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Effect of Shariah Compliance on Operating Performance: Evidence from GCC Countries

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  • Serkan Akguc
  • Naseem Al Rahahleh

Abstract

We examine the operating performance of Shariah-compliant (SC) vs. non-Shariah-compliant (NSC) firms in six Gulf Cooperation Council (GCC) countries during 2000–2014 using a unique dataset from S&P’s Compustat Global database and show robust evidence that SC firms are operationally much more profitable than NSC firms. We show that higher operating profit margin (due to lower cost structure) and higher total asset turnover (i.e., asset efficiency) of SC firms compared to NSC firms are the primary drivers of the profitability difference. We also find that this association is more pronounced for firms that are always SC or always NSC during sample period.

Suggested Citation

  • Serkan Akguc & Naseem Al Rahahleh, 2018. "Effect of Shariah Compliance on Operating Performance: Evidence from GCC Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2874-2896, September.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:12:p:2874-2896
    DOI: 10.1080/1540496X.2018.1425991
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    Cited by:

    1. Alshammari, Ahmad Alrazni & Alhabshi, Syed Musa & Saiti, Buerhan, 2019. "The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: Evidence from a stochastic frontier analysis," Economic Systems, Elsevier, vol. 43(3).
    2. Ali Shaddady, 2022. "Business environment, political risk, governance, Shariah compliance and efficiency in insurance companies in the MENA region," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 861-904, October.
    3. Erli Dan & Jianfei Shen & Xinyuan Zheng & Peng Liu & Ludan Zhang & Feiyu Chen, 2023. "Asset Structure, Asset Utilization Efficiency, and Carbon Emission Performance: Evidence from Panel Data of China’s Low-Carbon Industry," Sustainability, MDPI, vol. 15(7), pages 1-20, April.
    4. Cheong, Calvin W.H., 2021. "Risk, resilience, and Shariah-compliance," Research in International Business and Finance, Elsevier, vol. 55(C).
    5. Naseem Al Rahahleh & M. Ishaq Bhatti & Faridah Najuna Misman, 2019. "Developments in Risk Management in Islamic Finance: A Review," JRFM, MDPI, vol. 12(1), pages 1-22, February.

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