IDEAS home Printed from https://ideas.repec.org/a/idn/jimfjn/v9y2023i2ap199-224.html
   My bibliography  Save this article

Financial Sustainability Of A Firm: Debt-Based Or Equity-Based Financing To Pursue?

Author

Listed:
  • Umul Ain’syah Sha’ari

    (Universiti Sains Islam Malaysia, Malaysia)

  • Siti Raihana Bt Hamzah

    (Universiti Sains Islam Malaysia, Malaysia)

  • Karmila Hanim Kamil

    (Universiti Sains Islam Malaysia, Malaysia)

Abstract

This study examines the potential of utilizing equity-based financing by companies in achieving financial sustainability as compared to debt-based financing. To this end, a conceptual framework of equity-based financing over debt-based financing is developed to provide an understanding of the concept of equity-based financing. Subsequently, this study analyses the credit risk exposure between equity and debt for selected sectors in Malaysia. More specifically, a Monte Carlo method is employed to examine the feasibility of the equity-based financing model in fostering the financial sustainability of companies through simulation of equity-based and debt-based financing models from the global financial crisis (GFC) period to the Covid-19 phase. This study finds that equity-based financing can reduce credit risk exposure when returns are tied to the company’s performance. The findings also show that equity-based financing can achieve financial sustainability regardless of any economic events. To conclude, equity-based financing can thus be a viable capital financing option for companies because it can contribute to long-term financial sustainability.

Suggested Citation

  • Umul Ain’syah Sha’ari & Siti Raihana Bt Hamzah & Karmila Hanim Kamil, 2023. "Financial Sustainability Of A Firm: Debt-Based Or Equity-Based Financing To Pursue?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 9(2), pages 199-224, May.
    • Handle: RePEc:idn:jimfjn:v:9:y:2023:i:2a:p:199-224
    DOI: https://doi.org/10.21098/jimf.v9i2.1653
    as

    Download full text from publisher

    File URL: https://jimf-bi.org/index.php/JIMF/article/view/1653/934
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21098/jimf.v9i2.1653?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Equity-based financing; Financial sustainability; Monte carlo simulation; Economic crisis;
    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
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idn:jimfjn:v:9:y:2023:i:2a:p:199-224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lutzardo Tobing or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.