Islamic business scorecard and the screening of Islamic businesses in a cross‐country setting

Screening of shari'ah compliant firms is incomplete without the inclusion of ethical and social responsibilities. The existing “activity screen” does not directly capture the ethical and social footprints of firms. The purpose of this study is to create and test an Islamic business scorecard that combines activity, ethical, and social responsibilities that Islamic businesses must comply with. This new Islamic business scorecard replaces the existing activity screens and is added to the financial screens to create an integrated business screening mechanism to identify shari'ah compliant firms. This study utilizes data from a sample of 410 shari'ah compliant companies listed with stock exchanges in Malaysia, Pakistan, and Bangladesh. Out of the five newly developed constructs of the Islamic business scorecard, the results indicate Islamic firms are less committed to social responsibilities and tend to push forward economic responsibilities that focus on profitability and growth. Of the three countries, this study reports Malaysian firms have the highest compliance scores, while Bangladesh displays characteristics of the “next‐big shari'ah destination”. Financial screens are more important than the Islamic business scorecard for firms in the construction, industrial, technology, and trading/services sectors. Because of its connection with the economic, ethical, and social dimensions, the scorecard helps to identify the true nature of shari'ah compliance as a useful decision tool for investors and policymakers.     

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

This article provides a framework for applying the principles of Islamic legal methodology to determine the optimal Shariah screening standards for Islamic equity markets. It is argued that using maslahah mursalah (unrestricted benefit) is an appropriate method for identifying appropriate financial standards and its principles stipulate that the benchmark that yields the best economic returns to investors should be chosen. The methodological framework is applied to the Indonesia equity market where the economic implications of the Islamic stock screening standards of the Indonesian Islamic Shariah Stock Index and four global indices are assessed. Portfolios are constructed by applying Islamic stock screening standards for each of the indices by using data on 377 stocks listed in the Indonesian stock market for 5 years. The performances measured by the Sharpe ratio, Treynor index, and Jensen alpha reveal that the Dow Jones Islamic Index screening criteria performs the best. Based on the method of maslahah mursalah, the article recommends using the screening standard of this index in the Indonesian stock market to maximize benefits to investors. While the approach used in this article is applied to Islamic equity markets, the methodological framework can also be used for other similar cases in Islamic finance.     

Conceptualization of the real economy and Islamic finance: Transformation beyond the asset‐link rhetoric

A key factor behind the chronic crises in modern economies is the growing dominance of financialization and the resulting disconnect between the real economy and the financial sector, to which conventional financial industry is a key contributor. In contrast, Islamic finance claims to be real‐economy‐oriented, as all transactions must be asset‐linked (asset‐backed or asset‐based). However, is Islamic Finance based on proper conceptualization of the real economy? What is the real economy and its dynamics? How Islamic finance is interfaced with the real economy? In this article, the claimed real‐economy‐orientation is examined by presenting a conceptualization of the real economy and then evaluating the related discourse accordingly. The analysis presented, especially for noneconomists, exposes a serious gap between the claims about Islamic finance and the real economy it is supposed to advance. Appropriate conceptualization of the real economy can help the industry to be relevant and effective for broader socioeconomic transformation.     

An assessment of ethical obligation and self‐identity in ethical consumer decision‐making: a structural equation modelling approach

Research has supported the addition of ethical obligation and self‐identity to models of consumer decision‐making in ‘ethical’ contexts. The particular placement of ethical obligation and self‐identity within a model of ethical consumer decision‐making remains unclear. Are these measures an antecedent to attitude or behavioural intention? This paper presents findings from a large scale survey of ethical consumers that explores, through structural equation modelling, the specific placement of these measures within a validated model of ethical consumer decision‐making, which uses the theory of planned behaviour as an initial framework. This research is examined within the ‘ethical’ context of fair trade grocery purchasing. (Fairly traded products are those purchased under equitable trading agreements, involving co‐operative rather than competitive trading principles, ensuring a fair price and fair working conditions for the producers and suppliers.)     

The development of consumer protection in Saudi Arabia

The development of consumer protection in Saudi Arabia is of interest for a number of reasons. First, Saudi Arabia presents a unique combination of size, stage of development of the economy and wealth, coupled with strictness of Islamic observance. Second, consumer protection in the Saudi context has received very little attention from researchers. Despite the richness of Islamic teachings on the conduct of business and trade, very little has been written on consumer protection in Islamic societies other than discussions of financial markets and consumer credit and monopoly. This article briefly explores the background to the emergence of consumer protection in Saudi Arabia. Consumer credit and financial markets are excluded from the discussion. Islamic (Shari’ah) law is analysed as a basis for the regulation of consumer affairs; this system of law is then compared in its major outcomes for consumers with legal systems in advanced Western economies. The development of secular commercial law during recent times in Saudi Arabia is also considered as a parallel development to those in Shari’ah. Both strands of development are then set in the context of Saudi Arabia's 5‐year development plans and the changing position of consumer policy issues is tracked through successive plans. The institutional location of consumer policy within the Saudi government system is discussed before finally considering the changing nature of the Saudi consumer and the possible future for consumer protection in the country.     

The impact of ethical concerns on family consumer decision‐making

Ethical consumerism and family consumer decision‐making, including the influence of children in this area, are spheres of consumer behaviour in which a substantial amount of academic research has already been undertaken. However, the crossover of these two areas is as yet under‐researched, as well as the level of pester power parents are subjected to from children aged 3 and under. This paper uses qualitative methods to investigate the issues surrounding the ethical consumer decision‐making process with families who have children aged 3 years old or under. This research found that the motivation to pursue an ethical lifestyle varied across the sample, but the emergence of an ‘inheritance factor’, where parents are awakened to ethical issues because of the birth of their child, was prominent. Other issues that transpired from this research include the prominence of ethical trade‐offs in consumer decision‐making, ethical choices as normalizing behaviour and finally the presence of pester power in the ethical context. Ethical consumerism strongly emerged as an integral part of the parent's identity construction, especially for the mothers as they struggled to adapt to their new roles. Further research delving into the role ethical choices have on identity construction and the parental response to pester power would be a valuable addition to the overall context of this research.     

Practically wise ethical decision‐making: An ethnographic application to the UNE‐Millicom merger

Integrated approaches in the ethical decision‐making (EDM) and practically wise decision‐making literature are emerging as alternative perspectives to management theories that conceptualize decision‐making in a rationalist and value‐free manner. However, more dialogue between both perspectives and qualitative research that applies them is required. In addition, there is a need for empirical analysis on business engagement in the face of grand challenges in developing countries. This paper proposes an integrated practically wise EDM framework to study how Colombian councilors who, in 2013, voted for or against the merger between the Colombian state‐owned company UNE and the Swedish multinational Millicom interpret this decision and its public impact. Qualitative semi‐structured interviews were conducted with a voluntary sample of 18 of 21 councilors. Supporters of the UNE‐Millicom merger expressed open‐mindedness, seeing the merger as a means to achieve justice. On the contrary, the merger’s opponents expressed circumspection, doubting that Millicom’s intentions really leaned toward justice. We conclude that practical wisdom—embodied by both supporters and detractors—fosters an understanding of EDM beyond what leaders should not do. It also includes a democratic and balanced deliberation on what leaders think they should do to promote the common good.     

Moral standards in managerial decisions: In search of a comprehensive theoretical framework

Although ethical decision‐making theory has evolved over the years, within the field of management, research still revolves around James Rest’s (1986) four‐step framework, dominated by a positivist epistemology and a quantitative methodology. Given that currently there is a call for a theoretical, epistemological, and methodological renovation for the enlargement and enrichment of knowledge about how decisions are morally made in organizations, this paper has a double aim. First, by showing the models’ main flaws and limitations, it critically assesses the prominent theoretical models of Rest, Trevino, and Jones. Then, for decision making in organizations, the paper aims to posit a fresh moral theory that addresses the phenomenon from a comprehensive epistemological perspective. To do so, it steps back from those prominent models in order to review John Dewey’s “theory of moral life.” At the core of the proposed comprehensive theoretical framework are Dewey’s concepts of a “moral standard” and “valuation.” Finally, the paper shows how the Dewey‐based framework can both overcome the flaws and limitations that are identified in those prominent models and can enrich empirical research, therefore contributing to developing as a whole the ethical decision‐making field.     

Socially responsible investment: insights from Shari'a departments in Islamic financial institutions

Islamic financial institutions (IFIs) are emerging as prominent players in the financial world and are increasingly known for their conservative socially responsible investment (SRI). Being the Shari'a regulators and monitors of IFIs, the Shari'a departments are expected to implement the Islamic perspective of SRI – drawn from Shari'a principles – in their respective institutions. The purpose of this paper is to develop an SRI framework applicable to IFIs and other Shari'a compliant entities and assess its applicability within Shari'a departments of two Islamic banks. This paper involves cross‐case analysis based on interviews with Shari'a department officials in two settings differentiated by their respective independence. The proposed framework consists of required, expected and desired SRI aspects as applicable to IFIs. The findings reveal that the required aspects are uniformly observed by the two cases. There are, however, variations when it comes to observing the expected and desired ethical SRI aspects that may be driven by the independence of the Shari'a boards. This inconsistency and non‐adherence of expected and desired aspects may lead to reputational risks in the long run.     

Education and the empowerment of women in household decision‐making in Spain

It was analysed whether investment in the education of both women and men serves to empower wives resulting in more balanced household decisions being taken on matters related to consumption and financial management. They considered that household decision‐making could be made by mainly the wife, mainly the husband or the couple acting jointly. They then applied multinomial probit models to the Spanish Living Conditions Survey of 2010. Results show that, when controlling for demographic, family and labour market characteristics, the level of education of both the husband and wife has a positive effect in terms of a more egalitarian decision‐making process in relation to three areas of expenditure: daily shopping, expensive purchases of consumer durables and significant expenditure on children. However, only women's education has a positive effect on borrowing money and no effect of education is observed with regard to the use of savings. Results are less conclusive for households where decisions are taken primarily by the wife or husband, since men's education increases the role of husbands in the household making‐decision process whereas no effect of wives' education is observed.     

Asset Allocation of Two‐Person Households under Different Longevity Expectations

This study examines asset allocations of near‐elderly couples when spouses have different longevity expectations. Since the risk‐adjusted return on equities increases with investment horizon, a spouse who expects longer retirement period has an incentive to hold riskier portfolio. Using data from the Health and Retirement Study, we show that portfolio riskiness increases with the subjective survival probability of the decision‐making spouse. As predicted by the bargaining model, portfolio outcomes are uncorrelated with the horizon of the spouse who has less bargaining power. Results also show that the extent expected horizon is incorporated into asset allocation depends on the decider's gender. The share of equities depends on the husband's expected horizon when he leads decision making but not on the wife's horizon when she has more power. These findings contradict the prediction that wife‐led households may hold more equities than do husband‐led households because of their longer lifespan.     

Corporate governance and accounting conservatism in Islamic banks

We examine whether Islamic banks are more likely to be conservative in their financial reporting than conventional banks, as well as how Islamic banks' unique corporate governance system affects accounting conservatism behaviors. Using a large sample of Islamic banks and their matched non‐Islamic banks; based on total assets and geographic location, in 15 countries, we find Islamic banks are more likely to deploy accounting conservatism as measured by loss avoidance, abnormal loan loss provisions, and C‐score, respectively. Islamic banks are about 95% more likely to be more conservative in accounting practices than their counterparts, depending on different model specifications. In addition, we report several board characteristics, such as size, independence, reputation, tenure, and diversity, are important determinants of accounting conservatism in Islamic banks. This relationship indicates certain board traits lead to greater monitoring roles, consequently reducing unethical behavior and increasing the degree of conservatism in accounting practices.     

Debt problems,home‐leaving,and boomeranging: A register‐based perspective on economic consequences of moving away from parental home

This article analyses the development of financial problems after leaving one's parental home, and considers how financial problems are associated with likelihood of boomeranging (i.e., adult children returning to parental home). The 9‐year follow‐up study focused on a nationally representative sample of Finnish young people between the ages of 15 and 25 who moved out from their parental home between 2006 and 2009 (n = 9,196). The measure of debt problems was based on monthly data on debt enforcement, a legal matter which may bring serious consequences for the debtors. The primary within‐individual, longitudinal analyses showed that debt problems increased directly after leaving parental home. Education and family background were significant predictors of debt problems in the four years after leaving parental home. Early leavers had significantly more debt problems than later leavers. Debt problems were associated with a higher likelihood of moving back to parental home. The results imply that it is important to support economic decision‐making during early adulthood.     

A dynamic stakeholder model: An Other‐oriented ethical approach

In this paper, we reflect on the role of the Other in ethical decision‐making in corporations. The Other, in the form of a corporation's stakeholders, has already been discussed in the scientific literature, but there are still some Others that remain unconsidered and that call on corporations to be responsible. Drawing on the philosophy of Levinas, we wish to highlight a green earth and future generations as two non‐immediate Others within a corporation's group of stakeholders whose voices are silenced. We argue that Levinasian ethics can be used as a framework to extend traditional stakeholder theory in a dynamic sphere. With this model, corporations can understand the vital role that both a green earth and future generations play in their existence and can respond to contingencies by considering delays. We enrich our paper with illustrative cases to present some serious environmental disasters that have occurred as a result of ignoring the Other. Finally, we show that understanding the Other as a part of a corporation's identity can create new avenues for “infinite responsibility” towards Others. We contribute to the relevant literature by highlighting that both a green earth and future generations are important but ignored stakeholder parties whose claims urgently need to be addressed.     

The impact of consumer decision‐making styles on consumer confusion in Mauritius: An empirical analysis

This article investigates the effects of consumer decision‐making styles on consumer confusion and harm. While consumer confusion has been well documented in the literature, this investigation attempts to bridge our understanding on its relationship with consumer decision‐making styles. Empirical data was collected from a field survey where 400 consumers selected at 20 supermarkets in Mauritius were asked to respond to a questionnaire measuring three variables under study: consumer confusion, consumer decision‐making styles, and situational factors. Findings from the MANOVA parametric test showed that there is a significant difference between consumer decision‐making styles and consumer confusion. Even when covariate situational factors were controlled through the parametric test MANCOVA, results still showed a significant difference between consumer decision‐making styles and consumer confusion. More specifically, ANCOVA tests showed that the findings were specifically significant for three types of confusion: product confusion, packaging confusion, and product complexity. The study tends to confirm that a consumer's style of decision making does impact on consumer confusion.     

On the Evaluation of Greek Industrial SME's Performance via Multicriteria Analysis of Financial Ratios

The objective of this article is to propose a methodological framework for developing evaluation models for estimating SMEs' performance, based on financial ratio analysis. The proposed framework involves the application of a multiple criteria decision aid method, namely the UTADIS method (UTilités Additives DIScriminantes), to develop a decision model that classifies the SMEs into predefined homogeneous classes according to their performance. The applicability and the efficiency of this approach are examined using financial data on Greek industrial SMEs for the period 1988–1996. A comparison with well-known multivariate and econometric techniques (i.e., discriminant, logit, probit analysis) is also undertaken for comparative purposes.     

Portraying ethical reasoning in Islamic banking: Addressing the role of work experience

This study aims to examine the ethical dimensions of Islamic bankers, with a reference to the factors influencing decision-making behavior related to ethical issues based on al-Ghazali's ethical philosophy. The findings reveal the manner in which Islamic banking practitioners brace themselves into situations that warrant the use of reason in making decisions related to ethical issues, where desires tend to dominate human choices. While the guidance of divine knowledge has been found to be ineffective in decision-making, the element of satanic force was found to significantly influence this process. The insignificant heterogeneous effect of work experience suggests that banking authorities should intensify the capacity building in the area of ethical teachings and the foundation of Islamic faith, regardless of the job tenure of employees. This study contributes to the growing literature on the ethical aspects in Islamic banking and organizational behavior by offering important implications for understanding and refining the ethical stance related to Islamic banking practices based on the Islamic perspective.     

Business ethics searches: A socioeconomic and demographic analysis of U.S. Google Trends in the context of the 2008 financial crisis

A socioeconomic and demographic analysis of U.S. Google Trends for queries about Business Ethics and Greed is proposed in the context of the 2008 financial crisis. The framework is grounded in the ethical decision‐making literature. Two models using micro and macro‐type variables are tested using GLM and GEE regression techniques. The frequency of these Google queries varies positively with the ratio of females, educational attainment, younger adult age, some measures of economic hardship or inequalities, and the lesser the weight of the finance industry represented in each State. The frequency of queries intensifies for these same socioeconomic and demographic categories, in the aftermath of the financial crisis. This article is the first to study the salience of business ethics as an issue in the empirical literature using a nationwide database. It also provides a first empirical study in the specialized literature on “ethics in a time of crisis”. This study lays a preliminary groundwork to identify pro‐ethical reform segments of the population, with practical use for financial regulatory agencies.     

Assessing the Impact of Crude Oil Price and Investor Sentiment on Islamic Indices: Subprime Crisis

This article attempts to shed light on the impact of oil prices, investor sentiment, and conventional index on 11 Islamic indices, particularly during the subprime financial crisis and the oil crisis. Empirical evidence suggests that the Malaysian and Indonesian Islamic indices are very much affected by the oil volatility. Estimation results of the BEKK-GARCH model reveal that the pessimistic sentiment during the subprime crisis is transmitted to Islamic indices, suggesting the herding contagion. The authors' finding indicates that investors can use VIX investor sentiment as an indicator to predict Islamic returns volatility. In addition, the authors find that the oil shock has spilled into Islamic indices. The time-varying correlation indicates strong evidence of the contagion effect of crude oil and investor sentiment measure to Islamic indices during the oil shock and U.S. financial crisis period of 2008–2009.