Corporate Resilience Against the COVID-19 Crisis: How Valuable is an Islamic Label?

The COVID-19 pandemic provides a novel setting to explore whether an Islamic label benefits firms during a crisis. The existing literature mostly explores the differential performance between Islamic and conventional equity markets at the aggregate level without controlling for idiosyncratic firm characteristics. Using the cross-sectional and difference-in-differences (DiD) regressions, we provide novel evidence at the firm level on how market segmentation based on investors’ religious or ethical preferences significantly affects how firms withstand a crisis. Segregating S&P1500 companies into Islamic and non-Islamic, we show that an Islamic label has a significantly positive (negative) impact on abnormal returns and operating performance (volatility). Specifically, S&P1500 Islamic firms generate an extra daily return of 0.64% and exhibit 1.2% lower daily volatility than their non-Islamic counterparts. Although researchers report firms’ environmental and social (ES) performance as a resilience factor during the COVID-19 crisis, we observe that the ES score does not offer explanatory power when we control firm-level financial variables. In contrast, the Islamic label remains a statistically and economically significant positive determinant of pandemic period returns and operating performance. Our key findings are robust in (i) the cross-sectional and DiD regressions; (ii) alternative definitions of abnormal returns, volatility, and operating performance; (iii) the propensity score-matched samples; and (iv) S&P500 Islamic and non-Islamic subsamples.