RELIGIOSITY AND THE MALAY MUSLIM INVESTORS IN MALAYSIA: AN ANALYSIS ON SOME ASPECTS OF ETHICAL

INVESTMENT DECISION

Rusnah Muhamad

Department of Financial Accounting and Auditing, Faculty of Business & Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia.

e-mail: rusnah@um.edu.my

and

S. Susela DeviDepartment of Financial Accounting and Auditing, Faculty of Business &

Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia.e-mail: susela@um.edu.my

ABSTRACT

Various authors have cited culture as one of the powerful determinants in shaping personality and behavior of individuals. Religion, being an important element of culture, is seen as playing an important role in determining how people behave in certain situations. It is argued that religion plays an important role in the life of the Malays in Malaysia. It was further argued that religiosness or religiosity would influence decision made by an individual. This study investigates the impact of the religion of Islam, specifically Islamic religiosity on some aspects of ethical investment decision-making behavior of the Malay Muslims in Malaysia.

Keywords: Religiosity, Islam, Islamic ethical values, Investment decision-making, Malay Muslim investors.

INTRODUCTION

The relationship between the cultural environment and ethical perceptions and behavior has been widely explored (see for example Hunt and Vitel, 1986 and Choi, 2001). Culture, through its components, elements and dimensions, is seen to dictate the organizational structures, the micro-organizational behavior, and the cognitive functioning of individuals, in such a way as to ultimately affect the judgment or decision made (Choi, 2001).

Investment involves the commitment of a capital sum for benefits to be received in the future in the form of an income flow or capital gain or a combination of both (Adair, Berry and McGreal, 1994). In economic terms investment utilizes capital for maximum possible return. Schwartz (2003) defines ethical investment as a set of approaches that include social or ethical goals or constrains in making investment decision. Ethical investment from Islamic perspective would be investment that is made in accordance to the shariah guidelines.

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This study investigates the influence of religiosity on the investment behavior of the Malay Muslim investors in Malaysia. In particular, this study explores the types of investment preferred for investment, objective(s) of investment and the sources of information utilize in making such investment.

The paper is organized as follows. First section discusses the impact of culture, religion, religiosity and the Islamic ethical values. It further espouses attempts to measure religiosity as drawn from the literature. Second section sets out the research framework, followed by a discussion of the research design, data collection and analysis method in the third section. Fourth section discusses the findings, followed by the conclusion and recommendation for future research in the final section.

BACKGROUND

Culture, Religion and Religiosity

Hofstede (1980) defines culture as the norms, values and beliefs of a particular group or community in a particular area or geographic location, and shared by its members. More importantly, values are viewed as the deepest level of culture and the most difficult to change, and in turn would affect social systems and institutions in a particular country. Values are defined as the core set of beliefs and principles deemed to be desirable (by groups) of individuals (Mason, 1992). Furthermore, values are considered to be general beliefs that define right or wrong (Md Zabid and Ho, 2003). Arguably, therefore, values could affect how individuals perceive the form of behavior considered appropriate and effective in any given situation.

Religion has been identified as one of the critical elements in the cultural environment (Hunt and Vitel, 1986; Sood and Nasu, 1995) since religion affects the way in which people behave (Sadler, 1970), and it is perceived that it may affect an individual’s perception. Religion, it is claimed (Sood and Nasu, 1995), would affect individual behavior directly through the rules and taboos it inspires (Harrell, 1986) and indirectly through classification of all phenomena, development of code of conduct, and establishment of priorities among these codes (Sood and Nasu 1995). More specifically, one of the basic elements (the others are Tawheed or Unity of God and shariah or the Islamic law) of the Islamic religion is Akhlaq (or moral and values) provides a framework that shapes the moral and ethical behavior of Muslims in the conduct of all aspects of their life (Abd Halim, 1990; Saeed, Ahmed and Mukhtar, 2001). In addition, it is observed that the Holy Quran as the main sources of shariah clearly provides Muslims with a stable and flawless set of values that remain unchanged under all circumstances, unlike other cultural factors that may be influenced by changes in the economic and political environment (Abdullah and Siddique, 1986).

Measures of Religiosity

Religiosity is a difficult construct to measure (Scutte and Hosch, 1996) since there are several definitions of religiosity. Caird (1987) proposes three different measures of religiosity: cognitive (focus on religious attitudes or beliefs), behavioral (evaluate church attendance or private prayer), and experiential (query as to mystical experiences). Mookherjee (1993) defines religiosity in terms of public or participatory

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(based on church membership and the frequency of church attendance) and private or devotional religious behavior (based on the frequency of prayer, bible reading, and a cumulative score of devotional intensity).

Furthermore, it is argued that religiousness or religiosity, as an important value in the individual’s cognitive structure, can influence an individual’s behavior (Delener, 1994). According to him the pro-religious (or highly religious) individuals are likely to be more dogmatic and more conservative than are the non-religious (or least religious) subjects. As such, it is expected that the more religious person would more likely to align their behavior in compliant with their religious belief and practices. It is further suggested that those who are strongly committed to religion are both attitudinally and behaviorally capable of making decisions consistent with moral conscience (Delener, 1994).

A simple paradigm showing that the religious variable as a possible factor influencing the decision-makings process as hypothesized in the study is illustrated in Figure 1. With regard to this study, it is expected that the investment behavior of the highly religious respondents would be in conformance with the ‘desired’ as outline by the shariah. In examining religiosity in the context of the Malay Muslims society, religiosity measures adapted from Wilde and Joseph (1997) and Khashan and Kreidie (2001) that are specific for the Muslims are considered appropriate.

Figure 1Religiosity and Decision-makings (Adapted from Delener, 1994)

The Islamic Ethical Values

Islam is the third and the last of the great monotheistic religion after Judaism and Christianity. Islam is the religion that was preached by the Prophet Muhammad S.A.W. from AD 610 to 632 (S.A.W. is an abbreviation of sallallah hu alaihiwwassalam that can be translated as ‘May the peace and blessing of Allah be upon him, sometimes written as ‘pbuh’, a short for ‘peace be upon him’. These words are normally said or print when Muslims mention the Prophet Muhammad’s name). Islam is the second largest religion in the world, with 1.2 billion of followers living in various part of the world (Lewis, 2001; Metwally, 1997) comprising 18.3 percent of

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RELIGION

Highly Religious More conservative More traditional More dependent

High Dogmatic Less tolerance Less flexible More rigid

Low Dogmatic More tolerance More flexible Less rigid

Least Religious Less conservative Less traditional Less dependent

the world’s total population (Ahmad and Petrick, 2003). Islam, according to Ahmad and Petrick (2003) is one of the fastest growing religions in the world.

Islam is the religion of Allah and literally means submission, surrender and obedience (Kharofa, 1992; Ahmad, 1977) to the will of Allah and to his shariah (the Islamic law). The origins of the word Islam are in the root s-l-m, which means ‘tranquillity’, ‘peace’ (salam) or ‘to remain whole’ (Lewis, 2001). Those who ‘submit to’ this path will form the ummah, the community of Muslims. Muslims believe in the Unity of God, His Angels, the Holy Books, His Prophets, the Day of Judgment and Predestination (Qada’ and Qadar). According to Haniffa and Hudaib (2001) Qada’ and Qadar or the absolute knowledge and wisdom of God implies that human being are required to think, plan and make sound choices but they should not despair or lose faith if things do not happen as they wished/wanted it to be as God knows best. Islam is a complete way of life consisting of three basic elements, namely Tawheed (Unity of God), Shariah (Islamic law) and Akhlaq (moral and values) (Ismail, 1990). Tawheed or Aqidah is concerned with all forms of faith in Allah and his will that need to be translated into actions. The shariah is the Islamic law governing the actions of human beings, which can be categorized into two main parts, known as Ibadah (religious worship) and Muamalat (social relation). The third element is Akhlaq, which are related to moral behavior, attitude and work ethics (Satkunasingam and Shanmugam, 2004. It serves as code of ethics to be observed by Muslims in all of their conducts of life. According to Billah (2003) Akhlaq is shaped and developd in the light of a Muslim’s belief and conviction in all articles of faith. Thus, Akhlaq reflects a believer’s lifestyle and behavioral pattern in terms of belief, thought and actions.

The term ‘ethics’ according to Stoner, Yetton, Craig and Johnston (1994) is concerned with “right and wrong”. It is an individual’s personal beliefs regarding what is right and wrong or good and bad (Davidson and Griffith, 2000). According to Beekun (1996) it is a normative field because it prescribes what one should do or abstain from doing. Ethics, according to Jamal Uddin (2003) governs all aspects of a Muslim’s life.Islamic ethical philosophy has been explored from 6 main axioms, namely Unity (or Tawheed), Equilibrium, Free will, Responsibility, Khilafah or vicegerency and al-adl or justice (some authors used adalah) (Naqvi, 1981; Chapra 1992; Syed Osman, 1994).

Tawheed or unity is the vertical dimension of Islam (Naqvi, 1981). Tawheed means that there is only one supreme Lord of the universe. He is omnipotent, omnipresent and the sustainer of the world and of mankind. Bashir (1998) noted that Tawheed entails the unity of life on earth and in the hereafter, and the unconditional surrender by all to the will of God. It integrates the political, economics, social and religious aspects of an individual’s life into a homogeneous whole, which is consistent from within the individual’s himself as well as integrated with the whole Universe.

Khilafah or vicegerency is a special duty of man on this earth (see for examples the Quran 2:30; 6:165; 35:39; 38:28; 57:7). Khilafah defines man’s status and role and specifies his responsibilities (Bashir, 1998). Khilafah, according to Syed Osman (1994) implies the universal unity and brotherhood of the mankind based on the Islamic faith which claims social equality and dignity of all human being.

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Al-Adl or Equilibrium, on the other hand constitutes the horizontal dimension of Islam (Naqvi, 1981). Al-Adl (or justice) according to Syed Osman (1994) is the rendering of trusts where it is due. Trusts in this case refer to all aspects of human life including economics, social and legal both at the individual as well as at the societal levels. In a situation where conflict arises between individual and societal interest, the later should prevail (Syed Osman, 1994). Equilibrium is closely related with the concept of justice. The rendering of trusts where it is due is one of the criteria needed to achieve equilibrium.

Free Will according to Naqvi (1981) is the freedom to choose either to become God-like by realizing his theomorphic character or to deny God. However, man’s freedom is not absolute, only God is absolutely free. Responsibility is closely related to Free Will (Naqvi, 1981) in a sense that it sets limits to what man is free to do by making him responsible for what he does as explicitly stated in the Quran “Every soul is a pledge for its own deeds” (Quran, 74:38).

The recent development of Islamic resurgence throughout the Muslim world had witnesses a mounting religious commitment among the Muslim. According to Esposito (1991) this development had resulted in the increasing emphasis on the Islamic law or shariah as a main source of guidance in all aspects of life. The impact of Islamic religion on different aspects of the believers’ behaviour is quite substantial since Islam is a complete way of life (or ad-din). This study is an attempt made to investigate empirically how the Islamic faith had influence the investment behavior of Muslims investors in Muslim majority society (i.e Malaysia).

Investors and Investment Decision-making

Investors are those who receive monetary rewards from security trading (Radcliffe, 1997). There are basically two different types of investor namely individual investor and institutional investor. The main differences between the two are the amount of resources available (Foster, 1986) and the size of portfolios involved (Radcliffe, 1997). According to Foster (1986), decision by investors may be either in term of an investment focus or a stewardship focus or in some cases, both will occur simultaneously. In an investment focus, decision is emphasized on choosing the right investment portfolio to suit the requirement of the investors (Beaver, 1998; Foster, 1986). While in decision with a stewardship focus, the main concern is with monitoring the behavior of management and attempting to affect its behavior in a way deemed appropriate (Foster, 1986). In addition, the investors as capital providers would want to evaluate the management stewardship (Beaver, 1998).

Investors can be categorized into light or heavy investors based on the amount of investment (Lim, 1992; Warrent, Stevens, and McConkey, 1990). Lim (1992) in categorizing investors in Malaysia, classify those investors who have investment holding of less than RM20,000 as light investors and those with investment holding of RM20,000 and above as heavy investors. This categorization will be adopted for the purpose of this study.

Among the investment objectives identified in the literature are to have some savings for the future needs, to have steady income, to safeguarding capital and to have

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balance portfolio as well as for speculative gains (for examples Mohd Yatim, 2004; Epstein and Anderson, 1994; Epstein and Pava, 1993). In Islam, all activities must be carried in line with the shariah, thus for Muslim investors complying with the shariah will be the utmost important investment objective (Mohd Yatim, 2004;).

Investors use various sources of information in making their investment decision. Various studies conducted in this area have found the financial statements to be the single most important sources of information for individual investors (Mohd Yatim, 2004; Naser, Nuseibah, and Al-Husaini, 2003; Naser and Nuseibah, 2000; Abu-Nasar and Rutherford, 1996). In addition, other sources of information cited are stockbroker’s advices, advisory services, proxy statements, advice of friends as well as tips and rumors.

THE RESEARCH FRAMEWORK

The framework for this study is developed based on Hunt and Vitel (1986) and Deleney (1994). As shown in Figure 2, the model indicates that investment decision-making behavior of an individual is grounded in the unique characteristics of a specific culture of a society. Particularly, this study focuses on religion (in this context the Islamic religion) as the main element of culture in shaping personal values and belief of members of a society. Specifically, the study investigates the impact of religiosity on the investment behavior of the Malay Muslim investors in Malaysia.

Figure 2Research Framework

Adapted from Hunt and Vitel (1986) and Deleney (1994)

Cultural conditions play a significant role in shaping economic behavior in any society (Abdel-Magid, 1981). According to Sadler (1970) religion affects the way in which people behave, at such it is perceived that it may affect an individual’s perception and behavior (Rusnah, 2005). Islam, like other revealed religions, has its own sets of Divine values and norms with regard to human behavior at large and the economic behavior being part of it. And since investment decision is considered to be under the purview of economics decision and behavior, it is expected that the level of religious commitment among the Muslims would influence such decision. Therefore, this study seeks to examine if there is any relationship between the respondents’ commitments towards the teaching of Islam (as measured by the religiosity scale) with their investment behavior.

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Culture

Religion(Islam)

Islamic Religiosity

HighlyReligious

LeastReligious

ShariahNon-ComplianceInvestment

ShariahComplianceInvestment

RESEARCH DESIGN, DATA COLLECTION AND METHOD OF ANALYSIS

The ethical investment decision examine are the types of investment invested, objectives of investment and source of information utilizes to make such decision. The Pearson product-moment correlation coefficient and chi-square analysis were conducted to examine the relationship between the investment decision-making and religiosity of respondents.

Research Design

The questionnaire for this study is divided into three parts. Section A is related to the personal background of respondents, Section B is related to the investment behavior of the Malay Muslims investors. Finally, Section C measures the religiosity score of the respondents.

A total of 259 usable questionnaires were received from a total of 950 questionnaires sent to respondents that were selected using a convenience sampling method among the Malays around Klang Valley. According to Sood and Nasu (1995) peoples are quite reluctant to participate in research relating to religious issue, as such convenience sampling rather than random sampling were used. The questionnaire were distributed to the Malays as the Federal Constitution (Article160 [2]), states that one of the main criteria in the definition of a ‘Malay’ is that he or she must be a Muslim (Mutalib, 1990; Suffian, Lee and Trindade, 1978). The area of Klang Valley is selected as it is the central part of Peninsular Malaysia (West Malaysia) where Kuala Lumpur and Putra Jaya and other satellite town located, thereby was the highest population density in Malaysia.

Once gathered, the data were tested for normality, validity and reliability. An examination of the histogram output and the value of kurtosis and skewness indicate that all items are reasonably normally distributed. Factor analysis was conducted to determine the validity of the religiosity instrument while the Cronbach alpha coefficient was ascertain to establish its reliability.

FINDINGS

An analysis of the respondents reveals that only 235 from a total of 259 respondents responded have investment holdings. As indicated earlier investors can be categorized into light or heavy investors based on the amount of investment. The detail result on the different categories of investors and the types of intruments invested are shown in Table 1.

Table 1Category of Investors

Variables Categories Freq %Amount of Investment Below RM20,000 174 67.2

RM20,000 and above 61 23.5No investment 24 9.3

Types of Instruments Shariah approved only 143 60.9

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Conventional only 13 5.5Shariah approved and conventional 79 33.6

The result presented in Table 1 reveals that 67.2% of the respondents belong to the light investors group and another 23.5% are heavy investors. In terms of types of investments, more than half of the investors (61.9%) invested in shariah-approved instruments only, 5.5% of the respondents invested in conventional instruments only and another 33.6% of the respondents have investment holdings in both shariah and conventional instruments.

A chi-square analysis was conducted on the selected demographic variables which include gender, profession, age and monthly income. The result of the analysis was presented in Table 2.

Table 2Chi-square Analysis of Selected Demographic Variables

VariablesAmount of Investment

TotalBelow RM20,000

RM20,000 and above

No Investment

GENDER Freq % Freq % Freq % Freq %Male 77 29.7 36 13.9 10 3.9 123 47.5Female 97 37.5 25 9.6 14 5.4 136 52.5χ 2 is not significant, p=0.116PROFFESSIONBank Officer 58 22.4 25 9.6 6 2.3 89 34.4Academician 74 28.6 22 8.5 8 3.1 104 40.2Accountant 42 16.2 14 5.4 10 3.9 66 25.5χ 2 is not significant, p=0.329AGEBelow 30 Years 77 29.7 12 4.6 17 6.6 106 40.931 – 40 Years 75 29.0 24 9.3 6 2.3 105 40.541 – 50 Years 20 7.7 20 7.7 1 0.4 41 15.8> 50 Years 2 1.1 5 1.9 0 0 7 2.7χ 2 is significant, p=0.000MONTHLY INCOMEBelow RM2,000 24 9.3 5 1.9 10 3.9 39 15.1RM2,001 – RM4,000 101 39.0 15 5.8 10 3.9 126 48.6RM4,001 – RM6,000 41 15.8 18 6.9 4 1.5 63 24.3RM6,001 – RM8,000 7 2.7 9 3.5 0 0 16 6.2RM8,001 – RM10,000 0 0 7 2.7 0 0 7 2.7RM10,001 and above 1 0.4 7 2.7 0 0 8 3.1χ 2 is significant, p=0.000

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The result presented in Table 2 reveals that 47.5% of the respondents are male, while 52.5% are female. In terms of profession, 34.4% work as bank officer, 40.2% are academician and the remaining are accounting practioners working in the professional accounting or auditing firms. Majority of the respondents are below 40 years old, the other 15.8% are those in the age group of 41 to 50 years old, while 2.7% of the respondents are more than 50 years old. More than half of the respondents are earning below than RM4,000 a month. Another 24.3% earn between RM4,000 to RM6,000 per month, while only 12% had a monthly income of more than RM6,000.

The result of the chi-square analysis shows that there are no significant different in terms of the amount of investment between the male and female respondents and between the different profession (χ>0.000). However, it was found that there are significant different in the amount of investment invested by the respondents following the different in their age as well as their total monthly income (χ=0.000). It was found that more of the younger respondents belong to the light investors group which have investment of below RM20,000. This is possibly because the younger respondents have a higher amount of monthly expenditure (for examples house and car instalment) in proportion to their monthly income. The result also disclosed that more respondents from the higher income groups have investment of RM20,000 and above. As the amount of income increases, more fund are available for the investment. The following section discusses the result of factor analysis conducted to determine the different factors of the Islamic religiosity.

Factor Analysis

The principal components analysis performed extracted four factors having eigenvalues greated than 1.0. The four factors accounted for 56.25 % of the total variance. The orthogonal Varimax rotation approach was subsequently applied on the unrotated factors to obtain simpler and more meaningful factor solutions. Only those items with factor loading of 0.4 and above on a single factors were retained in this study (Hair et al., 1998).

The component items of each factor were tested for internal consistency realibility using Cronbach’s alpha coefficient. As reflected in Table 3, the alpha scores for the four factors are well above 0.6. According to Nunnally (1967) coefficient of 0.6 or 0.5 will suffice.

As shown in Table 3, there are four religiosity factors extracted. The first factor consisted of 12 items related to perception on faith and believes of the Muslims. While the second factor had 6 items which are mainly considered as highly recommended overt religious behaviour for a Muslim. Both the third and the fourth factors had only 2 items which are related to the mandatory overt religious behaviour and the mandatory financial religious duty respectively.

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Table 3Muslim Attitudes Towards Religiosity Scale (MARS)

Items Factor loadingFactor 1: Perception on faith and believes (α = 0.8825) 1. Islam helps me lead a better life 0.8012. Saying my prayers helps me a lot 0.7843. Quran is relevant and applicable to modern day 0.7524. I will continuously seeking to learn about Allah 0.7305. I believe that Allah helps me 0.7216. The supplication (dua') helps me 0.6957. The five prayers help me a lot 0.6778. I believe that Allah listens to prayers 0.6649. I believe that Allah helps people 0.65410. Muhammad (peace be upon him) provides a good

conduct for me0.562

11. Performing hajj will be my priority the moment I've fulfilled all the necessary conditions

0.484

12. I read the Quran for inspiration and motivation 0.400Factor 2: Highly recommended overt religious behavior (α = 0.8533)1. I regularly perform my qiamullail (such as

praying/reciting Quran/dua’ after midnight)0.866

2. I regularly perform my recommended prayer (i.e. sembahyang sunat such as Isra’, Dhuha and Rawatib)

0.818

3. I often fast outside the month of Ramadan 0.7534. I performed my daily prayers in the mosque regularly 0.7465. I read the Quran everyday 0.6646. I regularly spend some amount from my monthly income

for charity/sadaqah0.523

Factor 3: Mandatory overt religious behavior (α = 0.7572)1. I fast the whole month of Ramadan 0.6672. I pray five times a day 0.618Factor 4: Mandatory financial religious behavior (α = 0.6103)1. I performed the obligation of zakat fitrah annually 0.6942. I performed the obligation of zakat maal (asset/income) annually

0.665

Religiosity Scores of the Respondents

The religiosity of the respondents was determined by using percentile (Rusnah, 2005) whereby the upper and the lower thirds of the distribution are identified as the highly

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religious and least religious. Thus, respondents with scores of 101 and more were labeled as higly religious and those with score of 66 to 94 were considered as least religious. 32 % (83 respondents) of the respondents were highly religious while 34 % (88 respondents) were least religious. Only these two extreme group of respondents will be considered for further analysis.

Table 4Investment Holdings

Types of Investments (χ 2 is not significant, p=0.153)

Least Religious Highly ReligiousFreq % Freq %

Shariah approved only 41 46.6 55 66.3Conventional only 6 6.8 2 2.4Shariah approved and conventional 34 38.6 18 21.7No answer 7 8.0 8 9.6Total 88 100 83 100

The types of investment holding for the two groups of respondents were shown in Table 4. It was found that more than half of the highly religious respondents invested in the shariah approved instruments only, while 46.6% of the least religious group invested in this types of instrument. However, the result of the chi-square analysis presented in Table 4 reveals that there was no significant difference between the least religious group and the highly religious group of Muslim investors in terms of their preferences for different types of investments.

Table 5Investment Goals

Investment goals Mean Med. StandDev

Coeff. of Variance

Rank Corr. Coef.

To have some savings for the future

5.17 6 1.92 3.70 1 -0.106

To ensure shariah compliance

5.12 5 1.86 3.45 2 0.326**

To earn steady income

4.64 5 1.72 2.95 3 -0.056

To safeguard capital 4.60 5 1.82 3.31 4 -0.066To have a balance portfolio

3.04 3 1.73 3.00 5 -0.072

For speculative gains 2.58 2 1.35 1.81 6 -0.183**

The analysis of the different investment goals preferred by the respondents was presented in Table 5. reveals that the investors appear to be religiously conscious and thus speculative gains are mainly avoided as it is prohibited in Islam. Yusoff (1992) points out that Islam has discouraged speculation by giving the whole problem a moral bent. It is argued that the involvement in the speculative activities may result in the exploitation of the unfortunate parties which may force these parties to be

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involved in non permissible conduct or social illness (Mohd Yatim, 2004). The same finding was observed by Idris (1997) relating to investment goals of Muslim institutional investors whereby religious compliance is ranked number two.

It was observed that speculative gain was ranked number six among the six investment goals listed, while to have some savings for the future was ranked the first. The respondents ranked ensuring shariah compliance in the second place supporting the findings from previous research that concluded religion has got an impact on the behavior of the Malays in Malaysia (see for examples Md Zabid and Ho, 2003; Goodwin and Goodwin, 1999). The respondents rated earning steady income, safeguarding capital and having a balanced portfolio in the third, fourth and fifth places respectively. The result of the Pearson product-moment correlation coefficient reveals that religiosity are significantly correlate with investment objectives for speculative gains and to ensure shariah compliance. There is a small, negative correlation between investment objective for speculative gains and the level of investors’ religious commitment (r = -.183, p< .005). Thus, the higher the religiosity score of the respondents the least would be the preference towards earning speculative gains as their investment objectives. While in the case of investment objective to ensure shariah compliance, there is a medium, positive correlation (r = .326, p< .005). Therefore, the more religious a respondent is the more likely that he/she would be complied with the shariah rules in making investment decision.

Table 5Sources of Information

Sources information Mean Med. StandDev.

Var. Rank

Stockbrokers advice 4.19 4 1.79 3.21 4Advisory services 4.60 5 1.69 2.86 3Your analysis of financial statements

5.05 5 1.45 2.09 1

Newspaper and other media publications

4.76 5 1.45 2.10 2

Proxy statements 3.73 4 1.49 2.23 6Advice of friends 3.84 4 1.46 2.13 5Tips and rumors 3.24 3 1.74 3.04 7

Table 5 discloses the sources of information utilize by the Malay Muslim investors in Malaysia. It was found that the financial statements was ranked as the most important source of information for investment decision. Newspaper and other media publications and specialists’ advice (advisory services and stockbrokers’ advice) were also considered as other important sources of information when making investment decision. The investment advisory service is regarded as one of important sources of information for investment decision-making as it was ranked number three by respondents. It was observed that tips and rumors was rated as the last sources of information utilized for investment decision-making. Tips and rumors are define as news or opinions made based on incomplete and inconclusive evidence; conjecture or supposition (WordNet, 2003; The American Heritage® Dictionary of the English Language, 2000). Tips and rumors were normally related to speculative activities and thus are prohibited in Islam. Speculation is define as taking large risks, especially

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with respect to trying to predict the future; gambling, in the hopes of making quick, large gains (investorwords.com).

This is also in line with the God’s commands that are stated clearly in the Quran (17:36; 49:6). The Muslims are commanded to probe and verify any given statement or piece of information before making a decision or taking any action accordingly. The majority of the Muslim investors in this study have rated investment objectives for speculative gains as their last investment goal. Thus, consistence with the above result that rated tips and rumors as the last source of information used in investors’ investment decision-making.

CONCLUSION

The study suggests that the degree of religiosity has significant influence on the investment behavior of the Malaysian Malay Muslims investors. The concern, however, is that religiosity only explained less than 5 % of their investment behavior.

The Malays uphold strongly the value of self-respect or preserving face as one of the important values (Asma, 1992). As such they would not willingly disclose information regarding unacceptable religious behavior. Another possible explanation is that the Malay Muslims are deeply embedded in the various systems inherited from the British colonial that are incompatible with the Islamic values (Hussin, 1990). The findings reported in this study are consistent with Mohd Kamal’s (1986) observation of Malaysian Muslims. According to him, Islam does not influence all aspects of the behavior of Malay Muslims in Malaysia. Furthermore, only God knows the most pious individuals, because the seat of Iman or Taqwa is in the heart (Philips, undated). Man can only judge people by each other’s outwards deeds, which may or may not be misleading as clearly stated in the Quran, “There is among people in this life, he whose speech will dazzle you. And he will call on Allah as a witness to what is in his heart; yet he will be among the most vicious of enemies” (2:204).

Future research may be extended to investigate the influence of other factors on investment behavior such as marital status, total household income, and the nuber of dependents in the household. It will be useful to conduct a comparative study on Muslim societies from different parts of the world.

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