A Comparative Analysis of the Firm Specific Determinants of Syariah Compliant Versus Non-Syariah Compliant Firms in Bursa Malaysia

Abstract

This paper aims at investigating two issues. Firstly, whether there is a
significant difference in returns between Syariah compliant and non-Syariah
compliant firms listed on the Malaysian stock exchange, Bursa Malaysia;
and secondly, whether both types of firms react differently to the same
selected firm specific variables. Using panel data techniques, we analyse
three hundred (300) firms in Bursa Malaysia for the period from 2000 to
2006. The determinants of stock returns used are market capitalisation,
market-to-book ratio, price-earnings ratio, market risk and total debt. The
results indicate that there is no significant difference between Syariah
compliant firms and their counterparts. In addition, using three (3) different
models for estimation (i.e. fixed effect, pooled and random effect models),
it is found that the fixed effect model is the best model that fits the data.
For Syariah compliant firms, it is found that size and market-to-book
ratios are the most significant variables explaining returns. However, for
non-Syariah compliant firms, market-to-book ratio and market risk (beta)
are the most significant variables influencing returns.
Keywords: Firm Specific, Fixed Effect, Panel Data, Syariah Compliant