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

Author

Listed:
  • Kayani, Umar
  • Iqbal, Umer
  • Aysan, Ahmet Faruk
  • Fianto, Bayu Arie
  • Rabbani, Mustafa Raza
  • Hasan, Fakhrul

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.

Suggested Citation

  • Kayani, Umar & Iqbal, Umer & Aysan, Ahmet Faruk & Fianto, Bayu Arie & Rabbani, Mustafa Raza & Hasan, Fakhrul, 2025. "Revealing the secrets of working capital: A comparison between sharia-compliant and conventional firms," Economic Systems, Elsevier, vol. 49(2).
    • Handle: RePEc:eee:ecosys:v:49:y:2025:i:2:s0939362524001006
    DOI: 10.1016/j.ecosys.2024.101278
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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