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Book part
Publication date: 19 December 2016

Bob Li, Mong Shan Ee, Yee Ling Boo and Mamunur Rashid

Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time…

Abstract

Purpose

Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time periods and across different markets. In spite of numerous out-of-sample tests, there is one apparent alibi – little research has been devised for steady increasing of Shari’ah compliant stocks.

Methodology/approach

This study is to examine the momentum strategy returns in a global Shari’ah compliant stock setting.

Findings

It finds strong presence of stock momentum returns for Pakistan and Malaysia. And the momentum returns are neither driven by industry momentum nor by the small size stocks. Though no momentum profits are found for the portfolios formed by global Shari’ah compliant stocks, this seems to be largely due to return reversal for the small size Shari’ah compliant stocks.

Originality/value

The strong presence of momentum profits for relatively large Shari’ah compliant stocks is a desirable trait as it indicates that the momentum trading strategies are practical and implementable.

Details

Advances in Islamic Finance, Marketing, and Management
Type: Book
ISBN: 978-1-78635-899-8

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Article
Publication date: 14 September 2018

Mohammed Abdullah Ammer and Abdulaziz Mohammed Alsahlawi

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure…

Abstract

Purpose

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts.

Design/methodology/approach

This study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression.

Findings

The initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts.

Practical implications

The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market.

Originality/value

The present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 30 October 2009

Abul Hassan

The purpose of this paper is to examine the role of Shari’ah compliant sustainable investing in the light of the credit crisis and catastrophic climate change.

Abstract

Purpose

The purpose of this paper is to examine the role of Shari’ah compliant sustainable investing in the light of the credit crisis and catastrophic climate change.

Design/methodology/approach

The paper discusses that the climate change, natural resource shortages, fuel crisis and global financial crisis, etc. will not go away just because there is a recession. In this regard, Shari’ah compliant finance has a broader responsibility to consider societal goals and should be preparing for the post‐credit crunch world. The paper evaluates the performance of Shari’ah compliant sustainable funds using the traditional measures of performance in relation to risk‐adjusted benchmarks to see if there is any ethical effect.

Findings

The paper advocates that preventing future market meltdowns and avoiding catastrophic climate change requires a new era of longterism in Shari’ah compliant sustainable investing. The study assesses the performance of the Shari’ah compliant sustainable investing. The result shows that Shari’ah compliant funds outperformed the conventional benchmark and therefore, the challenge for Shari’ah compliant sustainable investing is not to become like conventional investing but, rather, to replace.

Research limitations/implications

Shari’ah compliant sustainable finance is a recent phenomena and therefore, rigorous analytical predication of Shari’ah compliant sustainable investing variables are at present not possible using evolutionary and complex system approaches; however, such system can be fruitfully studied in future through simulation methods and certain types of econometric modeling when the long‐term data will be made available.

Originality/value

As the credit crunch has evolved into a full‐blown economic crisis, many have turned to the Shari’ah compliant finance to provide a route map out of recession. With an increasing number of conventional banks and corporations struggling to find funds to support their businesses, Shari’ah compliant financial institutions represent a potential solution to bridge the liquidity gap in the global markets.

Details

Humanomics, vol. 25 no. 4
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 11 August 2020

Irum Saba, Mohamed Ariff and Eskandar Shah Mohd Rasid

Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be…

Abstract

Purpose

Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be “Shari’ah-compliant” and what form of connections it can have, even in theory, to either the firm’s value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari’ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally.

Design/methodology/approach

Panel data on 634 Shari’ah-compliant firms have been used in this study for the period of 2000–2014.

Findings

The results indicate that Shari’ah compliance adds to the value of firms as firms perform transactions according to Shari’ah while avoiding non-permissible activities.

Originality/value

This study adds value to the existing literature by showing the statistical results for the impact of Shari’ah compliance on the performance of the listed firms on Bursa Malaysia.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

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Book part
Publication date: 17 July 2014

Roshima Said, Mazlifa Md. Daud, Leily Adja Radjeman and Noridah Ismail

The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and…

Abstract

Purpose

The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and stakeholders, the Shari’ah Compliant companies must portray their sincerity and earnestness in complying with Islamic values which may have implications on winning the trust of Muslim investors largely from oil-rich Arab Gulf Region which have flush of funds currently. Thus, the purpose of the study is to gauge the extent of the corporate ethical identity (CEI) that is being incorporated by the Shari’ah Compliant companies in Malaysia.

Design/methodology/approach

This study used the content analysis to develop CEI by adding all the items covering the four themes, which were underlying philosophy and values, interest-free and Islamically acceptable activities, developmental and social goals and environment theme. This CEI index was developed by using the dichotomous, which the score of ‘1’, if the company disclose the items and ‘0’, if it is not. The process will add all the scores and equally weighted.

Findings

The study showed that the level of communicated ethical identity disclosed in annual reports of Shari’ah Compliant companies for the year ended 2008 is relatively low with average of 23.66%. Overall, the findings of the study showed that the Shari’ah Compliant companies revealed more communicated ethical identity on Theme 1 (underlying philosophy and values) in the annual reports for the year ended 2008. In addition, in the year 2008, the findings showed that the dimension of developmental and social goals has the most influence towards the ethical identity index of Shari’ah Compliant companies.

Research limitations/implications

The source of data in this study is limited to companies’ annual report. In other words, the extent of communicated ethical identity index is constructed limited to company’s annual report. The study has shown that annual reports is not the only means or medium of disclosure. Hence, studying other forms of disclosure on communicated ethical identity could possibly complement and add value to any investigation on the nature and extent of communicated ethical identity through annual reports in the future.

Practical implications

The study is expected to alert the Securities Commission with regard to the definition of Shari’ah Compliant companies which should not just include ‘good public perception and image company’ but also the extent of the application of Islamic values in the conduct of their businesses.

Originality/value

The study provides a new benchmark of an ideal Islamic communicated CEI index based on Shari’ah principles and also past literatures. The study developed a checklist from preliminary checklist with 88 items based on Berrone, Surroca, and Tribo (2005), Haniffa and Hudaib (2007) and Roshima, Yuserrie and Hasnah (2009). In order to develop the checklist, the researchers also look on the definition of Islamic ethics defined by Khan (2009).

Details

Ethics, Governance and Corporate Crime: Challenges and Consequences
Type: Book
ISBN: 978-1-78350-674-3

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Abstract

Details

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

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Article
Publication date: 10 August 2020

Yasushi Suzuki and Mohammad Dulal Miah

This paper aims to propose two benchmarks “Shari’ah-compliant” benchmark and “Shari’ah-based” “raf’ al-haraj” (the removal of hardship) benchmark. The former benchmark can…

Abstract

Purpose

This paper aims to propose two benchmarks “Shari’ah-compliant” benchmark and “Shari’ah-based” “raf’ al-haraj” (the removal of hardship) benchmark. The former benchmark can be applied to ensure that a transaction brings “profits on sales” and not “profits on loan”, and the latter benchmark should be addressed to ensure that a transaction does not exploit the customers of Islamic banks.

Design/methodology/approach

The authors draw upon the theory of institutional economics, in particular, instrumental and procedural rationality, to argue that the believers can pay their best effort as an exercise of ijtihad to understand and incarnate the logic and rationales implicit in the Qur’anic text.

Findings

Currently, there is no benchmark that determines the profit ceiling on murabaha. The authors suggest two types of “gray-zones” – the “Shari’ah-compliant but less contributing to the removal of hardship” and the “controversial on compliance but contributing to the removal of hardship in borrowers” to use as a benchmark in endorsing less shariah-compliant Islamic products.

Practical implications

There is no benchmark or a clear-cut demarcation that can be used to endorse less Shari’ah-compliant Islamic finance. Thus, Shari’ah-compliant’ benchmark and “Shari’ah-based” “raf’ al- haraj” benchmarks can be used to guide whether a financial transaction is acceptable or not. This guideline can be of huge practical relevance for Islamic finance.

Originality/value

There is no sensible study that offers such guidelines that can be used to demarcate whether a particular financial transaction, which has no clear-cut fatwa, is acceptable or not. Hence, the current research is novel and contributes to the existing literature of Islamic finance.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 14 October 2019

Muhammad Hanif, Abdullah Iqbal and Zulfiqar Shah

This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio…

Abstract

Purpose

This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio, price-to-earnings ratio (PER) and cash flow (CF) – factors on pricing of Shari’ah-compliant securities as explanation of variations in stock returns in an emerging market – Pakistan’s Karachi Stock Exchange.

Design/methodology/approach

Initially, the authors test Fama and French (FF) three-factor model – market risk premium, size and B/M – followed by modified FF model by including additional risk factors (PER, CF and momentum) over a 10-year period (2001-2010).

Findings

Our results support superiority of FF three-factor model over single-factor capital asset pricing model. However, addition of further risk factors – including PER, CF and momentum – improves explanatory power of the model, as well as refines the selection of risk factors. In this study, CF, B/M and momentum factors remain insignificant. Traditional B/M factor in FF model is replaced by PER.

Practical implications

Based on the modified FF model, the authors propose a stock valuation model for Shari’ah-compliant securities consisting of three factors: market returns, size and earnings, which explains 76per cent variations in cross sectional stock returns.

Originality/value

To the best of the authors’ knowledge, this is the first study (which combines market-based as well as fundamental factors) on pricing of Islamic securities and identification of risk factors in an emerging market – Karachi Stock Exchange.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 5
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 15 June 2015

Catherine S F Ho

This paper aims to review the Shari’ah investment screening methodologies of 34 prominent global Islamic finance users, including index providers, Shari’ah service…

Abstract

Purpose

This paper aims to review the Shari’ah investment screening methodologies of 34 prominent global Islamic finance users, including index providers, Shari’ah service providers, Islamic banks, a regulator, an association body and fund managers.

Design/methodology/approach

A comparative analysis is performed to highlight the variances of the Shari’ah-compliant methods and principles practiced by these renowned institutions with the latest compiled data.

Findings

The two sets of business screens and financial screens are profiled separately to clearly examine the similarities and differences between the different methodologies. Some of these practitioners are more specific in their listing of Shari’ah-impermissible activities, while some are more general in allowing more businesses to be included as permissible. The majority of these users practice a two-tier method of screening: qualitative and quantitative. Under quantitative screen, the range of allowable threshold ratios on non-permissible criteria differs slightly between them.

Research limitations/implications

With the wide divergence in screening methodologies applied by practitioners, there is a general consensus in the acceptance of compliant assets from various countries and practice. Standardization is, therefore, seen as a need not only to make understanding of Shari’ah investments clear to investors but also to discourage misunderstandings between scholars and investors.

Practical implications

The suggestion, therefore, is to set globally acceptable universal Shari’ah standard methodologies which are applicable by the world Islamic financial market. These standards which are relevant and logical to global ethical investing would further stimulate investments in Islamic finance.

Social implications

With Shari’ah-compliant asset growing exponentially relative to the world’s financial assets, it is alleged that greater harmonization of the global screening methods would prevent misunderstanding and provide a clearer insight on Shari’ah investing, which could further accelerate growth of the Islamic finance sector worldwide.

Originality/value

To provide a more transparent regulatory environment and build local and regional regulatory framework through establishment of standards, there should be more consistency with minimum barriers that prevent the industry from achieving its full potential. The paper also contributes to existing literature by documenting and analyzing the qualitative and quantitative screening procedures as practiced by a comprehensive set of global Islamic finance users. It is, therefore, important to share this knowledge as an effort toward greater understanding and harmonization of the practices at the global level to accelerate growth in the industry.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 22 March 2013

Nasiruddin Jamaluddin

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand…

Abstract

Purpose

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand for alternatives within this niche community. India has the third largest Muslim population in the world – 155,477,386 in 2011. The purpose of this paper is to present the status of marketing activities of Shari'ah‐based investments and a comprehensive analysis of avenues for Islamic investments in India.

Design/methodology/approach

In India, Islamic investment is gathering pace as Muslims in the country are becoming more vocal in their demands for greater self expression. Hence, there is a great potential in India itself. Even if a small percentage of this population can be pressured to invest in the Islamic investments, the amount of money that can be brought into the system could be enormous.

Findings

The findings reveal the emergence of Islamic investment opportunities on Shari'ah‐based investments in India. This paper also provides suggestions for enhancement of Islamic investment opportunities in India.

Originality/value

With a sound economic base and with hundreds of companies complying with Shari'ah norms, India offers a huge opportunity for Islamic equity investment. If performance as a parameter is considered, it is observed that Shari'ah‐compliant investments, being low in debt and having sound fundamental principles, tend to perform better, hence large non‐Muslim investors should take the benefit of these socially responsible and above par performing Islamic investments.

Details

Management Research Review, vol. 36 no. 4
Type: Research Article
ISSN: 2040-8269

Keywords

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