Do Sharīʿah-Compliant Firms Experience Low Information Asymmetry and Stock Price Synchronicity? Evidence from Dow Jones Islamic Market Index

Abstract

Purpose: This study examines the impact of voluntary disclosures and earnings management activities on stock price synchronicity between Sharīʿah-compliant and conventional business model firms. We investigate if Sharīʿah-compliant firms having additional voluntary disclosures and lower earnings management activities report a lower level of stock price synchronicity, or is it similar to conventional firms?
Design/Methodology/Approach: We used data for 50 Sharīʿahcompliant firms and 50 conventional non-financial firms listed in Dow Jones Islamic Market Index and Dow Jones Large-Cap Index, respectively, from 2013 to 2022. The study applied panel data regression and controlled endogeneity by applying Generalized Method of Moments. The study also employed pre-requisite diagnostic tests.
Findings: The findings of this study suggest that Sharīʿah compliance has no effect on the stock price synchronicity in comparison to the conventional firms. In addition, the earnings
quality using voluntary disclosure of the information and discretionary accruals are also found to be similar to conventional firms. The results are in line with the view that environment and regulations influence firms more than just listing in the Sharīʿah
compliance index.
Significance: The study contributes by examining whether Sharīʿah-compliance, earnings management, and voluntary disclosures impact the stock price synchronicity in the developed
economies. It is found that the impact of Sharīʿah-compliance on stock price synchronicity is limited in U.S due to already higher disclosure standards.