Evaluating company's performance using multiple discriminant analysis: the case of Shariah compliance companies

Nuradli Ridzwan Shah Mohd Dali, Hamdi Hakeim Mudasir and Suhaila Abdul Hamid

American Journal of Finance and Accounting, 2010, vol. 2, issue 2, 143-154

Abstract: There are many tools that can be used to measure/evaluate the performance of a company and one of the most popular tools is using the financial ratios. This paper will explore the use of a combination of two different techniques using the time series data of share and market prices collected from Shariah compliance companies and cross-sectional financial ratios data of Shariah compliance companies. Share prices from 201 Shariah compliance companies listed in the Bursa Malaysia stock exchange were collected from 2000 to 2005 with their respective 2005 financial ratios. The Jensen Alpha technique is employed to classify the Shariah compliance companies in the Main Board Bursa Malaysia into two categories, i.e. performing and non-performing. Next, multiple discriminant analysis (MDA) technique is employed in identifying the ratio(s) that significantly influence the performing and non-performing companies. The MDA result shows that shareholders fund/share or net tangible asset ratio could differentiate significantly the non-performing and performing Shariah compliance companies.

Keywords: MDA; multiple discriminant analysis; CAPM; capital asset pricing model; Jensen Alpha; Wilks' lambda; company performance; Shariah compliance companies; firm performance; Malaysia; stock market; financial ratios. (search for similar items in EconPapers)
Date: 2010
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