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

Abdullah Bugshan (Western Sydney University, Sydney, Australia)
Walid Bakry (Western Sydney University, Sydney, Australia)
Yongqing Li (Western Sydney University, Sydney, Australia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 10 June 2021

Issue publication date: 16 May 2023




This study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price volatility affects Shariah-compliant firms differently from their non-Shariah-compliant counterparts.


The study sample includes all non-financial firms listed on Gulf Cooperation Council stock exchanges from 2005 to 2019. In evaluating the oil price volatility–profitability relationship, static (panel fixed effects) and dynamic (system generalised method of moments) models were used.


Oil price volatility significantly depresses firm profitability. In addition, Shariah-compliant firms are more significantly affected by oil price volatility than their non-Shariah-compliant peers. The results suggest that high oil price volatility exposes Shariah-compliant firms to higher bankruptcy risk than non-Shariah-compliant firms and that positive and negative oil price shocks have asymmetric effects on firm performance.

Research limitations/implications

The findings of the paper call for more economic diversification by supporting non-oil sectors in the region and raise the need for more development of Islam-compliant products that compete with traditional instruments to help Shariah-compliant firms cope with uncertainty. Moreover, managers need to prepare quick alert and response procedures to reduce the negative impacts of oil price volatility on profitability.


To the best of the authors’ knowledge, this study is the first to explore the relationship between oil price volatility and profitability of non-financial firms. Further, the study extends prior Islamic corporate finance literature by enhancing the understanding of how Islamic corporate decisions affect firm performance during instability.



The authors would like to deeply thank Dr Faisal Alnori from King Abdulaziz University for his helpful feedback and suggestions. Also, the authors thank Prof. Ilan Alon (editor-in-chief), Prof. A. Andrea Paltrinieri (Senior editor) and the anonymous referees for very constructive comments.


Bugshan, A., Bakry, W. and Li, Y. (2023), "Oil price volatility and firm profitability: an empirical analysis of Shariah-compliant and non-Shariah-compliant firms", International Journal of Emerging Markets, Vol. 18 No. 5, pp. 1147-1167.



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