Investigating of Shariah Compliant Companies Capital Structure Determinants

Ahmad, Noryati; Azhar, Noor Nisah

doi:10.1166/asl.2015.6180

Cited by 8 publications

(11 citation statements)

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“…While, with regard to the Shariah approved firms, Hassan et al (2012) show evidence that size does affect debt level of the firms positively. However, Ahmad and Azhar (2015) are not able to provide evidence on any significant relationship between size and debt for the Shariah approved firms in Malaysia from the consumer sector. Therefore, this study hypothesizes that: H 4: There is significant positive relationship between debt and size.…”

Section: Sizementioning

confidence: 78%

Debt Determinants of Shari’ah Approved Firms : Empirical Evidence from Malaysia

Ramli

Haron

2017

JIF

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The issue of high reliance on debt has raised major concern especially since its impact has been linked to the several corporate problems in United States' big corporations such as Enron and Lehman Brothers. On a wider scope, the impact of debt may also be evidenced by the Greek Depression in the year 2009. Various studies have been conducted to explain which factors determine debt of the firms, given different setting of periods, countries and methodologies. Uniquely, this study focuses on the firms which stocks are Shari'ah approved in accordance to the Malaysia's Securities Commission guidelines. This study covers a balanced panel of 239 Shariah approved firms listed on the Bursa Malaysia for the period of analysis from 2000 to 2014. To meet its objective, this study employs a static panel regression model which includes the pooled OLS, random effect model (REM) and fixed effect model (FEM). The study also conducts a robustness test to the empirical model. Several factors have been examined and the result shows that certain firm-specific variables like growth opportunity, size, bankruptcy risk, non-debt tax shield (NDTS) and Herfindahl-Hirschman Index are significant determinants of a firm's debt. Also macro variables such as inflation, GDP and economic crisis are also found to be significant determinants of Shariah approved firms' debt. In contrast with the prior studies that focuses on the non-Shariah approved firms, the output from this study provides new insight and understanding on the debt determinants of Shariah approved firms.

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Section: Sizementioning

confidence: 78%

Debt Determinants of Shari’ah Approved Firms : Empirical Evidence from Malaysia

Ramli

Haron

2017

JIF

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“…The POT suggests that firms with higher profits are in a better position to use internal funds to finance their growth than the debt because of asymmetric information costs (Myers, 1984). Studies such as Ahmad and Azhar (2015), Ali (2011) and Chen (2004) accord with the POT and report a negative relationship between profitability and leverage. On the contrary, Rajan and Zingales (1995) reported that profitable firms have sufficient funds to repay their debts, reducing their bankruptcy cost.…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

Capital structure dynamics of Shariah-compliant vs noncompliant firms: evidence from Pakistan

Akbar

Khan

Haq

et al. 2022

IMEFM

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Purpose This study aims to compare capital structure determinants' effect on the leverage levels of Shariah-compliant (SC) and noncompliant (NC) firms in Pakistan. This study also estimates and compares the capital structure adjustment speed for both firm types. Design/methodology/approach Based on the Karachi Meezan Index screening criterion, a balanced panel of 117 SC and 68 NC firms listed on the Pakistan Stock Exchange from 2008 to 2018 was constituted. This study used the generalized method of moments to identify the significant determinants of capital structure and estimate the speed of adjustment. In addition, the F-test was used to check whether the effect of the determinants on the leverage is same for SC and non-SC firms. Findings The authors found that different determinants affect both firm types' leverage levels (book and market) differently. The authors also found that the adjustment speed of SC firms toward their target leverage ratio is slower than their NC peers. Lastly, significant variation was observed in the results under different screening criteria. Research limitations/implications This study fills the literature gap by providing a comprehensive comparison of the capital structure decisions of the SC and non-SC firms. Because this study is limited to Pakistan, generalizability would be an issue. Practical implications This study will guide the management of SC and non-SC firms about which factors are reliably important in choosing their capital structure. The findings also call for bringing harmony in the different Shariah screening criteria being in practice. Originality/value To the best of the authors’ knowledge, this is the first comparative study that identifies the significant capital structure determinants for SC and NC firms and investigates their effect on the leverage of both firm types. By testing joint hypotheses of same relationship, this study seeks to determine if, because of Shariah restrictions, the capital structure determinants of SC firms are similar to NC firms or they exhibit different behavior. The authors also repeat their analysis using other prominent screening criteria to assess the consistency of their results.

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“…Also, they report a negative relationship between liquidity and leverage, showing that firms with greater liquidities prefer to use internally generated funds while financing new investments according to the pecking order theory. Ahmad & Azhar (2015) conduct a study of an empirical study on industrial SC companies. Their results suggest that both liquidity and tangibility are inversely related to debt financing.…”

Section: Macroeconomic Factorsmentioning

confidence: 99%

Capital Structure Determinants of Shariah-Compliant Firms: Evidence from the MENA Region

Raghibi

Oubdi

2020

al-Uqud

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Capital structure choice is vital in corporate financial management due to its effect on both investors' risk and return. Despite the various research that has investigated factors affecting the capital structure of companies, only a few studies have started to examine the capital structure of Shari'ah-compliant companies, especially in the MENA region. Indeed, the screening requirements for which shari'ah-compliant must adhere can affect their capital structure determinants. Hence, under those conditions, this study aims to determine the factors influencing the capital structure of a shari'ah-compliant listed firm in five MENA region countries. The importance of investigating shariah-complaint companies capital structure emanates from the financial constraints on their debt capital structure. Accordingly, this study utilizes static panel data techniques on a sample consisting of Shari'ah-compliant firms over the period 20102018. The findings of this study were consistent with several previous studies as well as the theoretical background of capital structure determinants mainly, the trade-off and the pecking order theory. Our results give insight to managers on what determines their capital structure under shari'ah screening methodologies. However, more insight can be drought from the capital structure of shari'ah-compliant firms by extending the research into industry specifics.

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Investigating of Shariah Compliant Companies Capital Structure Determinants

Cited by 8 publications

References 0 publications

Debt Determinants of Shari’ah Approved Firms : Empirical Evidence from Malaysia

Debt Determinants of Shari’ah Approved Firms : Empirical Evidence from Malaysia

Capital structure dynamics of Shariah-compliant vs noncompliant firms: evidence from Pakistan

Capital Structure Determinants of Shariah-Compliant Firms: Evidence from the MENA Region

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