Islamic labeled firms: Revisiting Dow Jones measure of compliance

54 Pages Posted: 6 Jan 2019 Last revised: 29 Jun 2020

See all articles by Ahmed Elnahas

Ahmed Elnahas

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance

Ghada Ismail

University of Memphis - Finance

Rwan El-Khatib

Zayed University - College of Business

M. Kabir Hassan

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

Date Written: June 27, 2020

Abstract

Investors hand billions of dollars across 131 countries to Islamic law-compliant funds that are often promoted as more socially responsible, less risky, and less prone to failure. Our empirical results indicate that the Shariah-compliant firms identified by Dow Jones do not have higher CSR scores, lower risk, or lower likelihood of failure than non-compliant firms. We address endogeneity using the instrumental variable (IV) approach and the selection bias using the propensity score matching method. Our results are similar when using Dow Jones, FTSE, and HSBC indices and when using CSR scores provided by multiple databases. We create an index to measure compliance with the Islamic law that overcomes several flaws in the binary measures currently employed in the industry. This index can help Shariah-compliant funds to fulfill their promise by constructing portfolios that are compliant with the Islamic law and are more socially responsible, less risky, and less prone to failure.

Keywords: Religiosity; Islamic Finance; Corporate Social Responsibility, Agency Theory, Stakeholder Theory, Insider-Initiated Corporate Philanthropy

JEL Classification: G32, M14, Z12

Suggested Citation

Elnahas, Ahmed and Ismail, Ghada and El-Khatib, Rwan and Hassan, M. Kabir, Islamic labeled firms: Revisiting Dow Jones measure of compliance (June 27, 2020). Available at SSRN: https://ssrn.com/abstract=3305430 or http://dx.doi.org/10.2139/ssrn.3305430

Ahmed Elnahas (Contact Author)

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance ( email )

1201 W. University Drive
Edinburg, TX 78539-2999
United States

Ghada Ismail

University of Memphis - Finance ( email )

United States

Rwan El-Khatib

Zayed University - College of Business ( email )

Zayed University
P.O. Box 144534
Abu Dhabi
United Arab Emirates

M. Kabir Hassan

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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