Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries
Purpose – The paper aims to identify the differences between developed and developing country firms with respect to firm-specific and country-level determinants of their capital structure. For this purpose, all constituent firms in one of the oldest Islamic equity indices, Dow Jones Islamic Market W...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2020-12-01
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| Series: | Journal of Capital Markets Studies |
| Subjects: | |
| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JCMS-07-2020-0023/full/pdf?title=determinants-of-capital-structure-for-firms-in-an-islamic-equity-index-comparing-developed-and-developing-countries |
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| author | Evrim Hilal Kahya Hüseyin Yiğit Ersen Cumhur Ekinci Oktay Taş Koray D. Simsek |
| author_facet | Evrim Hilal Kahya Hüseyin Yiğit Ersen Cumhur Ekinci Oktay Taş Koray D. Simsek |
| author_sort | Evrim Hilal Kahya |
| collection | DOAJ |
| description | Purpose – The paper aims to identify the differences between developed and developing country firms with respect to firm-specific and country-level determinants of their capital structure. For this purpose, all constituent firms in one of the oldest Islamic equity indices, Dow Jones Islamic Market World Index (DJIM), are considered and the Muslim-majority status of each firm's domicile country is recognized. Design/methodology/approach – The study employs Hausman–Taylor random effects regression with endogenous covariates to explain the debt ratios of firms in DJIM by separating them into developed and developing country subsamples in an unbalanced panel data setting. Developing country subsample is further split into two based on the Muslim-majority status of each firm's domicile country. Findings – Consistent with the previous literature, this study finds that firm-specific characteristics are the main determinants of their capital structure. Additionally, the paper shows that country-level characteristics have an impact on the debt ratio, however, the types of factors vary across developed and developing countries. Debt ratios in developing country firms are lower than those in developed country firms, largely due to the significantly smaller leverage ratios of firms in Muslim-majority countries. Although the debt ratios of DJIM firms are higher in “non-Muslim” countries, the set of firm-level capital structure determinants are not statistically explained by operating in a “Muslim” country. The study also documents that, before the global financial crisis of 2008, companies in developing countries have gradually become less leveraged worldwide. Originality/value – This paper provides a new perspective into the differences between developed and developing country firms' capital structures by focusing on a relatively homogeneous data set restricted by leverage screening rules of an Islamic equity index and recognizing the Muslim-majority status of each firm's domicile country. |
| first_indexed | 2024-04-11T10:19:07Z |
| format | Article |
| id | doaj.art-1599cba9d4f74d6e81fee1b3bc9d2860 |
| institution | Directory Open Access Journal |
| issn | 2514-4774 |
| language | English |
| last_indexed | 2024-04-11T10:19:07Z |
| publishDate | 2020-12-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Capital Markets Studies |
| spelling | doaj.art-1599cba9d4f74d6e81fee1b3bc9d28602022-12-22T04:29:49ZengEmerald PublishingJournal of Capital Markets Studies2514-47742020-12-014216719110.1108/JCMS-07-2020-0023655394Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countriesEvrim Hilal Kahya0Hüseyin Yiğit Ersen1Cumhur Ekinci2Oktay Taş3Koray D. Simsek4Faculty of Management, Istanbul Technical University, Istanbul, TurkeyFaculty of Management, Istanbul Technical University, Istanbul, TurkeyFaculty of Management, Istanbul Technical University, Istanbul, TurkeyFaculty of Management, Istanbul Technical University, Istanbul, TurkeyCrummer Graduate School of Business, Rollins College, Winter Park, Florida, USAPurpose – The paper aims to identify the differences between developed and developing country firms with respect to firm-specific and country-level determinants of their capital structure. For this purpose, all constituent firms in one of the oldest Islamic equity indices, Dow Jones Islamic Market World Index (DJIM), are considered and the Muslim-majority status of each firm's domicile country is recognized. Design/methodology/approach – The study employs Hausman–Taylor random effects regression with endogenous covariates to explain the debt ratios of firms in DJIM by separating them into developed and developing country subsamples in an unbalanced panel data setting. Developing country subsample is further split into two based on the Muslim-majority status of each firm's domicile country. Findings – Consistent with the previous literature, this study finds that firm-specific characteristics are the main determinants of their capital structure. Additionally, the paper shows that country-level characteristics have an impact on the debt ratio, however, the types of factors vary across developed and developing countries. Debt ratios in developing country firms are lower than those in developed country firms, largely due to the significantly smaller leverage ratios of firms in Muslim-majority countries. Although the debt ratios of DJIM firms are higher in “non-Muslim” countries, the set of firm-level capital structure determinants are not statistically explained by operating in a “Muslim” country. The study also documents that, before the global financial crisis of 2008, companies in developing countries have gradually become less leveraged worldwide. Originality/value – This paper provides a new perspective into the differences between developed and developing country firms' capital structures by focusing on a relatively homogeneous data set restricted by leverage screening rules of an Islamic equity index and recognizing the Muslim-majority status of each firm's domicile country.https://www.emerald.com/insight/content/doi/10.1108/JCMS-07-2020-0023/full/pdf?title=determinants-of-capital-structure-for-firms-in-an-islamic-equity-index-comparing-developed-and-developing-countriescapital structuredebt ratioislamic financedeveloped and developing countriesg32 |
| spellingShingle | Evrim Hilal Kahya Hüseyin Yiğit Ersen Cumhur Ekinci Oktay Taş Koray D. Simsek Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries Journal of Capital Markets Studies capital structure debt ratio islamic finance developed and developing countries g32 |
| title | Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries |
| title_full | Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries |
| title_fullStr | Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries |
| title_full_unstemmed | Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries |
| title_short | Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries |
| title_sort | determinants of capital structure for firms in an islamic equity index comparing developed and developing countries |
| topic | capital structure debt ratio islamic finance developed and developing countries g32 |
| url | https://www.emerald.com/insight/content/doi/10.1108/JCMS-07-2020-0023/full/pdf?title=determinants-of-capital-structure-for-firms-in-an-islamic-equity-index-comparing-developed-and-developing-countries |
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