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The performance of Shariah-compliant companies during and after the recession period – evidence from companies listed on the FTSE All World Index

Muhammad Tahir (Department of Accounting, Finance and Informatics, Newcastle University London, London, UK)
Salma Ibrahim (School of Business, Kingston University, London, UK)

Journal of Islamic Accounting and Business Research

ISSN: 1759-0817

Article publication date: 28 January 2020

Issue publication date: 24 February 2020

370

Abstract

Purpose

The purpose of this study is to investigate the relative performance of Shariah-compliant companies (SCCs) compared to conventional companies. This study focuses on two periods, the first being the recession period of 2007-2010 and the second, the non-recession period of 2011-2014.

Design/methodology/approach

A quantitative approach is adopted using an ordinary least square regression model. The chosen variables are those used by previous researchers in conventional studies of corporate performance. Data are selected from individual companies listed on the FTSE All World Index. This study examines two periods of time: the recession of 2007-2010 and the post-recession years of 2011-2014 to analyse performance measured by accounting returns (return on equity, return on asset and earnings per share) and market returns (stock return and price/earnings ratio).

Findings

The study found that SCCs outperformed non-Shariah compliant companies, in terms of both accounting and market returns during both periods. It was also found that size has a negative effect on performance during both periods. The degree of risk, leverage and growth has no significance in either period, but cash flow from operations has a positive effect on performance in both.

Research limitations/implications

The study could beneficially be extended by the inclusion of corporate governance variables to assess how these affect performance in SCCs.

Originality/value

In contrast to previous research carried out on indices, this study uses data from individual companies listed on the FTSE All World Index. It provides insight into the way Shariah ethics can influence performance and suggests that some of the features could be useful if adopted by conventional companies.

Keywords

Citation

Tahir, M. and Ibrahim, S. (2020), "The performance of Shariah-compliant companies during and after the recession period – evidence from companies listed on the FTSE All World Index", Journal of Islamic Accounting and Business Research, Vol. 11 No. 3, pp. 573-587. https://doi.org/10.1108/JIABR-07-2016-0082

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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