Islamic religiosity and corporate capital structure: evidence from Malaysia

This paper examines the relationship between Islamic religiosity and capital structure and how firm-specific factors, managerial characteristics and corporate governance measures moderate this relationship. This study employs the pooled ordinary least squares estimation procedure, drawing on a panel of non-financial listed firms in Malaysia. The results reveal that Islamic religiosity is positively associated with leverage as proxied by short-term, long-term and total debt ratios. Further investigation confirms that there are certain firm-specific factors (e.g., firm size and age), managerial characteristics (e.g., founder status and excessive shareholdings) and corporate governance measures (e.g., board independence and separation between the CEO and chair) which moderate the positive effects of Islamic religiosity. Several important policy implications can be drawn regarding the selection process of the firms' top executives which should consider certain managerial characteristics, the formulation of appropriate financing strategies according to the firms' characteristics and the implementation of good corporate governance measures.