This study aims to investigate how firm-level characteristics, corporate governance mechanisms and the surrounding Islamic finance ecosystem impact the adoption of ethical Shariah compliant principles in publicly listed firms.
Using cross-sectional data of 1200 publicly listed nonfinancial firms from 22 Muslim majority countries, the study uses limited dependent variable models to investigate the factors impacting the adoption likelihoods.
The findings indicate that firm size positively influences the adoption of Shariah-compliant practices, while financial constraints, leverage, long-term debt dependence, profitability, growth orientation and capital intensity reduce the likelihood of adoption of Shariah-compliant practices. At the country level, a more developed Islamic finance ecosystem significantly facilitates adoption; however the effects of governance structures are mixed.
This study suggests that Shariah principle adoption in firms is systematically linked to their internal financial conditions and the broader institutional environment. It extends the current understanding of compliance determinants, informs regulatory design and guides managers seeking to align financial structures with Shariah principles.
