Does an Islamic Label Indicate Good Corporate Governance?

45 Pages Posted: 14 Oct 2018

See all articles by Raphie Hayat

Raphie Hayat

VU University Amsterdam - Department of Economics

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: 2016

Abstract

In this paper we study the effect of an Islamic label on corporate governance. Listed firms with an Islamic label (Islamic firms) are characterized by low leverage. Because recent evidence indicates that leverage can act as a substitute for good governance, it is tempting to expect these Islamic firms to have better governance than their non-Islamic peers. However, we find no significant difference in overall governance between Islamic and non-Islamic S&P 500 firms. Also, after controlling for other determinants of governance, we find no significant effect of an Islamic label. We do find that an Islamic label adds about 2 percentage points of governance quality, as measured by the Bloomberg Governance Disclosure score. However, this effect is not related to leverage.

Keywords: Islamic finance, corporate governance, leverage, agency problems

JEL Classification: Z12, G32, G34, M14

Suggested Citation

Hayat, Raphie and Hassan, M. Kabir, Does an Islamic Label Indicate Good Corporate Governance? (2016). Journal of Corporate Finance, 2016, Available at SSRN: https://ssrn.com/abstract=3263091

Raphie Hayat

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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