Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be “Shari’ah-compliant” and what form of connections it can have, even in theory, to either the firm’s value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari’ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally.
Panel data on 634 Shari’ah-compliant firms have been used in this study for the period of 2000–2014.
The results indicate that Shari’ah compliance adds to the value of firms as firms perform transactions according to Shari’ah while avoiding non-permissible activities.
This study adds value to the existing literature by showing the statistical results for the impact of Shari’ah compliance on the performance of the listed firms on Bursa Malaysia.
