The capital structure determinants of Shariah and non-Shariah compliance companies: empirical evidence from property companies in Malaysia / Hani Suraya Aris

The purpose of this study is to investigate the determinants of the capital structure of Shariah and non-Shariah Compliant companies in Malaysia, comprising of 96 listed property companies in Bursa Malaysia for a period from year 2010 to 2019. The study used panel data analysis and employed static model of estimation in panel data model selection of the best model. The study analyzed three models namely on the i) Full sampled without Shariah Compliant dummy variable ii) Full sample with Shariah Compliant dummy variable iii) Shariah Compliant iv) non-Shariah Compliant. For the first model on full sample without Shariah dummy variables, the study revealed a result of liquidity has a positive coefficient value towards capital structure, which proven that without liquidity of firms, it cannot be measured the financial performance of each organization. Meanwhile, firm size and return on asset are not affected with capital structure which unable to prove the evidence of any substantial association between firm size and debt of Shariah and non-Shariah Compliant property companies in Malaysia. Subsequently, for the model of full sample with Shariah Compliant dummy variable, revealed that there is a difference of Shariah Compliant companies in the debt-to-equity ratio as compared to non-Shariah Compliant companies. However, the findings failed to provide empirical evidence to support that this difference is statistically significant. Followed by the third model of Shariah Compliant, shows that return on asset and firm size has insignificant coefficient and this prove that previous studies has disagreed on whether company size is an important factor in capital structure. Thus, the last model of nonShariah Compliant revealed that Shariah and non-Shariah Compliant property companies have different capital structure practices, due to underlying value and theories that both parties adhere to. The implication of this study is that this study intends to highlight the optimal capital structure that can be enlightened by two theories which are trade-off theory and pecking order theory. These two theories will decide whether to employ external or internal capital sources. This study also led the business to enhance its values while examining the capital structure.