Determinants of Firm Value in Shariah Compliant Companies

This study explores the determinants of firm value in Shariah-compliant firms listed on the Pakistan Stock Exchange (PSX). The dataset covers the period from 2009 to 2016 for firms listed on the KMI-30 index. We used three different proxies for firm value, i.e., Tobin’s Q, market-value-to-book value ratio, and log of the market price of shares. Based on regression analysis, we have concluded that firm value significantly and positively influences dividend per share and fixed asset turnover in all model specifications. Further, both the debt ratio and firm size substantially and negatively impact firm value. However, both dividend payout and dividend yield have an insignificant effect on firm value. The mixed results partially support the dividend relevance theories, which imply that the dividend payments influence firm value. Moreover, the results also support the view that a firm’s size and its efficiency in utilizing assets influence its valuation. The results are broadly consistent with previous research on the determinants of firm value. The study will facilitate policymakers in developing suitable policies for regulating Shariah-compliant instruments. Likewise, investors looking for Halal returns on their investments may also gain valuable insights about the determinants of firm value in Shariah-compliant organizations.Keywords: Firm value, Tobin’s Q, market-to-book-value ratio, dividend policy, dividend payout, dividend yield, debt ratio, fixed asset turnover, firm size, Pakistan Stock Exchange (PSX).