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Entrepreneurial finance, agency problems and Islamic ethics: complementarities and constraints

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  • Habib Ahmed
  • Dalal Aassouli

Abstract

This paper examines the interactions between Islamic ethics related to entrepreneurs and finance and discusses their implications on entrepreneurial finance. The practice of Islamic entrepreneurial ethics creates trust that helps to mitigate agency problems. In such cases, investors can use contracts involving Islamic financial ethics. However, in the absence of the practice of normative entrepreneurial ethics, agency problems arise that need to be resolved contractually. This paper argues that Islamic legal and ethical principles impose constraints on contractual forms which reduce the flexibility of mitigating agency problems arising in entrepreneurial finance. When entrepreneurial ethics are not practiced, investors can finance entrepreneurs by diluting Islamic financial ethical principles to alleviate agency problems.

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  • Habib Ahmed & Dalal Aassouli, 2022. "Entrepreneurial finance, agency problems and Islamic ethics: complementarities and constraints," Venture Capital, Taylor & Francis Journals, vol. 24(1), pages 25-46, January.
    • Handle: RePEc:taf:veecee:v:24:y:2022:i:1:p:25-46
    DOI: 10.1080/13691066.2022.2067017
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