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The Determinants of Shariah Banks’ Capital Structure

Author

Listed:
  • Raja Rehan

    (IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia; & Department of Business Administration, ILMA University, Karachi, Pakistan)

  • Muhammad Asghar Khan

    (School of Economics and Management, Panzhihua University, Panzhihua 617000, Sichuan, China)

  • Guo Hong Fu

    (School of Economics and Management, Panzhihua University, Panzhihua 617000, Sichuan, China)

  • Auwal Adam Sa’ad

    (IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia)

  • Auroob Irshad

    (Iqra University, Karachi, Pakistan)

Abstract

This study is an endeavor to identify key significant determinants of capital structure for Shariah-tagged banks. Atotal of 47 Shariah banks’ 9years i.e. from 2013 to 2021 Balance Panel Data is used. The leverage ratio is nominated as a dependent variable, whereas, liquidity, return on assets, gross domestic product, return on equity, tangibility, growth, size, and capital adequacy ratio are designated as explanatory variables. The Panel Data Static model and Dynamic model via the Generalized Method of Moments (GMM) are executed. The results specify that liquidity, gross domestic product, tangibility, lagged dependent variable, and profitability i.e. measured by return on equity are positively significant determinants. Besides, the significant lagged variable, tangibility, liquidity, and existence of SOA infer the significance of the Dynamic Trade-off theory. Based on the identified significant determinants, the policymakers can develop similar policies to formulate the capital structure of whole Shariah banks.

Suggested Citation

  • Raja Rehan & Muhammad Asghar Khan & Guo Hong Fu & Auwal Adam Sa’ad & Auroob Irshad, 2024. "The Determinants of Shariah Banks’ Capital Structure," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 193-202, September.
    • Handle: RePEc:eco:journ1:2024-05-20
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    More about this item

    Keywords

    Capital Structure; Shariah Banks; Panel Data Static Models; GMM;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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