Oil price volatility and firm profitability: an empirical analysis of Shariah-compliant and non-Shariah-compliant firms

Bugshan, Abdullah; Bakry, Walid; Li, Yongqing

doi:10.1108/ijoem-10-2020-1288

Cited by 25 publications

(20 citation statements)

References 57 publications

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“…The findings are in line with Bugshan et al (2021) who indicated that the higher-level uncertainty exposes Shariah-compliant firms to higher bankruptcy risks compared to non-Shariah-compliant firms, mainly due to the restrictions imposed on Shariahcompliant firms. The financial structure of Shariah-compliant firms is less dynamic and flexible, especially in relation to external financing options (Bugshan et al, 2021b). Thus, cash reserves play a crucial role in the survival of Shariah-compliant firms.…”

Section: Regression Resultsmentioning

confidence: 99%

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Alnori

Bugshan

2022

IMEFM

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Purpose This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance. Therefore, the objective of this study is to analyze the significant relationship of liquidity on Shariah- and non-Shariah-compliant corporations. Design/methodology/approach This study sample includes non-financial firms listed in six Gulf Cooperation Council (GCC) markets between 2005 and 2019. The study uses panel fixed effects and the dynamic generalized method of moments (system-GMM) models to test the relationship between cash holding and firm performance. The firms’ performance is measured using four widely used proxies representing book and market measures of performance including return on assets, return on equity, earnings before interest and tax to total assets and Tobin’s Q. Findings The results explore that the nature of the relationship between cash holdings and performance varies across Shariah-compliant and non-Shariah-compliant firms. Specifically, cash holdings are positively and significantly related to Shariah-compliant firms’ performance. However, cash reserves are not significantly related to conventional firms’ performance. These findings indicate that Shariah-compliant firms rely more on their cash holdings to avoid costly and less available external financing, meet everyday business needs and invest in profitable projects. In contrast, the value for cash holding is less important for non-Shariah-compliant firms, as their external financing options are less restricted compared to Shariah-compliant firms. Research limitations/implications This study is not free from limitations. More specifically, the sample of this study comprises of firms listed in GCC countries, which share common features. It would be interesting for future research to examine the linkage between cash holdings and Shariah-compliant and conventional firms’ performance by applying a larger sample, such as firms located in countries of the Organization of Islamic Cooperation. Practical implications The findings of this paper provide useful insights for managers and investors on the important role of cash management for Shariah-compliant firms. Policymakers and bankers need to develop Shariah-based financial products to ease Islamic financing sources. Moreover, the findings of this paper call for more research on the importance of liquidity management for Shariah-compliant firms. Originality/value This study extends the Islamic finance literature by exploring the key role of cash holdings to Shariah-compliant firms. To the best of the authors’ knowledge, this study is the first study to investigate cash holdings and performance between Shariah-compliant and non-Shariah-compliant firms.

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Section: Regression Resultsmentioning

confidence: 99%

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Alnori

Bugshan

2022

IMEFM

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“…Because sharia-compliance businesses have limitations whereas non-compliant businesses do not, the impact of oil price volatility is larger on sharia-compliant businesses than on nonsharia compliant businesses (Bugshan et al, 2021). As a result, additional Islam-compliant instruments should be developed to compete with existing instruments in order to help sharia-compliant firms manage uncertainty.…”

Section: Discussionmentioning

confidence: 99%

“…Sharia-compliant firms are subject to constraints whereas non-shariah compliant firms are not, therefore the impact of oil price volatility is greater on sharia-compliant firms than on non-shariah compliant firms. As a result, non-sharia compliant firms are better equipped to deal with short-term uncertainty (Bugshan et al, 2021).…”

Section: Sharia-compliant Organizationmentioning

confidence: 99%

Systematic Literature Review on the Relationship Between Islam and Organizational Performance

Annuar¹,

Kasuma²

2021

IJARBSS

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Since most research on Islam and organisational performance focus on specific area such as finance, human capital, banking services, waqaf, and entrepreneurship, this paper will attempt to study the overall relationship between Islam and organizational performance using systematic literature review without restricting its scope only on specific area of study, business or industry. This study is guided by adapting RepOrting standards for Systematic Evidence Syntheses (ROSES) review protocol. Based on thematic analysis, this study has identified five main themes -financial affairs, sharia-compliant organizations, Islamic human capital, social and network affairs, and environmental issues and tourism, and two subthemes -organizational roles, and Islamic banking. This research made several key contributions to the field's practical applications and body of knowledge, namely the role of Islam in organizational performance, the identification of the shortcomings of the implementation of sharia-compliant products and services. Future research should look further on how to improve the shortcomings that have been identified in this study, which include the products and services offered by Islamic financial institutions, and how these institutions can improve their services further to benefit their stakeholders even more.

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“…The effect of the oil price on a business and a nation is equivalent for a variety of businesses and alliances. Using panel fixed effects and the generalized method of moments, Bugshan et al (2021) conducted a study between 2005 and 2019 on oil price volatility and the corporate profitability of Shariah based and non-Shariah based businesses. It was found that during periods of significant oil price fluctuations, Shariah-compliant firms were more likely to fail than non-compliant businesses, according to the research.…”

Section: Literature Reviewmentioning

confidence: 99%

Oil Price Volatility and Equity Valuation of Listed Energy Companies in Nigeria: A Panel ARDL Model

Okodua

Urhie²,

Erhi³

et al. 2022

IJEEP

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The study investigates the nexus between oil price volatility and market valuation of listed energy companies in Nigeria, within a dynamic heterogeneous panel model framework. The paper utilizes the pooled mean group estimator in analysing the hypothesized relationship among equity valuation of listed energy companies in Nigeria, oil price volatility, and two control variables – firm profitability and inflation rate. The overwhelming weight of the evidence emerging from key findings of the study indicates that a distinct difference exists between the short-run impact of oil price volatility on the equity valuation of oil firms in Nigeria from the long-run impacts. While the short-run results show a mix of negative and positive, but statistically significant impacts of oil price volatility on equity valuation across listed oil firms, the long-run results indicate a statistically significant positive impact of oil price volatility on the stock valuation of energy firms in Nigeria. The short-run results are highly suggestive of the important role of the level of risk investors are willing to accommodate in their decisions to invest in stocks under different economic scenarios, in explaining stock returns for each of the oil-producing firms in Nigeria. The paper concludes that the risk premium investors place on stocks of oil companies is central in explaining the short-run impact of oil price volatility on the equity valuation of oil firms in Nigeria.

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Oil price volatility and firm profitability: an empirical analysis of Shariah-compliant and non-Shariah-compliant firms

Cited by 25 publications

References 57 publications

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Systematic Literature Review on the Relationship Between Islam and Organizational Performance

Oil Price Volatility and Equity Valuation of Listed Energy Companies in Nigeria: A Panel ARDL Model

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