THE LEVEL OF CONVERGENCE TO SHARI’AH PRINCIPLES AND CORPORATE PROFITABILITY

Deniz Parlak (), Mehmet Emin Yildiz () and Naci Yılmaz ()
Additional contact information
Deniz Parlak: Doğuş Üniversity, Türkiye
Mehmet Emin Yildiz: Bahçeşehir Üniversity, Türkiye
Naci Yılmaz: Doğuş Üniversity, Türkiye

Journal of Islamic Monetary Economics and Finance, 2024, vol. 10, issue 4, 759-786

Abstract: This study constructs a Shari’ah convergence index for 1,362 companies operating in 10 different Islamic countries between 2017 and 2021 and assesses its relation to corporate profitability. Shari’ah screening variables are based on existing Shari’ah screening literature and applications, and variable weights are assigned using the Integrated Determination of Objective Ccriteria Weights (IDOCRIW) technique, a widely used, multi-criteria decision-making method. The results suggest that 4% of the sample is completely non-compliant as they engage in non-permissible business activities, 82% has a non-compliant activity level below 30% and the remaining 14% has a non-compliant activity level between 41 and 99%. Our panel data regression analysis shows that, while the Shari’ah convergence index does not affect operating profitability, it does have a statistically positive effect on total corporate profitability. These findings are attributable to two factors, interest burden and debt level. It seems that, for Islamic companies, The high cost of debt service may offset the advantage of high leverage on profitability.

Keywords: Shari’ah convergence; Shari’ah screening; Multi-criteria decision-making; Return on assets; Return on equity (search for similar items in EconPapers)
JEL-codes: C33 G24 G31 G32 L25 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://jimf-bi.org/index.php/JIMF/article/view/2337/988 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idn:jimfjn:v:10:y:2024:i:4f:p:759-786

DOI: 10.21098/jimf.v10i4.2337

Access Statistics for this article

Journal of Islamic Monetary Economics and Finance is currently edited by Dr. Ali Sakti

More articles in Journal of Islamic Monetary Economics and Finance from Bank Indonesia Contact information at EDIRC.
Bibliographic data for series maintained by Lutzardo Tobing ( this e-mail address is bad, please contact ) and Jimmy Kathon ().