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† Corresponding author  
© 2015 Conscientia Beam. All Rights Reserved. 

 

SHARE OPTIONS, SHARE AWARD AND FIRM’S PERFORMANCE: 

EVIDENCE FROM MALAYSIAN PUBLIC LISTED COMPANIES 

 

Nur Azizah Mohamad Parij1 --- Wan Mohammad Taufik Wan Abdullah2†
 

1Universiti Multimedia, Malaysia 

2Universiti Tenaga Nasional, Malaysia  

 

ABSTRACT 

The main intention of this paper is to examine the impact on firm’s performance once the directors are 

granted with the share options and share award. This study also intends to briefly identify the Shariah 

compliance impact towards the performance of firms that have granted the share options and share award. 

Earnings per share (EPS), Operating Cash Flow over Total Assets (OCFTA) and Tobin’s q used to 

examine seven hypotheses in this paper. The results exhibit share award presented better results in EPS and 

OCFTA. On the other hand the share options and the share award revealed significant relationship with 

Tobin’s q when Shariah compliance was included in the regression analysis model. 

Keywords: Share options, Share awards, Firm performance, Corporate governance, Shariah compliance, Agency theory 

and stewardship theory. 

 

Contribution/ Originality 

This study contributes in the existing literature on the share-based compensation as an 

important component in the directors’ compensation package and how it can boost the 

performance of the firms. Besides, this study contributes in the existing Islamic perspective 

literature by taking into consideration the implication of Shariah-compliance status.  

 

1. INTRODUCTION 

East Asian faced economy collapse in the second half of 1997 and consequently corporate 

governance was introduced in Malaysia after. Due to currency devaluation in Thailand, the 

foreign investors lost their confidence and started to withdraw capital caused the financial crisis 

to begin and filtered to Malaysia. It was realized that the existing initiatives on protecting 

shareholders were inadequate and as such contributed to the plunge in the value of their 

investment. According to IMF (1999) the reasons of the crisis were weak on the domestic policy 

Financial Risk and Management Reviews 
2015 Vol. 1, No. 2, pp. 88-101 
ISSN(e): 2411-6408 
ISSN(p): 2412-3404 
DOI: 10.18488/journal.89/2015.1.2/89.2.88.101 
© 2015 Conscientia Beam. All Rights Reserved. 

 

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and one of the emphasized factors was the poor governance and poor risk management. This is 

supported by Shleifer and Vishny (1997) who found investors in organizations will receive 

adequate returns in their investments as assured by the corporate governance mechanisms. 

Meanwhile, Doidge et al. (2007) stated that better governance attracts the investors to contribute 

funds in the firm because these investors expect the firms to be well governed after the funds have 

been increased. Hence, firms will comply with high-quality governance in order to be comfortable 

and gain funds from the investors after the financial crisis. 

Corporate governance is an illustration on how firms should be directed and managed as 

defined by Koh et al. (2007) and Mohd Sulaiman and Bidin (2002). Meanwhile, Mohd and Noriza 

(2010) interpreted one of the benefits if firms implemented and complied with the Best Practices is 

the shareholders enjoy higher returns from their investment. Thus, it concludes that the 

corporate governance covers the aspects of fairness, transparency, accountability and 

responsibility in running the organizations. The introduction of corporate governance has 

attained the accountability of the directors not only on the quality of reporting but also on 

accountability to maximize corporate value in the long term for the shareholders. 

Additionally, the directors believed they should to be accountable to the shareholders when 

each idea, strategic succession planning, decisions for risk avoidance and error free decisions are 

calculated and rewarded by the compensation (Abdul Rahman and Ali, 2006). They identified the 

advantages of granting share-based compensation. First and foremost, share-based compensation 

aligns the interest of shareholders and directors through share price. It is granted to reward 

performance and growth. It also helps to raise the directors’ commitment to the shareholders and 

the firm. Finally, it increases loyalty of the directors. The proponents clarified that when the 

directors are granted with share-based compensation, the share prices the directors received will 

bind the directors to align their interest with the shareholders’ interest.  

Subsequently, the directors who are granted share-based compensation are motivated to 

perform their responsibilities of the highest-quality as they have been rewarded and are 

accountable to the shareholders. The performance as well the reputation of the firm will increase 

and the shareholders enjoy the returns. The firm will get more funds from the investors and the 

shareholders and this makes the capital structure of the firm stronger. According to Triki and 

Ureche-Rangau (2012) share options is exercised to align shareholders and employees interests as 

the shareholders enjoy returns of their wealth through the firm’s stock price. Fich and Shivdasani 

(2005) found that investors show positive reaction towards the incentive effects of the share 

options plan granted to outside directors and this could reflect on the impact of investment 

opportunity. Discharging their responsibilities effectively will bring transparency and good 

governance of the firm and shows the accountability of the directors to the shareholders and the 

firm. Thus, greater use of directors’ incentive compensation in the form of share options and share 

award will lower the agency costs and lead to superior firm performance. 

 



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1.1. The Development of Shariah Compliant Securities 

Islamic-oriented economic system has taken this opportunity develop in the market as the 

public and investors lose their confidence in the conventional economic system after corporate 

scandals and financial crisis occurred. Malaysia took the advantage by initiating the so-called 

Islamic economy; a system that Islam prescribes for individual and social behaviour in economics, 

which emphasizes social justice. It is not only to increase the foreign investors’ confidence that 

was lost after the Asian financial crisis of 1997 as well an opportunity to develop economic 

growth. Shariah Committee (SC) has established Shariah-compliance status which is adaptable 

with the Islamic principles of Shariah. Wan et al. (2012) found that Shariah-compliant firms have 

significantly higher quality earnings as compared to other Shariah non-compliant firms. The 

researchers provided support for the arguments those Shariah-compliant firms: (1) supply higher 

quality reported earnings to attract foreign investments; (2) have greater reliability for high-

quality financial reporting due to their Shariah compliant status, and (3) are subject to greater 

scrutiny by regulators and institutional investors. Hence, this paper is motivated to establish 

whether the share-based compensation granted directors’ could enhance the firm’s performance 

from the Islamic perspective. The results could reveal a difference in the use of conventional 

versus Shariah compliant firms.  

 

1.2. Agency Theory 

Agency theory mainly clarify on the agency relationship between the principal and the agent, 

whereby the principal engages the agent to perform some services on their behalf and the 

principal will normally delegate decision making authorization to the agent.  

This theory demonstrates the shareholders or investors peculiarly desire sensible returns on 

their investment for instance the capital gained from the share price appreciation or in terms of 

cash from the distribution of dividends. Meanwhile, the directors are more concerned on the 

compensation that brings possessions to their selves. It can be simplified that the directors are 

motivated only by tangible monetary-based rewards such as fees and bonuses and long-term 

compensation plan for example pension plans and share-based or equity compensation. Brooks 

and Dunn (2010) deem that to motivate and influence the directors to stay on the right path is by 

applying the incentive and punishment systems. The incentive system demands ethical acts to the 

shareholders’ interests and in future avoids conflict of interests. Thus, the principal will 

compensate the agent well enough with rewards if they perform well.  

 

1.3. Stewardship Theory 

Stewardship refers to the attitudes and behaviours that put the long-term best interest of a 

group ahead of personal goals that serve an individual’s self-interests (Hernandez, 2008). It means 

the stewards effort to ensure the achievement of firms’ goals with regards to no interference 

between the personal want and organisational needs. As the steward’s interests are aligned with 



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the investors’ interests, there will be less engage in self-serving behaviours (Brooks and Dunn, 

2010). Therefore, the stewardship theory can be used to represent the board of directors’ 

behaviour and it is also a model that presumes a natural motivation for the directors to act in the 

best interest of the organization as to serve the shareholders. Though, to counterbalance the 

workload and burdens as well as appreciation to the directors as the steward, the entitlement of 

directors to grants with share options and share awards are alternatives to compensate them. 

Consequently, this will again align the interest of the directors with the shareholders. 

Agency theory’s primary flaw is less concern for human behaviour and is motivated by the 

extrinsic monetary reward (Brooks and Dunn, 2010). Nevertheless, the stewardship theory is 

motivated by both intrinsic and extrinsic and thus is more self-actualized. It is the interrelation 

between the agency and stewardship theory to make it balanced. Thus, these two theories are 

relevant in this study since the agency theory is applicable on the directors’ share-based 

compensation and firm performance that look into extrinsic reward. Meanwhile, the stewardship 

theory is relevant when the shariah values are incorporated in the firm that leads the leader to be 

a good and accountable. 

 

2. LITERATURE REVIEW 

Hillegeist and Penalva (2003) studied on the share options and firm performance who found 

the share options has significant relationship with ROA and Tobin’s q. The researchers explained 

the firms with unexpected high level of share options have significant influence to the high level 

of firm performance.  

Cordeiro et al. (2005) examined the share options and share grants (share award) with the 

firm performance. The study found share option ratios have stronger impact on firm performance 

than the share grants. Moreover, both directors’ share-based compensation have positive 

significant relationship with stock returns but only share option has positive relationship with 

Jensen’s Alpha. 

Fich and Shivdasani (2005) reviewed on the characteristics of firms that implemented share 

option plans for outside directors. The results showed that firms that granted outside directors 

with option plans have substantial association with higher market to book ratios and profitability 

calculation. Further, the implementation of share option plans has significant positive correlation 

with cumulative abnormal stock returns (CARs). 

Kato et al. (2005) examined the costs and benefits of executive share options. It was found 

firms that granted share option plans have more growth opportunities and more intangible assets 

than non-adopting firms. It was proved from the CAR that the investors view the adoption share 

option plans positively average.  Moreover, these adopting firms also have lower leverage 

compared to non-adopting firms. The researchers concluded that the results portrayed share 

option plans adopted by the Japan firms are designed to improve managerial incentives and 

increase the value of the firm.  



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Cheffou (2007) surveyed and found that the CEO share options could improve the firm’s 

value. The result of the study recommended the value of share options granted to the CEO does 

not affects the firm’s accounting performance however it improved the firm’s Tobin’s Q with this 

form of compensation. 

Triki and Ureche-Rangau (2012) conducted study to look into the impact of share option 

plans adopted on the financial performance based on French firms. The result pointed that the 

share options has a significant relationship with the return on equity. This study also exposed 

that the investors agreed with the granted share options as the investors found that the share 

options granted as an incentive to the employees helps to increase shareholders’ wealth. 

Additionally, most of the prior studies found that the share options bring greater firm 

performance compared to the share awards by applying different measurement. Thus, the 

researcher is keen to review whether the share options and share award granted still could 

enhance the firm’s performance.  

 

2.1. Previous Research with Emphasis on Shariah Compliance 

This section discusses previous studies that justify strong enough motivation for this current 

study which compares the performance of Shariah-compliant firms with the Shariah non-

compliant firms. It has been proven that the performances of Shariah-compliant firms are much 

better because of the religious influence in the management; greater accountability of the 

employee and the directors.  Bakar et al. (2013) demonstrated that there is positive relationship 

between intellectual capital (IC) and corporate market value for shariah-compliant firms and 

industries. Besides, the result indicates that consumer shariah-compliant firms/industry have 

shown greater presence of IC value against other industries within the observations. Abdul 

Rahman (2012) the researcher examined the religious ethical values and earnings quality between 

Shariah and non-shariah firms as listed in the Bursa Malaysia. The study found religious ethical 

values not only could influence to lower managerial opportunism but also aggressive reporting 

behaviour and it improved the quality of accounting earnings. Mohd Saad (2008) the results 

revealed that firms which have complied well with the code of best practices and Shariah 

principles showed significant association to the firm’s performance. The key result is that Shariah 

compliance seems to create higher returns on profitability while with corporate governance the 

returns are restricted. Shariah compliance requirements also appear to provide better historical 

returns. Shariah compliant rules and regulations must be restricted to the newly classified 

Shariah-compliant securities to ensure better performance and to protect stakeholder’s interest. 

 

3. RESEARCH OBJECTIVES 

 To investigate the relationship between the directors’ share options compensation and 

the firm’s accounting performance (EPS and OCFTA) 



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 To indicate the relationship between the directors’ share options compensation and the 

firm’s market performance (Tobin’s Q) 

 To determine the association between the directors’ share award compensation and the 

firm’s accounting performance (EPS and OCFTA) 

 To ascertain the association between the directors’ share award compensation and the 

firm’s market performance (Tobin’s Q) 

 To evaluate the influence of Shariah-compliant status on the relationship between 

directors’ share-based compensation and firm’s performance. 

 

4. HYPOTHESES 

This study examines seven hypotheses to answer research questions, these hypotheses are as 

follows: 

H1: There is a significant relationship between the directors’ share options compensation and 

the firm’s EPS. 

H2: There is a significant relationship between the directors’ share options compensation and 

the firm’s OCFTA. 

H3: There is a significant relationship between the directors’ share options compensation and 

the firm’s TQ. 

H4: There is a significant relationship between the directors’ share award compensation and 

the firm’s EPS. 

H5: There is a significant relationship between the directors’ share award compensation and 

the firm’s OCFTA. 

H6: There is a significant relationship between the directors’ share award compensation and 

the firm’s TQ. 

H7: Shariah-compliance has an impact on the relationship between directors’ share-based 

compensation and firm performance. 

 

5. METHODOLOGY 

The first regression model is to determine the relationship between directors’ share-based 

compensation with firm performance. This regression model is to answer the research questions 

and on the relationship between the directors’ share-based compensation and firm’s performance.  

. The regression models are as follows: 

 

Regression Model 1 

 

 

FP   :  Firm performance 

β1, β2, β3, β4 and β5 : Variable coefficients 

FP= β1 [SO] + β2 [SA] + β3 [FS] + β4 [TA] + β5 [RC] + ε 



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SO   :  Share option ratio 

SA   :  Share award ratio 

FS   : Firms’ sales 

TA   : Firms’ total assets 

RC   : Compensation committee  

ε   : Error term 

The second regression model is to answer the last research question on the implication of 

shariah compliance status in the relationship of directors’ share-based compensation and firm 

performance. 

 

Regression Model 2 

 

 

FP    :  Firm performance 

β1, β2, β3, β4, β5, β6, β7 and β8 : Variable coefficients 

SOSC    :  Share option ratio × Shariah compliance 

SASC    :  Share award ratio × Shariah compliance 

SC    :  Shariah compliance status 

FS    : Firms’ sales 

TA    : Firms’ total assets 

RC    : Compensation committee  

ε    : Error term 

 

6. RESEARCH SAMPLE 

The sample of share options and share award covered of nine years from 2002 until 2010 and 

cuts across a wide range of industries.  The firm performances measured are observed from 2003 

until 2011 as the study analysed the financial performance one leap year from the year that the 

share-based compensation was granted (see Bacha et al. (2009)). The study determined the ideal 

sample is to begin with year 2002 since the data on the Shariah-compliant firms was already 

available after 1999 as the KLSE Shariah Index had been launched (Abdul Rahman, 2012). On the 

other part, the emphasis on the improvement of good corporate governance (evidenced by the 

MCCG in March 2000) as well the regulations on granting the share options and share award had 

been reinforced International Financial Reporting Standard (IFRS 2) after 2001. Firms in the 

banking and finance sector are not excluded in this study since the variables and information 

gathered are not influenced by the guideline and governance system. 

 

 

 

FP= β1[SOSC] + β2[SASC] + β3[SO] + β4[SA] + β5[SC] + β6[FS] + β7[TA] + β8[RC] + ε 



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7. RESULTS AND INTERPRETATION 

7.1. Correlation Analysis 

Table 1 demonstrates there are insignificant relationships between the share options with the 

EPS, OCFTA and TQ since the p-values are more than 0.05. However, share award shows 

positive significant relationship with EPS (p-value = 0.0011 < 0.05). 

 

Table-1. Covariance Analysis 

                    IV          
    DV 

Share Options Share Awards 

EPS 0.1202 0.0011 

OCFTA 0.6303 0.0233 

TQ 0.2497 0.0030 

FS 0.0976 0.0023 

TA 0.1055 0.0464 

RC 0.0007 0.1435 

 

Share award also shows positive significant association with OCFTA (p-value = 0.0233 < 

0.05). Meanwhile, the share award has strong positive relationship with TQ (p-value = 0.0030 < 

0.05).  

The share options and share award are compensated as an incentive for the directors to 

increase the firm’s and shareholder’s wealth. However the equity form compensated has reflected 

to the above results. Share options entitle the granted directors to have firm’s share but they 

would have to pay the price of shares after the vested period if they would like to exercise the 

share options. This creates the granted directors unwilling to exercise their share options as they 

have to use their own money even though the share price granted is lower than the market price. 

Thus, the share options granted demotivates the directors to double up their effort and this leads 

to no improvement in the firms’ performance. As for the share award, the directors would receive 

the firm’s shares after the vesting period without any payment.  

 

7.2. Regression Analysis on Share-based Compensation and Firm Performance 

Based on the Table 2, the share options showed insignificant results with EPS (p-value = 

0.8628). However, the share award has significant finding with EPS (p-value = 0.0014 < 0.05). 

Share award is granted individually to the directors as a token of appreciation for their 

contribution in enhancing the reputation of the firm. Besides, it is to tie the directors with the 

firm and to ensure the directors maintain excellent performance. When the directors are treated 

well with the firm’s shares awarded to them, they feel the sense of belonging and are enthusiastic 



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to perform much better.  Therefore when the awarded directors performed their jobs effectively, 

the FS and TA of the firm will increase which lead the firm’s performance to increase too. It 

interprets that the share award granted significantly affects the EPS. This is supported by 

Hillman and Dalziel (2003) who found that equity compensation motivate boards of directors to 

be better monitors and align the interests of shareholders and directors. This is supported by Lin 

and Liu (2005) found that EPS is a good indicator for the directors to increase the profit. 

 

Table-2. Regression Analysis (Model 1) 

Variables t-Statistic Prob. R² Adjusted R² Prob(F-
statistic) 

EPS 
FS 3.167960 0.0020 

0.240245 0.204743 0.000016 
TA 2.388890 0.0187 
RC -3.311483 0.0013 
SO -0.173257 0.8628 
SA 3.289011 0.0014 

OCFTA 
FS 2.467269 0.0152 

0.138914 0.098676 0.006235 
TA 2.740613 0.0072 
RC 2.744860 0.0071 
SO 1.069676 0.2872 
SA 2.361312 0.0200 

TQ 
FS 5.413489 0.0000 

0.522145 0.499815 0.000000 

TA 3.534952 0.0006 

RC -1.794274 0.0756 

SO -0.612167 0.5417 
SA 6.220957 0.0000 

          Significant at α=0.05 

 

Further, it is showed that the share award has significant relationship with OCFTA since the 

p-value is 0.0200. Meanwhile, share options do not bring implications to the OCFTA (p = 0.2872 

> 0.05). This demonstrates the effects when the directors are more accountable due to the share 

awards that have been granted to them, they will improve their responsibilities in safeguarding 

the firm’ assets especially the business money so that they will be not misappropriated. This 

proves that incentives could influence the decision of directors in providing resources for instance 

advising and counselling, besides monitoring effectively (Hillman and Dalziel, 2003). 

Additionally, when a firm awarded the directors with the shares of the firm, there is no cash flow 

involved. This drives the cash operating profit to increase as the cash operating expenses are 

reduced because the directors’ compensation on the share award is excluded from the cash 

operating expenses. Subsequently, the firm is able to use the excluded cash flow portion to 

purchase assets in order to increase the firm’s sales, which explains why the TA and the FS have 

significant relationship with OCFTA. According to Triki and Ureche-Rangau (2012) the cost 



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does not show in the balance sheet and, accordingly, they do not reduce the firm’s profit. A 

successful business uses its assets to produce strong operating cash flow. Thus, the significant 

result concludes that the awarded directors are accountable in managing the firm’s assets 

efficiently to generate the firm’s strong operating cash flow.  Table 2 demonstrates favourable 

explanation of FS, TA, RC and share award on the total variation of TQ as the R-squared is 

52.21%.  The study found share award has robust relationship with TQ (p-value = 0.000). Once 

the firm’s shares are awarded to the directors, it means the directors’ interests are aligned with 

the shareholders. Thus, the shareholders perceive the directors are accountable to boost the 

performance of the firm and lead them to acquire more shares of the firm. This would result in a 

higher market value of the equity. The finding is similar with the result of Pasternack and 

Rosenberg (2003) and Abdul Rahman and Mohamed Zawawi (2005) which found a strong 

evidence of a positive relationship between both incentive effects and firm value (TQ). 

Nevertheless, there exists no correlation between share option and TQ.  

Table 2 revealed there were significant relationship between the directors’ share award 

compensation and the firm’s EPS, OCFTA and TQ. Thus the H4, H5 and H6 were supported. 

Accordingly, H1, H2 and H3 were rejected. 

 

7.3. Regression Analysis on Shariah Compliance 

 

Table-3. Regression Analysis (Model 2) 

Variable t-Statistic Prob. R-squared Adjusted R-squared Prob(F-statistic) 

EPS 

FS 2.807183 0.0060  
 
0.246480 

 
 
0.188517 

0.000191 
 

TA 1.915441 0.0582 

RC 3.159890 0.0021 

SO 0.812542 0.4183 

SA 0.993514 0.3228 

SC 0.641559 0.5226 

SOSC 0.799375 0.4259 

SASC 0.647065 0.5190 

OCFTA 
FS 1.706064 0.0910 

0.157882 0.093103 0.018585 

TA 1.352361 0.1792 

RC -2.565021 0.0117 

SO 1.251803 0.2134 

SA 1.473646 0.1436 

SC 1.534026 0.1281 

SOSC 1.273523 0.2057 

SASC 1.230207 0.2214 

TQ 

FS 4.470453 0.0000 

0.585550 0.553669 0.000000 

TA 2.183862 0.0312 

RC -1.436679 0.1538 

SO 2.718949 0.0077 

SA 4.193106 0.0001 

SC 2.603134 0.0106 

SOSC 2.689531 0.0083 

SASC 3.614342 0.0005 

  Significant at α=0.05 



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As referred to the Table 3, SOSC and SASC do not exhibit correlation with the EPS. As 

discussed earlier, EPS is evaluated on the return of individual basis. Nevertheless, granting share 

options and share awards do not sway the directors’ conduct to increase the individual returns 

due to reflection of persevere Shariah principles in a firm. This is supported by Zainal et al. (2013) 

whereby the directors’ conduct and behaviour align with the Islamic teaching; the wealth or profit 

is distributed not only for the individuals but also contributes more to the ummah or the society.  

Further, the SOSC and SASC do not display association with the OCFTA. Even though the 

concept is alike there is no cash outflow on the directors’ share-based compensation, but in the 

Shariah-compliant firms, a portion of the returns is used to pay for the Shariah committee and the 

Shariah advisory. These committees are established to clinch the firm do comply with the Shariah 

principles and ground. Even so, the FS is significant relationship with OCFTA which shows that 

the directors strive to increase the firm’s sales after being awarded with the firm’s shares. It is 

controlled effectively by the SC and RC as these committees are complementary on monitoring 

the directors’ compensation and to ensure the business operation complied with the shariah 

principles (Abdul Rahman, 2012). 

On the next dependent variable, SOSC resulted in a positive significant relationship with TQ 

(p-value = 0.0083 < 0.05). Exceeding the expectation, the SASC as well showed positive 

significant relationship with TQ with the p-value = 0.0005.  It reveals that the application of 

Shariah principles has a substantial implication on the directors’ behaviour - to be more 

accountable and this enhances the firm’s performance. Once the directors are awarded with the 

firm’s shares, the directors feel it is an obligation to them to be more accountable in increasing the 

firm’s performance. In enhancing the firm’s performance, the directors do not emphasis basically 

on the operation revenue as the business operation is restricted to Shariah principles where the 

revenue is normally lower than non-restricted firms. Besides, Kumar et al. (2011) found religious 

beliefs, through their influence on gambling attitudes could have an impact on investors’ portfolio 

choices, corporate decisions, and stock returns. An alternative action for the Shariah-compliant 

firm is to boost the market value of the firm in order to attract the potential investors to be more 

confident to invest in the shariah-compliant firms. Hence the shareholders’ interest will not be 

jeopardised as it in line with the directors’ interest along with the consideration of the shariah-

compliance. This finding is similar with the recent study done by Mat Isa et al. (2013) who found 

that the Shariah-compliant firms capable to enhance its market performance through leverage. 

In a nut shell, H7; shariah-compliance has an impact on the relationship between directors’ 

share-based compensation and firm performance is supported since both share options and share 

award have significant relationship with firm performance as compared to results in Table 2. 

 

8. CONCLUSION 

This study contributes findings on the effects of the firm’s performance once the directors are 

granted with share options and share award. Besides, it accomplishes the research objectives that 



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examined the relationship between the directors’ share-based compensation on share options and 

share award with the firm’s performance. The result shows the share award granted has 

significant impact towards the firm’s performance compared to share options. The Malaysian 

directors prefer the share award grant rather than share options grant as it is more beneficial to 

them. The rationale is the directors do not have to pay for exercising the share award and there is 

no special tax treatment upon the share award granted. This is consistent with the agency theory 

as the agents are motivated with extrinsic values in order to align with the shareholders’ 

interests. Besides, it supports Brooks and Dunn (2010) on how incentive system reflects the 

behaviour to act ethically on the shareholders’ interests and reduce the conflict of interests.  

On top of everything, the effect on the Shariah compliance implementation is most vital. This 

study found that shariah-compliant firms could boost the market performance, Tobin’s q, when 

the directors are granted with share options and share award. The result highlighted that even 

though both shariah-compliant and shariah non-compliant firms granted share options and share 

award to their directors, however share options and share awards are significant with Tobin’s q in 

Shariah-compliant firm’s analysis. Meanwhile in normal regression analysis, only share award is 

significant to Tobin’s q. It revealed that the directors of shariah-compliant firms not only conform 

to the stewardship theory as they play steward role but also attempt to reach firms’ goals with no 

intervention from self-serving and organizational needs. They also conform to the Islamic 

teaching on accountability. The study recommends that religious ethical values could be a 

monitoring mechanism in reducing managerial opportunism especially in the management of 

earnings (Abdul Rahman, 2012). Besides, Shariah principles do insist on accountability from the 

individual and the individual controls the organisation to be accountable. These stipulated 

Shariah principles upholds the ethical conduct and thus promotes justice and welfare in the 

ummah or society. In a nutshell, the finding was able to answer the research objective on whether 

Islamic value, Shariah, affects the firm’s performance differently in Shariah-compliant firms and 

Shariah non-compliant firms. Moreover, the behaviour of the directors in the Shariah-compliant 

firms do not deviate from the religious codes and thus are good stewards as in the stewardship 

theory.  

This study deliberated only on the directors’ effort and commitment in order for the firm to 

grant the share options and share award. Thus, further study to include economic conditions and 

enforcement of new regulation which are not within the control of directors that can affect the 

granting of the share options and the share award is necessary. Future studies are recommended 

to compare the firm’s performances before and after the adoption of this compensation plans. On 

the other hand, future study is recommended to compare the Shariah-compliant firms and Shariah 

non-compliant firms in focus industries so as to determine which industry is more affected by the 

Shariah principles.  



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