Compliant Companies Research Articles

Understanding the Screening Criteria for Shariah-Compliant Stocks

Islamic finance operates as an alternative system meeting the investment requirements of individuals adhering to Islamic beliefs. While conventional finance prioritizes stock exchanges facilitating small-scale investments, challenges arise for Muslims investing their savings in stocks due to potential conflicts between companies' activities and revenues and religious principles. This situation prompts Islamic scholars to deliberate on the permissibility of purchasing specific company stocks. Diverse scholars and Shariah boards have established precise criteria for determining the permissibility of buying a company's stocks, resulting in the development of indexes aimed at identifying compliant companies. Shariah-compliant stocks or companies adhere to the principles of Shariah law, governing various life aspects, including financial and economic activities. This study investigates Shariah screening methods, exploring their rationale, foundations, and potential religious influences, particularly focusing on five prominent Islamic indices. The study investigates Shariah justifications and motives behind these methods, discussing their evaluation through different standards. Despite scholars' varying opinions and evolving methodologies, the primary objective remains consistent: to facilitate halal income for Muslim investors while maintaining Islamic ethical principles in financial practices.

Corporate tax policy, Shariah compliance and financial decisions: evidence from Malaysia

PurposeThis study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant companies in Malaysia.Design/methodology/approachThe study considered data from a sample of 529 Malaysian listed companies from four industrial sectors from 2007–2021 (6,746 company-year observations, before eliminating outliers). Panel models such as Fixed Effect and Random effect models were used. The study specifically tested the effect of corporate income tax on dividend and capital structure policies for Shariah compliant companies (3,148 observations) and controlled for industrial sectors.Findings(1) Firms are mostly Shariah-compliant, less liquid, less profitable and smaller in size, (2) Broadly when analysed together, tax has no impact on debt-equity ratio while it has an impact on dividend per share, (3) However, when tested separately for Shariah compliant companies, the influence of effective tax on capital structure is very evident but not for dividend and (4) influence of industrial sector on the relationship between corporate tax and capital structure and dividend policy is significant. Results indicate that Shariah firms might be raising debt to gain tax advantage. Companies in general pay dividends to avoid reputational damage.Research limitations/implicationsThis study assumes that leverage and dividend policy decisions are the main outcomes of the changing tax policies, while it seems that there could be other important outcomes that can be tested in future research. The study also shows the changing tax regimes of different ASEAN countries but they have not been tested to see the differences between countries. It will be indeed interesting for future researchers to focus on this aspect.Originality/valueThe findings contribute to the literature on tax planning of the Shariah-compliant firms, a high growth business segment in the Asian context. The study discussed potential tax-based Islamic market product development.

The Effect of Sustainability Certification Towards Firms’ Profitability: The Case of Malaysian Shariah Compliant Palm Oil Companies

In Islam, the preservation of environment is one of the fundamental in maqasid al-shariah (objectives of shariah). As world’s leading hub of Islamic finance and the second largest palm oil producer, a positive respond on environment preservation had been given by Malaysia towards sustainable palm oil industry. Moreover, almost 70% of Malaysian palm oil companies are complied with shariah. It is necessary to the shariah compliant companies to put into consideration regarding environment sustainability in their main objective of the firms. Therefore, Malaysia urges these companies to adopts Roundtable on Sustainable Palm Oil (RSPO) and Malaysian Sustainable Palm Oil (MSPO) certifications which ensure sustainable operation and production of certified palm oil. However, these companies have concern on profitability over sustainability due to additional cost to subscribe the certification. Therefore, this study is conducted to identify the effect of the sustainability certification on the profitability of 29 shariah-compliant palm oil companies listed in Bursa Malaysia from 2013 to 2017. It is important to provide evidence on certified companies’ profitability to encourage more adoption of sustainability certification, promote sustainable practices and increase production certified palm oil among shariah compliant companies. The results of generalized least squares (GLS) regression show that certified companies enjoy profits that are 2.3% higher than those of non-certified companies. These findings support the sustainability policy in palm oil industry by the Malaysian through MSPO certification which became mandatory in late 2019.

Will plant-based pork meat substitutes receive halal certification?

The use of plant-based meat substitutes is growing globally for nutritional and environmental reasons. The production of meat-free food in some cases meets the needs of vegans. It may also help and/or simplify meeting religious requirements e.g., halal products for Muslim consumers. It is interesting to extend the understanding of this meat substitute from the Islamic religious perspective as Muslim believers are more concerned about the permissible food/meat which is labelled as halal. This article will report the analysis of how Islam is expected to address a plant substitute for pork, normally a prohibited (haram, unlawful) meat. The arguments presented by different scholars and several existing guidelines related to halal certification from selected Muslim countries such as Malaysia. If all the materials used in plant-based pork are considered permissible, concern over halal certification procedures remains a debatable issue. Another concern is the effect of halal certification on Shariah compliance companies that serve pork plantbased meat. All these concerns are suggested to be addressed by International Fatwa Bodies, as well as JAKIM as one of the key players in the halal industry.

Human Governance Development Index of Shariah Compliant Companies in Malaysia and Indonesia

This research aims to form a Human governance index (HGI) using Board of Directors (BOD) attributes such as BOD job experience, BOD education background, BOD education level, BOD age, BOD gender diversity, degree of integrity, BOD training and development, and the quality of the internal control system. This research is based on a review of 70 Shariah-compliant companies' annual reports for the fiscal year ending in 2019. There are a total of 70 Shariah-compliant businesses. A representative from academia checked the measurement of this study. This study revealed that HGI is higher for Malaysia than Indonesia with 0.60 and 0.48 respectively. BOD job experience index has the highest mean for both countries, indicating that the majority of BOD has more than ten years of experience and the BOD gender diversity index has the lowest mean for both countries, indicating that the majority BOD are males. BOD education background index is almost similar between Shariah companies in Malaysia and Indonesia. BOD education level index and BOD age for Malaysia is lower than Indonesia. However, it can be seen that the integrity index is much higher for Malaysia than Indonesia, as in Malaysia it is mandatory to include the statement of internal control in the annual report, but it is not the case in Indonesia. Human governance has been proven to increase organizational performance through values, norms, and ethics implemented within the organization.

Level of dissemination of information on adherence to Shariah principles: a study of Shariah compliant companies in India

Level of dissemination of information on adherence to Shariah principles: a study of Shariah compliant companies in India

Level of dissemination of information on adherence to Shariah principles: a study of Shariah compliant companies in India

Level of dissemination of information on adherence to Shariah principles: a study of Shariah compliant companies in India

The Relationship between Islamic Corporate Governance, Human Governance, Usage of Information Technology and Sustainability Reporting: Comparison of Shariah Compliant Companies in Malaysia and Indonesia

This study aims to evaluate the relationship between Islamic corporate governance (ICG), human governance (HG), and information technology (IT) usage on sustainability reporting (SR) by investigating Shariah compliant companies in Malaysia and Indonesia. Data was collected from 68 manufacturing Shariah compliant companies’ annual reports for Malaysia, and 70 manufacturing Shariah compliant companies’ annual reports for Indonesia, for the year ended 2019. Descriptive and multiple regression analysis was used to analyse the data. The study found that HG Index and IT Usage Index were positive and significantly related to sustainability reporting for Shariah companies in both countries. However, ICG was not found to be significantly related to sustainability reporting for Shariah companies in Malaysia and Indonesia. This could be because the study focuses only on manufacturing companies, and in Malaysia and Indonesia, only about 24% of the companies and 13% of the companies respectively, have an ICG structure in place. The study suggests that to increase SR of Shariah compliant companies, there should be a good HG structure in place, and they should increase their level of IT usage in their business operations. Resource-Based theory can explain the relationship of IT Usage and HG to SR.

Agency Conflicts, Dividend Payments, and Ownership Concentration in Comparison of Shariah and Non-Shariah Compliant Listed Companies

Objective - The study analyzes the agency cost, dividend payments, and ownership concentration compared to Shariah and non-Shariah listed companies. Furthermore, this paper also seeks to examine the efficiency of managers in generating and utilising revenues to pay for operating expenses by comparing shariah and non-shariah compliant companies in determining any occurrences of agency conflicts. Methodology/Technique – The sampling data were extracted from the Thomson Refinitiv Eikon Database for 5 years, from 2016 until 2020, for 567 Malaysian listed companies with a total of 2835 observations. The research implemented a One-way analysis of variance (ANOVA) to analyse the data. Findings – ANOVA tests have shown that both Shariah and non-Shariah compliant companies pay dividends to their shareholders on average between 29 percent to 35 percent on returns. Interestingly, the decisions to pay the shareholders show that the shariah-compliant companies are more likely to pay out dividends than their non-shariah counterparts. Revenue generation is also found to be higher by 62 percent. Shariah-compliant companies demonstrate statistically significant higher dividends with better asset usage or lower agency conflicts in Malaysia. Novelty - This paper is novel as it provides a thorough baseline analysis of the significant difference in agency conflicts, using both proxies, which are the dividend payments and the efficiency ratios, taking into consideration all the industries of the Shariah and non-Shariah listed companies in Malaysia. Type of Paper: Empirical J.E.L. Classification: C87, G10, G32, G35 Keywords: Agency conflicts; Shariah and non-shariah public listed companies; dividend and asset utilisation ratio; concentrated ownerships Reference to this paper should be referred to as follows: Ahmad, D.E.N.A; Banchit, A; Johari, A. (2022). Agency Conflicts, Dividend Payments, and Ownership Concentration in Comparison of Shariah and Non-Shariah Compliant Listed Companies, Acc. Fin. Review, 7(2), 124 – 134. https://doi.org/10.35609/afr.2022.7.2(5)

Sustainability Reporting of Indian Companies and the Adherence to GRI Disclosure Framework

Given that all significant stakeholders expect companies to be transparent with financial and nonfinancial disclosures, companies are under increasing pressure and are also morally obliged to adhere to voluntary disclosure frameworks. In this regard, the GRI disclosure framework (non-financials) has recently attracted a lot of attention, and listed Indian companies are about to comply with this disclosure framework. Accordingly, this study attempted to gain insights into the extent to which recorded Indian companies adhere to the GRI disclosure framework. For this purpose, we captured the sustainability reports of Indian listed companies from the GRI Sustainability Disclosure Database (SDD) for a span ranging from 20 years from 2000 onwards. The results from this study indicated that of the million listed companies in India, only a few (425 companies) submitted their sustainability reports with GRI in compliance with the guidelines. However, another interesting finding is that majority of these compliant companies are long-listed and from the ESSI industry classification. As GRI disclosure compliance gives away companies’ ethical solid governance practices, it is pretty surprising that exceptionally few Indian companies choose to do so consistently. In line with the findings of this study, we discussed practical and research implications.

The influence of audit committee characteristics on the ethical disclosure of sharia compliant companies

The influence of audit committee characteristics on the ethical disclosure of sharia compliant companies

Do CEO Overconfidence and International Diversification Strategy affect the Capital Structure of Shariah Compliant Companies?

Do CEO Overconfidence and International Diversification Strategy affect the Capital Structure of Shariah Compliant Companies?

Islamic Corporate Social Responsibility Disclosure Index: The Application of Maqasid Shari’ah and Maslahah

The paper attempts to develop the Islamic Corporate Social Responsibility (i-CSR) Disclosure index for Shari’ah Compliant Companies (ShCC) in Malaysia. The i-CSR disclosure index was constructed based on the four themes of CSR framework that was established by Bursa Malaysia in 2006, namely, marketplace, workplace, environment and community. In addition to existing CSR framework, this study incorporated the five values of Maqasid Shari’ah namely protection of faith (al-din), protection of human life (al-nafs), protection of intellect (al-aql), protection of posterity (al-nasl) and protection of wealth (al-mal).and Maslahah namely essential (daruriyyat), complementary (hajiyyat) and embellishment (tahsiniyyat). The items of the four themes were developed based on the previous study, annual report of Middle East countries, annual report of the Prime Minister’s CSR Award and National Annual Corporate Report Awards (NACRA). All of the mandatory items required by the approved Accounting Standards, Companies Act, 1965 and Bursa Malaysia Listing Requirement were eliminated in the i-CSR index. A checklist of ninety-three (93) items was used in this study after taking into consideration the ten (10) expert opinions, which were from the regulatory board Shari’ah officer from the Islamic Banking and Finance Institute Malaysia (IBFIM), Shari’ah officer from Jabatan Mufti and Majlis Agama Islam, and academicians from accounting and Islamic studies.

Human Governance Index of Manufacturing Sector of Shariah Compliant Companies in Malaysia: A Preliminary Analysis

Human Governance refers to the governors’ commitment to improve employees’ values and ethical behaviour in the organization. Humans are capital asset and key driver to a successful organisation. The objectives of the study are to explain the development of human governance index and discuss the findings of human governance index when applied to 68 Shariah-compliant companies in the manufacturing sector. Previous study used primary and secondary data. Thus, this study will combine the indices of Human Governance from previous study and will develop a more comprehensive checklist using secondary data. Human Governance Index of this study comprises 37 items which are made up of four (4) main components which are (1) BOD Leadership - which is measured by i) BOD Job Experience Index, (ii) BOD Educational Background Index, (iii) BOD Educational Level Index, (iv) BOD Age Index, (v) BOD Gender Diversity Index; (2) Level of Integrity Index; (3) BOD Quantity of Training Index; and (4) Quality of Internal Control System Index. The index has been validated by panel experts and inter-rater consistency was also conducted. The index was then used to measure the Human Governance Index of 68 Shariah-compliant companies’ annual reports for the year 2019. 68 Shariah-compliant companies are from manufacturing companies which comprise 25 consumer products, 3 healthcare, and 40 industrial products. The results of this study revealed that consumer product sector has the highest items compared to industrial product and healthcare sectors. BOD job experience index has the highest mean of 92.9% indicates that BOD has more than 10 years’ experience and BOD gender diversity index has the lowest mean of 17.6% which comprises female. Human governance Index can be used to assist companies to improve their human capital who are important assets to the company and have been proven to increase performance of companies if they are better managed.

Determinants Of Business Ethics Disclosure In Indonesian Companies

Business ethics in the company is needed as a guide for the company to carry out its operational activities. This study aims to analyze the factors the influence the disclosure of business ethics in Indonesian sharia compliant companies (SCC). The independent variables consist of board size, gender diversity, institutional ownership, managerial ownership, profitability and company size. Using content analysis, the study examines 160 data from companies listed in the Sharia Securities List (SSL). The results show that managerial ownership and company size have a positive effect while the rest have no effect on the disclosure of business ethics. Business ethics in sharia compliant companies will strengthen the identity of companies that always prioritize ethics in their business activities.

CSR Disclosure of Shari’ah Compliant Companies in Indonesia: The Extent and Quality Examination

<p><em>In Indonesia, the number of Shari’ah Compliant Companies (ShCCs) has risen since the release of a fatwa that encourages the growth of the Islamic Capital Market (ICM) in the country. ShCCs are expected to be transparent in disclosing information in their annual reports. Besides non-financial information, the ShCCs also need to provide more information on compliance with Islamic teaching in their reports. This action is to fulfill their responsibility and accountability to society. This study aims to assess the extent and the quality of the Corporate Social Responsibility (CSR) disclosure in the annual reports of ShCCs of Indonesia. The data were collected from the 2014 annual report of 100 ShCCs in Indonesia. To measure the extent and quality of CSR disclosure, a checklist comprising 33 items was constructed. This study used descriptive statistics and reliability tests as the primary statistical tests. The results showed that the extent and quality of CSR disclosure among ShCCs in Indonesia are low. </em><em>It suggests that ShCCs maintain the narrative disclosure stage rather than promote verifiable CSR information. Hence, companies must intensify the quality of CSR disclosure by providing CSR information in both quantitative and qualitative forms.</em><em></em></p>

Board of commissioners and corporate governance disclosure in Sharia-compliant companies in Indonesia

Corporate governance (CG) aims to protect the interests of stakeholders by ensuring that the company is managed properly. This study aims to examine the relationship between board of commissioners (BOC) characteristics and CG disclosure. BOC characteristics consist of board size, board independence, board meeting, educational background, and cross membership. The sample of this study was sharia compliant companies listed in Indonesia’s sharia securities list registered in the year of 2017-2020. The data were analyzed using panel data regression. This study analysis 160 data from 40 companies. The results show that the level of CG disclosure is high reaching 88.89%. It may give a positive value that the companies may already have the awareness to provide adequate disclosure regarding the implementation of CG principles. The results also show that the board independence has positive effect on the CG disclosure. The finding may have impact on the regulator and users to encourage more roles of BOC in CG disclosure.

Dividend Payments, Agency Costs and Consistency as Shariah Compliant Status: Evidence from Malaysian Listed Companies

This paper is novel as it examines public listed companies’ dividend payments and consistency in status as Shariah Compliant by the Securities Commissions in the Malaysian capital market. The study also analyses the efficiency of managers to generate revenues by comparing both shariah and non-shariah compliant companies to determine the occurrences of agency conflicts. The sample of collected data were extracted from the Refinitiv Eikon Database from the 2016 until 2020 in various industries in Bursa Malaysia. The ANOVA test shows that both the Shariah and non-Shariah compliant companies pay dividends to their shareholders between 29 to 35 % on returns average. Interestingly, the decisions to pay the shareholders show that the shariah compliant companies are more likely to pay out dividends as compared to the non-shariah counterparts. Revenue generation is also found to be higher by 62 %. Overall, shariah compliant companies demonstrate statistically significant higher dividend with better usage of asset or lower agency conflicts in Malaysia. Keywords: Shariah, public listed companies, agency conflicts, dividend, and asset utilization ratio, Malaysia, developing market

The Relationship between Islamic Corporate Governance, Human Governance and Sustainability Reporting of Shariah Compliant Companies in Malaysia

The Relationship between Islamic Corporate Governance, Human Governance and Sustainability Reporting of Shariah Compliant Companies in Malaysia

A Cross-Tabulation to Know the Relationship between Financial Performance and Leverage on a Company’s Tax Reporting and Tax Compliance

Purpose: Classify the characteristics of taxpayers in paying tax compliance based on financial performance, leverage, and tax reporting and analyze the relationship between financial performance and leverage on tax reporting and tax compliance companies. Design/method: This research was conducted at the Office of the Foreign Investment Tax Service in the Six Regional Offices of the DJP Jakarta, especially the Directorate General of Taxes (KPP PMA ENAM). The population in this study were corporate taxpayers registered at KPP PMA ENAM 2015–2018, namely 750 taxpayers. Sampling using the purposive method obtained as many as 660 companies. Cluster analysis and cross-tabulation were used as analysis methods in this study. Findings: In particular, corporate tax reporting depends on financial performance, but only on high-level corporate clusters that depend on leverage as well. While in the low company cluster (Cluster 1) tax compliance is influenced by these three variables, in the medium cluster (Cluster 2) tax compliance does not depend on these three variables, while in the high cluster (Cluster 3) tax compliance is only influenced by leverage. Originality: The cluster analysis method and the cross-tabulation method are used to analyze the effect of the financial performance and leverage variables on the tax reporting and tax compliance variables.