Shariah-Compliant Mutual Funds’ Investment Preference: The Islamic Perspective

The paper aims to examine if sustainability engagement by business firms is able to attract investments from Shariah-compliant mutual funds. This study believes that the influence of Islam through the principles of tawhid (faith), khalifah (vicegerency) and ukhuwwah (brotherhood) may lead Shariah-compliant mutual funds to consider firms with good sustainability commitment in their investment decision making. A total of 236 firms listed on Bursa Malaysia in the years 2014 and 2015 have been selected as sample. Sustainability engagement is measured by the quality of sustainability disclosure, while the ownership of Shariah-compliant mutual funds is measured by their percentage of shares held in the ownership structure of the sampled firms. The findings from this study suggest that Shariah-compliant mutual funds do have positive preference towards firms with good sustainability engagement. The results thus confirm the Islamic influence in shaping the behavior of Shariah-compliant mutual funds in their investment decision making process.