Determining factors on investors choice and intention towards investing in Shariah compliant public equity funds in Malaysia

Abstract

This study aims to analyze the empirical effect of Perceive Compatibility intermediaries on the investors’ intention towards investing in Shari’ah compliant equity funds in Malaysia. Public equity fund is an asset class where individuals or organizations can buy ownership in shares or stock of a company through a public market such as the Kuala Lumpur Stock Exchange or through the fund management companies. In the Malaysian Capital Market today, there exist two categories of public equities; one is the conventional equity fund and the other is the Shari’ah compliant equity fund or classified as Islamic equity funds. This study concerns with the Shari’ah compliant public equity funds and for the purpose of this study, the term Shari’ah Compliant Public Equity Investment shall be used interchangeably with the Islamic Public Equity Investment as both express similar connotation; differentiating it from the conventional or non-Islamic based public equity investments. The phenomenal growth of the Islamic financial system globally has undoubtedly provided positive implications on the Islamic investment equity market. Shari’ah compliant public equity funds market, despite being in the development stage, is regarded as “one of the fastest growing sectors within the Islamic financial system compared with less than ten (10) Shari’ah compliant equity funds in 1995, wheres currently there are more than 500 Shari’ah compliant equity funds worldwide, with net asset value (NAV) in excess of USD1.5trillion, and enjoying an average annual growth rate of between 12-15% from 2000 to 2018. In evaluating investors’ intention, this study employs a combination of both Theory of Reasoned Action (TRA) and Planned Behaviour (TPB) models as its underpinning theoretical framework as both theories have been widely used by past reserachers within the similar areas of researches. The specific aim is to determine which one of the variables used in this study; Attitude, Subjective Norm, Perceived Behaviour Control, Level of knowledge and Awareness, and the Perceive Compatibility has the greatest influence on the investors’ intention to invest in the Shari’ah compliant public equity funds in Malaysia. As a new contribution to the academic literature, this study examines the mediating role of Perceive Compatibility in determining the investors’ intention. The approach to this study is through the survey analysis in obtaining the primary data on investors’ intention to invest and a total of 240 valid samples from the Klang Valley area were gathered and the data were analysed using the SPSS software. This study has developed a model to measure customers’ intention towards investing in Shari’ah compliant public equity funds. The objectives of the proposed model are to explore the dimensions of the Theory of Planned Behaviour (TPB) with the integration of Islam component variable to assess the robustness of TPB with attitude, subjective norm, perceived behavioural control (PBC), knowledge and Shari’ah compliance in influencing customers behaviour intention towards Shari’ah compliant public equity investments. The results showed that Perceive Compatibility has strengthened the investors’ intention while two constructs i.e. Attitude, Perceive Behaviour Control and are also significant with the intention towards Shari’ah compliant public equity investment. However, subjective norms, and knowledge are not significant with intention towards such investments. This study will contribute to new strategies of promoting and marketing Shari’ah compliant Islamic capital market products. The findings of this study revealed contrary to popular belief and market expectation, it is proven that the expected rate of return to investment and risk appetite have not been the major criteria for investors’ choice in investing in Shari’ah compliant public equity fund in Malaysia.