Purpose This study aims to investigate Shariah-compliant (SC) firms’ capital structure (CS) determinants and speed of adjustment. Moreover, this study also tests which theory better explains the CS decisions of SC firms. More importantly, this study compares the results using the three most prominent global Shariah screening criteria. Design/methodology/approach This study analyses a large sample of 791 SC firms from the eight most developed countries in terms of Islamic finance. After the preliminary tests, this study uses the fixed-effect regression for the main model and the F-test to compare the results under different Shariah screening criteria. Findings The findings of this study reveal that profitability, size, tangibility, growth opportunities, liquidity, non-debt tax shield and gross domestic product growth are the significant CS determinants for SC firms. Moreover, SC firms adjust to their optimal CS ratio with a speed of 39.7%–44.2%. The findings further reveal that the Pecking Order Theory is more dominant in explaining the CS decisions of SC firms. In addition, significant changes were observed in the results under different screening criteria. Originality/value Given the differences in the Shariah screening criteria, this study seeks to analyze the role of screening criteria in the CS decisions of SC firms. This study compares the results under the three most prominent Shariah screening criteria.
Akbar et al. (Thu,) studied this question.
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