Capital Structure Determinants of Shariah-Compliant Firms: Evidence from the MENA Region
DOI:
https://doi.org/10.26740/al-uqud.v5n1.p16-28Keywords:
Capital structure, shari’ah-compliant, leverage, Shari’ah screening, Panel dataAbstract
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.References
Ahmad, N., & Azhar, N. N. (2015). Investigating of Shariah Compliant Companies Capital Structure Determinants. Advanced Science Letters, 21(6), 19861989. https://doi.org/10.1166/asl.2015.6180
Antoniou, A., Guney, Y., and Paudyal, K. (2008). The determinants of capital structure: capital market-oriented versus bank-oriented institutions. Journal of Financial and Quantitative Analysis, vol 43(2) pp 59-92. https://doi.org/10.1017/s0022109000002751
Al-Ani, M., & Al-Amri, M. (2015). The Determinants of Capital Structure: An Empirical Study of Omani Listed Industrial Companies. Business: Theory and Practice, 16(2), 159167. https://doi.org/10.3846/btp.2015.471
Bauer, P. (2004). Determinants of Capital Structure Empirical Evidence from the Czech Republic. Czech Journal of Economics and Finance, 54, 221.
Bayrakdaroglu, A., Ege, I., & Yazici, N. (2013). A panel data analysis of capital structure determinants: Evidence from Turkish Capital Market. International Journal of Economics and Finance, 5, 131140. http://dx.doi.org/10.5539/ijef.v5n4p131
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital Structures in Developing Countries. The Journal of Finance, 56(1), 87130. https://doi.org/10.1111/0022-1082.00320
Bradley, M., Jarrell, G. A., & Kim, E. H. (1981). On the Existence of an Optimal Capital Structure: Theory and Evidence. Journal of Finance, 39, 857878. https://doi.org/10.2307/2327950
Brooks, C. (2014). Introductory Econometrics for Finance (3rd Edition). Cambridge University Press.
Byoun, S. (2008). How and When Do Firms Adjust Their Capital Structure toward Targets? The Journal of Finance, 63(6), 30693096. https://doi.org/10.1111/j.1540-6261.2008.01421.x
Cekrezi, A. (2013). The Determinants of Capital Structure: Evidence from Albania. Academic Journal of Interdisciplinary Studies, 2(9), 370376. https://doi.org/10.5901/ajis.2013.v2n9p370
Chang, C., Lee, A., & Lee, C. (2009). Determinants of capital structure choice: A structural equation modelling approach. The Quarterly Review of Economics and Finance, 49(2), 197213. https://doi.org/10.1016/j.qref.2008.03.004
Croquet, M., & Colot, O. (2007). Les déterminants de la structure financière des entreprises belges. Étude exploratoire basée sur la confrontation entre la théorie des préférences de financement hiérarchisées et la détermination dun ratio optimal dendettement. Reflets et Perspectives de La Vie Économique, XLVI(2), 177198. https://doi.org/10.3917/rpve.462.0177
Dang, V. A., & Garrett, I. (2015). On Corporate Capital Structure Adjustments. Finance Research Letters, 14(C), 5663. https://doi.org/10.1016/j.frl.2015.05.016
Demirguc-Kunt, A., & Maksimovic, V. (2002). Funding Growth in Bank-Based and Market-Based Financial Systems: Evidence from Firm-Level Data. Journal of Financial Economics, 65, 337363. https://doi.org/10.1016/S0304-405X(02)00145-9
Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15, 133. http://dx.doi.org/10.2139/ssrn.199431
Frank, M., & Goyal, V. (2009). Profits and Capital structure. Working Paper.
Getzmann, A., Lang, S., & Spremann, K. (2014). Target Capital Structure and Adjustment Speed in Asia. Asian-Pacific Journal of Financial Studies, 43(1), 130. https://doi.org/10.1111/ajfs.12038
Handoo, A., & Sharma, K. (2014). A study on determinants of capital structure in India. IIMB Management Review, 26(3), 113. https://doi.org/10.1016/j.iimb.2014.07.009
Hanousek, J., & Shamshur, A. (2011). A stubborn persistence: Is the stability of leverage ratios determined by the stability of the economy? Journal of Corporate Finance, 17(5), 13601376. https://doi.org/10.1016/j.jcorpfin.2011.07.004
Haron, R., Ibrahim, K., Ibrahim, I., & Alias, N. (2011). Determinants of Target Capital Structure: Evidence on South East Asia Countries. Journal of Business and Policy Research, 6(3), 3961.
Harris, M., & Raviv, A. (1991). The theory of capital structure. Journal of Finance, 46, 297355. https://doi.org/10.1111/j.1540-6261.1991.tb03753.x
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 44(6), 12511271. https://doi.org/10.2307/1913827
Hergli, S., & Teulon, F. (2014). Capital structures explanatory factors: The Maghreb case (Working Paper 2014-98). Department of Research, Ipag Business School. https://ideas.repec.org/p/ipg/wpaper/2014-98.html
Irfan, A. (2011). Determinants of Capital Structure: Empirical Evidence from Pakistan. SSRN Publication. http://dx.doi.org/10.2139/ssrn.1977024
Jaafar, M. N., Muhamat, A. A., Ahmad, I., & Alwi, S. F. (2017). Determinants of capital structure: Empirical evidence from Shariah compliant plantation firms in Malaysia. Journal of Emerging Economies & Islamic Research, 5(4), 19. https://doi.org/10.24191/jeeir.v5i4.6235
Jensen, M., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 306360. https://doi.org/10.1016/0304-405X(76)90026-X
Kim, E. H. (1974). A Theory of Optimal Financial Structure in Market Equilibrium A Critical Examination of the Effects of Bankruptcy and Corporate Income Taxation [PhD Dissertation]. State University of New York at Buffalo.
Kraus, A., & Litzenberger, R. (1973). A State-Preference Model of Optimal Financial Leverage. Journal of Finance, September, 911-922. https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
Lemmon, M., Roberts, M., & Zender, J. (2008). Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure. The Journal of Finance, 63(4), 15751608. http://dx.doi.org/10.2139/ssrn.881899
Long, M. S., & Malitz, I. (1985). Investment Patterns and Financial Leverage. In Corporate Capital Structures in the United States (pp. 325352). National Bureau of Economic Research, Inc.
Mng, J. C., Rahman, M., & Sannacy, S. (2017). The determinants of capital structure: Evidence from public listed companies in Malaysia, Singapore and Thailand. Cogent Economics & Finance, 2017(5), 134. https://doi.org/10.1080/23322039.2017.1418609
Maurizio La Rocca & Tiziana La Rocca & Alfio Cariola, (2011). Capital Structure Decisions During a Firm's Life Cycle. Small Business Economics, 37(1), 107-130. https://doi.org/10.1007/s11187-009-9229-z
Modigliani, F., & Miller, M. H. (1958). The cost of capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48(3), 261297.
Moyo, V., Wolmarans, H., & Brummer, L. (2013). Trade-Off Or Pecking Order: Evidence From South African Manufacturing, Mining, And Retail Firms. International Business & Economics Research Journal, 12(8), 927944. https://doi.org/10.19030/iber.v12i8.7989
Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 34, 575592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.
Nguyen, C. T., Bui, C. M., & Pahm, T. D. (2019). Corporate Capital Structure Adjustments: Evidence from Vietnam Stock Exchange Market. The Journal of Asian Finance, Economics and Business, 6(3), 4153. https://doi.org/10.13106/jafeb.2019.vol6.no3.41
Nnadi, M. (2016). Accounting Factors Affecting the Capital Structure in the Asian Economic Community. International Journal of Accounting Researc, 5(1), 19. https://doi.org/10.4172/2472-114X.1000139
Onofrei, M., Mihaela, T., Durdureanu, C., & Anton, S. (2015). Determinant Factors of Firm Leverage: An Empirical Analysis at Iasi County Level. Procedia Economics and Finance, 20, 460466. https://doi.org/10.1016/S2212-5671(15)00097-0
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50, 14211460. https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
Rehan, R., & Hani, A. R. (2019). Capital Structure Determinants of Shariah and Non-Shariah Companies at Bursa Malaysia Dynamic Approach. International Journal of Innovation, Creativity and Change, 6(8), 334345.
Sheikh, N. A., & Wang, Z. (2011). Determinants of capital structure An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117133. https://doi.org/10.1108/03074351111103668
Son, T. H. (2011). Firm Characteristics and Partial Adjustment Toward Target Capital Structure. Journal of Science and Technology Development, 14(3Q), 2239. https://doi.org/10.32508/stdj.v14i3.1976
Sutomo, S., Wahyudi, S., Pangestuti, I. R., & Muharam, H. (2020). The determinants of capital structure in coal mining industry on the Indonesia Stock Exchange. Investment Management and Financial Innovations, 17(1), 165174. http://dx.doi.org/10.21511/imfi.17(1).2020.15
Trang, N. T., Tuyen, T. V., & Diep, N. V. (2016). The speed of adjustment to the target capital structure of listed firms in Vietnam. Journal of Economics and Development, 225, 6372.
Yildirim, R., Mansur, M., & Bacha, O. (2017). Determinants of capital structure”Evidence from Shariah compliant and non-compliant firms. 19th Malaysian Finance Association Annual Conference, KL, Malaysia. https://doi.org/10.1016/j.pacfin.2018.06.008
Antoniou, A., Guney, Y., and Paudyal, K. (2008). The determinants of capital structure: capital market-oriented versus bank-oriented institutions. Journal of Financial and Quantitative Analysis, vol 43(2) pp 59-92. https://doi.org/10.1017/s0022109000002751
Al-Ani, M., & Al-Amri, M. (2015). The Determinants of Capital Structure: An Empirical Study of Omani Listed Industrial Companies. Business: Theory and Practice, 16(2), 159167. https://doi.org/10.3846/btp.2015.471
Bauer, P. (2004). Determinants of Capital Structure Empirical Evidence from the Czech Republic. Czech Journal of Economics and Finance, 54, 221.
Bayrakdaroglu, A., Ege, I., & Yazici, N. (2013). A panel data analysis of capital structure determinants: Evidence from Turkish Capital Market. International Journal of Economics and Finance, 5, 131140. http://dx.doi.org/10.5539/ijef.v5n4p131
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital Structures in Developing Countries. The Journal of Finance, 56(1), 87130. https://doi.org/10.1111/0022-1082.00320
Bradley, M., Jarrell, G. A., & Kim, E. H. (1981). On the Existence of an Optimal Capital Structure: Theory and Evidence. Journal of Finance, 39, 857878. https://doi.org/10.2307/2327950
Brooks, C. (2014). Introductory Econometrics for Finance (3rd Edition). Cambridge University Press.
Byoun, S. (2008). How and When Do Firms Adjust Their Capital Structure toward Targets? The Journal of Finance, 63(6), 30693096. https://doi.org/10.1111/j.1540-6261.2008.01421.x
Cekrezi, A. (2013). The Determinants of Capital Structure: Evidence from Albania. Academic Journal of Interdisciplinary Studies, 2(9), 370376. https://doi.org/10.5901/ajis.2013.v2n9p370
Chang, C., Lee, A., & Lee, C. (2009). Determinants of capital structure choice: A structural equation modelling approach. The Quarterly Review of Economics and Finance, 49(2), 197213. https://doi.org/10.1016/j.qref.2008.03.004
Croquet, M., & Colot, O. (2007). Les déterminants de la structure financière des entreprises belges. Étude exploratoire basée sur la confrontation entre la théorie des préférences de financement hiérarchisées et la détermination dun ratio optimal dendettement. Reflets et Perspectives de La Vie Économique, XLVI(2), 177198. https://doi.org/10.3917/rpve.462.0177
Dang, V. A., & Garrett, I. (2015). On Corporate Capital Structure Adjustments. Finance Research Letters, 14(C), 5663. https://doi.org/10.1016/j.frl.2015.05.016
Demirguc-Kunt, A., & Maksimovic, V. (2002). Funding Growth in Bank-Based and Market-Based Financial Systems: Evidence from Firm-Level Data. Journal of Financial Economics, 65, 337363. https://doi.org/10.1016/S0304-405X(02)00145-9
Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15, 133. http://dx.doi.org/10.2139/ssrn.199431
Frank, M., & Goyal, V. (2009). Profits and Capital structure. Working Paper.
Getzmann, A., Lang, S., & Spremann, K. (2014). Target Capital Structure and Adjustment Speed in Asia. Asian-Pacific Journal of Financial Studies, 43(1), 130. https://doi.org/10.1111/ajfs.12038
Handoo, A., & Sharma, K. (2014). A study on determinants of capital structure in India. IIMB Management Review, 26(3), 113. https://doi.org/10.1016/j.iimb.2014.07.009
Hanousek, J., & Shamshur, A. (2011). A stubborn persistence: Is the stability of leverage ratios determined by the stability of the economy? Journal of Corporate Finance, 17(5), 13601376. https://doi.org/10.1016/j.jcorpfin.2011.07.004
Haron, R., Ibrahim, K., Ibrahim, I., & Alias, N. (2011). Determinants of Target Capital Structure: Evidence on South East Asia Countries. Journal of Business and Policy Research, 6(3), 3961.
Harris, M., & Raviv, A. (1991). The theory of capital structure. Journal of Finance, 46, 297355. https://doi.org/10.1111/j.1540-6261.1991.tb03753.x
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 44(6), 12511271. https://doi.org/10.2307/1913827
Hergli, S., & Teulon, F. (2014). Capital structures explanatory factors: The Maghreb case (Working Paper 2014-98). Department of Research, Ipag Business School. https://ideas.repec.org/p/ipg/wpaper/2014-98.html
Irfan, A. (2011). Determinants of Capital Structure: Empirical Evidence from Pakistan. SSRN Publication. http://dx.doi.org/10.2139/ssrn.1977024
Jaafar, M. N., Muhamat, A. A., Ahmad, I., & Alwi, S. F. (2017). Determinants of capital structure: Empirical evidence from Shariah compliant plantation firms in Malaysia. Journal of Emerging Economies & Islamic Research, 5(4), 19. https://doi.org/10.24191/jeeir.v5i4.6235
Jensen, M., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 306360. https://doi.org/10.1016/0304-405X(76)90026-X
Kim, E. H. (1974). A Theory of Optimal Financial Structure in Market Equilibrium A Critical Examination of the Effects of Bankruptcy and Corporate Income Taxation [PhD Dissertation]. State University of New York at Buffalo.
Kraus, A., & Litzenberger, R. (1973). A State-Preference Model of Optimal Financial Leverage. Journal of Finance, September, 911-922. https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
Lemmon, M., Roberts, M., & Zender, J. (2008). Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure. The Journal of Finance, 63(4), 15751608. http://dx.doi.org/10.2139/ssrn.881899
Long, M. S., & Malitz, I. (1985). Investment Patterns and Financial Leverage. In Corporate Capital Structures in the United States (pp. 325352). National Bureau of Economic Research, Inc.
Mng, J. C., Rahman, M., & Sannacy, S. (2017). The determinants of capital structure: Evidence from public listed companies in Malaysia, Singapore and Thailand. Cogent Economics & Finance, 2017(5), 134. https://doi.org/10.1080/23322039.2017.1418609
Maurizio La Rocca & Tiziana La Rocca & Alfio Cariola, (2011). Capital Structure Decisions During a Firm's Life Cycle. Small Business Economics, 37(1), 107-130. https://doi.org/10.1007/s11187-009-9229-z
Modigliani, F., & Miller, M. H. (1958). The cost of capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48(3), 261297.
Moyo, V., Wolmarans, H., & Brummer, L. (2013). Trade-Off Or Pecking Order: Evidence From South African Manufacturing, Mining, And Retail Firms. International Business & Economics Research Journal, 12(8), 927944. https://doi.org/10.19030/iber.v12i8.7989
Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 34, 575592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.
Nguyen, C. T., Bui, C. M., & Pahm, T. D. (2019). Corporate Capital Structure Adjustments: Evidence from Vietnam Stock Exchange Market. The Journal of Asian Finance, Economics and Business, 6(3), 4153. https://doi.org/10.13106/jafeb.2019.vol6.no3.41
Nnadi, M. (2016). Accounting Factors Affecting the Capital Structure in the Asian Economic Community. International Journal of Accounting Researc, 5(1), 19. https://doi.org/10.4172/2472-114X.1000139
Onofrei, M., Mihaela, T., Durdureanu, C., & Anton, S. (2015). Determinant Factors of Firm Leverage: An Empirical Analysis at Iasi County Level. Procedia Economics and Finance, 20, 460466. https://doi.org/10.1016/S2212-5671(15)00097-0
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50, 14211460. https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
Rehan, R., & Hani, A. R. (2019). Capital Structure Determinants of Shariah and Non-Shariah Companies at Bursa Malaysia Dynamic Approach. International Journal of Innovation, Creativity and Change, 6(8), 334345.
Sheikh, N. A., & Wang, Z. (2011). Determinants of capital structure An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117133. https://doi.org/10.1108/03074351111103668
Son, T. H. (2011). Firm Characteristics and Partial Adjustment Toward Target Capital Structure. Journal of Science and Technology Development, 14(3Q), 2239. https://doi.org/10.32508/stdj.v14i3.1976
Sutomo, S., Wahyudi, S., Pangestuti, I. R., & Muharam, H. (2020). The determinants of capital structure in coal mining industry on the Indonesia Stock Exchange. Investment Management and Financial Innovations, 17(1), 165174. http://dx.doi.org/10.21511/imfi.17(1).2020.15
Trang, N. T., Tuyen, T. V., & Diep, N. V. (2016). The speed of adjustment to the target capital structure of listed firms in Vietnam. Journal of Economics and Development, 225, 6372.
Yildirim, R., Mansur, M., & Bacha, O. (2017). Determinants of capital structure”Evidence from Shariah compliant and non-compliant firms. 19th Malaysian Finance Association Annual Conference, KL, Malaysia. https://doi.org/10.1016/j.pacfin.2018.06.008
Downloads
Additional Files
Published
2020-12-14
How to Cite
Raghibi, A., & Oubdi, L. (2020). Capital Structure Determinants of Shariah-Compliant Firms: Evidence from the MENA Region. Al-Uqud : Journal of Islamic Economics, 5(1), 16–28. https://doi.org/10.26740/al-uqud.v5n1.p16-28
Issue
Section
Articles
License
CC BY 4.0
Abstract views: 527
,
PDF Downloads: 387
, PDF Downloads: 0
