Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market

Employing a dynamic approach, this study investigates the debt financing behaviour of Shariah compliant E50 SMEs in Malaysia covering the existence of target debt, speed of adjustment, factors affecting the adjustment speed and the rational financing behaviour for the period of 2009-2013. This study...

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Main Author:	Haron, Razali
Format:	Conference or Workshop Item
Language:	English English
Published:	2015
Subjects:	HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/42769/ http://irep.iium.edu.my/42769/ http://irep.iium.edu.my/42769/1/IPAFEM_2015.pdf http://irep.iium.edu.my/42769/2/SME_Financing_E50_IREP.pdf

id	iium-42769
recordtype	eprints
spelling	iium-427692016-05-24T02:58:17Z http://irep.iium.edu.my/42769/ Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market Haron, Razali HG4001 Financial management. Business finance. Corporation finance. Employing a dynamic approach, this study investigates the debt financing behaviour of Shariah compliant E50 SMEs in Malaysia covering the existence of target debt, speed of adjustment, factors affecting the adjustment speed and the rational financing behaviour for the period of 2009-2013. This study is motivated by the outstanding growth of Islamic Capital Market (ICM) which has increased by 22.6% to RM1.4 trillion and is expected to reach RM 2.9 trillion by 2020. With the establishment of Shariah Advisory Council (SAC), Securities Commission of Malaysia has set up certain standard of parameters as guidelines in classifying Shariah compliant securities. The central features of the Shariah compliant securities are the prohibition of activities that involve interest (riba), gambling (maisir), uncertainties and speculative trading (gharar). Periodical monitoring is carried out to ensure continuous conformity of those firms to the Shariah principles. Being Shariah compliant, these SMEs offer an interesting platform for further investigation due to the guidelines set by the SAC and their conformity to the Shariah principles. The dynamic model estimated using the Generalized Method of Moment revealed certain determinants significantly influence target debt financing. Noting the positive relationship between tangibility and capital structure yielded in this study enhances Shariah imposition that debt must be asset-backed which means a firm operating under Islamic principles cannot have debt exceeding the tangible assets. What distinguishes Islamic debt from conventional debt is that the former is necessarily asset-backed and hence, the significant amount of total debt would be bounded by the tangible assets owned by the Shariah firms. The study found that 49.25% of the SMEs examined adjust their financing rationally. Out of these firms that behave rationally, the number of firms which are considered as under-levered is equally the same with the over-levered firms. Further investigation revealed that under-levered SMEs adjust relatively faster to be at target debt relative to the under-levered counterparts. SMEs that are practicing rational financing behaviour would either reduce or increase their debt intake to reach to their target debt level. Therefore, this study contributes to the literature and fills the gap by exploring into a relatively new area of debt financing which is the dynamic aspects and will also help to enhance the understanding on debt financing behaviour of Shariah compliant SMEs in Malaysia ICM. 2015-04-07 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/42769/1/IPAFEM_2015.pdf application/pdf en http://irep.iium.edu.my/42769/2/SME_Financing_E50_IREP.pdf Haron, Razali (2015) Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market. In: International Conference on Islamic Perspective of Accounting, Finance, Economics and Management (IPAFEM 2015), 7-9 April, 2015, University of Glasgow, Scotland. http://www.ipafem.org/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG4001 Financial management. Business finance. Corporation finance. Haron, Razali Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
description	Employing a dynamic approach, this study investigates the debt financing behaviour of Shariah compliant E50 SMEs in Malaysia covering the existence of target debt, speed of adjustment, factors affecting the adjustment speed and the rational financing behaviour for the period of 2009-2013. This study is motivated by the outstanding growth of Islamic Capital Market (ICM) which has increased by 22.6% to RM1.4 trillion and is expected to reach RM 2.9 trillion by 2020. With the establishment of Shariah Advisory Council (SAC), Securities Commission of Malaysia has set up certain standard of parameters as guidelines in classifying Shariah compliant securities. The central features of the Shariah compliant securities are the prohibition of activities that involve interest (riba), gambling (maisir), uncertainties and speculative trading (gharar). Periodical monitoring is carried out to ensure continuous conformity of those firms to the Shariah principles. Being Shariah compliant, these SMEs offer an interesting platform for further investigation due to the guidelines set by the SAC and their conformity to the Shariah principles. The dynamic model estimated using the Generalized Method of Moment revealed certain determinants significantly influence target debt financing. Noting the positive relationship between tangibility and capital structure yielded in this study enhances Shariah imposition that debt must be asset-backed which means a firm operating under Islamic principles cannot have debt exceeding the tangible assets. What distinguishes Islamic debt from conventional debt is that the former is necessarily asset-backed and hence, the significant amount of total debt would be bounded by the tangible assets owned by the Shariah firms. The study found that 49.25% of the SMEs examined adjust their financing rationally. Out of these firms that behave rationally, the number of firms which are considered as under-levered is equally the same with the over-levered firms. Further investigation revealed that under-levered SMEs adjust relatively faster to be at target debt relative to the under-levered counterparts. SMEs that are practicing rational financing behaviour would either reduce or increase their debt intake to reach to their target debt level. Therefore, this study contributes to the literature and fills the gap by exploring into a relatively new area of debt financing which is the dynamic aspects and will also help to enhance the understanding on debt financing behaviour of Shariah compliant SMEs in Malaysia ICM.
format	Conference or Workshop Item
author	Haron, Razali
author_facet	Haron, Razali
author_sort	Haron, Razali
title	Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
title_short	Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
title_full	Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
title_fullStr	Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
title_full_unstemmed	Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market
title_sort	debt financing behaviour of shariah compliant smes (enterprise 50). a dynamic approach on malaysian islamic capital market
publishDate	2015
url	http://irep.iium.edu.my/42769/ http://irep.iium.edu.my/42769/ http://irep.iium.edu.my/42769/1/IPAFEM_2015.pdf http://irep.iium.edu.my/42769/2/SME_Financing_E50_IREP.pdf
first_indexed	2023-09-18T21:00:57Z
last_indexed	2023-09-18T21:00:57Z
_version_	1777410619199193088

Debt financing behaviour of Shariah compliant SMEs (enterprise 50). A dynamic approach on Malaysian Islamic capital market

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