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Islamic norms for stock screening: A comparison between the Kuala Lumpur Stock Exchange Islamic Index and the Dow Jones Islamic Market Index

Listed author(s):
  • Azhar Abdul Rahman
Registered author(s):

    Purpose - The purpose of this paper is to compare the criteria used among Islamic Indices, specifically between the Kuala Lumpur Stock Exchange Design/methodology/approach - The paper investigates the 642 companies listed on the Bursa Malaysia in 2006 as approved Findings - Overall, the results reveal that the KLSESI does not use both the criteria set by the DJIM as its measures during the screening process. As for the level of debt criterion, the results show that 44.07 percent of the companies listed under the KLSESI are highly geared. These companies depend heavily on debt to finance their capital. However, the results for the level of liquidity criterion are not as extreme as the level of debt where it shows only 17 percent of the companies listed under the KLSESI are highly liquid. The results also indicate that if both criteria are compared concurrently, only 198 out of 565 companies listed under the KLSESI conform to the criteria set up by the DJIM. Research limitations/implications - The main reasons why the differences exist among Islamic Indices are due to micro-factor as faced by Malaysian companies such as the limited amount of capital resources. The Originality/value - The paper represents the first study that compares the criteria used by two different indices regarding Islamic capital investment in a developing country.

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    Article provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.

    Volume (Year): 3 (2010)
    Issue (Month): 3 (August)
    Pages: 228-240

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    Handle: RePEc:eme:imefpp:v:3:y:2010:i:3:p:228-240
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    1. Ulrich Derigs, 2008. "Review and analysis of current Shariah-compliant equity screening practices," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 1(4), pages 285-303, November.
    2. Masudul Alam Choudhury, 2001. "Islamic venture capital - A critical examination," Journal of Economic Studies, Emerald Group Publishing, vol. 28(1), pages 14-33, January.
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