Debt maturity and Shari’ah compliance : evidence from Malaysian panel data

Abstract

This paper investigates the effect of firm-specific characteristics on debt maturity in Malaysia. We examine the impact of Shari’ah compliance on debt maturity structure by grouping companies based on compliance status as governed by the Securities Commission of Malaysia over the sample period of 2007 to 2016. The results indicate that Shari’ah compliant firms tend to have longer debt maturity structure indicating that the nature of compliance determines the maturity structure of companies in Malaysia as managers of these firms tend to focus on mitigating liquidity risks potentially faced. In addition, Shari’ah compliant firms also tend to have lower bankruptcy costs. Contrary to their non-compliant counterparts, managers of Shari’ah compliant firms tend to change debt maturity structure as a signaling tool whilst opting for longer structures in periods of positive share price performance. We also find that Shar’iah compliance has no impact on firms’ strategy of matching debt to asset maturity structure.