ISLAMIC LABEL AND PERFORMANCE: THE ROLE OF FINANCIAL FLEXIBILITY AND CASH HOLDING

Abstract

The objective of this study is to explore the contribution of a third phenomenon or extra variables formulated in the form of mediation and moderation in the Islamic Label and performance relationship model. By observing 225 companies over the period 2012–2021 and using partial least squares (PLS) analysis techniques, the test results show that the mediation of financial flexibility can partially add to the total effect of the Islamic Label on performance. The mediating effect of financial flexibility in the Islamic label–performance relationship model indicates that the Islamic label affects performance indirectly. Other empirical findings show that cash reserves moderate (strengthen) the effect of Islamic labels on performance. This empirical result indicates that the impact of IL on performance depends on cash reserves. Finally, Islamic Label has a significant positive effect on performance, which indicates that business ethics from an Islamic perspective, among others, can be a substitute for CSR. The overall research results show that the third phenomenon (mediating and moderating variable) plays an important role in explaining the impact of Islamic Label on performance and also shows the uniqueness of this research compared to previous studies that explore the influence of Islamic Label on performance partially. Therefore, the results of this study confirm the contingency theory which states that to obtain validity of the results of a phenomenon it is necessary to consider a more complex causal relationship (at least a trivariate relationship) by identifying third variables (interaction, moderation, and mediation).