The substitution hypothesis of agency conflicts: Evidence on Shariah compliant equities

Wajahat Azmi; Zaheer Anwer; Shamsher Mohamad; Mohamed Eskandar Shah

doi:10.1016/j.gfj.2019.02.004

The substitution hypothesis of agency conflicts: Evidence on Shariah compliant equities

Wajahat Azmi, Zaheer Anwer^*, Shamsher Mohamad, Mohamed Eskandar Shah

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

According to the substitution hypothesis and recent evidence, firms that are better governed carry less debt and experience fewer agency problems. This may also imply that firms with lower debt are better governed and experience lower agency costs. We test this hypothesis by comparing the agency costs of Shariah compliant (SC, and therefore low debt) and Shariah noncompliant (SNC) firms, using a proprietary dataset comprising constituents of the Dow Jones Islamic index for the period 2006–2015. The findings support the hypothesis but are contingent on the firm's idiosyncratic risk; SC firms with low idiosyncratic risk have higher agency costs.

Original language	English
Pages (from-to)	90-103
Number of pages	14
Journal	Global Finance Journal
Volume	41
DOIs	https://doi.org/10.1016/j.gfj.2019.02.004
Publication status	Published - Aug 2019
Externally published	Yes

Keywords

Agency costs
Capital structure
Corporate governance
Shariah compliant equities
Stock screening

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10.1016/j.gfj.2019.02.004

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title = "The substitution hypothesis of agency conflicts: Evidence on Shariah compliant equities",

abstract = "According to the substitution hypothesis and recent evidence, firms that are better governed carry less debt and experience fewer agency problems. This may also imply that firms with lower debt are better governed and experience lower agency costs. We test this hypothesis by comparing the agency costs of Shariah compliant (SC, and therefore low debt) and Shariah noncompliant (SNC) firms, using a proprietary dataset comprising constituents of the Dow Jones Islamic index for the period 2006–2015. The findings support the hypothesis but are contingent on the firm's idiosyncratic risk; SC firms with low idiosyncratic risk have higher agency costs.",

keywords = "Agency costs, Capital structure, Corporate governance, Shariah compliant equities, Stock screening",

author = "Wajahat Azmi and Zaheer Anwer and Shamsher Mohamad and Shah, \{Mohamed Eskandar\}",

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AU - Azmi, Wajahat

AU - Anwer, Zaheer

AU - Mohamad, Shamsher

AU - Shah, Mohamed Eskandar

PY - 2019/8

Y1 - 2019/8

N2 - According to the substitution hypothesis and recent evidence, firms that are better governed carry less debt and experience fewer agency problems. This may also imply that firms with lower debt are better governed and experience lower agency costs. We test this hypothesis by comparing the agency costs of Shariah compliant (SC, and therefore low debt) and Shariah noncompliant (SNC) firms, using a proprietary dataset comprising constituents of the Dow Jones Islamic index for the period 2006–2015. The findings support the hypothesis but are contingent on the firm's idiosyncratic risk; SC firms with low idiosyncratic risk have higher agency costs.

AB - According to the substitution hypothesis and recent evidence, firms that are better governed carry less debt and experience fewer agency problems. This may also imply that firms with lower debt are better governed and experience lower agency costs. We test this hypothesis by comparing the agency costs of Shariah compliant (SC, and therefore low debt) and Shariah noncompliant (SNC) firms, using a proprietary dataset comprising constituents of the Dow Jones Islamic index for the period 2006–2015. The findings support the hypothesis but are contingent on the firm's idiosyncratic risk; SC firms with low idiosyncratic risk have higher agency costs.

KW - Agency costs

KW - Capital structure

KW - Corporate governance

KW - Shariah compliant equities

KW - Stock screening

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SN - 1044-0283

VL - 41

SP - 90

EP - 103

JO - Global Finance Journal

JF - Global Finance Journal

ER -

The substitution hypothesis of agency conflicts: Evidence on Shariah compliant equities

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Keywords

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