Performance of Shariah vs Non-Shariah Firms: A Study of Manufacturing Sector in Malaysia
Keywords:
Firm Performance, Shariah Compliant, Non-Shariah Compliant, Panel Regression Analysis, Manufacturing Sector
Abstract
This research aims to examine the differences in the determinants of performance between Shariah-compliant and non-Shariah-compliant firms. The changes in the Shariah screening technique in Malaysia since 2013 have significantly affected how firms that comply with the Shariah principles, as opposed to non-compliant firms, leading to the motivation of this research being conducted. This research employs panel data regression analysis to test its hypotheses. Compiling data from 142 manufacturing firms (71 Shariah-compliant and 71 non-Shariah-compliant firms) from 2012 to 2021, this research found that Shariah-compliant firm performance is significantly influenced by firm size, leverage, tangibility and efficiency. In contrast, non-Shariah-compliant firm performance is significantly influenced by leverage, tangibility, working capital and efficiency. This research contributes to relevant parties, such as the manufacturing firms and policymakers, in providing insights on the most relevant indicators affecting firm performance, specifically those in the manufacturing sector.
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References
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Alarussi, A. S., & Gao, X. (2021). Determinants of profitability in Chinese companies. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04- 2021-0539.
Alnori, F., & Alqahtani, F. (2019). Capital structure and speed of adjustment in non-financial firms: Does Sharia compliance matter? Evidence from Saudi Arabia. Emerging Markets Review, 39(March), 50–67. https://doi.org/10.1016/j.ememar.2019.03.008.
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Aman, A. (2020). Islamic marketing ethics for Islamic financial institutions. International Journal of Ethics and Systems, 36(1), 1–11. https://doi.org/10.1108/IJOES-12-2018-0182.
Ayaz, M., Mohamed Zabri, S., & Ahmad, K. (2021). An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia. Managerial Finance, 47(8), 1107–1127. https://doi.org/10.1108/MF-11-2019- 0586.
Calcagnini, G., Gardini, L., Giombini, G., & Carrera, E. S. (2020). Does too much liquidity generate instability? Journal of Economic Interaction and Coordination, 17(1), 191–208. https://doi.org/10.1007/s11403-020-00296-0
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Das, N. C., Chowdhury, M. A. F., & Islam, M. N. (2021). The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh. South Asian Journal of Business Studies, 11(2), 235–252. https://doi.org/10.1108/SAJBS-04-2020-0100.
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Dong, H. P., & Su, J. T. (2010). The relationship between working capital management and profitability: A Vietnam case. International Research Journal 80 of Finance and Economics, 49(49), 62–71.
Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142–168. https://doi.org/10.1108/AJAR-09-2018-0029.
Farooq, O., & Alahkam, A. (2016). Performance of Shariah-compliant firms and non-shariah-compliant firms in the MENA region: Which is better? Journal of Islamic Accounting and Business Research, 7(4), 268–281. https://doi.org/10.1108/JIABR-10-2013-0039.
Gaio, C., & Henriques, R. (2018). Are Large Firms More Profitable Than Small and Medium Firms in the European Union? The European Journal of Management Studies, 23(1), 25–48.
Gao, H., & Li, K. (2015). A comparison of CEO pay-performance sensitivity in privately-held and public firms. Journal of Corporate Finance, 35, 370–388. https://doi.org/10.1016/j.jcorpfin.2015.10.005.
Ho, C.S.F. and Mohd-Raff, N.E.N. (2019). External and internal determinants of performances of Shariah and non-Shariah compliant firms. International Journal of Islamic and Middle Eastern Finance and Management, Vol. 12 No. 2, pp. 236-253. https://doi.org/10.1108/IMEFM-08-2017-0202.
I??k, Ö. (2017). Determinants of Profitability: Evidence from Real Sector Firms Listed in Borsa Istanbul. Business and Economics Research Journal, 4(8), 689–698. https://doi.org/10.20409/berj.2017.76
Islam, M., & Karim, A. (2011). Manufacturing practices and performance: Comparison among small-medium and large industries. International Journal of Quality and Reliability Management, 28(1), 43–61.
Lim, H., & Rokhim, R. (2020). Factors affecting the profitability of pharmaceutical company: Indonesian evidence. Journal of Economic Studies, 48(5), 981–995. https://doi.org/10.1108/JES-01-2020-0021.
Lin, J. W., Li, J. F., & Yang, J. S. (2006). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921–933. https://doi.org/10.1108/02686900610705019.
Margaretha, F., & Supartika, N. (2016). Factors Affecting Profitability of Small Medium Enterprises (SMEs) Firm Listed in Indonesia Stock Exchange. Journal of Economics, Business and Management, 4(2), 132–137. https://doi.org/10.7763/joebm.2016.v4.379.
Mathur, N., Tiwari, S. C., Sita Ramaiah, T., & Mathur, H. (2021). Capital structure, competitive intensity and firm performance: an analysis of Indian pharmaceutical companies. Managerial Finance, 47(9), 1357–1382. https://doi.org/10.1108/MF01-2020-0009.
Mohd-Sanusi, Z., Ismail, R., Hudayati, A., & Harjito, D. A. (2015). Screening process of Shariah-compliant companies: The relevance of financial risk management. International Journal of Economics and Management, 9(1), 177–195.
Nanda, S., & Panda, A. K. (2018). The determinants of corporate profitability: an investigation of Indian manufacturing firms. International Journal of Emerging Markets, 13(1), 66–86. https://doi.org/10.1108/IJoEM-01-2017-0013.
Nguyen, T. N. L., & Nguyen, V. C. (2020). The determinants of profitability in listed enterprises: A study from Vietnamese stock exchange. Journal of Asian Finance, 82 Economics and Business, 7(1), 47–58. https://doi.org/10.13106/jafeb.2020.vol7.no1.47.
Rehan, R., & Abdul Hadi, A. R. (2019). Capital structure determinants of Shariah and Non-Shariah companies at Bursa Malaysia - Dynamic approach. International Journal of Innovation, Creativity and Change, 6(8), 334–345.
Saba, I., Ariff, M., & Mohd Rasid, E. S. (2021). Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: a case study of Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 128– 150.
Sawarni, K. S., Narayanasamy, S., Chattopadhyay, S., & Chakrabarti, P. (2022). Working capital management, financial performance and growth of firms: empirical evidence from India. Journal of Indian Business Research. https://doi.org/10.1108/JIBR-12-2020-0382.
Schmidt, A. F., & Finan, C. (2018). Linear regression and the normality assumption. Journal of Clinical Epidemiology, 98, 146–151. https://doi.org/10.1016/j.jclinepi.2017.12.006.
Sivathaasan, N., Tharanika, R., Sinthuja, M., & Hanitha, V. (2013). 9 Factors Determining Profitability: A Study of Selected Manufacturing Companies Listed on Colombo Stock Exchange in Sri Lanka. European Journal of Business and 83 Management, 5(27), 99–108.
Tareq, A., Mohammad, A., & Mohammed, O. (2021). The Relationship between Working Capital Management and Financial Performance: Evidence from Jordan*. Journal of Asian Finance, 8(6), 713–0720. https://doi.org/10.13106/jafeb.2021.vol8.no6.0713.
Tariq Bhutta, N., & Hasan, A. (2013). Impact of Firm Specific Factors on Profitability of Firms in Food Sector. Open Journal of Accounting, 02(02), 19–25. https://doi.org/10.4236/ojacct.2013.22005.
Unal, A. E., Unal, Y., & Is?k, O. (2017). The Effect of Firm Size on Profitability: Evidence From Turkish Manufacturing Sector. Pressacademia, 6(4), 301–308. https://doi.org/10.17261/pressacademia.2017.762.
Vintil?, G., & Nenu, E. A. (2015). An analysis of determinants of corporate financial performance: Evidence from the Bucharest stock exchange listed companies. International Journal of Economics and Financial Issues, 5(3), 732–739.
Warrad, L., & Omari, R. A. (2015). The Impact of Turnover Ratios on Jordanian 81 Services Sectors’ Performance. Journal of Modern Accounting and Auditing, 11(2). https://doi.org/10.17265/1548-6583/2015.02.001.
Zeitun, R., & Saleh, A. S. (2015). Dynamic performance, financial leverage and financial crisis: Evidence from GCC countries. EuroMed Journal of Business, 10(2), 147–162. https://doi.org/10.1108/EMJB-08-2014-0022.
Adam, N. L., & Bakar, N. A. (2014). Shariah Screening Process in Malaysia. Procedia - Social and Behavioral Sciences, 121(March), 113–123. https://doi.org/10.1016/j.sbspro.2014.01.1113.
Al-Jafari, M. K., & Al Samman, H. (2015). Determinants of Profitability: Evidence from Industrial Companies Listed on Muscat Securities Market. Review of European Studies, 7(11), 303–311. https://doi.org/10.5539/res.v7n11p303.
Alahouel, F., & Loukil, N. (2021). Financial uncertainty valuation: does Shariah compliant screening matter? International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 57–76. https://doi.org/10.1108/IMEFM-04- 2019-0137.
Alarussi, A. S. A. (2021). Financial ratios and efficiency in Malaysian listed companies. Asian Journal of Economics and Banking, 5(2), 116–135. https://doi.org/10.1108/ajeb-06-2020-0014.
Alarussi, A. S., & Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia. Journal of Economic Studies, 45(3), 442–458. https://doi.org/10.1108/JES-05- 2017-0124.
Alarussi, A. S., & Gao, X. (2021). Determinants of profitability in Chinese companies. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04- 2021-0539.
Alnori, F., & Alqahtani, F. (2019). Capital structure and speed of adjustment in non-financial firms: Does Sharia compliance matter? Evidence from Saudi Arabia. Emerging Markets Review, 39(March), 50–67. https://doi.org/10.1016/j.ememar.2019.03.008.
Alsharari, N. M., & Alhmoud, T. R. (2019). The determinants of profitability in Sharia-compliant corporations: evidence from Jordan. Journal of Islamic Accounting and Business Research, 10(4), 546–564. https://doi.org/10.1108/JIABR-05-2016-0055.
Aman, A. (2020). Islamic marketing ethics for Islamic financial institutions. International Journal of Ethics and Systems, 36(1), 1–11. https://doi.org/10.1108/IJOES-12-2018-0182.
Ayaz, M., Mohamed Zabri, S., & Ahmad, K. (2021). An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia. Managerial Finance, 47(8), 1107–1127. https://doi.org/10.1108/MF-11-2019- 0586.
Calcagnini, G., Gardini, L., Giombini, G., & Carrera, E. S. (2020). Does too much liquidity generate instability? Journal of Economic Interaction and Coordination, 17(1), 191–208. https://doi.org/10.1007/s11403-020-00296-0
Chandrapala, P., & Knápková, A. (2013). Firm-specific factors and financial performance of firms in the Czech Republic. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 61(7), 2183–2190. https://doi.org/10.11118/actaun201361072183.
Charles, D., Ahmed, M. N., & Joshua, O. (2018). Effect of Firm Characteristics on Profitability of Listed Consumer Goods Companies in Nigeria Dioha Charles. Journal of Accounting, Finance and Auditing Studies, January 2018, 14–31.
Das, N. C., Chowdhury, M. A. F., & Islam, M. N. (2021). The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh. South Asian Journal of Business Studies, 11(2), 235–252. https://doi.org/10.1108/SAJBS-04-2020-0100.
Department of Statistics Malaysia Official. (2021). Index Of Industrial Production, Malaysia July 2021. Dosm.Gov.My. https://www.dosm.gov.my/v1/index.php?r=column/pdfPrev&id=a2lTM1d0UjVq TzZpRlMzMk5mdktNQT09
Department of Statistics Malaysia Official Portal. (2021). Monthly Manufacturing Statistics Malaysia, December 2021.
Do?an, M. (2013). Does Firm Size Affect The Firm Profitability? Evidence from Turkey. Research Journal of Finance and Accounting, 4(4), 53–60.
Dong, H. P., & Su, J. T. (2010). The relationship between working capital management and profitability: A Vietnam case. International Research Journal 80 of Finance and Economics, 49(49), 62–71.
Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142–168. https://doi.org/10.1108/AJAR-09-2018-0029.
Farooq, O., & Alahkam, A. (2016). Performance of Shariah-compliant firms and non-shariah-compliant firms in the MENA region: Which is better? Journal of Islamic Accounting and Business Research, 7(4), 268–281. https://doi.org/10.1108/JIABR-10-2013-0039.
Gaio, C., & Henriques, R. (2018). Are Large Firms More Profitable Than Small and Medium Firms in the European Union? The European Journal of Management Studies, 23(1), 25–48.
Gao, H., & Li, K. (2015). A comparison of CEO pay-performance sensitivity in privately-held and public firms. Journal of Corporate Finance, 35, 370–388. https://doi.org/10.1016/j.jcorpfin.2015.10.005.
Ho, C.S.F. and Mohd-Raff, N.E.N. (2019). External and internal determinants of performances of Shariah and non-Shariah compliant firms. International Journal of Islamic and Middle Eastern Finance and Management, Vol. 12 No. 2, pp. 236-253. https://doi.org/10.1108/IMEFM-08-2017-0202.
I??k, Ö. (2017). Determinants of Profitability: Evidence from Real Sector Firms Listed in Borsa Istanbul. Business and Economics Research Journal, 4(8), 689–698. https://doi.org/10.20409/berj.2017.76
Islam, M., & Karim, A. (2011). Manufacturing practices and performance: Comparison among small-medium and large industries. International Journal of Quality and Reliability Management, 28(1), 43–61.
Lim, H., & Rokhim, R. (2020). Factors affecting the profitability of pharmaceutical company: Indonesian evidence. Journal of Economic Studies, 48(5), 981–995. https://doi.org/10.1108/JES-01-2020-0021.
Lin, J. W., Li, J. F., & Yang, J. S. (2006). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921–933. https://doi.org/10.1108/02686900610705019.
Margaretha, F., & Supartika, N. (2016). Factors Affecting Profitability of Small Medium Enterprises (SMEs) Firm Listed in Indonesia Stock Exchange. Journal of Economics, Business and Management, 4(2), 132–137. https://doi.org/10.7763/joebm.2016.v4.379.
Mathur, N., Tiwari, S. C., Sita Ramaiah, T., & Mathur, H. (2021). Capital structure, competitive intensity and firm performance: an analysis of Indian pharmaceutical companies. Managerial Finance, 47(9), 1357–1382. https://doi.org/10.1108/MF01-2020-0009.
Mohd-Sanusi, Z., Ismail, R., Hudayati, A., & Harjito, D. A. (2015). Screening process of Shariah-compliant companies: The relevance of financial risk management. International Journal of Economics and Management, 9(1), 177–195.
Nanda, S., & Panda, A. K. (2018). The determinants of corporate profitability: an investigation of Indian manufacturing firms. International Journal of Emerging Markets, 13(1), 66–86. https://doi.org/10.1108/IJoEM-01-2017-0013.
Nguyen, T. N. L., & Nguyen, V. C. (2020). The determinants of profitability in listed enterprises: A study from Vietnamese stock exchange. Journal of Asian Finance, 82 Economics and Business, 7(1), 47–58. https://doi.org/10.13106/jafeb.2020.vol7.no1.47.
Rehan, R., & Abdul Hadi, A. R. (2019). Capital structure determinants of Shariah and Non-Shariah companies at Bursa Malaysia - Dynamic approach. International Journal of Innovation, Creativity and Change, 6(8), 334–345.
Saba, I., Ariff, M., & Mohd Rasid, E. S. (2021). Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: a case study of Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 128– 150.
Sawarni, K. S., Narayanasamy, S., Chattopadhyay, S., & Chakrabarti, P. (2022). Working capital management, financial performance and growth of firms: empirical evidence from India. Journal of Indian Business Research. https://doi.org/10.1108/JIBR-12-2020-0382.
Schmidt, A. F., & Finan, C. (2018). Linear regression and the normality assumption. Journal of Clinical Epidemiology, 98, 146–151. https://doi.org/10.1016/j.jclinepi.2017.12.006.
Sivathaasan, N., Tharanika, R., Sinthuja, M., & Hanitha, V. (2013). 9 Factors Determining Profitability: A Study of Selected Manufacturing Companies Listed on Colombo Stock Exchange in Sri Lanka. European Journal of Business and 83 Management, 5(27), 99–108.
Tareq, A., Mohammad, A., & Mohammed, O. (2021). The Relationship between Working Capital Management and Financial Performance: Evidence from Jordan*. Journal of Asian Finance, 8(6), 713–0720. https://doi.org/10.13106/jafeb.2021.vol8.no6.0713.
Tariq Bhutta, N., & Hasan, A. (2013). Impact of Firm Specific Factors on Profitability of Firms in Food Sector. Open Journal of Accounting, 02(02), 19–25. https://doi.org/10.4236/ojacct.2013.22005.
Unal, A. E., Unal, Y., & Is?k, O. (2017). The Effect of Firm Size on Profitability: Evidence From Turkish Manufacturing Sector. Pressacademia, 6(4), 301–308. https://doi.org/10.17261/pressacademia.2017.762.
Vintil?, G., & Nenu, E. A. (2015). An analysis of determinants of corporate financial performance: Evidence from the Bucharest stock exchange listed companies. International Journal of Economics and Financial Issues, 5(3), 732–739.
Warrad, L., & Omari, R. A. (2015). The Impact of Turnover Ratios on Jordanian 81 Services Sectors’ Performance. Journal of Modern Accounting and Auditing, 11(2). https://doi.org/10.17265/1548-6583/2015.02.001.
Zeitun, R., & Saleh, A. S. (2015). Dynamic performance, financial leverage and financial crisis: Evidence from GCC countries. EuroMed Journal of Business, 10(2), 147–162. https://doi.org/10.1108/EMJB-08-2014-0022.
Published
2023-05-11
How to Cite
Kamal, A. W. N. A., Arshad, A. I., Che-Yahya, N., & Alyasa-Gan, S. S. (2023). Performance of Shariah vs Non-Shariah Firms: A Study of Manufacturing Sector in Malaysia. Information Management and Business Review, 15(1(I)SI), 149-163. https://doi.org/10.22610/imbr.v15i1(I)SI.3395
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