The mutual fund industry observed a remarkable growth of two distinct types of mutual funds during the last two decades, namely, Shariah-compliant funds (SCFs) and Socially responsible funds (SRFs). These alternative investment avenues were created for investors who are keen on investments that are Shariah-compliant and have better ethical standards than conventional funds. To fulfil these needs, the funds' investment strategies incorporate specific non-financial screening criteria based on ethical and religious guidelines, besides the typical risk-return financial screening.

This study investigates how the effects of government and foreign bank ownership on private credit vary in the cases of Islamic and conventional banks using data extended from Claessens and van Horen (2014) of 29 dual banking countries from 1995 to 2017. In support of the political view of financial development, we find that the presence of state-owned Islamic banks seem to be slightly less harmful to private credit flows than their conventional peers, particularly in the period after the global financial crisis. We also document evidence showing that countries with a larger foreign Islamic bank presence tend to have deeper credit markets postcrisis. However, such advantages may often be outweighed by the costs associated with increased penetration by foreign conventional banks.

This paper examines several issues related to the implementation of ESOs among Malaysian companies. We examine a total of 52 companies, 26 ESO firms and their matched industry peers over a span of 12 years. We find ESO firm stocks to have marginally higher mean returns and lower volatility than do their pre-ESO peers. Malaysian companies are more likely to initiate ESOs when the market valuation of their stocks is low. If there is any timing, ESO initiation is timed to be most favourable to employee recipients. Market reaction to ESO announcements is significantly negative. Furthermore, stock prices do not seem to recover to pre-announcement levels during at least the subsequent 20 trading days or one calendar month. In line with US findings, operating performance deteriorates for ESO companies. Comparative analysis of control firms rules out industry or external factors as elements of the deterioration. Firm size has been identified in previous studies as a determinant of market reaction and post-ESO performance. Indeed we find this to be the case for Malaysian ESOs. We find a positive announcement effect for large firms but a significantly negative one for small firms. Though puzzling, the market reaction makes sense when we consider the poor operating performance post-ESO of small firms relative to large ones. It appears that the impact of an ESO is negative for small firms but neutral for large ones. The market appears to anticipate this outcome and react accordingly. An ESO realigns the interest of the stakeholders of a company. Employee recipients gain, while shareholders mostly lose. Bondholders of large ESO firms are only marginally affected, but those of small firms stand to lose from the diminution of profits and increased leverage post-ESO. Based on our results, it will be difficult to make a case that the objectives of and rationale for an ESO are being fulfilled.

This chapter discusses some challenges of Shariah Committees In Islamic financial institutions in dispensing their responsibilities in mitigating the non-compliance risks. The concept of shariah governance has its foundation in the Qur'an and the Sunnah. Shariah (which literally means "the way") is the divinely ordained guidelines of conduct for Muslims in all aspects of their life, which includes financial matters. Any form of transaction, irrespective of financial or otherwise, must be free of any element of injustice to the transacting parties. For financial transactions, any elemerit or form of activity that could be construed as 'riba' or injustice to any of the participants in the transaction is absolutely forbidden. The objective is to ensure that the operations of Islamic Financial Institutions (lFIs) are shariah compliant, failing which will result in loss of confidence and credibility that will impede the future growth of Islamic finance Industry.

Capital structure serves as an important device for mitigation of agency conflicts and, although firms combine debt and cash dividends to address the agency conflicts, debt is preferred as a bonding device by many managers due to its lower cost as compared to equity (John, Knyazeva & Knyazeva, 2015). However, shariah-compliant firms (SCF) cannot use this device due to prohibition of interest-bearing loans in Islam. In this scenario, the dividend payout policy becomes a highly important tool of corporate governance for shariah-compliant investors. Moreover, the managers of these firms cannot maintain stable dividends by issuing bonds and, therefore, the dividend policy of such firms would be different. This chapter highlights the dividend payout behaviour of SCF by comparing them to conventional firms.

Shari'ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be "Shari'ah-compliant" and what form of connections it can have, even in theory, to either the firm's value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari'ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally. Panel data on 634 Shari'ah-compliant firms have been used in this study for the period of 2000-2014. The results indicate that Shari'ah compliance adds to the value of firms as firms perform transactions according to Shari'ah while avoiding non-permissible activities. This study adds value to the existing literature by showing the statistical results for the impact of Shari'ah compliance on the performance of the listed firms on Bursa Malaysia.

Connections between politicians and business houses are not uncommon. Literature shows that firms tends to connect with politicians/political parties to get easy access to credit, to have lax regulatory oversight, to have preferential treatment for the government contracts and for having access to insider information. On the other hand a Shari'ah compliant firm is considered to perform ethically and justly due to adherence to the rules and regulations prescribed by Shari'ah. In recent years the research on political connections of Malaysian listed firms is increased. But the comparison of politically connected listed firms and Shari'ah compliant listed firms in Malaysia is lacking. Malaysia is a leading country in Islamic finance hence; this paper analyzes the impact of political connections and Shari'ah compliance on the profitability of the listed firms' in Malaysia for the period of 2000-2014. The paper used regression technique for the analysis. The result of the study shows that Shari'ah compliant firms perform better than the politically connected firms. Shari'ah compliance has positive and significant impact on the profitability of the firm whereas political connections have negative and significant impact on the profitability of the firm in the case of Malaysia.

This article undertakes an in-depth study of the foreign exchange exposure of Malaysian listed firms. We examine several issues related to firm-specific and overall exposure, including an evaluation of the efficacy of adopting a hard-peg on such exposure. Our sample consists of 158 listed firms and spans the 16 year period, 1990–2005. A multivariate model using four bilateral exchange rates is used to determine firm level exposure while panel data analysis using a random-effects Generalized Least Squares (GLS) model is used to determine system-wide or aggregate sample exposure. We find a total 71% of our sample firms to have significant exchange rate exposure, a rate substantially higher than that reported for most countries, especially developed ones.

The concept of Shariah governance has its foundation in the Qur'an and the Sunnah. Shariah (which literally means "the way") is the divinely ordained guidelines of conduct for Muslims in all aspects of their life, which includes financial matters. Any form of transaction, irrespective of financial or otherwise, must be free of any element of injustice to the transacting parties.

We assess the managerial skills of globally invested 686 ethical funds taking into consideration the macroeconomic efficiency and fund inflows/outflows. It was observed that managers exhibit negative selection and market timing skills but no consistent pattern for style timing. A cursory glance at the literature indicates little support for superior managerial abilities, especially in terms of timing skills. Notwithstanding, some have highlighted the importance of including fund flows in the traditional models and argue that excluding it can lead to spurious timing skills (Bollen and Busse, 2001). The findings indicate that the investors increase their exposure to funds during a bullish period and reduce it during a bearish period.

This chapter aims to logically show that the contemporary structure of shariah supervisory boards in banks have to move towards a more aggressive compliance mode to ensure Islamic banks meet the regulatory requirements fully for all processes involved in providing shariah compliant products and services, since the industry has been in operation for more than five decades. The rapid growth of Islamic finance in recent years; something similar to other new financial products in historical times; has attracted many financial institutions, who are taking a keen interest in this growth sector.