The cost of credibility: digital signalling, masking effects, and valuation premiums in the halal economy

Abstract

This study aims to reconceptualise digital transformation as a socio-technical signalling mechanism rather than an operational efficiency tool. Drawing on signalling theory and socio-technical systems theory, it examines whether digital transformation creates a capital market valuation premium for halal-engaged enterprises in non-Muslim institutional environments and explores the mechanisms underpinning this relationship. The study analyses a panel data set of 191 Chinese-listed halal-engaged enterprises from 2010 to 2024 using fixed-effects regressions, instrumental variable estimation and bootstrap mediation analyses. Digital transformation is positively associated with firm value. The valuation premium is supported by productivity gains but attenuated by governance-related management expenses. The premium is weaker when firms disclose complex international certifications that domestic investors may find difficult to interpret, but is stronger in non-Muslim majority regions, where informal mechanisms of compliance assurance are less developed. This study extends Islamic marketing research by reframing halal digitalisation as a socio-technical signal in capital markets. It identifies a masking effect that highlights the trade-off between signal credibility and short-term financial performance and demonstrates that the value of digital compliance signals depends on institutional context and investor interpretation.