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Impacts of CEO’s Overconfidence in Financing Decisions on Shariah-Compliant Firms Listed on the Bursa Malaysia تأثيرات ثقة المدير التنفيذي في قرارات التمويل على الشركات المتوافقة مع الشريعة الإسلامية المدرجة في بورصة ماليزيا

Author

Listed:
  • Wan Shah Shahdila-Shahar

    (Lecturer, Faculty of Business and Muamalah, International Islamic University College Selangor (KUIS), Malaysia)

  • Noryati Ahmad

    (Professor, Arshad Ayub Graduate Business School, Universiti Teknologi Mara, Shah Alam, Selangor, Malaysia)

  • Mohamad Nizam Jaafar

    (Senior Lecturer, Arshad Ayub Graduate Business School, Universiti Teknologi Mara, Shah Alam, Selangor, Malaysia)

Abstract

A firm’s financing decision is a key concern in corporate finance and has drawn strong interest from various stakeholders. This decision is more pertinent in Malaysia due to its uniqueness of having a dual financial system. Since the financing decision is part of a firm’s strategic decisions, the CEO holds a significant responsibility for a firm’s financial strategic policy and direction. In most cases, empirical results from previous studies could not pinpoint the factors as well as the theories that best explain a firm’s financing choice. This issue arises because traditional theories assumed that economic players are always rational. However, corporate financing decisions can be less than fully rational or biased. Thus, this study aims to fill the gaps by examining the impacts of a CEO’s overconfidence on financing decisions in Shariah-compliant firms (SCFs) listed on the Bursa Malaysia. This study analyzed panel data over a period from 2009 to 2017. The findings show that male CEOs are willing to take high-risk corporate strategic policies by increasing the debt level which enables SCFs to maximize the firm’s value resulting from the benefits of tax-shield and lower agency costs arising from the conflict between managers and shareholders. يُعد قرار تقديم التمويل من الشركات من القرارات المهمة التي تتخذها الإدارة التنفيذية في الشركة بصفة عامة. وهو يكتسب أهمية خاصة للشركات في ماليزيا بسبب استخدام النظام المالي المزدوج. كما أنه يُعد من القرارات التي تساهم في تنفيذ الاستراتيجية العامة في الشركة وتقع مسؤولية تنفيذه على المدير العام للشركة. لم تتمكن النتائج العملية في السابقة حول هذا الموضوع من تحديد العوامل والنظريات التي تفسر على نحو أفضل خيار تمويل الشركة. وتنشأ هذه المشكلة لأن النظريات التقليدية تفترض أن اللاعب الاقتصادي دائمًا ما يكون عقلانيًا، ومع ذلك يمكن أن تكون قرارات تمويل الشركات أقل عقلانية أو متحيزة تمامًا. تهدف هذه الدراسة إلى سد الثغرات من خلال دراسة آثار ثقة المدير التنفيذي المفرطة في قرارات التمويل في الشركات المتوافقة مع الشريعة الإسلامية المدرجة في بورصة ماليزيا. وقد استخدمت هذه الدراسة بيانات (panel data) خلال الفترة 2009م إلى 2017م. وبينت النتائج أن كبار المديرين التنفيذيين في الشركات من الذكور على استعداد لاتخاذ سياسات استراتيجية عالية المخاطر عبر زيادة مستوى الديون وفقاً لنظرية التبادل التي ترى أن اعتماد الشركة على الدين مع وجود الإعفاء الضريبي يعزز من قيمة الشركة ويزيد من مستوى الصراع بين المديرين والمساهمين.

Suggested Citation

  • Wan Shah Shahdila-Shahar & Noryati Ahmad & Mohamad Nizam Jaafar, 2020. "Impacts of CEO’s Overconfidence in Financing Decisions on Shariah-Compliant Firms Listed on the Bursa Malaysia تأثيرات ثقة المدير التنفيذي في قرارات التمويل على الشركات المتوافقة مع الشريعة الإسلامية ," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(1), pages 117-131, January.
    • Handle: RePEc:abd:kauiea:v:33:y:2020:i:1:no:9:p:117-131
    DOI: 10.4197/Islec.33-1.9
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    More about this item

    Keywords

    Financing decision; Behavioral finance; CEO overconfidence; Shariah-compliant firms. قرار التمويل، التمويل السلوكي، ثقة المدير التنفيذي، الشركات المتوافقة مع الشريعة الإسلامية.;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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