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Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms

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dc.contributor.authorRamazan Yildirim
dc.contributor.authorAbul Mansur Mohammed Masih
dc.contributor.authorObiyathulla Ismath Bacha
dc.date.accessioned2018-10-11T01:52:15Z
dc.date.available2018-10-11T01:52:15Z
dc.date.issued2018
dc.description.abstractMany Muslim individual and institutional investors seek to invest only in stocks that are compliant with the Shari'ah (i.e. Islamic law). Among others, Dow Jones addressed this demand and has developed their proprietary screening methodologies to identify Shari'ah compliant firms (SC). One key factor that distinguishes SC firms from their non-compliant peers (SNC) is that the former is not allowed to cross the leverage threshold of 33%. Due to the restrictions imposed on them, it is expected that SC firms exhibit different capital structure compared to the SNC firms. The purpose of this initial comparative study is to analyze the most reliable debt determinants identified in the literature on both firm types. This study utilizes static panel data techniques on the sample consisting of SC and SNC firms from 7 countries and 7 industries over the years 2004-2014. Our study is inconclusive and it shows that most of the determinants do exhibit different effects among both firm types. Depending on the leverage measure, the effect of different independent variables on firms' capital structure varies. A uniform effect can be exerted for debt determinants profitability for both leverage measures, and growth opportunities, firm size and tangibility for market leverage only. Our robustness tests reveal that the impact of some debt determinants on firms leverage remains consistent. The coefficient sign and significance suggests, that the capital structure decision of both firm types, both are better explained by the Pecking Order Theory for book and by the Trade-Off Theory for market leverage, respectively.en_US
dc.identifier.citationYildirim, R., Mohammed Masih, A. M., & Bacha, O. I. (2018). Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms. Pacific-Basin Finance Journal, 51, pp. 198-219.en_US
dc.identifier.doihttps://doi.org/10.1016/j.pacfin.2018.06.008
dc.identifier.issn0927-538X
dc.identifier.urihttps://ikr.inceif.org/handle/INCEIF/2970
dc.languageEnglish
dc.language.isoengen_US
dc.publisherElsevier B.V.en_US
dc.rights2018. Elsevier B.V.
dc.sourceSEDONA
dc.subjectCapital structureen_US
dc.subjectLeverageen_US
dc.subjectShari'ah complianten_US
dc.subjectShari'ah screeningen_US
dc.subjectTrade-off theoryen_US
dc.subjectPecking Order Theoryen_US
dc.titleDeterminants of capital structure: evidence from Shari'ah compliant and non-compliant firmsen_US
dc.typeJournal Articleen_US
dlc.maintopicIslamic capital marketsen_US
dspace.entity.typePublication
ikr.doctypeScholarly Works
ikr.topic.maintopicIslamic capital marketsen_US
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