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Article
Publication date: 13 June 2016

Anna Che Azmi, Norazlin Ab Aziz, Normawati Non and Rusnah Muhamad

This paper aims to examine the reasons behind the low level of Sharia-related disclosures, particularly Sharia-compliant companies, to gain an understanding on how these…

Abstract

Purpose

This paper aims to examine the reasons behind the low level of Sharia-related disclosures, particularly Sharia-compliant companies, to gain an understanding on how these companies disclose Sharia-related information in their annual reports, and how professional users of these reports search for such disclosures.

Design/methodology/approach

The study is an exploratory research based on structured interviews with individuals involved in the preparation of annual reports of Sharia-compliant companies and professional users of annual reports.

Findings

Most Sharia-compliant companies and professional users interviewed agree that the most relevant Sharia-related information is most commonly understood as the information found in the financial statement and its notes (accounting-related disclosures). Their responses indicate that there is a disjoint between the conventional disclosure practices on corporate social responsibility items and the Sharia-related information.

Research limitations/implications

The idea of full disclosure needs to be further understood from the perspectives of Sharia. This study provides insights into the types of Sharia-related information that are important for disclosure. Future research should focus on examining a larger number of companies and interviewing more professional users from different jurisdictions to generate more knowledge about the nature of Sharia information and its disclosure.

Practical implications

Users of the Sharia screening methods, especially regulators, such as the Securities Commission Malaysia should encourage the disclosure of the required aspects of Sharia in the annual reports of Sharia-compliant companies, as professional users are interested in this type of information.

Originality/value

This study offers insights into the reasons behind low Sharia disclosures in annual reports of Sharia-compliant companies.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 5 December 2020

Gökberk Can

Sharia compliance states that the compliant company operates not only under regulations but also to the restrictions and permission of Islam. This study aims to reveal…

Abstract

Purpose

Sharia compliance states that the compliant company operates not only under regulations but also to the restrictions and permission of Islam. This study aims to reveal whether Sharia compliance enhances the financial reporting quality.

Design/methodology/approach

The sample is constructed from 15 Muslim majority countries, 2,300 companies for the periods between 2005 and 2017 with 23,810 firm*year observations. Financial reporting quality is measured with discretionary accruals and audit aggressiveness. Discretionary accruals is the absolute of Kothari, Leone and Wasley’s (2005) “performance matched discretionary accruals model.” Audit aggressiveness is calculated with Gul, Wu and Yang’s (2013) model.

Findings

This study reveals the behavioral differences in financial reporting quality between Sharia-compliant and non-compliant companies. According to the analyzes, Sharia compliance increases the financial reporting quality by decreasing the discretionary accruals and audit aggressiveness. This result is supported by the robustness tests.

Practical implications

Sharia compliance is not limited to business activity, financial restrictions and supervisory board for Sharia-compliant companies. It also enhances the companies’ financial reporting quality. Robustness analysis also showed that the International Financial Reporting Standards (IFRS) increases the financial reporting quality by reducing discretionary accruals and audit aggressiveness.

Originality/value

This study contributes to the accounting literature by providing an insight on the use of Islamic financial instruments. The empirical results also show that the use of IFRS and Islamic financial instruments decreases the discretionary accruals and audit aggressiveness.

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: 23 August 2013

Saeed BinMahfouz and M. Kabir Hassan

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to…

Abstract

Purpose

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to their broader conventional counterparts. However, the impact of incorporating sustainability criteria into the traditional Sharia screening process has not so far been investigated. Therefore, the study aims to give empirical evidence as to whether or not incorporating sustainability socially responsible criteria in the traditional Sharia screening process has a significant impact on the investment characteristics of the Islamic investment portfolio.

Design/methodology/approach

The paper examines the investment characteristics of four groups of investment portfolios mainly, Dow Jones Global Index, Dow Jones Sustainability World Index, Dow Jones Islamic Market World Index and Dow Jones Islamic Market Sustainability Index. To improve the robustness of the study, the analysis was carried out at different levels. First, absolute mean return and t‐test were used to examine whether the difference between the different groups of investments is statistically significant or not. Second, risk adjusted equilibrium models, both single‐index and Fama and French multi‐index, were employed. This is to control for different risk exposure and investment style bias associated with different investment portfolios examined.

Findings

The paper finds that neither the Sharia nor the sustainability screening process seems to have an adverse impact on the performance and systematic risk of the investment portfolios compared to their unrestricted conventional counterparts. Therefore, Muslim as well as socially responsible investors can choose investments that are consistent with their value systems and beliefs without being forced to sacrifice performance or expose to higher systematic risk.

Originality/value

The study contributes to the existing literature by giving new evidence on the impact of incorporating sustainability criteria into the traditional Sharia screening process that has not so far been investigated.

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Article
Publication date: 15 August 2016

Zakaria Boulanouar and Faisal Alqahtani

The purpose of this paper is to explore the existence of underpricing in the cooperative insurance sector in the Saudi Arabian market and to examine whether Sharia…

Abstract

Purpose

The purpose of this paper is to explore the existence of underpricing in the cooperative insurance sector in the Saudi Arabian market and to examine whether Sharia compliance requirements have an impact on the level of underpricing.

Design/methodology/approach

Underpricing and the effect of Sharia compliance are analysed using a comprehensive sample of 33 insurance companies with data collected between 2007 and 2013, after taking into account market movements, as well as some factors well-known in the literature.

Findings

The authors find that underpricing not only exists but also is among the highest in the world (455 per cent), which contradicts the literature on initial public offerings (IPOs)’ pricing in highly regulated sectors. In light of one of the other findings of the authors, namely, the small number of insurance underwriters, the authors attribute these very high levels of underpricing in part to the monopsony power of insurance underwriters in Saudi Arabia. Regarding the Sharia compliance effect, they find that it does not significantly reduce the underpricing of insurance offerings. The authors interpret this as the fact that Sharia status might not be taken into account by underwriters when they price the offerings of insurance companies, due to a major drawback in the implementing regulations of cooperative insurance which have been highly criticised by practitioners.

Research limitations/implications

Future research should try to include more factors that might explain the underpricing and its determinants. Two important recommendations flowing from this study for regulatory and supervisory institutions are the need to improve disclosure and transparency conditions and to work towards reducing the monopsony power enjoyed by the underwriters. As for Sharia effect, the Saudi central bank should resolve the issue of Sharia compliance by adopting one of the Sharia-friendly models suggested by Islamic finance scholars, such as wakala or mudaraba.

Originality/value

To the best of authors’ knowledge, this paper is among the first to offer empirical evidence of the impact of Sharia compliance on the initial return of the IPOs of cooperative insurance firms.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 3
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 14 September 2015

David Mayes and Faisal Alqahtani

The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether…

Abstract

Purpose

The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether Sharia-compliance had a significant impact on the initial returns.

Design/methodology/approach

A comprehensive sample of 72 IPOs in Saudi Arabia between 2004 and September 2010 is used to analyse the initial return after adjusting it to the market movement as well as controlling for some common factors.

Findings

This paper finds that not only underpricing occurs but it is also among the highest levels in the world. While traditional factors affecting initial returns include age, market timing and firm size, it is found that Sharia compliance significantly reduces underpricing in Saudi Arabia. This may imply that Sharia compliance helps to reduce the uncertainty and consequences of the limited information inherent in IPOs.

Research limitations/implications

Further research is needed to see if the effect of Sharia compliance status on the short-run performance of IPOs extends to other Islamic countries or is a country-specific characteristic. More firms need to be examined to identify the market characteristics that drive the returns.

Practical implications

Very substantial sums are being “left on the table” and more efficient pricing of IPOs would be of considerable benefit to firms.

Social implications

By considering two different regimes, this paper offers some important lessons for the treatment of risk-taking, particularly in Islamic countries.

Originality/value

This paper is among the first to provide an empirical evidence of the impact of Sharia compliance on the initial return pattern in the IPO market.

Details

Journal of Islamic Accounting and Business Research, vol. 6 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

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Book part
Publication date: 2 September 2016

Bernard Paranque and Elias Erragragui

The objective of this chapter is twofold. It first explores the complementarities of Islamic investment with Socially Responsible Investment. Secondly, it examines the…

Abstract

Purpose

The objective of this chapter is twofold. It first explores the complementarities of Islamic investment with Socially Responsible Investment. Secondly, it examines the financial price, for investors, of being both shariah-compliant and socially responsible.

Methodology/approach

Using a value-weighted approach, we experiment the construction of a set of sharia-compliant stock portfolios with different Environmental, Social, and Governance (ESG) performance. We use the KLD ratings of 238 companies listed in U.S. stock market from 2007 to 2011. We measure and compare their performance using the model developed by Fama and French (1993) and extended by Carhart (1997).

Findings

The results indicate no adverse effect on returns due to the application of a double screening, Islamic and SRI, and show a substantially higher performance for positive governance screen during 2008–2011 periods. This outperformance cannot be explained by differences in investment style. Though, we observe significant outperformance for some ‘irresponsible’ portfolios involved in community and human rights controversies.

Research limitations/implications

The study only focuses on U.S. market. Future works should extend the experimentation to other markets.

Practical implications

This study provides a venue for Islamic funds managers to consider SRI screening as fully in line with shariah-compliance requirements, while preserving the performance of their portfolios.

Social implications

Potentially, the reconciliation of Islamic investment with positive SRI practices may foster the implementation of CSR policies by firms’ manager willing to attract Islamic investors.

Originality/value

With reference to the many studies emphasising the compatibility between CSR criteria and Islamic principles, this experimental study is the first to investigate the integration of a positive screening process designed to select companies based on their ESG performance in addition to a traditional shariah-compliant screening.

Details

Finance Reconsidered: New Perspectives for a Responsible and Sustainable Finance
Type: Book
ISBN: 978-1-78560-980-0

Keywords

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Article
Publication date: 25 June 2021

Hassan Mujtaba Nawaz Saleem and Nurwati A. Ahmad-Zaluki

The paper aims to assess the performance of investors that are discriminated based on their risk-appetite who intend to invest in listed Sharia-compliant (SC) stocks to…

Abstract

Purpose

The paper aims to assess the performance of investors that are discriminated based on their risk-appetite who intend to invest in listed Sharia-compliant (SC) stocks to maximize their portfolios’ wealth through two different models (i.e. regime-switching [RS] and non-RS).

Design/methodology/approach

Study period (i.e. November 18, 2015–May 31, 2019), well described in two distinct volatility-related bull-regime and bear-regime, is divided into in-sample and out-sample where Rs. 1.00 is invested on the out-sample start date. Each investor’s cumulated wealth forecasted through different models is checked daily throughout the out-sample period, and then, analyzed based on investors’ cumulated ending wealth, and Sharpe ratio (SR) is obtained through different models.

Findings

The ending wealth of risk-averse and risk-neutral investors obtained through RS-models increased 5.27 times while that of risk-taker investors increased 5.13 times. However, ending wealth obtained through non-RS models remained far low. The SR remained unchanged among investors. However, the SR of RS models (i.e. 1.0867) is higher than that of non-RS models (i.e. 0.8681). Overall, RS model-based investments outperformed in all categories of investors.

Practical implications

The study helps the investor during the process of portfolio diversification in their asset(s) selection and limited capital apportionment decisions. It also helps market regulators in formulating regulations and the policymakers in articulating/implementing policies that may protect the stakeholders form consequent disasters, particularly when market switches regimes.

Originality/value

The uniqueness stems from its focus on risk-appetite discriminated investors’ portfolio wealth maximization issue examined through technical analysis using two completely distinct models in the emerging market’s listed SC stocks.

Details

Nankai Business Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8749

Keywords

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: 28 February 2019

Alex Paton Schmidt

The purpose of this paper is to explore the extent by which consumer acceptance of an Islamic insurance product (Takaful) in a non-Muslim majority country would be…

Abstract

Purpose

The purpose of this paper is to explore the extent by which consumer acceptance of an Islamic insurance product (Takaful) in a non-Muslim majority country would be affected by consumer knowledge about its Islamic origins. Furthermore, this study identifies the degree to which various psychological traits and demographics of the consumers influence purchase intentions.

Design/methodology/approach

A questionnaire was distributed to a national sample of 390 respondents, half of whom were told that this insurance product is Islamic and the other half were not. The questionnaire was identical between the two groups and the only difference was the disclosure of the product’s Islamic origins. Additional measures related to consumer demographics, cognitive style and prior experience with insurance products were obtained from the respondents. Regression analysis was used to determine the drivers of consumers’ purchase intentions.

Findings

Purchase intentions for Takaful were found to be lower when the product was presented to subjects as Islamic. In addition, it was established that a consumer’s cognitive style, political orientation, yearly insurance expenditure and views of Islam influence purchase intentions for Takaful.

Originality/value

This paper is the first to explore the degree of acceptance of an Islamic insurance product in a non-Muslim majority country (USA) and to investigate the effects of a product’s religion of origin on the purchase intentions of American consumers.

Details

International Journal of Bank Marketing, vol. 37 no. 2
Type: Research Article
ISSN: 0265-2323

Keywords

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Article
Publication date: 2 September 2019

Peni Nugraheni and Erlinda Nur Khasanah

The purpose of this study is to discuss the extent to which Indonesian Islamic banks (IBs) disclose corporate social responsibility (CSR) according to the Accounting and…

Abstract

Purpose

The purpose of this study is to discuss the extent to which Indonesian Islamic banks (IBs) disclose corporate social responsibility (CSR) according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) index. It also empirically examines the determinants of CSR disclosure in Indonesian IBs, based on disclosure from AAOIFI index, which is based on Islamic principles.

Design/methodology/approach

The determinant used in this paper is the corporate governance (CG) mechanism, which focuses on the board of commissioners (BOC) and Sharia Supervisory Board (SSB) and their characteristics. The paper uses multiple regression analysis to examine the influence of these variables on CSR.

Findings

The results indicate that the level of CSR disclosure of IBs measured by the AAOIFI index continues to be low. The statistical results reveal that CSR disclosure has an insignificant relationship with BOC size and SSB qualifications, while the other results show a negative association between the composition of independent BOCs and CSR disclosure, and the frequency of BOC and SSB meeting has a positive effect on this.

Research limitations/implications

The study focuses on Indonesian IBs. The variables of the CG mechanism are limited to the BOC and SSB, while the BOC exists only in countries that adopt two-tier boards.

Practical implications

IBs should provide a wider range of information to be disclosed. The government should establish specific items that need to be disclosed by IBs, considering there are no specific CSR disclosure regulations for IBs in Indonesia.

Originality/value

This study uses the AAOIFI index, which may be a suitable measure of CSR in IBs. The study also analyzes why certain items in the index have a high disclosure level and others do not.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

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