Does it pay to be Shariah-compliant? Evidence from the European stock market

  • ANTONIO SALVI LUM Jean Monnet University
  • MARIANNA ZITO LUM Jean Monnet University
  • ALESSANDRA CARAGNANO LUM Jean Monnet University


The comparison of financial results between different cultural and religious systems is still an open academic debate. There is no consensus among scholars on the existence and magnitude of financial performance differences for companies acting under diverse cultural and religious background.

The aim of this paper is to compare the performance of European listed firms applying Shariah principles and those who do not act according to such guidelines. To serve such purpose we have built a sample of companies operating with Shariah-based principles of management and compared the latter with a control comprising companies that do not adopt Shariah parameters over the period 2005–2017.

Results suggest that the Shariah-compliant sample performs better than the conventional one. In particular, during the recent recession, Shariah-compliant companies obtained better periodical stock market returns and even in the event of negative returns, losses posted by these companies were lower than those of conventional companies. Moreover, Shariah-compliant sample presents a lower risk-profile than conventional one.


M. Bennet and Z. Iqbal, “How socially responsible investing can help bridge the gap between Islamic and conventional financial markets”, International Journal of Islamic and Middle Eastern Finance and Management, 2013.

K. Reddy and M. Fu, “Does Shariah Compliant Stocks Perform Better than the Conventional Stocks? A Comparative Study of Stocks Listed on the Australian Stock Exchange”, Asian Journal of Finance & Accounting, 2014.

P. P. Biancone and M. Radwan, “Sharia Compliant “Possibility for Italian SMEs””, European Journal of Islamic Finance, 2015.

K. Mazouz, A. Mohamed and B. Saadouni, “Price reaction of ethically screened stocks: a study of the Dow Jones Islamic Market World Index”, Journal of Business Ethics, 2016.

Y. Nainggolan, J. How, and P. Verhoeven, “Ethical Screening and Financial Performance: The Case of Islamic Equity Funds”, Journal of Business Ethics, 2016.

D. Sauer, “The impact of social‐responsibility screens on investment performance: Evidence from the Domini 400 social index and Domini Equity Mutual Fund”, Review of Financial Economics, 1997.

F. Jawadi, M. Jawadi, and W. Louhichi, “Conventional and Islamic stock price performance: An empirical investigation”, International Economics, 2014.

C. Setiawan and H. Oktariza, “Syariah and Conventional Stocks Performance of Public Companies Listed on Indonesia Stock Exchange”, Journal of Accounting, Finance and Economics, 2013.

Z. Ahmad and H. Ibrahim, “A study of the performance of the KLSE Syari'ah index”, Malaysian Management Journal, 2002.

K. Husein and M. Omran, “Ethical investment revisited: Evidence from Dow Jones Islamic Indexes”, Journal of Investing, 2005.

J. Aka, “Shariah investing: through bull and bear markets?”, SEI investments, 2009.

M. Albaity and R. Ahmad, “Performance of Syariah and Composite Indices: Evidence from Bursa Malaysia”, Asian Academy of Management Journals of Accounting and Finance, 2008.

M. Albaity and R. Ahmad, “A Comparative Analysis of the Firm Specific Determinants of Syariah Compliant Versus non-Syariah Compliant Firms in Bursa Malaysia”, Asian Journal of Business and Accounting, 2011.

M. Dharani and P. Natarajan, “Seasonal anomalies between S&P CNX Nifty Shari’ah index and S&P CNX Nifty index in India”, Journal of Social Development Sciences, 2011.

C. S. F. Ho, N. A. Abd Rahman, N. H. Muhamad Yusuf, and Z. Zamzamin, “Performance of global Islamic versus conventional share indices: International evidence”, Pacific-Basin Finance Journal, 2014.

R. Hayat and R. Kraussl, “Risk and return characteristics of Islamic equity funds”. Emerging Markets Review, 2011.

S. Elfakhani and H. Kabir, H. “The Performance of Islamic Mutual Funds”, Working paper n. 2005-2, Economic Research Forum, 2005.

A. Fikriyah, T. Hassan, and M. Shamsher, “Investigation of Performance of Malaysian Islamic Unit Trust Funds”, Managerial Finance, 2007.

P. P. Biancone and M. Radwan, “European companies: Evaluation for sharia compliance “opportunities and challenges.””, European Journal of Islamic Finance, 2016.

S. Collina and S. Gatti, “Islamic Equity Funds: an Italian perspective”, 2009.

A. Damodaran, “Corporate Finance, Theory and practice”; John Wiley & Sons Inc, 2003.