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Productivity, Technology and Efficiency Change of Islamic and Conventional Reits in Malaysia

Author

Listed:
  • Nor Nazihah Chuweni*

    (Department of Estate Management, Faculty of Architecture, Planning and Surveying Universiti Teknologi Mara, Perak Branch, Seri Iskandar Campus, 32610 Seri Iskandar, Malaysia)

  • Ihsan Isik

    (Department of Accounting and Finance William G. Rohrer College of Business, Rowan University, Glassboro, NJ, USA)

  • Ahmad Shazrin Mohamed Azmi

    (Department of Estate Management, Faculty of Architecture, Planning and Surveying Universiti Teknologi Mara Shah Alam, Selangor, Malaysia)

Abstract

Problem/Purpose – The paper examined total factor productivity changes namely Malmquist Productivity Index (MPI) for the Malaysian Real Estate Investment Trust (M-REITs) by drawing attention to the Islamic and conventional REITs Design/methodology/approach – Data was attained from annual reports for the period of 2007 to 2015. The non-parametric approach of MPI-DEA examined the productivity, technological and efficiency change indices. Findings – The result suggested both Islamic and conventional REITs have exhibited productivity regress of 18.09% and 11.51% respectively during the period of study. These productivity regress could mainly due to the regress in technological rather than efficiency change. One possible reason for this technological regress is likely due to REIT requirement in which the REIT managers could not retain their earning and reinvest their income for the following year. The REIT managers need to have access to external capital for purchasing new asset, which could lead to a higher cost of capital than the retained earnings. On the other hand, both conventional and Islamic REITs exhibited an increase of 28.33% and 61.54% respectively for efficiency change, mainly due to an increase in managerial rather than scale, implying that both REITs have been managerially efficient in managing the operating costs but operating at the non-optimum scale of operations. Research limitations/implications –This study provide empirical evidence on the source of productivity regress for M-REITs and insights on the comparative analysis of Islamic and conventional REITs. Future research suggested to be undertaken include the identification of key determinants for the productivity changes of M-REITs using the parametric approach. Originality/value – This paper is the first analysis on the productivity changes of Islamic REITs vis-à -vis conventional REITs. By examining these values, the identification of main sources of Malaysian Islamic REITs productivity regress assist M-REIT managers to develop strategies in improving their REIT productivity and provide competitive edge in the market.

Suggested Citation

  • Nor Nazihah Chuweni* & Ihsan Isik & Ahmad Shazrin Mohamed Azmi, 2018. "Productivity, Technology and Efficiency Change of Islamic and Conventional Reits in Malaysia," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 382-389:6.
    • Handle: RePEc:arp:tjssrr:2018:p:382-389
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    References listed on IDEAS

    as
    1. John C. Topuz & Ali F. Darrat & Roger M. Shelor, 2005. "Technical, Allocative and Scale Efficiencies of REITs: An Empirical Inquiry," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1961-1994, November.
    2. John Topuz & Ihsan Isik, 2009. "Structural changes, market growth and productivity gains of the US real estate investment trusts in the 1990s," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(3), pages 288-315, July.
    3. Anderson, Randy I. & Fok, Robert & Springer, Thomas & Webb, James, 2002. "Technical efficiency and economies of scale: A non-parametric analysis of REIT operating efficiency," European Journal of Operational Research, Elsevier, vol. 139(3), pages 598-612, June.
    4. Timothy J. Coelli & D.S. Prasada Rao & Christopher J. O’Donnell & George E. Battese, 2005. "An Introduction to Efficiency and Productivity Analysis," Springer Books, Springer, edition 0, number 978-0-387-25895-9, July.
    5. J. David Cummins & Mary A. Weiss & Hongmin Zi, 1999. "Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers," Management Science, INFORMS, vol. 45(9), pages 1254-1269, September.
    6. John C. Topuz & Ali F. Darrat & Roger M. Shelor, 2005. "Technical, Allocative and Scale Efficiencies of REITs:," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1961-1994.
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