In Search of a Theory of Corporate Financing and Islamic Financial Instruments

We examine the use of Islamic financial instruments in the capital structure of non-financial firms from 16 Islamic countries. Contrary to various bold claims of tremendous growth of Islamic finance over the time, a preliminary analysis reveals relatively low penetration of Islamic financial instruments in the firms’ capital structure mix. This poses a concern on the sustainability of Islamic finance growth. We argue that the Islamic financial instruments are less attractive to some corporations and further research will be undertaken to explore some of the plausible reasons.