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Do managers of sharia-compliant firms have distinctive financial styles?

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  • Naz, Iram
  • Shah, Syed Muhammad Amir
  • Kutan, Ali M.

Abstract

Financial markets are experiencing the growing success of Islamic finance, which follows a unique form of investment related to Muslim values (i.e. limitation of interest bearing loan) regarding socially responsible investing. In this study, we examine the role of top managers in financial decisions at sharia-compliant firms in Pakistan and the UK. For each firm in the sample, a manager-firm matched panel has been constructed to identify the top managers across the sharia compliant firms over the time. After accounting for the observable and unobservable heterogeneity, we identify the observable differences in firms’ financing decisions that are attributable to managers’ fixed effects. We also examine the difference in the styles among managers who move between firms that are sharia-compliant and those that are not sharia-compliant. Results of the study show that the managers exert significantly important influence over leveraging, the dividend policy, and working capital decisions. The decisions of managers who come from non-sharia-compliant firms are significantly different from those who come from sharia-compliant firms. Moreover, the policies regarding leveraging, dividend payouts, and working capital at sharia-compliant firms differ significantly from those at non-sharia-compliant firms. Furthermore, discriminating the differences between the importance of managerial financial styles of top officials in sharia and non-sharia companies helps managers make strategic plans in terms of their financial decisions.

Suggested Citation

  • Naz, Iram & Shah, Syed Muhammad Amir & Kutan, Ali M., 2017. "Do managers of sharia-compliant firms have distinctive financial styles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 174-187.
    • Handle: RePEc:eee:intfin:v:46:y:2017:i:c:p:174-187
    DOI: 10.1016/j.intfin.2016.05.005
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    3. Muncef Guizani, 2020. "The Capital Structure of Islamic-Compliant Firms: Is There a Financing Hierarchy?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 16(2), pages 123-144.
    4. Khan, Abdullah & Rizvi, Syed Aun R. & Ali, Mohsin & Haroon, Omair, 2021. "A survey of Islamic finance research – Influences and influencers," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
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    7. Hassan, M. Kabir & Chiaramonte, Laura & Dreassi, Alberto & Paltrinieri, Andrea & Piserà, Stefano, 2023. "Equity costs and risks in emerging markets: Are ESG and Sharia principles complementary?," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    8. Hussain, Hafezali Iqbal & Ali, Mohsin & Hassan, M. Kabir & El-Khatib, Rwan, 2023. "Asymmetric capital structure speed of adjustment, equity mispricing and Shari’ah compliance of Malaysian firms," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 965-975.
    9. Nurtika Ekawati & Unggul Purwohedi & Ari Warokka, 2021. "The Influence of Risk Management, Third-Party Funds and Capital Structure on Banking Sector Financial Performance in Indonesia and Thailand with Corporate Governance as Moderating Variable in 2015-201," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 71-80, December.
    10. Moncef Guizani, 2020. "Testing the pecking order theory of capital structure: the case of Islamic financing modes," Future Business Journal, Springer, vol. 6(1), pages 1-12, December.
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    13. Hafezali Iqbal Hussain & Janusz Grabara & Mohd Shahril Ahmad Razimi & Saeed Pahlevan Sharif, 2019. "Sustainability of Leverage Levels in Response to Shocks in Equity Prices: Islamic Finance as a Socially Responsible Investment," Sustainability, MDPI, vol. 11(12), pages 1-16, June.
    14. Kok, Seng Kiong & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "The trade-off between knowledge accumulation and independence: The case of the Shariah supervisory board within the Shariah governance and firm performance nexus," Research in International Business and Finance, Elsevier, vol. 59(C).
    15. Ooi, Chai-Aun & Setiawan, Doddy & Hooy, Chee-Wooi, 2021. "Muslim CEOs and bank risk-taking: Evidence from Indonesia," Global Finance Journal, Elsevier, vol. 50(C).
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    17. Matemilola, B.T. & Bany-Ariffin, A.N. & Azman-Saini, W.N.W. & Nassir, Annuar Md, 2018. "Does top managers’ experience affect firms’ capital structure?," Research in International Business and Finance, Elsevier, vol. 45(C), pages 488-498.

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