Shariah-compliant Companies Research Articles

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.

Sustainability Performance and Corporate Financial Stability of Shariah-Compliant Companies in Malaysia: The Moderating Effects of Ownership Concentration

To date, sustainability performance (SUSP) has become a pivotal component that influences the corporate sectors viability, resilience and financial success in the long term. The SUSP, which portrays the corporate sectors’ engagement with the environment and community, has increasingly gained attention among the market regulators and business stakeholders especially since the launching of the UN’s SDGs Agenda in 2015. Strong SUSP contributes towards achievement of triple bottom lines (planet, people and profit) that ultimately leads to the realization of the UN’s 17 SDGs. However, there are conflicting conclusions on the relationship between SUSP and corporate financial stability (CFS) as evidenced by the previous studies. Therefore, this study attempts to examine the association between the SUSP (ESG scores) and the CFS (Altman’s z-score) using the samples of 77 Shariah-compliant public listed companies at Bursa Malaysia. In addition, this study looks into the moderating effects of ownership structure (ownership concentration) on the SUSP-CFS association. The study uses annual unbalanced panel data from 2018 to 2023 and uses the static panel analysis (fixed and random effects) to account for differences within and between companies. Although the results were not statistically significant, the finding reveals that the SUSP (ESG) is positively associated with the CFS. However, the positive association between the SUSP and CFS has weakened when there are ownership concentrations in the companies. The results imply that the corporate sectors’ commitment towards the issues related to the environment, society and governance pay off in terms of enhanced legitimacy and improved reputation, which consequently brings about the CFS. Nevertheless, the SUSP-CFS connection is deteriorated if the substantial shareholders do not approve or support the commitment towards the SUSP. The rational might be that the concentered ownerships have the belief the SUSP comes at the expense of decreased financial performance. This study has policy and managerial implications. The policy makers and regulators need to improve the ESG framework, which is still unclear and not standardized to be implemented by the corporate sectors. In addition, the government has to come up with robust ESG-related incentives to encourage the corporate sectors to undertake the SUSP. Meanwhile, the corporate sectors have to ensure clear sustainability plan and strategy besides convincing the shareholders to render strong support in committing towards SUSP.

Whistleblowing Policy Disclosure Among Malaysian Listed Shariah-Compliant Companies

Despite the fact that there are legislative safeguards to protect whistleblowers, there is no specific regulation requiring Malaysian firms to establish a standardised whistleblowing disclosure. The purpose of this research is to determine the level of whistleblowing policy disclosures among Malaysia’s top 100 shariah-compliant listed firms. The study employed a content analysis approach to determine the level of disclosure of whistleblowing policies, which were evaluated using a self-developed checklist. The whistleblowing disclosure index was created specifically utilising the guidelines given by the MCCG (2021), the OECD (2011), and Standards Australia (2003). According to this research, a substantial majority of Malaysian Shariah-compliant companies in the Top 100 do not provide thorough disclosure in their whistleblowing policies. Despite those who achieved 81 percent to 100 percent disclosure of their whistleblowing policies, a large proportion of these Shariah-compliant organisations produced less than 50 percent of the desired disclosures of their whistleblowing policies. This study is consistent with the Minority Shareholders Watchdog Group’s (MWSG) findings that the implementation of whistleblowing policies in Malaysian-listed corporations is poor. The findings of this study have significant implications for improving knowledge of the need for Shariah-compliant organisations to have effective and comprehensive corporate whistleblower policies. Hopefully, this would help regulators establish effective tools to promote whistleblowing and demand the mandatory installation of an internal whistleblowing system among Malaysian Shariah-compliant enterprises to provide better responsibility and openness to the public, consistent with the teachings of Islam.

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.

DO MARKET TIMING INCENTIVES AFFECT THE DEBT-EQUITY CHOICE OF MALAYSIAN SHARIAH-COMPLIANT IPOS?

Empirical and theoretical literature points out that market timing could shape financing decisions and persistently affect capital structure. However, prior studies on market timing do not distinguish between Shariah-compliant and non-compliant firms although Shariah compliance considerations may affect market timing incentives. This paper aims to fill this gap in the literature by investigating whether market timing theory is relevant in the case of Shariah-compliant firms. We consider panel data consisting of 40 Malaysian Shariah-compliant companies that went public during the period from 1 January 2015 to 31 December 2018. We report evidence that managers of Malaysia Shariah-compliant IPOs tend to time the market by issuing equity when they perceive that their shares are overpriced and market conditions are favorable. However, the impact of these market timing on their capital structure quickly disappears. The findings provide useful implications for investors and portfolio managers interested in investing in Shariah-compliant IPOs. They should identify market timers in order to avoid low subsequent returns of equity issuers.

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.

VALUE CREATION FOR SHARIAH-COMPLIANT COMPANIES FROM THE PERSPECTIVE OF MAQASID SHARIAH: A PROPOSED FRAMEWORK

Purpose: Integrated reporting (IR) is to convey the integrated thinking (IT) process in creating value for organisations. Drawing from the framework of Maqasid Shariah, the paper seeks to propose a framework for measuring value creation for Shariah-compliant Companies (ShCCs).
 
 Methodology: Based on the existing literature on the performance of companies, this paper explores the measurements of value creation, which is arguably the consequence of integrated reporting and integrated thinking in an organization that matches the framework of Maqasid Shariah. This issue is examined by looking at the context of ShCCs in Malaysia.
 
 Findings: The findings support the contention by Shariah Enterprise Theory, which is the extension of legitimacy and stakeholders’ theory. The various measurements of value creation can be classified under the broad classification of Abu Zahrah (1997)’s Maqasid Shariah framework.
 
 Contributions: This paper enhances the understanding of value creation from the perspective of Islam, thereby contributing to meeting the initial aim of ShCCs classification, which is to fulfill the need of Muslim stakeholders. Additionally, the proposed framework provides measurements of value creation based on the Maqasid Shariah framework that can be used in future research.
 Keywords: Maqasid Shariah, value creation, integrated reporting, integrated thinking, Shariah-compliant companies.
 
 Cite as: Sutainim, N. A., Mohammed, N. F., Mahmud, R., & Muhammad, R. (2023). Value creation for Shariah-compliant companies from the perspective of Maqasid Shariah: A proposed framework. Journal of Nusantara Studies, 8(TI), 87-108. http://dx.doi.org/10.24200/jonus.vol8issTIpp87-108

Corporate Governance and Firm Performance: Do Shariah-Compliant Companies on Bursa Malaysia Exhibit Good Corporate Governance?

The intention of this study is to determine whether a significant relationship between corporate governance and financial performance exists among 100 Shariah-compliant companies listed on the Bursa Malaysia in the Consumer Products and Services sector, and whether they demonstrate good governance practices. This study extracts annual data from 2011 – 2021. Panel data analysis (Fixed and Random effects) model along with Hausman test, were adopted in this research to examine the effects of corporate governance (CG) attributes which are board size, CEO duality, number of board meetings, directors with accounting qualifications, number of Malay directors, number of women directors and board independence. Firm performance is measured by Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS). Findings of this study revealed that companies that adopted MCCG practices did not improved their overall performance, and it has minimum impact on financial performance. Keywords: Corporate Governance; Firm Performance; Shariah-Compliant; Panel Data Analysis

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.

The Relationship Between BOD Ethical Commitment and Risk Management and Internal Control System with the Performance of Shariah-Compliant Companies

Shariah companies need to maintain good performance to ensure the sustainability of companies. Shariah companies operate based on Islamic moral foundations, specifically in terms of their accountability and transparency which are considered as key values that need to be considered when conducting their business operations. However, corruption cases can affect the performance of Shariah companies. Studies have shown that Shariah-compliant companies are underperforming as compared to their conventional counterparts. Therefore, the objective of this study is to examine whether BOD ethical commitment (corporate ethics values, action to promote ethics, code of ethics and whistleblowing policy) and risk management and internal control system (content, implementation, role, objective, framework and separation section) will affect the performance of Shariah companies. Data was collected from the 2019 annual reports of 60 Shariah manufacturing companies. Data was analysed using Smart Partial Least Square. The study found BOD Ethical Commitment (whistleblowing policy) and Risk Management and Internal Control System (separation of risk management and internal control) have a significant relationship with performance. The study implies that shariah-compliant companies should focus on the disclosure of whistleblowing policy and separation of risk management and internal control system in their annual reports for them to improve their performance as disclosure of this information, will help to improve the confidence of the market to invest in them

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)

Environmental, social and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia

PurposeThis study aims to examine the impact of environmental, social and governance (ESG) practices on the financial performance of Malaysian Shariah-compliant companies over the period 2010–2017.Design/methodology/approachPanel regression models are used for this study to test the effect of ESG practices on the performance and the interaction variables to examine the impact of double ESG – Shariah screening on firms’ performance.FindingsThis study finds a positive relationship between ESG practices and financial performance, suggesting that ESG practices can enhance firm value. Additionally, the authors also find evidence that double ESG–Shariah screening can enhance the ESG relationship with performance. These results are consistent and robust to three proxies for financial performance and different estimation techniques.Practical implicationsThe positive relationship between ESG practices and performance implies that firms should improve their ESG commitment as this is consistent with enhancing performance.Originality/valueThis study presents evidence concerning the impact of ESG practices on the financial performance of Shariah companies, thereby paving the way for further studies in sustainability investments in Shariah companies.

A Study on the Differentiation of Shariah Screening Criteria for Stocks

تُعدّ الأسهم الإسلاميّة إحدى الأدوات الماليّة الإسلاميّة المتداولة في أسواق رأس المال، وقد تمّ التأكيد على النظام الاقتصاديّ القائم على الشراكة في المراحل المبكرة من تاريخ الاقتصاد الإسلاميّ مع بدء مناقشة هذا الاقتصاد. على أنّ هيكلَ الشراكة وثقافتَها لا ينعكسان في المجال العمليّ بصورة متساوية. وقد ظَلَّ المساهمون بعيدين عن استثمارات الأسهم لمدّة طويلة لتعذّر إنشاءِ هيكل شركة يعمل بصفةٍ تتوافق والشريعة الإسلامية. وقد حالت دون تأسيس هذا الهيكل الشرعي للشركات جملةٌ من الشروط غيرِ المشروعة التي يطلبها النظام التقليديّ القائم. وقد طُرحت الآراء لقبول هيكل الشركات المساهمة الحالية في سبيل القضاء على تلك الصورة السلبيّة السائدة، ولتمكين تطوير رؤوس الأموال الإسلامية؛ وفي هذا السياق قرّر مجمع الفقه الإسلامي الدوليّ في عام 1992 أنّ مبدأ المسؤولية المحدودة جائز، وسمح بالاستثمار في الشركات المساهمة، وعليه فقد سُمح بالاستثمار في الشركات المساهمة في حالة استيفائها شروطًا شرعية معينة. ثم وُضعت مع قرار السماح هذا معاييرُ مختلفة للفرز الشرعي الذي يقام لتعيين علاقات الشركة مع المحتويات غير الشرعية، لاستثمارات الأسهم الإسلامية، تختلف باختلاف المؤسسات التي توَفِّر المؤشر، وهيكلِ المؤشرات، والدولِ التي تعمل فيها المؤشراتُ، وهيئةِ الرقابة الشرعيّة. في رأيي، على أنّ الاختلاف في المنهجية التي تستخدمها هيئة الرقابة الشرعيّة عند إصدار الأحكام يشكّل أهمَّ قضية مؤثّرة في هذا التنوع. تهدف هذه الدراسة إلى إظهار كيفية تأثير الاختلاف في المنهجية على تغيير المعايير الشرعية المستخدَمة في الفرز الشرعي. في هذه الدراسة، بحثنا في الممارسات الحالية وفقًا لتصنيف المنهجية الذي أنشأناه، وخلصنا إلى أن التغيير في المنهجية غيّر معايير الفرز الشرعي.

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.

The mediating effects of sustainable growth rate: evidence from the perspective of Shariah-compliant companies

The mediating effects of sustainable growth rate: evidence from the perspective of Shariah-compliant companies