Compliant Companies Research Articles

Corporate Attributes Influencing the Compliance of Islamic Finance: Evidence from Listed Companies under Shariah Index in India

The aim of this paper is to provide empirical evidence relating to the factors influencing the compliance of Islamic finance by Indian corporate sector. The sample comprised of the whole population of Shariah companies numbered as 190 consisted in the 500 Shariah and Nifty Shariah indices during the period of 2009 till 2014. However, after making the necessary filtration due to unavailability of data, the actual size of the sample came out to be 136 companies. The relationship between factors and the extent of compliance were analysed using Panel data regression model. The results evident that companies of larger size and higher growth rate have significant mandatory compliance. Whereas, firm size examined with net sales and board independence has withstood with compliance of voluntary and overall measures. The significant implication of our results is that it provided information on firm specific characteristics for the investors who are looking for investment in Shariah compliant companies. In this way investor would be able to keep an eye on their investment. These results may also be advantageous to the regulators in making decisions. Distinct from previous empirical research concerning to Islamic social reporting in Muslim and non-Muslim countries, this study examines the factors affecting the extent of Shariah compliance by the companies listed under Shariah Index in Indian stock exchange.

Evaluation of Long Term Performance for Initial Public Offerings using Market Adjusted Cumulative Abnormal Returns (MACAR): A Case Study of Islamic Finance in Malaysia

The main objective of this paper is to evaluate the long term performance of initial public offerings for sharia compliant companies listed on the Malaysia Stock Exchange. The number of selected companies is 17 that issued initial public offerings (IPO) in the year of 2014 and 2015. Data for analysis in this study are collected from Thomson Reuters Datastream. The daily stock price is collected and then averaged to attained monthly share price. Next, this study using market adjusted cumulative abnormal returns (MACAR) to evaluate the performance of initial public offerings. In the same time, this study implemented the Shapiro-Wilk normality test to check the normality of data distribution. The result shows the MACAR value is -46.0024 % for 17 sharia-compliant companies. The negative value indicates the companies performed less than the benchmarked market namely Kuala Lumpur Stock Exchange (KLSE). Therefore, the findings show the market performed better than companies that issued IPO. The importance of this finding is it will help investors to make a better decision in developing their investment portfolio in gaining better profit and reducing the loss. In addition, the findings also will help the financial analyst to understand the dynamic behavior of the financial environment in Malaysia Stock Exchange.

Causality among Stock Market and Macroeconomic Factors: A Comparison of Conventional and Islamic Stocks

Shari’a compliant stocks are a recent development under Islamic finance, whereby stocks are screened through Shari’a compliance filters. This study is conducted to understand and document the important monetary factors contributing in determining stock prices of Shari’a compliant companies in Pakistan. Our sample includes all 97 non-financial Shari’a compliant companies screened by Al-Meezan Investment Management Ltd, based on accounting results of 2009. We have included ten macroeconomic variables in addition to market index in our study over a ten-year period (2001-10). We use JJ cointegration and OLS regression. Results identified the four important variables including interest rate, exchange rate, foreign direct investment and market index contributing in stock returns’ variations of Shari’a compliant securities. Evidence favors multifactor model for pricing of securities at KSE.

Board Characteristics and Muslim Ownership Structure on Value Relevance of Accounting Information: Evidence from Malaysian Shariah Compliant Companies

Corporate reporting is considered important because it provides information to assist internal and external corporate annual report users in making informed decisions. The high quality of financial reporting information is really significant, since employing this information can also lead to an increase in investment efficiency. Owners or shareholders need all necessary financial information for decision making. Nevertheless, even though they own the companies but the management is carried out by a pool of professionals – managers and directors. Thus, the directors set the directions and policies for the management team to run the company’s daily affairs. The separation between ownership and managers in firms leads to the agency problem between them. This study looks into the relationship between corporate governance characteristics (the size of the board of directors, the number of Shariah background directors, number of Muslim female in board, Muslim ownership structure) and value relevance of accounting information. Findings show a positive association between board size and value relevance of accounting information in Malaysian Shariah-compliant firms. However, there is not enough evidence to prove Shariah background members on board can enhance the value relevance of accounting information. Regarding the relationship between the presence of Muslim female directors in the board and the value relevance of accounting information, the results reveal insignificant relationship. The findings also indicate that companies with large Muslim ownership are negatively significant for value relevance of accounting information.

Voluntary Disclosure, Enterprise Risk Management and Stock Price Synchronicity: Evidence from Shar¯ı‘ah Compliant and Non-Shar¯ı‘ah Compliant Companies

The study observes that low R 2 values from market model are primarily due to the reflection of firm-specific information in stock prices and not due to noise. The study explores that the extent to which stock prices become more informative depends upon the availability of firm-specific information in the market. The methodology of stock price synchronicity is applied by using a sample of 30 Shar¯ı‘ah and 30 non-Shar¯ı‘ah compliant companies which are taken from KMI 30 and PSX 100 indexes. The study explores the impact of Shar¯ı‘ah compliance on stock price synchronicity or informativeness based upon the rationale that Islam puts emphasis on disclosure and social accountability which should reduce the firm’s information asymmetry and improve the stock price informativeness. The study reports significant and positive relationship of Shar¯ı‘ah compliance and voluntary disclosure on stock price synchronicity which is not according to the hypothesis. The possible reason may be the size effect which may be moving the firms in line with the market. Moreover, the Enterprise Risk Management (ERM) practices have significant and negative impact on stock price synchronicity. It confirms that ERM helps in improving the firm’s information environment and stock price informativeness.

Voluntary Disclosure, Enterprise Risk Management and Stock Price Synchronicity: Evidence from Shar¯ı‘ah Compliant and Non-Shar¯ı‘ah Compliant Companies

The study observes that low R 2 values from market model are primarily due to the reflection of firm-specific information in stock prices and not due to noise. The study explores that the extent to which stock prices become more informative depends upon the availability of firm-specific information in the market. The methodology of stock price synchronicity is applied by using a sample of 30 Shar¯ı‘ah and 30 non-Shar¯ı‘ah compliant companies which are taken from KMI 30 and PSX 100 indexes. The study explores the impact of Shar¯ı‘ah compliance on stock price synchronicity or informativeness based upon the rationale that Islam puts emphasis on disclosure and social accountability which should reduce the firm’s information asymmetry and improve the stock price informativeness. The study reports significant and positive relationship of Shar¯ı‘ah compliance and voluntary disclosure on stock price synchronicity which is not according to the hypothesis. The possible reason may be the size effect which may be moving the firms in line with the market. Moreover, the Enterprise Risk Management (ERM) practices have significant and negative impact on stock price synchronicity. It confirms that ERM helps in improving the firm’s information environment and stock price informativeness.

The Resilience of Non-Sharia Compliant Company in Indonesia Stock Exchange (IDX) and its Determinants: Evidence from 2005-2013

The aims of this study were to examine the resilience of non-sharia stock in Indonesia, to measure the impact of macro-economic variables and micro-company specific factors toward resilience. All the data, including 30 non-sharia companies in Indonesia, are retrieved from Indonesia Stock Exchange and Bloomberg database. Our dataset spans from 2005 to 2013, the study employs GMM Estimation Approach to estimate the determinants of company’s resilience in Indonesia. The results find that profitability ratios (ROE, ROIC, NIM), liquidity ratio (CASHR, CURR), debt asset ratio, and lagged dependent variable (Mertonit-1) are found to be statistically significant determinants of Merton distance-to-default. The company size is not a good predictor of the default risk for companies observed. This study emphasizes the benefits of using several accounting-based measures in company-default prediction models.

Explicating the Corporate Governance Mechanisms of Shari’ah Compliant Companies

The paper attempts to assess and examine the disclosure of the mechanisms of the corporate governance (CG), namely, board matters, nomination matters, audit matters, remuneration matters, communication matters, and risk management matters, of Shari’ah Compliant Companies (ShCCs) for a six-year period from 2008 until 2013. By using the weighted disclosure analyses approach, CG index was developed. The study examines the annual reports of a sample of 1,122 ShCCs which was selected based on the top 500 firms (by market capitalisation) for 2008 until 2013. In this study, SPSS was applied to assess the CG disclosure. Based on the descriptive analysis, the result indicates a remuneration matters (mean: 0.55) score higher than the other mechanisms; this was followed by audit matters (mean: 0.49). The study also found that, the average disclosure level of ShCCs was relatively low. Hence, the result has important implications for the enhancement of the CG disclosure of ShCC for a wider acceptance and reputation enhancement.

Corporate social responsibility disclosure index of Malaysian Shariah – compliant companies

PurposeThe purpose of this paper is to examine the extent of Maqasid Al-Shariah corporate social responsibility (CSR) disclosure of public listed companies of Shariah-compliant companies in Malaysia.Design/methodology/approachContent analysis was used to construct the Maqasid Al-Shariah CSR disclosure index. Furthermore, the study used a checklist that covered four themes of CSR, namely environment, community involvement, human resource and product, and five elements of Maqasid Al-Shariah, namely, faith, human self, intellect, posterity and wealth.FindingsThe findings of the study show that the level of Maqasid Al-Shariah CSR disclosure index is generally low. The study found that Shariah-compliant companies revealed more community-related theme and an intellect element in their annual reports for the year of the survey.Originality/valueThis paper is one of few papers that has developed the Maqasid Al-Shariah CSR disclosure index that used the aforementioned four themes of CSR and five Maqasid Al-Shariah elements.

Towards a Gradual Methodology for Sharia Stock Rating

Researchers are used to distinguishing between Shari’ah-compliant companies and non-compliant companies, and a number of terms have appeared in that regard such as “pure companies”,” mixed companies” and “prohibited companies”. This is because it is unimaginable that all companies would be of the same degree of Shari’ah quality. Therefore, there is an apparent need for Shari’ah stock rating similar to the credit ratings issued by the international rating agencies such as Moody's, Standard & Poor's and Fitch. Shari’ah rating differs from credit rating, which focuses on the company’s solvency and its ability to fulfill its obligations. Shari’ah rating is a complement of the latter. Investors in financial markets check credit ratings to avoid failed companies. Investors in the Islamic stock market would prefer the most Shari’ah-compliant companies; that is, those with the highest Shari’ah quality rating; and they would avoid the stocks of lower purity that is, those with the lowest Shari’ah quality rating. This study presents an appropriate methodology for rating of Shari’ah-compliant stocks.

Risk and Returns in Shari’a Compliant Cross-Section Stocks: Robustness Test of Application and Anomalies of CAPM

Islamic finance is relatively new branch of knowledge whereby activities of market participants are regulated by Shari’a (Islamic law). Islamic finance is expanding to capital market in addition to traditional banking services. This study is intended to understand and document the asset pricing mechanism of Shari’a compliant securities. We selected the well researched market index variable under conventional capital market studies to test the impact in variation of stock returns on special Sample of Shari’a compliant companies on ten years monthly data (2001-10) from Datastream. We have tested basic equation of CAPM and its modified form Shari’a compliant asset pricing model (SCAPM). We also tested the return differences due to size, B/M, PER and CFY. Results favoring the strong impact of market index on stock returns (70%) and confirm the Anomalies of size, B/M, CFY and PER, while SCAPM turned slightly better in explaining variations of cross section stock returns.

Analysis of Factors Affecting The Disclosure of Islamic Social Reporting (Empirical Studies on The Shariah Compliant Companies in The Sharia Securities List).

The aim of this study is to obtain empirical evidence about factors that affect Islamic Social Reporting (ISR) in the Sharia compliant companies in Indonesia. The factors that used in this study are: company size, profitability, industry type, and ownership of Islamic securities. Measurement of Islamic Social Reporting is based on the Islamic Social Reporting Index developed by Othman (2010). The sampling method in this study is purposive sampling using companies that listed in Sharia Securities List on the year 2013. The analytical techniques was conducted by multiple regression method which showing that company size influences positively the Islamic Social Reporting (ISR) disclosure, meanwhile profitability, industry type, and Islamic securities ownership have no significant effect to the Islamic Social Reporting (ISR) disclosure in Indonesian Sharia Compliant companies

Evaluation of total risk exposure and insurance premiums in the maritime industry

The empirical evaluation of maritime risk exposure is based on the monetary value at risk (MVR) that incorporates individual safety quality data of about 130,000 vessels, insurable values related to various potential damages, and proxies for fractions of values lost at incidents. MVR provides a tool to enhance strategic planning of maritime administrations and insurance providers, which is illustrated by a high level comparison of annual risk exposure with insurance premiums for 2010–2014. The analysis reveals a global annual insurable value of 30.6 trillion USD with associated annual MVR of 38.8 billion USD for very serious and serious incidents. Although oil tankers show the highest risk exposure (1.75million USD per tanker per year), safety qualities are found to be best for this ship type (1.4% annual incident risk) and worst for container vessels (2.8%). Annual growth rates in total risk exposure are mostly positive with highest value for dry bulk carriers (27.8%), whereas risk exposure tends to decline for pollution of oil tankers (−2.0%) and passenger vessels (−11.3%), and for loss of life of oil tankers (−1.9%) and dry bulk carriers (−1.4%). Comparison across administrative dimensions reveals that most risk exposure lies with old open registries and with beneficial owners and the Document of Compliance companies located in high income countries. Comparison with global insurance premiums suggests reasonably adequate coverage of maritime risks (excluding cargo) with under-insurance of risk by around 5% (about 1 billion USD per year), with some uncertainties remaining for actual loss fractions of the involved damages.

An Exploratory Study of the Rhetoric in CSR Reports: A Comparison of Shari’ah Compliant Company and Non –Shari’ah Compliant Company in Malaysia

This paper advances previous research in corporate social reporting (CSR) by using a taxonomy of five distinct rhetorical strategies to examine any differences in term of type of ethical categories and to identify moral attitudes towards different societal activities between Shari’ah compliant company Bank Islam Malaysia Berhad (BIMB) and Non-Shari’ah compliant company Malayan Banking Berhad (Maybank). The data is analyzed using content analysis. The findings revealed that there are different rhetoric applied in both types of companies such as Agency (profit), Benefit (collective welfare), Compliance (law and contracts), Duty and Ethos (virtue). In term of moral attitudes, both types of companies disclosed relatively similar behaviour and commitment towards CSR. This research is the first of its kind to be conducted in Malaysia by using this new approach and will contribute new insights to existing CSR literatures in Malaysia.

The Determinants of Voluntary Risk Disclosures: The Case of Shariah Compliant Companies in Malaysia

Risk reporting is essential in notifying investors on how companies manage the risks they engage in. Even though companies nowadays release information through press releases, corporate websites, and other forms of communications, they still have to disclose more information in their annual reports. The objective of this study is to examine the determinants of voluntary risk disclosures of Shariah compliant companies (ShCCs) in Malaysia, focusing on the religiosity factor and the ownership structure. A quantitative analysis using secondary data was employed as a method to assess the annual reports of 116 Shariah compliant companies in Malaysia for the financial years of 2012 and 2013. The findings of this study reveal that the voluntary risk disclosures in ShCCs on average are not more than sixty per cent. This study indicates no relationship between the religiosity of board members and directors’ ownership to the level of voluntary risk disclosure. More importantly, this study finds the relationship between the existence of government ownership and voluntary risk disclosure in ShCCs. The study adds value to the current body of knowledge in voluntary risk disclosures and suggests the importance of risk management information in the annual reports of ShCCs as Malaysia grows as a leading country in the Islamic economy.

Perusahaan syariah dan pengungkapan corporate social responsibility: Analisis pengaruh faktor internal dan karakteristik perusahaan

The development of the shariah compliant companies provides an alternative option for stakeholders to invest in accordance with shariah principles. Disclosure of Islamic social reporting (ISR) is an important point for shariah company to demonstrate its performance to stakeholders and also the extent to which companies carry out activities in accordance with shariah. This study examines the factors that affect the disclosure of ISR on companies listed in the List of Islamic Securities (DES) in 2014. The variables are leverage, liquidity, supporting bank, women in board of commissioners and the educational background of the board of commissioners (BOC). This research is conducted using ISR index developed by Hanifa and Hudaib (2007), which consist of four dimensions and 59 items. Statistical tests find empirical evidence that liquidity and educational background of BOC have positive effect on ISR disclosure, leverage and women in BOC has negative effect while supporting banks have no effect on the disclosure of ISR.

Income Smoothing and Islam: Evidence from Pakistan Shariah Compliant Companies

Income smoothing refers to the use of accounting techniques to level out net income fluctuations from one period to the next. Companies indulge in this practice to manipulate the earnings over the period in order to lower the level of uncertainty. The companies with constant earnings attract more investors as they are willing to pay more prices for company’s stock. This study examine the presence of artificial income smoothing in 64 Shari‘ah compliant companies listed in the financial market of Pakistan for the period 2008-2015. The study also takes into consideration the concept of income smoothing from an Islamic perspective. To achieve the study’sobjectives, Eckel’s index model is used. The study found that 34 percent of the companies are non-smoothers and 66 percent of the companies are smoothers in pooled sample. Among high market capitalized 32 companies, 37.5 percent of the companies are non-smoothers and 62.5 percent are smoothing companies. In 32 low market capitalized companies, 31 percent companies are non- smoothing and 69 percent companies are practicing income smoothing

Environmental Protection and Value Creation

The managers of corporations can play a significant role to protect the natural environment. This study aims to examine the environmental disclosure of 200 Shariah compliant companies for 2013 and the subsequent effect of such disclosure for the organizations. The results of content analyses of the annual reports revealed that managers from the Plantation industry disclosed more environmental information. The regression analysis revealed a significant relationship between environmental information provided and the subsequent value created for the organizations. The findings of the study can help managers to position better their environmental strategy to enhance the overall value of their organizations.

Conceptual Relationship between Corporate Governance and Audit Quality in Shari’ah Compliant Companies Listed on Bursa Malaysia

The issue of corporate governance has been a focus among researchers after the 1997/98 financial crisis. Many countries have implemented codes and guidelines of corporate governance to promote effective boards overseeing the operations of companies. In the case of Shari’ah compliant companies, boards still play a significant role and are responsible to ensure Shari’ah compliance. This paper reemphasises the conceptual relation between corporate governance mechanisms and audit quality. The corporate governance mechanisms are measured by board size, CEO duality, independent directors, financial experts on the audit committee, and the existence of an internal Shari’ah<em> </em>committee. There are numerous methods to measure audit quality including using audit fee and auditor reputation as proxies. The findings are mixed. This means that there is no consistent relationship between good corporate governance mechanisms and audit quality.

THE DEVELOPMENT OF SHARIAH-COMPLIANT LISTED CONSTRUCTION COMPANIES INDEX

It is paramount to choose the appropriate index which coordinates with the composition of a particular portfolio amid examining the performance. The purpose of this study is to examine the performance of Shariah-compliant construction sector involving construction companies listed inBursaMalaysia. The objective of this study is to develop Shariah-compliant indices comprising of construction sector and other Shariah-compliant sectors inBursaMalaysiafrom 2004 to 2014. These indices are intended to be used to assist investors to compare the performance of listed construction companies (35 Shariah compliant companies as in November 2014) with other asset classes. The data collected reflects a full year annual return of the companies in the sample for the period regardless of each company’s financial year. The findings are expected to show portfolio diversification benefits of investing in Shariah-compliant listed construction companies. This will encourage more investors, locally and internationally, to invest in Shariah-compliant construction companies.