Financial system in Malaysia comprising of two entities which are Shariah and NonShariah companies that operating at the

same time. There are differences between both

Shariah and Non-Shariah companies in term of fundamental and Islamic principle which they
need to obey. All of the criteria and the benchmark that need to be followed in order to be
listed as the Shariah company are set by Shariah Advisory Council (SAC), Securities
Commission Malaysia (SCM) and Bank Negara Malaysia (BNM). As we know that the debt
and equity are the source of financing of the firm. But to find that source we need a capital
structure. As mentioned by (Jais, 2013) capital structure and arrangement of diverse sources
of funds leads to different implication on the firms performance and shareholders wealth are
the most important strategic financial decisions. According to Ogebe (2013) firms normally
facing problems when it comes to structuring their capital and planning for their source of
financing.
Shahar W.S.S and Shahar W.S.S (2015) examined the impact of firm leverage towards
performance of both Shariah and Non-Shariah companies from the list on Main Board of
Bursa Malaysia from year 2008 until 2012. They measures the performance using an
accounting-based measures that consists of Return on Equity (ROE), Return on Asset (ROA)
and Market-to-Book Value (MTBV). The result of this study illustrates that only short-term
debt and long-term debt will have an impact towards the Shariah companies performance
based on MTBV. As reflect to the nature business of being Shariah companies, it indicated
significant negative relationship with MTBV. Meanwhile, Non-Shariah companies explicit a
different pattern and capital structure behaviour in boosting their performance. The
estimation result shows that size have positively significant relationship with ROA and ROE,
while long-term debt and total debt indicated significant relationship towards ROE. However,
it seems the MTBV does not have any impact toward non-Shariah companies performance in
this sample. Based on the analysis of this study, it shows a difference firm leverage practices
between Shariah and Non-Shariah companies. Unlike Non-Shariah companies, Shariah
companies does not involve with interest of debt since it will focus more on profit and risk
sharing.
According to Reddy K. and Fu M. (2014), the performance of the Shariah stocks and
the conventional stocks listed on the Australian Stock Exchange (ASX) for the period 2001
until 2013 shows a statistically significant difference in risk where the Shariah stocks being
riskier using the Mann Whitney U-test and Independent Samples T-test. Based on beta and
weekly returns results for both Shariah and conventional stocks are not statistically

significantly different. Using risk-adjusted returns to investigate the portfolios of two types of
stocks shows that both of the portfolios are behaving the same way. While, the Sharpe Ratio
shows the differences of the two portfolios where the Islamic portfolio having higher adjusted
returns than the conventional stocks. The result of the sample shows that the returns of both
Shariah and conventional portfolios have a positive relationship with Debt-to-Equity Ratio
(DER) and Return of Equity (ROE). But the results shows a negative relationship between
Net Profit Margin (NPM) and Islamic portfolio returns. Compared to the conventional
portfolio returns, the performance of Shariah stocks tends to be better higher. The result of
the studies suggest that the highest impact on both stock returns is the Return of Equity
(ROE).

Ahmad Z. and Ibrahim H. (2002) evaluate the performance of Kuala Lumpur Stock
Exchange (KLSE) Shariah Index against the performance of Kuala Lumpur Stock Exchange
(KLSE) Composite Index. Based on the results revealed that both KLSE SI and CI record the
similar level of returns. By using the risk-adjusted return basis performance measures of
Adjusted Sharpe Index, Treynor Index and Adjusted Jensen Alpha, they also found that the
performances between both Shariah Index and Composite Index do not have much different.
This indicates that syariah-approved stocks are not more favourable than other stocks.