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1 – 10 of 23Faisal Alnori and Abdullah Bugshan
The literature is remarkably silent on questions concerning the nexus between firms’ capital structure adjustment speed and the uncertainty of oil prices. This study aims to…
Abstract
Purpose
The literature is remarkably silent on questions concerning the nexus between firms’ capital structure adjustment speed and the uncertainty of oil prices. This study aims to examine how oil price fluctuations affect a firm’s capital structure and adjustment speed.
Design/methodology/approach
This research focuses on a set of corporations from the Gulf Cooperation Council spanning from 2011 to 2022. The methods applied are panel fixed effects and dynamic two-step system Generalized Method of Moments models.
Findings
The findings indicate that changes in oil prices significantly impact corporate capital structure. Specifically, high oil price volatility leads to a reduction in both market leverage and book leverage. In addition, increased volatility in oil prices results in higher costs for leverage adjustment speed, which subsequently influences how quickly companies move toward their optimal leverage ratio. It is observed that when there is an increase in oil price volatility, firms adjust their leverage more slowly. At the same time, they do so more rapidly during phases of lower oil price volatility.
Practical implications
The findings of this study hold significant implications for corporate managers, investors and lenders. The observed negative relationship between oil price uncertainty and leverage suggests that corporate managers may benefit from prioritizing equity financing over debt during periods of heightened oil price volatility. In addition, managers should integrate oil price uncertainty into their liquidity management strategies by maintaining sufficient cash reserves. This proactive approach can help mitigate the challenges posed by reduced access to external debt financing during volatile periods. Furthermore, understanding the influence of oil price fluctuations on firms’ cost of debt is crucial, as it directly impacts firms’ adjustment costs in achieving their optimal capital structures. Creditors, too, should consider the adverse effects of oil price volatility on corporate financing when designing credit policies, ensuring they remain responsive to the financial constraints faced by firms under such conditions.
Originality/value
At best, this study presents new evidence that sheds light on the nexus between oil price volatility and the speed at which firms adjust their leverage toward the trade-off theory’s optimal target.
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This study investigates the impact of oil price uncertainty on corporate cash holdings. Moreover, it examines whether the effect of oil price volatility differs between…
Abstract
Purpose
This study investigates the impact of oil price uncertainty on corporate cash holdings. Moreover, it examines whether the effect of oil price volatility differs between Shariah-compliant corporations (SCCs) and non-Shariah-compliant corporations (NSCs). It also explores the role of Islamic financial development in the home countries of these corporations in this relationship
Design/methodology/approach
The study utilizes a sample of non-financial firms listed in eight emerging economies, for the period between 2013 and 2019. A static, ordinary least squares, and dynamic, Generalized Method of Moments models have been employed to test the hypotheses of the study.
Findings
The findings reveal that, on average, high oil price uncertainty influences both SCCs and NSCs. However, SCCs are more severely affected than NSCs. Notably, during periods of high oil price uncertainty, SCCs reserve more cash than their NSC counterparts. Additionally, the Islamic financial development of the country moderates the severity of the impact of oil price uncertainty on SCCs. Further analysis suggests that the impact of oil price uncertainty is more pronounced for firms operating in oil-exporting countries.
Research limitations/implications
Corporate managers should build a liquidity strategy that allows them to deal with oil price uncertainty. Also, the findings of the study highlight the importance for Islamic financial development of Islamic countries. The improved Islamic financial development of the country improves access to capital markets for shariah compliant firms and hence, reduces their need for holding excessive large amount of cash asset.
Originality/value
The study contributes to the growing literature on the effects of oil price uncertainty on corporate cash holding policy by highlighting the roles of Shariah compliance status and Islamic financial development in this relationship. It is the first to explore the joint relationship between oil price uncertainty, Shariah compliance, and corporate cash holding policy.
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Faisal Alnori and Abdullah Bugshan
This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance…
Abstract
Purpose
This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance. Therefore, the objective of this study is to analyze the significant relationship of liquidity on Shariah- and non-Shariah-compliant corporations.
Design/methodology/approach
This study sample includes non-financial firms listed in six Gulf Cooperation Council (GCC) markets between 2005 and 2019. The study uses panel fixed effects and the dynamic generalized method of moments (system-GMM) models to test the relationship between cash holding and firm performance. The firms’ performance is measured using four widely used proxies representing book and market measures of performance including return on assets, return on equity, earnings before interest and tax to total assets and Tobin’s Q.
Findings
The results explore that the nature of the relationship between cash holdings and performance varies across Shariah-compliant and non-Shariah-compliant firms. Specifically, cash holdings are positively and significantly related to Shariah-compliant firms’ performance. However, cash reserves are not significantly related to conventional firms’ performance. These findings indicate that Shariah-compliant firms rely more on their cash holdings to avoid costly and less available external financing, meet everyday business needs and invest in profitable projects. In contrast, the value for cash holding is less important for non-Shariah-compliant firms, as their external financing options are less restricted compared to Shariah-compliant firms.
Research limitations/implications
This study is not free from limitations. More specifically, the sample of this study comprises of firms listed in GCC countries, which share common features. It would be interesting for future research to examine the linkage between cash holdings and Shariah-compliant and conventional firms’ performance by applying a larger sample, such as firms located in countries of the Organization of Islamic Cooperation.
Practical implications
The findings of this paper provide useful insights for managers and investors on the important role of cash management for Shariah-compliant firms. Policymakers and bankers need to develop Shariah-based financial products to ease Islamic financing sources. Moreover, the findings of this paper call for more research on the importance of liquidity management for Shariah-compliant firms.
Originality/value
This study extends the Islamic finance literature by exploring the key role of cash holdings to Shariah-compliant firms. To the best of the authors’ knowledge, this study is the first study to investigate cash holdings and performance between Shariah-compliant and non-Shariah-compliant firms.
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Abdullah Bugshan, Faisal Alnori and Husam Ananzeh
This paper examines the influence of Shariah compliance (SC) on firms' net working capital (NWC) target and adjustment speed.
Abstract
Purpose
This paper examines the influence of Shariah compliance (SC) on firms' net working capital (NWC) target and adjustment speed.
Design/methodology/approach
The study samples of non-financial firms taken from six Gulf Cooperation countries between 2005 and 2019 and employs static and dynamic models to answer the present study research questions.
Findings
The outcomes of the study indicate that SC is one of the major determinants of the decision made by the corporation regarding their NWC. More specifically, enterprises that are compliant with restrictions within Shariah are seen to have laid targets of their NWC at a level that exceeds that of enterprises that are not compliant. Furthermore, compared to conventional firms, they seem to have higher speed when adjusting to meet set NWC targets. Submission to Islamic laws limits the choices from which an enterprise can outsource capital from existing funding instruments. Therefore, they experience a higher expected cost of bankruptcy. That being the case, such financial managers should readily maintain and adjust to higher NWC targets to meet current corporate needs, alleviate the risk of bankruptcy and lower dependency on expensive external funding options.
Originality/value
To the authors’ knowledge, this is the first study to explore the influence of SC on firms' NWC target and adjustment speed.
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This study aims to examine the cost stickiness among the firms listed in six Gulf Cooperation Council countries and whether the Shariah compliance status has an impact of on…
Abstract
Purpose
This study aims to examine the cost stickiness among the firms listed in six Gulf Cooperation Council countries and whether the Shariah compliance status has an impact of on corporate cost behavior.
Design/methodology/approach
The present study uses a sample of non-financial firms listed in six Gulf Cooperation Council (GCC) countries to show that the Shariah compliance status of the firm affects its cost behavior. The study uses panel ordinary least squares and Heckman’s selection bias models to test the hypothesis of the study.
Findings
Firms classified as Shariah-compliant experience more cost stickiness compared to non-Shariah-compliant peers. This behavior is attributed to the restrictions on external financing options that Shariah corporates experience. Further analysis shows that the Islamic financial development of a country plays an important role in reducing the cost stickiness among the Shariah compliant firms.
Originality/value
The role of Shariah compliance in a firm’s cost structure is not well-explored in the current literature. This study is the first to investigate the relationship between cost stickiness and Shariah compliance. Further, the study establishes a nexus between cost stickiness, Shariah compliance and Islamic financial development.
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Faisal Alnori, Abdullah Bugshan and Walid Bakry
The purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial…
Abstract
Purpose
The purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).
Design/methodology/approach
The data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.
Findings
The results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.
Research limitations/implications
Future studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.
Originality/value
This study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.
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Abdullah Bugshan and Walid Bakry
This paper aims to examine the relationship between Shariah compliance and corporate capital structure decisions. This study explores the variation of capital structure speed of…
Abstract
Purpose
This paper aims to examine the relationship between Shariah compliance and corporate capital structure decisions. This study explores the variation of capital structure speed of adjustment.
Design/methodology/approach
The authors’ sample includes a sample of the largest 200 nonfinancial firms trading in the Malaysian and Pakistan stock markets. This study uses ordinary least squares and dynamic two-step system generalized method of moments to test the hypotheses of the study.
Findings
The results show that Shariah-compliant firms use a lower level of leverage than the noncomplaint firms. Moreover, while both types of firms have optimal capital structures, the speed of adjustment toward the targets is slower for Shariah-complaint firms than non-Shariah-compliant firms. This variation can be seen through the different levels of market imperfection experienced by the two types of firms. Shariah-compliant firms follow Islamic rules that restrict the type and degree of leverage, thus affecting the availability of external funding to Shariah-compliant firms.
Research limitations/implications
The findings call for more development and innovation of financing instruments that comply with Shariah rules that will increase of supply of external funds for Shariah-compliant firms and, thus, reduce market imperfections that are faced by Shariah-compliant firms.
Originality/value
The study contributes to the limited number of studies that examine the nexus between conventional corporate theories and Islamic corporate finance.
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Abdullah Bugshan, Sally Alnahdi, Husam Ananzeh and Faisal Alnori
Since it is believed that economic growth in oil-rich countries is highly influenced by oil price movements, this study aims to explore the relationship between oil price…
Abstract
Purpose
Since it is believed that economic growth in oil-rich countries is highly influenced by oil price movements, this study aims to explore the relationship between oil price volatility (uncertainty) and earnings-management decisions.
Design/methodology/approach
Financial data from oil-exporting countries were used to explore the relationship between oil price volatility and earnings-management decisions. The study used univariate and multivariate analysis. The modified Jones model is the proxy accrual earnings management. Further, the standard deviation of daily oil price returns is used to proxy annualised oil price volatility.
Findings
The results show that there is an association between oil price volatility and accrual earnings management. Specifically, there is a positive and significant relationship between negative accruals and oil price volatility, indicating that firms are inclined to conduct income-decreasing earnings management in periods of high oil price volatility.
Research limitations/implications
This study’s findings have important implications for regulators and investors because they indicate that the uncertainty of oil price volatility has an influence on earnings quality in oil-dependent economies. This is especially important considering the ongoing debate on transparency issues.
Originality/value
To the best of the authors’ knowledge, this study is the first to investigate the relationship between oil prices volatility and earning management behaviour for non-financial firms. Further, the study uses unique data of oil-dependent economies.
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Abdullah Bugshan, Walid Bakry and Yongqing Li
This study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price…
Abstract
Purpose
This study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price volatility affects Shariah-compliant firms differently from their non-Shariah-compliant counterparts.
Design/methodology/approach
The study sample includes all non-financial firms listed on Gulf Cooperation Council stock exchanges from 2005 to 2019. In evaluating the oil price volatility–profitability relationship, static (panel fixed effects) and dynamic (system generalised method of moments) models were used.
Findings
Oil price volatility significantly depresses firm profitability. In addition, Shariah-compliant firms are more significantly affected by oil price volatility than their non-Shariah-compliant peers. The results suggest that high oil price volatility exposes Shariah-compliant firms to higher bankruptcy risk than non-Shariah-compliant firms and that positive and negative oil price shocks have asymmetric effects on firm performance.
Research limitations/implications
The findings of the paper call for more economic diversification by supporting non-oil sectors in the region and raise the need for more development of Islam-compliant products that compete with traditional instruments to help Shariah-compliant firms cope with uncertainty. Moreover, managers need to prepare quick alert and response procedures to reduce the negative impacts of oil price volatility on profitability.
Originality/value
To the best of the authors’ knowledge, this study is the first to explore the relationship between oil price volatility and profitability of non-financial firms. Further, the study extends prior Islamic corporate finance literature by enhancing the understanding of how Islamic corporate decisions affect firm performance during instability.
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Husam Ananzeh, Hashem Alshurafat, Abdullah Bugshan and Khaled Hussainey
This paper aims to examine the impact of corporate governance mechanisms on forward-looking corporate social responsibility (CSR) disclosure (FCSRD).
Abstract
Purpose
This paper aims to examine the impact of corporate governance mechanisms on forward-looking corporate social responsibility (CSR) disclosure (FCSRD).
Design/methodology/approach
The authors use the manual content analysis to measure FCSRD for a sample of 94 companies listed on the Amman Stock Exchange from 2010 to 2016. Data on companies' FCSRD are manually collected from annual reports. The authors also use regression analyses to test the research hypotheses.
Findings
The authors find that board size positively affects FCSRD, while CEO duality and family ownership negatively impact FCSRD.
Originality/value
To the best of the authors’ knowledge, this is the first evidence of how governance mechanisms affect FCSR information in corporate annual reports in a developing country.
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