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The Impact of Sharia Compliance on the Adjustment to Target Debt Maturity of Malaysian Firms

Author

Listed:
  • H.I. Hussain
  • M.F. Shamsudin
  • N.A.M. Anwar
  • M.A. Salem
  • N.H. Jabarullah

Abstract

This paper investigates the speed of adjustment to target debt maturity for a sample of Malaysian firms based on the sample period of 2007 to 2016.We examine the impact of Sharia compliance on the speed of adjustment to target debt maturity structure by grouping companies based on nature of compliance to Sharia requirements which is categorised by the Securities Commission of Malaysia.In line with our expectations, the analysis shows that firms classified as Sharia compliant tend to adjust at more rapid rates to target debt maturity when below target levels suggesting that compliant firms are able to issue long-term debt at cheaper levels relative to non-compliant counterparts. In addition, the reverse is observed when evaluating firms above target levels where non-compliant firms adjust at more rapid rates.Our findings indicate that compliant firms are able to raise long-term debt at cheaper rates relative to non-compliant firms given the captive market situation observed in the Islamic capital markets in Malaysia. This does however indicate the potential for higher agency costs as well as greater levels of information asymmetry for compliant firms relative to non-compliant firms given that non-compliant firms are more willing to reduce maturity structures to reach target levels when above target levels.

Suggested Citation

  • H.I. Hussain & M.F. Shamsudin & N.A.M. Anwar & M.A. Salem & N.H. Jabarullah, 2018. "The Impact of Sharia Compliance on the Adjustment to Target Debt Maturity of Malaysian Firms," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 48-61.
    • Handle: RePEc:ers:journl:v:xxi:y:2018:i:2:p:48-61
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    More about this item

    Keywords

    Target debt maturity; speed of adjustment; Islamic capital markets; Sharia compliance; Islamic Finance. JEL code: G32; D53.;
    All these keywords.

    JEL classification:

    • 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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