Determinants of Debt Maturity Structure in Shariah and Non-Shariah Firms in Pakistan: A comparative Study
Determinants of Debt Maturity Structure in Shariah and Non-Shariah Firms in Pakistan: A comparative Study

Summary/Abstract: Despite the global emergence of Shariah-complaint firms and the resulting interest of investors and policy makers, the research on these companies is still at an embryonic stage. This paper addresses this issue by investigating the capital structure decisions of Shariah compliant firms in comparison with the conventional or non-Shariah firms. Using the theories of corporate debt maturity structure, we carried out the empirical analysis of firm-level factors influencing the debt maturity structure among Shariah firms in Pakistan. Since Shariah compliance entails some specific firm characteristics such as lower debt ratio, lower liquidity, and higher tangibility, we argue that the debt maturity structure of Shariah and conventional firms would differ significantly. Our purpose, therefore, is to explore how Shariah compliance translates into debt maturity structure decisions of these firms. Our results show some significant variations among the impact of various determinants of debt maturity among the Shariah and conventional firms. Our most striking finding is that the debt maturity among Shariah firms is significantly shorter than conventional firms. Amid the dearth of studies investigating the relationship between Shariah compliance and firm’s choice of financial decisions, our study would be a source of unfolding the debate and understanding the nature of capital and debt maturity structure of Shariah firms. The research findings are also expected to benefit large and growing clientele of the Shariah firms by providing better insights on the capital and debt maturity structure of these firms.

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