of the

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THE FACTORS AFFECTING THE FINANCIAL PERFORMANCE IN MALAYSIAN PALM OIL INDUSTRY

NORZALEHA BINTI AMBO TAJANG

This project is submitted in partial fulfillment of

the requirements for the degree of Bachelor of Economics with Honours (International Economics)

Faculty of Economics and Business UNlVERSITI MALAYSIA SARAWAK

2011

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ABSTRACT

THE FACTORS AFFECTING THE FINANCIAL PERFORMANCE IN MALAYSIAN PALM OIL INDUSTRY

by

Norzaleha Binti Ambo Tajang

This paper examines the faetors affecting the finaneial performanee in Malaysian Palm Oil industry for five years starting in 2005 until 2009. Additionally, this study also identifies the determinants of financial perfonnance in Malaysian palm oil industry. The variables in this study are analyzed by using the method of the descriptive statistic, bivariate correlation and OLS regression. This study also used the bar chart and scatter diagrams to supporting the results. Finding of this study shows that capital intensity, leverage, growth rate, assets and investment on Research and Development, are significant and being the most important factors that influence the profitability on Malaysian Palm Oil industry. Besides that, independent variables such as capital intensity and assets have a negative relationship with profitability, while other variables such as leverage, growth rate, investment on R&D and price have a positive relationship with profitability.

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ABSTRAK

FAKTOR-FAKTOR YANG MEMPENGARUm PRESTASI KEWANGAN BAGI INDUSTRI MINYAK SAWIT MALAYSIA

oleh

Nonaleha Bind Ambo Tajang

Kajian ini dijalankan untuk mengkaji faktor-faktor yang mempengaruhi prestasi kewangan dalam industri kelapa sawit Malaysia bagi lima tabun, iaitu bermula dari tabun 2005 sehingga tabun 2009. Disamping itu, kajian ini juga bertujuan untuk mengenalpasti penentu-penentu bagi prestasi kewangan industri minyak sawit Malaysia. Pembolehubah-pembolehubah dalam kajian ini dianalisis dengan menggunakan kaedah statistic deskriptif, bivariat korelasi dan regrasi OLS. Kajian iBi juga menggunakan carta bar dan gambar rajah. keluk untuk menyokong keputusan. Keputusan kajian ini menunjukkan bahawa intensif modal, jumlah hutang, kadar pertumbuhan, aset dan pelaburan bagi Penyelidikan dan Pembangunan (R&D) adalah signifikan dan menjadi faktor yang paling pentirlg dalam mempengaruhi keuntungan bagi industri kelapa sawit Malaysia. Selain itu, pembolehubah-pembolehubah tidak bersandar seperti intensif modal dan aset mempunyai hubuttgan positif dengan keunturtgan, sernentata pembolehubah lain seperti jumlah hutang, kadar pertumbuhan, pelaburan dalam penyelidikan dan pembangunan (R&D). dan harga mempunyai hubungan positif dengan keuntungan.

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ACKNOWLEDGEMENT

First of all, I would like to show my appreciation to my supervisor, Dr.

Venus Kbim-Sen Liew. Since starting until end my Final Year Project, he gave very useful guidance to me and also gives valuable input, advices, helpful suggestion and opinions with a supported valuable assistance. Besides, I am very thankful because he is willing to spend some time in order to teach me and my friends. Through his guidance, I can improve my weaknesses, getting more knowledge and more confident with myself.

Special thanks to all of my classmates and friends that always share knowledge and idea to complete this research with a continuous moral supports.

Not forgetting to my family especially my mother and my father because they always give me the support without feeling tired, thank you so much.

Finally, tlumk yoo to all

of the

Faeulty of

Eeortomies met BUSiness,

UNIMAS lecturers and staff for their comments, suggestions and other contributions to this study. All the advantages in this study come from Allah S.W.T and all the weaknesses come from me. Hopefully all the mistake made in this study can be improved.

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1.0

Introduction

1.1

Background of the Study

1.2

Motivation of the Study 1.3 Problem Statement

1.4

Objectives

1.5

Significance of Study

1.6

Organisation of Study

CHAYrER 2: LITERATURE REVIEW

2.0

Introduction

2.1

Theoretical Framework

2.2

Empirical Testing Procedures

2.2.1

OLS

2.2.2

Panel Corrected Standard Errors

2.2.3

Canonical Correlation

2.3

Empirical Evidence

2.4

Concluding Remarks

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XIV

1-3 4-8

9-11

11-12 12-13

13

14 15 16-22

22

23 24-25

25-26

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CHAFTER3:METHODOLOGY

3.0 Introduction 42-43

3.1 Theoretical Model 43-47

3.2 Econometric Methodology

3.2.1 Descriptive Statistics 47

3.2.2 Normality test 48

3.2.3 Bivariate correlation 48-49

3.2.4 OLS Regression 49-51

3.2.5 Ramsey RESET test 51

3.3 Data description 52

CHAPTER 4: EMPIRICAL RESULT AND DISCUSSION

4.0 Introduction 53

4.1 Preliminary data analysis for 2005

4.1.1 Descriptive statistics 54-58

4.1.3 Bivariate Correlation 59-65

4.1.4 OLS Regression of original model 66-69

4.1.5 OLS Regression ofmodified model 70-72

4.1.6 Normality test of modified model 72

4.1.7 Ramsey RESET test of modified model 72

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4.2.5 OLS Regression of modified model 86-88

4.2.6 Normality test of modified model 88

4.3.6 Normality test of modified model 103-104

4.4.4 OLS Regression oforiginal model 112-116

4.4.6 Normality test of modified model 118-119

4.4.7 Ramsey RESET test ofmodified model 119

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4.5 Preliminary data analysis for 2009 4.5.1 Descriptive statistics 4.5.2 Normality test 4.5.3 Bivariate Correlation

4.5.4 OLS Regression of original model 4.5.5 OLS Regression of modified model 4.5.6 Normality test of modified model 4.5.7 Ramsey RESET test of modified model

CHAPTER 5: CONCLUSSION AND RECOMMENDATION 5.0 Introduction

5.1 Summary of Finding 5.2 Policy Implication 5.3 Limitation

5.4 Direction for future study 5.5 Concluding remarks

REFERENCES APPENDICES

119-123 123 124-127 128-131 132-134 134-135 135

136-137 137-145 145-147 148 148-149 149-150

151-159

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LIST OF TABLES

Table 1.1! World Major Producer of Palm Oil 4

Table 1.2: World Major Importers of Palm Oil 5

Table 1.3: World Major Exporters of Palm Oil 6

Table 2.1: The Summary ofLiterature Review 28-41

Table 4.1 Descriptive statistics (year 2005) 55

Table 4.2: Normality Test in year 2005 57

Table 4.3: Bivariate Correlations by Pearson Correlation (Year 2005) 60

Table4.4: Kendall'stau_btest(Year2005) 62

Table 4.5: Spearman's rho test (Year 2005) 63

Table 4.6: For public company, OLS Regression of original model (Year 2005) 66 Table 4.7: For private company, OLS Regression of original model (Year 2005) 66 Table 4.8: For public company, OLS Regression of modified model (Year 2005) 70 Table 4.9: For private company, OLS Regression of modified model (Year 2005) 70 Table 4.10: Normality test after transform capital intensity (Year 2005) 72

Table 4.11: Ramsey RESET Test (Year 2005) 72

Table 4.14: Kendall's tau_b test (Year 2006) 78

Table 4.16: For public company, OLS Regression of original model (Year 2006) 82

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''¥''''

Tahle 4.17! For private company, OLS Regression of original model (Year 2006) 82 Table 4.18: For public company, OLS Regression of modified model (Year 2006) 86 Table 4.19: For private company, OLS Regression of modified model (Year 2006) 86 Table 4.20: Normality test after transform capital intensity (Year 2006) 88

Table 4.22: Descriptive statistics (year 2007) 90

Table 4.26: For public company, OLS Regression of original model (Year 2007) 97 Table 4.27: For private company, OLS Regression of original model (Year 2007) 97 Table 4.28: For public company, OLS Regression of modified model (Year 2007) 101 Table 4.29: For private company, OLS Regression of modified model (Year 2007) 101 Table 4.30: Nonnality test after transfonn capital intensity (Year 2007) 103

Table 4.33: Nonnality Test in year 2008 108

Table 4.36: For public company, OLS Regression of original model (Year 2007) 112 Table 4.37: For private company, OLS Regression of original model (Year 2007) 112 Table 4.38~ For public company, OLS Regression of modified model (Year 2007) 116 Table 4.39: For private company, OLS Regression ofmodified model (Year 2007) 116

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.,..

Table 4.40: Nonnality test after tmnsfonn capital intensity (Year 2008) 118

Table 4.42: Descriptive statistics (year 2009) 120

Table 4.46: For public company, OLS Regression of original model (Year 2007) 128 Table 4.47: For private company, OLS Regression of original model (Year 2007) 128 Table 4.48: For public company, OLS Regression of modified model (Year 2007) 132 Table 4.49: For private company, OLS Regression of modified model (Year 2007) 132 Table 4.50: Normality test after transform capital intensity (Year 2009) 134

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LIST OF FIGURES

',.

Figure 1.1: Oil Palm Planted Area: 1975-2007 (Hectares) 7 Figure 3.1: The relationship between profitability firm sizes, ownership,

expenditure on Research and development, capital intensity, price, leverage

Figure 4.2: Scatter Diagram ofROA with capital intensity, leverage, growth rate,

Figure 4.14: Scatter Diagram of ROA with capital intensity, leverage, growth rate,

and growth rate. 45

Figure 4.1: Graph of Firm ownership frequeney in year 2005 56

assets, investment on R&D and price (year 2005) 57 Figure 4.3: Scatter diagram for capital intensity (year 2005) 69 Figure 4.4: Scatter diagram after transform capital intensity (year 2005) 69 Figure 4.5: Graph of Firm ownership frequency in year 2006 75

assets, investment on R&D and price (year 2006) 76 Figure 4.7: Scatter diagram for capital intensity (year 2006) 85 Figure 4.8: Scatter diagram after transform capital intensity (year 2006) 85 Figure 4.9: Graph of Firm ownership frequency in year 2007 91

assets, investment on R&D and price (year 2007) 92 Figure 4.11: Scatter diagram for capital intensity (year 2007) 101 Figure 4.12: Scatter diagram after transform capital intensity (year 2007) 101 Figure 4.13: Graph ofFirm ownership frequeney in year 2008 106

assets, investment on R&D and price (year 2008) 107 Figure 4.15: Scatter diagram for capital intensity (year 2008) 116

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,..

Figure 4.16 Seatter diagram after tl'a.n8form capital intensity (year 200S) 116 Figure 4.17: Graph of Firm ownership frequency in year 2009 121 Figure 4.18: Scatter Diagram ofROA with capital intensity, leverage, growth rate, assets, investment on R&D and price (year 2009) 122 Figure 4.19: Scatter diagram for capital intensity (year 2009) 131 Figure 4.20: Scatter diagram after transform capital intensity (year 2009) 131

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CHAPTER ONE INTRODUCTION

1.0 Introduction

According to the Palm Oil Refiners Association of Malaysia, palm oil is an edible vegetable oil obtained from the fleshy portion or the mesocarp of the fruit from oil palm trees. The characteristics of palm oil in a crude form are semi-solid at room temperature with a specific origin melting point between 33°C to 39°C and naturally reddish in color because of the high amount of beta-carotene (pORAM, 2010). In addition, the virgin of palm oil contains carotenoids (pro Vitamin A), tocotrienols, tocopherols (Vitamin E), cholesterol-free and no trans-fatty acids. The esguineensis and elaeisoleifera species of oil palm trees are growing in tropical region countries such as Ghana in Africa, Colombia in South America, Papua New Guinea in the Pacific and Malaysia and Indonesia in Southeast Asia (WWF-Australia, 2010).

Moreover, the sources from the Palm Oil Refiners Association of Malaysia'S (2010) state that the palm oil contains approximately 50% of saturated fat and 50% of unsaturated fat. The palm oil may be used to make trans-free products and also used for either food or non-food. In addition, palm oil is healthy because it is balanced and has an important energy source for mankind. Palm oil is the second largest edible oil and accounts for approximately 23% of the world's fats and oil supply (palmoilworld.org,

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r

2010). Furthermore, the most widely plantation area of palm oil in this world is Malaysia, Indonesia and other tropical countries.

The palm oil industry is also embarking on the production of palm methyl esters as biodiesel for export and as a substitute for diesel. The research done on the engines of a vehicle using palm biodiesel find that engines start easily and run smoothly with less smoke and reduced content of hydrocarbon, oxides of nitric, carbon monoxide and sulfur dioxide (www.soyatech.com). Besides, the palm oil providing much benefits to other parties especially for the consumers and the environment. Other than that, producers also get benefits from safeguarding the environment and at the same time

they can increase own revenue. ! ,

In the 20^thcentury, the production of palm oil has grown by 65% over the past decade after it was brought to South East Asia from central Africa. As the first and the second biggest producer of palm oil in the world, Indonesia and Malaysia account together for more than 85% of the production for the world market in the year 2009 and the main trading countries are China, the European Union and India. However, the massive growth of plantation is causing environmental problems such as monocultures, loss of biodiversity and climate change (Richter, 2009). According to Basiron (2002), Palm oil has played a positive role in the world's oils and affects supply and demand side. It contributes to economic growth because it creates more job opportunities and develops the world in relation to security of supply, health and environment. The palm

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oil production helps in poverty reduction in many developing nations were in Malaysian industry, it employs more than 570,000 people with 405,000 engaged in cultivation.

Moreover, by the year 2020 the arable land in the world is projected to decrease to less than 1 acre per capita and this will affecting the area of palm oil plantation. In a recent year, the Western Environmental NGOs (WENGOs) together with producers and buyers of palm oil have attempted to promote the development and market for sustainable oils (Basiron, 2010).

However, in 201 0 the Indonesia government complained in public consultations when the World Bank has announced to toughen regulations for the financing of palm oil projects. This is because the finding of a minor transgression of World Bank group rules by a large palm oil company in Indonesia following a complaint from anti-palm oil campaigners. It leads bank staff to propose new rules, which would probably end World Bank financing of palm oil projects. One recommendation was that all small holders should have sustainability certification to be eligible for Bank finance.

Although the palm oil industry had contributed a lot to the world economy, but problems such as climate change, pollution and shortage of land will give impact on production of palm oil. It is more beneficial, but this situation will be affecting the financial perfonnance of palm oil industry in the world'. However, it come out the questions about the impacts of palm oil production in the future if the responsible party fails to perform their duties at this point.

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1.1 Background of the Study

Malaysia is the world's largest producer and exporter of palm oil in the year 2009 with a 39010 of world palm oil production and 44% of world exports (www.mpoc.org.my). As the world's major producer of palm oil, Malaysia's GDP has increased very well from time to time. This situation motivated Malaysia to doing various initiatives to improve palm oil production in further. The initiatives are such as research and development (R&D), government and public policy, supporting capital, detail of government plans and, etc.

Table 1.1: World Major Producers of Palm Oil {'OOO Tonnes}

Country 1998 2000 2005 2006 2007 2008

Indonesia 5,100 7,050 14,100 16,050 17,270 19,330 Malaysia 8,320 10,842 14,962 15,881 15,824 17,734

Thailand 475 525 700 860 1,020 1,170

Nigeria 690 740 800 815 835 860

Colombia 424 524 661 713 732 800

Papua New Guinea 210 336 310 365 384 400

Ecuador 200 218 319 352 396 415

Cote d'Ivoire 269 278 320 330 320 330

CostaRiea 105 137 210 198 200 202

Honduras 92 101 180 195 220 268

Brazil 89 108 160 170 190 220

Guatemala 47 65 92 125 130 139

Venezuela 44 70 63 65 70 56

Others 855 873 969 1,023 1,083 1194

Total 16,920 21,867 33,846 37,142 38,674 43,118

Source: Oil World Annual (1999 - 2008) and Oi] Wor]d Weekly (12 December, 2008), Ma]aysian Palm Oil Board (MPOB), 1998-2008.

Table 1.1 shows a number of countries that produce palm oil at a global level for a few years since 1990 until 2008. Since 1998 until 2005, Malaysia is the largest producer

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of palm oil. In 2005, Malaysia contributes of 14.96 million tonnes or 44.2% of total production on that year, with Indonesia is a close competitor. However, starting in year 2006 Indonesia takes over as the largest producer by producing of 16.01 million tonnes or 43.2% of total production palm oil in that year. Indonesia continuously is being the largest producer in the world for the year 2007 and 2008. Other countries such as Thailand, Cambodia, Nigeria and others only contribute a small amount in the production of palm oil in the world. Since the total of the palm oil production increase for each year in each country. the world production also increases. The study conducted by Ramasamy, Darryl and Mathew (2005) shows that in the year 1990, the total of palm oil production is only 10,867,000 tonnes, than this value increases become 16,920,000 tonnes in the year 1998 and continuously increases in year 2008 being 43,118,000 tonnes.

Table 1.2: World Major Importers of Palm

on

('000 Tonnes)

Country 1998 2000 2005 2006 2007 2008

China, P.R. 1,373 1,764 4,320 5,462 5,499 5,720

EU 2,142 2,419 4,489 4,674 4,623 4,867

India 1,672 3,650 3,315 3,198 3,688 5,308

Pakistan 1,114 1,107 1,646 1,736 1,711 1,788

Ex-USSR 103 192 853 794 993 1,263

Egypt ⁴⁰⁸ 524 774 770 720 695

Bangladesh 93 226 931 887 709 973

USA 116 165 420 629 788 1,002

Japan 357 373 479 499 532 548

Turkey 174 208 457 527 366 471

Myanmar ²⁴⁸ 202 300 342 358 372

Kenya 187 216 362 350 416 524

South Africa 140 168 274 292 298 312

Malaysia 66 57 555 602 267 561

Source: Oil World Annual (1999 - 2008) and Oil World Weekly (12 December,2008), Malaysian Palm Oil Board (MPOB), 1998-2008.

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Table 1.2 shows the major importing countries of palm oil in the world. The ED country is the largest importer of palm oil in the world since year 1998 until 2005. In year 1998, the ED country import is 2,142,000 tonnes and this value increase as much as 2,347,000 tonnes until year 2005. However, in year 2008 China P.R take over as the largest importer in the world which imports of 5.7 million tonnes of palm oil, followed by India (5.3 million tonnes), the ED (4.8 million tonnes), Pakistan and other country.

Although Malaysia became the largest exporter in the world of palm oil but this country still imports the palm oil from another country.

Table 1.3: World Major Ex~orters of Palm Oil {'OOO Tonnes}

Country 1998 2000 2005 2006 2007 2008

Malaysia 7,465 9,081 13,445 14,423 13,747 15,413 ^{! '}

Indonesia 2,002 4,139 10,436 12,540 12,650 14,470

Papua New Guinea 213 336 295 362 368 395

Colombia 70 97 224 214 316 328

Singapore * 241 240 205 207 186 205

Cote d'Ivoire 102 72 122 109 106 116 •i,

Hong Kong* 103 158 39 20 20 28

Others 702 896 1,736 2,121 2,474 2665

Total 10,898 15,019 26,502 29,996 29,867 33,620

Note: *include re-exporting countries

Source: Oil World Annual (1999 - 2008) and Oil World Weekly (12 December, 2008), Malaysian Palm Oil Board (MPOB), 1998-2008.

Table 1.3 shows the major exporter's countries of palm oil in the world. Malaysia is the largest exporter of palm oil in the world, where this country exports more than 45% of the total palm oil export since year 1998 until 2008 to several foreign countries.

Although Indonesia is a largest producer of palm oil in year 2006 until 2008, but Malaysia remains the world's largest exporter since year 1998 until 2008. Moreover,

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during the same period the total of Malaysian export increases as much as 6.2 million tonnes of total palm oil exports.

Figure 1.1: Oil Palm Planted Area: 1975-2007 (Hectares)

-

^~'"

...

^4,500,000^5,000,000

.5 _Co! _4,000,000

e

^~ ^3,500,000

CIII

~ 3,000,000

...

2,500,000

< - P .Malaysia

2,000,000

"

^~

=

CIII 1,500,000 - Sabah

- Sarawak 1,000,000

==

e

500,000 - Total

as

c..

0

II") 0"1 ...

(5 _{t -} _... _M II") t - 0"1 ... M II") t - 0"1 M II") t

t - t - t - oo 00 00 00 00 0"1 0"1 0"1 0"1 0"1 0 0 0 0 0"1 0"1 0"1 0"1 0"1 0"1 0"1 0"10"10"1 0"1 ... 0"1 0"1 0 _N o _{N N N}0 0

Year

Source: Department of Statistic Malaysia. 1975-1984 Malaysian Palm Oil Board (MPOB) 1985-2008.

Figure 1.1 shows the total area planted of palm oil in Sabah, Sarawak and Peninsular Malaysia. Since this plant introduced by the British in year 1917, Peninsular Malaysia is the largest area for the crop followed by Sarawak and Sabah. Until year 2008, Peninsular Malaysia contributes of 2,410,019 hectares or 53.7% of total oil palm area plant. Sarawak contributes around 16.6% and Sabah about 29.7%. In the average,

total area of oil palm plant in Malaysia is increasing from 641,791 hectares in the year 1975 to 4,487,957 hectares in year 2008.

Future more, there are few companies in Malaysia that active in palm oil production, and it can be divided into private, public and small holder companies. The

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largest among private companies which are listed on the Bursa Malaysia is Kumpulan Guthrie Berhad, PPB Oil Palms Berhad, 101 Corporation Berhad and Kuala Lumpur Kepong Berhad (www.klse.com.my.). In the public sector, the companies as a government agency that responsible for managing the government land scheme are Federal Land Development Authority (FELDA), Sabah Land Development Board (SLDB) and Sarawak: Land Rehabilitation and Consolidation Authority (SALCRA).

The majority of Malaysian palm oil companies contribute a high income to the country as the increasing of area plants. This reason causes the financial return for palm oil industry is higher than other industries that crop different plant such as pineapple, rubber and cocoa.

According to Richter (2009), the principal organizations are the Malaysian Palm Oil Association (MPOA), the Malaysian Palm Oil Board (MPOB) and the Malaysian Palm Oil Promotional Council (MPOPC). MPOA is the plantation owners' association which has more than 100 members and more than 1.4 million hectares planted under the oil palm. This amount is 70 percent of the area under private ownership. The MPOB is a public sector with the objective of establishment are to responsible for undertaking research and development and for regulatory and licensing functions for the industry.

The third organization is MPOPC, were it responsible to promote Malaysian palm oil.

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1.2 Motivation of Study

Demand for the palm oil products in the year 2008 is increase throughout the world and causing the profit of this industry increase rapidly. The high export duty imposed by Indonesia created uncertainty and pushed demand towards Malaysia. In July and September 2008, a global unwinding of positions in commodities and equities triggered by the US financial crisis causing palm oil prices collapsed. These are causing the total export reduced and affecting the financial performance of Malaysian palm oil industry (pORAM, 2008). If observed and studied in Malaysian Palm Oil industry are, it is important to review the potential of financial performance of this industry.

However, based on the observations from the previous year, there is few authors study about the factor affecting the financial performance in Malaysian palm oil industry.

In the year 2002, many authors study about the palm oil, but they are not focused on the study about the factor affecting the financial performance of Malaysian Palm Oil Industry. As evidence, Simeh (2002) study the factor affecting fluctuation in net returns from the processing of oil palm fruit brunch. She reviewed and explains about possible sources of cost inefficient in FEB processing. Moreover, Latif and Mamat (2002), study the finances of cattle integration in oil palm plantation to show the satisfactory level of profitability. In addition, Basiron (2002) is studying the global supply and demand, and prospects of palm oil. The study outlines the palm oil situation and highlights the development in Malaysian and Indonesia palm oil industry. In the same year, Talib and Darawi (2002) in their research study an economic analysis of the Malaysian palm oil

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market. They describe a national model of the Malaysian palm oil market and identify the important factors affecting the Malaysian palm oil industry.

In 2003, Barlow, Zen and Condowarsito (2003) study the organization, performance and constraints of a chief sub-sector of palm oil industry in Indonesia.

Other than that, study conducted by Abdullah (2003) only focused on the short-term and long-term projection of Malaysian palm oil production. The research is study the factors that influence palm oil production such as maturity area planted, total area planted, replanting and yield.

Based on research done by Teoh (2002), he only explores about the overview of the palm oil industry in Malaysia, identifying the major players in the supply chain, from the upstream producer to customers, and their organizational relationship.

However, there is one study who closely same with the study of financial performance in Malaysian palm oil industry. The study was conducted by Ramasamy, Darryl and Mathew (2005). Thus, the importance of this study is to examine the factors that affect the financial performance in Malaysian palm oil industry to assess the potential of this industry in the future. Moreover, this study is important because previous studies conducted by Ramasamy, Darryl and Mathew (2005), used the panel data in the year 2000 until 2003 as measure profitability to show the financial performance in Malaysia's palm oil industry. However, data from different year and base on the current issue will give the different result. Therefore, it is important to know the impact of the

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independent variables used in a measure the financial perfonnance in Malaysian palm oil industry.

Moreover, the study by Ramasamy, Darryl and Mathew (2005) are using several variables to measure the profitability such as finn size, finn ownership, capital intensity, price, leverage, skill, age and growth rate shows the different sign. In the study, they found that only capital intensity and finn size has a negative coefficient with profitability, while other variable has a positive coefficient. The study use of different year maybe gives the different coefficient sign of the variables. So, the limitations and weaknesses of the previous study make this study become interesting to be come out.

1.3 Problem Statement

In the vision 2020, the Malaysian government has announced to give emphasis on the agriculture sector, and one of the potentially industries is the oil palm industry.

Growing in global demand for palm oil causes many private and public companies of palm oil fonned. The existence of many palm oil companies in Malaysia will boost state revenues. The government companies such as Federal Land Development Authority (FELDA), Sabah Land Development Board (SLDB) and Sarawak Land Rehabilitation and Consolidation Authority (SALCRA) has done a lot of research and development (R&D) to improve the quality and output of palm oil production.

I ' :

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of the

ACKNOWLEDGEMENT

of the

Eeortomies met BUSiness,

TABLE OF CONTENTS

1.0

1.1

1.2

1.4

1.5

1.6

2.0

2.1

2.2

2.2.1

2.2.2

2.2.3

2.3

2.4

1-3 4-8

11-12 12-13

14

15 16-22

22

23

24-25

25-26

27

''¥''''

.,..

LIST OF FIGURES

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on

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1

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