Islamic Finance and the Theory of Capital Structure

Nagano, Mamoru

Islamic Finance and the Theory of Capital Structure

MPRA Paper from University Library of Munich, Germany

Abstract: This paper empirically investigates firms using Islamic finance in Malaysia and Middle East countries. The comparative analysis of Islamic finance and non-Islamic finance users resulted in three major implications. First, Islamic bond issuers preferentially choose the Islamic bond issuance prior to bank borrowing and other external financing tools. Second, Islamic bond issuance is not related to the issuer’s internal funds, while Islamic bank borrowing is significantly influenced by the magnitude of a firm’s internal funds. These results suggest that Islamic bond issuers do not always choose to issue bonds based on information cost, but Islamic bank borrowers always do. Third, the Islamic bond issuance contributes to an increase in the issuer’s stock returns and total factor productivity. This empirical result suggests that Islamic bond issuance is preferred because of this unique benefit which standard external financing does not have.

Keywords: Capital Structure; Bond Issuance; Islamic Finance (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2010-01-02
New Economics Papers: this item is included in nep-ara and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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