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Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on firms’ financial hedging strategy.

Based on data of 250 nonfinancial firms listed on Bursa Malaysia from 2010 to 2018 (2,250 firm-year observations), the authors test the impact of forex exposure based on a vector of foreign-denominated cash flows (FCF) indicators and firms’ Sharīʿah-compliant status on two proxies of financial hedging decisions, namely, the ratio of the notional value of currency derivatives to total assets and a binomial measure of hedging status. The hedging decision models are estimated using panel logistic regression and system generalized method of moments.

The results indicate significant positive effects of the forex exposure indicators on firms’ propensity to hedge. However, the impact of forex exposure is most prevalent via total FCF. The results also reveal significant positive effects of Sharīʿah-compliant status on firms’ propensity to hedge but its negative impacts on the value of currency derivatives they use. The results suggest that Sharīʿah-compliant firms refrain from engaging in currency derivatives to avoid riba’ and subsequently subdue the clientele effect. However, when the forex exposure reaches higher levels, engagement in currency derivatives becomes a matter of tentative necessity (dharurat).

This study relies exclusively on the disclosure of foreign currency risk and management data in the annual reports of listed companies. Consequently, this limits the sample size to only those nonfinancial listed companies with complete data for the study period. Also, since none of the companies reports using Sharīʿah-compliant derivatives, the authors thus assume that they use derivative instruments that tolerate “riba.”

Given the significance of forex exposure on hedging decisions, the accounting profession must strictly adopt FRS 7 and FRS 139 for all listed firms to avoid market scrutiny and sustain their clientele. The results also call for the Islamic market regulators to include mandatory disclosure of conventional currency derivatives in screening firms for clearly prohibited activities to help enhance the credibility of its Islamic financial market.

Due to difficulty accessing relevant cash flow data, the study is among the few studies that measure forex exposure using FCF and test more proxy indicators. This study is perhaps the first to examine the Shari’ah perspective on currency derivatives in corporate forex risk management.

There are two purposes to this study: first, to identify the status of ḥiyal (legal devices) in the offering of deposit products based on the tawarruq contract in the Malaysian Islamic banking industry and second, to identify the reasons for the widespread offering of tawarruq-based deposit products by Malaysian Islamic banks (IBs).

The study uses the qualitative method that involved interviews with Malaysian Sharī‘ah experts and Islamic banking operations experts.

The findings show that Malaysian IBs resolved to use the tawarruq munaẓẓam contract in deposit products due to several constraints in the existing banking system and in view of customer preferences.

This study solely focuses on tawarruq-based deposit products due to its extensive application in the Malaysian Islamic banking industry.

The implication of the study is that more stringent procedures are required in the offering of tawarruq-based deposit products as they are extensively utilised and have sparked controversy among Sharī‘ah scholars. Moreover, to retain Malaysia's Islamic banking reputation and trustworthiness, new and less controversial contracts must be developed.

This paper discusses the extensive usage of ḥiyal-based contracts such as tawarruq in Islamic banking institutions' deposit products, with justifications from Malaysian Islamic banking experts. The widespread use of the tawarruq munaẓẓam contract in deposit-based product offerings is based on a reasonable view considering the constraints that Malaysian Islamic banking is currently facing, with strict operation procedures by Bank Negara Malaysia to ensure real operations and to avoid fictitious elements. This paper reveals the use of tawarruq munaẓẓam in deposit products which allows the Islamic banking industry to operate effectively under Malaysia's dominant conventional banking system.

This article seeks to propose a defined set of Sharīʿah standards and guidelines for the charity account in order to provide clear guidance to Islamic financial institutions (IFIs) and eventually create a standardised practice in the management of the charity account by IFIs worldwide.

This article is based on a literature review regarding the origin and concept of the charity account for IFIs. It makes reference to various primary Sharīʿah sources and contemporary Sharīʿah standards pertaining to impermissible income as it relates to the charity account. It also analyses secondary sources of reference, in particular research papers and case studies on the same subject matter.

This article proposes relevant Sharīʿah standards required for the better functioning and standardisation of the charity account application by IFIs.

This article will help IFIs, standard-setting bodies and regulators to develop a defined charity account framework. It also addresses the gaps discussed in past research and case studies that have not been resolved to date, particularly on the determination and management of charity accounts at the level of IFIs.

The charity account will be better controlled and thus eliminating potential reputational issues arising from collecting and disbursing commitment to donate amounts (CDA).

The charity account distribution will be better managed and thus of more benefit to the society and recipients.

This article promotes the idea of standardisation in the practices of charity accounts, especially in terms of sources and disbursement.

This paper aims to systematically review the existing studies on the relationship of Sharī'ah governance (SG), as represented by the Sharī'ah supervisory board (SSB), with firm performance of Islamic banks (IBs), to suggest opportunities for future research in this field.

By adopting a systematic literature review, 21 empirical and theoretical papers published in Scopus concerning the relationship between SSB and performance of IBs were selected for review and analysis.

In light of the existing research studies' limitations, this paper suggests that the effect of SSB on IBs' performance still requires more empirical analyses using alternative analytical methods, alternative measures, and different periods (during crisis and non-crisis). Besides that, these studies should take into account the differences across jurisdictions in their SG models, the degree of agencies' intervention in SG practices, the control over cross-memberships of scholars, and the differences across IBs in the position of SSB in the organization structure.

The analysis undertaken in this paper would address the literature gaps on the effect of SSB on IBs' performance as this study serves as a guide for the researchers, academicians, and interested researchers from Islamic international autonomous non-for-profit organizations, e.g. AAOIFI and IFSB in research related to this important area. Importantly, the findings of this study would support regulators and related authorities across jurisdictions with suggestions on improving the current SG practices.

This paper presents a critical review of the existing research on SSB and IB performance and suggests new variables, measurements, analytical methods, and new issues for researchers in this area. Thus, it identifies the literature gap that still needs further empirical investigation and a suitable way to close it.

Islamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all relevant IFI regulations are in line with Sharīʿah rules and principles. Effective implementation of the Shariīʿah-compliance function will further promote stakeholder confidence, as well as the integrity of IFIs, by reducing Shariīʿah non-compliance risks. This study aims to examine the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and explore the extent to which it can be incorporated in the Sharīʿah-compliance function of IFIs.

This study adopts a qualitative method of inquiry, utilizing the inductive method and content analysis to build comprehensive knowledge that will assist in exploring the framework of COSO methodology and the extent to which it can be adopted by IFIs.

The findings indicate that the existing frameworks of Sharīʿah governance, whether that of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or Bank Negara Malaysia (BNM), need to be further developed. Therefore, the adoption of COSO methodology in the internal Sharīʿah audit of IFIs, as suggested by AAOIFI, is not only possible but desirable. The study also finds that the COSO framework places the highest priority on risk management in that it makes it an integral part of the decision-making process in all the institution's activities. As a result, incorporating the comprehensive COSO risk management structure within the Sharīʿah-compliance function will enhance risk management in IFIs.

This study highlights the importance of the COSO internal control framework and examines its components, principles and the possibility of its adoption by IFIs. The findings of this study are expected to contribute to enhancing the Sharīʿah-compliance function of IFIs.

The purpose of this study is to gather the perceptions of the Shari'ah committee members on what and how they safeguard and strengthen their independence in fact and independence in appearance during the discharge of their duties.

Data were gathered through semi-structured interviews with 13 Shari'ah committee members from 13 different Islamic financial institutions (IFIs).

Based on the Islamic worldview and agency theory, the findings suggest that safeguard measures within the context of the Shari'ah committee are strengthened by the following factors: presence of competencies, personal characteristics of the Shari'ah committee members, board engagement, role of the chairman in the Shari'ah committee and accountability to God. Based on the agency theory, it can be suggested that the characteristics of the Shari'ah committee and the presence of an effective governance structure are able to minimise threats to the independence of the Shari'ah committee and enhance its effectiveness.

The insights from this study highlight that proper and fit criteria need to be enhanced to ensure the independence of the Shari'ah committee members when performing their roles for IFIs. Moreover, it shows that board engagement and chairman involvement in overseeing the Shari'ah committee in the discharge of its duties is able to improve the independence of the Shari'ah committee both in fact and in appearance.

This study contributes to the evidence on safeguard measures in the Malaysian context, which is highly regulated in relation to the Shari'ah governance practices in IFIs. This evidence could be considered by other Shari'ah committees in different contexts.

This paper aims to explore the challenges facing the development of a takāful retirement annuity plan in Malaysia. It also aims at exploring a new platform to re-launch the same product after being withdrawn from the Malaysian annuity market a few years ago.

The research adopts a qualitative approach to address the possible challenges hindering the development of a takāful retirement annuity plan in Malaysia. The research will not discuss the Sharīʿah issues deemed settled in previous researches but will only focus on technical challenges related to the instruments of investment and prudential measures.

The research found that various challenges face the development of a takāful annuity plan in Malaysia. Some of those challenges are the downsizing of the ṣukūk market, the shortage of long-term ṣukūk, longevity risk and risk-based capitalization. The research found that there is a need for a diversified portfolio of securities instead of solely using ṣukūk as an investment instrument in this product.

Re-launching the takāful annuity plan in Malaysia requires the identification of actual challenges facing the development of such a product. The product purported to be re-launched would benefit a large segment of retirees who do not have enough savings during the retirement age. The introduction of such a product will also expand the takāful market in annuities, which remains untapped.

This paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European product designed to protect the most vulnerable of investors, UCITS funds.

This paper builds on 128 time-series regressions using various factor models to analyse the risk-return relationship of 242 Islamic and UCITS funds relative to a market benchmark, over a 10-year period starting January 2006, to capture severe bear and bull market conditions.

Islamic funds do not face a competitive disadvantage arising from their strict compliance with Sharīʿah principles, and their performance and investment style is relatively similar to UCITS schemes.

Islamic funds represent a low risk investment due to their very mild betas. Therefore, when forming part of a diversified portfolio, they can act as a hedging tool against adverse market movements.

Muslim investors are not punished relative to conventional retail investors when following their own beliefs. Other investors can consider Islamic funds in their portfolio allocation, especially those who seek socially and ethically responsible investments.

This paper fills a lacuna in the existing literature, because the sample is made up of Islamic funds established worldwide and includes not only equity, but also fixed income and mixed allocation funds.

This paper aims to measure investors' perception of the rights issue announcement of publicly listed companies in five stock markets of Islamic countries. Then, these firms are grouped according to their debt level to examine whether abnormal returns are different from those that are highly leveraged. Moreover, Sharīʿah compatibility of firms is checked to understand if return anomaly shows different behaviour around rights issue announcement days.

The analysis period includes the years 2010–2019, which includes 362 rights issue announcements. The event study methodology is applied to measure the level of impact that is triggered by the rights issue announcements. Hereafter, one-way ANOVA test is performed to identify whether there exists a difference among the sample groups according to their debt level.

Findings suggest that rights issue announcements cause −3.90% fall in share prices on average for the whole sample. However, negative abnormal return is found significant only in Egypt and Turkey. Individual regression analysis results suggest that an increase in debt level worsens the return anomaly only in Egypt. This refers that the rights issue announcement is perceived as less favourable for highly leveraged companies compared to others in this country. Finally, Sharīʿah-compliant companies show better performance compared to non-compliant counterparts around the event dates.

This paper is novel in evaluating market reaction during rights issue announcements in multiple Islamic countries. Also, to the best of the authors’ knowledge, this study is the first attempt to compare return behaviour of Sharīʿah-compliant and non-compliant firms around the rights issue announcements.

This study aims to investigate Malaysian stock market efficiency from the view of Sharīʿah-compliant and conventional stocks based on the effectiveness of technical trading strategies.

This study uses unconventional trading strategies that mix buy recommendations of Bursa Malaysia analysts with sell signals generated from 10 selected technical trading strategies (simple moving average, moving average envelopes, Bollinger Bands, momentum, commodity channel index, relative strength index, stochastic, Williams percentage range, moving average convergence divergence oscillator and shooting star) that are detected using ChartNexus. The period from 1 January 2013 until 31 December 2015 produces a total sample consisting of 1,265 buy recommendations of 125 Sharīʿah-compliant stocks and 400 buy recommendations of conventional stocks. The study period is extended until 31 March 2016 to provide an ample time for detecting the sell signal especially for buy recommendations that are released towards the end of 2015.

The resulting Jensen’s alpha show 8 out of 10 strategies are effective in generating abnormal returns in Sharīʿah-compliant samples while only 3 out of 10 strategies are effective in conventional samples. Prominent effectiveness of technical trading strategies in Sharīʿah-compliant stocks implies clear inefficiency in that stock market segment as opposed to those of the conventional stocks.

The results based on unconventional trading strategies provide new insights of Malaysian stock market efficiency especially in Sharīʿah-compliant and conventional stocks. The paper provides more robust findings on market efficiency as firms’ equity level data were focussed together with analysts’ buy recommendations from Bursa Malaysia.