Ethical investing and capital structure

Paresh Kumar Narayan, Dinh Hoang Bach Phan, Guangqiang Liu, Mansor Ibrahim

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)


We test the relevance of the trade-off, pecking order, and market timing theories of capital structure from the point of view of a stock's religious orientation. Using a unique sample of Islamic stocks, we discover the leverage speed of adjustment (SOA) to be faster compared to that in the literature on conventional stocks, consistent with trade-off theory. We hypothesize that this result is due to the risk-sharing principal of Islamic investments that substantially reduces market imperfections. The inclusion of variables belonging to other theories of capital structure does not change the SOA, implying the importance of the trade-off theory.

Original languageEnglish
Article number100774
Number of pages16
JournalEmerging Markets Review
Publication statusPublished - Jun 2021
Externally publishedYes


  • Capital structure
  • Islamic stocks
  • Leverage, speed of adjustment

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