Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia

The choice of debt-equity structure is very crucial in corporate financing policies. The capital markets are an important part of the today’s financial system. Shari’ah-compliant companies represent major part of the capital market in Malaysia, representing an average of 35% and 56% of the Malaysian...

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Main Author:	Osman Sayid Hassan Musse
Format:	Thesis
Language:	en_US
Subjects:	Financial leverage Debt-to-equity ratio
Online Access:	https://oarep.usim.edu.my/bitstreams/06cc01a1-fc24-4017-8e50-988708045b69/download https://oarep.usim.edu.my/bitstreams/b7c181b7-3c91-4325-b677-55600d048b0c/download https://oarep.usim.edu.my/bitstreams/bd524389-1429-4c46-b0f7-646883f3800b/download https://oarep.usim.edu.my/bitstreams/9c8b19ec-6937-4299-b0b0-10256a32824c/download https://oarep.usim.edu.my/bitstreams/43b8af04-190f-4d41-a68e-51f87599c52d/download https://oarep.usim.edu.my/bitstreams/a7a397de-5f53-430c-8049-702fd429d1fb/download https://oarep.usim.edu.my/bitstreams/8b61ebaf-d55f-4428-8684-97bcda75b20c/download https://oarep.usim.edu.my/bitstreams/33efe3cb-7b88-4186-89bf-0bf454a52127/download https://oarep.usim.edu.my/bitstreams/3515b31d-ab52-4684-9ed3-930bf0cbf114/download
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id	my-usim-ddms-13234
record_format	uketd_dc
institution	Universiti Sains Islam Malaysia
collection	USIM Institutional Repository
language	en_US
topic	Financial leverage Debt-to-equity ratio
spellingShingle	Financial leverage Debt-to-equity ratio Osman Sayid Hassan Musse Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
description	The choice of debt-equity structure is very crucial in corporate financing policies. The capital markets are an important part of the today’s financial system. Shari’ah-compliant companies represent major part of the capital market in Malaysia, representing an average of 35% and 56% of the Malaysian capital market and Islamic capital market respectively. However, the field lacks studies which specifically address the effect of interest-bearing debt ratios and Islamic debt ratios using separated debt data. It is a vital topic due to the recent revised shari’ah screening methodology with the adoption of financial ratio benchmarks, which led to an average total loss of 130 shari’ah-compliant firms in 2013 and later years, raising concerns about the effect of financial ratio benchmarks namely interest-bearing debt upper limit of 33% of firm’s total assets on shari’ah-compliant firms’ performance. Thus, this study mainly focuses on the impact of total Islamic leverage and particularly, the effect of interest-bearing debt and Islamic debt ratios on shari’ah-compliant firms’ performance in Malaysia. The study also examines the optimal level of total Islamic leverage at which a shari’ah-compliant firm may maximise its performance given the maximum allowed conventional debt ratio being 33% of a firm’s total assets. This study sampled 305 continuously reported shari’ah-compliant firms in every semi-annual report of the Shari’ah Advisory Council from 2010 to 2017 of study period. This research requires the sampled companies to meet the two-tier requirements of SCM to preserve their position as shari’ah- compliant companies. The study employed panel data analysis and threshold regression in order to attain its goals. The research found that the total Islamic leverage affected negatively on the performance of shari’ah-compliant companies under both performance measures, namely return on equity and return on assets, but it was not significant. The interest-bearing debt ratios negatively affect the performance of shari’ah-compliant firms’ performance under both performance measures, but it is not significant. The negative effect acted as a sign that encouraged shari’ah-compliant companies to adopt retained earnings instead of debt as a source of funds because of high financing cost. However, the total Islamic debt has produced mixed results. Under return on assets as performance indicator, the results of Islamic debt ratios were similar to the findings of interest-bearing debt ratios, which were negative and insignificant. However, Islamic debt ratios were positively correlated with return on assets as performance indicator. This arose possibly because the percentage of Islamic debt ratio was smaller or below the threshold ratio at which a firm could maximise its value as the reported descriptive analysis implies. Another reason could be poor growth opportunities as related literature suggests. Threshold regression findings suggested that there was no threshold value, which was statistically significant between the total Islamic leverage and the performance of Shari’ah-compliant companies. This is in line with the result of nonlinear relationship between the squared total Islamic leverage and the performance of shari’ah-compliant companies, which resulted in a negative and insignificant. The insignificant results of regressions encourage the financial regulatory authorities in Malaysia, namely Bank Negara Malaysia and the SCM to review the efficiency level of the Malaysian Islamic capital market, which, in part, will enhance the participation of Islamic leverage ratios in the debt-equity structure of shari’ah-compliant companies in Malaysia.
format	Thesis
author	Osman Sayid Hassan Musse
author_facet	Osman Sayid Hassan Musse
author_sort	Osman Sayid Hassan Musse
title	Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
title_short	Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
title_full	Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
title_fullStr	Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
title_full_unstemmed	Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia
title_sort	leverage and firm performance: evidence from listed shari'ah-compliant companies on bursa malaysia
granting_institution	Universiti Sains Islam Malaysia
url	https://oarep.usim.edu.my/bitstreams/06cc01a1-fc24-4017-8e50-988708045b69/download https://oarep.usim.edu.my/bitstreams/b7c181b7-3c91-4325-b677-55600d048b0c/download https://oarep.usim.edu.my/bitstreams/bd524389-1429-4c46-b0f7-646883f3800b/download https://oarep.usim.edu.my/bitstreams/9c8b19ec-6937-4299-b0b0-10256a32824c/download https://oarep.usim.edu.my/bitstreams/43b8af04-190f-4d41-a68e-51f87599c52d/download https://oarep.usim.edu.my/bitstreams/a7a397de-5f53-430c-8049-702fd429d1fb/download https://oarep.usim.edu.my/bitstreams/8b61ebaf-d55f-4428-8684-97bcda75b20c/download https://oarep.usim.edu.my/bitstreams/33efe3cb-7b88-4186-89bf-0bf454a52127/download https://oarep.usim.edu.my/bitstreams/3515b31d-ab52-4684-9ed3-930bf0cbf114/download
_version_	1812444825023152128
spelling	my-usim-ddms-132342024-05-29T19:26:18Z Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia Osman Sayid Hassan Musse The choice of debt-equity structure is very crucial in corporate financing policies. The capital markets are an important part of the today’s financial system. Shari’ah-compliant companies represent major part of the capital market in Malaysia, representing an average of 35% and 56% of the Malaysian capital market and Islamic capital market respectively. However, the field lacks studies which specifically address the effect of interest-bearing debt ratios and Islamic debt ratios using separated debt data. It is a vital topic due to the recent revised shari’ah screening methodology with the adoption of financial ratio benchmarks, which led to an average total loss of 130 shari’ah-compliant firms in 2013 and later years, raising concerns about the effect of financial ratio benchmarks namely interest-bearing debt upper limit of 33% of firm’s total assets on shari’ah-compliant firms’ performance. Thus, this study mainly focuses on the impact of total Islamic leverage and particularly, the effect of interest-bearing debt and Islamic debt ratios on shari’ah-compliant firms’ performance in Malaysia. The study also examines the optimal level of total Islamic leverage at which a shari’ah-compliant firm may maximise its performance given the maximum allowed conventional debt ratio being 33% of a firm’s total assets. This study sampled 305 continuously reported shari’ah-compliant firms in every semi-annual report of the Shari’ah Advisory Council from 2010 to 2017 of study period. This research requires the sampled companies to meet the two-tier requirements of SCM to preserve their position as shari’ah- compliant companies. The study employed panel data analysis and threshold regression in order to attain its goals. The research found that the total Islamic leverage affected negatively on the performance of shari’ah-compliant companies under both performance measures, namely return on equity and return on assets, but it was not significant. The interest-bearing debt ratios negatively affect the performance of shari’ah-compliant firms’ performance under both performance measures, but it is not significant. The negative effect acted as a sign that encouraged shari’ah-compliant companies to adopt retained earnings instead of debt as a source of funds because of high financing cost. However, the total Islamic debt has produced mixed results. Under return on assets as performance indicator, the results of Islamic debt ratios were similar to the findings of interest-bearing debt ratios, which were negative and insignificant. However, Islamic debt ratios were positively correlated with return on assets as performance indicator. This arose possibly because the percentage of Islamic debt ratio was smaller or below the threshold ratio at which a firm could maximise its value as the reported descriptive analysis implies. Another reason could be poor growth opportunities as related literature suggests. Threshold regression findings suggested that there was no threshold value, which was statistically significant between the total Islamic leverage and the performance of Shari’ah-compliant companies. This is in line with the result of nonlinear relationship between the squared total Islamic leverage and the performance of shari’ah-compliant companies, which resulted in a negative and insignificant. The insignificant results of regressions encourage the financial regulatory authorities in Malaysia, namely Bank Negara Malaysia and the SCM to review the efficiency level of the Malaysian Islamic capital market, which, in part, will enhance the participation of Islamic leverage ratios in the debt-equity structure of shari’ah-compliant companies in Malaysia. Universiti Sains Islam Malaysia 2022-07 Thesis en_US https://oarep.usim.edu.my/handle/123456789/13234 https://oarep.usim.edu.my/bitstreams/20900764-abcf-4e8c-a628-f333f54f4743/download 8a4605be74aa9ea9d79846c1fba20a33 https://oarep.usim.edu.my/bitstreams/06cc01a1-fc24-4017-8e50-988708045b69/download 699f051c6176b2da06cb098873f4bbfd https://oarep.usim.edu.my/bitstreams/b7c181b7-3c91-4325-b677-55600d048b0c/download d154caa0e01b247f540e1a7c9f01d0ec https://oarep.usim.edu.my/bitstreams/bd524389-1429-4c46-b0f7-646883f3800b/download 83fb0a6962443328abfc0310537d6150 https://oarep.usim.edu.my/bitstreams/9c8b19ec-6937-4299-b0b0-10256a32824c/download d3904f429a860e9e7afb775d2f1e48c3 https://oarep.usim.edu.my/bitstreams/43b8af04-190f-4d41-a68e-51f87599c52d/download ee19164513fd7a94457151f1c287c3a3 https://oarep.usim.edu.my/bitstreams/a7a397de-5f53-430c-8049-702fd429d1fb/download 4bdb37bd54ca9ff545e90a0f932357cc https://oarep.usim.edu.my/bitstreams/8b61ebaf-d55f-4428-8684-97bcda75b20c/download 213830116e1eb1002251039dfcdcaed1 https://oarep.usim.edu.my/bitstreams/33efe3cb-7b88-4186-89bf-0bf454a52127/download 92d95822aaac5322b9389e6396e27c7e https://oarep.usim.edu.my/bitstreams/3515b31d-ab52-4684-9ed3-930bf0cbf114/download 84ba1f18baf52e111f96000443776286 https://oarep.usim.edu.my/bitstreams/bb65a57b-84b7-44a7-b52b-9a89c0fcbdc0/download 68b329da9893e34099c7d8ad5cb9c940 https://oarep.usim.edu.my/bitstreams/258e765c-1222-40ba-ab8f-cc806b48e7ca/download 0307744971e951e76dea52e7ba45ddca https://oarep.usim.edu.my/bitstreams/28e811aa-61e4-4bda-839b-202238d863ba/download 19ab94250952c6c754f645d1938db689 https://oarep.usim.edu.my/bitstreams/29be6c02-c4d1-491a-b6f5-f5ef962f14f7/download 6ea45459a9240e70b290957a431d7854 https://oarep.usim.edu.my/bitstreams/44f42983-39de-4701-b9b9-16482e28fdd4/download 604c94ef81d8c92618ed6ae7bff24838 https://oarep.usim.edu.my/bitstreams/fe0dcb93-a9d0-4333-b647-28b02e9c3eee/download 1afb79e2c4416e2dfcd8ed4694a4dae4 https://oarep.usim.edu.my/bitstreams/1620519c-cffb-4a85-bcc4-370ad95a10c4/download d25b953491440729719c46eeb59228b9 https://oarep.usim.edu.my/bitstreams/fd5eacce-d452-4d71-a600-43771693421c/download 64c971225a7cd6b299d712fd60b752cd https://oarep.usim.edu.my/bitstreams/90bae875-fe91-4315-82ad-153ae768f176/download cc3b1954dcd504dc41a8e0a7705f85eb Financial leverage Debt-to-equity ratio

Leverage And Firm Performance: Evidence From Listed Shari'ah-Compliant Companies On Bursa Malaysia

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