Contributing Factors in the Use of Leverage in Islamic Banks
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Abstract
This paper aims to apply the theories on firm and bank capital structure on Islamic banks and identify contributing factors that are signficant in the use of leverage in Islamic banks. For this purpose, a 10-year panel data of 34 listed Islamic banks from 12 countries is used. In addition to studying the significance of several contributing factors for the use of debt that have been found to signficantly influence the leverage in conventional firms and banks (Frank & Goyal, 2009; Sorokina, 2014)and Islamic banks (Bitar, Kabir Hassan, & Hippler, 2018; Thabet, Shawtari, Ayedh, & Ali, 2017) in past studies, several additional potential factos unique to Islamic banking business or related to legal and regulatory environement in the jurisdiction are tested. The results showed that standard coporate finance factors for leverage are applicable on Islamic banks. Similarly, Islamic banks with low profitability and earning volatility as well as high collateral and growth propects have higher leverage. It is observed that share of investment accounts in liabilites, regulations and debt market conditions are also signficant factors.
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References
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