Abstract
The study observes that low R
2 values from market model
are primarily due to the reflection of firm-specific information in stock
prices and not due to noise. The study explores that the extent to which
stock prices become more informative depends upon the availability
of firm-specific information in the market. The methodology of stock
price synchronicity is applied by using a sample of 30 Shar¯ı‘ah and 30
non-Shar¯ı‘ah compliant companies which are taken from KMI 30 and PSX
100 indexes. The study explores the impact of Shar¯ı‘ah compliance on
stock price synchronicity or informativeness based upon the rationale that
Islam puts emphasis on disclosure and social accountability which should
reduce the firm’s information asymmetry and improve the stock price
informativeness. The study reports significant and positive relationship of
Shar¯ı‘ah compliance and voluntary disclosure on stock price synchronicity
which is not according to the hypothesis. The possible reason may be the
size effect which may be moving the firms in line with the market. Moreover, the Enterprise Risk Management (ERM) practices have significant
and negative impact on stock price synchronicity. It confirms that ERM
helps in improving the firm’s information environment and stock price
informativeness.
Zeshan Ghafoor, Arshad Hassan. (2018) Voluntary Disclosure, Enterprise Risk Management and Stock Price Synchronicity: Evidence from Shar¯ı‘ah Compliant and Non-Shar¯ı‘ah Compliant Companies, Journal of Islamic Business and Management, Volume 8, Issue 1.
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