Ethical governance and the board’s moderating role in Zakat avoidance effects on firm value in muslim nations
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 19 December 2023
Issue publication date: 10 January 2024
Abstract
Purpose
This paper aims to examine the impact of Zakat avoidance on firm value and investigates how board characteristics moderate this relationship within the context of Saudi Arabia, a Muslim nation.
Design/methodology/approach
Using panel data from 2009 to 2020, encompassing 78 nonfinancial firms listed on the Saudi Stock Exchange, this study constructs an enhanced measure of Zakat avoidance that integrates insights from tax avoidance research, Shariah principles and the regulations of the Zakat, Tax and Customs Authority. This research uses empirical techniques, including panel data regressions and interaction analysis to investigate how board characteristics may influence this relationship.
Findings
Descriptive analysis reveals pervasive Zakat compliance, underscoring the effectiveness of Saudi Arabia’s robust Zakat system. Regression results indicate a positive association between Zakat payment and firm value. Remarkably, board characteristics exhibit no significant link to Zakat avoidance, emphasizing the potency of the Zakat system and religious adherence. However, the moderation analysis reveals that board independence and meeting frequency positively moderate the relationship between Zakat avoidance and firm value.
Practical implications
The study emphasizes the vital importance of upholding Zakat obligations to cultivate trust among stakeholders and amplify firm value. It advocates for governance frameworks that foster vigilant oversight and independence, ultimately enhancing a firm’s overall worth. Furthermore, the study’s findings provide valuable insights for corporate leaders, investors, policymakers and society as a whole, facilitating the promotion of ethical financial conduct and driving holistic economic development.
Originality/value
This research introduces novel insights by scrutinizing the intricate interplay of Zakat avoidance, board dynamics and firm value within the context of a culturally distinctive emerging economy. The development of a distinct Zakat avoidance metric, along with comprehensive empirical assessment, contributes to the originality of the study. Moreover, the investigation into the moderating influence of board characteristics adds value to the existing body of knowledge.
Keywords
Acknowledgements
Data availability statement: The data that support the findings of this study are available from the corresponding author upon reasonable request.
Conflict of interest disclosure: The authors have no conflicts of interest to declare in the content of this paper.
Ethics approval statement: This research did not contain any studies involving animal or human participants, nor did it take place on any private or protected areas. The authors mentioned in the manuscript have agreed for authorship, read and approved the manuscript and given consent for submission and subsequent publication of the manuscript.
Permission to reproduce material from other sources: The authors do not use any copyrighted material contained in their journal article.
Citation
Kateb, I. and Ftouhi, K. (2024), "Ethical governance and the board’s moderating role in Zakat avoidance effects on firm value in muslim nations", Journal of Financial Regulation and Compliance, Vol. 32 No. 1, pp. 98-117. https://doi.org/10.1108/JFRC-03-2023-0034
Publisher
:Emerald Publishing Limited
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