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Article
Publication date: 19 October 2022

Faisal Alnori and Abdullah Bugshan

This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms 

Abstract

Purpose

This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance. Therefore, the objective of this study is to analyze the significant relationship of liquidity on Shariah- and non-Shariah-compliant corporations.

Design/methodology/approach

This study sample includes non-financial firms listed in six Gulf Cooperation Council (GCC) markets between 2005 and 2019. The study uses panel fixed effects and the dynamic generalized method of moments (system-GMM) models to test the relationship between cash holding and firm performance. The firms’ performance is measured using four widely used proxies representing book and market measures of performance including return on assets, return on equity, earnings before interest and tax to total assets and Tobin’s Q.

Findings

The results explore that the nature of the relationship between cash holdings and performance varies across Shariah-compliant and non-Shariah-compliant firms. Specifically, cash holdings are positively and significantly related to Shariah-compliant firms’ performance. However, cash reserves are not significantly related to conventional firms’ performance. These findings indicate that Shariah-compliant firms rely more on their cash holdings to avoid costly and less available external financing, meet everyday business needs and invest in profitable projects. In contrast, the value for cash holding is less important for non-Shariah-compliant firms, as their external financing options are less restricted compared to Shariah-compliant firms.

Research limitations/implications

This study is not free from limitations. More specifically, the sample of this study comprises of firms listed in GCC countries, which share common features. It would be interesting for future research to examine the linkage between cash holdings and Shariah-compliant and conventional firms’ performance by applying a larger sample, such as firms located in countries of the Organization of Islamic Cooperation.

Practical implications

The findings of this paper provide useful insights for managers and investors on the important role of cash management for Shariah-compliant firms. Policymakers and bankers need to develop Shariah-based financial products to ease Islamic financing sources. Moreover, the findings of this paper call for more research on the importance of liquidity management for Shariah-compliant firms.

Originality/value

This study extends the Islamic finance literature by exploring the key role of cash holdings to Shariah-compliant firms. To the best of the authors’ knowledge, this study is the first study to investigate cash holdings and performance between Shariah-compliant and non-Shariah-compliant firms.

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

Keywords

Article
Publication date: 21 December 2021

Faisal Alnori, Abdullah Bugshan and Walid Bakry

The purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for…

Abstract

Purpose

The purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).

Design/methodology/approach

The data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.

Findings

The results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.

Research limitations/implications

Future studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.

Originality/value

This study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

Details

Managerial Finance, vol. 48 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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. 14 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

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

Keywords

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. 13 no. 10
Type: Research Article
ISSN: 1759-0833

Keywords

Article
Publication date: 8 April 2014

Omar Farooq

The purpose of this paper is to document the performance of analysts' recommendations for shariah-compliant firms and non-shariah-compliant firms in the MENA region during…

638

Abstract

Purpose

The purpose of this paper is to document the performance of analysts' recommendations for shariah-compliant firms and non-shariah-compliant firms in the MENA region during the period between 2005 and 2009.

Design/methodology/approach

This paper uses post-recommendation market-adjusted returns as a measure of performance and computes returns for different holding periods. Significant positive (negative) returns following buy (sell) recommendation will indicate value relevance of these recommendations.

Findings

The results show that analysts are not able to make any value relevant recommendations for shariah-compliant firms. The author documents insignificant returns following analysts' buy and sell recommendations for shariah-compliant firms. In contrast to their performance for shariah-compliant firms, the results show that analysts are able to produce value relevant recommendations for non-shariah-complaint firms. The author reports significant returns following analysts' buy recommendations for non-shariah-complaint firms. The author also reports significantly positive spread between returns following analysts' buy and sell recommendations for non-shariah-compliant firms. Positive spread indicates that analysts are able to differentiate between well-performing and badly-performing non-shariah-compliant firms. Interestingly, in case of sell recommendations, the results show no significant value in analysts' sell recommendations for non-shariah-complaint firms.

Practical implications

The results imply that investors should not blindly follow analyst recommendations for shariah-compliant firms while making their investment decisions in the MENA region.

Originality/value

This paper makes detailed analysis of analyst recommendations for shariah-compliant firms and non-shariah-compliant firms in previously unexplored MENA region.

Details

Journal of Islamic Accounting and Business Research, vol. 5 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

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 Shariah‐compliant 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 Shariah‐compliant 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 Shariah‐compliant 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 Shariah‐compliant 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 Shariah‐compliant 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 Shariah‐compliant disclosure practices.

Details

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

Keywords

Article
Publication date: 9 July 2018

Ahmad Hakimi Tajuddin, Nur Adiana Hiau Abdullah and Kamarun Nisham Taufil Mohd

The purpose of this paper is to examine the impact of Shariah-compliant status on oversubscription of initial public offerings (IPOs) in Malaysia. It is believed that the

Abstract

Purpose

The purpose of this paper is to examine the impact of Shariah-compliant status on oversubscription of initial public offerings (IPOs) in Malaysia. It is believed that the Shariah-compliant status serves as a platform that sends a credible signal to investors which could possibly explain the IPO oversubscription anomaly.

Design/methodology/approach

This study used a multivariate and quantile regression model which involved 252 IPOs listed on Bursa Malaysia from 2005 to 2015.

Findings

The results show a significant positive relationship between Shariah-compliant status and oversubscription ratio, which suggests that companies with Shariah status could draw the attention of the investors. Strict guidelines and permissible elements of Shariah-compliant are considered agreeable and amicable by the investors.

Research limitations/implications

Future studies should look into financial ratio benchmark (cash and debt) for determining Shariah-compliant status to enhance the understanding of oversubscription of IPOs in Malaysia.

Practical implications

This study offers practical understanding to the issuers and underwriters on the factors that should be considered in assuring a good early performance of their issuance. Therefore, it will benefit the issuers and underwriters in managing and planning the IPO process carefully.

Social implications

The results of this study provide a new insight for investors regarding important information found in the prospectus when making the decisions to subscribe to IPOs.

Originality/value

This paper is one of the first to provide an empirical evidence of the impact of Shariah-compliant status on oversubscription in the IPO market.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

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

Keywords

Article
Publication date: 3 June 2019

Catherine S.F. Ho and Nor Erna Nabila Mohd-Raff

This study aims to provide comprehensive models that investigate the combination of both external fundamentals and internal characteristics on firm performance and if…

Abstract

Purpose

This study aims to provide comprehensive models that investigate the combination of both external fundamentals and internal characteristics on firm performance and if there is any difference between Shariah and non-Shariah compliant firms. The objective of this paper therefore is to analyze the significant relation between external fundamentals, internal characteristics and firm performance.

Design/methodology/approach

Panel data regression analyses are applied to determine significant results. It helps to control for unobserved factors of firm heterogeneity, which may result in spurious regression.

Findings

Most internal firm characteristics are found to be significant, but the same cannot be said for external fundamentals. Firm size is found to be very significant in driving both sets of firm performances. Financial distress in term of higher level of leverage is found to be a negative driver of non-Shariah-compliant firms’ performance in terms of return on asset but not for Shariah firms consistent with Islamic finance understanding. Shariah-compliant firms with higher liquidity tend to perform much better than less liquid firms, but the same is not found for non-Shariah-compliant ones.

Research limitations/implications

This study is limited to the industrial production sector and compares both Shariah and non-Shariah compliant firms.

Practical implications

This study adds new findings to clarify the roles of external macroeconomic fundamentals and internal characteristics determinants on firm performance. Findings from this study combine relevant information on different sets of determinants on firm performance and produce empirical evidence beneficial to both sets of Shariah and non-Shariah compliant firms in the industry.

Originality/value

This paper fulfills the need for firms to understand the external and internal environment for continuous survival and performance. It is therefore important for firms to recognize the possible factors which may influence their performance and mechanisms to sustain their performance for long-term survival.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

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