Does Inclusion in the Sharia Stock Index Moderate the Relationship between Sustainability Performance and Profitability?
Abstract
This study empirically examines the relationship between sustainability performance, assessed through Environmental, Social, and Governance (ESG) scores and individual ESG pillars scores, and firm profitability, proxied by Return on Assets (ROA). Additionally, it enriches the literature by exploring the moderating role of the Sharia stock index on the relationship between sustainability performance and profitability. The analysis was performed using a sample comprising 75 firms in Indonesia and Malaysia, selected through purposive sampling for the period 2018-2022. The panel data regression results indicate a positive relationship between overall ESG scores and profitability, highlighting the positive impact of overall ESG scores on profitability in Indonesian and Malaysian firms. However, the study does not identify a significant positive relationship between individual ESG pillars scores and profitability, nor does it establish that the Sharia stock index moderates the relationship between sustainability performance and profitability, challenging the moderating role of the Sharia stock index.
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References
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Al-Dmour, A. H., Abbod, M., & Al Qadi, N. S. (2018). The impact of the quality of financial reporting on non-financial business performance and the role of organizations demographic’ attributes (type, size and experience). Academy of Accounting and Financial Studies Journal, 22(1), 1–19. http://bura.brunel.ac.uk/handle/2438/15768
Alsaadi, A., Ebrahim, M. S., & Jaafar, A. (2017). Corporate Social Responsibility, Shariah-Compliance, and Earnings Quality. Journal of Financial Services Research, 51(2), 169–194. https://doi.org/10.1007/s10693-016-0263-0
Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006
Barney, J. (1991). Firm Resources ad Sustained Competitive Advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Billio, M., Costola, M., Hristova, I., Latino, C., & Pelizzon, L. (2021). Inside the ESG ratings: (Dis)agreement and performance. Corporate Social Responsibility and Environmental Management, 28(5), 1426–1445. https://doi.org/10.1002/csr.2177
Chen, H. M., Kuo, T. C., & Chen, J. L. (2022). Impacts on the ESG and financial performances of companies in the manufacturing industry based on the climate change related risks. Journal of Cleaner Production, 380(P1), 134951. https://doi.org/10.1016/j.jclepro.2022.134951
Delvina, E. M., & Hidayah, R. (2023). The Effect of ESG (Environmental, Social and Governance) Performance on Company Value and Company Performance. Management Studies and Entrepreneurship Journal, 4(5), 5436–5444. http://journal.yrpipku.com/index.php/msej
Erragragui, E., & Revelli, C. (2016). Is it costly to be both shariah compliant and socially responsible? Review of Financial Economics, 31, 64–74. https://doi.org/10.1016/j.rfe.2016.08.003
Freeman, R. E. (1994). The Politics of Stakeholder Theory: Some Future Directions. Business Ethics Quarterly, 4(4), 409–421. https://www.jstor.org/stable/3857340
García-Amate, A., Ramírez-Orellana, A., Rojo-Ramírez, A. A., & Casado-Belmonte, M. P. (2023). Do ESG controversies moderate the relationship between CSR and corporate financial performance in oil and gas firms? Humanities and Social Sciences Communications, 10(1). https://doi.org/10.1057/s41599-023-02256-y
Gati, V., Nasih, M., Agustia, D., & Harymawan, I. (2020). Islamic index, independent commissioner and firm performance. Cogent Business and Management, 7(1). https://doi.org/10.1080/23311975.2020.1824440
Gjergji, R., Vena, L., Sciascia, S., & Cortesi, A. (2021). The effects of environmental, social and governance disclosure on the cost of capital in small and medium enterprises: The role of family business status. Business Strategy and the Environment, 30(1), 683–693. https://doi.org/10.1002/bse.2647
Gonçalves, T., Gaio, C., & Ferro, A. (2021). Corporate social responsibility and earnings management: Moderating impact of economic cycles and financial performance. Sustainability (Switzerland), 13(17). https://doi.org/10.3390/su13179969
Hambali, A., & Adhariani, D. (2023). Sustainability performance at stake during COVID-19 pandemic? Evidence from Sharia-compliant companies in emerging markets. Journal of Islamic Accounting and Business Research, 14(1), 80–99. https://doi.org/10.1108/JIABR-01-2022-0014
Harun, M. S., Hussainey, K., Mohd Kharuddin, K. A., & Farooque, O. Al. (2020). CSR Disclosure, Corporate Governance and Firm Value: a study on GCC Islamic Banks. International Journal of Accounting and Information Management, 28(4), 607–638. https://doi.org/10.1108/IJAIM-08-2019-0103
Hasan, I., Singh, S., & Kashiramka, S. (2022). Does corporate social responsibility disclosure impact firm performance? An industry-wise analysis of Indian firms. In Environment, Development and Sustainability (Vol. 24, Issue 8). Springer Netherlands. https://doi.org/10.1007/s10668-021-01859-2
Hassan, M. K., Chiaramonte, L., Dreassi, A., Paltrinieri, A., & Piserà, S. (2021). The crossroads of ESG and religious screening on firm risk. Research in International Business and Finance, 58(February). https://doi.org/10.1016/j.ribaf.2021.101500
Hou, T. C. T. (2019). The relationship between corporate social responsibility and sustainable financial performance: firm-level evidence from Taiwan. Corporate Social Responsibility and Environmental Management, 26(1), 19–28. https://doi.org/10.1002/csr.1647
Jan, A., Marimuthu, M., Mohd, M. P. bin, & Isa, M. (2019). The nexus of sustainability practices and financial performance: From the perspective of Islamic banking. Journal of Cleaner Production, 228, 703–717. https://doi.org/10.1016/j.jclepro.2019.04.208
Kasmir. (2018). Analisis Laporan Keuangan (1st ed.). Raja Grafindo.
Lee, S.-P., & Isa, M. (2023). Environmental, social and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia. Journal of Islamic Accounting and Business Research, 14(2), 295–314. https://doi.org/10.1108/JIABR-06-2020-0183
Maji, S. G., & Lohia, P. (2023). Environmental, social and governance (ESG) performance and firm performance in India. Society and Business Review, 18(1), 175–194. https://doi.org/10.1108/SBR-06-2022-0162
Melinda, A., & Wardhani, R. (2020). The Effect of Environmental, Social, Governance, and Controversies on Firms’ Value: Evidence from Asia. In Advanced Issues in the Economics of Emerging Markets (1st ed., Vol. 27, Issue June 2020, pp. 147–173). Emerald Publishing Limited. https://doi.org/10.1108/S1571-038620200000027011
Peng, L. S., & Isa, M. (2020). Environmental, social and governance (ESG) practices and performance in shariah firms: Agency or stakeholder theory? Asian Academy of Management Journal of Accounting and Finance, 16(1), 1–34. https://doi.org/10.21315/aamjaf2020.16.1.1
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306–320. https://doi.org/10.1016/j.bir.2021.06.001
Ross, S. A., Eld, R. W. W., & Jordan, B. D. (2021). Fundamentals of Corporate Finance (13th ed.). McGraw-Hill/Irwin.
Seker, Y., & Sengür, E. D. (2021). The impact of environmental, social, and governance (ESG) performance on financial reporting quality: International evidence. Ekonomika , 100(2), 190–212. https://doi.org/10.15388/Ekon.2021.100.2.9
Shen, C. H., Wu, M. W., Chen, T. H., & Fang, H. (2016). To engage or not to engage in corporate social responsibility: Empirical evidence from global banking sector. Economic Modelling, 55, 207–225. https://doi.org/10.1016/j.econmod.2016.02.007
Silpachai, K., Siengthai, S., & Levermore, R. (2024). Corporate governance, information asymmetry and firm performance: evidence from Thailand. Cogent Economics and Finance, 12(1). https://doi.org/10.1080/23322039.2024.2379583
Susilawati, D., Agusetiawan Shavab, F., & Mustika, M. (2022). The Effect of Debt to Equity Ratio and Current Ratio on Return on Assets. Journal of Applied Business, Taxation and Economics Research, 1(4), 325–337. https://doi.org/10.54408/jabter.v1i4.61
Tamayo-Torres, I., Gutierrez-Gutierrez, L., & Ruiz-Moreno, A. (2019). Boosting sustainability and financial performance: the role of supply chain controversies. International Journal of Production Research, 57(11), 3719–3734. https://doi.org/10.1080/00207543.2018.1562248
Ting, P. H. (2021). Do large firms just talk corporate social responsibility? - The evidence from CSR report disclosure. Finance Research Letters, 38(February 2019), 101476. https://doi.org/10.1016/j.frl.2020.101476
Wang, Z., & Sarkis, J. (2017). Corporate social responsibility governance, outcomes, and financial performance. Journal of Cleaner Production, 162, 1607–1616. https://doi.org/10.1016/j.jclepro.2017.06.142
Zaid, M. A. A., Wang, M., Adib, M., Sahyouni, A., & T. F. Abuhijleh, S. (2020). Boardroom nationality and gender diversity: Implications for corporate sustainability performance. Journal of Cleaner Production, 251, 119652. https://doi.org/10.1016/j.jclepro.2019.119652
Zhou, G., Liu, L., & Luo, S. (2022). Sustainable development, ESG performance and company market value: Mediating effect of financial performance. Business Strategy and the Environment, 31(7), 3371–3387. https://doi.org/10.1002/bse.3089
Zuraida, Z., & Husin, A. (2022). Sustainability, Sharī‘ah Governance and Financial Performance: Evidence from Companies Listed on the Jakarta Islamic Index. In Wealth Management and Investment in Islamic Settings: Opportunities and Challenges. https://doi.org/10.1007/978-981-19-3686-9_16
Zyadat, A. A. H. (2017). The Impact of Sustainability on the Financial Performance of Jordanian Islamic Banks. International Journal of Economics and Finance, 9(1), 55. https://doi.org/10.5539/ijef.v9n1p55
Al-Dmour, A. H., Abbod, M., & Al Qadi, N. S. (2018). The impact of the quality of financial reporting on non-financial business performance and the role of organizations demographic’ attributes (type, size and experience). Academy of Accounting and Financial Studies Journal, 22(1), 1–19. http://bura.brunel.ac.uk/handle/2438/15768
Alsaadi, A., Ebrahim, M. S., & Jaafar, A. (2017). Corporate Social Responsibility, Shariah-Compliance, and Earnings Quality. Journal of Financial Services Research, 51(2), 169–194. https://doi.org/10.1007/s10693-016-0263-0
Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006
Barney, J. (1991). Firm Resources ad Sustained Competitive Advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Billio, M., Costola, M., Hristova, I., Latino, C., & Pelizzon, L. (2021). Inside the ESG ratings: (Dis)agreement and performance. Corporate Social Responsibility and Environmental Management, 28(5), 1426–1445. https://doi.org/10.1002/csr.2177
Chen, H. M., Kuo, T. C., & Chen, J. L. (2022). Impacts on the ESG and financial performances of companies in the manufacturing industry based on the climate change related risks. Journal of Cleaner Production, 380(P1), 134951. https://doi.org/10.1016/j.jclepro.2022.134951
Delvina, E. M., & Hidayah, R. (2023). The Effect of ESG (Environmental, Social and Governance) Performance on Company Value and Company Performance. Management Studies and Entrepreneurship Journal, 4(5), 5436–5444. http://journal.yrpipku.com/index.php/msej
Erragragui, E., & Revelli, C. (2016). Is it costly to be both shariah compliant and socially responsible? Review of Financial Economics, 31, 64–74. https://doi.org/10.1016/j.rfe.2016.08.003
Freeman, R. E. (1994). The Politics of Stakeholder Theory: Some Future Directions. Business Ethics Quarterly, 4(4), 409–421. https://www.jstor.org/stable/3857340
García-Amate, A., Ramírez-Orellana, A., Rojo-Ramírez, A. A., & Casado-Belmonte, M. P. (2023). Do ESG controversies moderate the relationship between CSR and corporate financial performance in oil and gas firms? Humanities and Social Sciences Communications, 10(1). https://doi.org/10.1057/s41599-023-02256-y
Gati, V., Nasih, M., Agustia, D., & Harymawan, I. (2020). Islamic index, independent commissioner and firm performance. Cogent Business and Management, 7(1). https://doi.org/10.1080/23311975.2020.1824440
Gjergji, R., Vena, L., Sciascia, S., & Cortesi, A. (2021). The effects of environmental, social and governance disclosure on the cost of capital in small and medium enterprises: The role of family business status. Business Strategy and the Environment, 30(1), 683–693. https://doi.org/10.1002/bse.2647
Gonçalves, T., Gaio, C., & Ferro, A. (2021). Corporate social responsibility and earnings management: Moderating impact of economic cycles and financial performance. Sustainability (Switzerland), 13(17). https://doi.org/10.3390/su13179969
Hambali, A., & Adhariani, D. (2023). Sustainability performance at stake during COVID-19 pandemic? Evidence from Sharia-compliant companies in emerging markets. Journal of Islamic Accounting and Business Research, 14(1), 80–99. https://doi.org/10.1108/JIABR-01-2022-0014
Harun, M. S., Hussainey, K., Mohd Kharuddin, K. A., & Farooque, O. Al. (2020). CSR Disclosure, Corporate Governance and Firm Value: a study on GCC Islamic Banks. International Journal of Accounting and Information Management, 28(4), 607–638. https://doi.org/10.1108/IJAIM-08-2019-0103
Hasan, I., Singh, S., & Kashiramka, S. (2022). Does corporate social responsibility disclosure impact firm performance? An industry-wise analysis of Indian firms. In Environment, Development and Sustainability (Vol. 24, Issue 8). Springer Netherlands. https://doi.org/10.1007/s10668-021-01859-2
Hassan, M. K., Chiaramonte, L., Dreassi, A., Paltrinieri, A., & Piserà, S. (2021). The crossroads of ESG and religious screening on firm risk. Research in International Business and Finance, 58(February). https://doi.org/10.1016/j.ribaf.2021.101500
Hou, T. C. T. (2019). The relationship between corporate social responsibility and sustainable financial performance: firm-level evidence from Taiwan. Corporate Social Responsibility and Environmental Management, 26(1), 19–28. https://doi.org/10.1002/csr.1647
Jan, A., Marimuthu, M., Mohd, M. P. bin, & Isa, M. (2019). The nexus of sustainability practices and financial performance: From the perspective of Islamic banking. Journal of Cleaner Production, 228, 703–717. https://doi.org/10.1016/j.jclepro.2019.04.208
Kasmir. (2018). Analisis Laporan Keuangan (1st ed.). Raja Grafindo.
Lee, S.-P., & Isa, M. (2023). Environmental, social and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia. Journal of Islamic Accounting and Business Research, 14(2), 295–314. https://doi.org/10.1108/JIABR-06-2020-0183
Maji, S. G., & Lohia, P. (2023). Environmental, social and governance (ESG) performance and firm performance in India. Society and Business Review, 18(1), 175–194. https://doi.org/10.1108/SBR-06-2022-0162
Melinda, A., & Wardhani, R. (2020). The Effect of Environmental, Social, Governance, and Controversies on Firms’ Value: Evidence from Asia. In Advanced Issues in the Economics of Emerging Markets (1st ed., Vol. 27, Issue June 2020, pp. 147–173). Emerald Publishing Limited. https://doi.org/10.1108/S1571-038620200000027011
Peng, L. S., & Isa, M. (2020). Environmental, social and governance (ESG) practices and performance in shariah firms: Agency or stakeholder theory? Asian Academy of Management Journal of Accounting and Finance, 16(1), 1–34. https://doi.org/10.21315/aamjaf2020.16.1.1
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306–320. https://doi.org/10.1016/j.bir.2021.06.001
Ross, S. A., Eld, R. W. W., & Jordan, B. D. (2021). Fundamentals of Corporate Finance (13th ed.). McGraw-Hill/Irwin.
Seker, Y., & Sengür, E. D. (2021). The impact of environmental, social, and governance (ESG) performance on financial reporting quality: International evidence. Ekonomika , 100(2), 190–212. https://doi.org/10.15388/Ekon.2021.100.2.9
Shen, C. H., Wu, M. W., Chen, T. H., & Fang, H. (2016). To engage or not to engage in corporate social responsibility: Empirical evidence from global banking sector. Economic Modelling, 55, 207–225. https://doi.org/10.1016/j.econmod.2016.02.007
Silpachai, K., Siengthai, S., & Levermore, R. (2024). Corporate governance, information asymmetry and firm performance: evidence from Thailand. Cogent Economics and Finance, 12(1). https://doi.org/10.1080/23322039.2024.2379583
Susilawati, D., Agusetiawan Shavab, F., & Mustika, M. (2022). The Effect of Debt to Equity Ratio and Current Ratio on Return on Assets. Journal of Applied Business, Taxation and Economics Research, 1(4), 325–337. https://doi.org/10.54408/jabter.v1i4.61
Tamayo-Torres, I., Gutierrez-Gutierrez, L., & Ruiz-Moreno, A. (2019). Boosting sustainability and financial performance: the role of supply chain controversies. International Journal of Production Research, 57(11), 3719–3734. https://doi.org/10.1080/00207543.2018.1562248
Ting, P. H. (2021). Do large firms just talk corporate social responsibility? - The evidence from CSR report disclosure. Finance Research Letters, 38(February 2019), 101476. https://doi.org/10.1016/j.frl.2020.101476
Wang, Z., & Sarkis, J. (2017). Corporate social responsibility governance, outcomes, and financial performance. Journal of Cleaner Production, 162, 1607–1616. https://doi.org/10.1016/j.jclepro.2017.06.142
Zaid, M. A. A., Wang, M., Adib, M., Sahyouni, A., & T. F. Abuhijleh, S. (2020). Boardroom nationality and gender diversity: Implications for corporate sustainability performance. Journal of Cleaner Production, 251, 119652. https://doi.org/10.1016/j.jclepro.2019.119652
Zhou, G., Liu, L., & Luo, S. (2022). Sustainable development, ESG performance and company market value: Mediating effect of financial performance. Business Strategy and the Environment, 31(7), 3371–3387. https://doi.org/10.1002/bse.3089
Zuraida, Z., & Husin, A. (2022). Sustainability, Sharī‘ah Governance and Financial Performance: Evidence from Companies Listed on the Jakarta Islamic Index. In Wealth Management and Investment in Islamic Settings: Opportunities and Challenges. https://doi.org/10.1007/978-981-19-3686-9_16
Zyadat, A. A. H. (2017). The Impact of Sustainability on the Financial Performance of Jordanian Islamic Banks. International Journal of Economics and Finance, 9(1), 55. https://doi.org/10.5539/ijef.v9n1p55
Published
2024-12-01
How to Cite
ARIANA, Nadya; DEWI, Miranti Kartika.
Does Inclusion in the Sharia Stock Index Moderate the Relationship between Sustainability Performance and Profitability?.
E-Jurnal Akuntansi, [S.l.], v. 34, n. 12, dec. 2024.
ISSN 2302-8556.
Available at: <https://ojs.unud.ac.id/index.php/akuntansi/article/view/120966>. Date accessed: 15 jan. 2025.
doi: https://doi.org/10.24843/EJA.2024.v34.i12.p03.
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