Revealing the secrets of working capital: A comparison between sharia-compliant and conventional firms

Umar Kayani, Umer Iqbal, Ahmet Faruk Aysan, Bayu Arie Fianto, Mustafa Raza Rabbani and Fakhrul Hasan

Economic Systems, 2025, vol. 49, issue 2

Abstract: This research compares the performance of sharia-compliant (SC) and non–shariah-compliant (non-SC) firms by examining the impact of working capital on the return on assets, the return on equity, and the net profit margin. The dataset, based on the Dow Jones Islamic Market Index (DJIMI) standards, is divided by the leverage ratio and includes PSX-500 firms listed in the Pakistan Stock Exchange from 1996 to 2020. Our findings reveal that working capital has a significant and positive effect on all firm proxies, among which non-SC firms outperform SC firms because of their access to funds for business operations. SC firms face restrictions in obtaining funds from conventional banks. Our study has many implications. As liquidity injection is crucial for growth, policy makers should focus on developing novel credit instruments that are SC to address financing needs and boost business operations.

Keywords: financial crisis; firm performance; sharia compliant; working capital management (search for similar items in EconPapers)
JEL-codes: G14 G31 G41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:49:y:2025:i:2:s0939362524001006

DOI: 10.1016/j.ecosys.2024.101278

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