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Article
Publication date: 5 July 2021

Waqas Mehmood, Rasidah Mohd-Rashid, Ahmad Hakimi Tajuddin and Hassan Mujtaba Nawaz Saleem

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Abstract

Purpose

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Design/methodology/approach

Besides the ordinary least square’s method, this study used quantile least squares as a robust approach and stepwise regression for further analysis to investigate the underpricing phenomenon in Pakistan. Data of 84 IPOs listed on Pakistan Stock Exchange from January 2000 to December 2018 were collected to determine the impact of Shariah-compliant status and Shariah regulation on IPO underpricing.

Findings

Results of the study show that Shariah-compliant status has a negative relationship but Shariah regulation has a positive relationship with IPO underpricing. Hence, it is contended that Shariah-compliant firms have lower asset volatility and uncertainty than non-Shariah-compliant firms because of less information asymmetry, resulting in lower underpricing. These Shariah-compliant firms provide signals of high-quality IPOs as they must comply with the strict guidelines issued by the Securities Exchange Commission of Pakistan in addition to being considered as amicable by investors. Further, this study suggests that investors are more attracted to Shariah-compliant firms than non-Shariah-compliant ones.

Research limitations/implications

This study’s offers limited consideration of nonfinancial and financial characteristics that could influence the decision of investors to subscribe to IPOs. Besides, future studies could consider the screening benchmarks; for instance, debt and cash may explain the intensity of IPO initial return in Pakistan.

Originality/value

The present work empirically investigated the influence of Shariah-compliant status and Shariah regulation on IPO underpricing in Pakistan’s IPO market, which has been scarcely covered in the existing literature.

Details

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

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Article
Publication date: 2 March 2012

Muhammad Faishal Ibrahim, Seow Eng Ong and Kola Akinsomi

The purpose of this paper is to investigate Shariah compliant real estate development financing and investment in the Gulf Cooperation Council (GCC).

Abstract

Purpose

The purpose of this paper is to investigate Shariah compliant real estate development financing and investment in the Gulf Cooperation Council (GCC).

Design/methodology/approach

In this paper, the authors employed desk research and survey to examine issues relating to Shariah compliant real estate development financing and investment. Following the desk research, 18 in‐depth interviews were conducted with senior executives of banks, real estate developers and consultants.

Findings

Equity Shariah instruments are found to be in high demand by real estate investors, however they are rarely offered by Islamic banks. In addition, the survey results confirm that Islamic financiers tend to partner real estate companies through land acquisition to post construction, contrary to how conventional financiers operate, therefore reducing moral hazard issues.

Research limitations/implications

As Shariah compliant real estate research and knowledge is limited, the authors faced a challenge in getting respondents who are familiar and willing to participate in the interview. Nevertheless, the 18 respondents gave adequate inputs to enable the authors to write the research paper.

Practical implications

The paper includes challenges and implications for the future developments of Shariah compliant real estate development financing and investment.

Originality/value

This paper provides the Shariah compliant perspective of real estate development financing and investment, where the current knowledge is very limited.

Details

Journal of Property Investment & Finance, vol. 30 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 10 June 2021

Abdullah Bugshan, Walid Bakry and Yongqing Li

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 14 June 2021

Zaidatul Akma Sulaiman, Mohammad Iranmanesh, Behzad Foroughi and Othman Rosly

This paper aims to investigate the impact of Shariah-compliant hotel attributes on Muslim travellers’ revisit intention.

Abstract

Purpose

This paper aims to investigate the impact of Shariah-compliant hotel attributes on Muslim travellers’ revisit intention.

Design/methodology/approach

A total of 361 Muslim travellers who have stayed at Shariah-compliant hotels in the previous 12 months were recruited to take part in this research. The hypothesized research model was assessed using the partial least squares (PLS) approach.

Findings

The analysis revealed that Muslim travellers’ revisit intention is dependent on the halal food and beverages and the provision of Shariah-compliant facilities at the hotel, whereas the Shariah-compliant operation and interior design of hotels are not significantly associated with it. The findings also uncovered that religiosity moderates the impacts of Shariah-compliant facilities and interior design on travellers’ revisit intention.

Practical implications

Guidelines to offer services that meet Muslim travellers’ needs can be developed based on the results of this study to help Shariah-compliant hotel marketers attract and retain more customers.

Originality/value

The findings of this study have provided insights into the importance of halal attributes and practices in retaining Muslim customers at Shariah-compliant hotels.

Details

Journal of Islamic Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0833

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Article
Publication date: 28 January 2020

Omar Farooq and Zakir Pashayev

This paper aims to document the information transmission capacity of Shariah-compliant firms.

Abstract

Purpose

This paper aims to document the information transmission capacity of Shariah-compliant firms.

Design/methodology/approach

The vector auto-regression (VAR) model is used to test the information transmission capacity of Shariah-compliant firms in India during the period between 2010 and 2015.

Findings

The findings show that the returns of non-Shariah-compliant firms lead the returns of Shariah-compliant firms. It is argued that non-Shariah-compliant firms possess certain financial characteristics (higher leverage, higher accounts receivable and higher cash holdings) that make their information environment better than information environment of Shariah-compliant firms. The authors argue that superior information environment leads to timely incorporation of market-wide information, thereby causing the returns of non-Shariah-compliant firms to lead the returns of Shariah-compliant firms. It is also shown that the result holds in various market conditions.

Originality/value

It is believed that prior literature does not adequately address the information transmission capacity of the stock prices of Shariah-compliant firms. The gap is filled by documenting that stock prices of Shariah-compliant firms that are more informative than stock prices of non-Shariah-compliant firms.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 8
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 10 May 2013

Bader Al‐Shammari

The purpose of this study is to measure the extent of voluntary disclosure in the 2009 annual reports of 108 Shariahcompliant companies listed on the Kuwait Stock…

Abstract

Purpose

The purpose of this study is to measure the extent of voluntary disclosure in the 2009 annual reports of 108 Shariahcompliant companies listed on the Kuwait Stock Exchange. The study aims to investigate three categories of voluntary disclosure: overall, conventional and Islamic disclosure.

Design/methodology/approach

Voluntary disclosure was measured using a self‐constructed index consisting of 132 items overall, 86 for conventional and 46 for Islamic information items. Annual reports were analyzed using descriptive statistics and t‐tests.

Findings

Results suggest that the mean overall voluntary disclosure by Shariahcompliant companies is 15 percent, but 17 percent and 13 percent for the conventional and Islamic items, respectively. Voluntary disclosure of conventional items is comparable to extant studies, and higher than Islamic items.

Research limitation/implications

The study uses annual reports from 2009 because they were the most recent data available on the listed companies at the beginning of the study. Since this study was undertaken before the Shariah Advisory Council of the Capital Market Authority was established on January 1, 2012, this imposes a limitation. Future study should replicate this study to assess differences with the existence of the Council.

Practical implications

The findings provide evidence that Shariah‐complaint companies lack voluntary disclosure, especially Islamic disclosure information. As a result, the findings should be useful to lawmakers in Kuwait for improving overall disclosure practices by Shariahcompliant companies. Preparers may use the findings to match the amount of information in their annual reports with other companies to ensure capital sourcing. Investors may use the findings for understanding disclosure behavior of Shariahcompliant companies in Kuwait. Such findings may assist them to diversify investment portfolios.

Originality/value

This study contributes to extending the Kuwaiti literature on disclosure, and fills a gap in empirical studies on Shariahcompliant disclosure practices.

Details

Journal of Economic and Administrative Sciences, vol. 29 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

Content available
Article
Publication date: 15 August 2019

Nurwahida Yaakub and Mohamed Sherif

The purpose of this paper is to examine the informational value of Shariah-compliant disclosure in the Malaysian initial public offerings (IPOs) prospectus and whether…

Abstract

Purpose

The purpose of this paper is to examine the informational value of Shariah-compliant disclosure in the Malaysian initial public offerings (IPOs) prospectus and whether Shariah-compliant status has an impact on the IPO initial return when adopted as a signalling mechanism.

Design/methodology/approach

It uses data from 320 IPOs for Shariah-compliant companies listed on the Bursa Malaysia between 2004 and 2013.

Findings

It finds that the degree of IPO underpricing for Shariah-compliant companies is 19.97 per cent with investors earning significant returns on the first trading day. For the effect of different factors on the degree of IPO, we find that the size and type of IPO offers have a significant impact on the degree of IPO underpricing. Other economic confidence factor models fail to yield economically plausible parameter values.

Originality/value

The study contributes to the literature in a number of ways. It is the first to evaluate the effect of Shariah-compliance status regulation in Malaysian market, hence it provides an insight into the effectiveness of such regulation. Second, while the existing Shariah-compliant IPO studies in the same market focus on Shariah status at the date of the studies being conducted, this study uses the information around IPO time. The information that investors receive around IPO time may influence investors’ decision and valuation of the IPOs in the aftermarket. Specifically, this study is different from the previous research, as it investigates whether Shariah-compliant companies would change the average degree of IPO underpricing for companies listed on Bursa Malaysia.

Details

Islamic Economic Studies, vol. 27 no. 1
Type: Research Article
ISSN: 1319-1616

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Article
Publication date: 13 April 2015

Wan Adibah Wan Ismail, Khairul Anuar Kamarudin and Siti Rahayu Sarman

– The purpose of this study is to examine the quality of reported earnings in the corporate reports of Shariah-compliant companies listed on Bursa Malaysia.

Abstract

Purpose

The purpose of this study is to examine the quality of reported earnings in the corporate reports of Shariah-compliant companies listed on Bursa Malaysia.

Design/methodology/approach

This study hypothesises that companies with Shariah compliance status have higher quality of earnings because of greater demand for and supply of high-quality financial reports. The quality of reported earnings is measured using the cross-sectional Dechow and Dichev (2002) accrual quality model. The study uses a balanced panel data of 3,048 observations from 508 companies during a six-year period of 2003-2008.

Findings

This paper finds robust evidence that Shariah-compliant companies have significantly higher earnings quality compared to other firms. The results provide support for the arguments that Shariah-compliant companies supply a higher quality of reported earnings to attract foreign investment, have greater demand for high-quality financial reporting because of their Shariah status and are subject to greater scrutiny by regulators and institutional investors.

Research limitations/implications

This study contributes to the existing literature on Islamic capital market, business ethics, firms’ governance and financial reporting quality. The study would give a better understanding on issues relating to earnings quality of Shariah-compliant companies and would be especially useful for financial statement users, including investment analysts.

Originality/value

This paper provides evidence on the quality of earnings in Shariah-compliant companies and offers new arguments that explain why such companies possess higher quality of earnings compared to their counterparts.

Details

Journal of Islamic Accounting and Business Research, vol. 6 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 14 October 2019

Ruzita Abdul-Rahim, Adilah A. Wahab and Nor Amalina Yusoff

The purpose of this paper is to investigate whether the shariah-compliant status of the firms negatively influences their use of foreign exchange hedging instruments.

Abstract

Purpose

The purpose of this paper is to investigate whether the shariah-compliant status of the firms negatively influences their use of foreign exchange hedging instruments.

Design/methodology/approach

This paper uses a logit panel regression on 350 firm-year observations from 70 nonfinancial listed firms over the period from 2010 to 2014. Shariah-compliant companies account for about 84 per cent of the sample firms.

Findings

Preliminarily, the results show that none of the samples of the shariah-compliant firms report any use of Islamic hedging instrument, either in the form of wa’d or tawarruq. The results of the study’s logit panel regression contradict the authors’ prediction that the shariah-compliant status negatively influences firms’ decision to hedge. In contrast, shariah-compliant companies are twice as likely as their conventional counterparts in adopting forex hedging.

Research limitations/implications

This study is limited to information disclosed in the items 31, 36 and 37 of financial management policies in the annual report. However, given that shariah-compliant firms must abide by the limit of 5 per cent profits before tax from clearly prohibited activities (including riba’), the need for exclusive disclosure on the adoption of Islamic or conventional hedging appears to be imperative for the viability of the Malaysian Islamic capital market.

Practical implications

In evaluating the shariah compliance of a company, investors (individual or institutional) must look further than just interest-based riba’ in mixed-business companies to ensure that they comply with the 5 per cent maximum requirement on the non-halal business contribution to profit. This is because the finding of this study indicates that shariah-compliant companies are twice as likely to adopt forex hedging, when none of them reports the use of Islamic hedging tools. Investors must therefore give ample allowance to riba’ that can be induced through the use of conventional forex hedging instruments. This is until the security market regulator imposes a requirement on shariah-compliant companies an explicit disclosure of the use of Islamic versus conventional hedging tools, as they had done in the case of Islamic versus conventional debt instruments.

Social implications

Muslim and socially responsible investors rely on the Shariah-compliant status of the company in ensuring that their wealth grows according to the Shariah principles. To sustain and develop the Islamic capital market which the firms have been relying on for external capital, Shariah-compliant firms and the authority awarding the status are equally responsible for honoring the trust that these investors by ensuring the permissibility (halal) of the business and the conduct of their business.

Originality/value

Conventional forex hedging instruments are criticized for violating as-sarf, a shariah principle, which requires the exchanges of particular assets (gold, silver and currency) to be delivered on the spot, and thereby infusing riba’ al-fadhl. Although Islamic (wa’d- or tawarruq-based) hedging instruments are widely available by Islamic banks in this country since they were introduced by Bank Negara Malaysia in 2010, paradoxically, the authors’ observation indicates that none of the studied firms reports the adoption of these instruments in their annual reports.

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: 5 September 2016

Omar Farooq and Amal Alahkam

This paper aims to document the relative performance of non-financial shariah-compliant firms and non-financial non-shariah-compliant firms in the MENA (Morocco, Egypt…

Abstract

Purpose

This paper aims to document the relative performance of non-financial shariah-compliant firms and non-financial non-shariah-compliant firms in the MENA (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait and Bahrain) region during the period between 2005 and 2009.

Design/methodology/approach

This paper uses pooled ordinary least squares regression analysis to document the effect of shariah compliance on stock price performance in the MENA region on a sample of non-financial firms that consists of shariah- and non-shariah-compliant firms.

Findings

Using market-adjusted returns as a proxy for performance, this paper shows that shariah-compliant firms underperform non-shariah-compliant firms. The results also show that underperformance of shariah-compliant firms holds in the civil law and in the common law countries. Interestingly, this paper also shows that difference between the performance of shariah-and non-shariah-compliant firms disappears during the crisis period.

Research limitations/implications

This paper argues that the characteristics of shariah-compliant firms are such that these firms are at a disadvantage relative to their non-shariah-compliant counterparts. For example, high leverage of their counterpart firms can act as a disciplining mechanism and positively affect performance of these firms. Similarly, high account receivables and high cash allow non-shariah-compliant firms to make more effective business networks than shariah-compliant firms and fund large capital expenditures. Consequently, shariah-compliant firms underperform non-shariah-compliant firms. This study’s results, however, should be read with caution, as they are mainly based upon the performance of large volume, statistical significance, sampling errors and possible labeling miss-specification. Further research on this topic with different research methodology is essential.

Originality/value

This paper takes a financial view rather than religious view while highlighting the impact of shariah characteristics on firm performance.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 4
Type: Research Article
ISSN: 1759-0817

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