Slack Resources and Financial Performance: The Mediating Role of Corporate Zakat

This research uses structural equation modelling to examine the financial connections related to corporate zakat among 142 zakat-paying companies. These companies include privately owned businesses by Muslim owners, public companies mainly within Islamic Financial Institutions, and Shariah-listed companies. The zakat payments are predominantly made to zakat institutions (ZI), with six institutions from six Malaysian states agreeing to share their data. While zakat is mandatory for individual Muslims, the responsibility for corporate zakat lies with the company’s management, based on the concept of a legal entity (Sakiyah utibaprilat), allowing companies to fulfil obligations on behalf of the owners. However, less than 17% of companies pay zakat to the ZI (Adibah Ab Wahab, 2016). Therefore, this study aims to explore the motivations that lead companies to pay zakat, which can be used by the ZI to encourage more companies to do so. This study also highlights the importance of surplus resources for companies to engage in additional voluntary actions, despite zakat being primarily based on the company’s wealth, mainly consisting of current assets. The results indicate that surplus resources significantly influence a company’s zakat commitment, and this commitment, in turn, affects the company’s financial performance. The findings support the accepted perspective that corporate zakat is part of a company’s social responsibility. Furthermore, the findings highlight that achieving financial success facilitates philanthropic actions, and engaging in charitable endeavor’s contributes to a company’s financial success.