Islamic Finance and the Theory of Capital Structure
AbstractThis 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24567.
Date of creation: 02 Jan 2010
Date of revision:
Capital Structure; Bond Issuance; Islamic Finance;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-ARA-2010-08-28 (MENA - Middle East & North Africa)
- NEP-SEA-2010-08-28 (South East Asia)
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