External and Internal Factors Affecting and Risk Investment Companies Go Public in Jakarta Islamic Index (JII)

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EXTERNAL AND INTERNAL FACTORS AFFECTING THE RETURN ON
EARNINGS AND RISK INVESTMENT COMPANIES GO PUBLIC IN
JAKARTA ISLAMIC INDEX (JII)
Diana Dwi Astuti
diana@stie-mandala.ac.id
Phone: +62081357633974
Abstract
Investment is the placement of the funds in the hope of future gain. Virtually all
investments involve risks or uncertainties. Investors certainly do not know with
certainty the results to be obtained from the investment. Investors are willing to
accept the risk but it is compensated by getting greater results. Research purposes (1)
to analyze the direct influence of external factors (inflation, foreign exchange rates,
interest rate of Bank Indonesia) and internal (capital structure, liquidity) on Return
On Equity (ROE) in companies that go public in Jakarta Islamic Index. (2) to analyze
the indirect influence of external and internal factors on the risk of investing in
companies that go public in Jakarta Islamic Index. (3) The ROE to analyze the effect
on the risk of investing in companies that go public in Jakarta Islamic Index. The
sample used 10 companies using proposive sampling. Analysis tools using path
analysis. Results showed inflation and exchange rates (foreign exchange rates / US $)
no significant effect on ROE and Investment Risk. BI rate has no effect on ROE
siqnifikan but significant effect on the risk of investment. Capital structure and
liquidity significantly influence the ROE but had no effect on the risk of investment.
ROE has no effect on the risk of investment.
Keywords: inflation, exchange rates, interest rates, capital structure, liquidity, ROE,
and investment risk.

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INTRODUCTION
Investment is the placement of the funds in the hope of future gain. Virtually all
investments involve risks or uncertainties. Form of investment that many of us
encounter in public life is a land investment, the investments in gold, savings,
deposits, investment in capital markets (stocks and bonds) and others. Investments in
stocks assessed as having a greater level of risk compared to other investment
alternatives such as bonds, deposits and savings. This is caused by the expected
income from investment in stocks is uncertain, where the share of income consists of
dividend and capital gain.
Investment in the stock market there are two options to invest in that stock investing
non-Islamic and Islamic stock investment. Islamic stocks are a means to
accommodate funds from investors, especially investors Muslims. Investments in
shares of sharia is a good alternative fund management as stocks sharia away from
businesses that are categorized as haram according to Islam. Place / exchanges that
trade stocks in accordance with the principle of sharia and sharia is Jakarta Islamic
Index (JII). According Nasarudin and Surya (2004: 209) the characteristics of the
shares of sharia are: (1) There is no interest-based transactions, (2) No security be
dubious, (3) Shares to be from a company that lawful business activities, (4) no there
is a transaction that is not in accordance with ethical and immoral such as market
manipulation and insider trading.
Investments involve risks or uncertainties, investors are expected to consider the two
(2) things: the expected revenue or profit (expected return) and risk (risk). We often
hear the "no pain, no gain or a high return high risk", the greater the results / return
desired the greater the risk, and vice versa (Zubir 2011). According Anaroga and
Pakarti (2006: 78) there are some risks in investing are: Financial Risk, Market Risk,
Risk of Psychological. Financial risk comes from within the company (internal
factors), and market risk is derived from a country's economic conditions (external
factors).
External factors that affect the risk of investment in the form of inflation, interest
rates on deposits and the level of the rupiah against the US dollar, while the internal
factors that affect the risk of investment of capital structure, operating leverage,
dividend and the company's liquidity (Sartono, 2012: 191). Research conducted
Makaryanawati and Misbachul Ulum (2009) with the title Influence of Interest Rate
and Liquidity Company against the risk of Investment Shares Listed on the Jakarta
Islamic index, the results showed that the interest rate has a significant influence on
the risk of investment being liquidity does not have an influence on investment risk.
Godfred A.Bokpin, Anthony QQ Aboagye and Kofi A.Osei (2010) with the title of
Exposure Risk and Corporate Financial Policy on the Ghana Stock Exchange, the
results showed operational risk, the risk of bankruptcy, and bankruptcy costs have a
significant influence on financial policies, moderate Internal factors (asset structure,
company size and profitability) does not affect the financial policies. Helena OS and

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I Gusti Bagus W (2014) conducted a study on "Variables Affecting Investment Risk
Shares in the Indonesia Stock Exchange (BEI) indicates that capital structure and
liquidity of the company positive and significant effect on the risk of stock
investments, operating leverage is not positive and significant influence against the
risk of stock investments, and inflation, interest on deposits, the exchange rate
against the US $ and the partial financial leverage and significant negative effect on
the risk of investment. In this study the authors used external factors such as
inflation, foreign exchange rates, and the interest rate of Bank Indonesia, were
internal factors such as capital structure, the company to determine the company's
financial condition and liquidity to determine the company's ability to repay short-
term debt.
The aim of the study was (1) to analyze the direct influence of external factors
(inflation, foreign exchange rates, interest rate of Bank Indonesia) and internal
(capital structure, liquidity) on Return On Equity (ROE) in companies that go public
in Jakarta Islamic Index. (2) to analyze the indirect influence of external and internal
factors on the risk of investing in companies that go public in Jakarta Islamic Index.
(3) The ROE to analyze the effect on the risk of investing in companies that go
public in Jakarta Islamic Index.
LITERATURE REVIEW
Inflation according to Fahmi Irham (2006: 79) is a condition of decline in the value
of the currency of a country and rising prices of goods that takes place
systematically. The inflation rate is the annual rate of inflation as measured by the
development of the consumer price index (CPI). In this study, researchers used the
value of inflation issued by Bank Indonesia through the site www.bi.go.id.
High inflation, will reduce the purchasing power of goods and services, so that a
country's economy would deteriorate, which would decrease the rate of profit in a
company, and will result in the movement of stock prices become less competitive.
Research conducted Suardana (2009) and Nor Isnaini (2013) states that inflation has
a significant effect on ROE. Based on the theoretical study and the results of
previous studies, the hypothesis can be formulated as follows:
H1: Inflation has significant influence to ROE.
Research conducted by Santoso (2009), Setiawan (2009). Suaradana (2012), states
that inflation has a significant influence on the risk of stock investments. Based on
the theoretical study and the results of previous studies, the hypothesis can be
formulated as follows:
H2: Inflation significant effect on the risk of investment.
Foreign exchange rates or commonly also called the foreign exchange rate is the
price of one currency expressed in another currency (according Eiteman, Stonehill,
and Moffett, 2010: 171). It means that the exchange rate of a currency price stated if
traded with another currency. In this study sought the exchange rate is the exchange
rate of the US dollar against the rupiah. The exchange rate reflects the balance of

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demand and supply on the domestic currency and foreign currencies. Decrease of the
exchange rate reflects the declining demand of the international community against
the rupiah because of a decline in the role of the national economy or can be caused
by the increased demand for foreign currency by the public because of its role as an
international means of payment. Research conducted by Suardani (2009) that the
exchange rate has a significant impact on ROE in manufacturing companies because
manufacturing companies have debts in dollars will bear the currency risk. The
increase in the dollar exchange rate led to the company paying the debt is greater so
that the company's ROE declined. Sehungan with the matter, the hypothesis is
formulated as follows:
H3: The rate has a significant impact on ROE
In a study conducted by Vina Rahmatika (2013: 6) says, "The rupiah strengthened to
some extent means describe the performance of money market continued to show
improvement. If the exchange rate weakens, resulting in stock price declines,
investment in capital markets become less attractive because of the high investment
risks caused by exchange rate weakened ". Results of research by Diah Ratna
Manggalih (2011) states that the exchange rate and a significant negative effect on
the risk of investment. So the hypothesis in this study are:
H4: The rate has a significant influence on the risk of investment.
Miller, RL and VanHoose, DD in Puspopranoto (2004: 69) states that interest is the
number of funds, valued in money, received a lender (creditor), while the interest
rate is the ratio of interest on the loan amount. The interest rate is often used as a
measure of the income earned by owners of capital. Rising interest rates will cause
the companies that have debts will increase in paying interest so that ROE will
decrease. The research hypothesis is formulated:
H5: Interest rates have a significant effect on ROE.
Rise and fall of interest rates will affect someone in setting decision, if the interest
rate increases, public banks would keep their money in the bank, but if the interest
rates are declining, the owner of the funds will use the funds in investing in stocks.
Results of research conducted by Makaryanawati (2009), Nor Isnaini (2013) states
that the interest rate has a positive and significant impact on the risk of investment.
Based on the study above, the hypothesis is formulated as follows:
H6; Interest rates have a significant influence on the risk of investment.
According to Fahmi Irham (2006: 77) the capital structure is a picture of the
proportion of capital owned by a company which is derived from the ratio of total
debt to equity, which is a permanent method of financing a company. The company's
capital structure can be found by searching for the value of the dept to equity ratio
which can show the comparison between the debt with its own capital. Research
conducted by Azlina (2009) and Nor Isnaini (2013) produced a study that the capital
structure (DER) has a significant impact on profitability (ROE). Formulate the
hypothesis of this research as follows:
H7: The capital structure (DER) has a significant impact on ROE.

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Based on research conducted by Zubaidi Indra (2006: 247) states that, Dept to Equity
Ratio which will lead to greater financial risks companies are increasingly high.
Greater use of debt increases the risk of not being able to pay the debt so that the
company's risk will increase. In connection with these two research hypothesis is
formulated as follows:
H8: DER has a significant influence on the risk of investment.
Liquidity is the ability of companies to meet short-term financial obligations that
must be met (Sartono, 2012: 116). The liquidity ratio aims to assess the company's
financial ability to meet short-term liabilities and the payment of financial
commitments. The higher the ratio, the better the liquidity for investors. This
research hypothesis is formulated as follows:
H9: Liquidity has a significant impact on ROE.
Research conducted by Helena (2014) states that liquidity has a significant influence
on the risk of investment. So the research hypothesis is formulated as follows:
H10: Liquidity has a significant influence on the risk of investment.
Return On Equity (ROE) is an advantage that will be enjoyed by shareholders,
because it contains information about the profit that aims to assess management
performance that can help estimate the earnings capacity of a representative in the
long term and can assess investment risk. High profitability, investors perceive that
the company has good internal capability so that the stock price is high and rising
investment risk, demikianjuga otherwise. So the hypothesis can be formulated as
follows:
H11: ROE has a significant influence on the risk of investment.
The stock price is an indicator to measure the investment risk. This study used is
quarterly stock price at closing stock price contained in the annual reports of banking
companies listed in the Indonesia Stock Exchange. Investment risk is losses that may
occur as a result of the deviation expected profit rate with the actual rate of return. Or
we can say the investment risk is the value derived from the difference between the
difference expekted Realized return and return. In searching for the value of the
investment risk, previously expected to estimate how the expected profit from
investments (expected return), and how far the possibility of future actual results may
deviate from the expected results of the investment alternatives that exist.
METHODELOGY
Types and Sources of Data
Based on the research objectives, this research, including research kind of
explanation (explanatory research). Explanatory research is research for the purpose
of explanation (explanatory or confirmatory), research conducted by way of
explaining the symptoms are caused by an object of research, test and provide an
explanation or a causal relationship between variables through hypothesis testing.
Types of research data, including quantitative data into the observation period from

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2010 to 2014. The data used in this research is secondary data. obtained from the
Indonesian Capital Market Directory (ICMD), Bank Indonesia (BI), and the website
on the capital market. Data exogenous variables of this study, are: inflation, interest
rates BI, the exchange rate (the exchange rate of foreign currency / US dollar against
the rupiah), Debt Equity Ratio (DER), liquidity. Endogenous variable data is Return
On Equity (ROE) and Investment Risk.
Population and Sample Research
The population used in this study are all Islamic stocks listed on the Jakarta Islamic
Index (JII) during 2010 to 2014, namely 30 companies. The samples using purposive
sampling with criteria: (1) Integration active in trade in JII during 2010 to 2014, (2)
Companies that publishes full financial statements at JII during 2010 to 2014. The
research sample of 10 companies (Astra Agro Lestari Tbk, PT Astra International
Tbk, Indocement Tunggal Prakarsa Tbk, Indo Tambamgraya Megah Tbk, Kalbe
Farma Tbk, PP London Sumatra Indonesia Tbk, PT Semen Indonesia (Persero) Tbk,
Telecommunications Indonesia (Persero) Tbk, United Tractors Tbk, and Unilever
Indonesia Tbk) ,
Operational Definition
Inflation is inflation as measured by the development of the consumer price index
(CPI) or the Consumer Price Index (CPI) Indonesia average each year is obtained
from Bank Indonesia. CPI / CPI is to calculate the average price of goods and
services consumed by households (household). In this study, researchers used the
value of inflation issued by Bank Indonesia.
Foreign exchange rates or commonly also called the foreign exchange rate is the
price of one currency expressed in another currency (according Eiteman, Stonehill,
and Moffett, 2010: 171). In this study sought the exchange rate is the exchange rate
of the US dollar against the rupiah. The exchange rate used in this research is data
middle rate of 1 US dollar to rupiah at the middle value of each year issued by Bank
Indonesia.
The interest rate is the percentage of the principal amounts to be paid by the
borrower to the lender in exchange of services performed within a certain period
which has been agreed by both parties. Interest rate used is the interest rate the
central bank.
The capital structure is a picture of the proportion of capital owned by a company
which is derived from the ratio of total debt to equity, which is a method of
permanent financing of a company (Irham Fahmi (2006: 77). The capital structure of
the company can be found by searching for the value of the dept-to-equity ratio.
Value Dept To Equity Ratio can be calculated using the formula:
Debt
Capital Structure = X 100%

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Capital
Liquidity is the ability of companies to pay off debts that must be paid with current
assets. This variable is measured by the Current Ratio, by the following equation:
Current asset
Current Ratio = X 100%
Current Debt
Return On Equity (ROE) is the ratio between net income with their own capital. ROE
is used to measure the company's ability to obtain the net income attributed to the
distribution of dividends. ROE is defined as follows:
Net profit
ROE = X 100%
Capital
Investment risk is losses that may occur as a result of the deviation expected profit
rate with the actual rate of return. Or we can say the investment risk is the value
derived from the difference between the difference expekted Realized return and
return. This variable was measured by the following formula:
ij - E (R i))
2
Standard Deviation (σ)=
n - 1
Where :
R ij = rate of gain that occurs in the condition j expekted return dan realized
return.
E (R i) = The level of profit expected
N = the number of conditions
Stock profit rate, calculated by the following equation:
P t - P t-1
E (R i) =
P t-1
Where :
P t = stock price in year t
P t-1 = The share price in year t-1
Analysis Methods
This study illustrates the pattern of relationships which reveal the influence of a set
of variable against another, either directly, or through other variables as an
intervening variable. Path analysis by using SPSS software is the analysis used in
this study.

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Diagram path or the path coefficients are as follows:
Z = β1ZX1 + β2ZX2 + β3ZX3 + β4ZX4 + β5ZX5 + ε1 ............................... (1)
Y = β6YX1 +β7YX2 + β8YX3.+ β9YX4+ β10YX5 + β11YZ + ε2.................. (2)
Where:
Z = capital structure, X3 = interest rate,
Y = Value Company, X4 = capital structure,
X1 = Inflation, X5 = ROE,
X2 = Exchange, β1-11 = Coefficient Variables
= Variable Residues
RESULTS AND DISCUSSION
Test results obtained by path analysis R square value of structural 1 and 2. Structural
R square value is used to measure how far the ability of the model in explaining the
dependent variable. The greater the R-square an independent variable, the more
dominant influence on the dependent variable. Results R square t:
Table 1: The influence of independent variables on ROE and influence of
independent variables on the risk of investment
Model R R square Adjusted R
square
Std Error of
Estimate
1 .883A
.779 .754 .1403638
2 .366A
.134 .013 .1403638
The above table shows that the first model shows the R-square of 77.9%, shows the
influence of the independent variable on the dependent variable classified as strong
(77.9%) means that the dependent variable (ROE) can be explained by using the
independent variables (inflation, exchange rates, interest rates , DER, liquidity) of
77.9%, while 22.1% is explained by other variables that are not included in this
model. The second model, the R-square showed 13.4% means that the influence of
the independent variable on the dependent variable is very weak, showed that 13.4%
of the dependent variable (investment risk), which can be explained by the
independent variables (inflation, exchange rate, interest rate, DER, liquidity and
ROE) was 86.6% sisanyanya explained by other variables that are not included in
this model.
Table 2: Results of path coefficient partial regression of data processed
Analysis t Significant Beta Description
Sub-Structural 1 (dependent ROE)
Inflation 1,092 0.281 -0.140 Not significant
Exchange rate 0.756 0.454 -0.100 Not significant
Interest rate 0,799 0.429 0,145 Not significant

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DER 11.456 0,000 0.995 Significant
Liquidity 2,676 0,010 0.233 Significant
Sub-Structural 2 (dependent Investment Risk)
Inflation 1,231 0,225 0.320 Not significant
Exchange rate 0.871 0.389 0.232 Not significant
Interest rate -2.038 0,048 0.745 Significant
DER 0.415 0.680 0.144 Not significant
Liquidity 0,367 0.715 0.069 Not significant
ROE -0.636 0.528 -0.192 Not significant
The above table illustrates that not all independent variables significantly influence
the dependent variable. Macro variables (inflation, exchange rate, and interest rate)
does not significantly affect ROE, were micro variables (DER and Liquidity)
memounyai significant influence, with the level of α = 5% (0.05). Variable inflation,
exchange rate, DER, liquidity and ROE do not significantly affect the investment
risk variable, being variable interest rate has a significant influence on investment
risk variables. The relationship between the macro and micro variables on ROE and
investment risk can be described as follows:
1,231 ε1 0,221
ε2 0,866
-0,140
-0,100 0,871
0,145 -,192
-0,745
0,995 0,144
0,233
0,069
The regression equation as follows:
Z = -0,140X 1 - 0,100X 0,145X 2 + 3 + 4 + 0,233X 0,995X 5 + ε 1 ........................ (1)
Y = 1,231X 1 + o, 871X2 - 0,745X3. + 0,144X4 + 0,069X 5 - 0,192YZ + ε 2 ....... (2)
Inflasi
Kurs
Interest
DER
Likuiditas
ROE Risiko
Investasi

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The regression equation above can be described that inflation (X1) and exchange rate
(X2) have a negative impact and no significant effect on ROE (Z) of -0.140 and -
0.100, interest rates (X3) has a positive and significant influence amounted to 0,145
on ROE (Z ), DER (X4) and Liquidity (X5) has a positive and significant influence
amounted to 0.995 and 0.233 of the ROE (Z).
Inflation inflation (X1) and exchange rate (X2) has positive and significant influence
amounted to 1.231 and 0.871 of the investment risk (Y), interest rates (X3) has a
negative and significant effect of -0.745 Risk Investment (Y), DER (X4 ) and
liquidity (X5) has a positive and significant influence amounted to 0.144 and 0.069
of the Risk Investment (Y), ROE have negative and significant effect of -0.192 Risk
Investment (Y).
Inflation indirect influence on the risk of investments through ROE amounted to
0,027, and the total effect of -0.332. Exchange rate have an indirect influence on the
risk of investments through ROE amounted to 0.019, and the total effect of -0.292.
Interest rates have no direct influence on the risk of investments through ROE of -
0.028, and the total effect of -0.047. DER indirect influence on the risk of
investments through ROE of -0.191, and the total effect of 0.803. Liquidity has an
indirect influence on the risk of investments through ROE of -0.045, and the total
effect of 0.041.
DISCUSSION
Inflation influence on ROE and Investment Risk
The effects of inflation on ROE and no significant negative effect of -0.140. Inflation
theory states that inflation could theoretically provide a positive and negative effect
on revenues. The increase in inflation will cause a rise in the price of goods so that
the decreased purchasing power. The reduced purchasing power resulting decline in
the level of sales so that profits / revenues company declined. This is consistent with
hubingan penilitian that inflation has negative ROE. High inflation led to high
investment risk, so in accordance with the results of the study that inflation has a
positive influence. Results of the study that inflation does not have a significant
effect on ROE and investment risk because the study sample mostly produce goods
that do not have price flexibility. The resulting product is not a company that
produces most of the daily needs that are not too influential.
Effect of Exchange Rate (US $) for ROE and Investment Risk.
Transaction company purchases ingredients (not cash) to use the US $, the change in
the exchange rate against the US $ will affect costs. The cost is too high will lead to
reduced income, so that profitability will decline so that the investment risk will rise.

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The results showed that the exchange rate has a negative influence on ROE
according to research Suardani (2009) and have a positive effect on the risk of
investment according to research conducted by Diah Ratna Manggalih (2011).
Exchange rate does not have a significant impact on ROI as well as on the risk of
investment. sample mostly produce goods that do not have price flexibility. The
resulting product is not a company that produces most of the daily needs that are not
too influential.
The influence of interest rates on ROE and Investment Risk
The interest rate rise will revenues / profitability of the company will decrease due to
increased interest costs, thus the level of investment risk will increase. The results
showed that the interest rate has no effect on ROE and significant effect on the risk
of investment. Investors perceive that the greater the interest rate, the greater the risk.
DER influence on ROE and Investment Risk
The use of debt leverage will produce profitable because using debt well then
generate revenue greater than the effective rate to be paid. DER so the higher the
profitability will be higher and the risk will also be higher. The results showed that
the DER has a positive and significant impact on ROE and no significant effect on
the risk of investment. It is also consistent with studies conducted by Nor Isnaini
(2013) that the DER has a positive and significant impact srta not have a significant
effect on the risk of investment. We know that there are provisions for companies
listed on Islamic securities company's total debt to assets should not be more than
45%. So the size of the debt to investors has no effect on risk.
Liquidity influence on ROE and Investment Risk
Liquidity demonstrate the company's ability to pay short-term debt. The higher the
liquidity the more profitability and investment risk decreases. The results showed
that liquidity has a significant positive effect on ROE. Liquidity has no effect on the
risk of investment because investors do not consider that the liquidity of companies
that demonstrate the company's ability to repay short-term obligations as elements
that affect the investment risk. Investors assume that the companies listed in JII is a
company that has been filtered based on Islamic principles so that less attention in
assessing financial ratios for the shares.
ROE influence on the Investment Risk
High profitability means that the company has the ability to generate corporate
profits, higher corporate profits, the investment risk will be even greater. ROE
research results have no significant effect on the risk of investment because investors
do not just look at the ROE as a company but also looking at the prospect of other
aspects (eg technology, production, industrial environment, etc.).

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CONCLUSIONS AND RECOMMENDATIONS
Conclusion
Results of research and discussion can be summarized as follows: (1) Inflation, kur,
and interest rates did not have a significant effect on ROE, because of inflation,
exchange rates, and interest rates do not affect the change in ROE, (2) DER and
Liquidity has influence significantly to the ROE. DER and high liquidity, the ROE
will increase, (3) Inflation and exchange rate does not have a significant effect on the
risk of the investments, because of inflation and exchange rate can already be
predicted in advance then the investors are ready to not invest in capital markets, (4)
interest rates have a significant effect on the risk of investment means that if there is
an increase in interest rates, the risk of an investment will decrease, (5) the capital
structure and liquidity no significant effect on the risk of investment, meaning that
the level of DER and liquidity do not affect the level of investment risk, (6) ROE has
no significant effect on the risk of investment, so that the ROE does not mamput
mediate the independent variable on the dependent variable.
Recommendation
Results of research it is advisable for investors and prospective investors pay
attention to internal factors (capital structure, liquidity and other fundamental factors)
companies due to internal factors will affect the profitability of Integration. External
factors. External factors will affect investment risk, therefore external factors need to
be considered in investing. Researchers further recommended to add variable good
research to external variables (eg gross domestic product), internal variables (eg:
Asset Growth, financial leverage, operating leverage, etc.), using mediating variables
other than the ROE, as well as increase the number of companies that become the
object of research.
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