Determinants of capital structure among financially distressed shariah-compliant firms in Malaysia

The primary objective of this thesis is to explore the determinants of capital structure among Shariah-compliant and financially distressed firms within the period from 2018 to 2022. By analysing a final sample of 75 firms, derived from an initial pool of 375 observations, this study investigates the effects of eight independent predictors such as liquidity, profitability, efficiency, growth opportunities, asset tangibility, corporate governance, firm size and political connections on three distinct capital structure proxies: short-term debt to equity (STDTE), long-term debt to equity (LTDTE), and total debt to equity (TDTE). Utilizing static and dynamic panel data models, the research uncovers significant relationships between profitability and asset tangibility with capital structure choices, particularly influencing STDTE and TDTE. Corporate governance also plays a crucial role, significantly affecting LTDTE and TDTE. Conversely, liquidity and efficiency demonstrate limited impact across the models. This thesis is a novel approach that integrates corporate governance and political connection factors, providing a comprehensive view of how non-financial variables influence financing decisions in the context of Shariah compliance. The findings contribute to the literature by offering insights into the unique financial strategies of Shariah-compliant firms and emphasizing the importance of governance in capital structure decisions. Practical implications are significant for financial managers and policymakers, as they highlight the need for incorporating ethical and governance considerations into financial planning and regulation. Future research is encouraged to expand the sample and investigate additional variables to further refine the understanding of capital structure dynamics in various financial contexts.