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A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives استعراض أدبيات نظرية التعاقد المالي من المنظور الإسلامي والتقليدي: الإسهامات العلمية وأوجه القصور والنظرة المستقبلية

Author

Listed:
  • Hechem Ajmi

    (PhD Scholar, IIUM Institute of Islamic Banking and Finance International Islamic University Malaysia)

  • Salina Kassim

    (Associate Professor, IIUM Institute of Islamic Banking and Finance International Islamic University Malaysia)

  • Hassanuddeen Abdul Aziz

    (Professor, Kulliyyah of Economics and Management Sciences International Islamic University Malaysia)

  • Walid Mansour

    (Advisor, Financial Sector Development Department, Saudi Arabian Monetary Authority)

Abstract

This paper discusses the financial contracting theory from the conventional and Islamic perspectives. It provides an overview of the contributions in this field and discusses the gaps in the literature. In addition, it proposes two relevant approaches namely the financial contracting enforceability approach and the adverse selection analysis in order to deal with conflicts of interest among economic agents. The first approach is meant to assess the contract that maximizes the value of the firm subject to the enforcement constraint for the agent and the participation constraint for the principal. The second approach considers an adverse selection framework in order to determine the principal’s subjective perception of the risk of default when equity and debt financings are used. Similarly, it suggests avenues for future research. Firstly, it calls for a deeper understanding of venture capital as a potential model of mushārakah. Secondly, it puts stress on the importance of examining crowd-funding functioning from the principal-agent point of view. Thirdly, it sheds some light on the necessity to yield financial explanation about the excessive use of murābaḥah instead of ijārah. In a nutshell, we assume that the alternative approaches can be adopted to provide relevant insights regarding the proposed future researches. يناقش البحث نظرية التعاقد المالي من المنظور الإسلامي والتقليدي، حيث يقدم في البداية لمحة عامة عن الإسهامات العلمية في هذا المجال ويناقش أوجه القصور في الدراسات السابقة. ويقترح البحث منهجين للتعامل مع تضارب المصالح بين المتعاقدين (المالك الأصيل ووكيله) هما: منهج إنفاذ العقود المالية ومنهج تحليل الاختيار العكسي؛ حيث يقيّم المنهج الأول العقد الذي يعظم قيمة المنشأة أخذاً في الاعتبار قيد إنفاذ العقد المفروض على الوكيل وقيد المشاركة المفروض على للأصيل، في حين يركز المنهج الثاني على تحليل الاختيار العكسي الذي يعتمد فيه الأصيل على تقييمه الشخصي لخطر إفلاس الوكيل في حال التمويل بالمشاركة أو الدين. وبناء على ما سبق، يقترح البحث عدة موضوعات للبحث المستقبلي؛ أولها فهم أعمق لرأس المال الجريء بصفته نموذجا محتملا للمشاركة، والثاني فحص أدق لأداء صيغ التمويل الجماعي بصفتها عقود بين أصيل ووكيل، والثالث تفسير الاستخدام المفرط لعقود التمويل بالمرابحة بدلا من الإجارة. ويمكن الاعتماد على المنهجين المقترحين في هذا البحث في إجراء دراسة أعمق لهذه الموضوعات الثلاث.

Suggested Citation

  • Hechem Ajmi & Salina Kassim & Hassanuddeen Abdul Aziz & Walid Mansour, 2019. "A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives استعراض أدبيات نظرية التعاقد المالي من المنظور الإسلامي والتقليدي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 32(2), pages 25-42, January.
    • Handle: RePEc:abd:kauiea:v:32:y:2019:i:2:no:2:p:25-42
    DOI: 10.4197/Islec.32-2.2
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    More about this item

    Keywords

    Conflicts of interest; Optimal contract; Adverse selection; Equity-based contracts; Debt-based contracts. تضارب المصالح، العقد الأمثل، الاختيار العكسي، العقود القائمة على المشاركة، العقود القائمة على الديون.;
    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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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