Financial Crises and Corporate Sustainability: A Comparative Analysis of Shariah-Compliant and Non-Shariah-Compliant Firms (Perspectives in Social Sciences)

Summary

• The study uses 17,958 firm-year observations from the Thomson Reuters ESG database covering 2004–2023.p.6
• The average sustainability score rose from 41.889 in 2004 to 62.682 in 2023.p.8
• Shariah-compliant firms have a higher mean sustainability score (52.221) than non-compliant firms (48.333), a difference of 3.888.p.9
• The coefficient of Shariah compliance is positive in all four models and significant in the FGLS model (0.024).p.11
• During the GFC the FGLS coefficient is −0.211 for Shariah-compliant firms and −0.655 for non-compliant firms.p.12
• During COVID-19 the FGLS coefficient is 0.065 for Shariah-compliant firms and 0.116 for non-compliant firms.p.13

Key insights

1. The average share of Shariah-compliant firms was only 0.029 in 2004, peaked at 0.085 in 2015 and stayed at 0.081 from 2019 to 2023.p.8
2. Mean sustainability scores were 52.706 in the non-crisis group and 44.501 in the GFC crisis group, a difference of 8.205.p.9
3. Leverage is negatively related to sustainability in every model, most strongly in the FE model (−0.080).p.11
4. Growth is positively related to sustainability, with the highest coefficient in the FGLS model (0.096).p.11
5. The GFC effect on sustainability is negative in both groups but stronger for non-compliant firms.p.12
6. Non-compliant firms recorded the larger sustainability gain during COVID-19 (0.116 against 0.065).p.15
7. The hypothesis that Shariah-compliant firms outperform in crises is only partially accepted, supported for the GFC but not for COVID-19.p.15