PurposeThe financial policies of the modern world corporations and their investment decisions are generally considered as interrelated because the agency problems, associated with the debt level and its maturity structure, give rise to incentives for overinvestment or underinvestment. The present study empirically investigates the linkage between debt maturity structure and firm investment in a financially constrained environment, using Pakistan as a case study, to determine how the institutional environment in which firms operate affect these decisions and their linkage.Design/methodology/approachThe empirical analysis is carried in a panel data setting using panel regression models as the baseline methods. Moreover, generalized methods of moments (GMM) estimators are used, coupled with the instrumental variables approach, for robustness and improving the efficiency and consistency of estimates.FindingsResults suggest that firms rely more on short financing in Pakistan. Thus, given the capital structure which is characterized by higher proportion of short-term financing, the higher level of leverage is less likely to cause underinvestment problem. However, the underinvestment problem do persists in the firms that have higher portion of long-term debt. These findings imply that the debt-overhang problem may persist even in the financially constrained environments where attractive investment opportunities are limited, and long-term financing is difficult to acquire.Originality/valueThis study contributes to the literature by revealing how corporate investment and financing decisions and their linkage is influenced by the institutional environment of the less developed countries which is characterized by underdeveloped financial markets, inefficient legal system and weak investor protection system.
Purpose This paper aims to conceptualize the nexus between the participatory finance and the higher ethical objectives within the Islamic moral economy, also termed as Maqasid al Shari’ah. Design/methodology/approach Insights from the extant Islamic economics and finance literature are integrated through an interpretative systematic review using the principles from critical interpretative synthesis (CIS). Findings A coherent framework is synthesized comprising the typology of the Maqasid al Shari’ah, the axioms of participatory finance and their nexus which is formulated by theorizing the common thread of meaning through the axioms of participatory finance and Maqasid al Shari’ah at the interpretative level. This framework postulates that the participatory finance fits well in the ethos and the value system of Islam. Moreover, “social well-being” invariably provides the nexus between the Maqasid al Shari’ah and participatory finance. Originality/value This study contributes to the Islamic economics and finance literature by integrating the dissenting views from the divergent literature related to the basic philosophy of Shari’ah and participatory finance and provides grounds for policy implications, particularly, for designing the financial products. Moreover, it demonstrates an application of interpretative systematic review in Islamic banking and finance research.
Despite a direct ban on charging interest, interest-based benchmarks are used as a pricing reference by a majority of Islamic banks, due in part to the absence of stable and widely- published alternatives. Benchmarking interest rate exposes Islamic banks to the problems of conventional banks, particularly the interest rate risk. Against this backdrop, the present study empirically examines the dynamic linkage between the interest rate volatility and the financing of Islamic banks. The empirical analysis is carried using evidence from the Islamic banking industry of Pakistan during the time period 2006–2020. The multivariate Johansen and Jusiles Co-integration test and Vector Error Correction Model (VECM) are used as the baseline econometric models. Moreover, the DCC-GARCH model is employed for robustness and ensuring the consistency of results. The results indicate that a significant long-term and short-term relationship exists between the interest rate volatility and the financing of Islamic banking industry providing significant evidence for co-movements and convergence. These findings suggest that paradoxical as it may seem, the financing of Islamic banks operating within a dual banking system is subject to interest rate risk, mainly due to benchmarking interest rate, which in-turn makes Islamic banks vulnerable to the rate of return risk and withdrawal risk. Moreover, corporate financing, in particular, is more vulnerable to interest rate risk.
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