Change in Sharia Screening Methodology and Share Price Informativeness

Abstract

Sharia compliant status gives assurance to Sharia based investors that their investment is in compliance with Islamic values. The implementation of new Sharia screening methodology, which is more demanding than the previous one, has significant impact on price informativeness in the Kuala Lumpur Stock Exchange (KLSE). We find that Sharia compliant firms have significantly greater return synchronicity after the new screening methodology is implemented. Our findings suggest that the implementation of the new screening methodology leads Sharia compliant firms to impound global and local market information. We also find that Sharia compliant firms with greater government ownership and CEO duality impound global and market information faster, respectively.

Keywords: Sharia screening, Price informativeness, Delay, Return synchronicity

JEL Classification: G14, G15