Stock Market Performance: The Firm Size and Price-Earnings Ratio of Shariah and Non-Shariah Compliant Shares

Stock markets serve as vital components of financial markets, providing avenues for short and long-term capital investment. The coexistence of two entities, namely Shariah Compliant Shares (SCS) and Non-Shariah Compliant Shares (NSCS) as supervised by the Shariah Advisory Council of the Securities Commission of Malaysia (SACSCM) characterizes Malaysia as a unique financial market. Stock return is a good indicator of a company’s performance, and many variables are said to have an impact on stock return. This study aims to investigate how firm size and price-earnings ratio would influence the stock return of a company. A total of 63 companies were selected consisting of 32 Shariah compliance companies and 31 conventional companies. Data from January 2018 until December 2022 were analyzed using descriptive statistics, correlation analysis, and regression analysis. This study discovered there is a significant negative relationship between firm size and stock return for SCS and NSCS indicating small companies often make higher returns than large companies. Meanwhile, the price-earnings ratio insignificantly affects the stock return, especially for NSCS. Whether the shares are Shariah compliant or Non-Shariah compliant, firm size has a more significant impact on stock return. To maximize shareholder wealth, the company will prioritize maintaining the optimal firm size, and investors will consider the firm size when planning their investment portfolios. The findings offer valuable insights for future research, companies, and investors seeking guidance on choosing shares for potentially higher returns.