The Malaysian Dual Financial System Under Stress: An Empirical Case Study of Shariah and Conventional Firms During the Global Financial Crisis and COVID-19

Background Among the major economic shocks of the twenty-first century, the 2008–2009 global financial crisis and the COVID-19 pandemic stand out due to their widespread financial disruption. However, limited research has examined the comparative earnings performance of Shariah-compliant and conventional firms across both events within a single study. Malaysia offers a unique case setting where Shariah-compliant and conventional firms operate in parallel within a dual financial system, making it an ideal context for assessing their comparative earnings performance during crisis periods. To address the identified gap, this quantitative case study examines the earnings performance of Malaysian Shariah and conventional firms during both the 2008–2009 global financial crisis and the COVID-19 pandemic. Methods To examine this case, a panel data sample of 457 listed Malaysian firms is analysed using core profitability measures, namely return on equity and earnings per share. The sample is further categorized into 115 conventional firms and 342 Shariah-compliant firms to evaluate the earnings performance of both groups of firms listed on Bursa Malaysia. The crisis event windows are used to categorize the dataset into pre- and crisis periods. Descriptive statistics and the independent two-sample t-tests are employed to analyse the selected crisis event windows. Results The results show that the earnings performance of both types of Malaysian firms is not consistent across the pre-crisis and the crisis periods. However, Shariah-compliant firms demonstrate relatively stronger earnings performance and smaller deterioration in profitability during the two crises compared to conventional firms. Conclusions Shariah firms exhibit less pronounced decline in mean earnings and smaller profitability deterioration across the investigated periods.