How Islamic Law Affects the Relationship Between Corporate Governance and Capital Structure?

Tsui-Jung Lin, Wei-Chuan Wang and Nur Imamah ()
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Tsui-Jung Lin: Chinese Culture University, Department of Banking and Finance
Wei-Chuan Wang: Chinese Culture University, Department of Banking and Finance
Nur Imamah: Universitas Brawijaya, Department of Business Administration

A chapter in Proceedings of the Brawijaya International Conference on Business Administration, Taxation, and Tourism (BICBATT 2022), 2024, pp 166-176 from Springer

Abstract: Abstract Islamic finance has vast growth potential and will significantly impact the international economy in the future. There have been many discussions on Islamic finance in the past, but it has been few discussions on corporate Islamic law, governance, and capital structure in developing countries. This article studies the influence of Islamic law and corporate governance on capital structure. The sample of this study is Indonesian-listed companies from 2012 to 2020. This study uses panel data analysis of multiple linear regression- Ordinary Least Square (OLS) with the Common Effect Model or Pooled Least Square (PLS) model. The empirical results of this paper show that board size has a negative and significant impact on debt ratios for Sharia-compliant firms. The independent directors have a positive and insignificant impact on the debt ratio for Sharia-compliant firms. Institutional ownership has a negative and significant impact on the debt ratio for Sharia-compliant firms. Insider ownership has a positive and insignificant impact on the debt ratio for Sharia-compliant firms. Since the conservative nature of Islam and financing restrictions, Islamic firms are more cautious about debt financing when considering their religious norms, resulting in a relatively low debt ratio. The principal value of this paper is the contribution of Islamic Law to the influence of corporate governance on capital structure from the Indonesian perspective.

Keywords: Islam Law; Corporate Governance; Capital Structure; Indonesia (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-240-8_20

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DOI: 10.2991/978-94-6463-240-8_20

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