The Determinants of Shariah Banks’ Capital Structure

Raja Rehan, Muhammad Asghar Khan, Guo Hong Fu, Auwal Adam Sa’ad and Auroob Irshad
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Raja Rehan: IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia; & Department of Business Administration, ILMA University, Karachi, Pakistan
Muhammad Asghar Khan: School of Economics and Management, Panzhihua University, Panzhihua 617000, Sichuan, China
Guo Hong Fu: School of Economics and Management, Panzhihua University, Panzhihua 617000, Sichuan, China
Auwal Adam Sa’ad: IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia
Auroob Irshad: Iqra University, Karachi, Pakistan

International Journal of Economics and Financial Issues, 2024, vol. 14, issue 5, 193-202

Abstract: This study is an endeavor to identify key significant determinants of capital structure for Shariah-tagged banks. Atotal of 47 Shariah banks’ 9years i.e. from 2013 to 2021 Balance Panel Data is used. The leverage ratio is nominated as a dependent variable, whereas, liquidity, return on assets, gross domestic product, return on equity, tangibility, growth, size, and capital adequacy ratio are designated as explanatory variables. The Panel Data Static model and Dynamic model via the Generalized Method of Moments (GMM) are executed. The results specify that liquidity, gross domestic product, tangibility, lagged dependent variable, and profitability i.e. measured by return on equity are positively significant determinants. Besides, the significant lagged variable, tangibility, liquidity, and existence of SOA infer the significance of the Dynamic Trade-off theory. Based on the identified significant determinants, the policymakers can develop similar policies to formulate the capital structure of whole Shariah banks.

Keywords: Capital Structure; Shariah Banks; Panel Data Static Models; GMM (search for similar items in EconPapers)
JEL-codes: C33 G21 G31 G32 (search for similar items in EconPapers)
Date: 2024
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