Title: Islamic versus conventional banks: a comparative analysis on capital structure

Authors: Amel Belanès

Addresses: High School of Economics and Trade of Tunis, Research Laboratory GEF-2A Lab – High Institute of Management of Tunis, University of Tunis, 41, Rue de la Liberté, Cité Bouchoucha 2000, Le Bardo, Tunis, Tunisia

Abstract: This study highlights differences across Islamic and conventional banks, with a particular focus on the determinants of their capital structure. Islamic finance surely forbids debt-based funding but it is an open question whether Islamic banks prefer internal funds or external resources. The study provides empirical support for the fact that Islamic banks, in contrast to their conventional peers, rely more on their own equity rather than on external finance including loss-profit-sharing deposits. The analysis also puts in evidence that Islamic and conventional banks can be differentiated on the basis of assets tangibility and dividend payout and not in terms of profitability, asset liquidity and credit default. Among these factors, only profitability and size influence the equity-to-asset ratio in both kinds of banks.

Keywords: capital structure; Islamic banks; Islamic finance; conventional banks; pecking order theory; agency theory; signalling theory; trade-off theory; internal funds; external resources; asset tangibility; dividend payout; asset liquidity; credit default; profitability; size; equity-to-asset ratio.

DOI: 10.1504/AAJFA.2015.070292

Afro-Asian Journal of Finance and Accounting, 2015 Vol.5 No.3, pp.248 - 264

Received: 15 Mar 2014
Accepted: 04 Mar 2015
Published online: 01 Jul 2015 *

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