Impact of working capital management on the profitability of Shariah-compliant and non-Shariah firms: The case of Malaysia

This paper examines the impact of working capital management on the firm's profitability using return on equity as its core determinant. Using a sample of ninety listed Malaysian Shariah-compliant and non-Shariah firms for the period 2009 to 2013, this study investigates whether both types of firms react differently to similar firm-specific variables. By employing a static panel data estimation technique, we document that although the Shariah-compliant firms are subject to certain restrictions, they still efficiently compete with their conventional counterparts in terms of profitability by sustaining a higher return on equity. This might be attributed to better management of their receivables as well as a higher and better inventory turnover, as per our empirical results. Thus, it can be assumed that Shariah restrictions have not impeded the performance of Shariah-compliant firms; rather, it has helped them in some respects, if not all.