Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: a case study of Malaysia

Abstract

Purpose Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be “Shari’ah-compliant” and what form of connections it can have, even in theory, to either the firm’s value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari’ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally. Design/methodology/approach Panel data on 634 Shari’ah-compliant firms have been used in this study for the period of 2000–2014. Findings The results indicate that Shari’ah compliance adds to the value of firms as firms perform transactions according to Shari’ah while avoiding non-permissible activities. Originality/value This study adds value to the existing literature by showing the statistical results for the impact of Shari’ah compliance on the performance of the listed firms on Bursa Malaysia.

Examining sustainable Shari’ah compliance under shirkah-ul-milk: does Shari’ah-compliant risk matter

“…Other concerns contributing to such Shari’ah-complaint risks include a crisis in the understanding of the Shari’ah law and inadequate knowledge of Islamic economics, finance and banking (Griffis and Whipple,2012). Due to the previous banks’ policies that people and government have become accustomed to, environmental and distributional risks are considered to be severe in Islamic banks, as co-existing rivals strive to maximize profits at the expense of social welfare and justice (Saba et al , 2021). More importantly, if internal controls are appropriately implemented by Islamic banks to execute Shari’ah law, regulatory risks will not be confronted with Shari’ah-compliant risks (Ergas et al , 2001).…”

“…The following Shari’ah-compliant risks can be effectively managed as follows: Islamic banks must develop their structures on the principles of fairness, justice and economic welfare to design their products, policies and profit distribution for depositors, shareholders and the Government (Saba et al , 2021). Islamic banks urgently require institutional setups in the Shari’ah, management, audit and regulatory boards to flourish as authentic Islamic financial agents (Duffy, 2014).…”

“…The study focuses on a number of concerns that may be addressed to accurately convert hire purchase modes into Islamic permissible products: The true facts, which are responsible for the non-compliance in hire purchase, include academic deficiencies, as well as the intention of Shari’ah board members, directors and operational management, all of which have resulted in a resemblance between Shari’ah-compliant and conventional banking products. Bearing in mind that Shari’ah-compliant products will have trade characteristics, economic justice, social welfare and profit distribution principles embedded in their essential features (Saba et al , 2021). With regard to the conformity of Shari’ah in banking products, the current methods are hotly contested.…”

“…Bearing in mind that Shari’ah-compliant products will have trade characteristics, economic justice, social welfare and profit distribution principles embedded in their essential features (Saba et al , 2021).…”

Does Islamicity matter for the stability of Islamic banks in dual banking systems?

“…One segment of this research replicates the works on the impact of personal religiosity on corporate risk-taking in countries not affiliated with the Islamic faith ( Hilary and Hui, 2009 ; Kanagaretnam et al., 2015 ). It looks at religiosity as a concept reflecting individuals’ varying propensities to comply with a set of faith -derived beliefs, ethics, principles and practices such as Sharia law ( Saba et al., 2021 ). Personal religious beliefs drive personal traits such as ethics, honesty, and organisation behaviours, including agency costs, dividend policy, and corporate risk-taking ( McGuire et al., 2012 ; León and Pfeifer, 2017 ; Cebula and Rossi, 2021 ).…”