Hālal Investment Sensitivity to Cash Flow and the Effects of Capital Market Imperfections

This paper examines the relationship between hālal investment sensitivity and cash flow,as well as the impact of capital market imperfections on investment sensitivity in ṣukūk -dependentcompanies versus conventional enterprises in six countries: Saudi Arabia, the United Arab Emirates,Kuwait, Qatar, Bahrain, and Malaysia. The research is based on panel data from 240 non-financiallylisted conventional and Islamic enterprises from 2018 to 2022. The study incorporates both analyticaland econometric approaches. Stationarity, co-integration, and multivariate Granger-Causality testsare carried out using the estimated equations. The study finds that there are considerable distinctionsbetween ṣukūk -dependent firms and traditional enterprises. At the 5% significance level, bothgroups' investment expenditures responded significantly to cash flow. But hālal investment rises by$0.14 for ṣukūk -dependent companies, whereas conventional investment climbs by $0.17 forconventional businesses when current cash flow rises by $1. Market capital imperfections, asassessed by four factors, have a significant effect on hālal investment cash flow sensitivity. Thesensitivity of hālal investments to cash flows diminishes when fund flows, analyst following,institutional ownership, and the corporate governance index increase. Finally, the Grnagel causalitytests confirm the study's alternative hypotheses. There is a bidirectional causal relationship betweenhālal investment and cash flow, while there is a unidirectional relationship from capital marketimperfections to hālal investment-cash flow sensitivity.