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Trade-Off Between Working Capital And Fixed Investment Under Shariah Compliance And Islamic Adherence

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  • Han-Fang Tsai

Abstract

This study investigates whether Shariah (Islamic Law) compliance and Islam adherence influence the relationship between working capital and fixed investment, as well as, whether this relationship further affects firm performance. Using a sample of firms listed on the Indonesia Stock Exchange over the period 2011-2018, we find that the relationship between working capital and fixed investment is linear for Shariahcompliant firms, however, this relationship is non-linear for non-Shariah-compliant firms. In addition, the result also shows that non-Shariah-compliant firms with higher working capital/fixed investment ratio have a better firm performance, however, this effect does not exist for Shariah-compliant firms. Finally, Muslim proportion of city exerts influence on the relationship between working capital/fixed investment ratio and firm performance, but Muslim proportion of province does not have this influence.

Suggested Citation

  • Han-Fang Tsai, 2023. "Trade-Off Between Working Capital And Fixed Investment Under Shariah Compliance And Islamic Adherence," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 17(1), pages 35-48.
    • Handle: RePEc:ibf:ijbfre:v:17:y:2022:i:1:p:35-48
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    More about this item

    Keywords

    Shariah; Islam Adherence; Working Capital Investment; Fixed Investment; Firm Performance;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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