Shariah Compliance Companies (SCC) Investment Efficiency and Non-SCC: Evidence from Indonesia

Diana Hasyim (), Edison Parulian () and Nurul Wardani ()
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Diana Hasyim: Universitas Negeri Medan
Edison Parulian: Universitas IBBI Medan
Nurul Wardani: Universitas Negeri Medan

A chapter in Proceedings of the 2nd International Conference on Business, Accounting, Banking, and Economics (ICBABE 2025), 2025, pp 44-60 from Springer

Abstract: Abstract Corporate investment in the practice deviates from the optimal level due to financing constraints and agency issues. Understanding the primary reasons that cause investment inefficiency will help formulate policies that address the problem. Most prior research emphasizes that any governance mechanism that reduces agency risk and disciplines management enhances investment efficiency, but still lacks attention to Sharia law as another mechanism to mitigate investment efficiency issues. Therefore, we propose examining some attributes of Sharia principles to compare the investment efficiency of Shariah Compliance Companies (SCC) and non-SCC in Indonesia. The results indicate that both SCC and non-SCC invest inefficiently. Our study contributes to the emerging literature on the differences between SCC and non-SCC by demonstrating that the investment efficiency of SCC differs from that of non-SCC. SCC tend to invest at an above-optimal level (overinvestment), and conversely, non-SCC tend to invest at a below-optimal level (underinvestment).

Keywords: Shariah Compliance Companies (SCC); Investment Efficiency; Company size (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-862-2_6

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