Capital Structure Determinants of Shariah-compliant Firms

Abstract

This is a preliminary study developed to explore the determinants of capital structure of Shariah-compliant firms listed in Bursa Malaysia. This study is primarily motivated by the issue of the determinants still being inconclusive in the area of capital structure. The study is performed using the static models namely Pool Ordinary Least Square, Fixed Effect and Random Effect Model. Empirical analysis on the determinants reveals that country specific factor which is GDP and sector specific factor which is industry concentration are also significant in influencing the corporate financing decisions in this country along with firm specific factors such as efficiency, bankruptcy risk, profitability, tangibility, liquidity and size of the firm. The findings revealed that results are sensitive to models employed in the study. Nevertheless, the applicability of capital structure theories such as the trade-off theory, agency theory and pecking order theory diverge across sectors in Malaysia. The pecking order theory and agency theory are found to be the dominant theories governing the corporate financing decision in the country as well. It indicates strong evidence of hierarchy practised in firms’ financing decision. The finding on agency theory being dominant justifies the function of short-term debt as a controlling mechanism to mitigate the agency problem arises within firms across sectors.

Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries

“…For the country-level variables, the trade-off theory appears to work better although there is no consensus across the subsamples. Since the general results for all four subsamples do not favor either theory, our findings are in line with those of Sahudin et al (2019) and Yildirim et al (2018) while they are in contrast with Thabet and Hanefah (2014), whose results support the pecking order theory.…”

Capital Structure and Culture in Malaysia: A Study From Ethnicity and Religion Perspectives

“…Hence, Muslims are the antimarket (Guiso, Sapienza, & Zingales, 2003), likely to hinder competition (Hooy & Ali, 2017), and moves towards risk aversion (Wilson & Liu, 2010), which probably lead to low leverage on capital structure decisions. Furthermore, Muslims strive on high accountability and responsibility values to reduce information asymmetry that impacts the selection between internal and external financing such as issues of debt or equity-based on pecking order (Sahudin, Ismail, Sulaiman, Rahman, & Jaafar, 2019). According to pecking-order theory, capital structure decision is organized in a hierarchical pecking order, with the first being internal sources, second is external debt financing, and third is equity financing.…”

Faktor Penentu Struktur Modal : Bukti Empiris pada Indeks IDX30 di Bursa Efek Indonesia

“…Perusahaan dengan risiko bisnis yang lebih tinggi menghadapi kesulitan biaya keuangan yang lebih tinggi. Secara umum, diharapkan ada hubungan terbalik antara leverage dan risiko bisnis terkait dengan peningkatan risiko kebangkrutan (Burgman 1996;Chen et al 1997 (Rajan dan Zingales, 1995;Wald, 1999;Booth et al, 2001;Chen, 2004;Bauer, 2004;Viviani, 2008;Öztekin, 2015;Guner, 2016, Sahudin et al, 2019; Arif dan Mai, 2020). .21.…”