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; Fakhrul Hasan

doi:10.1016/j.ecosys.2024.101278

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, Fakhrul Hasan

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

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.

Original language	English
Article number	101278
Journal	Economic Systems
DOIs	https://doi.org/10.1016/j.ecosys.2024.101278
Publication status	Accepted/In press - 2024

Keywords

financial crisis
firm performance
sharia compliant
working capital management

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.ecosys.2024.101278

Cite this

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

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",

author = "Umar Kayani and Umer Iqbal and Aysan, {Ahmet Faruk} and Fianto, {Bayu Arie} and Rabbani, {Mustafa Raza} and Fakhrul Hasan",

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year = "2024",

doi = "10.1016/j.ecosys.2024.101278",

language = "English",

journal = "Economic Systems",

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AU - Kayani, Umar

AU - Iqbal, Umer

AU - Aysan, Ahmet Faruk

AU - Fianto, Bayu Arie

AU - Rabbani, Mustafa Raza

AU - Hasan, Fakhrul

PY - 2024

Y1 - 2024

N2 - 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.

AB - 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.

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

Abstract

Keywords

UN SDGs

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