National culture and capital structure of the Shariah compliant firms: Evidence from Malaysia, Saudi Arabia and Pakistan

Mamunur Rashid, Dk Siti Nur Khoirunnisaa Pg Hj Johari and Selma Izadi

International Review of Economics & Finance, 2023, vol. 86, issue C, 949-964

Abstract: Cultural dimensions have a significant impact on capital structure decisions, particularly in Islamic economies where unique personal, social and ethical values are closely integrated with culture. This study considers the relationship between four Hofstede cultural dimensions to explain their connection with the capital structure decisions of Shariah-compliant firms. Using a panel of 342 Shariah complaint companies from Malaysia, Saudi Arabia and Pakistan for the period 2013 to 2017, this study investigates the influence of cultural dimensions on short-term, long-term and total leverage in the presence of several firm- and country-specific variables. On average, Saudi Arabian firms witnessed comparatively higher percentages of all three debt classifications considered. Typically, determinants of debt do not otherwise differ significantly across the three countries. Firms also carefully consider asset structure and growth opportunities when raising debt capital. On the other hand, when tested alongside cultural dimensions, Islamic firms from countries with (a) higher power distance scores, (b) higher levels of individualism, (c) higher masculinity scores and (d) lower degrees of uncertainty avoidance exhibit a preference for long-term debt. This finding diverges from the existing literature on non-Islamic firms. Agency theory and pecking order theory predominate in explaining our findings.

Keywords: National culture; Leverage; Capital structure; Islamic firms; Hofstede insight (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020302343
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:86:y:2023:i:c:p:949-964

DOI: 10.1016/j.iref.2020.10.006

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().