial Intelligence are used within the scope of accounting
and auditing. Though the technologies incorporated within Artificial Intelligence don’t
all fall under the scope of business, its influence and benefits have made it a core part of
doing business through different business functions such as marketing and management,
production and distribution, sales, research and development, and accounting practices,
amongst others.

2.1 Artificial Intelligence in Accounting and Auditing

Accounting systems describe the processes of keeping track of different business oper-
ations which occur in organizations in a specific period in time for them to maintain
accurate and timely records of transactions in the organization. Tarmidi et al. (2018)
supported the fact that accounting systems and the use and adoption of Artificial Intel-
ligence technologies would lead to great results in accounting and auditing processes as
it would make use of the Artificial Intelligence systems to modify processes in the fields
and have more accurate and efficient financial records [9]. Accounting systems are seen
to be used as a means of replacing the human labor force, therefore changing the depen-
dence of businesses on humans to computers and machines through the implementation
of those computerized systems [10]. This would lead to increasing the effectiveness and
efficiency of accounting and auditing functions in the workplace, which would result in
more automation of internal audit control and financial statements and reporting.
Moreover, the auditing process is a method of finding misstatements in the financial
statements and reports of the company. Artificial Intelligence is used to integrate tech-
nologies in the accounting and auditing process in order to enhance the competence and
usefulness of business operations. Artificial Intelligence has a crucial role in predicting
possibility of financial distress which may be seen through the audit process. Hansen
et al. (1992) stated that computer models have great effect on the decisions made in the
 Artificial Intelligence (AI) in the Education 659

processes of accounting and auditing, which result in reducing the financial issues and
distress which may be found in the financial reports [11].
While performing an audit, auditors seek to provide information that is correctly and
fairly presented. Ivy et al. (2020) showed the importance of having practical governance
on the methods used to implement Artificial Intelligence in the auditing process to be able
to have ethical decision making through the achievement of correct and reliable audits
in the financial reports of an organization [12]. Rezaee et al. (2002) noted that the use
of electronic auditing methods allows auditors to present a higher level of confidence
on the data they are processing and information they are presenting [13]. Paperless
accounting systems have increased the standards of financial reporting, reduced the
problems associated with accounting, and increase the value of the financial statements
which are presented in a more accurate and efficient and timely manner.
A study by Longinus (2018) focused on evaluating the application of Artificial Intel-
ligence for the purpose of record keeping in Banks in Nigeria [14]. The results of the
study showed that there is a significant positive relationship between Artificial Intelli-
gence and accurate financial reporting. Mohammad (2012) and Jessie (2019) conducted
studies which showed that the automation of accounting and auditing practices don’t
have any influence on customer satisfaction, though they do have effect on the trans-
parency and accuracy of reporting financial statements [15]. Also, a study by Jooman
(2019) aimed at evaluating the affect of adopting Artificial Intelligence technologies on
internal auditing practices in South Africa [16]. The findings of the research portrayed
that the current affect of Artificial Intelligence on internal auditing is still in its begin-
ning stages and that internal auditors don’t yet really understand the vast possibilities
that can be achieved through the correct and effective application of different aspects of
Artificial intelligence technologies in the workplace. With the majority of accounting
and auditing functions still being conducted by humans, there is less use of Artificial
Intelligence as it is not being properly utilized in the accounting and auditing setting.
Mhlanga (2020) aimed at assessing the influence that Artificial Intelligence has on dig-
ital financial inclusion in areas which include problems associated with the detection
of risk, management, the asymmetry of information, fraud detection, and cyber security
measures [17]. The researcher found that Artificial Intelligence has a significant effect
on those aspects, and should be further utilized and incorporated within more aspects of
the accounting and auditing functions in businesses, such as record keeping and financial
reporting and decision making, in order to better utilize the resources they have while
having better and quicker operations conducted in the accounting sectors. Dongre et al.
(2020) noted that the use of Artificial Intelligence will enhance the value of accounting
as it increases the capability and decision-making ability of the organization [18].

2.2 Benefits of AI Incorporation in Accounting and Auditing

Davenport and Ronanki (2018) conducted a study which suggested that businesses should
put more emphasis on the use and adoption of Artificial Intelligence technologies for
their extensive capabilities in business processes and not only for their technological
uses [19]. That is, Artificial Intelligence can assist businesses in meeting their main
objectives by having more automated business processes, more accurate data analysis
and financial reporting, and by building better and stronger relationships with both
660 S. M. Ali et al.

their customer and their employees. Chukwuani and Egiyi (2020) conducted a study
to evaluate the effect of Artificial Intelligence in the accounting industry by portraying
the level of technological advancements existing within the accounting industry through
the automation of different accounting and auditing processes and procedures [20].
The researchers highlighted the place of accountants in an automated world and how
those accountants can make use of modern technologies to enhance the businesses. The
application of Artificial Intelligence on accounting functions was seen to have a positive
effect on businesses. The researchers also suggested that Artificial Intelligence would
affect accounting by reducing the cases of fraud and enhancing the quality and value of
accounting information presented by the company.
Different studies referenced by Omoteso (2012) focused on the benefits of using
Artificial Intelligence and incorporating it within the functions of accounting and auditing
[21]. The benefits of Artificial Intelligence were many, including more effectiveness and
efficiency, more consistency and structure in auditing tasks, better thinking and decision
making, enhanced communication throughout the business, better training programs
for staff, and shorter decision and implementation times for various business functions.
Those who accept and incorporate the implementation of Artificial Intelligence are more
ready to take on risks to gain a better place in the market by holding a competitive
advantage in their respective industry [22].
Artificial Intelligence is crucial in determining the future accounting success of busi-
nesses. Small businesses which don’t comply with adopting such technological advance-
ments may face the major risk of being left behind in the market they operate within.
As technology has been incorporated within the accounting and auditing functions of
business operations, it is now vital for businesses of all sizes and structures to keep up
with the changes and trends of technology in order to remain competitive in the business
world [23]. Accounting firms are now effectively using resources to target the develop-
ment of Artificial Intelligence technologies and solutions to meet the requirements of
their clientele. Deloitte Touch Tohmatsu Limited has made an agreement to make more
use of innovation and computer learning in the workplace. Deloitte developed ‘Argus’,
which is a tool used solely for the purpose of auditing [24]. The organization also uses
a ‘Guided Risk Assessment Personal Assistant (GRAPA)’ to work over ten thousand
cases and assess over 50 risks to help auditors compare the risks strategy adopted. Also,
Ernst and Young uses machine reading (e.g. QR and barcode labels) as well as drones
for inventory observation and analysis [25]. When new regulations are introduced, Ernst
and Young uses NLP to gather information and a human professional to validate results
instead of re-examining all contracts the firms deals with. The company also uses its own
developed tool that is the EY Helix GL Anomaly Detector (GLAD) in order to detect
fraud in their journal entries [24].
A study by Cheyenne and Matthew (2018) was conducted to evaluate the perception
of the implementation of Artificial Intelligence and the risks associated with it [26].
The research found that the implementation of Artificial Intelligence would result in the
reduction of time spent on repetitive tasks and paperwork and improve the efficiency
of the work performed in the field. Though the study did find that there is not enough
education related to the most effective use of Artificial Intelligence as employees need
to adapt to the new reality of their professions in the accounting and auditing fields.
 Artificial Intelligence (AI) in the Education 661

Artificial Intelligence can and should be used to enhance business processes and
activities to have better investment decisions and value and quality of business. The
implementation of Artificial Intelligence in accounting has a means of being more
appealing and useful to not eliminate the accounting and auditing work force but to
better their work and enhance their capabilities while taking over time consuming repet-
itive tasks while ensuring accuracy, reliability, and less risks associated with the work.
Artificial Intelligence can be used to enhance areas of business operations while digital-
izing work processes, all while decreasing costs associated with business performance
and increasing the effectiveness and efficiency of the organization.

2.3 Risks of AI Incorporation in Accounting and Auditing

Omoteso (2012) also noted that there are different disadvantages to the adopting of Artifi-
cial Intelligence technologies in accounting and auditing, and they should be considered
along with the many benefits that such technology provides for businesses, specifically
for the accounting and auditing aspects and business functions [21].
The downsides of the adoption of Artificial Intelligence technologies in accounting
and auditing include the need for more time to assess different options related to decision
making, as the process of decision making and providing options is short, due to the many
alternatives presented this can take time to make the best decision possible. Also, there
is a large cost to be considered for building, maintaining, and continuously updating
the systems incorporated within the business. There is also a risk of such tools and
updates being used by competitors, and the possibility of them being used against the
auditor for legal purposes for having over-relied on financial evidence using aids that are
technological. Bizarro and Dorian (2017) stated that as much as Artificial Intelligence
technologies are efficient and reliable for practices in accounting and auditing, it still
cannot replace some human factors, which include the ability to be creative, the ability
to reason and judge, the ability to express motions and show disbelief in a subject matter
[27]. Doshi et al. (2020) noted that although Artificial Intelligence technologies can
bring about great benefits and major aids for businesses in relation to accounting and
auditing aspects, they can still bring about major threats [28]. That is, there is great
potential to complement the accounting and auditing professions, or even go further and
replace them altogether. Doshi et al.’s (2020) notions on the use of Artificial Intelligence
in those business functions differed from the ideas of Bizarro and Dorian (2017).
Luo et al. (2018) saw that some issues which are related to the adoption of Artificial
Intelligence technologies in the field of accounting and auditing include the lack of expe-
rience, lower returns when it comes to higher investments, and the lack of needed skills
and capabilities of professionals, as technology is taking over the field even more [23]. A
main factor derived from the use of Artificial Intelligence technologies in accounting and
auditing is that there are constant changes in the laws and regulations in such practices,
requiring continuous maintenance and updates of the systems of Artificial Intelligence
adopted in the organization in order for them to be updated and in compliance with the
changes of regulations [29]. An example here is the changes in tax policies and require-
ments, which resulted in the need to make major changes and updates in accounting
and auditing systems in order to ensure their compliancy with the updated laws and
regulations of governments.
662 S. M. Ali et al.

Zemankova (2019) indicated that the application of Artificial Intelligence in account-

ing and auditing may lead to inequality of income, less need for labor, lower financial
safety, etc. [30]. Also, the application of Artificial Intelligence carries risks of exploiting
algorithm and the possibility of deception, having error or bias, or incorporating some
form of human logic or emotional error. Makridakis (2017) aimed at assessing the role
of humans in the future as Artificial Intelligence is taking over the tasks that humans
perform [22]. He noted that there may be numerous negative drawbacks related to the
application of Artificial Intelligence which include the increased rate of unemployment
as technology is taking over some tasks and professions and the possibility of inequality
of wealth.
Mohammad et al. (2020) indicated that the challenges that are associated with the
adoption and use of Artificial Intelligence in accounting and auditing include the develop-
ment of effective policies for the Artificial Intelligence systems, to have skilled and pro-
fessional labor with specific skills and capabilities which may be hard to find and require
more funds to have the right professionals, and the lack of motivation and commitment
from Artificial Intelligence from managers and leaders [31].
Within the functions of accounting and auditing, Artificial Intelligence raises ethi-
cal and moral concerns [30]. With continuously changing practices and procedures in
businesses, and the method in which fraud is committed, new forms of crimes are rising.
This increases the need for ethical guidance with regard to the way in which Artificial
Intelligence can be used to detect such crimes through updating the system and ensuring
the right coding required to ensure that the system catches such acts and doesn’t increase
the risks and errors associated with the business functions.

3 Conclusion

1. Artificial intelligence has dramatically changed the capabilities of accounting and

auditing.
2. For many years, accountants have used technology to improve their jobs while adding
value to the businesses they work in, which is the profession’s ultimate goal.
3. The use of artificial intelligence allows to change the brand and transform the quality
of business processes.
4. Artificial intelligence is a valuable tool to simplify and modernize business processes
and operations.
5. The number of accountants and auditors cannot be completely reduced by the appli-
cation of artificial intelligence techniques in the workplace because it still requires
the need for human creativity and judgment.
6. As the auditing profession moves away from the method of preparation and system
entries and more towards more specialization, there is a need for both centralization
and decentralization of tasks and processes.
7. In the field of accounting, and within the function of auditing, Artificial Intelligence
will not completely replace accountants and auditors, rather it would shift their focus
towards different tasks as computers and machines take over specific tasks of data
gathering and entry to ensure their efficiency and add value to the organization.
 Artificial Intelligence (AI) in the Education 663

8. Artificial Intelligence should be seen as a compliment to human intelligence as a

means of benefiting the processes of accounting and auditing and supporting the
tasks within them to have better functioning business tasks.
9. Artificial Intelligence is not to take place of all accountant and auditor jobs, but
rather to enhance their work processes and decrease the time and effort required to
do them.

References
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 Descriptive Study on Audit Quality Reporting:
Evidence from Listed Firms in Bahrain

Mujeeb Saif Mohsen Al-Absy(B) and Zainab Hasan Mahdi

Accounting and Financial Science Department, College of Administrative and Financial

Science, Gulf University, Sanad 26489, Kingdom of Bahrain
[email protected]

Abstract. The aim of the study is to discover the descriptive statistics of the audit
quality reporting items and investigate whether there is a significant difference in
these descriptive statistics items for the years 2019 and 2020. Further, it evaluates
the level of audit quality reporting of the listed firm. The sample of the study is 40
Bahraini listed firms on Bahrain Bourse for the years 2019 and 2020 (80 firms’
observations). The results concluded that the average period firms receive audit
reports is 50 days in 2020 and 49.5 in 2019. There is no significant difference
between the two years, and this period is considered appropriate. The research
also found that the audit reports provided by the audit firms are in the majority
clean (unqualified) opinion, as the ratio was 97.5% in 2020 to 95% in 2019, and
this percentage is considered high, which confirms the quality of the audit reports.
Majority of listed firms in the Bahrain Bourse (80%) were reviewed by the one of
biggest four audit firms, which reflects the awareness of the audit quality delivered
by big audit firms. As a result, the study may assist policymakers and regulatory
agencies in re-evaluating audit companies’ monitoring function.

Keywords: Audit · Audit report · Audit quality reporting · Bahrain

1 Introduction

The issue of audit quality is a fertile area of research due to the role assigned to this
profession in economic growth and financial stability by detecting manipulations and
verifying the accuracy of information to reduce the risk of asymmetry among all parties
[1]. The quality of the audit report plays an important role in most Bahraini companies,
especially those listed on the Bahrain Bourse. The concept of audit report quality is
broad and complex, as there are multiple concepts of the quality of the review, each
concept focuses on an aspect of the quality of the review, some have linked the concept
of quality review to the discovery of irregularities and fundamental errors, while some
have focused on that there are other factors related to the client under review, and affect
the quality of the review [2].
Based on the foregoing, it can be said that the concept of audit quality is the auditor’s
adherence to professional audit standards, professional ethics and codes of conduct, audit
guidelines, rules and procedures issued by organizations dealing with the audit profession

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 665–676, 2023.
https://doi.org/10.1007/978-3-031-26956-1_62
666 M. S. M. Al-Absy and Z. H. Mahdi

and the maintenance of the integrity and independence of the auditor, to ensure that the
expected objectives of the relevant parties are achieved [3].
The lack of audit quality can cause many problems within the company, the most
important of which is the asymmetry of information within the departments in the com-
pany. In addition to the negative impact of the absence of the quality of audit reports on
the requirements of accounting disclosure and the application of corporate governance.
In the Kingdom of Bahrain, many companies are concerned with the quality of audit
reports to avoid problems within the company. Nevertheless, the shortcomings appear
in some companies because of many factors and reasons. This shortcoming negatively
affects the quality of financial reports for companies in Bahrain [4].
In this context comes the audit tasks, which are a basis for investors’ confidence in
financial and non-financial information. This lends credibility to the audits on financial
lists and reports, but after the bankruptcy scandals and the collapse of some companies
with great economic weight. This collapse was associated with the manipulation of
corporate accounts, and blaming the internal and external auditors, either because of
participation in this manipulation or not disclosed. Hence, stakeholders raised questions
about the effectiveness of accounting standards, the procedures applied in companies,
and the extent to which auditors are responsible for the collapse of companies [5].
Previous studies assert that the external audit plays an important role in detecting
accounting errors and manipulations and various forms of financial and administrative
corruption in companies. The external auditor’s work on these lists is performed by an
independent professional person who has been approved by the relevant authorities to
perform the task of monitoring and auditing the accounts and has been appointed by the
shareholders at the company’s ordinary general assembly meeting.
Hence, the current study attempts to achieve the following objectives: (i) to discover
the descriptive statistics of the audit quality reporting items; (ii) to investigate the signif-
icant difference in the descriptive statistics of the audit quality reporting items for year
2019 and 2020; and (iii) to explore the level of audit quality reporting. By doing that,
the current study will provide empirical evidence on audit quality reporting. In terms of
practical significance, the results may help policymakers and regulatory bodies to know
descriptive statistics of the audit quality reporting items and the level of audit quality
reporting of the listed firms in Bahrain Bourse. Therefore, the study may help policy-
makers and regulatory bodies re-evaluate audit firms’ monitoring role. This study can
also help policymakers improve the effectiveness of audit reporting, which is considered
important in monitoring the financial reporting quality.

2 Literature Review

In the auditing profession, achieving the best quality of review and maintaining the qual-
ity of professional performance is the common goal of practitioners as well as improving
the performance and protection of the auditors in a way that increases confidence in the
outcome of the auditor work [5]. The quality of the audit may be defined as the efficient
and effective delivery of the audit process in compliance with the professional standards
of reviewing and the norms and ethics of professional conduct provided by professional
organizations, as well as quality control systems and hence, disclosing the errors and
 Descriptive Study on Audit Quality Reporting 667

irregularities detected to achieve the relevant parties the objectives expected from the
review process.
The need for audit quality reporting comes based on the emergence of agency the-
ory. Based on the agency theory, the is a conflict of interest between the managers
and shareholders. Hence managers may look to their interests instead of maximizing
the shareholder’s worth. Based on this, shareholders are searching for a mechanism
that could monitor the managers’ activities and decisions. One of these mechanisms is
appointing an external auditor. The role of the external audit is to achieve control over the
contracts in the facility, such as the contractual relationship between senior management
and shareholders, and the contractual relationship between shareholders and bondhold-
ers, and then the external audit helps in achieving a balance between conflicting interests
in the facility.
The study of Al-Olimat and Al Shbail [6] found that there was a significant influence
on the quality of external audit and corporate governance principles in reducing creative
accounting practices in Jordanian companies, and the study recommended that indus-
trial companies take advantage of the positive complementary relationship. To achieve
the shared aim of decreasing creative accounting techniques, there must be a balance
between the quality of external auditing and company governance norms. Further, Alaraji
[7] analyzed the opinions of external auditors in Iraq and concluded that the applica-
tion of corporate governance provides an appropriate level of trust and confidence for
investors and users of financial reporting. The study discovered that reports generated
and evaluated in line with corporate governance principles and techniques narrowed the
expectation gap between external auditors and users. The study reveals that financial
reports in Iraq, as well as the principles of disclosure and openness, are among the most
significant factors influencing the closing of the expectation gap in Iraq’s external audit
profession.
Moreover, Oladejo, Jk [8] assessed the quality determinants of external audit and the
relationship with users’ confidence in the bank financial report. Overall results showed
that technical training and efficiency, auditor size, participation performance and auditor
independence were important determinants of external audit quality. A significant rela-
tionship between audit quality attributes and user confidence was also revealed in the
financial report. Hence, the study suggests that auditors should be rewarded adequately
to allow this. Obtain sufficient resources to conduct comprehensive audits capable of
detecting intrinsic errors and errors in financial statements, it will enhance high-quality.
Bratten, Causholli [9] created a composite scale that captures the extent to which
reported audit committees to supervise external audits. The study found that when cor-
porate audit committees indicate that they exercise strong oversight, they have a higher
audit quality as shown in discretionary benefits, audit fees, the possibility of meeting or
exceeding profit standards, and reformulation. Further, the market responds favorably to
reports of rigorous monitoring, which corresponds to greater audit quality perceptions.
Almasria, Airout [10] discovered that the availability of suitable Accounting Infor-
mation (AIS) Systems has a statistically significant influence on enhancing several areas
of external audit quality. External reviewers agree that AIS has a key role in the quality
of external audit procedures. The findings also demonstrate how AIS might improve
668 M. S. M. Al-Absy and Z. H. Mahdi

the quality of external auditing. The findings also reveal that AIS elements and appli-
cations considerably improve the quality of external audit processes (audit planning,
audit testing procedures, risk assessments, and audit implementation), demonstrating
that computer components can impact many areas of audit procedures. For audit organi-
zations that use computers and information technology, the AIS system should increase
the dependability of audited financial information and external audit procedures.
Nwadialor and Obi [11] investigated the impact of big data on the quality of audit
reports in Anambra State. It found that volume of data collection has a positive signifi-
cant impact on audit report sufficiency, timeliness, and verifiability but has a negligible
effect on audit report sufficiency. Second, the frequency of data collection has a posi-
tive significant effect on the sufficiency, timeliness, and verifiability of audit reports in
Anambra State, whereas the value of data collection has a negative significant impact on
the verifiability but a positive insignificant impact on the audit reports sufficiency and
timeliness.
Cenciarelli, Greco [12] investigated the relationship between the characteristics of
the external auditor and the possibility of bankruptcy. The study found that companies
audited by expert auditors in industry, large size of audit firms as well as long-term
auditors are less prone to default. Audit costs that are greater are more likely to default.
Further, study shows that the incorporation of auditor features considerably improves
the predictability of bankruptcy prediction models. Accordingly, auditor characteristics
might give predictive indications about default risks, and that external examination can be
useful in detecting financial hardship early. Further, the bankruptcy forecasting models
can become more effective if supplemented by audit data.
Ugwunta, Ugwuanyi [13] indicates that the composition of the audit committee and
the type of auditor have a significant impact on market prices for listed companies. There
is a positive and important relationship between the composition of the audit committee
and price of shares. The results indicate that while the type of auditor, the independence
of the auditor, and the composition of the audit committee have a positive and important
relationship with the market price of the shares, the acquisition of external auditors has
a significant negative association with the market price of the shares. Accordingly, the
study suggests that firms should strive to engage with big audit firm external auditors in
Nigeria because such a union can improve the credibility of the audit process and thus
increase their share prices.

3 Research Methodology

This study covers all listed firms in Bahrain Bourse, 42 firms for two years, i.e., 2019 and
2020 (82 firms’ observation) where the data were hand collected from the annual report
of the listed companies published and available at Bahrain Bourse. However, during the
collecting data, two company was excluded due to the inability of getting the annual
report of these two companies. Therefore, the total number of companies included in
the study is 40 firms for 2019 and 2020 (80 firms’ observations).
The current study is a descriptive study. Based on the previous study such as Schipper
and Vincent [14] and Cohen, Krishnamoorthy [15], the current study considers these
three items as a component of audit reporting quality:
 Descriptive Study on Audit Quality Reporting 669

1. Audit firm size (denoted Big4): dummy variable, “1” if firms were audited by Big4
audit firm (i.e., KPMG, Deloitte, Ernst and Young or PriceWaterhouseCoopers), and
“0”, otherwise [16–19].
2. Audit report type (denoted ART): dummy variable, “1” if firms received a clean
report, and “0”, otherwise.
3. Audit report lag (denoted ARL): is measured as the difference (in days) from the end
of the financial year (fiscal year) of firmi in periodt to the day of signing the audit
report by the external auditor [16].

4 Results and Discussion

4.1 Descriptive Statistic
The first objective of the study was to discover the descriptive statistics of the audit
quality reporting items of the listed firms at Bahrain Bourse for the years 2019 and
2020, namely the audit reporting lag, audit firm, and audit report type.

4.1.1 Descriptive Statistics for Audit Reporting Lag

Table 1 shows the average of days taken for the audit firms to audit the financial statement
of the company. For 2019, the average difference (in days) from the end of the financial
year of the firm to the day of signing the audit report by the external auditor is 49.18.

Table 1. Descriptive statistics for audit reporting lag

Variable 2019 2020 All

Obs. Mean Min. Max. Obs. Mean Min. Max. Obs. Mean Min. Max.
Audit 40 49.175 38 64 40 50.825 38 59 80 50 38 64
report
lag

Further, the fastest company that received the audit report, in 38 days, is Ahli United
Bank where the name of audit firm of this company was Ernst and Young. On the other,
the company that took longest time to receive the audit report is Bank Muscat. The
average difference (in number of days) from the end of financial year to the day the
auditor’s signature is 64 days. This indicates that there is no delay in submitting the
audit reports and the period is within the statutory time.
Regarding data for 2020, Table 1 also shows the average of days taken for the audit
firms to review the financial statement of the company is 50.83. The fastest company
that received the audit report, in 38 days, is Esterad Investment Company B.S.C where
the name of audit firm of this company is KMPG. The companies that took longest time
to receive the audit report, 59 days, are: (i) Gulf Hotels Group B.S.C; (ii) Bahrain Flour
Mills Company; (iii) Bahrain Commercial Facilities Company and (v) Bank Muscat.
Results indicate that all listed firms received the audit report within less than 60 days.
670 M. S. M. Al-Absy and Z. H. Mahdi

This indicates that all audit firms of the listed firms have submitted the audit reports
before the statutory time.
By merging the two years, 2019 and 2020, Table 1 shows that the average audit report
lag is 50 days, where the minimum number of days was 38 days, and the maximum was
64 days. The mean average of audit report lag found in the current study is close to the
study of Al-Ajmi [20] that was conducted in the Kingdom of Bahrain, where the study
found that the average audit report lag is 48 days.
Relative to international research, it is noted that the audit report lag in different
countries is higher than in Bahrain. For example, the mean audit report lag in the study
of Sultana, Singh [16] conducted in Australia is 80.67 days. In addition, the study of
Afify [21] indicated that it ranges from 19 to 115 days, with an average of 67 days in
Egypt. In Malaysia, a study by Apadore and Noor [22] indicated that the period ranged
between 26 and 148 days, with an average of 100 days, and that 96% of the companies
completed the review within four months. A study by Modugu, Eragbhe [23] indicated
that it ranges of audit report lag is from 30 to 276 days in Nigeria. A study by Habib and
Bhuiyan [24] indicated that the average of audit report lag is 61 days in New Zealand.

4.1.2 Descriptive Statistics for Audit Firm Size

Table 2 shows the average of listed firms in Bahrain Bourse their financial statement
reviewed by the fourth biggest audit firms. For 2019, there are 8 companies (20%)
whose financial statements were reviewed by non-famous companies, while the financial
statements of 32 companies (80%) were reviewed by one of the fourth biggest audit firms
in the field of auditing worldwide.

Table 2. Descriptive statistics for audit firm size

Variable 2019 2020 All

Freq. Percent Freq. Percent Freq. Percent
Big4 audit firm 32 80 32 80 64 80
Non-Big audit firm 8 20 8 20 16 20
Total 80 100 80 100 80 100

Results show that KMPG reviewed the financial statement of 42.50% of listed firms
during the year 2019. The following audit firm is EY, which reviewed the financial
statements of 32.5% of listed firms. In third place comes BDO, which reviewed the
financial statements of 15% of listed firms. Although BDO is not considered one of the
biggest four audit firms around the world, it has higher numbers on listed firms whose
financial statements were reviewed by BDO. Unfortunately, the finding indicates that the
lowest two audit firms in the percentage of acquisition are DELOITTE and PWC with a
percentage of 5% for each one. This means that DELOITTE reviewed only the financial
statements of two companies and PWC did the same. Although these two audit firms are
considered two of the biggest audit firms worldwide, the acquisition percentage is low
in Bahrain (Appendix will be provided upon request).
 Descriptive Study on Audit Quality Reporting 671

Regarding 2020, Table 2 shows that there are 8 companies whose reports were
reviewed by non-famous companies at a rate of 20%, while 32 companies reviewed
their reports through the four biggest audit firms in the field of auditing worldwide by
80%. The big four audit firms still retain control over a large percentage of the listed
firms in Bahrain Bourse. For more detail, KMPG acquired the largest percentage of
the number of listed firms reviewed during the year 2020. This can be attributed to the
accuracy of the audit process that is carried out within the KPMG, as the number of
companies reviewed during this year reached 19 (47.5%) of the total number of 40 listed
firms.
In second place is EY as it reviewed the financial statement of 12 companies (20%).
Comparing these numbers with the previous in 2019, there is a decrease by one firm. In
third place comes BDO, which reviewed the financial statements of 6 companies (15%)
which is the same as the previous year, 2019. Regarding DELOITTE, reviewed only the
financial statements of two companies as it was for the previous year, 2019. Lastly, the
clients of PWC reduce for 2020, where PWC reviewed only the financial statements of
one firm instead of two companies in the previous year, 2019 (Appendix will be provided
upon request).
By merging the two years, 2019 and 2020, Table 2 shows that the financial statements
of 64 listed firms were reviewed by big four audit firms with a percentage of 80%, while
16 companies listed on the Bahrain bourse were reviewed by non-big four audit firms
with a percentage of 20%. Further, the study finds that the ratio has not changed, and
the four largest audit firms remain the most popular with the number of list firms.

4.1.3 Descriptive Statistics for Audit Report Type

Table 3 shows the average of listed firms that received a clean audit report or any other
type of report. For 2019, there are 38 (95%) companies received clean audit reports from
audit firms, while there are only two companies (5%) that did not receive clean audit
reports from audit firms.

Table 3. Descriptive statistics for audit report type

Type 2019 2020 All

Freq. Percent Freq. Percent Freq. Percent
Clean report 38 95.00 39 97.50 77 96.25
Non clean report 2 5.00 1 2.50 3 3.75
Total 80 100 80 100 80 100

In more detail, the number of companies whose audit report was not clean for the year
2019 is two companies one company receive a qualified audit report and one company
received a disclaimer audit report. Regarding data for 2020, Table 3 shows that the
number of companies whose audit report was clean is 39 (97.5%) while there is only
one company did not receive a clean audit report. This company received a disclaimer
672 M. S. M. Al-Absy and Z. H. Mahdi

audit report. Lastly, by merging the two years, 2019 and 2020, Table 2 displays that the
number of companies that did not receive clean audit reports during the two years was
three companies with a percentage of 3.75, while the largest number of companies in
terms of receiving clean reports was 77 companies with a percentage of 96.25, and this
percentage is considered high.

4.2 Difference in Descriptive Statistics

The study uses the T-Test option (Two-sample t-test with equal variances) to investigate
the significant difference in the descriptive statistics of the audit quality reporting items
for years 2019 and 2020 of the listed firms.

4.2.1 Difference in Descriptive Statistics for Audit Reporting Lag

Table 4 shows a difference in the mean value for the audit report lag in the years 2019
and 2020, as it was in 2019 equal 49.175, and become in 2020 equal 50,825. Based on
the table, the T value is 1.1744. This means there is a difference between the mean value
for the delivery of audit reports in the years 2019 and 2020. However, this difference is
not significant as the T-value is less than 1.67.

Table 4. Difference in descriptive statistics for audit reporting lag

Group Obs. Mean Std. Err. Std. Dev. [95% Conf. Interval]
2019 40 49.175 1.075894 6.804552 46.9988 51.3512
2020 40 50.825 0.903616 5.714971 48.99726 52.65274
Combined 80 50 0.704192 6.298483 48.59834 51.40166
Diff – 1.65 1.405016 –4.44717 1.147172
T-value –1.1744

4.2.2 Difference in Descriptive Statistics for Audit Firm Size

Table 5 shows no difference in the mean value for audit firm size in the years 2019 and
2020, as it is 80%. Based on the table, the T value is 0.0000. This means there is not any
difference between the mean value of 2019 and 2020.

4.2.3 Difference in Descriptive Statistics for Audit Report Type

Table 6 shows a difference in the mean value for audit report type in the years 2019 and
2020, as it is 95% in 2019 and becomes 97.5% in 2020. Based on Table 6, the T value
is –0.5823. This means there is a difference between the mean value of 2019 and 2020.
However, the difference is not significant because it is less than 1.67.
 Descriptive Study on Audit Quality Reporting 673

Table 5. Difference in descriptive statistics for audit firm Size

Group Obs. Mean Std. Err. Std. Dev. [95% Conf. Interval]
2019 40 0.80 0.064051 0.405096 0.670444 0.929556
2020 40 0.80 0.064051 0.405096 0.670444 0.929556
Combined 80 0.80 0.045004 0.402524 0.710423 0.889577
Diff 0 0.090582 –0.18034 0.180335
T-value 0.0000

Table 6. Difference in descriptive statistics for audit report type

Group Obs. Mean Std. Err. Std. Dev. [95% Conf. Interval]
2019 40 0.950 0.034899 0.220721 0.87941 1.02059
2020 40 0.975 0.025 0.158114 0.924433 1.025567
Combined 80 0.9625 0.021375 0.191182 0.919955 1.005046
Diff -0.025 0.04293 -0.11047 0.060466
T-Value -0.5823

Table 7. Level of audit quality reporting

Variable Mean
All 2019 2020
Audit report lag 50 Days 49.175 Days 50.825 Days
Big4 audit firms 80% 80% 80%
Audit report type (Clean) 96.25% 95% 97.5%

4.3 Level of Audit Quality Reporting

Table 7 shows the level of audit quality reporting. It indicates that the period for submit-
ting the audit report by the audit firm to companies is on average 50 days. This average
was 49.175 days in 2019 and become 50.825 days in 2020, which mean a little delay
in submitting the audit report. May time take a little bit high in 2020 due to corona
pandemic issue. This period is accepted and in line with the requirement of Bahrain law
and other countries’ laws such as Malaysia, Palestine, and Croatia. This indicates that
there is no delay in submitting the audit reports by the audit firms as the period is within
the statutory time.
Since the audit report contains his opinion on the credibility of the financial state-
ments, investors prefer a shorter reporting period. The appropriate period for submitting
reports after the end of the financial year should be low, i.e., less than 48 days, according
to a study of Chan, Luo [25]. The study by Robin and Zhang [26] agrees with the study of
674 M. S. M. Al-Absy and Z. H. Mahdi

Feng, Habib [5] that the abnormally long period of time for issuing the audit report may
indicate a lack of agreement between the external auditor and the audit client on some
accounting issues or settlements. The US Securities Supervision and Trading Commis-
sion (SEC) modified the maximum period for this period from 91 days to 75 days, then
it was reduced to 61 days in December 2006, because of developments in accounting
systems and technological developments [27].
Concerning the audit firms’ size, on average 64 of the firm’s observation (80%)
was audited by one of the Big4 company. This percentage is higher than what found
in other studies, e.g., in Malaysia [28] and [29]. Hence, this percentage is accepted as
companies are more interested to appoint one of the big4 audit firms to review their
financial statements. The percentage was 80% for 2019 and 80% for 2020. Therefore,
the percentage is still the same in both years. Hence, the study concluded that there listed
firms are still willing to continue with the biggest audit firms.
Those biggest audit firms are dominated high percentage of firms around the world.
A study by Allehaidan [30] confirmed that in the Kingdom of Saudi Arabia, the company
(KPMG) controls the share and the highest share, as it provides audit services to 36 joint
stock companies in the Saudi market, at a rate of 15.3%. Followed by Ernst & Young
(EY), which provides audit services to 35 companies, with a percentage of 14.9%.
Regarding audit report type, on average 96.25% of listed firms have received a clean
audit report. This percentage shows that on average the financial statement quality of
companies is high. Importantly, the percentage has increased in 2020 to 97. 5% instead
of 95% in 2019.

5 Conclusion

The quality of audit reports is one of the most important ingredients for the success
of companies. This study aims to discover the descriptive statistics of the audit quality
reporting items of the listed firms in Bahrain Bourse. Then, knowing the significant
difference in the descriptive statistics of the audit quality reporting items for years 2019
and 2020 and finally explore the level of audit quality reporting of listed firms.
The study found that the average audit report lag of the listed firms (80 firms’ obser-
vation) is 50 days, where the minimum number of days was 38 days, and the maximum
was 64 days. Regarding the audit firm size, the study shows that the financial statements
of 64 listed firms were reviewed by big four audit firms with a percentage of 80%, while
16 listed firms were reviewed by non-big four audit firms with a percentage of 20%.
In terms of audit report type, study finds that the number of companies that did not
receive clean audit reports during the two years was three companies with a percentage
of 3.75, while the largest number of companies in terms of receiving clean reports was
77 companies with a percentage of 96.25, and this percentage is considered high.
Regarding the second objective of study, the study finds that there is difference in the
mean value for the audit report lag in the years 2019 and 2020. However, this difference
is not significant. The same finding is found for audit report type. There is a difference in
the mean value for audit report type in the years 2019 and 2020. However, the difference
is not significant. In terms of audit firm size, there is no difference in the mean value for
audit firm size in the years 2019 and 2020, as it was 80% for the years of 2019 and 2020.
 Descriptive Study on Audit Quality Reporting 675

This means that 80% of firms’ observation was audited by Big4 audit firm for 2019 and
2020.
Concerning the third objective of study, the study concludes that average difference
(in days) from the end of the financial year of firm to the day of signing the audit report
by the external auditor is accepted and in line with the requirement of Bahrain law. This
indicates that all audit firms of the listed firms have submitted the audit reports before
the statutory time. Concerning the audit firms’ size, majority of the firm’s observation
(80%) was audited by one of the Big4 firms, and hence, this percentage is high and
reflects the knowledge of firms about the advantage of appointing the big4 audit firm
to review their financial statements. Regarding audit report type, 96.25% of listed firms
have received a clean audit report which reflects that the financial statement prepared by
firms’ observation has a high quality.
The findings may assist policymakers and regulatory organizations in under-standing
descriptive statistics of audit quality reporting items and the degree of audit quality
reporting of listed firms. As a result, the study may assist policymakers and regulatory
agencies in re-evaluating audit companies’ monitoring functions. This research can also
assist policymakers to enhance the efficacy of audit reporting, which is regarded as one
of the most essential techniques for evaluating the quality of financial reporting.

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 Critical Discussions on the Upcoming
Sugar-Sweetened Beverages Tax in Kuwait:
A Qualitative Analysis

Hasan Ghura1(B) , Fahad Alsalem2 , Hanan Alsharah1 , and Wael Abdallah3

1 Kuwait College of Science and Technology, Doha, Kuwait
[email protected]
2 Maastricht School of Management Kuwait, Dasma, Kuwait
3 Box Hill College Kuwait, Abo Halifa, Kuwait

Abstract. This study explores key stakeholders’ perceptions and awareness of

Kuwait’s forthcoming Sugar-Sweetened Beverages (SSB) tax. Semi-structured
interviews were conducted with thirteen government and industry participants.
The data were analyzed using thematic analysis. The results revealed four key
themes: (1) the motivation for imposing the SSB tax, (2) the process of the SSB
tax design, (3) the challenges of tax implementation, and (4) the consequences of
health-related taxes in Kuwait. In addition, the evidence from the data suggests that
the Kuwaiti industry is confused about the reason behind the tax’s introduction.
Therefore, the government should be more transparent about tax implementation
and its purpose. The study results provide important insights into industry and
government views on the SSB tax, which contribute to the design of future SSB
taxation in Kuwait.

Keywords: Sugar-Sweetened Beverages (SSB) Tax · Obesity · Qualitative

analysis · Middle East · Kuwait

1 Introduction
In recent years, taxes on sugar-sweetened beverages (SSB) are rising worldwide in
many countries to reduce the risk of obesity and generate public revenue (Jou and
Techakehakij 2012), (Buhler et al. 2013), (Paarlberg et al. 2017). Following the global
phenomenon, there has been an increased interest among the Gulf Cooperation Council
(GCC) members, including Kuwait, to implement taxation. In this regard, the GCC
Council agreement in 2015 approved legislation enacting a 100% tax on cigarettes and
energy drinks and a 50% excise tax on SSB (Alsukait 2020). The reason defined by
the council is to limit the use of substances that aid in obesity. At the same time, the
GCC governments depend heavily on the revenues generated from the high oil prices.
Thus, GCC countries are pursuing new approaches to diversify their economies, such as
implementing the excise tax.
While the potential effects of SSB taxation have been widely discussed in many
countries (Hagenaars et al. 2017; Ortega-Avila et al. 2018), few studies have examined

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 677–683, 2023.
https://doi.org/10.1007/978-3-031-26956-1_63
678 H. Ghura et al.

the effectiveness of the SSB tax in the GCC region (Alsukait 2020). This is important
because variations in country-specific contexts of implementing the SSB tax could lead
to uncertain results (Jou and Techakehakij 2012). Moreover, to our knowledge, research
has yet to examine the perceptions of key stakeholders, including government officials
and the beverages industry, regarding implementing the tax and its effects on decreasing
SSB consumption in Kuwait. As a result, this paper aims to qualitatively explore: (i) the
perceptions and awareness of the upcoming SSB tax among a sample of government
officials and the beverages industry in Kuwait,and (ii) how taxation will affect the sales
and consumption of SSB in Kuwait.
The current study has several contributions. First, it contributes significantly to the
tax policy literature by exploring how the excise tax will affect the SSB industry. Second,
it provides valuable insights for the global discussion on SSB tax and policy process
design by identifying the challenges to implementation (Alsukait 2020). Lastly, Kuwait
offers a critical case study because the forthcoming SSB tax will be among the highest
in the world, and the country is characterized by a high level of beverage consumption
and obesity (Jou and Techakehakij 2012).
This paper proceeds as follows. Section 2 describes the methodology used in
this research. Section 3 discusses the findings, and finally, conclusions and policy
recommendations are presented.

2 Methods

2.1 Research Design and Participants

Semi-structured interviews were conducted to examine how carbonated and energy drink
taxes will be introduced and implemented in Kuwait. First, we identified the key players
in enacting and carrying out the Kuwaiti tax using SSB tax policy literature and local
newspaper coverage (Alsukait 2020). As an illustration, we located the Tax Authority
Department under the Ministry of Finance as the implementing agency and communi-
cated with the individuals mentioned in the newspaper outlining the tax implementation
procedures. Then, we approached others at various organizations, including the Diabetes
Division of the Ministry of Health, using a snowball sampling strategy. Also, we selected
the manufacturers with the largest market share in Kuwait. The primary requirement for
participant inclusion was working on or being impacted by the tax policy on carbon-
ated and energy beverages. Finally, verbal informed approval was obtained and formally
recorded for all participants.
Semi-structured interview guidelines were created for each major stakeholder cate-
gory as part of the instrument development. All guidelines were created in accordance
with the policy cycle stages, from setting the agenda to implementing and evaluating the
policies (Moreland-Russell 2016). Also, following Alsukait’s (2020) approach, the three
topic areas are (1) the motivation for imposing the SSB tax (e.g., “In your opinion, what
was the motivation behind the excise tax?”), (2) the SSB tax design process (e.g., “What
alternative excise tax strategies did you consider if any?”); and (3) tax implementation
challenges. The guidelines were pilot-tested by a local expert knowledgeable about the
 Critical Discussions on the Upcoming Sugar-Sweetened Beverages 679

carbonated and energy drink tax but had no direct involvement. In addition, minor word-
ing changes were made to the guidelines to improve clarity in Kuwait’s context. The
guidelines were available in both Arabic and English.

2.2 Data Collection

Thirteen interviews were conducted in Kuwait from January to December 2021, before
the tax implementation. Five interviews with government officials and eight interviews
from the beverages industry. Due to the COVID-19 pandemic restrictions, interviews
were conducted online through Zoom meetings and lasted from 20 to 45 min. Most
interviews took place in Arabic. The interviews were taped, verbatim transcribed, and
anonymously submitted. For accuracy and credibility checks, all transcripts were com-
pared to the recordings; minor corrections were made as needed. The process of gather-
ing data and analyzing it happened concurrently. However, given the exploratory nature
of our study, the number of interviews we conducted with this homogeneous sample of
significant stakeholders was sufficient to get their perspectives on the upcoming SSB tax-
ation and to achieve code saturation throughout the investigation (Hennink and Marconi
2017).

2.3 Data Analysis

As discussed earlier, all interview meeting recordings were transcribed and recorded.
Then, English translations of the Arabic transcripts were made for analysis. Based on
the interview guides, a codebook was initially produced. Then, as the data revealed new
codes, old codes were updated, and new codes were introduced in an iterative deductive
coding process. Moreover, the codebook was reviewed based on the discussions of
two transcripts. Finally, the key themes were compared within and across different
stakeholder categories to draw consistent conclusions.

3 Results

According to the results from key informant interviews, four main themes were identified
that should be considered to design future interventions of the SSB taxation in Kuwait.
The major topics are (1) the motivation for imposing the SSB tax, (2) the process of the
SSB tax design, (3) the challenges of tax implementation, and (4) the consequences of
health-related taxes in Kuwait.

3.1 The Motivation for Imposing the SSB Tax

The purpose of the SSB excise taxes was unclear to the interviewees. In this regard, the
government and health officials were asked about the factors impacting SSB taxation.
All five respondents mentioned that tax motivation could be one factor that can impact
Kuwait’s tax implementation. There are different reasons behind the tax implementation,
which include health and generating revenue. As one of the participants mentioned;
680 H. Ghura et al.

“There are many reasons why a tax is applied. The excise tax has two main reasons.
The first reason is to limit people’s consumption of unhealthy products and limit the
levels of Obesity and health risks. The second reason is to generate new revenue means
for the country. As you are aware, Kuwait is highly dependent on oil for revenue, and
with the global direction to have clean emissions and to look to new means of power, we
have to find a new means of revenue.”
On the other hand, participants from the beverages industry were skeptical about the
primary motive for implementing the SSB tax as one of the participants stated that;
“If we take the reason from the Tax Authority, they claim that it is health-related,
and I believe they mean well. However, a health-related tax should include all unhealthy
products. Otherwise, the main reason is to generate more income for the government.”

3.2 The Process of SSB Tax Design

Concerning the timeline and key stakeholders for excise tax implementation in Kuwait,
the decision to announce these excise taxes originated from the Supreme Council, the
highest GCC decision-making body. The “GCC Excise Tax Agreement” was signed by
all six member states in November 2016 as one of the participants said;
“All the ministers of finance from the six GCC countries have met during the annual
GCC meeting and have signed an agreement to introduce a 5% VAT tax and an excise
tax of 50% on carbonated soft drinks and 100% on energy drinks and tobacco. There
has been a pushback from the companies who will be taxed, and they have asked for aid
from the government to offset the effect tax will have on their bottom line.”
However, participants from the beverages industry stated that the timeline of imple-
menting the SSB tax is not decided yet due to political instability, as one of the
interviewees mentioned;
“Kuwait is currently politically unstable with many changes in ministers and
government officials. Without stability, it will not be easy to pass the tax legislation”
When asked why the tax specified these various rates for energy-carbonated drinks,
the participants expressed much doubt over the agreement on the tax rate of 50% for
carbonates and 100% for energy drinks. Moreover, the interviewees suggested that the
definition should include all the SSBs, as one of the participants said;
“With obesity and diabetes at record levels, many public health experts believe that
governments should tax SSBs, sweets, junk food, and other unhealthy foods and drinks.
By swelling the prices of products that contain sugar, people will consume less of them
and thus improve the overall status of nutrition and health.”

3.3 The Challenges of Tax Implementation

Regarding the challenges of SSB tax implementation, respondents showed great con-
cern as different factors could affect the tax implementation in Kuwait, as one of the
participants reported;
“There are many reasons [to implement the SSB tax], and as I said before, the main
reason is that the Tax Authority Department has not finished yet. Secondly, a law has to be
passed through the parliament. Thirdly we are studying the GCC implementation to use
our learnings to introduce a smooth and easy system to monitor the Tax implementation.”
 Critical Discussions on the Upcoming Sugar-Sweetened Beverages 681

Moreover, there is high resistance from the public attitude towards implementing the
SSB tax as they are not used to the tax system, as one of the participants mentioned;
“There is resistance as with any person who feels that his money will be affected. It
is like a salary deduction; the employee would feel distressed without understanding the
benefits that outweigh the negatives.”
Finally, the beverages industry will use different strategies to absorb the SSB tax and
keep the business profitable. In that sense, the SSB tax’s effect on reducing sugary drink
consumption will be less. The reaction of the beverages industry may offer different
promotions, as one of the respondents said;
“The best practices were given to us from other countries as well. Which sizes worked,
and which packages did not work? Some items were discontinued, and some items were
reintroduced. Other promotions were newly created as well.”

3.4 The Consequences on Health-Related Taxes in Kuwait

Considering employing taxes to achieve public health outcomes in Kuwait, the respon-
dents mentioned that the health consequences could be one of the factors that can impact
the tax implementation in Kuwait. As one of the participants said;
“Kuwait is considered one of the leading countries with the highest levels of obesity
in the region, if not the world. Moreover, the number one cause of diabetes after heredity
is obesity and unbalanced nutrition.”
However, participants from the beverage industry showed that SSB tax implemen-
tation would help significantly in contributing to better public health results, as one of
the interviewees mentioned;
“It is not right that you tax carbonated drinks with sugar and exclude chocolates, for
example, or the cakes or anything else that has much sugar where kids eat them daily.”

4 Discussion

The present qualitative study explores the perception of government officials and the
industry towards the imposition of an SSB tax in Kuwait, which is characterized by
high levels of soft drink consumption and obesity. The study results provide important
insights into the potential of SSB taxation to reduce obesity prevalence and economic
diversification. While there is an underlying assumption that the GCC agreement on
SSB tax is a health-related initiative, our findings suggest that most participants in our
industry sample believe that the motivation is purely economic. Hence, the motivation
for the SSB tax in Kuwait should be more salient to the beverages industry. As a result,
more stakeholders, such as health organizations, should be involved in the initial tax
design process related to SSB and unhealthy products in Kuwait (Craig et al. 2010).
It is apparent in our study that there was a complex interplay between factors affecting
Kuwait’s SSB tax introduction. In this regard, the industry and government officials
believe that the SSB tax implementation time is uncertain and may take longer than
in other GCC countries. The perceived insufficiency of the tax policies and negative
public attitude emerged as the main reasons why participants felt taxation would not be
introduced soon. Therefore, Kuwait officials should pay more attention to improving the
682 H. Ghura et al.

tax-framing strategy (e.g., the size of the tax and product label) and educating the public
about the reasons behind implementing the SSB tax (Barlow et al. 2018),Ortega-Avila
2018).
Considering that Kuwait is planning the first taxation design, the results show that
the administrative feasibility may have limited the tax implementation. In this regard,
all participants from the beverage industry agree that the tax should cover all sugary
drinks. Otherwise, the health benefit could be diminished by replacing carbonates and
energy drinks with sugary beverages like fruit juices. Moreover, the lack of a scientific
justification for including or excluding particular drinks could undermine the long-term
effectiveness of the SSB tax (Alsukait 2020).
Our findings also highlight that beverage manufacturers may employ different strate-
gies in response to the SSB excise tax structure. These strategies may include absorbing
the tax through renegotiating with retailers or introducing different pricing strategies by
offering larger amounts to attract customers and remain profitable (Teng 2018), (Burman
2020). As a result, consumers will be less inclined to change their behaviors if prices do
not rise as expected due to the tax, limiting possible health benefits (Ortega-Avila 2018
Alsukait 2020). Therefore, there should be continuous evaluation work to monitor the
effectiveness of implanting the SSB tax and its potential impact on beverage sales and
consumption.

5 Policy Recommendations
The SSB tax is a significant first step in promoting public health for Kuwait and the GCC
countries. However, based on the study results, including all SSB in the tax design could
increase the effectiveness of the tax design. Therefore, less substitution for other sugary
drinks will be supplied. Simultaneously, this will incentivize the industry to develop a
new formulation using less sugar content. As a result, the right message will be sent to
the public as the purpose of the SSB tax is to provide better public health.
In addition, it is crucial having an evidence-based rationale for an SSB tax design to
provide its sustainability and prevent industry resistance. Finally, our findings suggest
considering other stakeholders, such as health professionals, in the decision-making pro-
cess and educating the public. We hope policymakers will consider the above discussion
during future SSB tax design to improve the effectiveness of the SSB tax in Kuwait.

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 The Impact of Value-Added Tax on Small
and Medium Enterprises

Amna Hameed1 , Hasan Ali Khalaf1 , Hasan Alzaimoor1 , Mohmed Ali Alshehab1 ,
Allam Hamdan2(B) , and Ahmed Attia3
1 College of Business and Finance, Manama, Bahrain
2 Ahlia University, Manama, Bahrain
[email protected]
3 College of Business Administration, University of Business and Technology, Jeddah 21448,

Kingdom of Saudi Arabia

Abstract. In the wake of a number of crises, governments have increasingly

turned to a wide range of taxation mechanisms to finance their operations over
the past few years. Recent years have seen a rapid rise in the value-added tax’s
profile as one of the world’s most prominent tax systems, thanks in large part to
its adoption by governments in the GCC. Though value-added taxes (VAT) have
many advantages as a tax system, they have also been associated with a variety
of challenges during implementation. In this paper, we examine the positive and
negative impacts of VAT on SMEs. But the negative impacts seem more pro-
nounced. This peer review provided a comprehensive summary of the reviewers’
discussions regarding the impact of the value-added tax on small and medium-
sized businesses. As a result of the novel approaches and discoveries offered by
a number of scholars, this study was finalised. There were significant gaps in our
understanding of how VAT impacts small and medium-sized firms, and this article
helped to close those gaps.

Keywords: VAT · SMEs · Taxation · Burden · Consumers · Producers are all

terms that will come up in this article

1 Introduction

There’s no questioning the important contribution that small and medium-sized firms
make to the overall economic health of a nation. Despite their size classification as
“small and medium-sized firms”, the vast quantity of these businesses has a major bear-
ing on the nation’s GDP. Reviews sometimes refer to SMEs as “the large business of
medium and small company” because of this. Beyond the cash they generate, small and
medium-sized businesses (SMEs) also help reduce unemployment rates in their local
communities. Small and medium-sized businesses (SMBs) comprise the backbone of the
American economy, producing 44.4% of GDP and generating 66% of net new employ-
ment annually. According to Doré (2019), they are the driving force behind America’s
innovative and competitive attitude. This highlights the potential role of medium and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 684–695, 2023.
https://doi.org/10.1007/978-3-031-26956-1_64
 The Impact of Value-Added Tax on Small and Medium Enterprises 685

small firms in the establishment process. Recent years have seen a shift away from taxing
small and medium-sized firms at all, especially the value-added tax, in many countries.
Undoubtedly, governments around the world rely heavily on value-added tax as an indi-
rect tax mechanism (Bain et al. 2015). Value-added tax (VAT) is becoming increasingly
popular, but the incentives for its design and application remain unclear, both conceptu-
ally and empirically. It might be challenging for some industries, especially those with
fewer or smaller employees, to fulfil all of the VAT requirements. Very little research
has been done on the impact of the VAT on the development and success of small and
medium-sized businesses (Saniya 2019).
Many researchers believe that the most contentious aspect of studying the correlation
between the introduction of VAT and the growth of small and medium-sized businesses
is determining the impact of VAT on the behaviour of SMEs, in particular the impact of
the registration threshold. By analysing the three most important behavioural reactions to
the registra-tion threshold—voluntary registration, collecting mechanisms, and growth
impacts—an attempt was made to estimate the welfare and efficiency costs of the VAT
(Saed and Ainebyona 2020). The experts all agree that the unique feature of VAT is
the fact that it is a voluntarily registered tax. The threshold revenue level for required
registration is not met when a business voluntarily registers for VAT. This could happen
if the company spends a lot of money on intermediate inputs and/or if the VAT is already
factored into the retail price of the product. Companies like these gain from registering
for VAT voluntarily since doing so helps them to recoup some of the costs connected
with collecting input tax from customers (Wadesango and Chirebvu 2020).
The fundamental objective of this study is to shed light on the correlation between
the introduction of VAT and the expansion of SMEs. One strategy for accomplishing this
goal is to conduct a systematic review of all relevant peer-reviewed scholarly articles.
The literature often tries to justify the VAT in monetary terms.
This is the basic framework for the review I’ve prepared. We begin by discussing
the theoretical foundations upon which VAT and the development of SMEs rest. In
the second part, we provide a review of the research done on value-added tax and small
and medium-sized enterprise (SME) expansion. Finally, a complete conclusion and some
ideas for future study themes and directions based on the discovered gaps in the examined
literature are presented to serve as a road map of the findings.

2 Theoretical Review

Growing global trade and financial markets are widely acknowledged to have had far-
reaching implications for the various tax systems currently in place. Taxation was a
primary source of revenue for the governments of many countries, particularly lower-
income ones. Low collection and administration costs per unit of revenue is a common
argument in favour of various types of taxes (Edith et al. 2014).
The use of new taxation policies has helped nations significantly reduce their budget
deficits. The latest iteration of this tax is known as the Value-Added Tax (VAT). More
than 136 countries worldwide rely heavily on value-added tax (VAT) to produce tax
revenue, and this tax accounts for over a quarter of the tax revenue collected by these
countries (Aizenman and Jinjarak 2008). The benefits of implementing the VAT in place
686 A. Hameed et al.

of existing trade taxes have been hotly contested, and various concerns have been voiced
regarding the VAT as a taxation mechanism. Whenever there is a sizable black market,
Dilger (2018) argues, the advantages of implementing a VAT are always in question.
Revenue recovery for states with a middle-income economy reached roughly half a
dollar for every dollar in trade tax revenue that had been lost during trade liberalisation.
Recovery of tax revenues was found to be substantially lower in states with lower per
capita incomes. This reasoning also applies to value added, where it has been shown
that a value-added tax makes it easier to comply with the revenue influences of trade
liberalisation (William et al. 2016).
One of the major advantages of value-added taxation is that it may be collected
at every stage of the production process. Because the value added tax allows the tax
authority to match the reported sales of each intermediate product with the recorded
purchases of manufacturers utilising that intermediate product as an input in a vertical
production chain, its implementation is associated with simpler execution (Atawodi and
Ojeka 2012). Value-added tax (VAT) is easier to manage than income tax, but it is
not considered as a remedy for the economic woes that plague many countries. Costs
including data collecting and processing, legal claims, and fines for tax evaders all
contribute to the fact that value-added tax enforcement is expensive (Gale 2017). Value-
added tax collection should be more efficient as more resources are allocated to it. Money
spent on this tax’s implementation also boosts the quality of data monitoring, gathering,
and processing (Toder et al. 2012). A value-added tax’s practical implementation may
be affected by a number of factors; nevertheless, politics and economics stand out as
the most significant. Value-added tax collection becomes more difficult and resources
for implementing tax regulations are reduced during times of political upheaval and
division. The amount of value added tax collected is also influenced by the relative ease
of tax evasion, which is in turn affected by a number of structural elements. Factors that
matter include how many people live in cities, how large the agriculture sector is, and
how liberal the economy is to international trade (Helgason 2017).
The concept of value added, like that of many other taxes, can be understood in the
context of several conceptions. However, the benefits argument is generally accepted as
the strongest justification for VAT. One could argue that people living in a given location
should help pay for state programmes because they benefit from them.
The argument rests on the notion that everyone should contribute to the costs of
operating a state in proportion to the benefits they receive from that state (Hassan 2015).
Reintroducing the benefit principle into the VAT ensures that it will continue to grow
in popularity. Considering that “in the long run, the majority of people in a democratic
society are not likely to be ready to bear the expenses of any financial system without
making advantages from such a system”, we can see why this is true. Certain advantages,
in addition to being willing to pay any relevant value-added taxes, are required (Bain
et al. 2015).
The Lindahl model is an alternative explanation for VAT that seeks to address the
following three complex issues simultaneously: the breadth of government activities,
the equitability of total expenditures across all products and services, and the equity of
tax loads (Wadesango and Chirebvu 2020). Public services are justified by the marginal
benefits they provide, so long as individuals are willing to pay for them. That is to
 The Impact of Value-Added Tax on Small and Medium Enterprises 687

say, people in any given country should contribute to a public benefit in proportion to
how much they value it. Lindahl’s taxing model was created to maximise government
efficiency while still delivering the highest quality public goods. The Lindahl tax model
is universally defined by editorial boards as “each person’s fair part of the total tax burden
on a nation’s economy” (Lucas-Mas and Junquera-Varela 2021).
Reviewers agree that inputs and inputted intermediates can be factored into anal-
yses of the value added tax within the context of a general-equilibrium theory of tax-
incidence. The statistics suggest that production coefficients are relatively changeable,
and that demand is likewise rather elastic. Importantly, where plans assure that assump-
tion coefficients are stable demand and inelastic, a VAT on top of corporate income tax
may be neutral. Under a value-added tax system, it is unlikely that different industries
will be subject to different tax rates. According to the tax-incidence theory, value-added
tax is not predicted to change the relative cost of factors and commodities. To wit: (Bhatia
1982).

3 The Implementation of VAT

Common knowledge is that the first practical application of value-added taxes (VATs)
occurred in Europe in the 1920s. France implemented a variant of the value added tax
in the middle of the 1930s; by the 1950s, it was being collected from consumers at all
points of sale, from shops and markets to warehouses and docks. After World War II
ended and governments in Asia, Africa, and Latin America were no longer colonised,
European states realised they needed to develop more regional cooperation than had been
seen in centuries. The European Economic Community (EEC) was established for this
very purpose, with the hope of maximising regional integration to stimulate even more
economic growth (William et al. 2016). It was decided that harmony between physical
and economic infrastructure and norms was necessary for successful regional integration
to be accomplished. The value-added tax in France has since been proven to be a more
efficient means of generating income from buyers than the system it replaced (William
et al. 2016). For this reason, it was argued that the EEC’s value-added tax should be
enacted as rapidly as possible throughout the bloc’s member states. Therefore, value-
added tax became widely adopted across Europe. This is one of the main reasons why the
IMF and the WB both support a speedy rollout of a value-added tax. The International
Monetary Fund and the World Bank have both urged states to implement a value-added
tax before seeking for loans from them in order to facilitate tax reform. Therefore, value-
added tax has swiftly expanded all over the globe. The fact that over 166 countries use
VAT in some form has made this abundantly clear (Wadesango and Chirebvu 2020).
Common belief holds that double taxation was one of the primary motivations behind
the development of the Value-Added Tax. It is less essential where the money comes
from than how well the government is able to collect it. Governments impose taxes
on a wide range of activities based on a wide range of justifications. The quantity of
money brought in is what is taxed for income taxes; the number of times a vehicle is
driven on roadways is what is taxed for road taxes; and the home, factory, building, or
business is what is taxed for holding taxes. The foundation of the value added tax is
the monetary valuation of the economic gains from the production and distribution of
688 A. Hameed et al.

goods and services. There are many who argue that t tax can never be the foundation
of any kind of tax system. Although there is considerable support for eliminating taxes
altogether, this is not possible (Toder et al. 2012).

4 What is Value-Added Tax

According to the European Union, value-added tax (VAT) is “an indirect tax that is
levied on acquiring and supplying products and services at each manufacturing and
distribution phase with limited exclusions” (Brashares et al. 2014). VAT is “a tax put
on consumption and paid at each stage of the supply chain”, starting with the factory’s
purchase of raw materials and ending with the store’s sale of the finished product to the
consumer (Aizenman and Jinjarak 2008). The following applies to companies that must
collect and remit value added tax:
Customers must be charged value-added tax (VAT) when a business sells taxable
products or services.
When a company purchases a product or service, they must pay the vendor an
additional sum to cover the cost of the product’s value-added tax.
Value-added tax, or VAT, is a form of tax collected by some organisations and When
customers make a purchase or use a service, businesses rely on the information they
provide about those customers (assuming that the basic rate is applied to these procure-
ments). This charge has been factored into the total price of the deal. It is the responsibility
of all businesses that are required to pay this tax to keep track of the 5% of sales that
they retain and to repay the whole amount to the appropriate state authorities. The ’tax
of outcomes” is the value added tax paid by customers of the aforementioned companies
(Ahlerup et al. 2015).
Transactions with tax-exempt organisations are treated in the same way as those with
for-profit organisations. It follows that.
Each and every tax-paying organisation must apply 5% value-added tax to their
purchases of goods and services (assuming that the basic rate is applied to these pro-
curements) Income tax is the sales tax levied by the aforementioned entities (Brashares
et al. 2014).

5 Importance of Implementation Value-Added Tax

There has been widespread agreement that recent economic downturns and financial
crises have wreaked havoc on the tax system. In times of economic and political unrest,
a state’s public budget deficit may increase, prompting policymakers to consider enact-
ing a value-added tax in an effort to protect vulnerable industries, soften the blow of
economic shocks, and strengthen those where government spending and taxation are
pillars of economic growth. The value added tax is more helpful to the economies of
these developed nations than those of developing nations. Furthermore, government
fiscal policies are similar to other economic policies in that they aim to increase eco-
nomic growth and stability, reduce income inequality, and battle inflation and monetary
stagnation. As of the year 2020, Bogari.
 The Impact of Value-Added Tax on Small and Medium Enterprises 689

6 From a Financial Perspective, the Value-Added Tax is Crucially

Important
VAT is an indirect tax that is collected at every stage of the supply chain, from production
to final sale. Since most of the VAT’s base comes from individual purchases, the onus
of paying this tax is largely on the consumer’s shoulders (Albishi 2019). Thus, it is a
consumption tax that is determined by the user’s consumption level, that is, the total
amount spent on goods and services, and also depends on the taxable price elasticity
of demand. In cases where price increases result in a large decline in demand, price
elasticity is said to be “significant” (Alavuotunki 2019).
Additionally, GDP expansion is significantly impacted by the VAT’s effect on pro-
duction and consumption. More money is collected as a result, as a wider range of goods
and services are subject to taxation than under a sales tax system. Most countries deal
with economic challenges using tools of the tax policy, one of which is the value-added
tax, which is a component of the financial policy on which the economy ultimately
depends (Alavuotunki, The implications of the value added tax on revenue and equity,
2018). This is according to a recent study (Alavuotunki, The implications of the value
added tax on revenue and equality, 2018). Value-added tax improves the functioning of
the economy in numerous ways:
Value added tax improves economic performance in a number of ways: To combat
inflation caused by an abundance of currency on the market, some countries have raised
the value-added tax they collect from consumers. Some countries may choose to increase
government spending and broaden tax exemptions by reducing the value-added tax rate
on consumer products in response to deflation brought on by economic stagnation and
diminishing demand (Ahlerupet al. 2015).
(2) Investing in a wide range of industries and pursuits: Since investment is seen as a
means to spur economic expansion, the rate of expansion is dependent on the distribution
of capital among various sectors. When tax rates are low, investors direct their money
toward the area with the highest expected return, which boosts that industry overall
(Saniya 2019). As of 2019 (Saniya).
The value-added tax has a crucial role in increasing integration across projects, which
in turn reduces costs and increases output, by encouraging investors to fund projects
with integrated production, in which things are created in many different phases. So,
production at factories that use integrated manufacturing techniques increases (Himani
2016).
People begin to compare saving and spending, finding a middle ground between
necessities and luxuries, as the value-added tax is passed along at each level of the sale of
commodities until it reaches the ultimate consumer, leading to an increase in commodity
costs. With commodity prices on the rise, there has been a movement toward saving. A
meta-analysis (Bain et al. 2015).

7 The Financial Significance of Implementing the Value-Added Tax

Overall, taxation accounts for more than 90% of government revenue worldwide. Value-
added tax revenue is a steady stream of money that helps states maintain fiscal health
690 A. Hameed et al.

and promotes economic growth. Moreover, the tax base will expand as a result of the
increase in the number of people who are obligated to pay taxes (Vittori 2019). This is
because VAT generates a large portion of total tax revenue by means of:
First, there is the issue of increasing tax revenue while decreasing government spend-
ing. A state’s general budget deficit that persists over time is among the worst things that
may happen to its economy. In this scenario, states impose a value-added tax as part of a
larger programme of structural changes designed to increase tax revenue. Either through
increasing tax income or decreasing unnecessary expenditures (Daba 2015).
By requiring taxpayers to submit the tax invoice at each stage of the sale of products,
value-added tax contributes to re-duce tax evasion by allowing for greater monitoring of
company activities and less opportunities for tax evasion (Bansal and Alfardan 2020).
To sum up, Sect. 3.4 is dedicated to SMEs.
That small and medium-sized enterprises (SMEs) are vital to national economies
around the world is hardly news. The creation of new employment opportunities is critical
to the well-being of any economy, and small and medium-sized enterprises (SMEs) play
a significant part in this. Small and medium-sized enterprises (SMEs) account for more
than half of global job growth, and this is true in both developed and developing countries.
In addition, they account for over 95% of all companies worldwide. However important
it is to national economies, this sector is being held back by a number of factors that may
be easily addressed. Most obviously, money issues and heavy tax burdens are examples
of such challenges. The varying taxation systems of emerging countries mean that small
and medium-sized businesses (SMEs) must adhere to the same rigorous criteria as any
other sort of business entity (Wadesango and Chirebvu 2020).

8 Definition of and Significance of Small and Medium-Sized Firms

“A small and medium enterprise that is distinguished by a restricted number of personnel

and a constrained flow of finances and resources” (Doré 2019) is a common definition
of SMEs. There is a broad spectrum of staff sizes among SMEs. It is conditional on the
particular regulations that are in existence. Under the Australian Fair Work Act 2009, an
employer can have as little as 15 employees and yet qualify for some SBA programmes
in the United States. A wide number of alternative frameworks can also be used to
categorise small and medium-sized businesses. A small or medium-sized business can
be evaluated according to its revenues, shipments, sales volume, assets, and annual gross
or net revenue or net profits (Dilger 2018).
Several factors contribute to the continued importance of SMEs. Small and medium-
sized businesses can be started with relatively little capital. In most developing countries,
a single person manages a number of different companies. They might make a living by
hawking things or making and selling food on the street. SMEs have been online since
the turn of the millennium. So many more people can now choose to do remote work
and boost their incomes. This kind of service to niche markets would not have been
conceivable before the internet’s change in the 1990s (Keskġn et al. 2010).
The rise of new rivals in mature markets is largely attributable to the efforts of small
and medium-sized businesses (SMEs). For instance, a more streamlined business may be
able to introduce cutting-edge technologies to the market before its more bureaucratic
 The Impact of Value-Added Tax on Small and Medium Enterprises 691

competitor, perhaps causing a cultural shift. What actually matters for SMEs is that
they provide local employment for a much larger number of individuals than may be
available at larger corporations. Good for the neighbourhood, overall (Ibidunni et al.
2018). The growth of small and medium-sized enterprises (SMEs) is a key driver of job
creation. And one more thing that sets SMEs apart is how diverse they tend to be. This
means that anyone can potentially launch them. That they look different, act differently,
and have different goals is implied. It is often believed that SMEs help ensure a more
equitable distribution of wealth. The importance of maintaining this equilibrium, both
socially and economically, is growing (Atawodi and Ojeka 2012). These companies are
the cradle for cutting-edge research and innovation. By providing the leeway for growth,
they aid established companies in maintaining a competitive edge. Additionally, SMEs
have greater flexibility and quickness in making decisions. As a result of fewer expenses
associated with managing the organisation as a whole, they are able to turn out products
more quickly and at a lower price. There are evaluators whose job it is to keep an
eye on small and medium-sized enterprises (SMEs) to make sure they aren’t holding
up any major private sector initiatives. Successful strategies to expand manufacturing
and industrialization across a country must include support for small and medium-sized
businesses (SMEs) (Dilger 2018).
Three and a half points for the long-term viability of small and medium-sized
businesses:

• There is no denying the importance of long-term viability to the success of any busi-
ness, no matter how big or small. But there are always challenges when attempting to
incorporate sustainability into day-to-day operations. This is widespread practise in
societies that view financial reports as an indicator of a company’s health. There are
many challenges to the long-term viability of small and medium-sized enterprises.
The primary difficulty is the lack of available financial means. That seems to be the
toughest part. Spending a lot of money is needed to make the change to sustainability.
Funding will be overlooked if small and medium-sized businesses (SMEs) don’t treat
it as an urgent issue affecting their ability to do business. One difficulty is the limited
amount of time available. SMBs have a little chance of surviving the current climate
of intense competition and growing into sustainable enterprises (Dilger 2018).
• Though there are many challenges that small and medium-sized enterprises (SMEs)
must overcome on their way to long-term success, there are also many opportunities.
Sustainability shouldn’t be viewed as a burden by small and medium-sized firms;
rather, it should be viewed as an opportunity to boost both brand recognition and
revenue. If businesses take these measures toward sustainability, they will attract the
growing number of shoppers willing to pay a premium for environmentally responsible
products and services. Small and medium-sized firms have many potential avenues
for growth in the realm of sustainability (William et al. 2016).

9 Enhancing the Competitiveness of Small and Medium-Sized

Businesses
Rising levels of competition are widely acknowledged as a major challenge that small
and medium-sized enterprises (SMEs) have faced over the past few decades. The ability
692 A. Hameed et al.

of small and medium-sized businesses (SMEs) to compete is conditional on a variety of

factors. Both the internal and external environments in which SMEs function are linked
to these factors. The internal reliance of SMEs on IT has been found to be the single
most critical factor in assuring their competitiveness, according to previous studies.
This could ultimately aid small and medium-sized enterprises in getting their work
done more efficiently. There should be a corresponding reduction in costs. Investment
in and development of human capital is another important factor within the company.
They achieve this through consistent mentoring and training. This is the most important
investment they can make if they want to maintain competitiveness. Small and medium-
sized enterprises’ (SMEs’) ability to put strategic management into practise is also
crucial. This will aid in strategic planning, cost reduction, and making the most of the
company’s resources (Bruning and Lockshin 2000).
There are too many other factors to account for while trying an explanation. The polit-
ical and economic context, however, appear to be the most important factors. Stable gov-
ernments are more likely to attract investments in small and medium-sized businesses.
When the economy is strong and developing, financial institutions and the government
will be more willing to assist small and medium-sized businesses (SMEs). According
to (Ahmedova 2015).

10 Market Share of Small and Medium-Sized Businesses

According to World Bank reports (2020), small and medium-sized enterprises (SMEs)
are vital to the development of economies all over the world, but especially in develop-
ing countries where they account for a disproportionately large portion of the market.
Small and medium-sized businesses (SMEs) account for the vast majority of the world’s
establishments and play a pivotal role in driving economic growth and creating jobs in
every region. They make up more than half of the workforce and 90% of the businesses.
In developing countries, formal small and medium-sized businesses account for as much
as 40% of GDP. If you add in all the unrecognised SMEs, you get far larger numbers.

11 To What Extent Does Value-Added Tax (VAT) Hinder

the Growth of Small and Medium-Sized Businesses?

The evaluation of the VAT’s impacts on growth and performance of small and medium-
sized enterprises remains a hard issue, despite the fact that previous research guarantees
that its use and using it as a source of reve-nue has been recognised as a promising chal-
lenge for national economies. Furthermore, governments, businesses, and individuals
share equal accountability for the effectiveness of any VAT system (Alavuotunki, The
effects of the value added tax on revenue and equality, 2019).
To emphasise, since SMEs are used to working in a low-tax firm environment, they
fear the financial and operational consequences of VAT compliance (Hassan 2015). The
implementation of the VAT system has the potential to significantly impact small and
medium-sized firms due to the potential decrease in profit margins. Indirect costs for a
corporation result from the Value-Added Tax’s effects on pricing, financial reporting,
 The Impact of Value-Added Tax on Small and Medium Enterprises 693

cash flow, the supply chain, compliance procedures, and tax accounting, among other
areas of business.
According to the available data, the impact of VAT regulations on the expansion
of small and medium-sized firms is minimal (Keen and Lockwood 2017). A lack of
effective uniformity exists when it comes to value-added tax and small and medium-
sized firms (Grigore and Gurau 2017). Factors related to value-added tax (VAT) and
small and medium-sized enterprises (SMEs), as well as other organisational limits and
environmental factors, are major contributors to this gap. The difficulty of keeping track
of taxes is a major contributor to the erratic behaviour. The VAT system has been assured
to be consistent with the needs of small and medium-sized enterprises. This disparity
is instead attributed to the VAT’s associated paperwork and procedures (Saniya 2019).
Due to external factors such as poor economic performance, a high corruption index, and
political instability, some claim that VAT stunts the expansion of small and medium-sized
firms (Gale et al. 2016).

12 Conclusion, Thoughts and Directions for the Future

Despite Value Added Tax’s (VAT) origins as a solution to problems with tax collection
identified in earlier research, the tax rate itself has become controversial. There were
several challenges and complexities throughout the implementation of VAT. Value-added
tax, or VAT, is a kind of taxation that is notoriously complex to set up and administer.
Despite the fact that research has revealed flaws in the VAT system, it has not provided
evidence that the tax is pointless. It has been argued that value-added taxation (VAT) is
harmful to distributional equity, especially in developing countries.
Evidence suggests that states with a higher value-added tax rate have higher rates of
economic growth. It helps both large corporations and medium-sized businesses expand.
However, this perspective is still up for debate. Governments concerned about introduc-
ing VAT, then, must treat SMEs differently. The burden of VAT on these companies
should be lighter as a result. Because the net revenue from include very SMEs is usually
little, several countries prefer to exempt select SMEs from VAT.
As a result of the broad adoption of value-added tax systems like VAT, SMEs are able
to more easily incorporate this tax into the pricing of all goods and services they offer,
increasing their competitiveness in the marketplace. The second VAT has a greater influ-
ence when the expenses incurred by large-scale enterprises in the forms of consumers,
investors, and suppliers are taken into account. Having a legitimate VAT registration
number may also inspire trust in your business among consumers. Furthermore, the
VAT Flat Rate Scheme may offer some benefits (FRS).
Many obstacles may arise when implementing VAT, especially for smaller and
medium-sized enterprises. The first is that it significantly and unfavourably affects the
profitability of this significant industry when clients are unable to pay VAT. The liquidity
of small and medium-sized businesses is also affected. Among the many problems of
applying VAT to SMEs is the inevitable increase in prices of 20% for end users. It’s
possible that some clients will reach their breaking point and look elsewhere to fulfil
their needs. Small and medium-sized enterprises (SMEs) have less success financially
when prices are not allowed to fluctuate.
694 A. Hameed et al.

Future research is needed to fully understand how the value-added tax affects the
bottom line and competitiveness of medium-sized firms. The results of studies in this
field can be used to both the business and social worlds. In light of the recent COVID-
19 pandemic, it may be necessary to conduct additional research into the effects of
value-added tax on economies. A joint probe involving all GCC states is possible.

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Technology, Tourism, Hospitality,
and Health Care Services
 Teal Organizations in Times of Uncertainty

Agnieszka Rzepka(B) , Magdalena Maciaszczyk, and Magdalena Czerwińska

Lublin University of Technology, Lublin, Poland

{a.rzepka,m.maciaszczyk}@pollub.pl

Abstract. Theoretical background: the technological challenges associated

with the Fourth Industrial Revolution, innovative inter-organizational networks,
and low employee engagement brought about by complexity and the associated
uncertainty, represent some of the toughest challenges that organizations will have
to encounter in the coming future. In this context, the advent of the evolution-
ary organization model is an important step towards re-identifying the funda-
mental principles governing an organization, perhaps as an extension or revision
of systemic thinking. Using this model, the enterprise that act as living organ-
isms become more agile and better equipped for establishing efficient and reliable
inter-organizational relationships.
Purpose of this article: To examine the functioning of so called teal organi-
zations in a reality of Industry 4.0 and in times of uncertainty. This paper takes
the position that soft management factors influence the development of such
organizations and that they must adapt to the changing conditions if they are
to survive.
Research methods: The research process consisted of several stages, which
included desk research, research based on the author’s survey questionnaire and
individual in-depth interviews. The survey was performed on a 900-person sample
employed in micro and small enterprises. This article is the effect of the work
conducted as part of the third stage of the 2020–2021 empirical research.
Main findings: The research shows that in a world of Industry 4.0 organiza-
tions need to adapt to changes and try to adopt them. The elements of partnership,
flexibility, trust, and creativity are essential components of a teal organization.
Today, organizations adopting the teal model must recognize that doing so entails
a gradual process. It is therefore necessary to have a continuous overview of how
these organizations operate in times of uncertainty. The results of all phases of the
research indicate that organizations need to take into account changing circum-
stances and adapt to them. The analysis of the selected soft management factors
shows their impact on the development of an organization, especially for the man-
agement staff (management style, organizational structure) in the age of Industry
4.0.

Keywords: Teal organizations; Teal management · Self-management;

Leadership · Industry 4.0

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 699–712, 2023.
https://doi.org/10.1007/978-3-031-26956-1_65
700 A. Rzepka et al.

1 Introduction

In today’s economic reality, all organizations are seeking strategies, methods, and tools
that would enable them to achieve success. Any organization that aspires to survive in
an unpredictable and turbulent environment should strive to innovate and be innovative.
Enterprises from the SME sector find success in their innovative activities when they
join larger network structures that comprise a larger number of participants (Thorgren,
Wincent, and Örtqvist 2009). Moreover, the evolution of inter-organizational relations
influences the development of dynamic abilities necessary for the enterprise to create
knowledge. Creating innovation requires the involvement (Mittal, el 2018) of experts
from various scientific fields. Hence, in the process of creating innovation, it is often
necessary to use the knowledge of experts from outside the organization (Kodama 2007).
It seems that the guiding principle in locating the extent and orientation of these
changes may be the idea of teal organizations. Teal organizations embody society and the
way of looking at the world (Pluta 2016) through the eyes of the individuals who compose
it. Knowledge resources (Bouncken, and Fredrich 2016), an important component of soft
management, which include intellectual capital (human, social and relational capital),
data and information as well as knowledge and trust are crucial for organizations in the era
of Economy 4.0. For organizations today to be competitive, the spirit of modern, agile
and adaptable management should be developed Rzepka, Maciaszczyk, Wiśniewska,
Kocot 2021).
As a new type of organization, the teal organization concept establishes a new
paradigm for the so-called self-managed organization (Rzepka 2022). The basis of this
paradigm is employee empowerment, in which employees gain a sense of the value and
importance of the work they do for the company. This implies a change in the relation-
ship, as the employee turns into a shareholder and, eventually, a co-owner of the company
who has an influence on the decisions made within it. The partnership in the teal organi-
zation goes very far (Kocot, Wiench, Maciaszczyk 2021; Turulja, and Bajgoric, 2019),
which means that there is practically no leadership in such an organization, and indi-
vidual employees (Rzepka, Borowiecki, Olesiński 2019) assume functions depending
on what they are able to do and what is needed. The teal organization is based on trust,
listening, and effective communication. Here, employees are empowered to the fullest
extent possible.
On the basis of numerous empirical studies, the author of this article argues that in
the modern era known as Industry 4.0 (Rauch, E.el. 2020) we will observe an increase
in the number of various types of specialized organizations that are better adapted to
functioning in a turbulent environment generating new types of human activity, includ-
ing new types of services (Bouncken, and Kraus, and Roig-Tiern 2019). Such growth
will create the premises for significant changes in management and will require new
management methods that will favor self-management and reduce traditional hierarchy
in favor of modernization and self-management. All this leads to the emergence of a
new type of organization called teal (typical of the post-industrial era) that has evolved
from the orange organization (typical of the industrial era).
 Teal Organizations in Times of Uncertainty 701

2 Literature Review
The concept of a teal organization is understood herein as an emerging innovative type
of organization whose paradigms are characterized by self-management (Rzepka 2020,
2022). This results in a transformation of workplace relations, as the regular staff member
becomes a partner and, eventually, a part-owner who shares in the organization’s key
decisions. Its main premise is the empowerment of the employee, who gains an awareness
of the importance and relevance of work done for the company. As Olesiński (2020)
argues, the organizations in question function on the basis of soft elements such as
effective communication, trust and properly nurtured interpersonal relations.
As a result of research and literature review on Teal organizations (Blikle 2014,
2017, 2018, Hopej-Tomaszycka and Hopej 2018, Holwek 2018, Kałwa-Rojczyk 2018,
Olesiński 2017, 2020, Skrzypek 2017; Rosiński 2018, Zygadło 2018, Kirov and Kirova,
2017, Rzepka 2022) it has been established that Teal organizations are a new approach
to managing organizations operating under changeable conditions. They are based on
a flat organizational structure in which the complex hierarchy has been discarded and
the classic incentive system is replaced by intrinsic motivation of employees (Hopej-
Tomaszycka and Hopej, 2018; Collins, 2017, 2018). This approach brings tangible ben-
efits to any company focused on “reinventing itself”, according to the concept of F.
Laloux, author of Reinventing Organizations (Laloux 2015).
Laloux (2015) states that the teal organization is the next step in the evolution of
the human approach to how organizations should be mastered. Teal organizations will
certainly dominate in the future due to the fact that a fundamental change in society is
imminent. It can already be seen that for an increasing number, self-realization is a key
factor. Teal organizations can be described by the breakthroughs shown in Fig. 1. The first
is self-management, which translates into efficient operation even on a large scale without
the need for consensus and hierarchical structures. This therefore means introducing
peer relationships. Leadership still exists, however, it develops systematically through
the pursuit of a common goal that is also of a great significance to their followers.
Wholeness in teal organizations is about accepting people and encouraging them to
express themselves in the workplace, while evolutionary purpose is seen as the pursuit
of a higher purpose that can change over time. This assumption reflects the approach
that the future can be neither foreseen nor controlled, but instead needs to be discovered.

Fig.1. Breakthroughs of Teal organization. Source: own elaboration

A teal organization consists of a team that lacks not only hierarchy but even clearly
defined roles, although differences in the functions performed by employees can be
702 A. Rzepka et al.

found (Rzepka 2022). It is characterized by teamwork without affecting the hierarchy

of positions while focusing on building trust and partnership in every aspect of work
(Wyrzykowska 2019), thanks to which the team achieves flexibility to cope with changes
as well as antifragility (which should be understood as the ability to adapt to even sudden
situations, rapid changes in every direction and aspect). In addition, it is characterized by
self-management, and achieving not just balance, but wholeness, (Rzepka 2020) i.e. the
ability to be authentic in every dimension of everyday life. The inspiration for the people
in such an organization is the awareness of an evolutionary goal, one that is not imposed
from the top but changes according to a “fluid” and therefore unpredictable reality. The
goals of the organization are consistent with the goals of the individuals. This “symbiosis
of goals” results from observation and “awareness” of what is happening.
Teal organizations are companies that manage their processes (Szczepańska-
Woszczyna 2018) at every level of the operations. It can be likened to a well-functioning
machine in which the various stages of the process move from one person to another.
Individual roles are not assigned in advance, but are defined according to needs arising
on an ongoing basis (Sharp et al. 2019). In such a management model, it is the individual
predispositions and strong points of every worker that count, not just rigid structures and
pre-assigned tasks (Burns, Roberts, Posey, and Lowry 2019). However, many managers
uphold the approach that the Teal model is idealized (Pustoschkin 2016) and achieving
it is highly improbable.
Today, in the era of uncertainty and Industry 4.0, which changes the way companies
operate (Roblek and Mesko 2016), the functioning of organizations is quite difficult
and demanding (Zhong et al. 2017). The main focus of Industry 4.0 (Masood, & Egger,
2019) is on the accuracy and preciseness seen on a par with a higher level of autom-
atization (Thames & Schaefer, 2016). The development of ultra-automated machines,
and the constant evolution of information technology translate into revolutionary tech-
nical and technological changes. These, in turn, bring about new solutions, such as the
5G system or the development of the Internet of Things, create convenient opportuni-
ties for companies to improve their performance. It is clear that the overarching aim
of putting the assumptions of Industry 4.0 into practice in any enterprise is a higher
level of efficiency and agility. Unfortunately, simply streamlining production processes
or making smaller changes is not enough (Roy and Sarkar, 2015). In order to achieve
the desired goals, a major transformation needs to take place in both technological and
organizational terms, which will also mean revising the business model of the enterprise
(Roblek, Mesko, Krapez 2016: 23–46). Since this revolution has increased productiv-
ity, transformed the economy, stimulated industrial growth, and, above all, changed the
profile of the workforce, forcing it to develop agility.
Industry 4.0 signifies the start of a new chapter of the industrial revolution that is
mainly oriented around interconnectivity, automation, machine learning, and real-time
data. Industry 4.0, which includes intelligent production, combines physical manufac-
turing and operations with intelligent IT, machine learning, and big data to create a more
comprehensive and interconnected system for all enterprises focused on both manufac-
turing and managing their supply chain. Although every business and organization that
operates nowadays is distinct, they all share a similar dilemma whereby it is essential
 Teal Organizations in Times of Uncertainty 703

to have real-time connectivity and real-time insight into data on partners’ processes,
products, and people (Stverkova, Pohludka 2018: 98).
Industry 4.0 is likely to bring about changes in the way we create (Miśkiewicz
2019), develop services and products, and lead the organization. It is an integration
of the digital and physical worlds. There is no question that the penetration of the
concept of Industry 4.0 into the operational and management processes of businesses
will increase. Information flows, advanced technologies, and materials - also known as
the digital and physical technologies that comprise Industry 4.0 - enable organizations to
gain actionable insight and information in real-time. This, in turn, enables companies to
achieve completely new outcomes in a completely new way and potentially revolutionize
supply chains, production, and business models (Mittal, Khan et al. 2018).

3 Research Methods
The studies described here are part of a larger international project ‘Teal organizations
in Economy 4.0’. As part of this project, research was conducted not only in Poland, but
also in the USA, Georgia, England, Hungary, Ukraine, the Czech Republic and Spain.
The research procedure involved 3 stages. First, a pilot study (N = 300) was carried
out, followed by a core research (N = 300 PL and 330 different countries) and repeated
research (N = 300). A survey questionnaire was used as a tool and distributed to top
executives. The survey questionnaire included sections on various topics (Maciaszczyk,
Rzepka, Kocot 2021) and each section composed of 5–7 questions. The overarching goal
of the research was to determine the degree of collaboration between modern companies
and consumers and demonstrate the features attributed to agile organizations. In addition,
it wished to determine the degree to which these characteristics determine diverse facets
of a company’s performance, including its innovativeness. The research has been and will
continue to be carried out respecting the rules and regulations designed by OECD-DAL.
Taking into account the formality and objective of the study in a reliable manner,
it was presumed that all investigations would be conducted using a variety of research
techniques and methods. This has led to triangulation of methods and techniques in data
gathering and analyses, as well as the development of final findings. In order to gain
the fullest possible understanding of the phenomena under study, document analysis
(1), in-depth one-on-one interview (2) and questionnaire (3) were used. Statistical anal-
yses of the accumulated figures collected from the study was carried out using SPSS
STATISTICS, while the method chosen was the χ2 test - Pearson’s Chi-square test for
independence.
The purpose of the analysis was to identify those characteristics of the studied enter-
prises that have a differentiating effect on the level of successive indices. To achieve that
one-way ANOVA was used as a validation method for the formulated hypotheses. The
F (Fisher-Snedecor) test was used to verify the null hypothesis of equal mean values for
the general population. Due to the fact that the indices calculated with the Kolmogorov-
Smirnov test were considered continuous variables with near-normal distributions (at
the significance level α = 0.05), the use of the F test was possible. A Cronbach’s Alpha
test was applied to check the reliability of the questions on the investigated companies.
This made it possible to isolate variables with statistically significant correlations. The
ordinal scales will be treated as quasi – quantitative scales.
704 A. Rzepka et al.

The pilot study was conducted in May–June 2020, core research took place in
August–September 2020 and repeated research in December 2020–January 2021. Each
time, 300 interviewees from various micro and SMEs, with different geographical cov-
erage and size, took part in the different stages (see Table 1). Managers from a variety
of micro and small enterprises were eligible for the study through purposive sampling.
The selection of enterprises was based on the availability of SMEs.

Table 1. Range of respondents’ activities

The prevalent modus operandi of the enterprise Geographical scope of activity (in %) Number of employees (in%)
(%)
A* B C A B C A B C
Trade 19.7 10.3 16.6 Local 19.3 22.1 9.4 0-9 13.7 9.1 3.3
Manufacturing 17.6 13.9 28.0 Regional 8.2 12.4 27.3 10-49 24.0 18.8 55.1
Service 62.7 75.8 55.4 National 30.0 23.0 22.0 50-249 15.5 28.2 16.6
International 42.5 42.4 41.3 250-999 18.5 20.9 16.6
1000 -and over 28.3 23.0 8.4
*A-Pilot, B-I stage, II-stage
Source: own research

Taking the variables into account, it can be concluded that the survey involved
men in executive functions (57.9%) mainly employed at service enterprises (62.7 and
75.8%) with an multinational reach (42.5%) and with 50 to 249 employees (28.3%). The
industries of the respondents varied, but it can be seen that at each stage of the survey
representatives from IT, education, catering, commerce or banking (see Table 2) took
part.

Table 2. Compilation of branches and respondents’ ages in the following stages of the survey

Industry (%) Age of respondents (%)

A* B C A B C
Banking 9.4 Hotels 16.5 Aviation 5.3 25 or younger 57.9 11.5 26.5
Transportation 8.6 Municipal 14.5 Fuels 4.0 26-35 27.5 26.1 22.4
Automotive 5.2 IT 13.2 Automotive 3.8 36-45 9.9 37.9 36.3
Finance 5.2 Banking 9.4 IT 11.4 46-55 4.3 19.1 11.2
IT 3.0 Education 6.8 Education 3.8 56-65 0.0 5.5 3.4
Logistics 2.6 Construction 5.8 R+D 4.0 65 or over 0.4 0.0 0.2
Gastronomy 2.6 Gastronomy 5.8 Gastronomy 5.2
Construction 2.6 Other 28.1 Construction 5.3
Trade 3.4
Trade 2.6
Insurance 2.1 Banking 10.0
Other 56.2 Other 43.8
*A-Pilot, B-I stage, II-stage
Source: own research

4 Results

This article analyses only areas related to drivers of teal organizations. The first of the
analyzed areas referred to the chosen features of Teal organizations (see Chart 1). The
graph presents the results of one of the areas of the pilot study as a reference point
for further research. The second phase of research shows a substantial divergence, in
particular in terms of approaches to creativity, trust and partnership. (see Chart 1).
 Teal Organizations in Times of Uncertainty 705

Chart 1. Teal qualities in organizations. Source: Own creation.

However, this disparity may be considering that the survey was completed in a
post-pandemic time, when the negative effects of the crisis reached every sector of the
economy. The 2022 study is being conducted as a continuation and stage IV.

5 Discussion
An analysis of some components was undertaken for the purpose of this article. The
results cover the 3 stages of research.
Research on chosen determinants of teal organizations posed the first significant
problem of how to evaluate the process of change in organizational structures. This
text includes five questions, two of which are particularly detailed. The first of the
questions selected attempts to find out whether every function is subdivided internally,
for example, research, production, sales, and finance, which the authors have concluded
to be the characteristic features of the structure of the industrial age. During the course of
the research, there was a significant change in the rules for creating jobs according to the
respondents, which increased from 21.4% to 36.4%. It is definitely worth noticing that
the role of intra-organizational and inter-organizational relations has been increasing
(Table 3).
The next section of questions raised the issue of the decision-making method. The
first of the answers stated that the boss made all the decisions. Analyzing the above data,
it can be concluded that a score of 25.8% was found in the pilot study, which differed
significantly from the scores in the subsequent stages (12.1% and 15.4% respectively).
In the latter case, the process of making decisions focused on the company’s values.
Here, we have seen an increase from 9% in the pilot study to 24.3% in stage II.
The third area was devoted to analyzing relations with business partners. The first
question raised the issue of radical relations with business partners, the second question
addressed the relations of a strategic nature. Respondents gave the following answers to
706 A. Rzepka et al.

Table 3. Selected research components

Pilot study (%) stage I stage II

Organizational structure
Matrix (all departments have their own internal 21.0 38.5 36.4
subdivisions)
Network 30.5 24.5 39.7
Decision-making
The boss makes all the decisions 25.8 12.1 15.4
Decision-making focused on the company’s values 9.0 18.8 24.3
Relationships with business partners
Radical 5.2 2.1 2.3
Purposeful, strategic 34.8 41.5 46.9
Leadership style
Based solely on giving orders and control 26.6 10.0 19.0
Based on motivating according to set goals 16.7 26.1 29.7
Source: own research

the first of the two questions: 5.2% in the pilot study and 2.3% in stage II. In the second
question, the respondents definitely focused on strategic and purposeful relationships,
which accounted for as much as 46% in stage II.
The fourth problem was changing the leadership style. The answers selected for the
purpose of analysis covered the management style based on giving orders and controlling
(a traditional approach) as well as the leadership style based on motivating according to
set goals (a contemporary, developing style). It is noticeable that the latter is becoming
more prevalent (16.7% in the pilot study to 29.7% in stage II).
In the near future, authors plan to continue the research to confirm the data, specifi-
cally, the quantity of questionnaires to be completed should be increased and the research
should include more countries. In addition, a thorough examination of the collected data
is commissioned, which includes the age and work background of the interviewees, as
well as the business size and type. In the following stage, interviews will be conducted
in order to dispel emerging doubts.
Data collected thus far, some of which have been analyzed above, demonstrate the
validity of the research hypothesis that states that as technology gets more advanced, the
tendency to change thinking, management, inter-organizational cooperation, and the
independence of employees increases (Fig. 2).
Of the teal traits in organizations, self-awareness received the highest mean score
with 3.52 points on a scale of 1 to 5. Relations with business partners (score of 3.34),
workplace culture (3.31) and personal development (3.28) were slightly less important.
Making decisions is the teal trait that was least valued by the surveyed companies with
an average score of 2.53 (Fig. 3).
 Teal Organizations in Times of Uncertainty 707

12.00

10.00
4.21
8.00 4.10
3.67 2.81
6.00
3.37
3.31 2.99
4.00 2.90

2.00 3.34
2.76 2.53 2.97
0.00
Leadership style Decision making Organizaon Relaonship with
structure business partners

Pilotage Stage I Stage II

Fig. 2. Selected aspects of teal organizations. Source: own research

Pilotage Stage I Stage II

Leadership style
5.00
4.00
3.00
2.00
1.00
Relaonship with
0.00 Decision making
business partners

Organizaon structure

Fig. 3. Aspects of teal organizations. Source: own research

In light of the research, it should be stated that the teal approach to management is
not a set of specific procedures or business practices ready for implementation. Rather, it
consists of changing the way people think about business, people, and the world, leading
to different ways of making decisions and developing organizations (Lee 2017). These
changes mainly concern:
708 A. Rzepka et al.

• trusting people, utilizing their resources, and allowing them to do their jobs and
perform their tasks in their own way is better than strictly controlling their activities
and organizing their work from the top down;
• cooperation is better than rivalry, understanding others is better than judging them,
and decisions made based on emotions and intuition are better than those based only
on rational premises;
• reacting to the current situation and a flexible adjustment of one’s actions to the current
conditions is better than scrupulous future planning and sticking rigidly to these plans.

The results of the research clearly show that transformation to the teal model can
take place in different ways. Unfortunately, such a transformation will sometimes be
impossible to achieve. Much will depend on the levels at which the organization currently
operates and the extent of employee awareness. The different groups of employees should
therefore be diagnosed and compared. On the basis of the results, practical measures
can be designed to achieve the expected transformation. Even if a total transformation
cannot be guaranteed, trials will provide insights into the company’s strategic situation
and ease the introduction of relevant development activities.

6 Conclusions
The concepts underlying the teal organization are best introduced during the process of
building the organization. Alternatively, existing organizations can be converted to the
teal model. To achieve this, the individual directly managing the organization and its
senior management (e.g. the supervisory board) must consent and participate. The order
of changes within these concepts is not strictly defined and depends on the organization
itself. Moreover, it is also possible to practice only partial changes, eg in “Striving for
Wholeness” without the practices of “Self-Management”. However, only introducing
changes in all three areas will give us the effect of their mutual reinforcement.
Today, in order to become a teal leader, managers need to be able to modify their
current management style toward supporting rather than replacing the team. Facilitator
leaders are coaches rather than supervisors. They allow the team to make decisions on
a variety of issues, and at the same time, in deadlock situations, are ready to support
the team in some decisions or disagreements. They leave a great deal of autonomy to
employees but they are aware that they can always count on their support and advice
should they need it.
Research shows that numerous awards await those companies that are able to intro-
duce teal or its elements. The facts say most of them now functioning teal companies
brings unexpectedly good both financial and emotional effects in the form of commitment
employees. Such organizations show the inclinations to faster development. The pre-
sented research shows that teams organized in such a way are more effective, employee
satisfaction and commitment are increasing, and the level of rotation is decreasing. These
companies are really growing faster than the competition.
Contemporary organizations that want to survive in the midst of uncertainty and the
new reality, known as Industry 4.0 (Rzepka 2019b, 2022), have been faced with the need
to meet numerous challenges arising within the market. Therefore, they should develop
 Teal Organizations in Times of Uncertainty 709

distinctive characteristics that determine their uniqueness. The enterprise must therefore
acquire characteristics that constitute a unique response to the emerging stimuli flowing
from the market environment.
The transition from green to yellow, i.e. the change from pluralistic to evolutionary,
can be seen as a long-term process of innovation implementation that provides practical
solutions to some of the problems faced by enterprises in the digital age. Regarding
the generalization aspects of the results and the limitations of the study, it is evident
that the above thoughts refer only to a very specific and inimitable context. However,
following the reasoning of F. Laloux, the emergence of similar cases in different geo-
graphic contexts, circumstances, productive sectors and associations of organizations,
led the authors of this study to highlight some specific features that may clarify various
transformations of companies towards less hierarchical, more self-managed and more
people-oriented organizational models.
The way companies were managed evolved continuously from red to amber to orange
to green. This was influenced by shifts in consciousness, which in the final stage led to the
emergence of more powerful and people-friendly forms of management. Once the Teal
paradigm has fully emerged, we are likely to look back and find that the organizational
forms and practices of the turn of the 20th and 21st centuries are far less than expected
Past experiences and the development of the teal organization paradigm prove that it is
possible to create far more productive, people-friendly and purposeful organizations. We
seem to be at a turning point: it is an opportune moment when it is time to stop merely
trying to adapt the old model to the changes taking place in consciousness and instead
move on to the next one. The Teal model of organization will be better adapted to the
complexity and challenges presented by our times.

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 Are Tourists Interested and Finally Decide
to Visit Tourist Attraction After Seeing Virtual
Tour?

Hana Ulinnuha1(B) , Melody Angeline1 , Fithria Khairina Damanik1 ,

and Reza Permadi2
1 Tourism Department, Faculty of Digital Communication and Hotel and Tourism, Bina
Nusantara University, Jakarta 11480, Indonesia
[email protected]
2 Atourin, Jakarta, Indonesia

Abstract. Despite the significant loss, pandemic Covid-19 had been an enabler
for digital transformation, specifically in Indonesia. In the tourism industry, the
emergence of virtual tours brings fresh fashion for people to spend their leisure
time. Following the calming down pandemic, the innovation of virtual tourism or
virtual tours can promote specific tourist locations, which are expected to increase
interest and decisions to visit. This research intends to discover virtual tours’
power to attract visitors. The researcher used a quantitative method with simple
linear regression analysis and distributed questionnaires to 104 people who had
participated in virtual tours using meeting platform such as Zoom, Google Meet,
or Webex. The results of this study indicate that the virtual tour influences the
tourists’ interest and decision to visit, at a moderate correlation level based on
Pearson Correlation Test, with a percentage of 34.6% and 30%, respectively, based
on R2 result.

Keywords: Virtual tour · Tourist visit interest · Tourist visit decision

1 Introduction
The pandemic has inspired actors and governments to use digital technology to optimize
tourism. Currently, tourism stakeholders in Indonesia are implementing various tech-
nology strategies to continue reviving the creative industry and economy so that market
opportunities can be more extensive after the pandemic. One of the innovations that can
help tourism actors deal with conditions during and after the COVID-19 pandemic is
virtual tours. The innovation of virtual tourism or virtual tours opens up new economic
opportunities for industry. Even though the virtual tour has not been able to replace the
social needs of physical traveling, virtual tours are believed would be applied perennially
to promote tourist attractions. Through virtual tours, tourists perceive a shadow of the
atmosphere or scenery around the tourist location, increasing the interest and decision
of tourists to visit directly to the site [1].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 713–719, 2023.
https://doi.org/10.1007/978-3-031-26956-1_66
714 H. Ulinnuha et al.

Therefore, this study aimed to determine the effect of virtual tours on the tourists’
interest and decision to visit. Research in tourists’ interest and decision has been more
focused on advertisement and promotion [2], tourist attraction development [3], and
e-wom in social media [4]. This research seeks to fill the gap of how powerful virtual
tour on desire and decision tourist to visit a destination.

2 Literature Review

2.1 Virtual Tour

A virtual tour is a simulation of a tourist location, usually consisting of video sequences

or a collection of photos and can combine several other multimedia elements, such
as sound effects, music, narration, and text [5]. The technology can place the user in
the image shown, allowing the user to increase situational awareness and the ability to
see, capture, and analyze relevant virtual data. Virtual tours enable users to grasp an
environment without being physically present or travelling to that location. In common
use, virtual tours must be web-based so they can be accessed anywhere and anytime [6].
Virtual tours enable the relaxation and escape of being in a place by looking at the
monitor screen and using the internet [7]. The various types of virtual tours known are
Virtual Tour Video Tapped, Virtual Tour PowerPoint and Google Maps, Virtual Private
Tour, Virtual Tour Public (General), Virtual Tour LIVE Report, and Virtual Tour 3D. In
this research, virtual tours were then assessed by looking at (1) The Slides of Tour, (2)
The Footages (Including videos, photos, 360 photos), (3) Google Maps Tour, (4) Reality
Experience, and (5) The Meeting Platform.

2.2 Visit Interest

Kotler explains interest as an impulse, which means a solid internal stimulus driven by
action, where this drive is influenced by positive motivations and feelings about a product
[8]. Interest in visiting is a feeling in which someone is triggered to visit a place or area that
is according to him/her interesting to visit. In this case, the theory of visiting attraction is
taken from the buying interest [9], which is explaining the dimensions of buying interest
in several components. Firstly, being interested in finding information about products
where consumers who are aroused will be encouraged to seek more information at this
stage. Second, considering buying, consumers will learn about competing brands and
the advantages that these brands have. The third is interested in trying, where consumers
will seek the benefits of product solutions and evaluate the product. They rationally judge
the product to generate interest in trying it. Fourth, wanting to know the outcome, in
which consumers will view it as having different advantages and uniqueness in providing
benefits that are used to meet their needs. The last stage is wanting to have a product,
where consumers will pay more attention to products that deliver the help they want and
finally consumers will take an attitude towards the product by forming an intention to
buy or own the product.
 Are Tourists Interested and Finally Decide to Visit Tourist Attraction 715

2.3 Visit Decision

Consumer purchasing decisions are a critical stage in the process. As a result, producers
must understand consumer behavior when making purchasing decisions. Consumers
will develop trust in the product and its position based on its uniqueness and advantages.
For example, the consumer will select the product he prefers [10].
According to [11] in purchasing decisions, there are stages or processes in the prob-
lem adjustment approach to decision making. The process includes problem identifica-
tion, information search, alternative evaluation, purchase decisions, and post-purchase
behavior. In this study, however, the author will modify the theory for research purposes
by involving the appropriate target respondents. The author does not include the final
stage, Post-purchase Behavior, in the questionnaire statement because the respondents
who will fill out only arrive at the decision stage to visit and do not visit specific locations
they see in a virtual tour.

3 Methods
The method in this study uses a descriptive method, which is a method that examines the
status of a group of people, objects, conditions, a system of thought, or tourism classes
in the present [12]. The descriptive method in this study was used to explain in detail the
relationship between the dependent variable (dependent variable) and the independent
variable (independent variable). This study will explain the influence of virtual tours on
visiting interests, virtual tours on visiting decisions, and the influence of visiting interests
on visiting decisions.

H1a: Virtual tour influences tourists’ visiting interest

H1b: Virtual tour influences tourists’ visiting decision

This research also uses quantitative methods which are the methods used to answer
research problems related to data in the form of numbers and statistical programs [13].
The measurement of variables in this study uses a Likert scale in the questionnaire
with a score range of 1 to 5. The highest score (strongly agree) is 5 and the lowest
value is 1 (strongly disagree). The data sources of this research consist of primary data
(questionnaire).
The technique used to process the data included a validity test, a reliability test, a
classical assumption test consisting of a normality test, a heteroscedasticity test, and a
linearity test, followed by a simple linear regression test, a product moment correlation
analysis (Pearson), and a T test, to test the hypotheses. With a sample size of 104 people,
the population of this study is people who have participated in a virtual tour organized
by a tour operator. This study aims to determine the respective effects of virtual tours
(X1) on the interest (Y1) and decision (Y2) to visit tourists.

4 Results
4.1 Profile of Respondents
Profile of the respondents are presented in Table 1 as follows:
716 H. Ulinnuha et al.

Table 1. Profile of respondents

Gender Female 64.4%

Male 35.6%
Age 18–25 y.o 65.4%
26–35 y.o 18.3%
36–50 y.o 11.5%
51–70 y.o 4.8%
Education High school 27.9%
Vocational/bachelor’s education 58.7%
Masters and doctoral 13.5%

As shown in Table 1, this study’s respondents were dominated by Generation Z and

Millennial women with undergraduate study background. All respondents had partici-
pated in a virtual tour, most of which were organized by tour operators, and were asked
to complete a questionnaire about their experience for participating in a virtual tour by
looking at the components of virtual tour. The results are shown in Table 2 as follows:

Table 2. Respondent perspective on virtual tour

Components of virtual tour Average

Slides of virtual tour 3,78
Footages (video, photos, panoramic photos 360) 3,88
Google map feature 3,81
Real experience 3,65
Meeting platform 3,97
Average 3,82

Table 2 shows Real Experience has the lowest score among all components. It is
plausible as a virtual tour is not a substitute but complementary to a physical tour. Virtual
tours can only treat a longing for a tourist attraction but cannot replace the in-person
experience [14].

4.2 Is There Any Influence of Virtual Tour on Tourists’ Visit Interest

and Decision?
To see if there is an influence of virtual tour on tourist visit interest and decision, the
partial test was applied. This test is carried out by comparing Tcount with Ttable or by
looking at the significance column for each Tcount with a value of = 0.05 [17]. In the T-
test, decision-making is made with several criteria: if the value of Tcount > Ttable, then
 Are Tourists Interested and Finally Decide to Visit Tourist Attraction 717

there is a significant effect of the independent variable (X) on the dependent variable (Y),
and it means that the alternative hypothesis is accepted. The null hypothesis is rejected
and vice versa.
Based on the results, the value of the T-test on the first alternative hypothesis (H1a)
is Tcount > Ttable (7.342 > 1.983), which means the first alternative hypothesis (H1a)
is accepted and has a significant effect. This explains that virtual tour has evidently
influenced tourist visit interest. Furthermore, the second alternative hypothesis (H1b)
shows that Tcount > Ttable (6.607 > 1.983), so the virtual tour variable has a significant
effect on the decision to visit and (H1b) is accepted.

4.3 Prediction of the Tourists’ Visit Interest and Decision

To predict the likelihood of tourists’ visit interest and decision, simple regression equa-
tion was used. The equation of simple regression for Y1 = 10.394 + 0.566X, which
means that the consistent value of the visiting interest variable is 10.394. The X regres-
sion coefficient of 0.566 states that for every 1% addition to the virtual tour value, visiting
interest increases by 0.566. This regression coefficient is positive, so we can assume that
the direction of the influence of the X variable on Y1 is positive.
Furthermore, for Y2 = 14,793 + 0,711X, the constant of 14,793 means that the
consistent value of the visiting decision variable is 14,793. The X regression coefficient
of 0.711 states that for every 1% addition of the virtual tour value, the value of the
decision to visit increases by 0.711. This regression coefficient is positive, so we can
assume that the direction of the influence of the variable X on Y2 is positive.

4.4 How Strong the Relationship?

To see the strength of the correlation between variables, Pearson Correlation Analysis
was utilized. This correlation is a statistical test tool used to test the strength of the
relationship between two variables when the data is interval or ratio scale. Calculating
this correlation requires that the population and the sample come from two normally
distributed variants [15]. The results of the Product Moment Correlation analysis will
obtain a correlation coefficient of (r) which is then used to determine the strength of the
relationship (correlation), which is described in the categories: 0–0.199 very weak; 0.20–
0.399 weak; 0.40–0.599 medium; 0.60–0.799 strong; 0.80–1.0 is very strong. Based on
this study’s results, virtual tours’ effect on visiting interest and the influence of virtual
tours on visiting decisions are at a moderate correlation level with values of 0.588 and
0.547.

4.5 The Contribution of Virtual Tour to Tourists’ Visit Interest and Decision

To find out the contribution value of some factors, we look at the coefficient of determina-
tion value. The Coefficient of Determination is symbolized by R2 , which is meaningful
as the contribution of the influence of the independent variable (X) on the dependent
variable (Y). This R2 value is used to predict and see how much influence the X variable
contributes to the Y variable [16]. The value of the coefficient of determination ranges
718 H. Ulinnuha et al.

between zero and one. A value close to one means that the independent variable (X)
provides almost all the information needed to predict the dependent variable (Y).
Based on the results of this study, we found that the R2 value for the influence of
virtual tours on visiting interest was 0.346, which means that the effect of virtual tour
variables on visiting interest variables was 34.6%. Meanwhile, the impact of the virtual
tour variable on visiting decision is 0.30 or 30%.

5 Conclusion and Recommendation

5.1 Conclusion
Based on the results of research on the influence of virtual tours on tourists’ interest and
visiting decisions, the conclusions as follows:

1. The virtual tour variable has an influence on the tourist visit interest and decision,
even though the power is not strong (moderate level).
2. The ability of the virtual tour variable to influence the tourists’ interest and decision
to visit by 34.6% and 30% respectively.

5.2 Recommendation
Although virtual tours have been shown to positively influence audiences to decide
to visit or are at least interested in visiting a tourism destination, their influence is
not considerable or is classified as moderate. Based on the analysis of the virtual tour
component’s description, the value in terms of actual experience needs to be increased.
A virtual tour, it is commonly believe, can never replace the experience of a physical
tour [14, 15]. Nonetheless, there are a variety of efforts and methods that can be used
to make virtual tours more real, such as the use of virtual reality rather than desktop
version [16].

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10.3389/fcomp.2020.00023/full
 Ways of Optimizing the Environmental
and Operational Mobility of Passenger
Transportation in Megacities

Volodymyr Porfirenko(B) , Dmytro Dekhtiarenko , Liliia Lytvyshko ,

Mykola Hrebelnyk, Valentyna Artemchuk , and Oleksii Parokhnenko

National Transport University, Kyiv, Ukraine

[email protected], [email protected], {artevalen,
aparohnenko}@ukr.net

Abstract. In the modern world, motorization is a central problem of noise gen-

eration, spread of harmful substances and respiratory diseases due to the use of
internal combustion engines. The consequence of the popularization of one’s own
car is the formation of traffic jams, which lead to the loss of time that people could
use to create the gross domestic product of the state and improve social welfare.
The reason for choosing a car is that people live in cities that do not have a sustain-
able and developed urban transport system, there is no parking space policy, traffic
rules are ignored, or the city is densely populated, etc. Even with the right policy,
with the existence and implementation of a plan for sustainable urban mobility of
the population, it is impossible to completely solve the problem of motorization,
so it is worth implementing creative transport solutions.
The purpose of the article is to analyze the level of traffic jams in the world’s
largest megacities, implemented measures to overcome them, and the level of
development of urban passenger transport. Based on these data, the goal is to pro-
pose a concept of modular electric buses that will ensure the economic feasibility
of using different capacities and types of rolling stock to move people and goods
around the city and improve environmental performance.

Keywords: Management · Electric bus · Megacity · Environment · Passenger

transport · Automobile transport · Bus transport · Congestion reduction ·
Modular principle · Environmental mobility · Economic and synergic effect

1 Introduction
The process of increasing the urban population (urbanization) is a historical and unceas-
ing process that creates constant challenges in the matter of mass comfortable, cheap,
fast and ecological movement between the points of residence, work or study, recre-
ation and entertainment, food and shopping facilities. These challenges are partially or
almost completely solved thanks to the fight against automobilization, which arose and
became established as a negative phenomenon of human development in the 20th cen-
tury, through a clear concept of popularizing municipal transport. Why use your own car

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 720–732, 2023.
https://doi.org/10.1007/978-3-031-26956-1_67
 Ways of Optimizing the Environmental and Operational Mobility 721

in the city? Leave it in the multi-level parking lot next to the house and change to public
transport, which runs strictly according to the schedule, does not stand in traffic jams,
because it moves along dedicated lanes. Its services can be paid in advance or directly
during the trip in a special application on the phone. Plan things and don’t worry that
you won’t be able to get to the designated place on time. Your choice also allows you to
improve the ecological component of the city.
Despite this, city management and city specialists are not always able to replan and
rebuild cities for the modern needs of the population, when large sleeping areas are not
provided with a sufficient number of jobs and residents have to go to another part of the
city, creating a lot of road traffic.

2 Literature Review
Having studied the material about public transport in Istanbul, Tokyo, London and New
York, it is safe to say that these megacities have developed perfect transport systems.
Their approaches to reducing congestion are classic, justified, but insufficient due to
overcrowding. It is difficult to change people’s preference for using a car having different
categories of people living in the city, with different outlooks and habits that have been
formed over the years, and the COVID-19 pandemic has worsened this situation even
more because people are afraid of getting sick when using public transport.

3 Research Methodology
The following general scientific methods were used to achieve the research goal and to
solve the relevant problems: statistical and comparative analysis - ranking of the world’s
cities by the level of road traffic, created by the Dutch consumer electronics manufacturer
TomTom, which receives data through to the use of its navigation technologies in devices
since 2017. They cover 600 million drivers, 404 cities, 54 countries around the world and
enable the global community to analyze the information collected over the past 5 years
and create a cleaner world without traffic jams.

4 Results
TomTom’s website research shows that in 2021, the highest urban road congestion in
the world was observed in the Turkish city of Istanbul, where traffic reached 61%, an
increase of 11% compared to 2020 [1]. This situation is explained by the fact that the
area of the city reaches 5345 km2 , it is divided by the Bosphorus strait into two parts
- the Asian (Anatolian side) and the European (Thracian side). Most of the workplaces
are located on the larger side, Thracian, so there is a constant pendulum migration of
the population, which is about 15.4 million people, through three road bridges and one
underground tunnel, a railway bridge, the carrying capacity of which is limited.
Despite the developed public transport in Istanbul, such as the metro and light rail
transport, which has a total of 107 stations, 4 routes of the ground tram, bus routes and
metrobuses that run on the ring road with an interval of 30 s, with 45 stops, the city
722 V. Porfirenko et al.

authorities are unable to solve the problem of motorization due to poor driving culture,
traffic violations, lack of parking rules, etc.
As of February 2022, according to the Turkish Statistical Institute (TUIK), 4 million
688 thousand 22 vehicles were registered in the city, of which the largest percentage
was passenger cars - 54.3%, pickup trucks - 16.3%, motorcycles – 14.9%, tractors – 8%,
trucks – 3.5%, minibuses – 1.9%, large buses – 0.8%, special purpose vehicles – 0.3%.
Despite this, the total number of movement participants was 25 million 385 thousand
84 [2].
Let’s display the traffic level of the city of Istanbul in the Table 1 [1].

Table 1. Istanbul traffic level on average for 2021, %, according to TomTom website data

Day
Sun Mon Tue Wen Thu Fri Sat
Time
25 14 5 6 8 8 14
12 AM
13 2 0 0 1 0 4
4 0 0 0 0 0 0
2 AM
0 0 0 0 0 0 0
0 0 0 0 0 0 0
4 AM
0 0 0 0 0 0 0
0 16 13 12 12 10 3
6 AM
0 61 53 51 50 46 9
2 93 84 79 79 70 17
8 AM
6 76 74 68 69 58 26
11 59 64 60 60 54 36
10 AM
15 55 62 60 60 57 45
22 58 64 63 66 62 56
12 PM
31 61 67 66 69 56 72
39 67 73 72 76 72 82
2 PM
42 73 80 79 83 89 84
40 82 88 87 91 99 78
4 PM
40 95 100 99 102 108 73
40 109 113 112 113 116 70
6 PM
37 85 89 88 89 95 64
31 46 50 51 51 36 53
8 PM
29 24 29 30 30 42 45
27 14 19 21 21 29 40
10 PM
22 10 12 14 15 22 31

According to the table, the peak rate of traffic jams was observed every Friday, in
the evening peak, from 4 to 7 p.m., paralyzing movement on the roads from 99 to 116%.
Similar situations were observed on Monday, between 5 and 6 p.m., 95–109%, Tuesday
- 100–113%, Wednesday - 99–112%, on Thursday, between 4 and 6 p.m., 91–113%.
The only morning overload occurred every Monday around 8 a.m., 93%.
On an annual basis, traffic jams hampered the city the most in March, reaching 70%,
and in November – 71%.
We will display complete information for 2021 in Fig. 1 [1].
During the year, car users lost an additional 226 h or 9 days and 10 h on the road
when traveling during the peak load period.
Let’s compare Istanbul with similar megacities from different parts of the planet.
 Ways of Optimizing the Environmental and Operational Mobility 723

The Japanese capital Tokyo, with a population of 13.9 million people and a density of
4,800 people/km2 , as well as an agglomeration with up to 30 million inhabitants, solves
the problem of motorization by means of multi-level interchanges and underground
tunnels, limiting the maximum speed to 60 km/h on toll roads and 40 km/h on normal
roads, which is monitored by smart sensors installed every 300 m. The data is sent to
the main information processing center of the average speed, and significant fines are
issued for violations. The situation is similar with parking, when a car can be evacuated
for stopping in an unspecified place, since there are enough parking lots in the city.
The authorities notify citizens about the formation of traffic jams through radios,
navigators and special applications for motorists, and offer alternative routes, thanks to
the presence of 12 ring roads, 8 of which are free.
At the legislative level, benefits have been approved that allow cars with an engine
volume that does not exceed 0.66 l and dimensions of 3.4 × 1.48 × 2 m to have a
“discounted” yellow state license plate, which allows you to pay less to the budget, than
cars larger in power and dimensions [3].

%
80 65 67 70 67 68 69 71 68
70 64
60 49 51
50 44
40
30
20
10
0
Months

Fig. 1. Traffic level histogram in Istanbul for 12 months of 2021

Public transport is represented by a large network of the metro (290 stations located
on 12 lines), railways (18 suburban lines that connect in a network of stations in the
territory of 23 districts of the city), one tram line (12.5 km, 30 stops, another network
liquidated in 1967) and buses.
An interesting fact is that most employers pay for the travel of their employees by
buying them travel tickets as part of the social package.
Tokyo ranks 17th in the world and 5th in Asia for traffic in 2021 with 43%, which is
2% more than the previous year.
The load level of Tokyo city roads is shown in the Table 2 [4].
According to the table, the biggest traffic jams paralyzed the city every Friday, around
8:00 a.m. - 72%, and from 5:00 p.m. to 6:00 p.m. - 70–72%.
The maximum average annual peak load on roads was observed in December – 50%.
Let’s display this information in Fig. 2 [4].
During the year, people spent 148 h more on the road due to traffic jams.
The British capital, London, with a population of 8.9 million people, covers an area
of 1,572 km2 , has a developed subway network consisting of 12 lines with 262 stations,
724 V. Porfirenko et al.

Table 2. Traffic level of Tokyo on average for 2021, %, according to the TomTom website

Day
Sun Mon Tue Wen Thu Fri Sat
Time
7 5 7 8 8 9 8
12 AM
5 4 6 6 8 7 7
4 4 5 5 5 6 5
2 AM
2 3 5 4 5 5 4
1 5 6 6 6 6 4
4 AM
1 13 14 13 13 14 7
4 42 41 41 39 42 20
6 AM
10 67 67 66 64 68 31
16 66 67 65 65 72 36
8 AM
24 53 55 54 56 63 43
33 52 54 53 55 62 54
10 AM
38 50 51 51 53 59 59
38 44 45 45 46 52 56
12 PM
38 42 43 43 44 49 53
39 47 47 47 49 54 54
2 PM
39 49 49 49 51 58 55
40 49 50 51 53 62 57
4 PM
38 57 59 60 61 72 61
31 54 57 58 58 70 51
6 PM
24 35 36 36 37 49 34
20 23 24 24 25 32 25
8 PM
14 16 17 17 17 21 18
9 11 12 12 12 14 12
10 PM
7 9 9 10 10 11 9

60 % 47 48 50
48 45 45
50 42 41 43 40
36 38
40
30
20
10
0
Months

Fig. 2. Traffic level histogram in Tokyo for 12 months of 2021

a popular network of routes served by double-decker buses, the Tramlink tram system
(4 routes, 28 km).
The trains connecting Greater London with its suburbs are sometimes called the
above-ground part of the subway. London Overground is an independent transport system
that connects 8 routes and 83 stations mainly in the western and northern parts of the
city. Half of the routes depart from the Highbury area.
The light railway (Docklands Light Railway or DLR), on the other hand, is considered
part of the London Underground. It is an important transport artery in the eastern part
of the city, which was created to serve Dockland (an office and white-collar area). DLR
 Ways of Optimizing the Environmental and Operational Mobility 725

currently includes 45 stations on 7 routes; some stations connect to subway lines. DLR
trains are operated automatically, there are no drivers.
The city is divided into 6 main zones. The fare takes into account the crossing of
metro zones - the more zones covered by the trip, the more expensive the fare. You
cannot leave the paid zone, for control, the one-time ticket must be kept until the end of
the trip [5].
The city ranks 55th in the world and 32nd in Europe in terms of road congestion
with an indicator of 33%, which is 2% more than in 2020 [6].
London has been combating congestion by charging fees for movement in the central
part of the city since 2003, and since April 8, 2019, this decision has been supplemented
by new environmental restrictions. An amount of £12.5/day has been added to the already
existing charge of £11.5 if the car is over 4 years old and runs on diesel fuel, or if it is
over 13 years old on petrol. In general, you will have to spend 24 £/day to use the roads
of the center [7].
The level of loading of the roads of the city of London is shown in the Table 3 [6].

Table 3. London traffic level on average for 2021, %, according to the TomTom website

Day
Sun Mon Tue Wen Thu Fri Sat
Time
14 7 5 6 7 8 12
12 AM
10 3 2 3 3 5 9
7 1 1 1 2 3 6
2 AM
6 0 0 0 1 1 4
2 0 0 0 0 0 2
4 AM
0 1 1 1 1 1 0
0 16 17 17 16 14 2
6 AM
2 40 43 42 40 34 7
5 48 54 53 50 43 12
8 AM
11 34 39 38 37 34 21
18 30 32 33 33 34 31
10 AM
27 32 33 34 35 40 40
35 34 35 36 37 45 47
12 PM
36 34 35 36 37 46 48
33 36 37 38 40 51 44
2 PM
30 43 45 47 49 62 39
28 44 49 51 53 64 36
4 PM
28 45 50 53 55 62 34
27 36 40 44 46 53 32
6 PM
23 24 26 29 31 38 28
19 17 18 19 21 26 23
8 PM
14 13 14 15 16 19 19
12 11 13 14 16 18 18
10 PM
10 8 10 11 13 16 17

According to the table, London traffic jams peaked from 3 p.m. to 5 p.m. - 62–64%,
so at this time it is worth giving up your own car or taxi services.
People spent 119 h in traffic jams if they used their own car.
The maximum average peak traffic was observed in November – 39%. Let’s display
the complete information for 2021 in Fig. 3 [6].
New York has a well-developed network of public transport, which allows not only
to get anywhere in the city without problems, but also to get to satellite cities or the
nearest agglomeration.
726 V. Porfirenko et al.

%
45 38 38 39
40 33 36 36 33
33
35 30 31
30 25
25 20
20
15
10
5
0
Months

Fig. 3. Histogram of the level of traffic in the city of London for 12 months of 2021

The largest carrier is the Metropolitan Transportation Authority (MTA), which

includes subway, bus routes and commuter rail operators.
The metro has 472 stations. Each line is marked with a letter or number. In Manhattan,
almost all lines go north (uptown) or south (downtown). Therefore, in order to reach the
Queens and Bronx areas, you need to follow the first direction, and in Brooklyn - the
second. Directions are indicated above the entrance to the station. If there is no such
inscription, then the trains go in both directions.
Local trains stop at stations marked with a black dot, and express trains stop at those
marked with a white dot. It should be taken into account that the first type of train stops
at every station, the second - only at some of them.
Another type of low-cost transportation in New York is the buses that run throughout
the city. The route number and final stop are indicated above the windshield of each.
If the marking of the bus starts with B - it runs through Brooklyn, Bx - Bronx, M -
Manhattan, Q - Queens, S - Staten Island. You can also see buses marked SBS (Select
Bus Service) on the streets of the city. This means that there is an increased level of
comfort on the route, and the travel time is minimal. The main feature of such transport
is that the fare must be paid before boarding. There are also express bus routes. You can
recognize them by the letters M or X added to the main number. The exception is only
buses in the Manhattan direction, where there are no express trains. Drivers stop only
on request. To stop the bus, you need to raise your hand, and to get off, press the stop
request button. Also, buses of other companies run through New York, which usually
allow you to go outside the city.
Two railroads pass through New York - the Long Island Rail Road and the Metro-
North Railroad.
The Long Island Rail Road is the oldest railroad in the United States. It consists
of 11 lines that stretch from Manhattan to Suffolk County on eastern Long Island. The
main terminals are Penn Station, Atlantic, Jamaica.
Metro-North Railroad is a commuter rail network with five lines heading north of
the city on both sides of the Hudson River.
The legendary yellow taxis, which are one of the causes of traffic jams in New York,
operate on almost all streets of the city [8].
 Ways of Optimizing the Environmental and Operational Mobility 727

New York plans to introduce a congestion tax. Motorists entering midtown Manhattan
will be charged once a day. Drivers will pay $23 during peak hours, and the night rate
will be $5. The tax is expected to reduce the number of cars in Manhattan, which is
considered the most congested area in the United States, by 15–20%. At the same time,
the load on public transport will increase by only 1–2%.
It is assumed that the tax will provide the New York Metropolitan Transportation
Authority with $15 billion in revenue over four years. These funds will be used to develop
municipal transport.
Approximately 7.7 million people visit Manhattan’s central business district every
day, of which 1.85 million enter by car. Traffic slowed down in the center to 11.4 km/h.
This costs the average New York City driver 102 h of wasted time each year.
A number of peak hour tolling scenarios are proposed. For example, in one of them,
vehicles such as taxis and transit buses will be completely exempt from tolls. The fee for
entering Manhattan will not be introduced until the end of 2023. The New York State
Legislature approved the conceptual plan for this reform back in 2019 [9].
Meanwhile, the city ranks 2nd among North American cities and 43rd in the world
in terms of traffic congestion – 35%, which is 9% more than in 2020.
The level of loading of New York City roads is shown in the Table 4 [10].

Table 4. Average traffic level of New York City in 2021, %, according to the TomTom website

Day
Sun Mon Tue Wen Thu Fri Sat
Time
12 7 6 7 9 9 13
12 AM
7 4 4 4 6 6 8
5 3 2 3 4 3 5
2 AM
3 1 1 1 2 2 3
2 0 0 0 0 1 2
4 AM
0 4 4 4 4 4 1
0 19 20 20 21 18 3
6 AM
1 35 37 37 38 31 7
4 40 44 43 45 37 12
8 AM
9 32 35 36 39 32 18
15 29 32 33 36 33 26
10 AM
22 30 33 34 37 37 34
29 32 34 35 38 41 41
12 PM
35 34 36 38 41 47 44
38 41 44 47 51 60 47
2 PM
39 48 53 56 61 72 47
38 51 57 60 66 77 45
4 PM
36 50 58 62 69 74 42
34 38 45 49 56 60 39
6 PM
32 24 29 32 39 43 33
29 18 21 23 28 32 29
8 PM
25 14 15 17 20 24 24
18 12 13 15 16 20 21
10 PM
12 9 11 12 13 17 17

According to the table, it was problematic to use a car without getting into a traffic
jam in the period from 3 to 5 p.m., every Friday, 72–77%.
Car owners spent 119 h more per year on trips.
728 V. Porfirenko et al.

On an annual basis, October turned out to be the most unfavorable month for traveling
by own car, while the average traffic figure was 43%. Let’s show the full information for
2021 in Fig. 4 [10].

%
50 43
45 40 42 41
40 33 36 35 34 34
35 29 30
30
25 22
20
15
10
5
0
Months

Fig. 4. Histogram of traffic levels in New York City for 12 months of 2021

The given tables of the hourly traffic of the roads in the world’s major metropolises of
Istanbul, Tokyo, London, and New York convincingly show that there is non-stationarity
in the flow of passengers by hours of the day, days of the week, months of the year, and,
as can be seen from the histograms, the uneven traffic congestion of city highways. And
this problem will not be solved by itself. On the contrary, the increase in the population
of megacities is a progressive phenomenon and leads to an increase in traffic problems.
Reloading city roads leads to environmental and social problems. We have to fight this.
The analysis shows that the management of the world’s megacities have different
approaches in the fight against traffic jams, but they solve the problem of popularity
and the use of private vehicles instead of public transport only partially, that is why, for
example, the EU has approved a hydrogen strategy that will allow to gradually abandon
the use of fossil fuels and completely switch to green technologies.
The EU’s hydrogen strategy envisages the widespread use of hydrogen as an energy
carrier for those sectors that cannot be electrified and aims to reduce carbon dioxide
emissions by industrial facilities, transport, energy, construction, etc. to zero. After all,
hydrogen is a fuel, during the combustion of which water is formed, and its widespread
use should become an important means of decarbonization (rejection of the use of fossil
hydrocarbons - coal, gas, oil, etc.) of the EU economy.
The production of so-called renewable hydrogen, i.e., obtained by electrolysis at the
expense of renewable energy sources, mainly wind and solar energy, is a priority for the
EU. From 2025 to 2030, it is planned to increase the capacity of electrolyzers in the EU
to 40 gigawatts, and the annual production of hydrogen to 10 million tons. By 2050, the
production and use of hydrogen should increase even more. In particular, it is assumed
that it will be used as a means of balancing the electricity system (daily and seasonally)
based on renewable energy sources. By 2050, about 20% of renewable electricity can
be used to produce renewable hydrogen.
The EU’s hydrogen strategy predicts that the total investment in renewable hydrogen
in Europe could be between 180 and 470 billion euros by 2050. According to analysts’
 Ways of Optimizing the Environmental and Operational Mobility 729

estimates, by 2050, hydrogen can provide up to 24% of the world’s energy needs, and
its annual sales will amount to 630 billion euros.
In order to implement the Hydrogen Strategy, the European Commission created the
European Clean Hydrogen Alliance, which includes enterprises, public organizations,
ministries and the European Investment Bank. The presentation of this alliance took
place on July 8, 2020.
Thus, a real energy revolution is beginning in the EU. And not only energy. The
above-mentioned strategies envisage significant changes in all sectors of the economy,
in the way of life and in achieving a new quality of life [11].
The new quality of life involves the gradual introduction and implementation of the
principles of ecological mobility - a system of green economy standards that provide
for the transition to ecologically safe transport that is gentle on the environment. These
principles allow the population not only to sort garbage, but also to use the expected
urban environmentally friendly electric transport, to use and create new renewable energy
technologies, saving time and money. The concept of ecological mobility allows and
forces the use of vehicles both structurally and operationally, preserving and protecting
nature and the environment.
We propose to implement ecological mobility in the field of urban bus transportation
and other public utilities, introducing, together with ecological and operational mobility,
the possibility of reducing the critical load on city highways and traffic jams on them
through the rational use of rolling stock of different passenger capacities and the intro-
duction of a modular principle that allows the use of universal bus electric locomotives,
bodies of various classes and lengths, both passenger and cargo. This will make it possi-
ble to reduce traffic jams on highways, driver labor costs, reduce emissions of CO2 and
PM2.5 fine particles, reduce the number of respiratory diseases among the population,
etc.
The concept of modular application of electric buses involves the combination of an
electric tractor and electric passenger trailers to it [12–15]. In order to save money, a
multifunctional electric universal tractor can act as an electric tractor, and as an electric
trailer - a large-capacity rolling stock for the transportation of passengers.
During a work shift, trailer-modules with different passenger capacities can be
attached to the electric tractor. During peak hours, it should be a large-capacity rolling
stock, in the evening and at night - a low-capacity one. Based on the needs of passenger
transportation, modular electric buses can be conventionally divided into three groups
by passenger capacity (Fig. 5) [13]:

– small (small capacity, up to 10 m, with a passenger capacity of 30–50 people),

– medium (middle capacity, 12–15 m, with a passenger capacity of 50–100 people)
– large (large capacity, over 22 m, with a passenger capacity of 100–150 people).

That is, depending on the passenger flow, the city carrier will be able to adjust
the capacity of the rolling stock, choosing small capacity, middle capacity or large
capacity salons, thus rationally using the rolling stock. Each such electric machine must
consist of a tractor and possible modules, which are alternately attached to the electric
tractor. Each module will have its own battery and will be powered independently of
other modules. The modules will stand at the end points of electric bus turnover, where
730 V. Porfirenko et al.

Fig. 5. Organization of the modular principle of the formation of a passenger electric bus: a)
electric modular truck, b) small capacity, c) middle capacity, d) large capacity salons.

they can be recharged at special charging stations. At the moment, the efficiency of
recharging electric trailer batteries depends on the type of battery and, based on this,
there are opportunities to use fast charging. Also, the charge level, and as a result, the
power reserve, when the air temperature is below zero, can be much lower than usual.
Since winters can be quite cold in some regions of the world, it makes sense to develop
batteries that would be resistant to extreme climatic conditions.
The batteries of the electric tractor during the day shift can be recharged from the
batteries of the trailers. In turn, electric trailers, when idling while waiting for their turn
to go to the line, must be constantly charged. This will ensure continuous operation of
tractors, which will constantly receive electricity from “fresh” trailers.
In general, if you correctly calculate and effectively optimize the number of elec-
tric tractors and rolling stock of electric trailers, taking into account the non-stationary
passenger flow, it is possible to achieve a minimum downtime of electric tractors at
the points of turnover of electric buses. That is, choose the optimal number of rolling
stock, which will minimize the length of time you have to wait for battery charging. In
the morning and evening peak hours, the electric tractor must transport large-capacity
electric trailers, in the off-peak period - medium-capacity trailers, and in periods of low
passenger traffic (late evening and night time, weekends and holidays) - low-capacity
trailers. The number and composition of rolling stock in each hour on the route must
be determined taking into account a complex of factors: traffic congestion, the state of
environmental pollution on the route, non-stationary passenger flow, seasonality, days of
the week, hours of the day, etc. Such a modular system will make it possible to flexibly
respond to the needs of changing the passenger capacity of the rolling stock of electric
buses during the work shift. The number of truck tractors and their drivers (in the long
 Ways of Optimizing the Environmental and Operational Mobility 731

term, the automated use of electric buses without drivers at all is possible) with the mod-
ular principle is less than the total number of electric trailers, which leads to a significant
reduction in the total cost of passenger transportation and the economic efficiency of the
system [12].
Effective use of the proposed modular system also involves a synergistic effect from
the non-passenger use of electric tractors - for work with cargo, utility, service and
special trailer-modules (Fig. 6).

Fig. 6. Other freight possible usages for modular electric trucks: a) electric truck; b) electric trash
truck; c) electric dump truck; d) electric tank truck.

5 Conclusions
Ecological mobility involves the mass use of electric cars and the transfer of passenger
road transport to electric bus rolling stock, which will significantly reduce environmen-
tal pollution and reduce the “greenhouse effect”. The positive environmental effect of
electric traction can be complemented by an innovative modular system of using electric
bus tractors and electric trailers of various passenger capacities for route transporta-
tion in metropolitan cities. The automotive industry must face the task of developing a
type of modular electric rolling stock. Operational mobility when using multi-capacity
passenger vehicles will allow to significantly reduce the costs of operating bus fleets
and rationally decongest the roads of megacities. The synergistic effect of the modular
application of the type series of electric locomotives will allow their use not only in
passenger transportation, but also in cargo, communal, food, special and other types of
road transportation, which will significantly increase the efficiency of motor vehicles.
732 V. Porfirenko et al.

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«Econ. Sci.». Sci. Tech. Collect. 2(49), 131–141 (2021)
 Analysis of the Potential of Tourism Restorative
Destinations to Overcome Health Disorders Due
to Work Fatigue
(Study on Perceived Destination Restorative Qualities (PDRQ) in
the Context of Tourism)

Ratna Roostika1(B) and Punik Mumpuni2

1 Management Department, Universitas Islam Indonesia, Yogyakarta, Indonesia
[email protected]
2 Medical Department, Universitas Islam Indonesia, Yogyakarta, Indonesia

Abstract. The tourism industry is greatly affected by environmental changes.

Especially after the world went through the Covid pandemic era, people prefer
doing healthy tourism. The daily workload, the increase in education and welfare
have resulted in a shift in the trend of tourism choices. People are increasingly
considering the fulfillment of work-life balance. This study is designed to examine
the elements contained in the measurement of the restorative quality of destina-
tions known as “Perceived destination restorative quality (PDRQ)”. PDRQ con-
sists of four elements, namely being away, extent, fascination, and compatibility.
These four elements will be tested for their effect on the overall restorative impact
and visitor satisfaction. A quantitative study will be conducted in Indonesia with
tourism objects in Jogjakarta and Central Java covering rural and urban areas.
SEM statistical analysis tools will be used to test the validity and reliability of
the data collected. This research will enrich the literature review in the field of
health tourism and for managers will be useful to further broaden the perspective
of offering tourism program that has more restorative impacts.

Keywords: Restorative destination · Restorative quality · Recovery and tourists’

satisfaction

1 Introduction
The rate of economic growth and global competition makes the workload heavier. The
working hours often have to be extended to meet the target. Research from the US
Families and Work Institute identified that one in three American workers are consid-
ered chronically overweight [1]. Conditions in Indonesia are also not much different,
economic growth and high work pressure increase the number of people with mental
emotional disorders. Increasing workloads and demands trigger health problems due to
accumulated work fatigue. This phenomenon needs immediate attention and anticipa-
tory action, because if left uncontrolled, it can reduce the productivity and performance
of employees (community) and increase government health expenditures.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 733–741, 2023.
https://doi.org/10.1007/978-3-031-26956-1_68
734 R. Roostika and P. Mumpuni

The tourism sector is currently showing a shifting trend from sightseeing experi-
ences to healing and recovery oriented tourism. This shift in tourism motives cannot be
separated from global conditions where economic growth is increasing and job demands
are also increasing. As a new lifestyle, global recreation has increased [2] supported by
advances in technology, education and the economy. The interesting thing is that the
trend of tourism and vacation travel (leisure vacation) has changed where previously the
motivation for vacationing was more for sightseeing to being a vacation for relaxation
and health [3]. People are increasingly concerned about the importance of life balance
(work and rest/relaxation) and the fulfillment of a healthy lifestyle. Tourist attractions
with natural nuances that give the effect of relaxation and togetherness (social relation-
ships) are increasingly in demand [4]. Places that are most favorite to visit include:
nature tours, flower gardens, fruit gardens, outdoor, or hotels and restaurants that pro-
vide a natural atmosphere and fresh air (green environment) that can provide a relaxing
effect.
The shift in travel motivation that leads to the improvement of health has begun
the interests of multidisciplinary scientific research such as in the fields of tourism,
environmental psychology, health, business and architecture. Taking into account the
definition of health according to the World Health Organization (WHO) “health as a
state of complete physical, mental and social well-being and not merely the absence
of disease or infirmity”. This means that health includes mental and physical health as
a whole. There is no health without mental health. Good mental health makes people
realize their potential, are able to cope with the normal stresses of life, work productively,
and contribute according to their capacity in their environment.
This study aims to examine and analyze the quality of restorative destination elements
relationship to the overall recovery and visitor satisfaction effects. The research will be
tested in remote tourism objects and urban/city objects in Yogyakarta. From the research,
it is hoped that an increase in the understanding of the restorative effects of destinations
by tourism managers will be achieved as well as the optimization of vacations as a
means of recovery and improvement of mental health. It is hoped that this research will
contribute to the addition of the completeness of the literature in the field of tourism
marketing that emphasizes restorative and wellness aspects. For managers/marketing
practitioners, this research provides overview of the shift in the community tourism
trends that lead to the search for health tourism (health and wellness tourism) that need
to be seized by optimizing community capabilities, management and natural potential.

2 Literature Review
2.1 Fatigue, Restoration and Vacation
Fatigue due to work (work-related fatigue) is a common phenomenon and to a certain
degree can be overcame after a person has enough rest [5]. Continuous fatigue will lead to
reduced health, increased number of employee absenteeism and decreased productivity
[6]. Recovery is defined as “the renewal or restoration of capacities (physical and mental)
that have previously decreased due to the daily heavy work” [7]. Recovery can be done
in a variety of ways, from short breaks for lunch outside the office to long vacations
away from one’s home location [8]. Prolonged fatigue requires a longer recovery termed
 Analysis of the Potential of Tourism Restorative Destinations 735

as macro-recovery [9]. Vacation is a certain period that people use to take a break from
work, school or routine activities [10]. If the burden of daily tasks and work reduces
a person’s ability and performance, taking vacations can improve both physically and
mentally [11].

2.2 Restorative Environment and Its Characteristics

Restoration is defined as the source of recovery or capacity for renewal that can decrease
due to the demands/loads of daily work [7]. One of the pioneers of restoration theory is
Attention Restorative Theory (ART) which was developed by (Kaplan) [12, 13]). This
theory states that attention that is forced (directed attention) intensively and continuously
can cause fatigue in the function of body mechanisms. Recovery of body functions is
very possible when people with fatigue problems are placed in an environment with a
calming arrangement (effortless). Otherwise, recovery known as a condition of “invol-
untary attention” or “undirected attention.” According to ART theory, an environment
that can facilitate the reduction of fatigue is a restorative environment [10]. To be more
conducive to a recovery effect, Kaplan and Kaplan in [14] emphasize the fulfillment of
four quality elements, namely being away, extent, fascination, and compatibility. The
“being away” component is a condition where a person can get away from the stresses of
daily life, routine work and thoughts. Being away is considered to be the first condition
that must be met for recovery which is often done by moving/traveling to a different
place/situation [15]. “Extent” refers to the setting which is the content and structure of
the restoration to free the human mind for a sufficient period to make directed atten-
tion rest [12]. Fascination is a component in which the restorative environment must
provide an effortless effect to do something pleasurable. Compatibility is the suitability
(fit) between individual motives (visitors) and the facilities provided from the destina-
tion (tourist object). Overall, the four components in the vacation will be examined to
tourism (visitors) in order to obtain restoration properties, so that visitors get a restorative
experience that helps recovery from fatigue.
The tourism sector has a significant complexity as compared to other industrial
sectors. Therefore, Kirillova and Lehto [13] add four restorative components to six and
are known as “Perceived destination restorative quality (PDRQ)”. The two additional
elements include separating the element of being away from ART into “being away
mentally” and “being away physically”. The six dimensions of PDRQ in the research
of Kirillova and Lehto [13] are able to significantly affect the satisfaction of visitors
who seek a restorative effect so that they can be a measure of the restoration of mental
function of visitors/tourists.

2.3 PDRQ, Recovery and Visitor Satisfaction

Destinations that provide healing effects need to have restorative quality. PDRQ -
Restorative environments are those where environmental elements can facilitate the
recovery of decreased human capacity/resources due to the pressures of daily work
activities [7]. PDRQ is currently widely used in tourism and health research as a mea-
sure of restoration quality. PDRQ research in the field of tourism and health [11] has
736 R. Roostika and P. Mumpuni

been proven to be able to provide an overall recovery effect. Overall Recovery is an indi-
vidual’s ability to recover from various mental health disorders such as fatigue, anxiety
and physical health disorders [10, 11, 14].
Therefore this research proposes the following:
H1: Perceived destination restorative quality (PDRQ) positively affects the tourist
recovery effect.
People’s motivations for vacations are vary widely, but in the context of a vacation, the
main reason is often for rest and relaxation [15]. The environment perceived by visitors
for ability to provide a healing (restorative) effect can further contribute to satisfaction
with their experience at the destination/tourist object. Vacation opportunities can reduce
work-related burnout ([16], improve health [17], energy levels and life satisfaction [6].
In this tourism context, complete restoration is the basis of visitor satisfaction from the
holiday experience. Research [6, 14, 19]) has proven the influence of PDRQ elements
and overall recovery on visitor satisfaction. Visitors’ satisfaction is a condition where
visitors’ expectations can be met by service performance or good physical condition of
objects ( [11]. Hence this study hypothesizes the following:
H2: PDRQ has a positive effect on visitor satisfaction,
H3: Overall restoration affects visitor satisfaction (Fig. 1).

Compatibility

Overall
Extent
Recovery

Mentally
PDRQ
Physically Visitors
Satisfaction
Fascination

Fig. 1. Research framework

3 Research Methodology
3.1 Research Location
This research will be conducted in Indonesia, especially tourism destinations in Java
because it is one of Indonesia’s main tourist destinations that meet the restorative criterias
(recoveries). The selection of research objects is determined based on the judgment of
researchers and experts in the field of mental health and tourism management. Two
groups of criterias for different research objects, namely natural tourism objects and
urban tourism objects (within the city) will be analyzed to see the differences in the
effects of the recovery. Natural tourism objects cover beaches, mountains, forests or
 Analysis of the Potential of Tourism Restorative Destinations 737

flower gardens. Urban tourism respondents are carried out by distributing surveys in
hotels, hospitals, cafes, or universities.

3.2 Research Design, Population, Sample, Sampling Techniques and Statistical

Techniques

This study uses a Mixed Method approach, namely using qualitative approach and quan-
titative approach [20]. The Mixed Method approach is carried out using the Sequential
Exploratory Mixed Method, which is a research procedure in which researchers develop
research results from one method to another. This method is said to be sequential because
of the use of methods that are combined sequentially. In this study, the first order uses
qualitative methods and the second uses quantitative methods. Research with a qualita-
tive approach was carried out in order to prepare a questionnaire that was in accordance
with the conditions of the respondents based on local culture.
The population is all tourists who vacation in the selected target location. The sam-
pling method chosen is purposive sampling with the stipulation that: 1. Respondents
had visited the objects determined by the researcher and 2. Respondents were at least
educated or currently studying high school. The sample plan required is about 300
respondents representing two groups of locations, namely nature tourism and urban
tourism. The target number of samples required is in accordance with the advice of Hair,
[21], where quantitative research to be tested using structural equation modeling must
meet the minimum standard of the number of respondents according to the provisions
of the statistical test equipment used. The statistical analysis tools used are SPSS and
SEM [21, 22]. The technique of compiling the scale used is the Likert scale, where the
alternative assessment numbers in this study are from 1 (strongly disagree) to 7 (strongly
agree).

4 Discussions and Conclusion

4.1 Discussions

This study is designed to analyze the four elements of restorative quality measurement
known as Perceived destination restorative quality (PDRQ). The restorative quality
which includes four elements, namely being away, extent, fascination, and compatibil-
ity will be analyzed in the context of tourism in Indonesia regarding their impact on
restorative ability and tourist satisfaction. Restorative ability in this case is the ability of
tourist destinations to provide a recovery effect from feeling tired, stressed or looking
for a calming relaxation atmosphere after days of experiencing a build up of workload
stress. The cultural aspect in this case is important to observe because each culture in
responding to restorative perceptions can be quite different.
Indonesian society, can be categorized as having an eastern culture that emphasizes
collectivism. Aaccording to Hofstede’s (1980) survey on National Culture, Indonesian
tends to prioritize togetherness as a way to get happiness/relaxation. It could be that
people from western countries will appreciate individual activities such as fishing more or
climbing mountains in the open area to get a serenity and relaxing effect. This restorative
738 R. Roostika and P. Mumpuni

impact measurement tool known as Perceived destination restorative quality (PDRQ)

when tested on different cultures will allow it to be addressed in different ways, so
that the four elements will have an overall restorative impact effect and the impact of
satisfaction is different in each different country.
Being away as described by Hartig [7] is the first condition that must be met for recov-
ery which is often done by moving/traveling to a different place/situation. For recovery,
a person needs a new atmosphere that is different from the conditions of the office where
they work every day, where employees experience a lot of work pressures. Likewise,
families also need a new atmosphere that is different and not boring to stay away for
awhile from the conditions at home with the various obligations of each members of the
family. This also applies to students who need a different atmosphere than the school
or campus where they study. This bieng away element does not have to be leaving to a
remote location or out of town. Just go to a place that gives a different atmosphere. For
employees, many of them after work go to a cafe before returning home. At the cafe
they can unwind or meet friends to communicate with each other cheerfully. The family
at the weekend decides to stay at a hotel or to a tourist destination to get a different
atmosphere. There are those who like to travel at the mall for shopping or rides in the
city. On the other hand, there are also those who choose to visit natural destinations that
are outdoor. They choose to trek to the mountains or to the beach to get fresh air and
encourage physical movement.
Being away is divided into two different things, namely physically away and mentally
away. Physically away is more defined as traveling to a different geographical location. It
can be in one city or outside the city or abroad. Mentally away is more about moving from
place to place where the contents are different activities, different people or different
kinds of people. For example, someone traveling to a place of worship, then someone
hopes they will meet people who can support the healing energy or a place of worship
is often interpreted as a place that gives the feel of a close relationship with their God.
This study considers it important to distinguish between destinations located in
rural and urban areas because they are very likely to be perceived differently regarding
their impact on recovery and satisfaction. The trends in society regarding the choice to
get recovery is an issue that must always be followed by tourism business managers.
After the pandemic ends and the world is considered to have been able to get through
this pandemic, the choice of destinations that are trending in Indonesia are natural,
beach and outdoor destinations. Even today, many cafes are built using the outdoor
concept. Destinations that do not pay attention to natural, healthy and relaxing aspects
are currently experiencing a decrease in the number of visits. Visitors feel uncomfortable
when they have to be squeezed with other people, especially in a closed room.
“Extent” refers to the setting which is the content and structure of the restoration to
free the human mind for a period of time, sufficient to make directed attention rest [12].
Destinations cannot be separated from humans or the people who occupy them. People
in a place live for generations to adapt to environmental conditions. They will form a
culture that develops from generation to generation and provides cultural richnesses that
is different from other community groups in different geographical locations. The culture
attached to this geographical area provides the content and structure of the restoration
because it is considered capable of liberating or providing a different atmosphere for
 Analysis of the Potential of Tourism Restorative Destinations 739

people from different places with their daily lives. For example, the recovery effect can
be given by staying a few days in a destination that specifically provides meditation or
Yoga exercises for relaxation and restoration.
Fascination is a component in which the restorative environment must provided in
an effortless way or by doing something pleasurable. Finding something fun is quite a
subjective condition. An object that is pleasing to one person is not necessarily pleasant
to another. A restorative destination should be able to offer something that touches the
emotional side so that people can be happy. Fascination will usually be more achievable
if tourists are involved in these tourist activities. For example, activities that are quite
popular are outbound or soft bond. This activity requires a team of trainers who can
make a person put the burdens of his life aside. Do destinations in the city have a
more fascination impact than in the village? Of course this question needs to be tested
empirically. Because fascination is very subjective among humans, It is also necessary
to find out the extent of the impact of this fascination (on urban or remote objects) on
the possibility of restorative and visitor satisfaction.
Before deciding to visit, tourists should have built expectations. If expectations are
not met at the destination, then they do not have enough restorative impact and are further
dissatisfied with the destination’s services. By responding to the shift in tourism trends
that the purpose of traveling is to get a recovery and relaxation impact, creativity to
create a fascination effect needs to be considered. This can be done through marketing
research to find out who is visiting, then segmentation targeting and positioning are made
according to the field research.
Compatibility is the suitability between individual motives (visitors) and the facilities
provided from the destination. This is the same as in the satisfaction theory, where
consumers will be satisfied if their expectations are met in reality. So in order for a match
to occur, companies need to their strengths and weaknesses as well as opportunities and
threats. This is to be optimum in serving the market, where opportunities and threats are
studied and then prepare the company’s capabilities according to existing conditions.
If the company is successful, the company’s internal strength will grow stronger. This
matching process is very important because often companies simply follow the trends that
occur in the market without examining the capabilities of the organization. This can result
in an excessive workload because it is forced to serve unlimited market opportunities.

5 Conclusion

This study pays attention to an interesting phenomenon in the tourism sector where the
motivation to travel is now more due to factors seeking the impact of recovery and health.
Concern for physical and mental health is getting more and more attention, especially
since it has been two years since the global community has been struggling with the
COVID-19 pandemic.
The tourism industry is greatly affected by environmental changes. Especially after
the world went through the Covid pandemic era which made many people like healthy
tourism. The current workload and the increase in education and welfare have also
resulted in a shift in the trend of tourism choices. People are increasingly considering
the fulfillment of work-life balance. This study was designed to examine the elements
740 R. Roostika and P. Mumpuni

contained in the measurement of the restorative quality of destinations known as “Per-

ceived destination restorative quality (PDRQ)”. PDRQ consists of four elements, namely
being away, extent, fascination, and compatibility. These four elements will be tested for
their effect on the overall restorative impact and visitor satisfaction. By using quantitative
methods, this study will explore primary data directly from respondents to respond the
elements in the PDRQ for two forms of tourism design, namely urban destinations and
remote destinations. It is hoped that this study will contribute to an in-depth literature
review regarding the relationship between PDRQ measurements, health and recovery.
In managerial terms, this research contributes to understanding a person’s motivation to
visit destinations that offer restorative facilities as well as health facilities.

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 Case Study of Pasirmulya Subdistrict, West
Java, In-donesia as a Model for Analyzing
the Development of a Tourist Village

Yopy Maulana1 , Dicky Hida Syahchari2(B) , and Azizah Omar3

1 Tourism Destination, Faculty of Digital Communication and Hotel & Tourism, Bina Nusantara
University, Jakarta, Indonesia 11480
2 Management Program, Binus Business School, Bina Nusantara University, Jakarta,
Indonesia 11480
[email protected]
3 School of Management, Universiti Sains Malaysia, George Town, Malaysia

Abstract. Rural resources can generate economic activity in rural regions. The
tourism village is a sort of rural exercise with significant growth potential. West
Java’s Pasirmulya subdistrict features several intriguing tourist attractions, includ-
ing Puntang’s world-renowned coffee. This study attempts to enhance the viability
and utility of rural tourism for locals. This research aims to explain the commu-
nity tourist development experience. A qualitative technique using a case study
methodology is used in this research. There were fifteen significant sources ques-
tioned in detail. According to the study findings, the Pasirmulya sub-district devel-
opment might serve as a pilot project for a coffee tourist village based on the area’s
potential, with enough support and infrastructure to create a new idea for a coffee
tourism village. This study is essential for locals who want to develop local goods
from a tourist standpoint. This achievement is anticipated to serve as a model for
other communities.

Keywords: Pasirmulya · Coffee · Community-based tourism · Development ·

Tourist village

1 Introduction

A tourist village is one of the activities available in rural Indonesia [1]. It is a decentral-
ized development model based on the tourist village, which aims to alleviate economic
inequality [2]. The notion of rural tourism will give local governments direct revenue
[3]. Rural tourism provides tourist items that may be obtained in the city or a portion of
the village [4]. A substantial economic expansion determines the success of the growth
of a tourist town. Significant economic growth necessitates the ingenuity and poten-
tial of people, natural resources, technology, and culture [5]. The variety of a tourist
site may consist of local culture, distinctive cuisine, natural resources, the environment,
agricultural systems, and social systems [6].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 742–746, 2023.
https://doi.org/10.1007/978-3-031-26956-1_69
 Case Study of Pasirmulya Subdistrict 743

In the Mount Puntang region, the subdistrict of Pasirmulya in the Bandung Regency
of West Java contains eleven villages with vast coffee plantations and high-quality cof-
fee. The coffee field is around 100 hectares in size, and the quality of Puntang coffee
received first place in the 2016 International Coffee Championship in Atlanta [7]. The
vast majority of inhabitants are farmers and coffee processors. They are adept at planting,
harvesting, and processing coffee. The renowned Puntang coffee-producing region’s con-
cerns at the Atlanta festival have not been brought to the attention of regional, national,
or even international authorities. The provincial administration has been unable to do
this in the past; therefore, the proportion of tourist visitors has always been low. Puntang
coffee, which has excellent quality and tradition of coffee producers, is utilized as a
concept and progress because visitors are abandoning the environment of contemporary
tourism and embracing natural tourism (return to nature), which is rich in culture and
history (culture and tradition).
The government program outlined in the National Strategic Plan of the Ministry
of Culture and Tourism conducts the rural tourism program to enhance visitor arrivals,
particularly from outside. Tourism development in rural regions should be a strategic
goal if rural economic diversification is to be supported.
This paper is titled Analysis of the Development of a Tourist Village: A Case Study
of Pasirmulya Subdistrict, West Java. The purpose of this study is to characterize the
potential development of a tourist village and apply it to the development of the potential
of traditional Sundanese-based rural tourism communities in West Java. The research
gap in this study complements rural tourism development in West Java.
The site of the inquiry is Pasirmulya Subdistrict in West Java. This study is anticipated
to bridge the village community’s desire to bring coffee and culture and the local govern-
ment’s support for eventual implementation. Second, to use the Pasirmulya District as a
test site for the Coffee Tourism Village floating project. The success of the Pasirmulya
subdistrict as a pilot initiative will snowball effect on other places with varying potential.
The paper’s structure is as follows: The section first provides an overview of rural tourist
views. The second portion examines the research methods, and the third piece provides
the findings together with a short explanation of the emphasis of this study: the lack of
a significant number of facilities in this region, which makes it imperative to find ways
to assist rural tourism. Then, in section four, this research’s conclusion proposes a way
to develop the potential of coffee-based tourist cities and implements the findings in the
corridor of coffee-based tourism’s potential development in West Java.

2 Research Method
This study employs a qualitative approach and the case study technique to investigate
and explain the experience of community tourism development (CBT), focusing on the
engaged players. This study will use this methodology to determine the uniqueness
of building a tourist village in the Pasirmulya subdistrict. It intends to demonstrate the
importance of collaboration between organizations in developing community tourist vil-
lages. Therefore, this case’s lessons can only be applied to rural tourism with comparable
features. This research gathered information via in-depth interviews between March and
July of 2021. Informants were chosen deliberately.
744 Y. Maulana et al.

A total of 15 key informants were interviewed in-depth: consisting of (1) local

communities, namely informal community leaders (2); tourist village managers by the
name of Pokdarwis (3); youth organizations (4); the village government, namely the head
of the district and the head of the village (5); academics or researchers from the Bina
Nusantara University (6); coffee producers. This research uses focus group discussions
and in-depth interviews to collect information from respondents.
The following describes the steps required to execute this study’s activities: The first
stage in building tourism coffee villages is to examine the region’s situation by gathering
data to interpret better rural circumstances, which will be the primary purpose. The sec-
ond phase is creating a strategy for the current commercial tourist circumstances. This
situation is unique, necessitating a strategy distinct from other industrial domains. This
subsector relies on agricultural development potential-based human resources. Obtain-
ing, controlling, evaluating, and empowering information about the performance of the
workforce in the agricultural sector to minimize uncertainty and encourage the develop-
ment of coffee-based tourism communities constitutes the third phase. Implement a tool
for measuring the agricultural workers’ potential and degree of preparedness, which is
the fourth phase. It is anticipated that this tool will assist local governments in describing
the possibilities for building tourist settlements. The fifth phase is for the local govern-
ment to define human resource policy. The last phase is assessment, which comprises
reviewing all agriculture sector performance. Once the findings are acquired, they will
aid future policy formation.

3 Results and Discussion

3.1 Results of the Research

The study’s outcomes to encourage the establishment of coffee-based tourism commu-

nities are as follows: Puntang coffee is an excellent coffee. District of Pasirmulya coffee
farmers know how to cultivate, harvest, prepare, and market quality and proper coffee.
There are several accommodations in the form of a tourist cabin (family accommo-
dation) so that visitors can feel the rural atmosphere of coffee growers that is still original
and beautiful.
This subdistrict provides exceptional accommodations near exotic woodlands and
Puntang coffee producers’ lifestyles to both domestic and foreign visitors. They may
encounter a classic natural landscape in the countryside. The village has clean, healthy
air; this will ease the monotony of city living. Locals have maintained a trail for hik-
ing. These alternatives give intrepid travellers authentic experiences. Most tourists who
engage in tourism-related activities have rewarding life experiences. Most visitor expe-
riences in Pasirmulya were gained via encounters with local coffee farmers. Further-
more, the landscape of the coffee plantations provides many opportunities to make this
destination competitive because it has many potential tourism activities, including agro-
ecotourism and adventure tourism, which will offer tourists various experiences and
enrich the background.
 Case Study of Pasirmulya Subdistrict 745

3.2 Discussion
As the focus of this research, the absence of a considerable number of facilities in
this area is crucial to discovering rural tourism-supporting solutions. The amount and
diversity of tourist facilities must not exceed the tolerable limits of use. The tourist
town must feature a range of tourist destinations to enable visitors to engage in tourism-
related activities. The grouping of tourist facilities is divided into three categories: first,
the accommodation, which caters to the needs of tourists and enables them to rest,
stay, bathe, eat and drink, and enjoy tourist services. The critical support facilities that
make guests feel at ease are support facilities. Thirdly, additional tourism amenities are
essential complementary services for tourists visiting tourist locations.
An online media website may aid the promotion of the village’s distinctiveness and
exoticism. Therefore, the municipality or district must often promote village tourism
differently. It may construct a tourist-friendly website about the beauty and culture of
this city. The internet may be a promotional tool that transcends geography and time. Its
website is accessible to travellers from all over the globe; thus, it will encourage them
to visit this town.
Individualization of human resources. This empowerment of human resources may
be attained by education, training, and participation in seminars, debates, and tourism-
related sectors in a precise and direct manner. The area’s future development necessitates
the expertise of workers who will engage in management activities consistent with its
growth potential. For this reason, it is preferable to teach young residents of the hamlet
in question to greet and serve visitors. It is offered to tourist authorities in villages,
subdistricts, and districts since most peasants only possess agricultural knowledge. They
may be educated in different professions to improve the town’s commercial operations
in the first district. The pattern of association or collaboration between the tourist village
manager and the travel or tourism business people of the city or the tourism village coach,
in this example, the regional tourism office, may be mutually advantageous. The business
sectors may collaborate, including lodging, advertising, and training. The involvement
of village officials in the village government’s tourism-related activities includes office
meetings, exhibits, and ceremonial holidays conducted in the tourist village.

4 Conclusion
This research intends to propose a solution for developing the potential of coffee-based
tourist towns and implementing the results in the corridor of coffee-based tourism’s
potential growth in West Java. This study adds to national and international visitors’
relationships with the local population in the city.
In this case, coffee and cultural items are combined to get future support from the
local government and other stakeholders. Based on the area’s potential, the Pasirmulya
subdistrict may serve as a model for a coffee tourist hamlet. Local governments replicate
websites’ content, including the most recent promotions from all locations in this region.
Developing positive relationships with tourism and investment helps expedite tourist
communities’ growth and development.
The potential of Pasirmulya’s tourism settlements is proportional to local government
assistance. So that visitors may remain in the region for a more extended period, they must
746 Y. Maulana et al.

develop supplementary infrastructure, such as the number of family houses offering to

lodge. The Pasirmulya Regency’s tourist infrastructure will evolve into a novel model for
the coffee tourism town. The expanding involvement of village authorities in tourism
includes office meetings, ceremonial displays, vacations, and historical events staged
in tourist cities. The Pasirmulya subdistrict demonstrates the potential for producing
traditional, natural, and outstanding coffee. Because this study has limitations in a narrow
research field, further research in a larger area is advised.

References
1. Utama, I.G.B.R., Junaedi, I.W.R.: Building tourism from villages: blimbingsari tourism village,
jembrana bali, economic transformation effort. Deepublish (2018)
2. Ambarwati, H.D., Wisnu, S.: Development of batik tourism village in pungsari village, sragen
regency, central java. J. Arsit. Arcade 3(1), 27–31 (2019)
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19044/esj.2016.v12n35p82
4. Dorobantu, M.R., Nistoreanu, P.: Rural tourism and ecotourism – the main priorities in sus-
tainable development orientations of rural local communities in Romania. Econ. Transdiscipl.
Cogn. 15(1), 3–10 (2012)
5. Bhatia, A.: Swot analysis of Indian tourism industry. Int. J. Appl. or Innov. Eng. Manag. 2(12),
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doi.org/10.1016/j.indmarman.2011.11.009
7. Susanti, R.: West java gunung puntang coffee wins the SCAA contest in Atlanta. Kompas.com
(2016)
 The Influence of Motivation and Behavior
on Sustainable Tourism in Indonesia

Fithria Khairina Damanik(B) , Jesisca, Hana Ulinnuha, and Wendy Purnama Tarigan

Tourism Department, Faculty of Digital Communication, Hotel and Tourism, Bina Nusantara
University, Jakarta 11480, Indonesia
[email protected]

Abstract. Tourism is one of the industries that have an important role for Indone-
sia, especially in its economic development which has unlimited development
potential [1]. Sustainable tourism is believed to be the most suitable concept for
the industry in the new normal era which is supposed to make less crowd and inter-
action [2]. Indonesia is one of the countries experiencing the largest proportional
decline in sustainable tourism by 56% [3]. Therefore, this study aims to analyze
the influence of the motivation and behavior of domestic tourists on sustainable
tourism as an effort to restore the economy of the Indonesian tourism industry after
the COVID-19 pandemic. It is not only the responsibility of the government and
tourism stakeholders, but also the responsibility of Indonesian citizens as tourism
consumers to be able to consciously participate in reviving and maintaining the
sustainability of this important industry. This research uses questionnaire as data
collection methods and multiple linear regression as main analysis methods. The
sample of the research is 122 domestic tourists who have knowledge of sustain-
able tourism. Furthermore, this research contributes to creating a better sustainable
tourism development strategy by understanding and increasing awareness about
sustainable tourism not only from the side of tourism supply but also from the
demand side.

Keywords: Tourist perception · Sustainable tourism · Tourist motivation ·

Tourist behavior

1 Introduction

Tourism is one of the industries that have an important role for Indonesia, especially in
its economic development which has unlimited development potential. The Ministry of
Tourism Performance Report shows an increase in the contribution of foreign exchange
from the tourism sector in 2018 which reached IDR 229.5 trillion and increased to IDR
280 trillion in 2019 [4]. However, after the COVID-19 pandemic hit Indonesia, UNWTO
stated that there was a significant decline in the number of foreign tourists to Indonesia
in 2020 since the pandemic reached 74.84% compared to 2019 [4]. The contribution of
the tourism sector to gross domestic product (GDP) and foreign exchange also declined
to 4.05% in 2020 from 4.7% in the previous year [5, 6].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 747–755, 2023.
https://doi.org/10.1007/978-3-031-26956-1_70
748 F. K. Damanik et al.

Based on the 2021 Tourism Trends Book, the major changes in the tourism industry
caused by the COVID-19 pandemic have resulted in a new industrial landscape with four
characteristics: hygiene, low-touch, less-crowded, and low-mobility [2]. This statement
shows that it is important for the Indonesian tourism industry to be able to further develop
Indonesian tourism towards a more sustainable direction in the pandemic era because
it is low-touch and less crowd. Although research shows positive attitudes towards sus-
tainable tourism, only a small proportion of tourists act ethically towards the tourist
destination [3]. Therefore, those statements show the research problem drives this study
to see how ethics of tourists through motivation and behavior influence the sustainable
tourism.
This research is used to see whether motivation and behaviour are effective to influ-
ence the development of sustainable tourism in Indonesia. The aim of this study will
be answered in the following structure of research paper containing of introduction,
literature review, research methodology, finding, and conclusion. This research focuses
on domestic tourists since domestic tourist can be the first step to revive the Indonesia’s
tourism industry. The research used indicators based on tourist knowledge model to see
tourist perception influence on sustainable tourism development. The result will show
whether tourist motivation and behaviour can influence sustainable tourism develop-
ment, as well as how far the influence would be. Whether it only explores the depth of
domestic tourist knowledge, or it can encourage people to support sustainable tourism
development. Hopefully, the result will be an insight into marketing development in the
tourism industry, as an integrated part of sustainable tourism development.

2 Literature Review

This part will talk about the variables used in this research consists of tourist’s motivation,
tourist’s behaviour, and sustainable tourism. This literature review will be focused on
definition and dimensions of each variable.

Tourist’s Motivation
Motivation is defined as a force that encourages a person to take an action or not which
in essence exists internally and externally, positive, or negative [7]. In the context of
tourism, humans will go to places that can meet the needs or desires of humans and
make trips which are known as tours. Humans first travel for the sake of sustaining life,
then the motivation to travel turns into a motivation to escape from the saturation of the
city [8]. Motivation is the starting point of the decision process made by consumers and
is an important construct for understanding tourist behavior [8]. Therefore, the motiva-
tional variable is the subject of this study where an understanding of the motivational
variable is very important for better tourism marketing motivation which is a trigger for
tourists to travel can come from push motivation or pull motivation [9]. By understanding
the motivation of tourists, the government and tourism destination managers can make
better plans to encourage sustainable tourist behavior that supports the development of
sustainable tourism by understanding the target market which is tourists.
 The Influence of Motivation and Behavior 749

Tourist’s Behaviour
Tourist behavior is the consumption of products and services both daily and not outside
the environment of daily life such as in tourist destinations. Understanding consumer
behavior is very important for the success of an industry or company [10]. Consumers
must be predicted, explained, and controlled based on the understanding of their behav-
ior. In this study, it is stated how the behavior of domestic tourists who travel to Indonesia
is reviewed from the stages before to the end of traveling activities in Indonesia. Tourist
behavior can be divided into three connected phases, namely before traveling, during
traveling, and after traveling [11]. The thought processes, emotions and actions of indi-
vidual tourists, tour groups and large tourism organizations are always changing, which
is why tourist behavior is considered dynamic. In the concept of tourist behavior there
are five indicators, namely accommodation choices, travel preferences, problems during
travel, intention to return, and behave responsibly [12].

Sustainable Tourism
The growing tourism industry, increasing population, increasing tourism demand, and
increasing investment in the tourism industry make negative impacts on the environment,
culture, and others increasingly prone to occur. This sustainable tourism development
requires encouragement from local communities in implementing it. Instead of referring
to tourist destinations, sustainable tourism refers to the environmental, socio-cultural,
and economic components of tourism which must be balanced between these three
variables to ensure long-term sustainability [8]. This tourism concept focuses on the
importance of understanding tourists and the role of local communities in their devel-
opment [13], as well as analysing the point of view of the tourists themselves. Knowing
the behavior of tourists towards sustainable tourism development and the sensitivity of
the people visited to the culture, environment and economy are important factors in
protecting tourist destinations and reducing negative impacts [3].

3 Research Method
The research was based on a purpose to see if influence of motivation and behaviour is
effective on sustainable tourism development (based on tourist’s perception). To answer
that purpose, then these following hypotheses were proposed:

H1: Tourist motivation has an influence on sustainable tourism in Indonesia.

H2: Tourist behavior has an influence on sustainable tourism in Indonesia.
H3: Tourist motivation and behavior have an influence on sustainable tourism in
Indonesia.

The population of this research is domestic tourist who know, understand, and have
ever visited sustainable tourism destination. However, the total of the population cannot
be defined because the number is undefinable. Therefore, the sample will be counted
based on Lemeshow formula [3].

Za2 × P × Q
n=
L2
750 F. K. Damanik et al.

Description:

n = Sample needed
Z a = Standard of distribution with α = 5% = 1,96
P = Prevalence of Outcome, 50% for unknown population
Q=1−P
L = level of accuracy, 10% (0.01)

Based on the formula, the sample calculation for this research is:

(1.96)2 × 0.5 × 0.5

n= = 96.04
(0.1)2
Therefore, based on the calculation, the sample of the research must be at least 96
respondents.
The questionnaire that will be given to the sample of this research consist of several
questions about respondent’s basic profile, 7 statements about respondent’s motivation
to visit tourist destination, 14 statements about respondent’s behaviour at tourism desti-
nation and 15 statements about respondent’s perception on sustainable tourism concept.
The valid questionnaire is only the answer from the respondents who understand sus-
tainable tourism concept. The following table shows each part of tourist perception
based on motivation and behaviour, operational definition of each variable, and indica-
tors represent the variables (summarized and modified by several research before) [14]
(Table 1).

Table 1. Indicator of tourist perceptions

Perception Operational definition Indicator

Motivation The combination of needs and wants that • Push motivation
influence tourist decisions in the travel • Pull Motivation
process
Behavior The process of evaluating, acquiring, • Accommodation options
using, or disposing of products and • Travel preferences
services, and the physical activities that • Problems during traveling
accompany them • Intention to visit again
• Responsible behavior
Sustainable tourism Tourism is a concept that has an impact on • Environment
the environment, society, culture, and • Society and Culture
economy for both residents and tourists • Economy
now and in the future • Tourist Satisfaction

Each statement in the questionnaire for respondents will be measured by the Likert
scaled. The answer is divided into 5 options, consists of number 1–5 which represent
very disagree until very agree opinions. This questionnaire will be spread online by using
google form which make the answer easier to be downloaded into an excel file. Some
 The Influence of Motivation and Behavior 751

of the data about the variables of motivation and behavior will be proceeded using t-test
with SPSS. The result of the t-test will show the influence of motivation and behaviour on
sustainable tourism. To be more specific, the result of t-test shows the value of t-statistic
which will be the answer of hypotheses and research questions.

4 Result
The table below shows profiles of the respondents in this research (Table 2).

Table 2. Profile of respondents

Profile of Respondent Result

Gender Male 59.2%
Female 40.8%
Age 17–25 years 85.4%
26–35 years 13.1%
36–45 years 1.5%
Place of Origin Java 51.5%
Kalimantan 17.7%
Sumatera 12.3%
Sulawesi 2.3%
Education Senior High School 20.4%
S1 74.6%
S2 4.6%
S3 0%
Know the concept of sustainable tourism Yes 96.9%
Understand the concept of sustainable tourism Yes 93.8%
Have ever visited sustainable tourism destination Yes 95.4%
Source of information about sustainable tourism Word of mouth 13.1%
Social Media 71.5%
Lesson 10%
Article, brochure, film, book 5.4%

Explanation of the result.

According to the result, the following table will show the score of each indicator.
Classical assumption test was carried out with SPSS. The normality test used is the
one sample komogrov-Smirnov technique, the residual value of the dependent variable
and the independent variable with the total of samples (N) of 122 was 0.19. Based on
these results, it can be stated that the data in this study are normally distributed because
all the residual value variables are more than a significance value of 0.05. Therefore, it
can be said that the regression model can be used for hypothesis testing.
Furthermore, based on the results of the SPSS output, it is known that Sig 0.000 <
0.05 then Ho is accepted, meaning that there is a linear relationship between motivational
752 F. K. Damanik et al.

Table 3. Score for each indicator

Variable Statement Total of respondent’s Average of

answer respondent’s answer
Motivation Push Motivation 1,697 4.351
Pull Motivation 2,294 4.41
Total and Average Score for Attention 3,991 4.38
Behaviour Accommodation 1,155 4.4
Option
Travel Preferences 1,564 4.0
Problems during 1,141 2.9
traveling
Intention to Visit 1,658 4.2
Again
Responsible 1,761 4.5
Behaviour
Total and Average Score for Interest 7,279 5.68
Sustainable Tourism Environment 1,775 4.5
Society and 2,871 4.4
Culture
Economy 2,317 4.4
Tourist Satisfaction 1,774 4.5
Total and Average Score for Desire 8,737 4.45

and behavioral variables towards sustainable tourism. Because the value of Sig 0.000 is
much smaller than 0.05, the regression model can be used in this study.
The results of the SPSS also show that there is no symptom of multicollinearity
between each independent variable in the regression model when the VIF and tolerance
values are tested. The results of the calculation of tolerance on the motivational inde-
pendent variable of 0.584 and the behavioral variable of 0.584 indicate that there is no
independent variable that has a tolerance value of less than 0.1. Therefore, these results
indicate that there is no correlation between the independent variables.
Finally, the results of the classical assumption test using SPSS show that the sig
value for all independent variables is greater than 0.05. So based on the test results
using the scatter plot graph and the glejser test above, it can be concluded that there is
no statistically significant independent variable that affects the dependent variable Abs
res. So based on these results, it can be concluded that this regression model does not
experience heteroscedasticity.
The next step is to analyze the t test score by proceeding with the average score of 11
indicators to get the score of variables. The score will be proceeded by SPSS program
with t test analysis to see the influence of motivation and behaviour on sustainable
tourism development. The result of the t-test is shown in the following tables (Table 4).
 The Influence of Motivation and Behavior 753

Table 4. Score of each indicator. One sample T test

One-Sample Test
Test Value = 0
t df Sig. (2-tailed) Mean Difference 95% Confidence
Interval of the
Difference
Lower Upper
Motivation 8.591 99 .000 1.443 .175 1.443
Behaviour 2.912 .004 .320 .109 .320

Based on the results of the T test in the table above, it shows that the first hypothesis in
this study is that motivation (X1) has a positive effect on sustainable tourism (Y). Based
on the table of T test results above, it is known that the significant value of motivation is
0.000. Because the value of Sig 0.000 < 0.05, it can be concluded that H1 is accepted
(motivation has a significant influence on the sustainable tourism variable).
The second hypothesis in this study is that behavior (X2) has a positive effect on
sustainable tourism (Y). Based on the table of T test results above, it is known that the
behavioral significance value is 0.004. Because the value of Sig 0.004 < 0.05, it can be
concluded that H2 is accepted (behavior has a significant influence on the sustainable
tourism variable) (Table 5).

Table 5. One sample F test

Model Sum of squares df Mean square F Sig

1 Regression 7,126.674 2 3,563.337 79.411 .000b
Residual 5,339.785 119 44.972
Total 12,466.459 121
a Dependent Variable: Sustainable Tourism
b Predictors: (Constant): Behavior, Motivation

Based on the result of the F test contained in the table above, it shows that the third
hypothesis in this study is that motivation (X1) and behavior (X2) simultaneously have
positive effect on sustainable tourism (Y). Based on the table of F test results, the F value
obtained is 97.028 and sig = 0.000 < 0.05. So, it can be concluded that H3 is accepted
(motivation and behavior have a significant influence on sustainable tourism variables).
However, from the Table 3, we can analyze the trend for each score of each indicator.
For behaviour indicator, both total and average score are the highest. This shows that
behaviour has a huge impact on how sustainable tourism can be implemented. Especially
on the tourist’s responsible behaviour at the tourism destination.
754 F. K. Damanik et al.

For motivation indicator, both total and average scores are the lowest. Pull motivation
has a higher score than push motivation, this shows that sustainable tourism motivation
is more dominant from pull motivation.
And for sustainable tourism, both total and average score are still high although it
is under to the behaviour variable. From the result, tourist has a good understanding
towards sustainable tourism concept.
This study shows an in-line result with previous research about Sustainable Tourism
at Kuta Beach Bali in Tourist Perceptions Through Tourist Motivation and Behavior. In
which the research also shows that the motivation and behavior of tourists has a major
impact in producing sustainable tourism on Kuta Beach, Bali [15].
Another research about Analysis of Tourist Consumer Behavior in the Era of the
Covid-19 Pandemic in West Nusa Tenggara” also shown that a good understanding of
the influence of tourist motivation variables will make it easier for stakeholders in the
tourism industry to identify tourist needs with visiting decisions as a reflection of tourist
behavior [4].
Based on this research, sustainable tourism variable has the lowest sub-variable
which is socio-cultural sub-variable. The lowest value is found in the statement where
sustainable tourism can overcome crowds/overcrowded (15.6%). This shows that the
understanding of tourists’ perceptions of sustainable tourism which has a good influence
in overcoming the problem of crowds or, in another term, overcrowding in tourism
destinations is still lacking.

5 Conclusion, Limitation, and Future Research

According to the result of the research, we can conclude that influence of motivation and
behaviour are highly effective on sustainable tourism development. The independent
variables of motivation (X1) and behavior (X2) partially and simultaneously have a
significant influence on the dependent variable of sustainable tourism (Y). Therefore,
government and tourism stakeholders need to consider on becoming more focus on
sustainable tourism not only from the tourism destination but also the demand side.
To attract visitors with high sustainable behavior to a country or destination, tourism
policies should promote sustainable tourism concept as a part of general knowledge.
The result of this research hopefully can enrich sustainable tourism development as part
of recovering tourism industry in Indonesia post pandemic Covid-19.
For further researchers, it is recommended for other researchers to use a bigger
sample size and do the study in a specific destination. This might give more focus and
accurate result for a specific characteristic of destination. Therefore, the results obtained
in further research can enrich the results and knowledge, then give a better suggestion
for a specific place.

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yang berkunjung Pantai Kuta Bali) (2016)
 Digitalization for Tourism Resiliency
(Case Study: Labuan Bajo)

Fithria Khairina Damanik1(B) , Hana Ulinnuha1 , Candy Reggie Sonia2 , and Nurhalisa1
1 Tourism Department, Faculty of Digital Communication, Hotel and Tourism, Bina Nusantara
University, Jakarta 11480, Indonesia
[email protected]
2 Visual Communication Design Department, School of Design, Bina Nusantara University,

Jakarta 11480, Indonesia

Abstract. This study aims to identify the strategic implementation for tourism
resiliency in Labuan Bajo, especially during and after pandemic. Resiliency in
this study will be focusing on resilience as adaptation and transformation which
is regarded as a proactive concept of resilience. Labuan Bajo was popular due to
its recognition at national and international level. However, during the pandemic,
tourism is undeniable as one of sectors getting the worst impact. In this transition
time when the restriction has been loosened, strategy to increase tourism produc-
tivity is needed the most. This study uses a qualitative approach with thematic
analysis by doing interviews with several main tourism stakeholders in Labuan
Bajo. This study found that most of the strategy relates to the concept of dig-
italization in tourism. Hopefully, this research can give suggestion for tourism
stakeholders in Labuan bajo Flores, especially from the supply side, as well as for
another destinations in Indonesia.

Keywords: Tourism resiliency · Labuan Bajo · Digitalization

1 Introduction
Tourism has been considered as one of sector that have a good contribution to Indonesia
national income. According to the data [1] tourism was on the 5th rank as the highest
contributor for Indonesia foreign exchange in 2011 then reached the 4th position in
2012–2015. Moreover, another data [2] shows that the trend was still increasing until
the year of 2019, with the total of US$ 16,9 billion [3]. This huge potential of tourism
development can be seen as well from the data of contribution of tourism to the national
income, which reached 4,7% in 2019. However, as we know at the end of 2019, the world
was hit by a global pandemic of Covid-19, including Indonesia. One of the sectors that
got the strongest impact on this situation is tourism.
Based on the data, in 2020, the total of foreign exchange from tourism industry is
decreasing to US$ 3,3 billion with the total contribution on GDP is only 4,05%. This
situation was a big hit for tourism industry, especially in air transport and accommodation
sectors [4]. Luckily in the beginning of 2022, tourism is starting to revive the industry,

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 756–765, 2023.
https://doi.org/10.1007/978-3-031-26956-1_71
 Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) 757

the restriction of movement is being more flexible, hence the tourism activity can be
gradually operated. One of the innovations from the government is creating 5 super
priority destinations which hopefully will support the growth of tourism in Indonesia,
besides Bali. The destination includes Labuan Bajo, which will be the focus of the
research. Labuan Bajo has been recognized as one of five super priority destinations in
Indonesia [5] and world’s seven wonders for its Komodo Island [6]. A well-developed
Labuan Bajo hopefully will bring a spread of growth of tourism industry in the eastern
part of Indonesia. The data showed that the tourist arrival in Labuan Bajo is decreasing
for around 80% from 2019 to 2020 [7].
Therefore, all tourism stakeholders need to apply appropriate strategies to revive the
industry. This research is aiming to answer these following questions: how the condition
of tourism in Labuan Bajo before, during, and after the pandemic is and what the strategy
and innovation implemented for tourism development after covid-19 pandemic in Labuan
Bajo in term of increasing the destination resilience. The answer to questions will be
following the structure of the paper containing introduction, literature review, research
method, findings, and conclusion. Hopefully this research will give a precise strategy
to tourism stakeholders in Labuan Bajo, especially from the supply side. Furthermore,
this research hopefully can be the insight for another destination by getting the lesson
learned from Labuan Bajo.

2 Literature Review

During the Covid-19 outbreak, several industry is seriously affected especially tourism
[8]. Travel restrictions; closure of restaurants, accommodations and attractions; national
lockdown are real example of the impact to the industry. A bigger impact happened to
the international tourist, where based on the data, in May 2020 compared to the same
month in 2019, the pandemic had caused 98% decreasing on international tourist arrivals
[9] Fortunately, during 2022 the condition is getting better, the restriction is loosened,
hence the restoration of the industry must be prepared. One of the concepts to restore the
tourism industry is resilience which can be defined as the ability to anticipate, prepare
for, respond to, and recover from a disturbance. Hence, resilience in tourism needs to be
increased which can be made by diversification, develop new business models, improve
sustainability, and digitalization [10]. A theory about resilience classified resilience into
4 different types [11].

a. Resilience as resistance – holding the line, preparing for the last disaster. This is
useful when it prepares people for a hazard but not so useful when the hazard is not
as anticipated and has no plan for evacuation.
b. Resilience as bounce-back – getting back to normal. This is useful in terms of
optimistic rhetoric. Not so useful because it can be unrealistic and can lead to the
reproduction of vulnerabilities.
c. Resilience as an adaptation – adjusting to a new normal…accepting that your world
has changed which should ensure that vulnerabilities are not reproduced. It can be
hard for people to accept living with hazards.
758 F. K. Damanik et al.

d. Resilience as transformation - transforming to meet future threats. Radical change

(physical, social, psychological, economic) in the face of current or future hazards
owned by individuals and communities (of all types).

Based on the author analysis, the proactive concept of resilience is adaptation and
transformation, which will be the focus of this research [12].

3 Research Method

This research uses qualitative research approach with constructivist paradigm. To analyze
the data, the method used is thematic analysis which include understanding, coding, and
creating themes. The data is collected by doing interview to various tourism stakeholder
in Labuan Bajo, including government, academician, association, and tour operator.
These respondents are chosen based on their knowledge about tourism in Labuan Bajo
before and during the pandemic, as well as during this transition time. The participants
were deeply interviewed for about 2 h to get information. The data collection was stopped
after the research found saturation from the respondents’ answers. The interview is based
on this following research questions which answer the objective of the research (Table 1).

Table 1. Correlation between research questions and objective of the research

Research questions Objective of the research

1. How is the condition of tourism in Labuan Show the transformation of Labuan Bajo
Bajo before pandemic, during pandemic, and before and during pandemic, and within the
during transition time? transition time
2. What is the strategy of Labuan bajo tourism Show the implementation of strategy and
stakeholder during the pandemic time to keep innovation in the context of resilience as
the industry alive? adaptation
3. What needs to be prepared for a stronger Show the transformation happened and
resilient of tourism in Labuan Bajo? needed in Labuan bajo to strengthen the
destination’s resilience

The result of the interview is transferred into transcript which is manually coded to
get the required themes based on 3 research questions. The result of this study hopefully
can formulate the strategy to increase destination resilience in Labuan Bajo, as well as
best practice for other destination in Indonesia.

4 Findings

4.1 The Period of Tourism Growth in Labuan Bajo

The growth and development of tourism in Labuan Bajo could be seen from several
time frame. If related to covid-19 pandemic, it can be divided into before pandemic
 Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) 759

which included before 2000 and after 2000; during the pandemic which means during
2020–2021, and during the transition time in 2022.
In the first period, before the year 2000, most people came to Labuan Bajo was
international tourist who looked for the dive sites along Komodo Island and the genuine
culture of Flores. At that time, Labuan Bajo was still quite isolated because there was only
a small airport to reach this place. After 2000, the domestic tourist started to come by the
trend of young backpacker tourists. In 2012, Komodo was chosen as new 7 wonders of
nature which increased their popularity. Afterwards, Labuan Bajo was assigned to host
national and international events, two of the biggest are Sail Komodo in 2013 and Tour de
Flores in 2015. Furthermore, the new bigger airport was launched in 2015 which opened
a wider accessibility to the island. Although the domestic tourism is growing, based on
the data in 2019, tourist coming to Labuan Bajo was still dominated by international,
reaching 65% of the total tourist [13].
This data shows different condition in the second period which is during the pan-
demic. In 2021, the tourist was dominated by domestic tourist, where the international
tourist decreased into 5% of the total. This condition happened due to the closure of
international border to control the spread of the virus. The effect of this condition surely
gave a big hit to the tourism provider in Labuan Bajo. Luckily, during the pandemic,
tourism in Labuan Bajo is helped by several event hosted by this city, especially by the
government.
The pandemic has not ended yet, however the activity is getting back to the normal
condition currently. Therefore, we call this period as transition time, to show the condition
where we are trying to adapt with the pandemic. During January to May in 2022, the total
of tourists coming to Labuan Bajo has been increased to 200% compared to the total of
tourists in 2021. However, it is still dominated by domestic tourist. This condition may be
disadvantageous for the government since the income of retribution from international
and domestic tourist might be different. On the other side, this can be something beneficial
for the souvenir small enterprises, since domestic tourist’s intention to buy souvenir is
bigger than international one.

‘The income for the city from tourism industry is less than before pandemic
because most of the tourists are domestic. The ticket price for domestic tourists
is only half the international one. That is why the ticket retribution is decreasing
from the last year […]’.
On the other hand,
‘[…] the souvenir shop in Labuan Bajo is alive because of the domestic tourist.
International tourists usually do not think about buying souvenirs, some tourist
yes, but compared to the domestic ones, they spend a big amount of money for the
souvenir (Table 2).’

4.2 Resilience as Adaptation

Resilience as adaptation is a more proactive concept of resilience. In this kind of
resilience, people are able to deal with similar difficult situation, as an expression of
adaptation of future hazard [11]. In line with this definition, resilience also seen as the
760 F. K. Damanik et al.

Table 2. Comparison of tourism trend in Labuan Bajo

Before Pandemic During pandemic During the transition

Before 2000 After 2000 time

• Dominated by • Dominated by • Dominated by • Dominated by

international international domestic tourists domestic tourists
tourists tourists • National events • The number of
• Difficult • Airport • 85% decreasing in tourists is
accessibility • International events number of tourists increasing

capacity for recovery from crisis by following the sequence of rescue, restoration of dam-
aged infrastructure, and then rebuilding the markets [14]. This process implies gradual
change as a new business concept may emerge that will differ from the shape and com-
position that existed in the pre-crisis period [14]. Based on the information collected,
herewith several strategies and innovations that can be implemented in Labuan Bajo to
revive the industry during the adaptation process.

Networking
Tourism might be seen as a network of interrelated organizations interacting to produce
and deliver a service [15]. Networking might be very beneficial to help tourism stake-
holders in Labuan Bajo survived during the hard times. Tour operators with networks,
especially they who knows another operator from another city, get benefits by getting the
transferred tourist who often travel abroad, yet due to closure of international borders,
diverted to Labuan Bajo, as said,

‘[…] Several private jets landed in Labuan Bajo (during pandemic), some friends
(tour operator) think pandemic did not give big effect, but for some others, it was
a big hit, for sure because of the networks’ and

‘[…] tour provider, we have our own way to survive and adapt during this pan-
demic, especially those travel agents who know how to connect to the network of
domestic market, because most of the tourist are domestic at this time…’

Based on the interview, their network is built during their tour activities and good
relationship with the guests. Furthermore, to maintain the relationship, social media is
one of the platforms that can be used to show their existence in this industry.

Virtual Tours
During the pandemic, when people’s interaction is being limited, the trend of people
activity transformed into online. Tourism, as one sector with big effect due to the closure
of the attractions, might be changed into virtual tour also. Although the experience must
be different, this can be a good alternative to replace the absence of activity during
pandemic.

‘[…] I was lucky because I was connected to the virtual tours. So, while all tourism
activities were shut down, I could fill it with virtual activities…’, and
 Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) 761

‘During the pandemic, I also became virtual tour guides through zoom application.
I was doing a live report from the attraction and facilities to show to the audience…’

This relates to the first strategy of networking. The interviewees were connected
to the virtual tours provider in Jakarta who gives them the opportunity to be virtual
tour guides. This virtual tour might be the alternative for tourism stakeholders to be
developed in the condition if direct activity is not possible. For the people who work in
the tourism industry, this alternative might be useful as economic income during their
off time. However, only a view of tour operator in Labuan Bajo involved in this activity.
Therefore, this can be a strategy to be developed at a local level and marketed at a national
and international level. Furthermore, when the condition is getting better and people can
visit destinations directly, these virtual tours can be used as marketing tools.

Recovery of Tourist Attraction and Accessibility

This part can be both strategy and good impact of pandemic in tourism. Due to the absence
of tourism activity, the space is utilized to build a better tourism infrastructure. Batu
Cermin, Puncak Waringin, and the waterfront were several examples of infrastructure
revitalization initiated by the government and other stakeholders.
Before pandemic, the number of people coming to Labuan Bajo increased to more
than 50% from 2018 to 2019 [13]. Hence, during the pandemic time, both tourism
authorities and another stakeholder tried to prepare themselves better, to be ready to host
more tourists after the pandemic. Besides that, from 2020 to 2021, the infrastructure
enhancement was done through road widening and repairing. Due to the pandemic
condition, this road enhancement project can be done without disturbing tourism activity.
Besides doing infrastructure enhancement, this strategy needs to strengthen the qual-
ity of human resources too. This can be given especially by the government on a local
or national level. In Labuan Bajo, during the pandemic, there were various training that
was given to the tourism community related to tourism village digitalization.

‘The road development project was started when the pandemic started, started
from Puncak Waringin. If the condition was normal, it would be disturbance for
tourism, the dust, tourist would feel uncomfortable. The project was fast, as the
end of 2021, it was done’.

Digital Payment
During the pandemic, a transformation of payment system in Labuan Bajo from manual
into digital payment was built by building QRIS system to support tourist activities.
QRIS payment is served in restaurants, souvenir shops, and even small shops in the
island. Tourists tend to prefer making cashless payments, especially during the pandemic
to avoid the spread of the virus. Moreover, tourists do not have to bring cash because
they can do digital payment on the island. However, based on the interview, tourists must
make cash payment for entrance tickets to the islands.

‘Here in Labuan Bajo, most shops, even small shops, already use QRIS. Even in
Komodo Island, the souvenir shops sell their souvenirs on the table, they also use
QRIS for payment. It already exists in this transition time. In the previous time,
762 F. K. Damanik et al.

we suggest tourist to bring cash money because there will be no ATM, but now
they can scan the QRIS to pay what they buy…’

4.3 Resilience as Transformation

Resilience as transformation could be referred to a need to change as a response for dis-
ruptive condition [11]. Another author mentioned it as transformative resilience, describ-
ing a living system’s capacity to transform itself in response to changing conditions and
disruptions [16]. In this study, resilience as transformation shows the ability of a tourism
destination to find a further solution and to transform into something better which not
only could help them in changed situation but also prepare, if in any case, another
disruptive situation happened.

Additional Skilled-Tour Guide

Tour operators or tour guides in Labuan Bajo need to enhance their skill to give value
added for their capacity. Tour guides with the skill of photography or drone piloting is
a new trend in Labuan Bajo as the response to the change of tourist type coming to the
city from international to domestic tourist. Previously, this documentation service was
not really a matter for international tourist. However, during this transition time where
most of the tourist are domestic, this service is on high demand. As a further response,
an association of young people focusing on this service was initiated.

“[…] it was their response to that kind of demand. They were consolidated to
create a group of local tour guides that can be doubled as photographers. This is
initiated to avoid tourists who bring photographers from their own city, so more
empowering the locals.”

One of the characteristics of domestic tourists is the need for documentation and
social media exposure. This is the opportunity that was well captured by the tourism
provider in Labuan Bajo as their response to the situation. In this part, the tourism
stakeholders need to adapt with the technology change and development.

Product Diversification
Labuan Bajo and Flores in general are very popular with the existence of Komodo Island
which internationally recognized. However, there are various attractions that potential to
be developed as a destination. Therefore, the stakeholder needs to learn to create product
diversification, in order to spread the tourist density and, for sure, the positive effect of
tourism. This product diversification can be in the form of thematic trips. This thematic
trip could be the response of the market trend changes happened in Labuan Bajo. People
tend to come to the destination with the specific interest. This trend could be potentially
developed as thematic trip. Several themes that can be developed in Labuan Bajo are
traditional culinary, woven trip, coffee trip, and traditional village trip. This thematic
trip might be an alternative for tourist coming to Flores although the market would be
smaller.

‘[…] destination product diversification. Our focus was only on Komodo Island,
hence that place is so crowded lately. We might see thematic trips with smaller
markets which can be the future trend for tourism in Labuan Bajo’ and
 Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) 763

‘[…] we are trying to accommodate another destination in West Manggarai, espe-

cially in the land area. This is what we need to do to push equal development in
both areas, the land, and the island.’

Labuan Bajo and Flores in general have a huge potential of traditional village that
can be developed as tourism village. From the west to the east, all districts in Flores have
potential tourism village. This also helps the local young people who have difficulties
finding a job, developing their village, and turning it into economic sources.

Income Diversification
This part relates to the previous one. Over-dependence could be one of the negative
economic impacts on tourism [17]. This usually happens in the places where most of
the income comes from tourism. However, this might be a problem when disruptive
conditions happen to the industry, like a pandemic. Hence, income diversification can
be a strategy for those who work in tourism. Good practice can be seen in a village in
Flores, named Colol. This place is known as a coffee plantation, where most people are
coffee farmers. As they have the potential, besides coffee, they also develop the tourism
village with coffee as the main attraction. The people create tourism industry to upgrade
their product to increase their income, without leaving their original profession, as coffee
farmer.

‘[…] another interesting thing from this pandemic is the existence of new tourism
villages. This is because many young people, after graduating from university,
cannot find a job due to the pandemic. Then they went back to their hometown,
utilizing their knowledge and skill, to develop the tourism activity in their village’.

One-Door Online Payment System

Komodo National Park, as a main attraction of Labuan Bajo and Flores, has various
attractions which have their own ticketing system. To make it easier and more systematic,
the authorities are in the process of initiating a one door online payment system for all
attractions within that destination. However, the system is not done yet. This system will
make it easier for tourists and tour operators when they want to visit the destination.
And it is going to be easier for the authorities to control the number of people at the
destination.

Posting and Review Through Social Media

Social media cannot be denied as one of the most effective marketing tools in the tourism
industry, both for domestic and international tourists. International tourists tend to do
research before coming to a destination, by checking the testimonies of previous tourist
experience through social media. In Labuan Bajo, tour operators make their own web-
sites that are connected to Tripadvisor where tourists write their testimonies. On the
other hand, domestic tourists also see social media for collecting information about des-
tinations. Based on the interview, for domestic tourists, tour operators in Labuan Bajo
make Instagram account to catch a bigger market. Every review or post by tourists in
social media can be seen by people worldwide. This makes tourist satisfaction something
764 F. K. Damanik et al.

crucial to be maintained by tour operators or another tourism stakeholders in Labuan

Bajo.

‘[…] tour operators in Labuan Bajo compete to make good portfolio through their
websites that connected to Tripadvisor. So, when they organize trips, the client will
be asked to make testimonies in Tripadvisor. This testimony is very important for
us here. Most international tourists did research in Tripadvisor before they came to
Labuan Bajo. They checked the testimony from the previous tourist of a company,
if it is good enough, they will make a booking through whatsapp connected to
those websites.’

4.4 Re-analysis

The study presents that the strategies identified have correlation to the development of
digitalization in tourism. Although the implementation has not been maximized, the
destination starts to make a move. Digitalization is defined as the use of digital technol-
ogy to change a business model and provide revenue and value producing opportunities
[18]. Digitalization makes customers of tourism connected, not only to business, but
also to another customer. A simple example is through their experience sharing in social
media which will influence another customer or tourist. Digitalization also promotes the
transformation of service from tourism provider to the tourist, by giving them documen-
tation service or digital payment system. Furthermore, digitalization can be maximized
to create more value in the business supply chain to create effective products.
The use of social media as a platform of networking and marketing, virtual tours,
and digital payment are examples of strategies that can be maximized of digitalization
in tourism. Based on the observation, the attractions near to Labuan Bajo including the
islands are equipped with telecommunication provider. Later, when the destination will
be readier, digital transformation can be a further strategy to strengthen the destination’s
resilience.

5 Conclusion, Limitation of Study, and Further Study

Tourism has contributed to the income on an international, national, local level, as well
as to the community. However, tourism is also a fragile sector that will be disturbed
in the difficult situation. In this situation, tourism will bounce back, which brings the
industry to the normal condition. Therefore, the destinations need to apply strategies that
will increase the destination’s resilience, especially to face the difficult situation and to
come back stronger. Digitalization is one of the key strategies to increase destination
resilience.
This study has limitations which it only sees from the supply side which is the tourism
stakeholder in Labuan Bajo. The research will be more comprehensive and applicable
if the respondent coming from demand side of tourists as well. Therefore, for further
study, the author suggests not only seeing from the supply side but also the demand side
of tourism.
 Digitalization for Tourism Resiliency (Case Study: Labuan Bajo) 765

Acknowledgement. This work is supported by Research and Technology Transfer Office, Bina
Nusantara University as a part of Bina Nusantara University’s Applied Basic Research Grant
entitled “Strategy of Destination Development in Labuan Bajo based on Tourist Perception” with
contract number: No: 060/VR.RTT/IV/2022 and contract date: April 8th , 2022.

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 Understanding Indonesian Rural Tourism
Destination Marketing Best Practices Using
Social Media Applications

Juliana Juliana1(B) , Sabrina Oktaria Sihombing2 , and Ferdi Antonio3

1 Hospitality Management, School of Hospitality and Tourism, Pelita Harapan University,
Tangerang 15811, Indonesia
[email protected]
2 Management Study Program, Faculty of Economy and Business, Pelita Harapan University,
Tangerang 15811, Indonesia
3 Magister of Hospital Management, Faculty of Economy and Business, Pelita Harapan

University, Tangerang 15811, Indonesia

Abstract. We carried out this study to gain a deeper understanding of how to use
social media to promote tourism in rural areas in Indonesia. To address this issue,
we led the development of information, looking through distribution as books and
academic works and books. This study is planned in a subjective involving orga-
nization under a phenomenological approach where we look at much information
and then survey to find a solution that calls for this review with high validity
guidelines. The study included information coordination, in-depth assessment,
and information coding, which we attempted to conclude from. The information
we do is distributed between 2010 and 2022, considering that the latest stage
is the development of various applications and mechanical changes worldwide.
After getting the results and conversations, we report that this research focuses
on seeking an understanding which we cultivate in subjective reports. The results
include tourism promotion and marketing; relying on social media is a compelling
strategy. Today, because of the ability of social media can reach consumers, not
only locally, nationally, and internationally, therefore, it will be a prospectul when
using in tourism marketing option. Hopefully, this result will be helpful for further
research in tourism marketing development using social platform.

Keywords: Tourism promotion · Social media · Qualitative rural tourism

1 Introduction
The improvement of data and correspondence innovation applications usefully affects
the advancement of the travel industry, remembering the travel industry for provincial
regions. The rise of different virtual entertainment and content makers invigorates the
inventive business and straightforwardly and in a roundabout way influences the travel
industry [1]. Numerous traveler articles or objections have become viral or known to
the more extensive local area since they are remembered for the substance via virtual

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 766–775, 2023.
https://doi.org/10.1007/978-3-031-26956-1_72
 Understanding Indonesian Rural Tourism Destination 767

entertainment. Seeing this reality, presently, web-based entertainment like YouTube,

Instagram, Facebook, Tiktok, and others, is a method for diverting side interests as well
as a spot to be inventive, carry on with work, advance and show one’s presence or
construct mental self-portrait. With its modest and open nature, virtual entertainment
has developed into an exceptional market or commercial center, considering different
gatherings, including unfamiliar explorers [2, 3]. The travel industry advancement con-
nects with correspondence and distribution exercises to assemble a picture of the travel
industry. The travel industry items can be proposed to sightseers locally and abroad [4].
Advertising restricted travel industry items with computerized promoting applica-
tions, for example, web-based entertainment, is precious. There are numerous ways
of utilizing web-based entertainment to advance the local travel industry expected in
Indonesia [5]. For the travel industry showcasing to be expanded, the average utiliza-
tion of web-based entertainment should be possible with an assortment of content, for
instance, by involving the most recent patterns for content via virtual entertainment
of a place of interest. Utilizing forces to be reckoned with is likewise not unfamiliar;
for example, attractions keep the guidelines of the more extensive local area. They are
publicizing highlights in Online Entertainment [6, 7].
Local communities, relying on their villages’ various potentials and uniqueness,
have tried to introduce and market their tourist destinations as one of their favorite [8].
However, the efforts made, both conventionally and utilizing social media, have not
significantly impacted promoting Kampung as a tourist destination. The potential and
uniqueness of villages and villages with various uniqueness, which are only tens of
kilometers from the business center, require the ability to be introduced to the local
community [9]. Beautiful and green villages, flower-filled yards and roads, colorfully
painted houses, friendly people, and people’s handicrafts that have economic value are
still not attractive. In a compact society, full of a sense of kinship and togetherness,
the tradition of going royong, which is still firmly attached to each village community,
cannot be processed into exciting content so that it can pique people’s curiosity [10].
Village management as a tourist destination needs attention, especially in optimizing
the use of social media as a means of tourism promotion [11]. Local government assis-
tance facilities such as libraries open to the public to increase knowledge and a large
enough land for camping ground locations also cannot be optimized as an attraction.
Although the village has been planned to become an educational tourism destination,
its management, and marketing, including its promotion, depend entirely on the local
community’s creativity [12]. The village community’s sincerity and innovation must be
the primary key. Since the travel industry is an excursion starting with one spot then onto
the next, which is brief, completed by people or gatherings as work to track down offset
and bliss with the climate in friendly, social, and everyday aspects, as well as science
[13], as per the Service of Culture and The travel industry Guideline, a vacationer town
is a type of solidarity between convenience, attractions, the travel industry supporting
offices, and framework, introduced life request locally that mixes with the overarching
custom [14].
This WhatsApp application is likewise recognizable, a talk application that residents
generally use in Indonesia. For what reason is WhatsApp significant? If the Internet and
virtual entertainment present data inactively, it will be understood when individuals
768 J. Juliana et al.

look for it [15]. With this WhatsApp application, we can effectively introduce data by
communicating messages to current contacts. So that individuals who read the message
will know the data we convey. Likewise, the WhatsApp application can enter specific
gatherings, for instance, town deals gatherings and Indonesian visit gatherings; we can
pass data in these gatherings agreeing on the standards that apply to the gathering [16].
Based on a review of problems that are backed up by theoretical findings and applica-
tions in several contexts of tourist destinations in the region with marketing using social
media platforms, this study tried to review several scientific evidences that have been
published in various media in the form of books and other scientific publications; thus
both authors and readers will gain a deep understanding as well as the ability to design
and become tourism drivers as well as individuals who promote tourist destinations
in Indonesia. Through the ease and cheapness of technology applications which have
now become a means not only for making friends but also a means for doing business,
especially tourism promotion both in cities. As well as in rural areas. Reviewing many
pieces of literature that have been published will be an exciting means to add insight into
the social intelligence of application media for business marketing, especially tourist
destinations in the rural areas.
Based on the explanation of the problems and hypotheses above, understanding the
best practices for marketing rural tourism destinations in Indonesia with the help of var-
ious social media applications in an era full of advanced technology is very interesting
and important issues to talk. Next, we designed this study in the structure of the problem
exposure, and identify the data search problems described in the methods, and materials
section. Next, we described the results of the data analysis in the results section and a dis-
cussion that is backed up by various scientific findings from various contexts of tourism
marketing applications both at home and abroad, which will sharpen the discussion of
the study of understanding the best practice of marketing tourist destinations in rural
areas in the country through applications and this social media has become the most
phenomenal tool, not only friendship sites but also for various business and government
marketing tools.

2 Research Method

In this section of the methods and materials, we describe the stages of implementing this
study to review several documents that will answer the question of understanding the
best ways to market tourist destinations in areas in Indonesia using social media [17].
To answer this problem, we conducted a series of data searches on publications in the
form of books and academic works in scientific journals. This elephant is designed in
a qualitative descriptive format under a phenomenological approach where we see and
examine many data and then review it to get answers that call with this study with the
principle of high validity [18]. The review process involves data integration, in-depth
evaluation, and data coding, and we try to conclude.
Search election data help Google search engine with marketing keywords relevant
to the problem. The data we do are those published between 2010 and 2022, considering
that the latest phase is the emergence of various applications and technological changes
worldwide. After getting the discussion results, we report them in a qualitative design
 Understanding Indonesian Rural Tourism Destination 769

because this study is more focused on seeking understanding in which we process them
in a qualitative study. Thus, the stages of implementing this study include understanding
the problem, searching for data, and analyzing and reporting the results [19].

3 Result and Discussion

In the result section, we will describe the findings of many publication documents whose
purpose is to gain deep resilience in the best practices of marketing Roro area tourist
destinations in Indonesia by utilizing social media applications which are phenomenal
in marketing business activities. As it is understood, the existence of social media has
changed every aspect of life except for business and also the way of human life. This
development has also impacted the implementation of business, especially strategies
in sales and marketing, such as the world of tourist destinations which are an income
sector that does not only happen in big cities but also in the village [20]. This represents
what the presence of virtual entertainment means for the travel industry nearby or in the
town, which is likewise essential for the pay to break the economy nearby, so we will
gather data and report in this segment with the goal that the job of innovation and its
commitment to expanding the travel industry progress can be we report.

Social media and the tourism industry advancement

The effect of virtual entertainment on the travel industry should be visible in the manner
individuals truly do explore prior to voyaging. Presently individuals are urged to share
their movement encounters [21]. Subsequently, web-based entertainment has meaning-
fully impacted how individuals simply decide. Individuals construct their confidence in
the travel industry offices in light of audits from others. Different things have been fin-
ished to advance the travel industry, including Television, radio, ads, pamphlets, shows,
and, most as of late, virtual entertainment. In addition, social media is also an essential
tool for tourism to help understand how consumers make decisions, tourist habits dur-
ing holidays, and activities after the holidays. There are strategic steps to promote the
tourism potential of rural areas in Indonesia by improving access to communications
such as the internet, infrastructure, and facilities [22].
So, tourism-driving companies in the region must know that promoting on social
media is the most powerful strategy to invite tourists and encourage people to share their
experiences of a place’s online tourism presence [21]. So, as discussed above, sharing
the experience through this social media application will impact the development of
honest communication because there is tourism with potential customers and even fellow
customers. So to benefit from various social media applications for the advancement of
tourism implementation, switching to various social media platforms is a significant
proposal for all parties, prospective tourism agents, and tourism movers in the area
where they are located [23].

Create Strategies to engage good content

The movement business is outstandingly forceful. When travel industry associations are
familiar with the potential benefits of online diversion for their business, they use flows
through which they can fabricate their picture care [24]. Associating with content is the
770 J. Juliana et al.

most earnest push toward going; accepting administrators mean attracting extra clients.
Since the movement business is connected with visual experience, visual material is
the most spellbinding technique for getting through. They should use bright photos and
magnificent accounts that are clear and tomfoolery.
Client-created content is one of the marvelous approaches to attracting people to
the travel industry. Force to be reckoned with advancing will help make the business
perceptible among the others [25]. After deciding the objective region and group, we can
contact the movement business rocking rollers and trained professionals. We will not
altogether acknowledge how rapidly the picture shows up at allies due to powerhouses.
After we learned about the gig of online diversion in the movement of business promot-
ing, we saw that anything we do is a method for being social. To expand the permeability,
we ought to effectively reach the clients by paying attention to them or addressing their
inquiries. Managers can explore their catchphrases and participate in discussions around
the administration. As we expressed above, giving client support online is an excellent
approach to making the voice heard. The travel industry is broad and occasional, so it
should be applicable concerning timing. Each area has its season, whether well-known
or unseen [26].

Best virtual channels for the tourism industry

As in a few different businesses, three broad online diversions-Facebook, Twitter, and
Instagram-have been the movement business’ heralds. Even though these channels have
their group, travel is among the most well-known subjects. Facebook is an excellent
stage to get clients on various social occasions [27]. Facebook’s Ideas feature enables
people to share their experiences. It could be used very well for the ultimate objective
of journeying, to show up at information about all clients regarding the development
business. Since it complements visual material, Instagram may be one of the best social
media channels. It is a remarkable stage for venture-out industry associations to attract
current and future clients. Using Instagram will help supervisors attract people, especially
twenty to thirty-year-olds, as they structure an extraordinarily powerful assembling on
Instagram. Directors ought to follow the development hashtags and make their own to
grow the reputation of the posts [28].
While Instagram takes command over the visual material, Twitter is the voice. This
stage licenses clients to talk about quick travel tips and advancements. Even though
Twitter can be used for photos and accounts of the picture, its real strength is valuable
for helping clients. Assuming chiefs want to partake in conversations, they need to have
an active Twitter account [29]. Besides the enormous three, there are various stages that
supervisors can use to connect with different social events of explorers. For example,
LinkedIn is tremendous for B2B. Business explorers share information on Linkedin bun-
dles about various topics, including trips for work. To show up at business explorers, they
use LinkedIn to reach them, depending upon the areas where directors offer help. By and
primarily used by age Z, Snapchat is one more critical stage for the movement business
exhibiting technique expecting they center around young clients. It is a rapidly creating
 Understanding Indonesian Rural Tourism Destination 771

virtual diversion channel where chiefs can share what is happening now. Directors can
share getting a handle on snaps about the movement business to get thought [30].

Computerized promotion in the tourism industry

A decent item or administration is not sufficient in the travel industry. Tourism orga-
nizers want individuals to discuss them and suggest the administration [31]. Web-based
entertainment is the ideal stage to work on the web-based standing of the travel industry
business. First, they want a computerized showcasing plan for the travel industry. Auto-
matic promotion in the travel industry has forever been a significant component, very
much like neighborliness, and is situated in the focal point of the client’s travel industry
experience. Both little and huge organizations in traveler objections must know about
this and make the most of the new open doors that emerge in the area. The travel industry
and innovation remain closely connected; we cannot comprehend one without another
[32].
It is vital to design at the crossing point between web-based entertainment promotion
and the travel industry. Formulating systems, organizing the activities, and connecting
each new mission to a substantial objective are critical. Then again, managers are playing
blind: Managers can be suitable for specific thoughts and come up short with others,
yet they will not have the option to assess why and gain from work. The computerized
showcasing plan for the travel industry can be the key that opens the way to many new
clients if they know how to make it happen [33].

Tourism reopens after Covid-19 using social networking

Starting around 2020, the episode of Covid-19 has rocked the boat around the town
economy hard and changed various endeavors. Most countries have negligible import and
item trade for fighting the eruption [34]. Various endeavors in China have experienced
a somewhat long suspension of work and creation, and the public power thoroughly
controlled staff’s cross-line and ordinary turn of events. These systems had influenced
the movement of business, which has perpetually been more dependent upon the real
economy, into a state of stagnation. The UN World, The movement business Affiliation,
made a declaration saying that the overall travel industry lost $320 billion in pay from
January to May 2020 alone given the clever Coronavirus plague, on various occasions, the
aggregate lost during the overall financial crisis in 2009, compromising the livelihoods
of millions of people [35]. WHO recommended that different countries limit people’s
development, shut down getaway destinations, and suspend economic activities/public
events during the Covid epidemic? Pandemic or prosperity-related difficulties, similar
to the sensation of fear toward Covid-19 and saw risk, have put protests/metropolitan
networks under lockdown in different countries [36].
The review examines all current web-based entertainment-related research articles
distributed in scholastic distributions between 2007 and 2011, emphasizing the travel
industry and cordiality. Given a substance examination of the dissected articles accord-
ing to the viewpoints of the two clients and providers, 281 as per the discoveries of
the article, purchaser-driven examinations, for the most part, centered around the uti-
lization and impact of web-based entertainment in the exploration period of voyagers’
get-away arranging process [37]. Supplier-related research has revolved around head-
way, the chiefs, and assessment abilities, with few examinations keeping an eye on
772 J. Juliana et al.

assignment. The revelations of the concentrate show the fundamental worth of online
diversion for the movement of business power. The fixation, in like manner, helps the
academic world and industry by perceiving research openings in existing investigations
and offering an assessment plan for what is to come. Plus, the movement business is
currently being affected by the Covid pandemic, and the survey looks at the massive
changes in the movement business progression and displays [36].

4 Conclusion

We have led a progression of information studies to respond to the subject of this study
which looks for logical proof that expresses how to help virtual entertainment advance the
travel industry in country regions in a period of high innovation perpetually. Concerning
what we have gathered, among others, the utilization of virtual entertainment to develop
further the town, the travel industry is for sure one of the leaps forwards made by the
travel industry movers following government strategies in Indonesia, where all areas
connected with improvement should use innovation or online entertainment. Similarly,
we tracked down that advertising through virtual entertainment to advance the travel
industry should be possible by censuring different procedures which make invigorating
substances to draw in additional guests to vacationer regions. Then, we additionally
found that the travel industry does many accepted procedures. Making web destinations
and interfacing them with virtual entertainment is one of the endeavors to advance the
travel industry that many people have completed. In the following country, we also found
the problems faced when reopening the tourist area after the Covid disaster. Implication,
because social media is an essential tool for the advancement of tourism, so to help
potential visitors understand how consumers make decisions and what tourists do during
holidays. Activities after the holidays, one of the most relevant and trendy tools is to
advertise them on various social media. Tourism enthusiasts will be familiar with social
media in the fast development of the digital world. Social media is used for various
things, including tourism promotion. Therefore, it can be seen how the potential can be
obtained from promotions on social media. The more people who access social media,
the more excellent the opportunity to promote a product or service to attract the attention
of its users. Business people have long used the use of social media for promotion.
Limitation of findings.
Apart from the advantages and disadvantages of this study, which relies on online social
media-based marketing to promote rural tourism destinations in Indonesia, we sum-
marize some advantages and disadvantages. After reviewing several advantages, it turns
out that we also found weaknesses, including that digital-based marketing, mainly social
media for tourism promotion; we found that consumers certainly had to be extra care-
ful even if they only saw the information, especially when they had to transact. The
disadvantages include that the intended target is sometimes not so accurate that it can
disappoint potential tourists who come to the area. Tourists still have to use various
facilities, including asking for more accurate information to be sent; even when they
are at their location, they must also pay more fees, considering that the promotion costs
money.
 Understanding Indonesian Rural Tourism Destination 773

Where tourist destination advertisers must be active and update all updates related
to tourism promotion activities which will, of course, have a timeline that continues
to run fast so that often content sent becomes spam, they must actively promote and
update tools for digital problems, there is indeed a change where digital marketing social
media-based is indeed very easy and fast, but its weakness is also often detrimental to
prospective tourists. Considering that our study relies on various data and results of
scientific publications here, accuracy and sharpness of the author’s understanding are
needed to be able to minimize which sites are tourism and other marketing activities
that require strong hit-tech to be able to carry out promotions and marketing so that
this becomes a best practice in promotion and marketing activities for rural tourism in
Indonesia.

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 Family Homestead as an Innovative Project
for the Development of Tourism,
Entrepreneurship and Management
of Socio-Economic Systems

Plotnikova Maria1 , Prysiazhniuk Oksana2 , Shvets Tetyana1 , Buluy Oleksiy1 ,

Ovdiyuk Olena1 , and Reznik Nadiia P.3(B)
1 Department of Economics, Entrepreneurship and Tourism, Polissia National University,
Zhytomyr, Ukraine
[email protected], [email protected]
2 Department of Management and Marketing, Polissia National University, Zhytomyr, Ukraine
[email protected]
3 Department of Management, National University of Life and Environmental Sciences of
Ukraine, Kyiv, Ukraine
[email protected]

Abstract. The modern development of socio-economic systems indicates a shift

of interest on the part of society in the direction of stable forms, multifunctional
multi-vector structures. This is due to the growing level of consciousness and eco-
logical awareness regarding the anthropogenic impact and the degree of respon-
sibility of individuals during the last decades. The direction of sustainable mul-
tidisciplinary development becomes a priority from the point of view of social
orientation along with the politics of human centrism and nature centrism. This
will contribute to ensuring a high level of the quality of life of the population,
restoring health, and solving housing, demographic and environmental problems.
The directions specified simultaneously contribute to the restoration of natural,
cultural, entrepreneurial and tourist potential, protection of natural resources, and
reduction of the level of overexploitation of territories. This can be achieved
through the introduction into the legislative field of the concept of lifelong use
of a plot of land for the arrangement of a family homestead (FH), without the right
to sell it and with the right to transfer this plot to inheritance. The plots of land
allocated for the arrangement of «FH» and the products grown on them should not
be taxed. Depending on the relief of the area and the requirements of the relevant
state authorities, from 30 to 50% of the plot should be planted with non-fruit trees.
Legislatively approve the tentative charter of an ecological settlement, which can
be used by a voluntary community of citizens of Ukraine on free, uninhabited
and undeveloped land in rural areas in order to comply with the requirements of
ecology, land protection, and general human values in public life.

Keywords: Family homestead · Family homestead settlements · Multifunctional

development · Rural development · Sustainable development

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 776–795, 2023.
https://doi.org/10.1007/978-3-031-26956-1_73
 Family Homestead as an Innovative Project for the Development 777

1 Introduction

The need to rethink the way of life of people from the standpoint of forming the founda-
tions of their sustainable development, activation of employment and, in particular, self-
employment, social security, found its manifestation in the activities of social structures
and institutions. This manifested itself in the creation of new power relations, including
in relation to the activities and functioning of households, non-governmental organiza-
tions and the practice of regulating relations in society by the government. Taking into
account the indicated trends, it is advisable to focus on knowledge management in the
formation of an effective business model, including in rural areas (Bratianu et al. 2021;
Prafitri et al. 2018). Conceptual approaches to the development of society, the national
economy, and global growth can be found in the works of both domestic and foreign
scientists. In particular, the following stages are considered: urbanization, suburbaniza-
tion, counter-urbanization, reurbanization, and the level of socio-economic activity of
society and the dynamics of migration processes are cited as the criteria of manifes-
tation (Farkas 2017; Meulen 2013). Business management is always accompanied by
the consideration of financial aspects and the use of innovative tools, including strategic
planning, outsourcing, benchmarking, management of business processes based on the
leadership of an entrepreneur, budget and supply chains, a balanced system of indicators
(Valinkevych and Orlova 2019, p. 128; Usman et al. 2020; Mc Loughlin et al. 2021). In
addition, it is important to consider and be able to substantiate the impact of risks on
business and manage them, in particular through the creation of an appropriate level of
organizational culture (Visser and Scheers 2018; Makkawi H. 2021; Klucka and Grun-
bichler 2020; Polinkevych et al. 2021) focus on flexible management and the social
component of business processes (Vugec et al. 2018; Aysolmaz et al. 2018). The man-
agement of sustainable development of territories should be based on the cooperation
of local self-government bodies with business (Yakobchuk et al. 2021; Ovdiyuk et al.
2021) and be focused on greening. One of the types of environmentally oriented business
that contributes to the development of territories and people’s health is bicycle tourism
(Gazzola et al. 2018; Costa and Lima 2018). Researchers have proven that business
efficiency and labor productivity increase in family businesses and depend on integrated
quality and human resource management (Azizi et al. 2019). It has been proven that the
management of sustainable development of territories should be based on the digitaliza-
tion of business processes (Stjepic et al. 2020). However, taking into account the high
level of urbanization, management aspects of ensuring the sustainable development of
territories with an emphasis on the development of business and tourism require detailed
research.
Therefore, the purpose of the research is to develop and deepen the theoretical and
methodological foundations and applied provisions of multifunctional development of
socio-economic systems, in particular in the field of tourism, entrepreneurship and
management. Achieving the goal involves setting the following tasks: to identify the
levels and institutional principles of regulation of the multifunctional development of
rural areas, to reveal the organizational and economic mechanism of regulation of the
development of rural areas through the implementation of the «Family Homestead»
project.
778 P. Maria et al.

2 Materials and Methods

Within the framework of this article, there was a need to define the term «Family Home-
stead» as a modern phenomenon, which itself arose only recently, as well as in the
scientific literature. The existence of various definitions related to the multifunctional
development of territorial communities imposes the need to identify a sublimated app-
roach in which the advantages and disadvantages of groups of definitions are considered.
Approaches to sustainable development as an element of a multifunctional approach on
the European and American continents differ greatly. Both cases refer to the type of
sustainable development or a modern and niche type of socio-economic management of
territories, and since the territory of Ukraine is considered, we are firmly convinced that
the more acceptable model is the one adopted in Europe or the European network of the
Global Network of Eco-Settlements. The criteria for European sustainable communities
are specific and require compliance with certain rules.
From the above, it can be concluded that there is also a need to determine whether the
idea of «Family Homestead» meets the preliminary conditions for possible declaration
as a sustainable community and the possibility of ensuring multifunctional development
on its territory, as well as in the immediate environment, in particular in cooperation with
other family homesteads in family homestead settlements format. Therefore, monitor-
ing, inventory and evaluation by scientists, specialists of state administration and local
self-government bodies, public organizations and other public institutions is required
as a special phenomenon that the studied territory possesses. It is also necessary to
systematically evaluate other resources of natural and anthropogenic origin in their rela-
tionship and interaction as systemic factors of multifunctional development at the global
level. It is important to take into account the opinions and attitudes of residents, tourists
(domestic and foreign) who visit settlements where family homesteads and family home-
stead settlements are located. Studies related to the perceptions of all stakeholders about
the natural and anthropogenic values of the territorial community, which are especially
important due to the presence of significant differences and the need for cooperation
of all participants in social relations in order to obtain a synergistic effect from the use
of available resources, as were carried out within the framework of the Strategy for the
Development of the Territorial Community from 2013 to 2021. These studies were car-
ried out by Plotnikova Mariia Fedorivna in cooperation with the All-Ukrainian public
organization «People’s Movement for the Protection of the Earth», state and local self-
government bodies, public organizations (NGO «Granidub», NGO «Lagul Association
of Sustainable Land Use»), especially related to the data collection and data processing.
The questionnaire poll covered a population of 2,070 people in all regions of Ukraine,
the focus group of respondents was located in the southern, central and northern regions,
in particular Zhytomyr, Kyiv, Kharkiv, Odesa, Kirovohrad, as well as 380 respondents
(residents, tourists, representatives of state authorities and local self-government) in the
format of unstructured interviews. In the interests of this study, only those issues are con-
sidered that, in our opinion, are relevant to the considered problem of multifunctional
development of territorial communities.
The theoretical and methodological basis of the study is the classical theories of
multifunctional noosphere development. These include issues of exogenous economic
growth and innovative practices in public administration. This also includes issues of
 Family Homestead as an Innovative Project for the Development 779

organizing socio-economic processes of territorial communities. As a source of infor-

mation, the materials of the Google Scholar, Web of Science, Scopus databases, official
data of the State Statistics Committee of Ukraine, and state institutions are indicated.
This study is based on the study of the experience of territorial communities of Ukraine.
They are implementing the methodology of development of territorial communities
within the framework of a program experiment supported by the Zhytomyr Regional
State Administration (communities implementing the idea of the «Family Homestead»
received experimental status), the Ministry of Agrarian Policy and Food of Ukraine
(Zhytomyr Region is recognized as a pilot). The assessment was carried out using the
software and hardware complex Omega-M (manufactured by Dinamika Technologies),
SPSS Statistica. This assessment was carried out using economic and mathematical
analysis, economic and mathematical modeling of social processes and forecasting their
development. With the help of sociometric and general scientific research methods, the
state of socio-economic development of rural areas was evaluated, and the reasons for
their decline were identified. Observation as a basic approach to collecting information
allows us to assess the effectiveness of the methodological approach and the conse-
quences of its application for the success and health of students. Based on the received
data, an academic report on the implementation of the practice of balanced personality
development was created. Socio-economic processes were analyzed by experts in the
field of public administration, local self-government, management of social and eco-
nomic development. The analysis was carried out from the point of view of features of
planning, organization, management, control and accounting. An analysis of Internet
sources, literature and documents was carried out, methods of analogy and statistical
data analysis were applied.

3 Results and Discussion

The long existence of cities has caused communal collapses, contamination of air, water
and soil pollution, problems of transport, water, energy, administrative and other liveli-
hoods, problems of waste disposal, massive construction (lack of spatial basis for growth
and development). The consequence of the growth of agglomerations is the opposition
of the place of work of the family to the place of residence (concentration of efforts,
attention, time and other resources of the individual at the place of work not for the
benefit of the family). A separate form of such confrontation is labor migration, when an
employee leaves his family temporarily or for a long time, and replaces his own house
with an apartment, official housing or barracks). Instead, the reverse processes of migra-
tion are due to the formed system of values associated with thoughts about the future,
care for the environment, and a high level of household services. Economic reasons are
crucial for low-income people when economic security is important. For people with an
average and high income, it is crucial to improve the quality of life, the safety of the
natural environment and children (Plotnikova et al. 2022).
The reasons for resettlement are free and forced choices. When making a free choice,
they focus on opportunities (financial, remote employment, flexible work schedule, rep-
resented more often by freelancers, the wealthy population, pensioners, etc.) and beliefs
(not perceiving the rhythm of the city, the conglomerate of traffic jams, smog, crime,
780 P. Maria et al.

stress, psychological pressure, etc. associated values, fatigue, life, communal monopoly,
diseases, «stone and concrete jungle», «rat run», deterioration of health, internal exhaus-
tion, uncertainty in the future). A forced choice occurs in the case of refugees, the need to
care for sick relatives or parents in old age, financial or other inability to live in the city, the
desire for better living conditions, the worldview striving for harmony with oneself and
Nature, understanding the integrity and interconnection of all processes in the universe
(Plotnikova 2020). Migration to rural settlements is due to the desire for ecological living
conditions, a healthy lifestyle, the formation of the foundations of food security, and the
development of an original culture (Plotnikova et al. 2022). The growing popularity of
ecological practices in all regions of the world aims to restore the natural environment,
reduce the anthropogenic load on it and indicates the global nature of the processes,
the urgency of changing the technocratic, market approach to life for modern society,
along with the popularization of the 5E and 5R approaches. The 5E approach includes
Elementary Food, Eco-friendly Business, EcoLife, eco-efficiency, eco-construction. Ele-
mentary Food - includes healthy food (Local Food, Wellness), vegetarian dishes, «slow
food» (Slow Food) as a counterweight to Fast Food. Eco-friendly Business is environ-
mentalization of business, social entrepreneurship. EcoLife – involves the development
of permaculture, eco-farms, production of organic products, certification, restoration of
perennial unfruitful plantations as a mechanism for increasing soil fertility, improving the
water, air, and mineral-biological balance of the territory, multiplying flora and fauna on
the territory. Zero-waste lifestyle offers the following 5R principles of lifestyle: refuse –
rejection of unnecessary; reduce – reduction of what is not consumed; reuse – reuse
of what is possible; recycle – recycling; rot – composting), (Ovdiyuk et al. 2022). The
trend towards the organization of «smart» space: smart-community, smart-technologies,
smart-houses, smart-cities, etc. outlined the desire of a modern individual to develop
and spatially organize an environment as friendly as possible to people, where the main
issues are people and ecology, as well as technologies, which allow them to be harmo-
nized (first of all, rational use of resources and improvement of anthropogenic impact
on the natural environment, in particular, through waste-free living, use of renewable
energy sources, rational resource use, cost reduction).
The characteristic features of the future civilization revealed in the writings of
Volodymyr Vernadskyi and based on the laws of Progress and Regression allowed us to
draw a conclusion about their activity: 1) the modern life activity of the Biosphere is
based on parasitism of food chains, where the strong eats the weak, which is also reflected
in society; 2) management of the Biosphere is laid down at the level of instincts in every
type of living organism and is implemented through the gene pool, so the animal cannot
go beyond its instincts; 3) human activity has free will and is based on Consciousness,
not only on natural instincts, and develops due to collective communication, a sense of
compassion (shared experience), intellectual cohesion, ethnic rituals, national statehood,
ecological culture; 4) in interaction with the environment, a person creates an artificial
living environment (noosphere: housing, settlements, cities, states, industries, science,
culture); 5) from the point of view of food chains, man is a consumer and parasitism
has become entrenched in his knowledge, which caused the parasitic development of
civilization (slavery, slave-owning, feudal-serf, capitalist systems, social totalitarianism,
 Family Homestead as an Innovative Project for the Development 781

freemasonry, mafia and oligarchy within the limits of a democratic system, war, striv-
ing for power and world domination, nuclear weapons, etc.); 6) management of the
noosphere is based on ancestral gene pools that accumulate intellectual and spiritual
information of each kind, create Social and National Consciousness with the participa-
tion of state power (as opposed to modern psychotropic bombing, psychotropic change
of consciousness, robot-controlled chips, mutants and cyborgs to control people through
fear and unconscious); 7) modern civilization has reached the point of bifurcation of the
Universal Law of Progress and Regression, therefore, a promising direction to ensure
the development of humanity is the transition to the stage of Wisdom through the Eco-
logical Culture of man in the noosphere; 8) in addition to the material noosphere, there is
a virtual noosphere (thought, language, EGO, creativity, consciousness, subconscious-
ness, mind), which are able to allow a person to become autotrophic, to go through the
stages of cognition, awareness and enlightenment and to reach the stage of Wisdom,
which will enable change due to ecological culture consciousness from the consumer to
the noosphere (Fig. 1), which, in turn, are revealed from the position of the following
levels of perception: 1) the level of egocentric limitation; 2) level of family values; 3)
level of national values; 4) the level of universal values; 5) the level of spiritual (cos-
mic) awareness. Overcoming existing barriers is currently taking place on the basis of
the formation of a unified worldview through a system of new knowledge, information
work, and creativity. Integration is most often ensured at the level and with the help
of physicochemical processes, energy interaction, information synchronization (deliv-
ering information, through information processing systems and process management),
understanding one’s own structural and functional purpose, through gestalt (when the
holographic format of thought creates further prerequisites for development), spirit.
Knowledge vector

Health vector

Spirituality

The mental sphere as

an intellectual-emotional sphere

The physical body as the basis of the structural

organization of man and society

Tactics for the formation of a provision strategy

Fig. 1. Noosphere approaches to cognition and healing Source: own research.

The world experience of differentiation of settlements can be summarized according

to the following characteristics: 1) according to the purposes of creation – religious,
spiritual, communes and communities, ecological, anarchic; 2) by type of criticism of
society – psychological, political-economic, religious (Levkovskaya et al. 2022); 3)
according to the activity of public influences on society – local, regional, global; 4) by
location - urban, rural, mixed; 5) according to the motivation of creation - anarchic,
essential (formation of the appropriate level of consciousness), according to interests
782 P. Maria et al.

(likes to do the appropriate work); 6) according to the settlement council system: one-
level (equality of all participants), pyramidal (everyone manages within the limits of
their powers and functions of a certain level of the hierarchy); 7) by the number of
participants – family (members of the same family are present), public (traditionally or
spontaneously formed administrative and legal units – people settle in villages, garden
plots, build cottages outside the city to breathe fresh air), settlements of family home-
steads ( as territories uniting several clans, each of which forms a space where it collects
traditions, spirituality and the heritage of its clan); 8) by areas of activity - settlements
created for the purpose of protecting forests, water, greening of the urban lifestyle, move-
ments to ensure a healthy way of life, for living together in shared houses in cities, etc.
With the goal of preventing violence against both people and the surrounding space,
they have signs of sustainable development, balanced use of natural resources (man’s
existence in harmony with nature, because man is only a part of it). The priority for
such communities is to preserve the environment for future generations, including by
reducing consumption, cyclical use of resources, restoring the potential of the territory,
spreading the practice of organic farming, waste-free living, using renewable energy
sources, improving relations between individuals in society through increasing qual-
ity of life, spiritual development, social justice and support, formation of sustainable
self-sufficient communities.
Implementation of the «Family Homestead» project and, based on it, the draft Law
of Ukraine «On Family Homesteads and Family Homestead Settlements in Ukraine»,
developed by the All-Ukrainian public organization «People’s Movement for the Pro-
tection of the Earth» (chairman Mykhailo Vasyliev) together with the National Research
Center «Institute of Agrarian Economics» (Kyiv) provides for the legal establishment
of the right to 1 hectare of land for every Ukrainian family that wishes to build its own
family estate. The adoption and implementation of the items of the draft law will ensure
the development of the family on a qualitatively new level of moral and psychological
basis and will have not only a tactical, but also a strategic positive effect. The defini-
tion of persons or their groups that implement each of the mentioned functions within
the community (or outside its borders, in particular, this can be administration by state
authorities or such is the issue of national security, which is decided at the national
level, etc.) is decisive not only from the point of view of the efficiency of their imple-
mentation, but also of the community’s ability to independently initiate and implement
the plan. More successful in this regard is the experience of Ukraine, where an ecolog-
ically conscious attitude to the surrounding space is combined with ancestral values,
spirituality and culture of the Ukrainian people, which are being revived in ancestral
settlements (Table 1). The flow of energy produced by the family homestead settlements
of Ukraine is carried out in accordance with the development of dynamic systems and
can be calculated according to the formula:
   
1 dy
EP = W ε + − ρ − H n1 − σH dx. (1)
2 dx

Mainly, it is possible to assume the presence of non-linear changes, conditions and

structure of participants in social relations, capable of concentrating energy from space
in the format of an egregor (Yakobchuk et al. 2021), which provokes the appearance of an
 Family Homestead as an Innovative Project for the Development 783

energy flow of a torsion field, the magnitude of which is proportional to the investment
of energy according to the formula:
e0
E = ei ln , (2)
e1
where ei is the initial investment in the development of the family homestead (dynam-
ics of all forms of investment in terms of energy units); e0 – is the initial number of
family homesteads, e1 – is their final number in the community. Thus, the final energy
assessment of a settlement built according to the principle of «Family Homestead» is
determined as a function of the overall assessment of all types of investments in its devel-
opment: the product of the number of investments and the ratio of the initial number of
family estates to their final number. The presented function illustrates the existence of
an optimal rate of investment and development of investments for a specific territorial
community, and the rate of growth of households changes at a slow rate compared to
the number of investments due to the limited rate of change in the population’s con-
sciousness. It follows from the formula that the further development of the community
is related to the removal of unnecessary elements, such as garbage, inability to commu-
nicate, cooperation, etc. (the community should act as a single organism, activating its
internal potential). At the same time, it should be noted that the rate of change of the
logarithm value will be low. However, from generation to generation, this change will
be more and more noticeable, and the consequences will be more and more significant
compared to the initial situation, because it will not be necessary to waste efforts on
problems that have already been solved.
Cheap and easy-to-use technologies are a promising vector of living according to the
principle of reasonable sufficiency, when production and consumption are at a minimum
level, which ensures constant spiritual growth (Vasiliev and Plotnikova 2013). The focus
on socialization, public management of community development, responsibility for one’s
own life and surrounding space forms qualitatively new standards. At the same time,
contact with the natural environment, in particular, the forest, plays an important role.
Being a powerful producer of resources (wood, mushrooms, berries, etc., which can be
consumed, processed and sold, including as a product of the functioning of crafts and
industries, as well as the ability to improve health and recreation and education), the
forest forms a spatial environment richer in linkages and values (a garden planted in
it is more resistant to pests and diseases, due to the creation of a microclimate it can
contain more heat-loving species of flora and fauna, protect and inspire a person to new
achievements, increase the speed of his thoughts).
Rethinking human behavior takes place on the basis of understanding peculiari-
ties, promotion of values and social advantages, and also as a result of ensuring their
preservation and multiplication. On the other hand, the mechanism and motivational
factor for promoting ecological and social understanding, respect and preservation is
the level of consciousness, responsibility for oneself and the surrounding space. In other
words, management of sustainable development, information activities (in particular,
implementation of educational materials, information panels or seminars, promotion of
high-quality local brands, local business activities), awareness of local advantages and,
on this basis, the formation of satisfaction, become the key principles, the fundamental
basis of the strategic management of the territory needs. In this way, the experience of
784 P. Maria et al.

Table 1. Comparative characteristics of the most common socio-economic systems

Type of settlements Resources and capital Recruitment practices Introduced

association technologies
Business structure Association for the Labor resources are Industrial production
purpose of accumulated as a part technologies prevail
capitalization of of production capital
resources and income on terms of hiring and
payment
Traditional Association by Predominance of Predominance of
settlement historical practice and family and clan practices of traditional
territorial feature relations in matters of technologies of
solving development production and life
tasks with the activities with little
possibility of involvement of best
employment practices
Ecological Involvement of The practice of solving The practice of both
settlement subjects based on a development tasks by rejecting modern
common worldview the forces of a technologies
and value system is community not united (downshifting) and
practiced by family and clan their involvement
relations (upshifting)
Family Homestead Involvement is The practice of family The practice of
Settlement practiced, in relations in issues of nature-rational
particular, through solving development (nature-appropriate)
public administration tasks technologies that
and the activities of ensure the harmony of
public organizations human-nature relations
Source: own research

common interests is created, including through education, and from the standpoint of
practice, the process of community management is implemented, which involves the
creation of new business entities and jobs for the local population, which, in turn, leads
to various economic benefits from protection and management measures. The initially
determined assumptions of the model of the formation of sustainable systems as a com-
ponent of their socio-economic innovative development are as follows: it should be a
defined territory that develops the local economy and realizes its own heritage, includ-
ing ecological and cultural, through the interaction of all participants in the territory.
The synergistic effect of such integration is multidimensional, including as a result of
obtaining economic, socio-cultural and environmental benefits due to sustainable devel-
opment; creation of new enterprises and jobs; raising awareness of local biodiversity and
geodiversity, their preservation for both tourists and the local population; involvement
of scientists and researchers who will contribute to increasing the level of protection
of values, preservation of the environment as a whole; cooperation between different
stakeholders; creating a recognizable brand, etc. The main factors that determine the
 Family Homestead as an Innovative Project for the Development 785

socio-economic development of systems include the following: natural resource poten-

tial, infrastructural support, human and technical-technological (including innovative)
capital. Based on the above, the original research model of the formation of sustainable
socio-economic innovation systems can be presented as follows:

Pr = a0 + a1 P1 + a2 P2 + a3 P3 + rv, (3)

where P1 , P2 , P3 - are common variables; a1 , a2 , a3 – are coefficients that reflect the

strength and direction of relationships between common variables; a0 – is a free mem-
ber; rv - is a random deviation. Determination of the effectiveness and stability of
the directions of socio-economic development of the system was carried out in accor-
dance with the principles and conditions of optimization modeling, which reflects socio-
economic development and criteria for its change with general indicators. According to
the optimization modeling algorithm, the following formula can be applied:
⎧
⎨ PYS = G0s + G1s Pr + rvs
PY = G0c + G1c Pr + rvc , (4)
⎩ c
PYe = G0e + G1e Pr + rve

where PYs , PYc , PYe - are explicit variables; G1s Pr , G1c Pr , G1e Pr – are potential compo-
nents; G0s , G0c , G0e - are free terms; rvs , rvc , rve - is random deviation. The optimization
model was formed on the basis of statistical reporting (Table 2).

Table 2. Internal consistency of the elements of the socio-economic system

Factors of Criterion
socio-economic Cronbach’s, αc Dillon and Eigenvalue, G1 Eigenvalue, G2
development Goldstein’s, ρDGol
Natural resource 0,89 0,95 4,16 0,76
potential
Infrastructural 0,83 0,91 1,82 0,28
support
Human capital 0,71 0,90 1,87 0,29
Technical and 0,81 0,92 2,62 0,44
technological
capital
Innovative 0,78 0,91 2,10 0,34
capital
Source: own research by (State 2022)

A sustainable socio-economic system is fully provided by specialists with all the

necessary professions and the formation of society. Local authorities determine within
their borders the territories on which it is necessary and possible to locate settlements
(where they do not already exist). In addition, in rural settlements, in the presence of
786 P. Maria et al.

desolate land plots, local authorities can apply the regulatory framework provided for
PC. Local authorities determine the necessity, significance and social need for such mea-
sures (Vasiliev and Plotnikova 2014). Regulatory state policy provides for approaches
to financing projects based on the principles of partnership between the state, business
structures and the population. The implementation of this approach should provide for
the availability and popularization of services in the field of tourism, entrepreneurship,
management, education, health care, culture and sports, social security, etc. An effec-
tive system of local self-government based on the principles of direct people’s rule and
strengthening the role of the territorial community, including through the implementa-
tion of the «Family Homestead» project, should become a mechanism for optimizing
the interaction between society and the state. The latter involves the stimulation of local
initiatives to build human and social potential, the formation of civil society structures
based on the close interaction of social, ecological and economic spheres of society’s
life (Table 3).
The growing interest in deurbanization is due to a number of interrelated factors,
including the inability to ignore the social, economic and environmental problems asso-
ciated with cities, which can only be effectively addressed through local policies and
programs, as well as the presence of political and financial benefits from decentraliza-
tion of the provision of services to local authorities and institutions, which took place in
Ukraine. The policy of decentralization is increasingly bringing the issue of urbanization
to the level of local authorities as regulators of the financing of local services and with
the aim of intensifying their role in managing local development. There is also a need to
expand research in the field of the interdisciplinary relationship between infrastructure
and service provision, solvency, relative competitiveness and economic indicators of the
development of territories, business and tourism as one of the more dynamic and, at the
same time, less budgetary spheres of economic recovery through the management and
mobilization of local resources on against the background of the aggravation of meeting
the needs of the territories in the field of health care, sanitation, water supply, housing
and transport, which require large capital investments. Their solution is possible under
the condition of the formation of sustainable and capable smart-communities capable
of providing the necessary infrastructure and services in a decentralized environment,
which is more effective in terms of public management, inclusion and participation
in regional development. The importance of private investment in strategic planning,
institutional development and capacity building, as well as in the development of man-
agement and financial systems cannot be overstated. This includes city governments
partnering with community groups and leveraging the capital and resources of the pri-
vate and international sectors to deliver the services that more and more communities
expect. More attention is also required to the issues of environmental protection and
social development.
When proposing the proper practice of sustainable development, it is necessary to
take into account economic, ecological and social aspects, in particular in matters of
taking into account regional differences and, in some cases, the impossibility of simply
transferring advanced world or domestic experience without its adaptation or modifica-
tion to local conditions. Thus, urbanization creates problems for the development of rural
areas due to the loss of productive agricultural land due to the development of suburbs,
 Family Homestead as an Innovative Project for the Development 787

Table 3. Approaches to the formation of a socially and economically sustainable structure

Feature Enterprise Local community

Result: fast and expensive Employment (recruitment) of Selection of the most active
professionals participants and the most
Advantages: fast results attractive conditions for
Disadvantages: high cost of starting the project
involvement, low level of Advantages: the activity is
adaptation due to the carried out by those who are
implementation of purchased most eager to do it
templates Disadvantages: as a rule, there
are few active participants,
their resources are limited, the
result is at the disposal of all
or there is a need to introduce
restrictions, in case of
disappearance, the asset ceases
to exist
Result: long and purposeful Enabling young professionals Involvement of the entire
(with maximum adaptation to Advantages: lower cost of community or a significant
the goals of the object) engagement compared to part of it, individuals of youth,
professionals, setting tasks formation of their worldview
relevant for the company, in the direction of improving
creating a team, higher level the value system
of commitment to work Advantages: the system
Disadvantages: long training becomes stable, self-sufficient
period, need for qualified in the long term, the goals and
mentors the result of their achievement
satisfy the participants, the
experience can be spread
Disadvantages: inertia of
thinking, long adaptation to
new conditions
Source: own research

which is clearly visible from the experience of the Kyiv region agglomeration. Urban-
ization increases the need for structural reforms in agriculture. The advantages offered
by large cities in terms of opportunities for higher education, health care, employment
and higher wages make it difficult to live in rural areas, forcing them to compete and
attract qualified specialists to support the development of the trend of the decline of
rural areas, which is accompanied by the appearance and growth of new settlements
in the countryside at the expense of immigrants from the cities. Their development is
associated with a change in consciousness. Reviving settlements in the countryside, the
settlers build housing, roads, schools, houses of culture and creativity, medical, health
and recreational institutions.
The existing management practice in Ukraine has proven that the creation of family
homesteads with everything necessary provides investments of at least 300 thousand
788 P. Maria et al.

hryvnias for 10 years. If we consider the territory of an average Ukrainian village,

its area is 250 hectares, and then the investments of private individuals in this village
will amount to 75 million hryvnias for 10 years or 7.5 million hryvnias annually. Also,
environmentally safe products worth at least 2.5 million hryvnias will be grown annually.
The revival of 600 settlements that were erased from the map of Ukraine during the period
of independence, and 600 villages that are on the verge of disappearing, will provide
employment for 100 thousand workers over the next 10 years and new investments in
the amount of 9 billion hryvnias per year, production of environmentally safe goods for
the sum of 3 billion hryvnias. One of the advantages of the settlers is the planting of
barren trees on their areas of at least 0.3 hectares, a green fence around the perimeter, the
creation of a self-sufficient and harmonious ecosystem that requires very little human
intervention for its functioning. In the mentioned villages, workers will plant 100–150
thousand hectares of forest, saving up to 1.5 billion hryvnias of state investments for soil
protection measures (Family, 2021). The increase in settlements will contribute to the
increase in employment in the service sector, provided that service organizations, new
enterprises, including high-tech ones, preservation and revival of cultural institutions,
functioning of kindergartens and other elements of social and industrial infrastructure
are created. The described actions will lead to the development of savings in the family
budget, physical health, reducing the burden on the city infrastructure, the development
of new settlements, as a result, the creation of new jobs and the service sector. We
believe that all elements of the management process are important: from development,
adoption of a decision to its high-quality implementation and flexibly at all stages.
And although the management behavior algorithm provides for a balanced and formed
procedure (identification of the problem, determination of the factors of the internal and
external environment, criteria for the effectiveness of choosing the optimal solution, its
selection, approval, design, resource provision and implementation), however, especially
recently, it is of increasing importance in the behavior of the administrative personnel
acquire innovative and creative approaches, search and implementation of non-standard
solutions (Fig. 2).

Traditional scheme of decision-making A creative approach to decision-making

Executed Absurd

Practical Nonsensical

Possible Impossible

Old solution (standard) Great idea (innovation)

Fig. 2. Conceptual differences in the management process Source: own research.

Family homestead settlements as purposeful communities focused on communica-

tion, cooperation and holistic integration of human activity with the environment. The
obtained results demonstrate the system of communication, production and from the
standpoint of mastering the permaculture system and the development of alternative
 Family Homestead as an Innovative Project for the Development 789

settlements as a consequence of the transformation of social life from the predomi-

nance of ecological and social priorities. The focus on sustainable development, the use
of renewable energy sources, waste-free living and noospheric approaches in education
and training, both in theory and in practice, is obviously a current trend. It is based on the
concept of conscious consumption, individual responsibility for the future of the planet,
and the prevention of exclusive materialism as a way of life. Modern trends in society
provoke the process of rethinking life in a multi-vector manifestation and long-term
perspective. The systematized nature of the mechanisms for ensuring the development
of such territories is shown in Table 4.

Table 4. Mechanisms for ensuring the development of territories

Mechanism The essence of the Positive aspects of Negative aspects of

mechanism implementation implementation
Individualization Individualization - increase in the number of - increase in public costs
provides for small and medium-sized for management and
specialization in business structures; administration;
production and social - maximum satisfaction of - increase in the price of
processes individual interests; public services
- development of service
cooperation, consulting
and consulting;
- development of
horticulture cooperatives
Concentration Concentration of - presence of competitive - strengthening of
resource, for example, advantages, structural asymmetries
land, in particular, - the possibility of and disproportions,
landscape, human, industrialization of - a decrease in the level of
material and technical, processes and benefits due employment,
technological capital in to the effect of scale, - strengthening of
priority sectors - maximization of income migration processes, food
and profits; dependence, including
- preservation of the import dependence
national historical and - deterioration of the
cultural heritage; ecological situation,
- the spread of a strategic - growth of corporate and
approach in management; decrease of individual
- activation of the benefits;
activities of territorial - corporatization and
communities, expansion monopolization of
of their regulatory, production and life
organizational, financial processes
and control functions;
- development of
public-private partnership
(continued)
790 P. Maria et al.

Table 4. (continued)

Mechanism The essence of the Positive aspects of Negative aspects of

mechanism implementation implementation
Integration Integration provides for - combination of - transformation of the
the creation of production and income agrarian environment into
agricultural towns that function with the a complex one
combine the possibility of
characteristics of the diversification, recreation
city and the village on the territory;
- organic production;
– implementation of
innovative technologies;
- creative technologies in
life and management;
- complexity of the public
sector of development;
- outsurfing practice of
green tourism
Biomimicry Biomimicry of - development of - change of the existing
socio-economic biodiversity; structure inherent in the
processes - strengthening the market economy in favor
stability of the territory; of the principle of
- strengthening reasonable sufficiency;
cooperation (primarily - the need for
socio-economic) with neutralization and
urban agglomerations; disposal of accumulated
- waste-free living, waste
permaculture design,
noosphere approaches in
education and training;
- development of service
cooperation and consumer
unions;
- public management and
administration;
- development of family
homesteads and family
homestead settlements;
- raising the level of
culture and spirituality of
the nation;
- revival and
multiplication of the
natural resource potential
of the territory
Source: own research

Family homesteads in the context of the development of entrepreneurship are cur-

rently becoming a cultural and economic phenomenon, which not only deals with the
creation of new goods, works and services, provision of public needs, creation of new
jobs, but also a factor of general economic stimulation of raising the level and quality
 Family Homestead as an Innovative Project for the Development 791

of life of society, the popularity of social responsibility, volunteerism, charity, activities

of non-profit organizations, national-patriotic movements (entrepreneurship with pure
thoughts). Being determined by the characteristics of a person, his values and skills, the
formation of a system of intentions, internal and external priorities and determinants,
entrepreneurship at the modern stage becomes ecologically oriented, social, aimed at the
search for innovative solutions, unresolved problems of society and ecology, regulating
the activities of public institutions on the basis of sustainable development - ensuring
equality in the implementation, preservation and multiplication of psychological, social,
economic and ecological opportunities for future generations, creation of values capa-
ble of ensuring economic prosperity, social cohesion and environmental protection, in
particular in the fields of tourism, entrepreneurship and management (Fig. 3).

Consequences of the functioning

Individual Public
of entrepreneurship with pure

- autonomy and partnership; - development of the labor market through

- expansion of knowledge, qualifications cooperation and partnership;
and skills; - emergence of new industries;
- financial results; - sustainable regional development;
thoughts

- self-realization; - overcoming the negative consequences of

- growth of motivation to work; globalization, migration processes,
- understanding of global processes; unemployment, etc.;
- personal responsibility for one's own - positive influence on the social and ecological
situation in the world;
life, living space and events in the world - growth of social responsibility;
- environmental sustainability;
- capacity of territories through the provision of
ethical values

Fig. 3. Consequences of functioning of sustainable entrepreneurship Source: own research.

Additional factors influencing the choice of an individual are the presence of avail-
able information (13%), popularization of values (25%), the result of counseling and
mentoring (33%) and other factors of the formation of conscious consumption (29%).
Under such conditions, the state is the initiator of the regulation of consumer behavior
at the level of environmental standards, the formation of a national policy of balanced
structural and systemic development, focused on ensuring a guaranteed level of oppor-
tunities for personal growth, access to resources, popularization of the best examples of
human culture, and the formation of a system of high ideals and moral values. A suffi-
cient standard of living will promote the creative expression of personalities (according
to this survey, a low level of income does not affect the level of responsibility of an
individual, while an average and high level of income determines a higher level of needs
for the quality of service and other consumer preferences). Studies of the values and
behavior patterns of individuals demonstrate a higher degree of desire for intercourse
and communication in such individuals, as well as increased awareness of the state of
the environment, climate changes, and attitude to life. Considering the above, these tools
should be used to promote the highest values of society and the consumer behavior of
individuals, making their choices conscious in the context of sustainable development.
The potential of social capital in society can be fully and effectively realized through
such institutions of civil society, in particular, socio-political movements and organi-
zations. As a result of their development on the world stage, the following forms of
community became: traditional communities, conscious communities, eco-settlements
792 P. Maria et al.

and family homestead settlements. The orientation and possibility of development are
determined by time. The decisive principles of development are: 1) multi-level objec-
tive reality of the unity of energies of time and space of different polarity, intensity
and frequency of vibration of the whole; 2) multiplicity, universality of implementa-
tion of functions and tasks, mutual complementarity, which confirms its expediency
in accordance with the conditions of development of the Universe; 3) the presence of
impulse energy is a vector of energy cluster development. Optimizing human-nature
relations is implemented through the harmonization of human interactions with natural
systems through organic farming, permaculture design, rational nature use and means
of livelihood, satisfying consumer needs, restoring the potential of natural resources,
introducing renewable energy sources, adequate methods of education and professional
training in improving the energy system of certain parts of the world as a whole. This
is precisely the case of the «Family Homestead» project implemented in Ukraine, the
implementation of which is accompanied by the appearance and growth of new settle-
ments in rural areas at the expense of immigrants from cities. With all the problems of
Ukraine, the fact of interest of citizens of the European Union and other countries of
the world is confirmed by visiting family homestead settlements for a period of 1 to
4 weeks with habitation in family homestead settlements. Scientific workers from the
EU also came to family homestead settlements to familiarize themselves with this form
of social organization. Thus, the «Family Homestead» project can serve as a foundation
for multifunctional development; a source of investment; solving demographic prob-
lems; increasing employment of the population; reduction of budget expenditures on
unemployment benefits; the «alternate airfield» for every family.

4 Conclusions

In order to solve the issue of the development of socio-economic systems based on

the «Family Homestead» project, it is necessary to make some changes to the current
legislation. Introduce into the legislative field the concept of lifelong use of a plot of land
for the arrangement of the family homestead «FH», without the right to sell it and with
the right to transfer this plot into inheritance. In the absence of heirs, the plot is returned
to the state. Determine the size of the land plot for arranging the family homestead – 1
hectare. The specified plot must consist of a single landmass. Citizens of Ukraine who
already have homestead plots of land in rural areas in accordance with current legislation,
but have the desire and opportunity to increase them to 1 ha, should grant them the status
of FH. Citizens of Ukraine who own or rent plots of land in accordance with the Law of
Ukraine «On Private Peasant Farming» and would like to receive the status of FH, must
indicate the size of the plot of 1 hectare. Land plots allocated for the development of
«FH» are not subject to taxes. Products produced on such plots of land should also not be
taxed. Depending on the topography of the area where the land plot is located (1 hectare)
and according to the requirements of the relevant state authorities, from 30 to 50% of the
plot should be planted with non-fruit trees. Environmental requirements for the users of
such land plots must be established by the relevant state bodies. Provide the state program
«FH» with an approximate charter of an ecological settlement, which can be used by
a voluntary community of citizens of Ukraine who have organized settlements on free,
 Family Homestead as an Innovative Project for the Development 793

uninhabited and undeveloped land in rural areas in order to organize the life activities
of its members while complying with the requirements of ecology, land protection, and
general human values in social life.

Acknowledgements. The researchers are also grateful to Gennady Kurmyshev (NGO «House of
Vernadsky»). The authors thank Mykhailo Vasyliev (NGO «People’s Movement for the Protection
of the Earth»), for the conceptual framework and funding of the study.

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 Blockchain Technologies in the Conditions
of Digitalization of International Business

Smutchak Zinaida1(B) , Fedun Igor2 , Chorna Nelia3 , Chornyi Roman4 ,

Kulikov Oleksii5 , and Tyshchenko Oleksandr6
1 Department of Management of aviation activity, Flight Academy of National Aviation
University, 1 Chobanu Stepana Str., Kropyvnytskyi 25005, Ukraine
[email protected]
2 Department of World Economy, State University of Trade and Economics, 19 Kyoto Str.,
Kyiv 02156, Ukraine
[email protected]
3 Department of Business Analytics and Innovative Engineering, West Ukrainian National
University, 11 Lvivska Str., Ternopil 46009, Ukraine
[email protected]
4 Novovolynsk Education and Research Institute of Economics and Management of West
Ukrainian National University, 29 Shevchenko Boulevard, Novovolynsk 45400, Ukraine
5 Vice-Rector for Scientific-Pedagogical and Administrative-Economic Work, State University
of Trade and Economics, 19 Kyoto Str., Kyiv 02156, Ukraine
[email protected]
6 Department of National Economics and Public Administration, Kyiv National Economic
University named after Vadym Hetman, 54/1 Prospect Peremogy, Kyiv 03057, Ukraine
[email protected]

Abstract. The article examines the current situation in the sphere of blockchain
technologies in the international business space and solutions that will create a
positive climate for the introduction of blockchain technologies in international
economic relations are highlighted. Trends in the development of blockchain tech-
nologies in the field of international economic relations are analyzed. The princi-
ples of legal regulation of blockchain and cryptocurrency in the most developed
countries of the world are considered. An important problem in the implementa-
tion of blockchain, in addition to legal regulation, remains the lack of understand-
ing by the majority of managers, civil servants and owners of small, medium
and large businesses of the principle of operation of blockchain technologies
and their potential advantages for the country’s economy. The experience of
blockchain implementation at enterprises of various spheres in EU, which can be
useful for Ukraine, was studied. Companies with the largest capitalization that use
blockchain platforms are indicated. The advantages of using blockchain in trade
have been revealed. Trade is an area where the EU and Ukraine can cooperate in
implementing blockchain technology and then use this technology to strengthen
economic ties. Due to the fact that the field of innovative technologies is actively
developing in the world, more progressive countries can influence the adoption of
cryptocurrencies and blockchain technologies by other countries at the state level.

Keywords: Blockchain · Cryptocurrency · Bitcoin · Technology · Economy ·

International economic relations

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 796–804, 2023.
https://doi.org/10.1007/978-3-031-26956-1_74
 Blockchain Technologies in the Conditions of Digitalization 797

1 Formulation of the Problem

The words “blockchain”, “cryptocurrency” and “smart contracts” can be heard more and
more often in the conversations of the majority of the world’s working population. Of
course, only the most developed countries of the world dare to not only talk, but also
introduce such technologies into the work of companies or state structures. Ukraine has
many talented specialists, who are ready to help their motherland stand in line with the
USA, South Korea, Germany and other countries that are leaders in the implementation
of the possibilities of Industry 4.0 and 5.0. However, every year thousands of young and
talented specialists go abroad in search of high-paying jobs.
The implementation of blockchain technologies in state and business structures will
allow for effective management of resources, control of the quality of work and the
quality of the resulting products. The highly developed countries of the world saw
the possibilities of blockchain technologies as far back as 2017, and therefore began
to implement such technologies in their work. However, the active work of some may
come to nothing if there are countries that prevent or ban cryptocurrencies and blockchain
technologies, thereby developing a shadow economy.

2 Literature Review and Methodology

In the scientific environment, you don’t hear about blockchain often enough, this is
due to the fact that the technology is still young and only after 2014, when blockchain
technology was able to operate with any type of data, a process of global research and
analysis of its capabilities took place. Among those who researched the blockchain, the
following can be distinguished: S. Nakamoto [12], N. Roubini, M. Swan [13], S. Raval,
M. Gur’eva, S. Rippa and others. However, no sources were found where anyone con-
sidered the application of blockchain technology in united territorial communities. Of
course, the renowned mathematician and cryptographer Satoshi Nakamoto is a recog-
nized expert in matters related to blockchain technology and cryptocurrencies. It was
he who described the working principles of these technologies in his writings back in
2008, and already in 2009 implemented the first bitcoin wallet.
The purpose of the article is to study the current situation in the field of blockchain
technologies in the international business space and to identify solutions that will cre-
ate a positive climate for the introduction of blockchain technologies in international
economic relations.To solve the set goal, theoretical methods of scientific research were
used: analysis - to determine the features of the use of blockchain technologies in the
field of international economic relations, synthesis - to find opportunities for the imple-
mentation of blockchain technologies in the conditions of digitalization of international
business.; generalization – for formulating conclusions based on research results.

3 Results of the Investigation

An important point for the world community is the assessment of the prospects for
the introduction of innovative technologies into the world economy, the economy of
individual countries, and individual sectors of the economy. However, the primary issue
798 S. Zinaida et al.

at the stage of consideration of possible options for modernization of the economy is

the problem of legal regulation. In the EU, USA, China, Singapore, South Korea and
other countries, the foundations of legal regulation of the cryptocurrency market and
the blockchain industry were laid much earlier, in contrast to Ukraine, where only on
December 2, 2020, the Verkhovna Rada of Ukraine voted in the first reading for draft
law 3637 “On virtual assets”, which marked the beginning of the legalization of the
cryptocurrency market in Ukraine [1].
Only in 2019–2020, about 3 thousand patents were issued in the field of blockchain,
which is several times higher than the indicators of the period 2014–2019 [2]. In terms of
percentage, the USA patented 39% of the total number, South Korea – 21%, China – 19%
[3].
The absence of relevant laws means that settlement with cryptocurrency, which
does not have a legal status, can be illegal, which brings significant economic losses
to the state in the form of uncollected taxes from cryptocurrency accumulations and
transactions, as well as lost profits due to the failure to provide possible services and
insurance guarantees to owners of crypto wallets. Moreover, ignoring the development
of blockchain technology at the state level can lead to the growth of the shadow sector
of the economy.
Legal regulation of blockchain and cryptocurrency in the most developed countries
of the world is carried out according to the principles indicated in Table 1 [4].
In addition to legal regulation, an important problem in the implementation of
blockchain remains the lack of understanding by the majority of managers, civil ser-
vants and owners of small, medium and large businesses of the principle of operation
of blockchain technologies and their potential advantages for the country’s economy.
Therefore, it is worth paying considerable attention to this problem.
It is worth noting that the transition to blockchain technologies is being carried out
more and more recently. Quite a few well-known companies in the field of trade in goods
or services already have significant success in this direction. Table 2 lists ten world-
renowned corporations that have partially or fully switched to blockchain technology, as
well as the platforms they use (ranked by company capitalization in descending order).
All the companies listed in the table are registered in the United States, since this country
is one of the first to introduce legal regulation of blockchain and cryptocurrency, and
therefore government organizations that are involved in the control of the payment of
taxes from all types of company activities were able to create certain tools that became
levers of influence on the collection of necessary data on the activities of companies,
which greatly reduced the risk of them ending up in the shadow market.
The EU also has experience in implementing blockchain at enterprises in various
fields, which can be useful for Ukraine [5]. Among the main areas:

a) Logistics. With the help of the use of blockchain, IT technologies and self-driving
trucks, a decentralized supply chain can be created both in the country and in inter-
national deliveries from the EU. This approach is actively studied [8] and used in the
EU. For example, the process of fuel delivery has always been and remains impor-
tant for the country’s economy, since the work of many enterprises, gas stations, etc.
depends on the availability and timely delivery, but this process in the traditional
view has many shortcomings [6]. The process of loading fuel into trucks, obtaining
 Blockchain Technologies in the Conditions of Digitalization 799

Table 1. Aspects of legal regulation of blockchain and the use of cryptocurrencies in some
countries of the world

Country The legal status State regulation

USA Cryptocurrency is considered and Legislation is being developed that
equated to existing money and will regulate cryptocurrency
assets; transactions with transactions without the direct
cryptocurrency should be taxed like involvement of centralized
transactions with other assets authorities. In 2020, an item was
added to the income statement
“Cryptocurrency Investments”
Germany Virtual currency is a financial Under the law, cryptocurrency is a
instrument. Considered as a unit of form of “private money” that can be
account in comparison with foreign taxed as capital. The creation of
currency, but does not refer to legal virtual money, as well as its use as a
tender means of payment, does not require
any permissions. If virtual money is
sold, it is considered a financial
instrument and requires licensing
under the German Banking Act
Austria Cryptocurrency is treated by tax Cryptocurrency mining is treated as
authorities as an intangible asset an operational activity. Income
received as a result of its
implementation is subject to income
tax
Finland Virtual currency does not meet the The Finnish Tax Administration has
definition of a currency or even an issued guidance on the taxation of
electronic form of payment, the virtual currencies:
Central Bank classifies virtual - when transferring virtual currency
currency as software that is a good to any other, the rule of taxation of
profit from capital gains is applied
- when a virtual currency is used as a
form of payment for goods and
services, it is considered a trading
instrument, and the increase in value
that the currency could receive after
trading transactions is taxable
(continued)
800 S. Zinaida et al.

Table 1. (continued)

Country The legal status State regulation

United Kingdom Digital currency, according to the The Financial Regulation and
UK Money Laundering Act, is a Supervision Authority of the UK
combination of numbers obtained does not recognize that Bitcoin is a
as a result of complex currency, digital currency or money,
mathematical calculations therefore cryptocurrency in no way
cannot be governed by UK financial
law. New types of cryptocurrency in
the UK are still outside the scope of
financial regulation Hovividi
kpiptovalti y Belikobpitani|
poki wo poza meami
financovogo pegylvann

relevant bills of lading, permits, escort and navigation, drawing up a schedule - at

each of these stages complications may arise, which are related to the mechanical
actions of certain forces. Automation of these processes will not only speed up their
execution, but also significantly reduce costs (autopilot - no costs for the driver,
automatic filling and unloading of tanks - no costs for service personnel, automatic
navigation and support - no costs for dispatchers, i.e. more than half of the working
and administrative personnel becomes unnecessary) and will increase the produc-
tivity of their implementation [7]. This is just one of the many examples of the use
of blockchain in the supply process that Maersk is successfully engaged in around
the world. With their help, the processes of delivery by ship, air, and motor vehicles
have been significantly simplified [8]. Such technologies could improve economic
relations between Ukraine and the EU.
b) Finances. The very concept of physical banks in the world is gradually becoming
obsolete, as innovative technologies (cloud data storage, the presence of a smart-
phone in more than half of people [6], etc.) are displacing uncompetitive physical
branches. For example, in Ukraine, the largest Ukrainian bank “Privatbank” par-
tially switched to blockchain technology. In its work, the bank uses the technology
of encryption of transactions, the use of an electronic access key, and also gives
every Ukrainian the opportunity to open his crypto wallet [14]. The largest com-
pany that enables banks to move from traditional technologies for processing cus-
tomer requests to innovative blockchain technologies is we.trade, which develops
blockchain platforms that reduce the process of processing credit requests from
7 days under the old scheme of work to 1 h on blockchain platforms [9].
Figure 1 shows the difference in the decision-making process of the old and
new models. This became possible due to the automation of most of the processes
of consideration of the client’s attractiveness for the bank, the complete absence of
paper work and the decentralization of the work of banks [10].
c) Production and delivery of products. Controlling every food-related process is crit-
ical to the operation of any food-handling establishment, from grocery stores to
 Blockchain Technologies in the Conditions of Digitalization 801

Table 2. Companies with the largest capitalization that use blockchain platforms [4]

№ Company Country Industry Capitalization, Blockchain

billion US dollars platform
1 Microsoft USA Software 1622,92 Ethereum, Parity,
Quorum, Corda,
Hyperledger
Fabric
2 Amazon USA Online retail 1590,55 Hyperledger
Fabric, Ethereum
3 Google USA IT 1234,28 Bitcoin,
Ethereum,
Bitcoin cash,
Ethereum classic,
Litecoin, Zcash,
Dogecoin, Dash
4 Facebook USA IT 801,311 There are no data
5 Visa USA Finances 447,269 Hyperledger
Fabric
6 Walmart USA Retail 419,877 Hyperledger
Fabric
7 JPMorgan USA Banks 374,197 Quorum
Chase
8 Mastercard USA Finances 338 They use their
own platform
developments
9 Comcast USA Telecommunications 236,316 Bitcoin,
Ethereum,
Hyperledger
Fabric, Quorum
10 Intel USA Microprocessors, 213,178 Corda, Ethereum,
computer equipment Hyperledger
Fabric,
Hyperledger
Sawtooth

catering establishments. From the stage of growing grain to the moment of selling
bread, there is a need to control the quality of products, storage and processing
conditions. This, in turn, requires large expenditures of both monetary resources
and human capital. Since blockchain technology allows participants to follow each
other, and, accordingly, actions and transactions, the quality of the relationship with
the product increases several times. Automatic control of the crop in greenhouses,
automatic collection, automatic transportation, control of cooking quality - all this
is possible thanks to the implementation of blockchain technologies.
802 S. Zinaida et al.

Fig. 1. Comparison of the old decision-making model with blockchain [9]

Trade may be one of the most promising areas of cooperation between Ukraine and
the EU in implementing blockchain technologies. This is due to the following advantages
when using blockchain [11]:

– confirmation of the correctness and transparency of concluding contracts. In order

for the seller and the buyer to have a relationship of trust regarding the quality of the
product, its proper storage, in insurance cases blockchain helps to store information
that is reliable, that is, its intentional change to false will be reflected in the system
and can be easily checked.
– technologization of service processes. When the buyer buys the product, he receives a
warranty card, purchase receipt, serial number indicated on the package. In the event
that the buyer needs to return the product for warranty reasons, send it in for repair,
or replace it with a new one, he must have with him all the documents confirming the
ownership of the product (check, warranty card, packaging). This is an inconvenient
procedure for customers, therefore, when using the blockchain, all information about
the purchase process (time, place of purchase, warranty card, product serial number)
can be recorded in blocks, which will significantly speed up and facilitate the storage
process for both the buyer and the seller information about the product.
– online ordering. When buying a product through an Internet site, buyers often choose
the option of issuing an order in one of the branches of the network. However, the
number of sales consultants serving the issue of online orders is often limited and
 Blockchain Technologies in the Conditions of Digitalization 803

insufficient. They check the order number, confirm the buyer’s identity via passport
number or phone. All procedures can be shortened if the buyer has a public and
personal electronic key, which is used to confirm the identity in the blockchain system.
Goods can be issued automatically at the points of issue of the order even without the
help of a person.
– system of discounts. Many networks of large companies use a system of personal
discounts for customers, which can also be successfully implemented through the
blockchain system: customer data, his personal account number in one or another
store, his personal discount can be recorded in blocks.
– reducing the level of bureaucracy and corruption. The transition to a system in which
there are no intermediaries at all, and there is only a buyer and a seller, greatly sim-
plifies the work of all organizations in the field of trade. You can get rid of queues at
checkpoints at customs, unplanned inspections by tax authorities, etc. All information
can be stored in a single system and be available to all users. It is impossible to change
information without changing all previous blocks or hiding it.

Therefore, trade is an area where the EU and Ukraine can cooperate in implementing
blockchain technology and then use this technology to strengthen economic ties.

4 Conclusions
Due to the fact that the field of innovative technologies is actively developing in the
world, more progressive countries can influence the adoption of cryptocurrencies and
blockchain technologies by other countries at the state level.
Prohibition or insufficient regulation of cryptocurrencies and projects based on
blockchain technologies leads to significant losses in the form of non-payment of taxes.
Such a conclusion can be drawn if you calculate the market value of an individual bitcoin
cryptocurrency and transfer it to the sphere of the shadow economy, since the lack of
government regulation automatically makes bitcoin an element of the shadow economy.
So, at the exchange rate of 30,000 US dollars for 1 BTC, the capitalization is 630 billion
US dollars, an amount that becomes an element of the shadow economy. At the possible
rate of Bitcoin in 2024, 1 BTC in 3 years could be worth from 400 thousand to 1 million
USD. Accordingly, the funds lost in the shadow economy will grow exponentially. And
if we take into account that there are hundreds of fast-growing cryptocurrencies, then
trillions of dollars in losses in the form of lost profits - the shadow economy await us in
the near future.

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Jan 2023
 Encountering Jaycustomer at Hospitality
Business: The Roles of Staffs’ Experience
and Age in Determining Workplace Stress

Nur Hafizah Muhammad1(B) , Mohd Hafzal Abdul Halim1 ,

Nur Syahirah Mohd Nawi2 , Aikal Liyani Mohd Rasdi1 , and Nurul Aziah Ahmad1
1 Faculty of Hospitality, Tourism and Wellness, Universiti Malaysia Kelantan,
16100 Kota Bharu, Kelantan, Malaysia
[email protected]
2 Faculty of Language Studies and Human Development, Universiti Malaysia Kelantan,

16300 Bachok, Kelantan, Malaysia

Abstract. Jaycustomer is not uncommon in the hospitality business. Service

employees are experiencing mistreatment behaviour caused by them almost daily
during the service delivery. This type of customer behaviour, therefore, with
considerable accumulating amount of maltreatment would reflect the employ-
ees’ work performance or withdrawal from work due to distress. However, the
impact of the jaycustomer behaviour on employees is much depending on their
socio-demographic. The purpose of this study is to assess the impact of age and
experience at work on employees’ stress level when encountering the jaycus-
tomer behaviour. A total of 322 employees of hospitality business participated in
the online survey of this study. Three linear model were assessed in this study
where the OLS regression result showed that the addition of age and experience in
Model 2 and Model 3 significantly decrease the level of stress among employees.
The result of further investigation has proved that young employees are less stress
compared to senior employees in terms of age and experience. It is recommended
that providing training according to level of experience and age on controlling and
handling the customer would help employee to handle the stress and able to take
action before it accumulated.

Keywords: Jaycustomer · Age · Experience · Hospitality · Workplace stress

1 Introduction
Pleasing a customer is an utmost factor for businesses, particularly in real-time service
interaction in hospitality industry where the customers are more demanding than others.
‘Customer is always right’ is a mojo of any hospitality business; and whoever willing
to comply with every request from the customer would secure the success of their
businesses. Providing the best services with kind and patience have never failed to
bring customers’ satisfaction. For example, food quality and service quality are both
responsible to a satisfied meal experience by customer [1]. Moreover, in quick service

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 805–814, 2023.
https://doi.org/10.1007/978-3-031-26956-1_75
806 N. H. Muhammad et al.

restaurants in the UK, responsiveness, assurance, and substantial services plays great
roles in leading to customer satisfaction and better understanding customers’ wishes
view as a way to remain in the streamline of industry [2].
However, on the other side of the coin, customers’ misbehaviour or deviant attitude
received by employees during the service delivery has become a recognised problem in
service industry like food and beverage sector. A term popularized by many previous
studies called ‘jaycustomer’ is defined as the customer shows improper action in any
service encounter at any establishment that offer services [3, 4]. Other terms used for that
misbehaved customers are ‘deviance customer’ [5]; ‘customer mistreatment’ [6]; and
‘disruptive customer’ [7] which all indicate the customers who caused service failures
at any business establishment.
Jaycustomer behaviour may occurs unknowingly or intentionally exhibit within indi-
viduals. It occurs when a customer has an argument with other customers in the same
service establishment [7]. Or else some customers might want a monetary advantage
from the organisation at the first place [8]. According to [4], customer misbehaviour
may occur when they are under the influence of alcohol, and some may intend to sexu-
ally abuse the employees either vocally or physically. Moreover, it could occur when an
employee makes a mistake or misconduct when delivered the service which caused an
extreme emotional response from the customers.

1.1 Jaycustomer Category

In hospitality industry, the disruptive behaviour caused by customers can be classified
into two main classifications which are action either verbally or physically to the by-
standing customers, to the establishment properties, to the employees and generally, to
the business operation. Several studies specified multiple categories of service-specific
customer misbehaviour in the hospitality industry which could be included as verbally
and physically harmful. A study [9] identified six forms of jaycustomer: “the rule break-
er”, “the thief”, “the belligerent”, “the family feuder”, “the vandal”, and “the deadbeat”.
Meanwhile, an empirical study classified eight types of jaycustomer behaviours in ser-
vice: “compensation letter writers”, “undesirable customers”, “property abusers”, “ser-
vice workers”, “vindictive customers”, “oral abusers”, “physical abusers”, and “sexual
predators” [4]. Six categories of behaviour found in restaurant employees in Turkey: “ver-
bal attack”, “offending good moral”, “physical attack”, “theft”, “sexual harassment”, and
“condescending behaviour” [10]. Other categories recognized as “customer aggression”
[11], “customer incivility” [5] and “drunken” behaviour and “uncooperative customers”
by [3].
In the similar vein, this study focuses on the following three categories of jaycus-
tomer behaviour in the hospitality industry which consists of two main classifications as
mentioned above. There is egoistical customer, sarcasm customer and aggression cus-
tomer. Egoistical customer behaviour can be defined as individual using disrespectful
language, verbally threatening, having argument and show bad intentions to humiliate
employees. This type of behaviour is commonly found in previous studies occurring
in hospitality industry, particularly in food and beverage sector. These incidents may
occur due to customer character flaws, to show strength and feeling superior towards the
employees [10].
 Encountering Jaycustomer at Hospitality Business 807

Sarcasm customer in this study refers to the customer misbehaviour that delivers
cynical comments, spoke rudely, yelling, insulting and makes mocking/sarcastic facial
expressions towards the employees to show protest or dissatisfaction with the service
provided. Service failure is one of the reasons the occurrence of this misbehaviour. [12]
described that service quality and performance of the service employees are shaping the
customer satisfaction, and different customer perceives differently towards the service
provided by the same employee. For example, employee A serves all the clients in the
restaurant fairly, but the level of acceptance of the service delivered from customer A
might be distinctive from customer B which would cause a service failure to them. On
the other hand, a service failure could happen owing to employee unintentionally lapse
such as dropping the food or deliver a wrong order. This service failure will eventually
trigger the character flaws and more disruptive customer behaviour [10].
Following on that, service failure is a preliminary factor that spark more belliger-
ent behaviour of customer which refer to aggression customer. Aggression customer
in this context defined as physically misconduct by customer. This includes intention-
ally causing damage to the business properties, hitting, or attacking the employee and
even causing injury to others [13]. According to [4], physical attack by this aggression
customer might happened with or without weapons depending on the situation and this
physically abuse might be caused by the influence of alcohol and drug. For example, in
restaurant, cutleries can easily be a weapon to act against the employees when someone
act in a drunken state or intentionally act to show anger. With the same idea in mind, sex-
ual harassment which also an aggression action often found among service employees,
particularly women. This harassment could occur when a customer making comment
or acting in such a way to express sexual advances towards employees with or without
intention.

1.2 The Effect of Jaycustomer Behaviours on Employees

Jaycustomer behaviours as an influential factor of service quality and satisfaction of
other customer and indirectly may influence to the job satisfaction and lead to job stress
among employees. Employees in hospitality industry are deemed to be one of the most
stressed employee populations at any time and requires real-time customer interaction
along with the ability to provide a quality service. For example, work in a food service
establishment is very challenging. The requirement to maintain a publicly observable
and acceptable emotional display means that employees can experience distress when
facing to thoughtless or discourteous comportment on the part of the customer [4]. At the
same time, employees in a casual dining restaurant manage with high levels of workload
caused by the nature of working in the industry that requires the employee to work in
shift, long working hours, do repetitive tasks, and face customer needs and wants [14].
When the employees perceived negativity in their surroundings, they tend to develop
pressure, hence, the unnecessary stress would certainly appear.
Job stress interpreted as an individual’s concern of their work which they find it
difficult to utilises their creativity fully at work [15] that caused pressure and emotional
exhaustion [16]. The consequences of job stress certainly portray on how the distressed
employee exhibit work effectiveness [17]. For instance, stress impedes someone pro-
ductivity, absenteeism, health, economic and possible premature retirement from the
808 N. H. Muhammad et al.

industry [18]. With the nature of the workplace environment, dealing with jaycustomer
behaviours undoubtedly add to the mental health and emotional tension to an employee.
According to [19], the higher level of job stress can lead to lower mental health which
sooner or later could be harmful for them and people surrounding them.
Alternatively, workplace stress ensued from disruptive behaviours from jaycustomer
substantially associated with personality and demographic factors of the employees. [20]
mentioned that human characteristics such as age, marital status, experience, gender, and
education are important to understand customers’ past misbehaviours. Those personal
factors play a part on how someone perceived misbehaviour caused by customer. It
could be seen as positive or negative which registered as a typical job stress or unneces-
sary stress at work. For example, employees who have working experience in the same
industry, their intention to leave the job is decreasing as the experience increasing [21].
Moreover, mature employee seems to handle the misbehaviour well based on the past
behaviour he or she encountered previously, if compared to younger employee [20]. This
indicates that job stress caused by jaycustomer hypothetically influenced by employees’
personality; and however, empirical investigations of the association between them are
rare. In particular, no such study in Malaysia so far had been done, particularly in food
service industry.
With that in mind, the aim of present study is to explain the roles of two personal char-
acteristics, age, and experience, on the job stress caused by three jaycustomer behaviours.
This shows a significance to conduct such study as it will enrich the services market-
ing literature in hospitality industry by recognizing external factors that could give an
impact to the workplace stress. Eventually, with the robust findings of this study, age and
experience of employees would make businesses understand and more options to handle
the jaycustomer in the future. The paper is designed with four sections as followed:
(1) Introduction; (2) Methodology; (3) Results and discussion; and (4) Conclusion and
future research recommendations.

2 Methodology
2.1 Data Collection
The total sample of 322 employees of service department in any hospitality establishment
were collected in Kuala Lumpur via convenience sampling. Kuala Lumpur, capital of
Malaysia, was chosen as the main geographical area of the study as more than 100 hotels,
motels, fast food restaurants, casual dining restaurants and coffee shops were located in
that metropolitan. Questionnaire was chosen as the instrument to collect the information
of the study. The questionnaire contained six sections. There were consent statement,
demographic, three jaycustomer behaviours and job stress as the outcome variable of
the misbehaviour. The aims of the study were written clearly in the consent statement
together with the ethical information and respondents who willing to participate need
to agree prior continued to the next section. As abovementioned, three jaycustomer
behaviours were chosen in this contextual study. Egoistical customer, sarcasm customer
and aggression customer were measured with five items drawn from previous studies.
While job stress was measured with nine items adopted from previous study and written
based on the local perspectives. Each of the item is measured with 5-point Likert scale
 Encountering Jaycustomer at Hospitality Business 809

ranging from strongly disagree to strongly agree. The questionnaire was piloted before
actual data collection.
Due to the COVID-19 pandemic, the questionnaire was distributed remotely through
online platform to the target respondents. To keep social distance between respondents
and to avoid direct response sessions, using Google Form; one of the applications by
Google, as online platform ensures the safety of both parties. The link was given to the
various hospitality establishment in Kuala Lumpur to be dispersed to their employees.
The responses would only be filed in via online and according to Internet World Statistics,
about 50.3% of Asia population has access to the internet. This method is believed to
able generate reliable data for the study.

2.2 Model Specification

This empirical study focuses to predict the job stress as outcome variable under the
effect of three jaycustomer behaviours and two external variables. Three models specify
as follow:

Model 1: y∗ (JS) = x1 β(EC) + x2 β(SC) + x3 β(AC) + ε (1)

Model 2: y∗ (JS) = x1 β(EC) + x2 β(SC) + x3 β(AC) + x4 β(Age) + ε (2)

Model 3: y∗ (JS) = x1 β(EC) + x2 β(SC) + x3 β(AC) + x4 β(Experiences) + ε (3)

The models were analysed using estimation method of linear regression model called
Ordinary Least Square (OLS) regression through STATA MP 16. In control model (1),
observed Y (y*) is known as the job stress (JS) expressed as the outcome variable of
the linear equation; meanwhile “β” is the vector of expected regression coefficients of
the three jaycustomer behaviour which represented by these acronyms EC as egoistical
customer, SC as sarcasm customer and AC as aggression customer. In each of two other
models, an explanatory variable inserted as believed to give impact on the job stress
either positive or negative directly. Age and experiences proved to reduce the stress level
of employees from the previous studies.

3 Results and Discussion

All responses were screened to ensure only the valid questionnaires were selected and 322
valid respondents had been accepted to be analysed in this study. To confirm the validity
and reliability of the data collected, a reliability test was performed recommended values
above Cronbach’s alpha 0.7 are considered accepted and all the continuous variables are
reliable to generate compelling results to answer the hypothesis. After conformity of the
validity and reliability, the further analyses were performed on the data. There are two
sub-sections of this section. First, the OLS regression results to test the three models
above; then, the section continues with the further analysis on the differences within
group (age and experience) through the analysis of variances (ANOVA).
810 N. H. Muhammad et al.

3.1 Model Testing on Contributing Factors on Job Stress

Table 1 represents the outcome of three linear models as shown in equations above. All
the models are statistically significant at, F (3, 322) = 137.12, p = 0.00 for Model 1, F
(4, 322) = 106.47, p = 0.00 for Model 2 and F (4, 322) = 106.66, p = 0.00 for Model
3, respectively, which indicated that, the models applied can significantly predict the
job stress as dependent variable. Furthermore, the R2 of the three models demonstrated
substantially reliable to explain more that 50% of variances proportion the connection
between job stress, jaycustomer behaviours and external factors, age, and experience. For
example, in Model 1, R2 = 0.56 (Adjusted R2 = 0.56) suggested that three jaycustomer
behaviours explained 56% of the variability of job stress at workplace in the population.
Likewise, the other models similarly showed the same trend where the independent
variables explained 57% of variance proportion in the job stress; where Model 2 with
R2 = 0.57 and Model 3 with R2 = 0.57.

Table 1. OLS regression analysis for model testing.

Variables Job stress

Model 1 Model 2 Model 3
β SE β SE β SE
Constant 0.95 0.10 0.81 0.12 0.75 0.13
Egoistical 0.26 0.06 0.28 0.06 0.28 0.06
Sarcasm 0.34 0.06 0.31 0.07 0.31 0.07
Aggression 0.23 0.04 0.22 0.04 0.23 0.04
Age 0.10 0.04
Experience 0.10 0.07
F 137.12 106.47 106.66
R2 0.56 0.57 0.57
Adjusted R2 0.56 0.57 0.57
N 322 322 322
Prob > F 0.00 0.00 0.00

Through the OLS regression analysis, the results revealed that adding external factors
such as age and experience significantly determine someone stress level, even a slight
shift of the coefficient of the variables (Xβ) if compared to Model 1 as shown in Table 1.
Even though, age has small margin towards the determination of job stress (β = 0.10)
as shown in Model 2, every unit increase of sarcasm behaviour, a 0.31 unit increase in
employees’ job stress, which statistically lowered by 0.04 unit (Xβ) in Model 1. Similarly,
the coefficient of aggression jaycustomer behaviour is also lowered at 0.01 unit from
after adding age as personal factor. On the other hand, employees’ age also influentially
negatively affected by the coefficient of job stress caused by egoistical jaycustomer. The
addition of age as the predictor has increased 0.02 unit of job stress among hospitality
 Encountering Jaycustomer at Hospitality Business 811

employees. Generally, a personal predictor would either positively or negatively affected

the workplace stress when dealing with jaycustomer behaviour.
Specifically, a further variance analysis (ANOVA) showed that employee’s job stress
is increasing when dealing with sarcasm jaycustomer behaviour as employees’ age
increasing. Table 2 represented the details of ANOVA and post-hoc analysis. The results
found that there are significant differences between groups as determined by F = 10.40,
p = 0.00. A Tukey post-hoc test was statistically significant between the young-aged
employees (18 to 23 years old) and two middle-aged employee groups (24 to 29 years
old and 30 to 35 years old) at p = 0.00 for both. The results signified mature employees
is more stressful when facing jaycustomer behaviour, if compared to younger employees
at mean differences t = 0.603 for group 24 to 29 years old and t = 0.834 of 30 to 35 years
old employees. Contrarily from previous study by [20] who stated that mature employees
are able to handle the jaycustomer well than young employees. However, the statement
supported the other significant results between employees age at 30 to 35 years old and
employees who age 41 to 46 years old. The outcomes suggested that increasing in age
would decrease the stress level at mean difference at t = –0.880 as shown in Table 2.

Table 2. One way ANOVA between job stress and age.

Tests of between-subjects effects

Dependent variable: job stress
Source Type III sum of df Mean square F Prob > F
squares
Between groups 36.67 4 9.17 10.40 0.00
Within groups 279.48 317 0.88
Total 316.14 321 0.98
Post-hoc Tukey
Age Mean difference SE Sig. 95% CI
Lower bound Upper bound
18 to 23 24 to 29 0.603 0.120 0.000 0.275 0.932
30 to 35 0.834 0.165 0.000 0.381 1.286
30 to 35 41 to 46 −0.880* 0.346 0.085 −1.829 0.071
* Confident interval (CI) at 10%

While age robustly abrupted the coefficient of jaycustomer in Model 1, experience

of the employees as well showed a marginally change in Model 3. Similarly, an addition
of personal factor, experience, had change the beta coefficient of sarcasm jaycustomer
behaviour by decreasing 0.03 unit from Model 1 to Model 3. As shown in Table 1, a
sarcasm customer had caused growing stress at workplace by 0.34 unit; if compared
with only 0.31 unit increase in Model 3. Unlike in Model 2, experience did not have any
influence to reduce the job stress level when the employee is dealing with aggression and
egoistical customer. Experience has further increased the job stress level for egoistical
812 N. H. Muhammad et al.

customer by 0.02 unit and remain at the status quo of 0.23 unit increased. It could
be concluded that more experience the employees had, working as service providers,
their job stress would also be increased, most probably due to the other factors such as
age, strength, or salary. This showed a reverse result by [21] which indicated that more
experience, less intent to drop from the job.
Further details from ANOVA analysis supported the regression outcomes as repre-
sented in Table 3 below. The results found that there are significant differences between
groups as determined by F = 8.60, p = 0.00. Out of three group of experience, a Tukey
post-hoc test was statistically significant between employees with 1 to 5 years and 6 to
10 years’ experience. The finding suggested that as the employees with less experience
have lesser job stress if compared with more experienced employees at mean difference
of t = 0.566. This probably could happen with minimum experience in the hospitality
industry, the employee might not have meet variety of customers, in comparison with
senior employees. It is an undeniable reality where senior or mature employees would
have faced a lot of jaycustomers and dealing with them would increase the job stress,
even though they knew and well-rehearsed on how to handle those misbehaviours.

Table 3. One way ANOVA between job stress and experience.

Tests of between-subjects effects

Dependent variable: job stress
Source Type III sum of df Mean Square F Prob > F
squares
Between groups 16.17 2 8.08 8.60 0.00
Within groups 299.98 319 0.94
Total 316.14 321 0.98
Post-Hoc Tukey
Age Mean difference SE Sig. 95% CI
Lower bound Upper bound
1 to 5 6 to 10 0.566 0.141 0.00 0.235 0.897

4 Conclusion and Implications

The aim of this study to elucidate the impact of age and experience of food service
employees when dealing with jaycustomer. Consequently, the study contributes empir-
ically to the existing literature by explicitly significant to those external factors towards
the stress level of the employees. The hypothesis proved that age and experience of an
employee link with the type of jaycustomer he or she is dealing with during service
delivery at work. Through the OLS, the findings raise the importance of adding external
factors are able to increase the robustness prediction of the study. There are significantly
differences between Model 1 with Model 2 and Model 3 where age and experience would
 Encountering Jaycustomer at Hospitality Business 813

cause stress level either increase or decrease among the employees. Depending on the
types of jaycustomer behaviour, stress levels of employees are marginally decreasing
with the addition of two external factors studied for sarcasm and egoistic jaycustomer
behaviours.
Although customers’ age is not subject to direct control and manipulation in this
study, the findings indicated that young employees are less stressful when handling the
misbehaved customers as they are probably eager to learn more and considers it as the
learning experience by coping with the situation. On the other hand, senior employees,
particularly group of middle-aged employees, are more affected by the jaycustomer
action and becoming overwhelming with the situation even more. Align with that, much
experienced employees are also having more stress when dealing with the jaycustomer
if compare with less experience employees, who probably younger than them.
Identification primary factors of stressful working environment caused by the jay-
customer behaviours would help the organisation develop specific strategies to train their
employees on how to handle certain types of customers. Providing training according to
level of experience and age on controlling and handling the customer, eventually would
help them reduce the stress as they are able to predict the situation and action that they
are required to take. This training will help them to overcome the situation and how
to manage stress during work. Moreover, by this also, it will help to improve customer
satisfaction by preventing negative impacts of misbehaving customers towards other
customer’s service experiences.
There are two recommendations of the study that would provide insightful finding
in the field. Firstly, obtaining personality traits of the service employees such as gender,
educational level and income level would develop valuable insights into the literature
of dysfunctional customer behaviour. Lastly, contextual focus of the current study has
limited the generalisability where coffee shop workers were participated where other
types of restaurants might provide a different and logically comparable explanation of
the relationship of external factors with jaycustomer behaviours too.

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 Conceptualizing Experience-Rich Sustainable
Tourism

Marlisa Abdul Rahim1(B) , Nurzehan Abu Bakar1 , Nor Maizana Mat Nawi1 ,
Nik Alif Amri Nik Hashim1 , Hassnah Wee2 , and Siti Salina Saidin1
1 Faculty of Hospitality, Tourism and Wellness, Universiti Malaysia Kelantan,
16100 Kota Bharu, Kelantan, Malaysia
[email protected], [email protected]
2 Faculty of Hotel and Tourism Management, Universiti Teknologi Mara, 40450 Shah Alam,

Selangor, Malaysia

Abstract. The tourism sector has put a great deal of strain and adverse effects
on Langkawi’s economy and environment. Such problems have endangered
Langkawi’s tourism sector and brought the island dangerously near to losing its
UNESCO Global Geopark designation. Furthermore, little effort has been made
to solve the issues. Instead of creating distinctive, sustainable content for the visi-
tation experience that current visitors crave, the majority of tactics used up to this
point have simply concentrated on enhancing governmental regulations and main-
taining the aesthetic splendor of the surrounding area. This study is intended to
fill these knowledge gaps by exploring aspects specific to developing a distinctive
experience that is rich in the context of sustainable tourism. The purpose of this
conceptual paper is to show how Experience-Rich Sustainable Tourism (ERST)
might affect tourists’ satisfaction. This study will enable tourism players to pay
attention to the specific preferences of tourists and develop various experience-
related activities and packages that suit the tourists’ different tastes and demands
upon visiting Langkawi. The study will extend the existing literature on ERST
and satisfaction in the context of Langkawi as a destination.

Keywords: Experience-rich · Sustainable · Tourism · Industry

1 Introduction
In numerous locations around the world, tourism has been pushed. Many nations think
that promoting tourism could help preserve the environment, improve social conditions,
and boost economic growth [1]. The well-known island of Langkawi in Malaysia is
likewise supporting tourism growth for greater economic gain. Langkawi may appear to
be the ideal eco-destination for travelers who want to experience eco-island tourism [2].
However, there is a serious issue concealed behind the lovely geopark and white sand
beach. The island’s economy, society, and nature are all under a great deal of pressure
from the tourism sector. Such effects have resulted in a decrease in visitors to Langkawi.
The Langkawi Development Authority (LADA) tourism performance report showed
a pattern of dropping visitor numbers to Langkawi. However, Phuket and Bali have seen

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 815–823, 2023.
https://doi.org/10.1007/978-3-031-26956-1_76
816 M. A. Rahim et al.

an increase in visitors over the years, as have other Asian neighbor islands. As an
illustration, Phuket, Thailand, saw a rise in tourist numbers from 13,274,769 in 2017
to 13,651,301 in 2018 [3]. The number of tourists arriving in Bali, Indonesia increased
from 4,927,937 in 2016 to 5,697,739 in 2017, demonstrating the same steady trend [4].
Nevertheless, from 3.68 million to 3.63 million visitors in 2017, Langkawi saw a 1.4
percent decline in tourist visits in 2018 [5].
The diminishing tourist trend was caused by a number of problems, including the
deterioration of natural resources and the land structure, damaging tourism activity,
alteration of flora and fauna, pollution, poor infrastructure, a lack of water, and troubles
with ferry services [6]. Due to these problems, Langkawi came dangerously near to losing
its UNESCO Global Geopark designation, endangering the island’s tourism sector [7].
Little has been done to address the problems and improve the island’s infrastructure,
which puts additional stress on the already fragile ecology.
There has been little prior study on experience-rich sustainable tourism published.
The majority of research conducted to far have only examined several sorts of experi-
ences, including memorable travel experiences (MTE), high-quality travel experiences,
and others. Studies on eco-friendly travel practices, however, are frequently ignored. The
goal of this study is to conceive the new Experience-Rich Sustainable Tourism (ERST)
characteristics in the context of tourism in order to close these gaps. In order to develop
a distinctive experience that is rich in the sustainable tourism environment toward visitor
pleasure, this study aims to provide insight by examining factors like hedonism, novelty,
local cultural, refreshment, engagement, meaningfulness, and knowledge. A framework
for experience-rich sustainable tourism (ERST) is then proposed. As a result, this essay
is structured as follows: the development of the proposals and conceptual framework,
followed by a summary of the underlying theory, a review of the literature on revisit
intention and experience-rich sustainable tourism, and lastly the paper’s conclusion.

2 Literature Review
2.1 Experience-Rich Sustainable Tourism
Making unforgettable experiences has therefore been the foundation of the global econ-
omy and, more specifically, the tourism industry, as the economy has changed from a
product-driven economy to a service-driven economy and then to an experience-driven
economy [8–10]. This is due to the fact that the tourist sector is inherently an experience-
based sector [9]. Destination managers can establish the destination’s positioning and
competitive advantage by focusing on ERST [11].
The modern visitors are more likely to base their decisions on prior encounters and
memories. The modern traveler wants more than just pretty pictures, cheap trinkets,
and a cozy bed. They want to engage with the places and the locals, and they seek for
distinctive, real, and compelling experiences. They only buy the trip; it is the experience
that they will remember. A memorable experience is said to provide a tourist with joy
and enduring memories, especially if the tourism providers are effective in giving the
visitors extraordinary memorable tourist experiences [12, 13]. Numerous studies in the
field of psychology have shown that memorable experiences make people happier than
material goods [14].
 Conceptualizing Experience-Rich Sustainable Tourism 817

The constructed of memorable tourism experience conceptual model was scale-based

instrument, and there were seven elements of memorable tourism experience included
hedonism, engagement, knowledge, local culture meaningfulness, novelty, and refresh-
ment [15]. This work has received a great deal of citation. An additional component
dubbed “adverse feeling” has been introduced to the existing model [16], while [12]
added a number of other factors, including surprise and tour guide performance.
Models will be used in the current study as a foundation to evaluate the impacts
of ERST, and they will be modified slightly from earlier studies [17]. Following will
be a discussion of the seven elements (hedonism, novelty, local culture, refreshment,
meaningfulness, engagement, and knowledge) that are frequently employed in tourist
literature:

Hedonism
The term “hedonism” comes from the Greek word “hedone”, which denotes enjoyment,
amusement, or delight. Hedonism is the pursuit of physical pleasure and social interaction
as a key motivation [18], and the 5S concept of sea, sand, sun, sex, and sangria has always
been linked to hedonism [19]. The authors also connected hedonism to travelling and
partying while looking for a certain nightlife style. Indeed, hedonism is an essential part
of the tourism industry [20]. Since most tourists travel to find pleasure and happiness,
tourism and leisure pursuits typically “devour” travelers in a hedonistic manner.

Novelty
Novelty is characterized by originality, novelty, and distinctiveness. In general, people
frequently travel for various reasons, and novelty is a crucial aspect of the travel expe-
rience [21, 22]. From the standpoint of tourism, novelty is best described as a trip that
offers an unfamiliar experience. Today’s tourists are increasingly interested in this new
value and frequently choose the experience of novelty and strangeness. As a result, vis-
itors prefer to travel to places with distinct cultures and lifestyles from their own [23],
as well as in order to satisfy their yearning for something novel or different that they
cannot find in their hometown [24]. Curiosity, which comprises sensory search, discov-
eries, learning, and experiences, is one of the factors that propels travelers to look for
uniqueness around the world [25].

Local Culture
Tourists are increasingly participating in local activities, which gives them a unique
opportunity to explore the local culture [26]. In reality, travelers are increasingly choos-
ing to engage in a destination’s cultural traditions and languages rather than the usual
gorgeous beaches and upscale resorts [27]. Additionally, travelers discover that “cookie-
cutter” travel is less inspiring; as a result, they look forward to an ultimate authentic local
experience in the area or country they are visiting. It is found that visitors who actively
participated in the local culture throughout their stay were far more likely to remem-
ber and recollect their previous experiences [15]. Additionally, it has been suggested
that interaction with locals enhances tourists’ extraordinary and unforgettable travel
experiences [28].
818 M. A. Rahim et al.

Refreshment
When travelling, tourists frequently look for refreshments. Traveling, or making a trip
from a familiar location to somewhere unusual, has created a state of vulnerability
that is incredibly beneficial [29]; this releasing and revitalizing sensation is referred to
as refreshment. Refreshment was described as a feeling of renewal and renewal that
influences one’s vacation recollections [15]. Refreshment is the sensation of intense
experience involvement [30]. In reality, feeling renewed not only makes one feel good,
but it also helps people feel calm and at ease inside.

Involvement
Tourist participation in each stage of the consumption process, including information
seeking, service consumption, marketing, decision-making, and procurement, is referred
to as involvement [31]. Participation is crucial for improving tourist places [32]. There-
fore, engaging in travel experiences helps tourists remember, reflect on, and rediscover
their previous experiences. Numerous researchers have determined that participation is
essential for effective feelings and experiences [33], which enables visitors to recall their
previous encounters and form new memories. In this aspect, travelers are more likely
to recall and recover their prior travel experiences more effectively if they are more
engaged in their holiday.

Meaningfulness
Tourists today are looking more and more for unique travel experiences that also fulfil
their requirements and wishes [34]. Tourists seek significance in life because they believe
that meaning is a key to happiness [35]. For instance, rather than only visiting new
locations and meeting new people, some tourists perceive their travels as a voyage of
personal development. The majority of visitors want an experience that enables them
to pursue meaning and achieve substantial personal results, such as enhancing their
personal and interpersonal development and enhancing family well-being [36].

Knowledge
Tourists today look for travel experiences that offer fresh learning opportunities, as well
as opportunities to pick up new skills while travelling [37]. Visitors also look forward to
participating in a variety of activities that allow them to particularly explore their skills
and talents [38].
In accordance with this, tourists want to actively engage in local activities with the
locals in order to learn new things and better understand the particular destination, such as
its history, culture, and cuisine. They also want to listen to the tour guide’s explanations
and observe the surroundings. Additionally, learning opportunities are perceived as a
singular, life-changing event that cannot be had anywhere else [36].

2.2 Tourist Satisfaction

A good reaction brought on by a favourable evaluation of the eating experience is known
as satisfaction [39]. While overall satisfaction refers to the total amount of happiness with
the consuming experience as a whole and a pleasurable condition of consumption that
meets the needs of the consumer [40]. In other words, when expectations and experience
 Conceptualizing Experience-Rich Sustainable Tourism 819

are compared, consumers will be satisfied if their satisfaction is met. According to

the expectation-confirmation paradigm, satisfaction results from a performance that is
evaluated as being better than or on par with what was anticipated [41].
While the expectation-confirmation theory has been extensively used in tourism lit-
erature to study tourist satisfaction, the disconfirmation model contends that satisfaction
is actually more influenced by low expectations, and that visitors are more likely to
be satisfied if their expectations are low. The disconfirmation model had been heavily
criticised because there isn’t concrete evidence to support the claim that visitors’ low
expectations do, in fact, have an impact on satisfaction [42]. There is a need to quantify
satisfaction in the context of tourism on a worldwide scale because studies have shown
that low expectations hardly ever result in satisfaction [43].

2.3 Relationship Between Experience-Rich Sustainable Tourism and Tourist

Satisfaction
Travel experience and contentment are closely related. numerous research on tourism
have demonstrated the importance of the tourist experience in determining customer
happiness [44, 45]. For instance, among wine tourists, it was discovered that a positive
travel experience significantly influenced their pleasure and loyalty [46]. Additionally,
it was discovered that elements like entertainment and beauty had a favorable impact on
cruisers’ pleasure [44]. Furthermore, based on the four characteristics of experience pro-
posed by [9]—aesthetics, education, entertainment, and escapism—tourist experience
does actually positively increase satisfaction, as demonstrated by [47].
Past scholars have additionally incorporated a number of experiential aspects that
affect enjoyment in addition to these four dimensions of the realm experiences model
[48–50]. For instance, the three experiential qualities of engagement, peace of mind, and
educational experience were found to affect visitors’ pleasure with Taiwanese heritage
sites. It found that new, well-organized, and enjoyable tourist experiences have a favor-
able and significant influence on behavioral intentions through satisfaction in adventure
tourism [50].

Propositions
Based on the previous empirical findings from primary studies, the paper propositions
are as follow:

Proposition 1. Hedonism will be positively related to tourist satisfaction

Proposition 2. Novelty will be positively related to tourist satisfaction
Proposition 3. Local culture will be positively related to tourist satisfaction
Proposition 4. Refreshment will be positively related to tourist satisfaction
Proposition 5. Meaningfulness will be positively related to tourist satisfaction
Proposition 6. Involvement will be positively related to tourist satisfaction
Proposition 7. Knowledge will be positively related to tourist satisfaction.

Conceptual Model
Based on the preceding discussion, a conceptual framework is proposed as shown in
Fig. 1.
820 M. A. Rahim et al.

Experience-Rich Sustainable
Tourism
Hedonism

Novelty

Local culture

Refreshment Tourist satisfaction

Meaningfulness

Involvement

Knowledge

Fig. 1. Proposed conceptual framework of experience-rich sustainable tourism and tourist

satisfaction.

3 Conclusion
The current study can assist tourism players in enhancing their marketing strategies to
be heavily focused on destination experiential aspects rather than destination attributes.
It can also help tourism suppliers improve their businesses in the competitive business
environment and provide better insights into the notion of ERST among tourists. In
addition, this research is very helpful for policymakers (LADA) in strategizing their
planning, particularly in the recently released Langkawi economic blueprint (HELANG),
which aims to increase the island’s tourism industry by showcasing its singularity through
multi-experience travel. The current study makes a compelling case for broadening the
setting to include a useful research contribution as prior study has never been done in
such setting. In addition, this study also contributes to serves as a guideline for future
study improvement, predominantly on the current subject matter and the applicability of
the ERST scale to various tourism experiences and contexts. A proper experience-related
marketing strategy is more critical than enhancing tourist satisfaction alone because this
helps improve tourists’ future behavior.

Acknowledgement. The authors would like to thank Ministry of Higher Education Malaysia
for providing FRGS grant
(FRGS/1/2020/WAB01/UMK/03/2) and (R/FRGS/A1100/01664A/002/2020/00876). Also, this
work was supported by Universiti Malaysia Kelantan.

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 Assessment of Health and Safety Hazards
Affecting Workers at Saline Water Conversion
Corporation Lathe Workshop

Raid Almutairi, Zaid Albeladi, and Ali Elrashidi(B)

Jeddah College of Engineering, University of Business and Technology, Jeddah 21448,

Kingdom of Saudi Arabia
[email protected]

Abstract. Workplace safety is a crucial topic for all the factories in various indus-
tries. The workers in the Lathe workshops are always at risks of injuries due to the
presence of various hazardous materials which could lead to fatal injuries for them.
It is important for every company to carry out various risk assessments to develop
a safety practice related to the operations performed by the workers. The focus of
this research is to use analytical tools to identify safety hazards in a Lathe workshop
located in SWCC facilities in Jeddah. The Fault Tree Analysis (FTA) approach
identified various safety issues related to the worker activities and operations. A
risk assessment is performed to find key solutions to the identified issues. At the
end, the solutions are recommended to the Lathe workshop management in terms
of improving its health and safety practice. The recommended solutions include
the assessment of risks and their elimination, if possible, the implementation of
6s approach, the use of personal protective equipment (PPE) by the workers, the
utilization of safety sign boards, implementation of lockout/tagout (LOTO) pro-
cedure and the development of the health, safety, and environment (HSE) depart-
ment. The research is limited to the operations and activities performed by the
Lathe workshop workers.

Keywords: Health hazards · Safety hazards · Water conversion · Lathe workshop

1 Introduction

The workplace hazards are always there in almost every manufacturing factory due
to the presence of various factors including workplace falls, uncontrolled fires, heavy
machinery, confined spaces, hazardous materials, and many more. In the field of the
manufacturing of mixed flow vertical turbine pumps, employees and the external envi-
ronment are always at risk if some specific safety regulations were not implemented
properly. A huge number of studies and surveys have been conducted that found vari-
ous kinds of injuries and health issues that were persistent in the lathe workshop that
manufactures the vertical pumps. The main reason behind these small to severe injuries
remained a lack of safety regulations. Short, D. B. et al. (2015).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 824–837, 2023.
https://doi.org/10.1007/978-3-031-26956-1_77
 Assessment of Health and Safety Hazards Affecting Workers 825

There are 33 units assembled in the lathe workshop, including impeller, shaft pump,
shaft line, packing, bowl discharge, gland, nut impeller, ring lantern, key impeller, bear-
ing sleeve, coupling half driver, coupling half pump, key coupling, bell suction, bussing
stuffing box, collar protecting, nut shaft adjustment, coupling shaft, ring thrust retainer,
stuffing box, ring thrust retainer, stuffing box, ring thrust split, pipe column, sole plate,
guard coupling, fitting discharge, head surface discharge, retainer bearing line Shaft
and a strainer. Mixed-flow vertical turbines are large vertical turbines used in municipal
water supply, large-scale industrial applications, desalination applications, as well as
flood control. Depending on the impeller design, mixed-flow impellers may be enclosed
or open.
Enclosed-impeller mixed-flow turbines often have up to 3 or more stages and produce
flows up to 30,000 GPM. Open mixed-flow impellers can be much larger – sometimes
designed for flows in excess of 100,000 GPM but are usually limited to just a single stage
(though two- stage designs are occasionally seen). Figure 1 below shows the assembly
diagram. Vertical Turbine Pump| Courtesy of the Hydraulic Institute, Parsippany NJ.

Fig. 1. CKD units of the vertical pumps Developed by SWCC

826 R. Almutairi et al.

Cuts and falls and are the most common hazards faced by employees working in such
types of factories. These issues lead a worker to hands or legs loss and other chronic
effects. The management should play a role to ensure the implementation of safety rules
and regulations at the workplaces. Safety in a lathe workshop is an important topic and
it should be handled in proper manner to protect the workers.

1.1 Overview of Research Problem and Area

In this research, one of the study the authors work in a water desalination plant in Jeddah,
Saudi Arabia. The purpose of the research is to identify safety hazards involved in the
production and assembly process of the vertical pumps and apply various analytical tools
to find a solution to improve the safety of the workers in the work. In this research, the
focus is on the operations and activities performed by the workers.
The activities start by storing the raw materials. Raw materials represent completely
knocked down units (CKD) representing steel sheets, bolts, flanges, paints, electrical
controls, steel pipes, data wires, electric wires, meters, rotary motors, electric boards,
fuses, beakers. Cutting, drilling, sharing, lathe and milling machines and painting shop
is present. Figure 2 below illustrates SWCC Lathe workshop layout, number1.

Fig. 2. SWCC lathe workshop layout number 1

Afterwards, the completely knocked down units are assembled. Figure 2 illustrates
SWCC Lathe workshop layout, number2 (Fig. 3).
 Assessment of Health and Safety Hazards Affecting Workers 827

Fig. 3. SWCC lathe workshop number 2

The lathe workshop workers are always at a risk of various safety hazards due to the
presence of various factors. The use of various practical and analytical tools can highlight
safety issues associated with the operations and activities of the lathe workshop workers.

1.2 Project Aims and Objectives

The aims and objectives of this research project are:

– To identify the workplace hazards associated with the operations and activities of the
SWCC lathe workshop for the manufacturing of mixed flow vertical turbine pumps
and analyse them.
– To assess the risks related to various operations in the lathe workshop.
– To recommend various solutions to the found safety hazards and risks.

1.3 Project Significance

It is an important research dimension as it can provide aid to the lathe workshop and the
workers to stay safe from various health and safety risks. The SWCC Lathe workshop
specialised in the production of mixed flow vertical turbine pumps can improve its safety
policy based on the recommendations of this study.
828 R. Almutairi et al.

2 Occupational Safety and Health

Occupational safety and health (OSH) is concerned with the safety, health and welfare
of people at work. It is a multi-disciplinary approach for developing and ensuring com-
pliance with safe working practices, and maintaining the health and well-being of those
employed in a particular occupation. Farlex. (Assessed on 19-March-2022).
It aims at enabling an individual to undertake their occupation, in the way that causes
least harm to their health. Farlex. (Assessed on 19-March-2022).

2.1 Occupational Safety and Health Administration

Moving machine parts have the potential to cause severe workplace injuries, such as
crushed fingers or hands or any other body part. It is essential to safeguard and protect
workers from these preventable injuries. Any machine part, function, or process that
may cause injury must be safeguarded. Machine Guarding - Overview | Occupational
Safety and Health Administration.
To ensure chemical safety in the workplace, information about the identities and haz-
ards of the chemicals must be available and understandable to workers in the workshop.
Hazard Communication - Overview | Occupational Safety and Health Administration.
(Assessed on 19- March-2022).

2.2 Hazards and their Risk for People Working in Lathe Industry
Health hazards from welding, cutting, and brazing operations include exposures to metal
fumes and to ultraviolet (UV) radiation. Safety hazards from these operations include
burns, eye damage, electrical shock, cuts, and crushed toes and fingers. Many of these
can be controlled with proper work practices and personal protective equipment (PPE).
Welding, Cutting, and Brazing - Hazards and Solutions | Occupational Safety and Health
Administration. (Assessed on 19-March-2022).
Spray operations can present both physical and health hazards to those involved.
This may include such diverse activities as the application of flammable and combustible
liquids, such as paint, in a spray booth or spray area, electrostatic coating operations, and
automobile body lining operations. Spray Operations - Overview | Occupational Safety
and Health Administration. (Assessed on 19- March-2022).
Chemical hazards and toxic substances pose a wide range of health hazards (such as
irritation, sensitization, and carcinogenicity) and physical hazards (such as flammability,
corrosion, and explosibility). Chemical Hazards and Toxic Substances - Overview |
Occupational Safety and Health Administration. (Assessed on 19-March-2022).

2.3 FTA and Risk Assessment

The most suitable process for hazard identification is using the Fault Tree Analysis (FTA).
Jafarian and Rezvani (2012). This includes decomposing the problems and identifying
the worst possible failures that may occur. With the use of FTA, one can identify the
possible failures of systems, processes, and human. Once the possible failures are iden-
tified using the FTA, a risk assessment will be executed for the identified task to analyse
 Assessment of Health and Safety Hazards Affecting Workers 829

the hazards and identify the control measures to reduce the current risk and derive for a
final risk. The risk will be ranked in a risk assessment using the Consequence/Severity
vs. the Likelihood/probability. Consequence of a risk assessment is the analysis of how
worse/severe the situation or the failure could be, as an example how serious the injury
could be (Serious Fractures/Permanent Disabilities/Fatal injuries or multiple fatalities).
The probability/likelihood of a risk assessment is the analysis of how often/quickly the
failure could result in. Once the residual risk is identified, control measures need to be
identified to reduce the severity and the likelihood of the risk.
The hierarchy of controls are described as below:

1- Elimination: this removes the risks, i.e., the risk of explosion due to the storing of
heavy fuel oil to generate electricity. The elimination involves the supply of electricity
from the grid instead of using the electrical generator.
2- Substitution and reduction: This involves the replacement of the option with a less
hazardous option, i.e., replacing the fuel type to a less flammable fuel.
3- Engineering controls: This involves the application of engineering methods to limit
the hazard, i.e., surrounding the electric generator with a boundary wall to reduce noise
and hearing loss. A good example for that is using Lock out/tag out (LOTO) or interlocks
to keep workers safe from the different machine’s risks.
4- Administrative controls: this includes all managerial activities that instruct the workers
to avoid the workplace hazards, this includes safety sign boards. By means guiding and
training the workers to work in a safe environment, for example using safety sign boards
and training the workers to follow the safety rules.
5- Personal Protective Equipment (PPE) including all wearable’s that may protect the
worker from the hazard. Employees wearing protective equipment such as gloves, hel-
mets, safety shoes, ear plugs, among others, will help them avoid the hazard from the
job they perform (Fig. 4).

Fig. 4. Hierarchy of risk control

830 R. Almutairi et al.

This project steps are as below:

1- Identify the hazards at the case SWCC Lathe workshop: this step identifies the hazards
by identifying the jobs made in Case SWCC lathe workshop Facilities. Namely, cutting
steel, bending steel, Paining Works and welding works and the assembly works.
2- Assess the risks; this includes Fault tree analysis by quantifying the probabilities of
each scenario, Risk assessment by evaluating the probability of the risk to happen and
the severity of that risk if happened. Trying to suggest some practical control measures.
3- Apply Practical control measures such as 6S’ technique of lean management, Personal
protective equipment’s and sign boards.
4- Review and feedback.

Hazard Analysis
Hazard analysis involves the identifying any one activity that may lead to harm. The
commitment towards safety is due to ethical, financial, and legal requirements. In Islam
the humans are appreciated and is glorified in comparison to other creatures. Thus, this
could be an additional factor that may lead to empower safety. To identify safety fault tree
analysis has been used, risk assessment in this chapter. While the next section highlights
some site observations and tries to mitigate it (Fig. 5).

Falling objects
OR

Forklift carrying more than the maximum weight

Poor material Handling System
O
R

Lack of Products
O
R

arrangements

The administration is Breach of

instructions by Work Bad Storing P=0.01
careless
workers bottlenecks Environment
(Glare)
P=0.005
P=0.01
P=0.005 P=0.01

Fig. 5. FTA for Product Falling or Damaged The Probability of failure = P (Forklift carrying
more than the maximum weight) + P (poor material handling system) = (0.005 + 0.01) + (0.005
+ 0.01 + 0.01) = 0.04.

3 Risk Assessment
A risk assessment was performed to evaluate the unsafe working conditions at for the
SWCC Lathe workshop. The following risk matrix was used to compute the risk of the
identified hazards for various activities (Tables 1 and 2):
 Assessment of Health and Safety Hazards Affecting Workers 831

Table 1. Risk matrix legend

Likelihood Severity
Rating 1: very unlikely Rating 1: No injury or illness
Rating 2: unlikely Rating 2: First aid injury or illness
Rating 3: Likely Rating 3: Minor injury or illness
Rating 4: Very likely Rating 4: Major injury or illness
Rating 5: Almost certain Rating 5: Disability, fatality

Table 2. Risk matrix

RISK MATRIX

Almost
5 5 10 15 20 25
certain

Likely to
4 4 8 12 16 20
occur

3 Possible to 3 6 9 12 15

2 Unlikely to 2 4 6 8 10

Rare /
1
Remote 1 2 3 4 5
Occurre Major/
nce/Likel Low/ Minor Moderate/ Extreme
Very
ihood Insignificant Impact High Impact
High

Impact/ Severity 1 2 3 4 5

The likelihood of happening is seldom due to small numbers of operations involved

in the AMI facilities. (Prototyping works and no mass production). Thus, it shall be
reviewed in the future (Table 3).
832 R. Almutairi et al.

Table 3. Risk assessment for the SWCC lathe workshop

(continued)
Assessment of Health and Safety Hazards Affecting Workers 833

Table 3. (continued)

(continued)
834 R. Almutairi et al.

Table 3. (continued)

(continued)
Assessment of Health and Safety Hazards Affecting Workers 835

Table 3. (continued)
836 R. Almutairi et al.

4 Conclusion and Future Research

It is important for every Lathe workshop to take health and safety of the employees
seriously to improve their safety practice and production. Safety hazards can be found
by using various risk assessments and analytical tools. The participation of employees
and company leadership in these risk assessments is highly important. In this research,
Lathe workshop which the author works in (SWCC) was introduced to find various
safety hazards related to the operations and activities performed by the workers. A Fault
Tree Analysis (FTA) is used to identify safety hazards and find the worst-case scenario.
On the basis of key findings, the safety hazards are analysed to find the solutions. The
main aim of the research is to provide solutions to the workshop in terms of improving
its safety practice. The recommended solutions will help the workshop management to
amend its current safety practice to an improved version to comply with safety policy at
SWCC. The solutions recommended by this research to the Lathe workshop include the
assessment of risks and elimination if possible, and the use of 6s approach, use of PPE by
the workers, implementation of sign boards where required, implementation of LOTO
procedure, and the development of an onsite HSE department. This research is limited
to the safety hazards associated with the operations and activities performed by the
workers. There is a room for further research to identify risks associated with the overall
safety of the Lathe workshop and find efficient solutions to those risks. Moreover, the
research was focused only on the SWCC Lathe workshop based in Jeddah. The research
should be conducted in other manufacturing industries factors as well to improve their
health and safety practices.
The research should be conducted in other industries factories as well to improve
their safety policies.

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 Work Habits Based on Agile Methodology:
Metrics and Procedures

Raja Kamal Chicha1(B) , K. Meenadevi2 , G. V. Mruthyunjaya Sharma2 ,

J. R. Archana2 , and Kumar SubbaAnantha2
1 Kristu Jayanti College, Bangalore, India
2 RNSIT, Bangalore, India

Abstract. Organizations use agile management frameworks (e.g., Scrum) to facil-

itate continuous change. Agile work practices (AWPs) aren’t well-defined or
assessed. This research uses the task work-teamwork distinction to construct a
novel theoretical framework and AWP measuring tool. We detail AWPs’ tem-
poral, management, team, and job design methods. Based on this approach, we
verify agile techniques using data from 269 teams (n = 1664 observations). AWPs
depart from centralized bureaucracy and converge with spontaneous team plan-
ning, autonomy, and feedback. The nomological network’s changeable linkages
facilitate task work-teamwork. Multilevel regression studies show that AWPs lead
to better team planning and task design. This study broadens agility research by
separating AWP management frameworks.

Keywords: Agile work practices · Scalability · Team procedures · Work design ·

Bureaucracy · Agility · Agile work methods · Agile teams

1 Introduction
Complex settings need dynamic organization (Brown and Eisenhardt 1997). Agile gover-
nance Software engineering frameworks. (Beck et al. 2001). Annosi. Imaginary market-
ing team This agile team creates advertisements in four-week sprints (Sutherland 2014).
(Van Oorschot 2018). Each sprint, the team tests a new advertising feature e.g., A/B
testing (Ghosh 2021). Agile development adjusts the campaign to changing demands
and examines end-user expectations (Grass et al. 2020).
Agile research is lacking (Niederman et al. 2018). Organizational psychologists have
argued for a “psychometric validation study” (Rietze and Zacher 2022). Be accurate
while measuring. Team-based agile practices (Junker et al. 2021) Agile work practices
are reviewed from organizational, work team, and work design literature (Pentland 2003).
We focus on practices that have been extensively used (Tripp and Armstrong 2018), allow
continual growth (Brown 1997), and can be assessed using the task work-teamwork
continuum (Crawford 2013).
Agile employs sprints and iterative methodologies (Wu 2021). Iterative development
tests and enhances product elements in cycles. Agile collaboration incorporates regular
“stand-up” meetings to monitor goals and longer after-action-reviews to improve team

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 838–848, 2023.
https://doi.org/10.1007/978-3-031-26956-1_78
 Work Habits Based on Agile Methodology: Metrics and Procedures 839

reflexivity (Stray et al. 2020). Goal-tracking and reflection promote agile task work.
Agile task work and agile teamwork are unique. AWPs are commonly utilized (Tripp
2018).
IT researchers lead agile research (Hoda 2017). AWPI may promote agile working
among academics. Management academics have employed agile team environments
to investigate prioritizing, group pressure, and peer responses to proactive behavior
(Twemlow et al. 2022). AWPI should boost research agility.

2 Theoretical Background

2.1 Origins of Agile Working

Agile derives from the agile manifesto, released about 2000 (Beck 2001). Agile manifesto
rejects Waterfall. Waterfall emphasized long-term goals, which didn’t match the soft-
ware business (Maruping 2009). Agile manifesto proponents favored light planning and
self-managing teams e.g., customer preferences. Scrum (Sutherland 2014) and Kanban
certifications followed Agile manifesto (Anderson 2010). Agile techniques help teams
adopt the agile manifesto. Agile practices follow the manifesto. This idea guides agile
functioning Disparities in management ideas, practices, and behavior were discovered
in the 1990s (Dean 1994) and in lean development studies (Niepce and Molleman 1998).
Agile methodologies integrate NPD and software development (Khanagha et al. 2022)
AWPs are oversized.

2.2 Conceptualizing Agile Work Practices (AWPs) for Organizational Research

Without Scrum or Kanban, agile (Anderson 2010). Agile outperforms NPD (AWPs;
Junker et al. 2021). Change-oriented AWPs Routines are routines (Pentland 2003). Agile
teamwork i.e., facilitating change-oriented action.
(Schreyögg 2016) AWPs are dynamic and interconnected. Agile assessment and
shorter goal cycles are needed for iterative development (Ghosh 2021). Agile teams
produce prescriptions, procedures, or methods. AWP doesn’t hire or write. Plan quickly.
AWPs provide teams control and stability (Gersick 1990), but its structure may
stimulate change and flexibility. AWPs combine macro and micro study (Adler 2021)
AWPs and change (see, Table 1).

2.3 AWPs Promote Change

Compare AWP’s routines and change studies (1997). Organizational practices that
address the past, present and future (Brown and Eisenhardt 1997). Four AWPs reset
Sprints Agile sprinting (Van 2018), Prioritizing short-term improvements. Successful
firms reduced planning schedules to fit conditions, System entrainment (Ancona et al.
2001). (Flexes) Agile teams speed up. Agile prioritization is needed for changing client
needs and resource restrictions (Blagoev 2021). Sprints engage teams because members
may better coordinate behavior while pursuing objectives (Nahrgang et al. 2013). Sprints
evolve.
840 R. K. Chicha et al.

Development Iterative: Agile teams approach objectives iteratively (Tripp et al. 2016).
MVP develops agile apps (Lee 2021). We user-tested this prototype for feedback, then
modified features and ran low-cost trials. Requests drive iterative development. Itera-
tive development allows cheap future discovery (Eisenhardt 1997, p. 25). Loss without
software iteratively develops and implements (e.g., unsuccessful product prototypes).
Iterative (Kirchherr 2019).
Stand-ups Daily “standups” for Scrum teams. Stand-ups address operations and
obstacles (Hummel et al. 2015). Goals drive stand-ups (Rapp et al. 2014). Tasks, prior-
ities, and communication are clarified (Brown and Eisenhardt 1997, p. 15). This formal
framework may help teams learn (Stray et al. 2020).

Table 1. Agile work methods conceptualised.

Possible processes hidden under the surface

• Agile methodologies Timeliness Directorship Collaboration Sprints Entrainment Concrete
control, not abstract Planning for emergent tasks Loading vertically (e.g., autonomy)
• Iterative design
• What’s next? bureaucratization
• Standing-room-only
• Present-focused
• Planned teamwork
• Channel feedback Retrospectives History lessons

Interconnectedness: The four AWPs create temporal future, present, and past linkages
retrospective meetings Encourages task-teamwork (Marks et al. 2001). Task work and
social-emotional requirements (Tuckman 1965). Validating second-order factor structure
is needed to combine AWP with task work-teamwork theories (Marks et al. 2001).
Teams set goals, distribute responsibilities (LePine 2013). Agile uses short-cycle
objectives. Agile teams accomplish objectives via sprints and iterative development
(McGrath et al. 2000). Prioritize AWP tasks. Teamwork assigns jobs (Crawford 2013;
Fisher 2014). Agile teams handle emotions in stand-ups and retrospectives (Bales 1950;
Tuckman, 1965). Teamwork improves through stand-ups and retrospectives.
Agile Teamwork: Agile meeting frequency depends on sprint length CAS-AWP teams
provide an adaptive social framework. As customers seek quicker product development,
sprint cycles may be shorter, stand-up meetings may replace retrospectives, and itera-
tive development may focus on existing prototypes over new ideas. Four AWPs need
internal/external teams e.g., customers, technology, other teams, and so forth.
AWPs include task-teamwork. Agile task work influences design and planning.
AWP doesn’t contradict task work-teamwork (Ishak 2012). Complex, limited team roles.
Clustering lets teams collaborate on similar activities (Arrow 2000).

Hypothesis 1: AWPI monitors sprints, iterative development, stand-ups, and retrospec-

tives.
 Work Habits Based on Agile Methodology: Metrics and Procedures 841

Hypothesis 2: Agile involves task work, sprints, iterative development and cooperation.

AWP Implementation Contexts: Large-scale changes have employed AWPs for a

decade (Rigby et al. 2020) and technology have seen changes Analyze the direction
and intensity of nomological network linkages between teams to see whether AWPs’
effects are setting-independent. Below are empirical questions.
RQ1: Mean AWPs differ across team types and agile transformation stages.
RQ2: AWPs and nomological network variables vary across team types and agile
transformation stages.

3 Methods
3.1 Overview of the Data Sources

Table 2 displays Agile demographics e.g., LinkedIn and personal contacts, IT-logistic.
AgileOrg delivery IT, consulting, maintenance and support develop products. AgileOrg
gives team size, type, and role.

3.2 Overview of the Validation Approach

Three AWPI phases (DeVellis 2016) A and B samples establish AWPI’s factor structure,
internal consistency, and measurement invariance (Hypothesis 1 and 2). Agile team types
and phases compare AWP.

Table 2. Sample and participant characteristics

Category Items
Sample Convenience
Team size Not applicable
Employees 187
Teams Not applicable
Team response Not applicable
Demographics Mostly women (66%), aged 35–55 (50%), with bachelor’s degrees
(78%). Most respondents were native German speakers; 36 answered in
English
Work content Logistics (16%), IT (14%), building (10%)
Team experience 71% of the participants were long-term team members
Agile transformation 39% said their team was agile or very agile
842 R. K. Chicha et al.

Table 3. Agile team sample and member traits

Category Items
Sample Agile teams
Team size M = 9.51, SD = 2.41
Employees 482
Teams 117
Team response Min. = 2, Max. = 9, Median = 41% per team
Demographics 79% men, 54% aged 35–55, 62% with bachelor’s degrees
Work content 462/114 delivery/support crews
Team experience 93% of team members had over 7months
Agile transformation 43% were agile

Table 4. Overview of agile org longitudinal sample and participant characteristic

Category Items
Sample Agile Org longitudinal
Team size M = 12.21 SD = 2.11
Employees 312
Teams 73
Team response Min. = 2, Max. = 9, Median = 42%
Demographics Mostly males (61%), aged 35–55 (51%), with a bachelor’s degree (76%)
Work content 261 delivery teams; 52 support teams
Team experience 97% of participants have been on their team for over 6 months
Agile transformation 74% of teams were agile-transformed

3.3 Validity and Dependability

Analytical Reasoning: First, build a pool of diverse ideas (Hinkin 1995). Before build-
ing AWPI, we interviewed five German agile practitioners two members of an agile
team, two HR experts, and one agile coach. Agile in diverse team settings Software vs.
others Software development-specific scales adapted to findings (So 2010; Tripp et al.
2016). Interviews helped us create AWP-inspired art. Interviewees and two organiza-
tional psychology specialists with scale development expertise examined 41 questions
(one associate and one full professor). Eight entries were non-AWP. Here is the test and
item pool analyses (see, Table 6).
 Work Habits Based on Agile Methodology: Metrics and Procedures 843

Table 5. Sample and characteristics of agile new teams

Category Items
Sample AgileOrg new teams
Team size M = 11.55 SD = 2.52
Employees 658
Teams 165
Team response Min. = 2, Max. = 11, Median = 42% per team
Demographics Mostly males (66%), aged 35 to 55 (47%), with bachelor’s degrees
(66%)
Work content 422 delivery teams; 137 support teams
Team experience 89% of participants have been on their team for over 6 months
Agile transformation 47% of the teams were agile

4 Exploratory Factor Analyses

EFA reduced Sample A’s item pool. Despite our small sample size (163 employees), we
can factor analyse our data (see also, Fabrigar et al. 1999). Four latent factors explained
about half the difference between experiments. Parallel analysis finds large eigenval-
ues, unlike other retention methods (Hayton et al. 2004). Oblique EFAs for four-factor
loadings. Seven items had cross-loadings > .25 or non-hypothesized. EFA was “clean”
after these deletions (DeVellis 2016). RMSEA of.064 (90% CI [.053; .076]) indicates
strong model fit. (2004). Table 6 shows sample A items and factor loadings, validating
Hypothesis 1. English-speaking sample A (Table 2). Excluding them yielded similar
factor structure and model fit (RMSEA = .063).
Agile Methodologies, Team Kinds, and Task Dependencies: Participants in Sample
A’s survey rated their team as conventional, agile, consultant, project/time-limited, or
management. Scrum, Kanban, XP, Lean, and Waterfall were addressed (Maruping et al.
2009; Venkatesh et al. 2020). Our new AWPI measures correlated with participants’
assessments of team agility (r = .41 to r = .50), agile practises (r = .21 to r = .52),
and frameworks (r = .22 to r = .44). Iterative development and stand-up meetings com-
plemented waterfall development. Growth iteratively encourages collaboration. Agile
teamwork and practises are valid. AWPs aren’t agile, team, or task-based. Agile uses
iterative development and stand-ups (Ghosh and Wu 2021).

4.1 Multilevel Confirmatory Factor Analyses

Structured factors (Table 8). Marsh et al. (2004) recommend CFI and TLI. 08, RMSEA,
SRMR. Comparing the original ML-CFA (Model 3 in Table 8) with the between-team
CFA (Model 2), we found items with inadequate between-team factor loadings, which
may affect model fit indices (e.g., SRMR; Asparouhov and Muthén 2018). AWPI main-
tained only high-loading between-team goods. Retained items exhibited high factor
loadings (mean = .86, range = .56–96). Valid construct (Bliese et al. 2019).
844 R. K. Chicha et al.

Table 6. Sample A APWI items and loadings

Item Factor loading 1 2 3 4

ID1 Before growing, we create a prototype/pilot .54
ID2 We try numerous approaches before deciding .61
ID3 We tweak our ideas .62
ID4 Our approach is flexible .57
ID5 We constantly request feedback from customers/clients .62
ID6 We assess whether consumer expectations have changed often .75
ID7 We don’t always know the ultimate product when we start a task .58
Sl1 We sequence our work .63
Sl2 Our work cycles are under 1 month .72
Sl3 Short work cycles decrease uncertainty .82
Sl4 Short work cycles promote flexibility .73
Sl5 Short task cycles are used (e.g., weekly) .63
DS1 We meet briefly to review task updates .86
DS2 We hold a brief meeting to address task-related obstacles .83
DS3 We meet briefly to review our progress .87
DS4 We meet briefly to address task problems .91
DS5 We meet briefly to discuss our job .82
DS6 We meet briefly to discuss important problems .83
DS7 Our brief meeting discusses task modifications .91
RR1 We complement each other’s work .71
RR2 We discuss team successes .91
RR3 We discuss work practices thoroughly .71
RR4 We critique our work .78
RR5 We work on team dynamics .77
RR6 We examine team performance in depth .62
RR7 We consider consumer input .52 .23

4.2 Internal Consistency, Test-Retest Reliability, and Cross-Lagged Relationships

As shown in Table 9, both the long and revised AWPI scales have adequate Cronbach’s
alpha (assuming strictly parallel items) and McDonald’s omega hierarchical internal con-
sistency reliability (assuming congeneric items). Acceptable ICC2 values demonstrate
that sampling more responses per team won’t affect group means (Bliese et al. 2018).
High levels of within-team agreement (rwgj) show the AWPI represents a common team
construct. Teams had one-year test-retest reliability (i.e., Sample C). Agile teaming is
less trustworthy than agile task work, test-retest correlations show (see, Table 9). Agile
 Work Habits Based on Agile Methodology: Metrics and Procedures 845

Table 7. Sample A PPM correlations.

‘ NMSD 1 2 3 4 5 6 7 8 9 10 11
12
14
15
16
1. Iterative 163 3.50 0.76
development
2. Sprints 163 3.24 0.94 .51**
3. Stand-up 163 3.20 1.09 .39** .50**
meetings
4. Retrospective 163 2.78 0.96 .31** .34** .49**
meetings
5. Agile team 150 3.16 1.22 .50** .49** .41** .43**
6. Scrum 150 2.95 2.17 .34** .52** .45** .37** .62**
7. Kanban 150 3.01 2.03 .26** .25** .25** .21** .37** .45**
8. Extreme 150 1.65 1.30 .21** .28** .23** .23** .40** .42** .29**
Programming
9. Design Thinking 150 2.67 1.85 .44** .22** .23** .23** .39** .26** .36** .38**
10. Lean 150 2.30 1.71 .38** .28** .25** .23** .42** .34** .31** .53** .51**
Development
11. Waterfall 150 2.09 1.54 .24** .09 .18* .07 .26** .26** .13 .37** .29** .42**
Development
12. Task 163 3.74 0.78 .21** .15 .15 .04 .05 − .07 .06 − .13 .01 − .03 .10
interdependence
14. 163 0.31 0.47 − .03 .15 .10 .09 .08 .08 .04 .08 − .07 .06 − .04 −
Service/production .09
team
15. Consulting 163 0.28 0.45 .00 − .10 − .12 − .10 − .02 − .03 − .01 .04 .14 .05 .04 − .11
team − .36**
16. Project 163 0.37 0.48 .18* .10 .09 − .01 .09 .03 − .03 .07 .06 .08 .09.18* −
(time-limited) team .49** −
.31**
17. Management 163 0.12 0.33 − .08 − .12 − .04 .04 − .08 − .06 .00 − .13 − .08 − .05 − .04 .05
team − .25**
− .19* −
.13

Note. Variables 14 to 17 are coded in a binary way (0 = no, 1 = yes), N = sample size, M =
mean, SD = standard deviation, ** p < .01, * p < .05

cooperation at T1 connected with agile task work at T2, but not vice versa (ß = .02, SE
= .08, p = .857).
MI checks higher-order factor stability. Individual-level data enhances psychometric
tests’ power and sample-size-per-parameter ratio (Marsh et al. 2004; Molenaar 2016).
In Phase 1, multilevel CFAs achieved cross-level isomorphism (see Tay et al. 2014).
Subgroup analysis (4 items) Note’s measurements. Table 6 compares versions’ parts.
C was used for test-retest reliability, B for all other results. Agile predicts task changes
(changes in terms of rank-ordering; Henk and Castro-Schilo, 2016). Agile task-work
and teamwork differ (Kenny 1975).
846 R. K. Chicha et al.

Table 8. Sample B confirmatory factor fit.

Model N df AIC BIC χ2 CFI TLI RMSEA SRMR

1. Within-team 476 293 30,553 30,903 859.23*** .875 .861 .064 .054
2. 114 293 5784 6014 631.16*** .874 .861 .101 .091
Between-team
3. Multilevel 476 586 32,374 32,952 1010.93*** .924 .916 .041 w=
.061; b
= .149
4. Rev. 476 98 19,198 19,423 218.19*** .953 .942 .051 .047
Within-team
5. Rev. 114 98 3537 3685 156.69*** .963 .955 .072 .072
Between-team
6. Rev. 476 196 20,760 21,137 260.14** .981 .977 .027 w=
Multilevel .050; b
= .079
Note. *** p < .001, ** p < .01. Rev. = Only elements with large between-team factor loadings
were retained (from Model 4 onward)

Table 9. Internal consistency, group mean stability, and median within-team agreement

Reliability α ωh ICC2 r wgj rt +1year

Scale Agile taskwork long (12 .91 .83 .80 .95
items)
Agile taskwork (8 items) .90 .83 .79 .94 .72
Agile teamwork long (14 .94 .87 .79 .98
items)
Agile teamwork (8 items) .90 .85 .77 .96 .58
Final subscales Iterative development (4 .84 .87 .66 .90 .62
items)
Sprints (4 items) .95 .95 .80 .88 .73
Stand-up meetings (4 items) .93 .94 .75 .94 .56
Retrospective meetings (4 .91 .90 .64 .93 .43
items)

4.3 Applicability of the Measures

AWP study requires a versatile assessment tool (see Junker et al. 2021). Phase 1 showed
AWPs aren’t confined to an agile strategy, team type, or task dependency. Phase 2 showed
AWPI measurements are similar across team types and agile transformation levels. Sup-
port teams scored worse than delivery teams on agile taskwork and collaboration (RQ1).
 Work Habits Based on Agile Methodology: Metrics and Procedures 847

AWPs help external clients (here customers received IT services, maintenance, and con-
sulting). Agile delivery and support vary most. This may have made scheduling support
team work in short iteration cycles more difficult, boosting organisational value (here
HR, finance, and sales teams). Our measurement invariance findings show that (1) the
AWPI may be administered in different work settings and (2) observed score changes can
be regarded as “actual” AWP construct changes (Vandenberg and Lance 2000). AWPI
is useful for organisational and management psychology (Cortina et al. 2020).

5 Conclusion

This study examines theoretical and measurement frameworks for agile working, such as
the Agile Work Practices Instrument’s factor structure, reliability, and construct validity
(AWPI). AWPs are connected to bureaucracy, emergent team planning, and work design.
Agile task work and agile teamwork may employ autonomous team planning and job
design. Using the AWPI, agile working is more relevant than previously thought. Future
research will evaluate whether AWPs are needed for continuous change. This study
examines agile work techniques.

6 Limitations

Our validation study was thorough, however there are still constraints and unsolved
questions concerning AWP measurement and methods. Our hypothesis concerning the
four AWPs’ distinct temporal processes (Table 1) needs testing. Brown and Eisenhardt
(1997) used an inductive case study to evaluate behaviours that allow continuous growth
by building “links in time” (p. 29). The four AWPs’ distinct temporal processes may
be analysed by providing the AWPI and connecting score differences with qualitative
observations of temporal patterning (e.g., Kremser and Blagoev 2021). Evaluating how
AWPs alter subjective time perceptions and team reflexivity is another way to test tem-
poral processes (Shipp and Jansen 2021). (2007). Using our framework as an example,
we may expect retrospective sessions to encourage team members to concentrate on the
past (Shipp et al. 2009).

7 Future Research
Cross-validating our conclusions requires new data from numerous organisations. Agile-
Org has several teams but one environment. Strong managerial support for AWPs and
an agile transition are examples (instead of a big-bang approach; see, Denning 2021).
Our results on measurement invariance (Phase 2) give us confidence in the AWPI’s psy-
chometric qualities across samples. Using self-reported AWP measures, we recreated
the component structure. Variables and organizations or industries may have different
relationships. Future study should examine whether organizational settings boost (or
impede) AWPs’ well-being, performance, and creativity.
848 R. K. Chicha et al.

8 Practical Implications

AWPs are real strategies employed by companies worldwide (Annosi et al. 2020). Our
greatest practical contribution may be to make agile functioning more theoretical, as
Kurt Lewin said (Lewin 1945). By combining AWPs with work and organisational
psychology, we create a new paradigm for practitioners. This tool measures agile trans-
formations. Our results suggest that the AWPI may be used in a range of team scenarios
and as a benchmark for agile transformations.

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 Digital Leadership in Education:
A Meta-analysis Review

Ahmad Fadhly Arham1 , Nor Sabrena Norizan1 , Ahmad Firdhaus Arham2 ,

Nornajihah Nadia Hasbullah1 , Irfah Najihah Basir Malan1 , and Shaliza Alwi3(B)
1 Universiti Teknologi MARA, Melaka, Malaysia
2 Universiti Kebangsaan Malaysia, Bangi, Malaysia
3 Taylor’s University Malaysia, Subang Jaya, Malaysia

[email protected]

Abstract. This article provides a complete summary of leadership theory based

on empirical research papers that focus primarily on educational leadership styles.
We focused on the following categories in our meta-analysis: (1) the role of leader-
ship, (2) the influence of leadership on academic institutions, and (3) the research
method for leadership. Our findings imply that it is worthwhile to investigate
new models of leadership that can better match the student development with the
requirements of an increasingly digitalized business world. In this paper, we sug-
gest an exploratory sequential design study of digital leadership and provide a
new definition of digital leadership. This is owing to the lack of methodological
specificity in the existing leadership studies academic literature.

Keywords: Digital leadership · Meta-analysis · Styles of leadership · Education

sector

1 Introduction
Electronic platforms have become the most essential tool for industry leaders’ commu-
nication. Since the Covid 19 pandemic, information and communication technology is
used in all areas of education in Malaysia. This has caused the adoption of new paradigm
leadership practices by the leaders. To cultivate electronic platforms and integrated com-
munication technology, institution leaders must first show an understanding of innovative
use of technology, skill in applying it, and a culture that encourages trying out new ways
of teaching, learning, and running schools are all important (Arokiasamy et al. 2015).
Consequently, a new leadership aptitude is required due to the era’s constantly shifting
leadership styles (Lipman-Blumen 1992). The organisation must consider technologi-
cal advances that have driven organizational advances, like putting computer systems
in the workplace changes, to keep its competitive advantage (Erhan et al. 2022). This
differs from traditional leadership styles that emphasize controlling, competitive, and
aggressive characteristics. Subsequently, the necessity for electronic or digital leadership
arises since modern organizations look to shift into digital work environments. Digital
workplaces, thus according to researchers (Dery et al. 2017), are physical, cultural, and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 849–857, 2023.
https://doi.org/10.1007/978-3-031-26956-1_79
850 A. F. Arham et al.

digital solutions that ease working life in a complex, dynamic, and often unstructured
work environment. However, the concept of digital leadership has received less atten-
tion in the literature, particularly in the education industry. Although earlier study has
shown that further research should be undertaken on educational leaders as this topic
has been the subject of conversation (Cavico and Mujtaba 2009; Gigliotti and Ruben
2017). Furthermore, researchers highlight the effectiveness of leadership is depends on
technological skills (Hassan et al. 2018). Meanwhile, Arokiasamy et al. (2015) observed
a dearth of ICT awareness among Malaysian educational leaders and most educational
institutions adopt conventional ICT leadership. Davies and Thomas (2019) found that
few studies have been done on educational leaders despite the need for professional
leaders The quality of leadership would suffer if this were not achieved. Hence it is
a vital to solve leadership effectiveness problems in education (Hassan et al. 2018).
Additionally, 21st century leaders must use digital platforms to teach subordinates and
students in education sector. Therefore, it is a vital to equip leaders with digital abilities,
which could change them into digital leaders who combine transformational leadership
styles with digital technology use (De Waal et al. 2016). Recognizing the importance
of digital leadership, This research aims to shed light on the significance of leadership
styles in the academic sector by reviewing the existing literature on the topic. The study
also conducts a meta-analysis of the effects of various leadership styles on classroom
performance. This study proposes a new leadership style for Malaysian universities that
fits the digital age and current student generation.

2 Literature Review
2.1 The Significance of Leadership Styles in Education
Academic leaders are not just set up and support curriculum standards and development.
Because they foster the development of critical thinkers, communicators, and doers, they
are also a driving force in the expansion of their communities (Hassan 2018). Teachers
and principals’ leadership styles influence students’ outcomes, school performance, and
effectiveness (Adams et al. 2017; Hallinger et al. 2018; Louis et al. 2010; Harris et al.
2013). Building effective school leaders who can tackle current and future challenges,
especially with access to digital information, is a top priority for many educational insti-
tutions. Leadership in higher education has been the focus of earlier studies. Pfeffer
(2009) argues that college students should start learning about leadership to prepare
themselves for professional life. Leadership within institutions is essential for fostering
growth and innovation (Perera et al. 2015; Ghani et al. 2011; Jamilah and Yusof 2011;
Tee et al. 2010). There are researchers focused on organizational improvement and insti-
tutional leaders’ particular attributes or characteristics more recently (Hallinger and Lee
2013; Robinson et al. 2008). On top of that, policymakers globally strive for increased
leadership development to improve education (Harris and Jones 2015a). Researchers
have found that the leadership styles of educational sector leaders, such as teachers and
principals, have a major impact on students’ lives and the efficiency and success of
schools (Adams et al. 2017; Hallinger et al. 2018; Louis et al. 2010; Harris et al. 2013).
Academic leaders’ responsibilities extend beyond the creation and support of existing
pedagogical practices and plans. Universities are seen as the backbone of any thriving
 Digital Leadership in Education: A Meta-analysis Review 851

community because they produce leaders who can adapt to changing economic condi-
tions while supporting a strong capacity for critical thinking and clear communication
(Hassan et al. 2018). It is imperative that educational institutions invest in leadership
training to produce capable school leaders who can overcome current and future chal-
lenges, especially in the context of digital information, and yet lead their institutions to
the intended outcomes.

2.2 The Importance of Digital Leadership on Student Development

Researchers concurred that Institutional leaders have a major impact on productivity in
the workplace and academic achievement (Hallinger 2013; Leithwood and Sun 2012;
Adams et al. 2017; Hallinger et al. 2018; Ahmed Jami et al. 2012). They will influence
academic achievement (Harris et al. 2013). Erhan et al. (2022) found that various leader-
ship styles have been investigated to see how they influence the behaviors and attitudes
of followers. For instance, leadership styles including transformative leadership (Li et al.
2019), participative leadership (Fatima et al. 2017), and ethical leadership (Saeed et al.
2017) have all been studied in relation to novel workplace behaviors (Iqbal et al. 2020).
According to literature (Hallinger 2013; Leithwood and Sun 2012; Adams et al. 2017;
Hallinger et al. 2018; Ahmed Jami et al. 2012), school leaders have a major effect on
organizational performance and student results (Harris et al. 2013). However, there is
currently a lack of academic research on the significance of digital leadership in the aca-
demic world. Consequently, it is necessary to reconsider the perspective of leadership
styles considering the current situation. This is because the contemporary environment
requires more technological ability. Studies show that putting ICT into schools can help
students do better in school and learn more (Becker 1993; Butzin 1992; Kozma and
Croninger 1992). It is therefore imperative that educational leaders make use of ICT in
their everyday work and give clear and helpful guidance on how to implement technology
in the classroom.

3 Methodology
This meta-analysis confirms earlier research about the impact of various leadership styles
on students’ development. Many academics have found that meta-analysis is a useful
tool for carefully evaluating and synthesizing findings across many different fields (Ali
et al. 2015; Ceri-Booms et al. 2017; Barari et al. 2021). Most studies used quantitative
methodologies. In the following part, the specifics of the studies will be discussed.

4 Findings
4.1 Leadership Models and Methods Employed in the Educational Sector
Table 1 is a compilation of leadership-related papers from older educational studies.
Researchers eliminated 34 papers due to methodological problems but kept 17 that
addressed leadership in education. Listed below are seventeen papers that contribute to
the literature on educational leaders’ methods of instruction. The table summarizes the
852 A. F. Arham et al.

results of each research. Moreover, many principals have been showed to use instructional
leadership, transformational leadership, transactional leadership, distributed leadership,
supporting leadership, and directive leadership. Neither of the given studies proved
that the institution’s executives effectively managed the organization and workforce
by using digital leadership. No studies have been found to date that include students’
perspectives on the leadership styles employed by institution leaders. Especially in digital
leadership, even though most leadership styles in the educational sector were performed
by school employees. In conclusion, the statistics prove that most studies were conducted
in Western countries, while just a small percentage were conducted from an Asian point
of view. This is possible that Western culture is distinct from Asian culture in terms of
factors like power distance. Consequently, the digital leadership styles being developed
in Asian nations have the potential to improve student performance. From 2012 to 2022,
the majority (n = 9) of the 17 selected research on leadership styles in educational sectors
used a quantitative technique, while the majority (n = 7) used a qualitative approach. Only
one study by Nguyen et al. (2017) employed a mixed-methods strategy to investigate
educational leadership and administration in Vietnam. Researchers (Adams et al. 2020)
employed a qualitative approach to examine how Malaysian high-performing schools
develop their principals for leadership. The qualitative method was selected, and 102
principals were asked to respond to open-ended questions about their leadership roles
and practices. In a separate study, researchers (Nawab and Asad 2020) used a qualitative
approach to examine the leadership behaviors of an urban Pakistani school principal.
The authors assert that the requirement to focus on unique conditions when dealing with
persons in real-world scenarios needed the use of a qualitative method, resulting in rich
and thorough data. Othman and Wanlabeh (2012) used a quantitative method to decide
the teachers’ views on leadership styles in Thailand. Researchers were able to better
handle and arrange the survey’s many replies because to the quantitative method’s use
of numerical data. Also, Afiqah et al. (2017) confirmed the usefulness of the Path-Goal
Theory in measuring leadership preferences through their quantitative study of the most
popular leadership styles among Asian youth.

Table 1. Articles on various leadership methods employed in the academic field

Author/Years Methodology Findings

Adams et al. (2020) Qualitative Instructional leaders to improve
students’ development and
performance
Harris et al. (2017) Qualitative Instructional leaderships
Kaparou and Bush (2016) Qualitative Instructional leaderships
(continued)
 Digital Leadership in Education: A Meta-analysis Review 853

Table 1. (continued)

Author/Years Methodology Findings

Nguyen et al. (2017) Mixed-method Instructional leadership
Massry-Herzallah and Arar (2019) Qualitative Education systems
Yokota (2019) Qualitative Characteristics and
competencies of the principal
Seong and Ho (2011) 5. Othman and Qualitative Transformational leader
Wanlabeh (2012) characteristics
Salehzadeh et al. (2014) Qualitative Transformational leader
characteristics
Hassan et al. (2018) Critical review Leadership style
Nor Amin et al. (2017) Qualitative Path-Goal Theory
Arokiasamy et al. (2014) Qualitative Transformational leader
characteristics
Ngang (2011) Qualitative Leadership style
Sirisookslip et al. (2015) Qualitative Leadership styles Supportive
leadership, and participative
leadership styles
Jyoti and Bhau (2016) Qualitative Transformational leadership
Mwesigwa et al. (2020) Qualitative Leadership style
Ali and Zulkipli (2018) Qualitative Strategic leaderships

5 Discussion

The goal of this study is to show the research that has already been done on leadership in
the educational sector. The investigation gives strong proof that there are more than one
leadership roles in the education sector. Conventional leadership styles like instructional
leadership, transformational leadership, transactional leadership, distributed leadership,
supportive leadership, and directive leadership were used in most studies on leadership
styles in education, as shown by the results of earlier studies. The findings also show
that only a few leaders are involved with putting ICT into place in educational settings
(Anderson and Dexter 2005; Feldner 2003). Even though there are not that many studies
on leadership for technology change in education, it is agreed that leadership is neces-
sary for the successful deployment of ICT. Also, most research findings concentrated
on showing the diverse ways that school principals lead. There has not been a lot of
research on the types of leadership used in higher education and how they can help
students become future leaders. So, the people who did this study think that doing it
at a university will help them find out if there is a link between how people lead and
how successful they are as future leaders. Since most of the research done before has
been from an academician’s point of view, it is important for this study to include what
students think about the styles of leadership used by institution leaders. Bloom and
854 A. F. Arham et al.

McClellan (2016) say that students are also seen as the followers of institutional leaders
when analyzing leadership discourse. Student performance can be improved through
digital leadership. Before looking at how variables are related, the researcher had to
explain why digital leadership can help students do better in school. Considering the
reviews, no research has been conducted in a digital leadership from the listed articles.
Considering the velocity of business operations and transformation, businesses should
accelerate in investigating new digital business prospects. According to Tanniru (2018),
organizations should use entrepreneurial thinking to produce innovative concepts that
offer benefits to clients, design digital, IT-enabled services using advanced technology,
and improve organizational skills to meet consumer demands. He said that companies
need agile IT systems and business strategies, as well as “co-leadership of IT” among
executives to achieve this. Hence, the academic sector, which feeds the digital economy’s
labor, must modernize to meet business needs. Based on this review’s gap, educational
leaders could use digital leadership to improve academic staff performance and student
growth. Covid-19 has affected the education industry, making digital leadership nec-
essary for institution leaders. All levels of education must use ICT for teaching and
learning with students. Incorporating leaders and innovation is important for a differen-
tiation strategy, and college should be where digital leaders are made. Digital leadership
is being able to lead people and organizations toward digital economy and be flexible
in a digital world that changes quickly. Theoretically, this meta-analysis recognizes the
paucity of mixed-method leadership studies. Future research will therefore employ a
mixed-methods approach to examine the effect of digital leadership on student accom-
plishments. The goal of this upcoming study is to create a new way to measure digital
leadership. The study will use a mixed-method approach, called a sequential exploratory
research design, to collect and analyze the data. The purpose of this research is to prove
a new model, which requires a close look at every part. Therefore, The blended method
is the preferred method. Following this is the checking and confirming the model that
was made. Thus, combining qualitative and quantitative research is therefore essential
for gaining more correct responses. There are two distinct phases. Focus group research
will be done in the first phase (Qualitative) to talk about the things that will affect how
the digital leadership model for students is made. Through a thematic analysis of inter-
view data, a list of factors that affect digital leadership will be made. This will also be
backed up by a review of the literature about how to measure digital leadership. After
the criteria are confirmed, measuring tools will be made. In the second phase, which is
called “Quantitative”, a survey questionnaire will be made to collect more data. Before
the real data collection, there will be a pilot study to test the measuring tools. This is
a crucial step to take after the focus group discussion to make sure that the things that
are made are reliable and easy for the population and sample group to understand. The
demographics and samples that will be used to collect data will be chosen based on the
problems and concerns that are happening right now. Malaysian and Indonesian univer-
sity students will be chosen as a sample to make sure this study is complete and can
be applied to the whole region. This project will collect information through an online
survey with a questionnaire that people can fill out on their own.
 Digital Leadership in Education: A Meta-analysis Review 855

6 Conclusion

Liebowitz and Porter (2019) suggest that improving leadership in educational institu-
tions is useful. A modern style of leadership called “digital leadership” could affect the
education system in Malaysia. First, it will add to what we know about student growth
and leadership, since digital leadership has not yet been used in many studies to help
student development. Second, based on earlier research on leadership styles in educa-
tion, especially from a Malaysian point of view, the methodological part of the current
study should show that digital leadership is needed to help students develop in Malaysia.
Future job seekers could be trained in the classroom to be ready for the challenges of
the digital age.

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 A Study on Effect of Coronavirus Outbreak
on India’s Goods and Service Tax Revenue:
An Analysis

Noble Jacob1 , N. Siva Sankar1 , J. Poornima1 , Lakshmipathi Naidu2 , M. Vaishnavi3 ,

and Lourdunathan1(B)
1 Department of Professional Accounting and Finance, Kristu Jayanti College Autonomous,
Bangalore, India
[email protected]
2 Faculty of Management Studies (UG), M S Ramaiah College of Arts, Science and Commerce,
Bangalore, India
3 Department of Management Studies, PSG College of Art and Science, Coimbatore, India

Abstract. The Coronavirus Outbreak is on a seeming drop in India, the effect

of the epidemic on the economy is still mounting, as fresh waves of COVID-19
contagion are nodding nearby. Any projected-on income influence, thus, might
be allowed meanwhile inadequacy and restrictions. Yet, as per GDP statistics
of the previous two quarters it currently exists, and as per Goods and service
tax illustrates the positive indication of regaining amongst all return’s channels.
The study emphasizes the problem of reimbursement to states in the case of a
revenue deficit protected in the existing rule, and the states In India will have to
experience the revenue deficit, which may be helped in the evaluation of goods
and service tax. The study subsidizes the current discussion on Goods and Service
tax compensation provisions of states by allocating another set of budgets for the
financial year 2021.

Keywords: Goods and service tax · Revenue · Covid-19 · Revenue under

projected and shortfall calculation and GDP

1 Introduction
Goods and service tax is one of the most important to the State Government. The sta-
tistical data and the report reveal that in October 2020 there was an increase in GST
collection amounting to 10.2% and this is the II successive time of the present fiscal year
which demonstrated a productive development (year-on-year) in Goods and Service
Tax collection. This year-on-year improvement in the Indian Economy is a construc-
tive signal of regaining from the continuing COVID-19 epidemic. The development in
Goods and Service tax collection assumed in October 2020 is an indication of the slow
revealing of the economy, the purchasing power of the consumer and the increase in the
consumption and demand on account of festival seasons. Worries adjoining Goods and
service tax assortment in the year 2020-2021 have sharpened on account of continuous

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 858–867, 2023.
https://doi.org/10.1007/978-3-031-26956-1_80
 A Study on Effect of Coronavirus 859

issues of the pandemic. Since there is a gradual increase in the purchasing power of the
consumers and the economy is slowly regaining from the pandemic. The study shapes
different situations based on regular (year-on-year) development contributions from the
implementation of Act 2017 to till 2020, different expectations are likely to base on GST
collection for the remaining period of the financial year. This paper attempted to under-
stand the measures taken by the central government in GST compensation distribution
to the state, collection of Cess and Revenue Gap and shortfalls in Goods and Service Tax
collection. Due to the coronavirus outbreak, the Researcher has undertaken the positive
side of the present pandemic situation is the unique study of this paper.
The Study on Effect of Coronavirus outbreak on India’s Goods and Service Tax
Revenue: An Analysis is based on the secondary data published by NIPFP, State Budget
Documents; PRS and GST collection from FY2017 to FY 2020-21 to analyze Goods
and service tax Revenue collection, their distribution to state and shortfall collection and
role of the central government in controlling the Revenue under projected and the efforts
of Goods and service council in meetings.

2 Review of Literature
Dr Namita, November 2018, In this paper, the author used secondary data and the study
was exploratory the author analyzed the influence of Goods and service tax and its effect.
International journal of basic and applied ISSN 2249-3352 (P) 2278-0505 Impact of
GST on India.
Mr.R. Rajasekaran1, Mr.P. Pavithran2 © May 2020 | IJIRT | Volume 6 Issue 12
| ISSN: 2349-6002 An Analysis of GST Collection of India (State Wise) with Special
Reference to Calendar Year (2019–2020). The Author of the article made a thorough
study on the basics of Goods and service tax law in India, its history and the execution
of the Goods and Service Tax Law the act which came into existence in July 2017.
The author emphasised the other indirect tax laws which were earlier in existence and
restricted the Goods and service tax collection for the calendar year 2019–2020.
Anand Nayyar** Inderpal Singh, February 2018, •. In this paper, the Author empha-
sised the relation of the taxation system, the Goods and Service Tax perception along
with important working, the author also made a comparative study of the Indian Goods
and Service tax system with the rest of the world’s taxation system. The author also
existing detailed attention concerning advantages to many divisions of the Indian econ-
omy after forcing Goods and Service Tax drawn some experiments of Goods and service
tax. Indian Journal of Finance

3 Research Gap
Numerous types of research have been done to explore Goods and Service tax, but all
the studies have been made on the adverse sides of the Implementation of GST and
the hazards involved due to the Collection of GST, and its impact on the Economy.
The topic “A Descriptive Study on Impact of Covid- 19 on India’s GST revenue: An
Analysis. a special reference to Collection and Shortfall”, analyzes how GST helped the
Revenue to the centre and state to mitigate the Collection of GST and shortfall due to
860 N. Jacob et al.

the coronavirus outbreak. The Researcher has undertaken the positive side of the present
pandemic situation is the unique study of this paper.

4 Methodology
an effort to examine the GST revenue centre and state a distinct situation to Collection
and Shortfall”, to analyse how GST helped the Revenue to the centre and state to mitigate
the Collection of GST and shortfall due to the coronavirus outbreak. For this purpose, the
researcher has undertaken the Published secondary data from State Budget Documents;
PRS sources Indian Express published articles and various Journals.

5 The Objective of the Study

• To Understand the Measures taken by the centre in Goods and Service Tax
compensation to the states.
• To Analyse Goods and Service Tax compensation and collection cess.
• To Study the Revenue Gap and shortfalls in Goods and Service Tax collection.

6 Revenue Under Projected

Revenue under Projected is the revenue which is included in GST with the situation
considering 2015-16 as the base year at fourteen per cent (14%) yearly development rate
allowable for income forecast. The change among the predictable Goods and Service Tax
return cess collection in 2020-21 and the amount of the income gaps of states offer the
predictable extra revenue condition for full GST return payments to states. Admitting that
a part of income loss is owing to the epidemic and that the reimbursement device to fill the
shortfall for 2020–21 and near-term existences are still surfacing in the GST Council,
the study pays to the continuing conversation on GST compensation requirements of
states by projecting another set of numbers for the year 2020–21.
The professionals forecast that If the extensive product of the projection is well-
thought-out, real Goods and service tax receipts may drop from Ten Lakh Crore to
Twelve lakh Crore. If the fine group of the projection is considered, actual Goods and
services tax receipts in 2020–21 may drop between Rs. Almost 11 lakh crore to Rs.
12 lakh crore. Yet, different states may have different shortfalls subject to development
in Goods and Service Tax collection that would be recovered from November 2020 to
March 2021.

6.1 Shortfall Calculation

The shortfall is calculated assuming a 14 per cent annual growth in GST collections by
states over the base year of 2015-16. A shortfall in the Goods and Service tax compensa-
tion fund is likely to change from Rs. 1.95 lakh crore to Rs. 2.45 lakh crore in 2020-21. In
the Goods and Service Tax council meeting held on August 2020 which happened to be
the 41st Council meeting it was estimated that the state may demand Goods and Service
 A Study on Effect of Coronavirus 861

Table 1. Projected GST collection, revenue under protection and shortfall in GST compensation
cess collection in 2020–2021 (Rs. Crore)

Revenue source Scenario I Scenario II Scenario III Scenario IV

Projected GST Collection of State A 475,700 481,575 439,060 444,262
Revenue Under (B) 765,034 765,034 765,034 765,034
Revenue Gap (C) 290,598 284,860 326,693 321,321
ProjectedGST Compensation Cess 86,477 90,386 82,242 85,757
collection
A shortfall in GST Compensation Fund 204,122 194,474 244,451 235,564
(E = C-D)
Sources: NIPFP Study

tax compensation up to Three lakh Crores (Rs.3 Lakh Crore) Besides the projected GST
compensation cess collection of Rs. 65,000 crores, the shortfall in GST compensation
fund was expected to be Rs. 2.35 lakh crore in 2020–21.
Table 1 Shows Projected GST Collection, Revenue under Protection and Shortfall
in GST Compensation Cess collection in 2020–2021 in different scenarios like Scenario
I, II, III and IV respectively. The Projected GST Collection (A) as shown in the table in
the given four Scenario compared with Revenue under (B) derived a Revenue Gap (C)
which shows it is fluctuating and also a Shortfall in GST Compensation fund (E = C-D)
(Fig. 1).

Projected GST Collection

1,000,000
800,000
600,000
400,000
200,000

Scenario I Scenario II Scenario III Scenario IV

Fig. 1. Graphical presentation of projected GST collection

Goods and Service Tax Compensation Cess Collection: As per Goods and Service
Tax Compensation to States Act 2017. The Compensation Cess under GST is levied by
GST – Compensation to States Act 2017. Under this act, the centre has to compensate the
state for the loss that the state suffered because of the impact of the Goods and Service
tax since the GST is a consumption-based taxation system.
862 N. Jacob et al.

Table 2. Summary of annual goods and service tax collection 2017–2018 to 2020–2021

Year Cess collection (Rs Crore) Compensation requirement (Rs Crore)

2017–18 62,612 48,785
2018–19 95081 81,141
2019–20 95,444 165,302
2020–21 77,380 300,000

Table 2 shows that the year-wise Cess Collection from 2017–2018 starting from
Rs.62,612 Crores to and compensation requirement of Rs.48,785 Crores likewise 2018–
2019, 2019–2020 and 2020–2021, which shows a gradual shortfall in Cess collection
and leads to a deficit in compensation (Fig. 2).

Summary of annual Goods and Service tax

Collection 2017-2018 to 2020-2021
400,000
350,000
300,000
250,000
200,000
150,000
100,000
2017- 2018- 2019- 2020-
Cess collection (Rs Crore) Compensation requirement (Rs Crore)

Fig. 2. Graphical representation summary of annual goods and service tax collection 2017–2018
to 2020–2021

Goods and Service Tax Compensation Cess Collection Shortfall: The GST com-
pensation cess collection played a major role in the financial year 2019–2020 in the states
required Rs.1.65 lakh crore which was two times more than that of 2018–19 which was
compensated by the centre through cess collected fund. This caused the state a shortfall
of approximately Rs.70,000 crore again this was partially compensated through 2020–
2021 cess collection. Due to the implementation of Goods and Service tax the centre
shoulder all the responsibility of compensating the state through cess collection. The
data of the council also reveals in 2020–2021 the state requirement is to increase to 3
lakh crores, and the shortfall is expected to be around 2.3 lakh crore as reliable sources
say. This shortfall of about 1.1 lakh crore will be met by the state through borrowings,
and the balance will be paid in June 2022. In nutshell, the study shows that there is an
insufficient fund to pay (compensate the states) (Table 3).
 A Study on Effect of Coronavirus 863

Table 3. Classification of tax revenues in the states

Sources of Direct Taxes Revenue Sources of Indirect taxes Revenue

Taxes on agricultural income State goods and services tax (SGST)
Land revenue Sales tax/ value added tax (VAT)
Stamp duty and registration fees State excise duty
Taxes on vehicles
Taxes and duties on electricity
(Sources: State Budget Documents; PRS.)

NB: (i) At present Income from Agriculture is accepted from the charge of income tax
regardless of the level of income, excluding those imposed on estates by the states like
Assam.

State Goods and Service Tax: The State Goods and Service tax is one of the major
sources of own tax Revenue for the State for the financial year ending 2018–2019 and
2020–2021 the State Goods and Service Tax was 41%. The implementation of Goods
and Service Tax replaced many Indirect taxes of the state, whereas the state had direct
control over these taxes earlier and by the implementation of State goods and service
tax the rates are decided by the Goods and service tax council.

Revenue Gap: The State fails to earn revenue for a significant period due to the
implementation of the State Goods and Service tax.
The revenue gap in state Goods and Service tax collection is likely to change i.e., 2.85
lakh crore to Rs. 3.27 lakh crore. Goods and Service tax compensation cess collection
in 2020–21 is likely to change from Rs. 82,242 crores to Rs. 90,386 crores (Fig. 3).

Table 4. State-wise compensation outstanding from centre current fiscal year ending 31st March
2021–22

Name of the state Amount in Crores (Rs)

Maharashtra 11,563
Uttar Pradesh 6,954
Tamil Nadu 6,733
Delhi 5,461
West Bengal 4,292

Table 4 shows the state-wise compensation outstanding from the centre for the present
fiscal year ending 31st march 2021–2022. There is a positive sign in the outstanding
amount it is year-wise declining. It shows that taxpayers are paying their taxes in time
(Table 5).
864 N. Jacob et al.

State wise Compensation outstanding

from Centre current fiscal year ending
31st March,2021-22

12,
000
10,
000
8,0
00
6,0
00
Maha- Uttar Tamil Delhi West Bengal
rashtra Nadu

Fig. 3. Graphical representation of state-wise compensation outstanding from centre current fiscal
year ending 31st march 2021–22

Table 5. GST collection from FY2017 to FY 2020–21

GST collection from FY2017 to FY 2020–21

FY2017–18 FY2018–19 FY2019–20 FY2020–21
April – 1,03.459 1,13,865 32,172
May – 94,016 1,00,289 62,151
June – 95,610 99,939 90,917
July – 96,483 1,02,083 87,422
August 95,633.00 93,960 98,202 86,449
September 94,064 94,442 91,916 95,480
October 93,333 1,00,710 95,379 1,05,155
November 83,780 97,637 1,03,491 1,04,963
December 84,314 94,726 1,03,184 1,15,155
January 89,825 1,02,503 1,10,818 1,19,875
February 85,962 97,247 1,05,361 1,13,143
March 92,167 1,06,577 97,590 1,23,902
Grand Total 7,19,078 11,77,370 12,22,117 11,36,803

The above table shows the GST collection from FY2017 to FY 2020–21. Monthly
wise and yearly wise the GST collection. There was growth in GST Collection from
FY2017to FY 2018–19. But The GST collection started decreasing from FY2019–20 to
 A Study on Effect of Coronavirus 865

FY2020–21, due to the Coronavirus outbreak and continuous lockdown to the Pandemic
(Fig. 4 and 5) and (Table 6).

GST collection from FY2017 to FY

400
000
300
000
200

GST collection from FY2017 to FY 2020-21

FY2020-21
GST collection from FY2017 to FY 2020-21
FY2019-20

Fig. 4. GST collection from FY2017 to FY 2020–21 for the financial year 2021–2022

Table 6. Gross GST collection

Month FY 2020–21(Rs.in Crore) FY 2021–2022(Rs.in Crore

April 32172 139708
May 62151 102709
June 90918 92849
July 87422 116393
August 86449 112020
September 95480 117010
October 105155 130127
November 104963 –
December 115174 –
January 119875 –
February 113143 –
March 123902 –
Total 1136805 810816
Sources: Ministry of Finance, posted 29th November 2022
866 N. Jacob et al.

Gross GST Collecon for the Financial Year

2021-2022
150000

100000

50000

Fig. 5. Graphical Presentation of Gross GST Collection for the Financial Year 2021–2022

7 Findings

• Some of the Important States in India such as Kerala Punjab, Goa and Chhattisgarh
are expected very big revenue gaps. The total income slit of important States may
differ from Rs.2.5 lakh crore to 2.9 lakh crore.
• The State Goods and Service Tax have limited decision power concerning tax charges
on goods and services. Subsequently, states have limited freedom on a huge portion
of their own tax revenue as the receipts from State Goods and Service Tax depend on
tax rates decided by the GST Council.
• Some of the states in the country are predicted to receive more than 50% of their own
revenue from State Goods and Service Tax for the financial year 2020–21 (ie, Jammu
and Kashmir, Manipur, and Mizoram)
• There is an outstanding GST compensation in the states for the present fiscal year
estimated at around Rs.53,600 crores.
• The fund raised by imposing cess on the maximum tax slab on non-essentials, demerits
and sin goods is used to pay compensation.
• As per the NIPFP report, the estimated shortfall in the Goods and Service Tax
compensation fund is approximately Rs.2. Lakh crores.

8 Conclusion

Protection of Goods and Service tax income is anticipated in achieving reliability in

filing GST returns. The impact of Coronavirus is also a factor that triggered the threat
for taxpayers to disclose Goods and Service Tax returns in the first quarter of 2020–
21. The Coronavirus outbreak no doubt brought the whole economy to a standstill, but
developing economies like India should adopt new strategies to move on. Even though
the pandemic triggered stress for taxpayers in filling the goods and service tax returns
from previous years.
 A Study on Effect of Coronavirus 867

It is analysed that stability in Goods and Service tax collection and scheme enhances
the approachability best Projection can be achieved. Report and data related to all revenue
collection such as Gross state value Addition (GSVA) and other important mechanisms
will help to refine the projection.
To conclude Protecting the Goods and service tax revenue is possible when the
taxpayer maintains stability in filling their returns. The study is limited only to GST
collection and distribution of revenue only to a limited period and is based on secondary
data.
There is further scope for the study taking into account of the present collection
of revenue and distribution of revenue to the important sectors of the economy for the
financial year 2022–2023.

References
1. Adhana, D.K.: Goods and services tax (GST): a panacea for Indian economy. Int. J. Eng.
Manage. Res. 5(4), 332–338 (2015)
2. Central Board of Excise and Customs, Ministry of Finance. (2017). Revised GST rate for
certain goods.
3. Chakraborty, P., Rao, P.K.: Goods and services tax in India: an assessment of the base. Econ.
Pol. Wkly 45(1), 49–54 (2010)
4. Garg, G.: Basic concepts and features of goods and services tax in India. Int. J. Sci. Res.
Manage. (IJSRM) 2(2), 542–549 (2014)
5. Goods and Services Tax Council. (2017). http://www.gstcouncil.gov.in/
6. GST India.com: Basic concepts of GST (Part - 13) - Constitutional amendment for
GST (2016). http://www.gstindia.com/basic-concepts-of-gst-part-13-constitutional-amendm
ent-for-gst/
7. Jain, A.: An empirical analysis on goods and service tax in India: possible impacts, implica-
tions and policies. Int. J. Rev. Surv. Res. (IJRSR), 2(1) (2013). https://www.ijrsr.com/Januar
y2013/5.pdf
8. Jain, J.K.: Goods and service tax. The impact of GST (goods and services tax) on the Indian
tax scene
9. GST reforms and intergovernmental consideration in India (Working Paper No. 1) (2009)
10. Roychowdhury, P.: Vat and GST in India - A note. Paradigm 16(1), 80–87 (2012)
11. Shokeen, S., Banwari, V., Singh, P.: Impact of goods and services tax bill on the Indian
economy. Indian J. Finance 11(7), 65–78 (2017). https://doi.org/10.17010/ijf/2017/v11i7/
116568
12. Taqvi, S.M.A., Srivastava, A.K., Srivastava, R.K.: Challenges and opportunities of goods and
service tax (2013)
 Framework Development of the Internet Ethical
Attitude Scale for University Students

Juliana Jaafar1(B) , Shahrinaz Ismail2 , Afifah Saifullah1 ,

Teh Faradillah Abdul Rahman3 , Wan Normeza Wan Zakaria4 , Maslin Masrom4 ,
Nor Raihana Mohdali4 , Noorlizawati Abd Rahim4 , Nik Nadzirah Nik Mohamed4 ,
and Shuaib Muhammad1
1 Malaysian Institute of Information Technology, Universiti Kuala Lumpur, Jalan Sultan Ismail,
1016 Kuala Lumpur, Malaysia
[email protected]
2 School of Computing and Informatics, Albukhary International University, Jalan Tun Razak,
05200 Alor Setar, Kedah, Malaysia
3 Pusat Asasi, Universiti Teknologi MARA, 43800 Dengkil, Selangor, Malaysia
4 Razak Faculty of Technology and Informatics, Universiti Teknologi Malaysia, Jalan Sultan

Yahya Petra, 54100 Kuala Lumpur, Malaysia

Abstract. This article presents the research work of developing the Internet Ethi-
cal Attitude Scale (IEAS) for university students, supported by various models and
theories on internet ethics, which gave insights into the standard variables used by
most researchers in this field. The results from the questionnaire survey on 340 uni-
versity students in Malaysia and quantitative analysis using Partial Least Square
Structural Equation Modelling (PLS-SEM) have brought out the significance of
knowledge and awareness, attitude, perceived usefulness, subjective norms, and
fear of consequences. However, perceived behaviour control, one of the variables
measured, has no positive relation to intention toward internet ethics. The results
and findings from this IEAS framework could be used as a guideline for further
research and implementation by the institutes of higher learning, governing bodies
and ministries.

Keywords: Internet ethics · Cyber ethics · Student internet ethic · Internet ethics
scale

1 Introduction

Teaching and learning in university is increasingly being influenced by how students

interact with computers and the Internet. During the COVID-19 pandemic, physical
classroom teaching and learning have been shifted to fully digital. Collaborations among
students and researchers, communication between students and teachers, and idea gener-
ation in solving problems are all influenced by the internet. Nevertheless, overall students
have a low level of knowledge in the ethical use of computer and information technology
(IT) resources [1].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 868–878, 2023.
https://doi.org/10.1007/978-3-031-26956-1_81
 Framework Development of the Internet Ethical Attitude Scale 869

Considering the severity of this cyber and internet ethics issue, this study is convinced
that several factors significantly affect the intention to be ethical in using, communicating,
and behaving on the Internet. This intention must be investigated at a very young age,
i.e., students, to ensure that they are ethically aware of all aspects of the Internet usage
before embarking on a career. The objective of this study is to investigate the situation
at its root by developing a reliable and validated Internet Ethical Attitude Scale (IEAS).
This paper is organized as follows. The following section reviews previous research
on student Internet behaviour. The methodology section then describes the conceptual
framework development, questionnaire design, data collection method, and analysis
techniques. The results are then presented in the subsequent section. Before the conclu-
sion, this paper discussed the result corresponding to the ethical behaviour of students
on the Internet.

2 Related Works

2.1 Factors Contributing to Students’ Behaviour on the Internet

Among factors that influence students’ intention to violate the Internet ethics rule in
academics include lack of motivation and laziness to complete the lecturer-assigned
task; taking for granted the vast amount of online resources; job demands; inability to
distinguish between ethical and unethical behaviour; and insufficient time with a heavy
workload for the assigned task [2]. Majority of reasons for unethical behaviors fall under
the deontology theory [3]. Previous research indicates that knowing what ethical action
is, does not necessarily relate to making ethical decisions and actions [4]. However,
personality traits such as warmth, kindness, honesty, responsibility, organisation, self-
motivation, and openness were found to positively influence individuals’ willingness to
follow Internet ethics practices [5].

2.2 TPB-Based Models to Assess Users’ Internet Behaviour

Jafarkarimi [4] has developed a model of ethics to measure and investigate the fac-
tors influencing students’ intentions toward cyberbullying based on Theory of Planned
Behaviour (TPB) with three additional variables - moral obligation, perceived threat of
legal punishment, and overall gain. This study found that students’ intentions to engage
in cyberbullying were influenced by the subjective norm and moral gain, but not their
attitudes. In a study conducted in Saudi Arabia [6], TPB and three additional constructs,
namely social media use, lack of supervision, and absence of rules and legislation, were
used to propose a model to examine students’ intention to engage in cyberbullying and
its effect on academic achievement. The findings revealed that all the constructs affect
cyberbullying students. Another study was conducted to develop a model predicting
workers’ Islamic ethical work behaviour (IEWB) in Brunei, also using the TPB with
an addition of the Islamic Religiosity (IR) principles [7]. The findings revealed that
intention is not always correlated with behaviour; even if a person intends to work ethi-
cally following Islamic principles, the resulting behaviour depends on perceived social
norms, surroundings, degree of control to do it, and religious level. Recent research has
870 J. Jaafar et al.

examined how personal traits relate to TPB and how TPB constructs influence students’
intention to engage in ethical Internet behaviour [8], with the Internet ethics curriculum
serving as a moderating variable to predict students’ intentions. The study demonstrated
that the Internet ethics curriculum strengthens the positive correlation between attitude
toward ethical behaviour and intent to engage in Internet-related ethical behaviour.

2.3 Internet Ethic Scale Development

A set of general Internet attitudes scales were developed due to a lack of content validity,
a focus on a specific sample target, and poor assessment methodology [9]. The devel-
opment involved three studies that have gone through the development and refinement
of the Attitudes Towards the Internet Scale (ATIS), the concept of attitude presented by
Fishbein and Ajzen (1972). The overall reliability score was low but excluding individ-
uals’ inconsistent responses has increased internal consistency. Joyce and Kirakowski
[10] developed a scale known as General Internet Attitude Scale (GIAS), that measures
the attitude of individuals to the Internet based on social psychological theory, which
includes three components: affect, behaviour, and cognition. The items for this scale were
developed into four factors which are Internet Affect, Internet Exhilaration, Social Ben-
efit of the Internet, and Internet Detriment. The set of items was reduced from 25 items
to 21 items and achieved satisfactory reliability. A scale was developed and validated to
measure unethical attitudes toward ICT use from university teachers based on theoreti-
cal background Attitude Towards Unethical Information Technology Use and Unethical
Attitudinal Model in the context of IT Use [11]. The final set consists of 13 items with
high consistency, as valid factor loadings and the model’s validity was proven. On the
other hand, an attitude scale known as Test of e-Learning Related Attitudes (TeLRA)
was developed and validated to assess teachers’ attitudes toward e-learning [12]. Test of
Science Related Attitudes (TOSRA) and Technology Acceptance Model (TAM) were
referred to and adapted to create the TeLRA scale. Six themes were used in the develop-
ment of the items, resulting in a total of 60 items created showing acceptable reliability,
but external reliability or predictive validity was not examined in this study.

3 Research Methodology
3.1 Conceptual Framework Development

The Internet Ethical Attitude Scale (IEAS) conceptual framework was initially devel-
oped by identifying the most prevalent unethical student behaviours, such as digital
piracy (using crack software and downloading copyrighted media), digital plagiarism,
inappropriate texts, and providing false information for an account. The common uneth-
ical behaviours were then linked to the Deontology Theory, Deterrence Theory, TAM,
IR principles, and TPB theories. The measures of the constructs in this study were
adopted, adapted, and modified from prior studies based on a comprehensive literature
review, resulting in the developing of ten constructs with 79 items. The constructs include
Knowledge and Awareness (8 items), Fear of Legal Consequences (6 items) and Fear of
Punishment (6 items) were constructed from Deontology Theory; Ease of Use (6 items)
 Framework Development of the Internet Ethical Attitude Scale 871

and Perceived Usefulness (19 items) were constructed based on the Theory of Tech-
nology Acceptance adapted and modified from [13]; and Religious Principle (6 items)
were constructed based on Islamic Ethical Principles. Based on TPB, four additional
constructs were developed: Attitude (10 items), Subjective Norms (6 items), Perceived
Behaviour Control (PBC) (6 items), and Intention towards Internet Ethics (6 items).
In this study, students’ willingness to engage in internet-ethical behaviour was used to
evaluate their internet-ethical intentions. Figure 1 depicts a visual representation of the
framework of this research and a summary of its hypotheses.

Fig. 1. Framework of the research model and summary of the hypothesis

3.2 Questionnaire Survey Design, Pilot Study and Data Analysis

A set of questionnaires was developed based on the results of conceptual framework. The
questionnaire consists of five sections: 1) demographic information including gender,
religion, ethnicity, education level, institution type, field of study, and family income;
2) knowledge and awareness, to determine how knowledgeable the respondent is about
internet ethics; 3) plagiarism and academic dishonesty; 4) copyrighted media, which
is one of the most significant ethical issues; and 5) misuse of IT resources. All ques-
tions are measured on a five-point Likert scale ranging from 1 (Strongly Disagree) to
5 (Strongly Agree) except for demographic variables. A pilot study was conducted to
test the questionnaires. 49 students majoring in computer science at private universities
participated in the study.
Figure 2 shows Cronbach’s Alpha value for each construct resulting from the pilot
study. Cronbach’s Alpha for all constructs except Fear of Legal Consequences, Ease of
Use, and Subjective Norms are above the acceptance level based on the guidelines men-
tioned by [14] where Cronbach’s Alpha value above 0.90 is considered very reliable and
has excellent internal consistency, above 0.80 is good, above 0.70 is acceptable, above
0.60 is questionable, above 0.50 is poor and below 0.50 is unacceptable. In addition,
according to [15], a Cronbach’s Alpha value between 0.6 and 0.8 is deemed acceptable
and reliable, whereas a value below 0.6 is deemed low and unreliable. However, accord-
ing to [16], a small sample size could produce potentially unstable reliability estimates
872 J. Jaafar et al.

Fig. 2. Reliability test results (n = 49)

of population reliabilities. Thus, the items in these constructs are preserved as their
reliability are believed to increase as the sample size increase.
Then, a cross-sectional survey was conducted. The questionnaires were distributed to
public and private university students between the ages of 18 and 24 residing in Malaysia
via online platforms.
The analysis in this study was done using statistical software (SPSS) and PLS-SEM
software (SmartPLS). PLS-SEM was utilised to evaluate the theoretical framework from
a predictive standpoint [17]. PLS-SEM can easily estimate a complex model with a
smaller sample size without making distributional assumptions about the data [17, 18].
Following the recommendations, the sample size should be 10 times the number of arrows
pointing to constructs. In this study, the number of arrows pointing to the constructs is
nine, whereas the usable responses are 340, which passes the requirement.

4 Results and Findings

4.1 Descriptive Analysis and Partial Least Square Structural Equation Modeling
(PLS-SEM)

The response rate of this survey is 82.73%, where 39.1% participants are male and 60.9%
female. Most of the respondents were a degree students (48.8%), practices Islam (85%),
and a Malay (80.6%). Kruskal-Wallis analysis was carried out to test whether there is a
difference in respondents’ intention toward internet ethics based on their demographic
backgrounds. The result shows that there is no statistically significant difference with
respect to gender (χ2 (1) = 3.190, p > 0.05), education level (χ2 (2) = 3.861, p > 0.05),
institution type (χ2 (1) = 0.726, p > 0.05), field of study (i.e., computer science and IT
vs non computer science and IT) (χ2 (1) = 0.704, p > 0.05) and family income (χ2 (2)
= 0.050, p > 0.05).
The first-order PLS-SEM was conducted to verify the structural validity of the con-
structs. The 10 developed constructs with 79 items were made into the PLS-SEM model,
which has unidirectional predictive relationships between each construct that are linked
with the observed items [19]. The evaluation of the PLS-SEM is based on measurement
models and structural models.
 Framework Development of the Internet Ethical Attitude Scale 873

4.2 Measurement Model Assessment

The assessment of the measurement model involved evaluations of convergent validities,
reliabilities, and discriminant validities of the constructs.

Fig. 3. (a) Reliability and convergent validity (n = 340). (b) HTMT ratio of correlations (n =
340)

Figure 3a presents the measures of the reliability and convergent validities for each
construct. The factor loadings of the items in the model are considered acceptable as the
minimum acceptable loadings are above 0.50 [20]. Although factor loadings of more
than 0.70 are preferable [21], factor loadings of less than 0.70 are common in social
science studies [22]. According to [23], items with low loadings (0.40 to 0.70) can only
be considered for removal if the removal of the items increases the composite reliability
(CR) or average variance extracted (AVE) over the recommended threshold. The items
(i.e., A10, FLC6, FP2, FP6, RP2, RP6, KA1) should not be removed as AVE and CR
have already passed the recommended value.
Reliabilities are evaluated based on Cronbach’s Alpha, rho_A, and CR. As in Fig. 3a
the value of Cronbach’s Alpha, rho_A, and CR of each construct is over the recommended
threshold (exceeding 0.60) [24], indicating the reliability of the constructs. Convergent
validity for each construct is acceptable as AVE value greater than 0.50 [17].
The initial 10 constructs are reduced to seven constructs to ensure discriminant
validity is achieved. Items that have high cross-loadings from multiple constructs should
be removed, or the constructs which have high cross-loadings should be combined into
one construct [25]. In this study, Perceived Usefulness and Ease of Use are combined
874 J. Jaafar et al.

into one construct, and Fear of Legal Consequences, Fear of Punishment, and Religious
Principle are combined into another construct. The discriminant validity (as in Fig. 3b)
is achieved as the value of the HTMT ratio of correlations is less than 0.9 [24]. The
finalized framework is presented in Fig. 5.

4.3 Structural Model Evaluation

When the reliability and validity of the constructs are achieved, then the evaluation of
the structural model can be done. The structural model is assessed using the coefficient
of determination (R2 ), the blindfolding-based cross-validated redundancy measure (Q2 ),
and the significance of the path [17].

Fig. 4. Statistical results of structural model (n = 340)

Figure 4 presents the statistical results of the structural model. R2 of the dependent
variables can be used to determine the strength of the structural path with a minimum
acceptable value of R2 is 0.10 [17]. Thus, the value of R2 in this study is adequate. The
predictive relevance is established in this study where the value of Q2 is over 0 [17].
Then, the hypotheses were tested to examine the significance of the relationship
between the constructs. Knowledge and Awareness has a positive relationship with Inten-
tion toward Internet Ethics (β = 0.117, p < 0.05). Hence, H1 is supported. Attitude (H2)
and Subjective Norms (H3) also have significant positive relationship with Intention
toward Internet Ethics (β = 0.210, p < 0.001) and (β = 0.561, p < 0.001), respectively.
However, Perceived Behaviour Control (H4) has a significant negative relationship with
Intention toward Internet Ethics (β = −0.157, p < 0.05), which is opposite to the initial
hypothesis. Apart from that, Perceived Usefulness (H2a + H2b) are positively related
to Attitude (β = 0.689, p < 0.001) and Fear of Consequences (H4a + H4b + H4c) are
positively related to Perceived Behaviour Control (β = 0.523, p < 0.001). The visual
representation of the research model in this study is shown in Fig. 5.
 Framework Development of the Internet Ethical Attitude Scale 875

Fig. 5. Framework with standardized path coefficients and summary of the hypothesis

5 Discussion
The purpose of this study is to develop and validate a theoretical framework that can
be used to evaluate students’ internet ethics. Compared to previous studies that focused
on demographic characteristics [26, 27], this study focused on TPB and some ethics
theories, and how they affect the students’ intention toward internet ethics. All except
one of the hypotheses were supported, as shown in Fig. 5.
The findings suggest that knowledge and awareness have a positive influence on
the intention toward internet ethics. Students who have more knowledge and awareness
about internet ethics are inclined to perform internet ethical behaviour as compared to
students without knowledge of internet ethics. Thus, the results are said to be in line
with Deontology Theory. Similar results are found in previous studies [28, 29]. Some
students violate rules and regulations due to a lack of ethical knowledge and awareness
[30].
Aside from that, attitude toward ethical behaviour and subjective norms have a posi-
tive impact on internet ethics intention. Contrary, perceived behaviour control negatively
influenced the intention of performing internet ethics, which is opposite to TPB. Accord-
ing to TPB, subjective norms, attitude, and perceived behaviour control are the primary
factors influencing behavioural intention [31]. Many studies have found results that align
with TPB [5, 32, 33]. However, there are a few studies that found a result opposite to
TPB [34, 35]. Even if a person has control over their ethical behaviour, this does not
guarantee that they will have the intention to practice internet ethics.
Moreover, perceived usefulness positively influences the attitude toward ethical
behaviour. This result indicates that the attitude toward ethical behaviour among stu-
dents increase when the students think that the internet resources are useful and easy to
use to finish their assignment. Similar results are found in previous studies [36, 37]. In
addition, establishing a ‘computer recess’ time for elementary school is recommended
to make students more familiar with technology at an early stage [38]. Thus, making
them aware of how to use the Internet properly. Besides that, the results show that fear of
consequences (e.g., fear of punishment and religious principles) is positively related to
perceived behaviour control. People do not commit unethical or illegal behaviour as they
fear the legal consequences and the punishment, thereby complying with the Deterrence
Theory. In this technology era, strict rules and regulations on computer and internet
usage should be implemented to reduce unethical behaviour among students. The lack
876 J. Jaafar et al.

of rules and regulations contributes to cyberbullying behaviour among students in Saudi

[6]. The religious principle also has a role in affecting behaviour as well as shaping an
individual’s attitude [7].

6 Conclusion
The Internet is not merely a means of exchanging important information in today’s
world, but a significant platform that portrays a person’s credibility; hence it is essen-
tial to be vigilant and safeguard in terms of ethical attitude. The important aspects are
knowledge and awareness, attitude, perceived usefulness, subjective norms, and fear of
consequences. It is a surprise to find that perceived behaviour control has no positive
relation to intention toward internet ethics, which brought to the attention of the current
Internet users being easily influenced to spread fake and viral news. Accordingly, this
study suggests that education at a higher level should emphasise the internal and exter-
nal influences on student internet ethics. There should be programmes implemented
in Malaysian universities to increase students’ Internet ethics knowledge, awareness,
and behaviour. Rather than adding a new subject to this topic, digital literacy can be
incorporated into existing subjects, such as information literacy, to improve them.
Nevertheless, further research could investigate this factor of behaviour control to
see whether the results may differ across generations, religion and cultural beliefs, types
of internet users, and/or environment. Apart from that, it is interesting to expand this
current research to investigate Internet ethics among Malaysian students in relation to
their personality traits. Personality traits might influence students’ intention to use the
Internet ethically.

Acknowledgement. This research was supported by the Collaborative Research Grant (CRG)
UTM National, provided by Universiti Teknologi Malaysia (Ref. No: PY/2019/02827 and vote
no: R.K130000.7356.4B477), and Universiti Kuala Lumpur (Project Id: CRGS/2020/004)).

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 Perceptions of Incorporating Virtual Reality
of Goggles in the Learning Management System
in Developing Countries

Saadia Anwar Pasha1 , Humaira Sharif2 , Sana Ali1 , Amal Al-Misfari3 ,

Mokthar Elareshi4(B) , Abdulkrim Ziani5 , and Mohammad Habes6
1 Mass Communication Department, Allama Iqbal Open University Islamabad, Islamabad,
Pakistan
2 University of Malaya Kuala Lalampur, Kuala Lumpur, Malaysia
3 Faculto of Management and Economics, Universiti Pendidikan Sultan Idris, Tanjong Malim,
Malaysia
4 College of Communication and Media, Al Ain University, Al Ain, UAE
[email protected]
5 College of Mass Communication, Umm Al Quwain University, Umm Al Quwain, UAE
6 Radio and TV Department, Faculty of Communication, Yarmouk University, Irbid, Jordan

Abstract. This study investigates how virtual reality of Goggles (VRG) in

improving the students’ learning management system (LMS) acceptance through
applying a cross-sectional design and used SEM and machine learning techniques
to dig deep insights. Thus, it is found that VR Goggles significantly impact expec-
tation confirmation and knowledge acquisition. Both expectation confirmation
and knowledge acquisition also have a significant impact on students’ motivations
that is further leading to LMS acceptance. Behavioral intention was found par-
tially mediated the students’ motivation to accept LMS. The study concluded that
incorporating technology in education is important to break barriers hampering
the students’ educational journey in the conventional learning system.

Keywords: Virtual reality · VR Goggles · LMS · Pakistan · eLearning ·

Technology in education

1 Introduction
eLearning is equally prevalent in developed and developing countries. Academics con-
sider technology enhanced learning (TEL) as a substantial part of the young generation’s
educational journey and development. Further, students actively adopt eLearning due to
its perceived ease of use and usefulness [1, 2]. With the widespread of Internet among
instructors, students, and institutions worldwide, there has been an increased interest in
using developed technological devices for educational purposes [3].
For example, Learning Management System (LMS) is considered an essential source
of communication and education through the Internet in Pakistan. For teaching and
communication, LMS offers brand integration, data migration, personalized learning

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023

B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 879–886, 2023.
https://doi.org/10.1007/978-3-031-26956-1_82
880 S. A. Pasha et al.

ability, intuitive user interface, and others [4]. Portable VRG has made their place in
the educational sector and yielded positive impacts resulting in an enjoyable learning
experience, motivated students, and enhanced learning capabilities [5]. VR technologies
and portable headsets are being adopted and expected to have a significant impact in
the near future, as more instructors become interested in using it in class to increase
students’ learning motivation and help them understanding the theoretical concepts [6].
Despite eLearning being considered sufficient, providing a real-time classroom envi-
ronment was also important to make students feel their presence in a formal classroom
environment. Little is known about the role of VRG in improving students’ learning
experience in the LMS, especially among Pakistani students. Thus, by considering the
growing importance of the LMS and portable VR headsets, this study examines students’
perceptions of this combination in relation to the LMS, using SEM technique to provide
in-depth results on the relevant phenomenon.

2 Literature Review

2.1 VR Headset, Expectation Confirmation and Knowledge Acquisition

A portable virtual reality headset also known as “VR Goggles”, head-worn apparatus
that provides the users with improved 3D experiences. It is widely accepted and used by
youngsters as they are self-contained, e.g., HTC Vive, Oculus, Samsun Gear, AR/VR
headset, Google Cardboard etc. Whether it used on a PC or mobile, VRG use a specific
combination of the proximity sensor, gyroscope, accelerometer, and magnetometer to
detect the users’ movements. Users are no longer required to visualize or experience
watching just with a single lens internally. A simple VR headset serves many purposes:
communication, entertainment, and education.
Even in a formal classroom, dictating and storytelling can be difficult for the students
to comprehend [7]. However, with the VRG, learners can have both audio and video
devices, which they can imitate and increase their creative writing skills accordingly,
Further, [8] examined the importance of VRG in helping students of engineering to guide
about creating digital circuits, their implementation, and logical application process.
They found that students consider VRG beneficial technological advancements. More
specifically, they help them to understand and practically adopt circuit construction and
implementation skills that further fulfill the purpose of their education.

VR headset has a significant impact on (H1a) expectation confirmation and (H1b)

knowledge acquisition.

2.2 Factors Accelerating VR Headset Adoption and Motivation

LMS is an organized platform adopted by most institutions worldwide due to its poten-
tial capabilities [9]. Institutional management designs, updates, monitor, evaluate, and
sustain educational activities through LMS as the primary purpose is to ensure equal
education for all. One of the prominent reasons behind LMS is increased accessibil-
ity regardless of any potential cultural or geographical barriers. Consequently, students
 Perceptions of Incorporating Virtual Reality of Goggles 881

participate in teamwork-based projects, presentations, quizzes, and other activities that

provide them experiences similar to a formal learning environment [10].
Incorporating VRG in eLearning enables the instructors to share the course material,
help students practically demonstrate their learning skills, and perform well in class.
Consequently, learners would enjoy the combination of VRG and LMS widely witness
higher inspiration, commitment, and scholastic execution [11].

Motivation is significantly effected by (H2) expectation confirmation and (H3) knowl-

edge acquisition.
H4: Motivation has a significant impact on LMS acceptance.

2.3 Impact of Behavior on LMS Acceptance

Motivation is the synonym for acceleration through emotions and rewards [12]. It is
notable for instructors that although students would not be interested in learning as it
is long and tedious, they may accept eLearning. eLearning enables learners and organi-
zations to keep pace with the fast-changing technological, economic, and social trends
[13]. Behaviroal intention is mentioned as a factor to adopt and use the LMS among
students [2, 14].

Behavioral Intention has a mediating impact on (H5a) motivation and (H5b) LMS
acceptance (Fig. 1).

Fig. 1. The conceptual model

3 Research Methodology
3.1 Study Design and Data Gathering Tool
This study applied a cross-sectional design with close-ended questionnaires designed
on 5-point Likert scale for data gathering purposes. The survey was sent through emails
as the selected institutions were based on a distance learning system, having a recently
implemented LMS during the Covid-19 pandemic. The SPSS and AMOS were used for
data manipulation and analysis.
882 S. A. Pasha et al.

3.2 Study Sample

The study population involved all the universities with LMS in Pakistan. However, as per
the sampling criteria, the study randomly selected two public sector universities placed
in Islamabad, with a sample of n = 320 respondents using a convenience sampling
technique. Notably, studies based on SEM consider a number of 200 respondents as the
minimum sample size, see e.g., [15]. Moreover, the response rate remained 91.2%, as
some questionnaires were either missing or wrongly filled.

4 Data Analysis and Results

4.1 Convergent Validity
As a primary requirement of the SEM, the study first assessed the internal consistency
of the measurement model by applying the composite reliability (CR) and convergent
validity (CV) assessments (Table 1).

Table 1. Convergent validity analysis

Variables Items FL CA AVE CR

Virtual Reality Goggles VRG1 .968 .951 1.28 .801
VRG2 .957
VRG3 .930
Expectation Confirmation EXC1 .984 .938 1.43 .730
EXC2 .892
EXC3 .798
Knowledge Acquisition KNA1 .984 .949 2.81 .882
KNA2 .192
KNA3 .914
Behavioral Intention BHI1 .890 .930 .899 .750
BHI2 .971
BHI3 .250
Motivation MOT1 .968 .951 2.23 .753
MOT2 .957
MOT3 .930
LMS Acceptance LMS1 .797 .884 2.73 .796
LMS2 . 970
LMS3 .884

Thus, all the Cronbach Alpha (CA) values range from .884 to .951, and the CR values
range from .730 to .882, indicating that they sufficiently surpass the threshold value of
 Perceptions of Incorporating Virtual Reality of Goggles 883

.7, as suggested by [16]. Further, factor loading (FL) values range from .890 to .984 and
AVE values range from .899 to 2.81, surpassing the threshold value of .5, indicating that
the measurement model in the current study is internally consistent.

4.2 Discriminant Validity

The study examined the discriminant validity using two criteria are essential to examine
the discriminant validity [17]: The Heterotrait-Monotrait ratio and the Fornell-Larcker
criterion (Table 2). All the squares of AVE values are higher than the correlation values.
Regarding the Heterotrait-Monotrait ratio scale, the HTMT value at .621, lower than the
threshold value of .85 [18]. Thus, the discriminant validity is also established.

Table 2. (a) Fornell-Larker criterio. (b) Heterotrait-Monotrait ratio scale

(a) (b)
VRG EXC MOT KNA BHI LMS VRG EXC MOT KNA BHI
VRG 1.63
EXC .664 2.04 .494
MOT .708 .664 7.89 1.000 .494
KNA .755 .708 .755 .808 .616 .720 .616
BHI .762 .714 .762 .800 4.97 .561 .843 .561 .916
LMS .581 .545 .581 .620 .625 7.45 .510 .345 .510 .559 .594

4.3 Model Fit

The study further examined the Goodness of fit. It helps to examine the extent to which the
observations accurately fit the data distribution [19]. Here, it revealed that the chisquare
value at x 2 = .0115 (16), probability level at 0.001. Moreover, the standardized root
means square value (RMSEA) remained at 0.711, lower than the threshold value of .9
as suggested by [20]. Thus, it is validated that the Goodness of fit is affirmed, and the
model further provides the pathway to structural model assessment.

4.4 Coefficients of Determination R2

To confirm the predictive power of the latent variables, coefficients of determination R2

is considered a substantial part of SEM technique. It also helps to examine the extent to
which the exogenous variables are causing variance in the endogenous variables [21]. R2
values of all the endogenous variables range from .494 to .999, meaning all the variables
have a fundamental strength or predictive power, and our exogenous variables strongly
affect our endogenous variables.
884 S. A. Pasha et al.

4.5 Hypotheses Testing

The structural relationships between the exogenous and endogenous variables were
examined using the path analysis (Table 3). The VRGs have a significant impact on
EXC (t = 7.543, p > 0.000) and KNA (t = 23.086, p > 0.000). Moreover, results also
revealed a significant impact of MOT on the EXC (t = .776, p > 0.000) and the KNA
(t = .550, p > 0.000) . The impact of MOT on the LMS acceptance also remained
significant (t = 15.075, p > 000). Finally, the mediation analysis, as proposed in the
H5, revealed a significant MOT impact of BHI on the motivation and LMS. Analysis
revealed a partial mediation with the standard error value at 0.009.

Table 3. Hypotheses testing

Hyp Relationship Path t-value

H1a VRG=>EXC .720 7.543***
H1b VRG=>KNA .982 23.086***
H2 EXC=>MOT .776 25.725***
H3 KNA=>MOT .550 19.360***
H4 MOT=>LMS .420 15.075***
Hyp Relationship Path Indirect
Effects
H5a,b MOT=>BHI=>LMS .454 .267***

5 Discussion and Conclusion

This study explores students’ perceptions of VR technology and VRG, mainly accepting
and adopting LMS. Results indicated a mutual consensus of respondents regarding the
positive role of VRG in LMS acceptance [14]. The first proposed relationships between
VR headset and EXC/KNA (H1) remained significant. Affirmation of both relationships
indicates consistency with previous studies conducted by [22] and [8]. Both studies
found VRG to offer a real-time, face-to-face learning environment fulfilling the students’
educational needs.
Moreover, the H2 & 3 assumed a significant impact of EXC/KNA on MOT. These
results are consistent with the existing studies [10] and [11]. Further, the H4 assumed
that motivation is an important component of technology that further increases learners’
interest and motivates them towards adoption for improved learning experiences [11,
23–25]. Most participants also agreed that VRGs are new to them. Yet, their wider
availability at an affordable price motivates them to use it [26].
Finally, H5 assumed a mediating impact of BHI on MOT to accept the LMS. The
relevant hypothesis remained significant. Behavioral intention is one of those attitudinal
factors that actively help an individual adopt the LMS [14]. Notably, the positive behavior
leads to instant technology adoption and usage.
 Perceptions of Incorporating Virtual Reality of Goggles 885

This research assessed the perceptions of Pakistani students regarding the role of
VRGs in increasing their LMS acceptance. Despite technology adoption for educational
purposes has remained slow in Pakistan, the current era, especially the Covid-19 pan-
demic, shifted the conventional educational system to the eLearning system. Nonethe-
less, the impression about VRG is their attribution to entertainment purposes is limited.
It is not only broadened by the current study but also reflects the maturity of the young
generation towards considering and using VR technology, including education. As a
result, VR technology is rooted in education to which students are acquiring as many
benefits as they can. The quality of education in Pakistan and worldwide has increased,
where accessibility is not a question anymore.

5.1 Study Limitations and Recommendations

This study contains some limitations. First, the geographical consideration is one of the
prominent limitations, the applicability of the results elsewhere is questionable. Second,
only two public sector universities were examined, whereas increasing the number of
institutions could have brought in-depth results. Finally, the data gathering only from
the students, while involving teachers could highlight some more profound insights.
Thus, more studies are needed to examine other learners’/instructors’ perceptions
about a rapid transition from conventional to contemporary learning environments.

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 Author Index

A Alrayssi, Jabir Ali Abdalla 301

A. A. Zaid, Mohammad 389 Alsalem, Fahad 677
Abd Rahim, Noorlizawati 868 Al-Selkhi, Jehad 265
Abdallah, Wael 677 Alsharah, Hanan 677
Abdeljawad, Islam 265 Alshehab, Mohmed Ali 684
Abdul Rahman, Teh Faradillah 868 Alshurafat, Hashem 532
Abdullahi, Abdurrahman 603 Altamimi, Khaled 195
Abualsaud, Doha 186 AL-Tarawneh, Rahma Ali 496
Abuamsha, Mohammad Kamal 415 AL-Wahaib, Mustafa S. Abdul Karim 477
Abu-Ras, Wesam 265 Alwi, Shaliza 849
Abusaq, Zaher 137 Alzaimoor, Hasan 684
Ahmad, Norsiah 485 AL-Zyoudi, Roaa Bilal 474
Ahmad, Nurul Aziah 805 Angeline, Melody 713
Ahsan, Sonia 314 Antonio, Ferdi 766
Aini, Nurul 116 Archana, J. R. 838
Akimova, Liudmyla 48 Arham, Ahmad Fadhly 849
Al Abbas, Amani 186 Arham, Ahmad Firdhaus 849
Al Kaabi, Mohamed Matar 301 Ariff, Akmalia Mohamad 14
Al Mascati, Maysa 164 Arın, İnanç 79
Al Shami, Mohamed 356 Arivazhagan, D. 48
Al Shibly, Motteh S. 3 Artemchuk, Valentyna 720
Al-Absy, Mujeeb Saif Mohsen 665 Assaf, Rima 283
Albakri, Ramzia 172 Attia, Ahmed 684
Albeladi, Zaid 824 Azmi, Riswadi 485
Alfulaiti, Mariam Juma 106
Alghizzawi, Mahmoud 301 B
Al-Ghosheh, Dania 438 Baby, M. K. 242
Ali, Jawwad 255 Bakar, Nurzehan Abu 815
Ali, Sana 879 Bakir, Sahar Moh’d Abu 3
Ali, Sara Mohammed 656 Balaji, D. 347
Al-Jalahma, Abdulla 631, 643 Binsaddig, Ruaa 560
Aljazzar, Salem 137 binti Adnan, Ieman Huda 375
AL-Kayed, Salah 474 binti Che Basir, Nurul Afifah 375
Alkhalaileh, Rahaf Ibrahim 532 binti Hassan, Rusni 375
Almanasef, Ali Abdulaziz 631 binti Misman, Siti Nursyawani 375
Al-Mekhlaf, Mohammed 656 binti Mohd Yusof, Syarah Shahirah 375
Al-Misfari, Amal 879
Almoosawi, Zahra Sayed Mohamed 643 C
Almutairi, Raid 824 Chand, Mudunuru Vijay 347
Alnameh, Abdullh H. 477 Chenguel, Mohamed Bechir 619

© The Editor(s) (if applicable) and The Author(s), under exclusive license
to Springer Nature Switzerland AG 2023
B. Alareeni et al. (Eds.): ICBT 2022, LNNS 621, pp. 887–890, 2023.
https://doi.org/10.1007/978-3-031-26956-1
888 Author Index

Chicha, Raja Kamal 838 Hassan, Rusni 255, 404, 581

Concepción-Lázaro, Robert 217 Hawsawi, Abdulhadi 137
Czerwińska, Magdalena 699 Hrebelnyk, Mykola 720
Huerta-Soto, Rosario 67
D
Damanik, Fithria Khairina 713, 747, 756 I
Deepika, S. R. 242 Igor, Fedun 796
Dekhtiarenko, Dmytro 720 Isah, Ya’u 499
Del-Carpio-García, José 217 Isfianadewi, Dessy 248
Desai, Nandini 33, 314 Ismail, Shahrinaz 868
Divyaranjani, R. 314 Iyer, Deepa 226
Dmytro, Sydorenko 428
Dotsenko, Inna 292, 536 J
Dubey, Chhaya 48 Jaafar, Juliana 868
Jacob, Noble 858
E Jaheer Mukthar, K. P. 217
Elareshi, Mokthar 879 Jaidi, Junainah 449
Elrashidi, Ali 824 Jalambo, Hesham O. 203
Eshan, M. R. 226 Jalambo, Mahmoud O. 126
Jalamo, Mahmoud O. 203
F Jallad, Mohammed Nawaf 276
Fadhel, Sayed Mohammed 195 Jamanca-Anaya, Robert 89
Fatmawati, Indah 116 Janakiraman, Elango 314
Fawarseh, Raneem Mohammad 474 Jayashree, S. 242
Fernandez-Celestino, Willian 89 Jesisca 747
Juliana, Juliana 766
G
García-Figueroa, María 217 K
Ghura, Hasan 677 Kamum, Hanadi Ahmad 532
Gokilavani, S. 58 Kanan, Mohammad 137
Gupta, Sandeep Kumar 22, 33, 48, 314, 547 Kasap, Nihat 79
Gupta, Satendra 22 Kassim, Abdul Wahid Mohd 449
Kassim, Salina Hj 603
H Kaur, Gurpreet 314
Habes, Mohammad 879 Kaur, Jaspreet 226
Halim, Mohd Hafzal Abdul 805 Kavitha, N. 58
Halim, Samihah Bt Khalil 301 Kazim, Syed 89
Hamad, Ahmad 126 Khalaf, Alyaa 164
Hamdan, Allam 106, 164, 172, 186, 195, Khalaf, Hasan Ali 684
560, 656, 684 Klochkovska, Viktoriia 536
Hameed, Amna 684 Klochkovskyi, Oleksandr 536
Hamzah, Mimi Aizreen 485 Kolotii, Svitlana 292
Hasan, Zainab Jawad 656 Kornieva, Natalia 547
Hasbullah, Nornajihah Nadia 849 Krupa, M. Esther 58
Hashim, Hafiza Aishah 14 Kukreja, Gagan 631, 643
Hashim, Nik Alif Amri Nik 815 Kumar, Aakash 570
Hassan, Abdulsadek 155 Kumar, S. Arun 22
Author Index 889

Kumaran, Vikniswari Vija 593 Oleksiy, Buluy 776

Kura, Kabiru Maitama 325 Olena, Ovdiyuk 776
Olena, Shevchenko 428
L Olena, Sudarenko 428
Latha, C. H. Madhavi 226 Omar, Azizah 742
Lourdunathan, 858 Osman, Sharifuzah Bint 301
Lourdunathan, F. 232 Othman, Anwar Hasan Abdullah 603
Lytvyshko, Liliia 720 Ozturkcan, Selcen 79

M P
Maali, Mohammed 366 P., Reznik Nadiia 776
Maciaszczyk, Magdalena 699 Parokhnenko, Oleksii 720
Maghrabi, Louai 106, 195 Pasha, Saadia Anwar 879
Mahdi, Zainab Hasan 665 Pasichnyk, Olena 292
Makhlouf, Mohammed Hassan 438 Patil, Kunal 48
Malan, Irfah Najihah Basir 849 Permadi, Reza 713
Maria, Plotnikova 776 Poornima, J. 242, 858
Mashod, Hartini 325 Porfirenko, Volodymyr 720
Masrom, Maslin 868 Prasad, Lalit 22, 547
Matviychuk, Lesia 292, 536 Prokopenko, Valeriia 22
Maulana, Yopy 742
Meenadevi, K. 838 Q
Melnichuk, Oksana 292 Qasem, Esmail 560
Mishra, Priyanka 33, 48, 547
Mohamad, Nor Raihan 14 R
Mohamad, Zam Zuriyati 593 Radhi, Ateqa 164
Mohdali, Nor Raihana 868 Radhi, Atiqa Aqeel 186
Moosa, Mohamed 164 Rafea, Mohamed Fareed Ghazi 560
Muhammad, Nur Hafizah 805 Rafea, Mohamed 106
Muhammad, Shuaib 868 Rahim, Marlisa Abdul 815
Mukthar, K. P. Jaheer 67, 89 Rajesh, Deepa S. 22
Mumpuni, Punik 733 Rajsekar, D. 33, 547
Muzakir, Mellisa Fitri Andriyani 248 Ramirez-Asis, Edwin 67, 217
Rasdi, Aikal Liyani Mohd 805
N Rashid, Aiman Aizuddin Abdul 404
Nadayil, Deenu 232 Razia, Bahaa 415
Nagar, Neha 547 Reddy, M. Lokanadha 347
Naidu, Lakshmipathi 858 Renu, 547
Nawi, Nor Maizana Mat 815 Roman, Chornyi 796
Nawi, Nur Syahirah Mohd 805 Roostika, Ratna 733
Nelia, Chorna 796 Rosman, Romzie 499
Nik Mohamed, Nik Nadzirah 868 Rurush-Asencio, Roger 67
Noor, Fatimah Mohamad 255 Rzepka, Agnieszka 699
Noordin, Raman 449
Norizan, Nor Sabrena 849 S
Nurhalisa 756 Sa’ad, Auwal Adam 457
Sabri, Tamer 366
O Sachynska, Liudmyla 536
Oleksandr, Tyshchenko 796 Saidin, Siti Salina 815
Oksana, Prysiazhniuk 776 Saifullah, Afifah 868
Oleksii, Kulikov 796 Salaudeen, Adnan Opeyemi 457
890 Author Index

Salleh, Zalailah 14, 485 U

Salman, Syed Ahmed 581 Udhaya, S. 58
Sathya, S. Muniya 242 Ulinnuha, Hana 713, 747, 756
Saxena, Swati 232 Uppal, Ananta Geetey 547
Saygın, Yücel 79 Uppal, Ananta 22, 33, 48, 314
Shaaban, Maryam 172
Sharif, Humaira 879
V
Sharma, G. V. Mruthyunjaya 838
Vaishnavi, M. 858
Sharma, Raj Bahadur 631, 643
Verma, Subhash Kumar 22
Sharma, Sandeep 33
Vilchez-Carcamo, Juan 89
Sharofiddin, Ashurov 499
Villanueva-Calderón, Juan 67
Shereer, Heba Tayseer 496
Vipulkumar, N. M. 347
Shwedh, Aibo 126
Sihombing, Sabrina Oktaria 766
Silva-Gonzales, Liset 217 W
Siva Sankar, N. 858 Wan Zakaria, Wan Normeza 868
Sivasubramanian, K. 347 Wee, Hassnah 815
Sonia, Candy Reggie 756 Weersma, Laodicea 33
Stalin, Arockia 570
Stephen, Annie 570
Y
SubbaAnantha, Kumar 838
Yusof, Nurul Afidah Mohamad 593
Sulaiman, Mohammad Fayez Abu 334
Yusoff, Adnan 581
Suleiman, Hassan 457
Syahchari, Dicky Hida 742
Syed-Ahmad, Sharifah 164 Z
Zadnieprovska, Ganna 33
T Zahran, Siraj 137, 155
Taha, Roshaiza 485 Zainal, Siti Faizah 14
Tahajuddin, Sulaiman 449 Zakariyah, Habeebullah 477
Tarigan, Wendy Purnama 747 Zarzosa-Marquez, Eva 67
Tetyana, Shvets 776 Ziani, Abdulkrim 879
Thomas, Cherian 347 Zinaida, Smutchak 796
Tsani, Fadhilah 116 Zulfanti, Delvira Althaf 116