Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5053263 | Economic Modelling | 2017 | 16 Pages |
Abstract
The impact of leverage on financial market stability and the relationship with the real economy is a key concern among researchers. This paper makes an initial attempt to investigate the relationship between a firm's leverage, return and share price volatility from an Islamic finance perspective and capital structure theory. A multi-country dynamic panel framework and the mean-variance efficient frontier are applied to 320 sample firms from eight European countries, divided into portfolios of low and high debt using the shari'ah screening threshold of 33%. We find that the firm's return and volatility change with changes in the capital structure. Islamic-compliant stocks show, in most cases, less volatility than non-compliant stocks but are no different in terms of return. Finally, our results tend to imply a case for limiting debt beyond certain levels.
Related Topics
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Authors
AbdelKader O. el Alaoui, Obiyathulla Ismath Bacha, Mansur Masih, Mehmet Asutay,