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Capital structure of Islamic banks: a critical review of theoretical and empirical research

Author

Listed:
  • Muhammad Rizky Prima Sakti
  • Mohamad Ali Tareq
  • Buerhan Saiti
  • Tahir Akhtar

Abstract

Purpose - This paper aims to critically evaluate theoretical and empirical research into capital structure practices in Islamic banks (IBs) from four perspectives, namely, theoretical aspect and its nature, determinants of capital structure in IBs, links between capital structure and risk management and nexus between capital structure and performance of IBs. Design/methodology/approach - The authors will review and examine past studies on IBs’ capital structure from both theoretical and empirical research. Findings - The paper concludes that most of the literature on IB capital structure is largely theoretical than empirical. The existing studies on IB capital structure have various limitations, which suggest a need for detailed empirical work. Detailed empirical research in the field of capital structure will support bank managers and policymakers in making decisions about improving capital structure. Originality/value - This research will make several noteworthy contributions to address literature gaps for IB capital structure. Furthermore, this paper will identify areas for future research into capital structure practices and IB financing decisions. Lastly, this paper will equip regulators with guidelines for establishing sound capital requirements for IB.

Suggested Citation

  • Muhammad Rizky Prima Sakti & Mohamad Ali Tareq & Buerhan Saiti & Tahir Akhtar, 2017. "Capital structure of Islamic banks: a critical review of theoretical and empirical research," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 9(3), pages 292-308, August.
    • Handle: RePEc:eme:qrfmpp:qrfm-01-2017-0007
    DOI: 10.1108/QRFM-01-2017-0007
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    Citations

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    Cited by:

    1. Mohammad Nayeem Abdullah & Emon Kalyan Chowdhury & Rahat Bari Tooheen, 2022. "Determinants of capital structure in banking sector: a Bangladesh perspective," SN Business & Economics, Springer, vol. 2(12), pages 1-19, December.
    2. Amina Malik & Haroon Aziz & Buerhan Saiti & Shahab Ud Din, 2021. "The Impact of Earnings variability and Regulatory Measures on Income Smoothing: Evidence from Panel Regression," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 183-201.
    3. Moncef Guizani, 2020. "Testing the pecking order theory of capital structure: the case of Islamic financing modes," Future Business Journal, Springer, vol. 6(1), pages 1-12, December.
    4. Hoque, Hafiz & Liu, Heng, 2022. "Capital structure of Islamic banks: How different are they from conventional banks?," Global Finance Journal, Elsevier, vol. 54(C).

    More about this item

    Keywords

    Capital structure; Islamic banks; Critical review; G3; G32;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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