ZAKAT

(Sanusi (2014)

Non-debt
Tax Shield
(Sanusi et al.(2017)
affect
reduce influences

Value of modify
shares &
bonds
Leverage Equity
Trade-off Financing
Theory

Decrease
Mitigate Upside Increase
Potential downside
Risk

Good
Governance/
Bankruptcy
Management Risk Disclose more
Agency target target
High Hernawati et al.
book market
Dividend (2023) Cost Information
leverage ratio leverage ratio
Asymmetry
lower
Cost
Target Cash of Capital
Holdings
Higher Adjustment
reduce
Financial
Asset utilization Risk Cost High
Azmi et al. (2019)
Constraint Equity Target Premiums
Mispricing Market reduce
Levels
Competition
adjust (Sheikh (2019); reduce
Greater Faster
adjust Better Low-
due to reduce
Shariah Faster Disclosure CSR
regulations
Coporate Cash Mandatory vs.
Holdings
SHARIAH Better
Quantile
Regression
Alnori et al. (2022); COMPLIANT
CSP
Performance
Oware &
Mallikarjunappa (2021);
Voluntary
Guizani & Abdalkrim Use/Higher (Hussain et. al (2020); Azmi et Debt
Minh et al. (2022) High- Disclosure
as Primary
(2021); Bugshan et
al. (2019); Bugshan & Bakry slower positive CSR Impact
al. (2021)
Structure/
Financing Option (2023); Akbar et al. (2023) SOA Financing/Leverage
(Ho et al. (2021); Do et al.
Lower (2023); Hussain et al. (Asimakopoulos et. al (2023);
Hamrouni et al. (2019); Yang
(2020); Bugshan & Bakry
et al. (2018);
(2023); Akbar et al. (2023))

Adverse Moral Capital

Selection cost
Yang et al. (2018) slow (Godfrey 2005;
Godfrey et al. 2009) Volatility of
Hybrid Capital CSP VOLUNTARY Cash Flows
High CEO
Structure Cost DISCLOSURE
(Jaafar et. al (2017);
Tenure Exchange
Above-target
Leverage reduce (Oware et al. (2023); Capital POLICY
Yang et al. (2018) (Bertomeu et al. (2011))
High Quality
Institutional increase
Balance Environment
Tax Advantage minimise
increase
Idiosyncratic
Financial ESG Rated Cost of
Risk
Constraints (Limkriangkrai et al. (Boutin-Dufresne & Savaria
Equity
reduce (2017); (2004); Bassen et al. (2006);
conflict of Sharfman & Fernando (2008);
Interest Vanhamme & Grobben (2009)) lower
COVID-19 ESG/CSR reduce Equity
Stakeholder (Sharfman and Fernando
Debt & Equity
Relations Enhance CRISIS 2008; Chava 2014;
ElGhoul et al. 2011;
Stakeholders (Bai & Ho (2022); positive Long-
Girerd-Potin et al. 2013)

Prefer
reduce term

Debt Maturity
(Benlemlih (2017);
Environmental Prefer
Performance Higher Stability & Low
Short-term Perception Risk
(Kalash (2021): Diamond (1991) (Goss 2009; Verwijmeren &
Shake- Maturity Hussain et al. (2020) Derwall 2010; Attig et al. 2013)
out Lesser Carbon
Greater Performance Operating
Firm' Life External (Tascón et al. (2021) Tax Shields Fixed Costs
Cycle Substitute Increase
Financing
(Harjoto (2017);
CLIMATE-RELATED
Growth

Physical Risks
(Ginglinger & Moreau
firm's optimal leverage (2023);
decreases

increased spreads
greater Physical CAPITAL
Climate
when lending to high-
risk firms Demand Risk STRUCTURE
effect Lower Transition Risks
Leverage Dang et al. (2022)

Supply
effect Carbon Policy
increasing the cost of Risks
debt
(Shu et al. (2023);
Dang et al. (2022))
Debt
Supply
effects NBP
Dang et al. (2022)

CAPITAL
increased STRUCTURE
THEORY

increased
Electricity
operating Cost
cost

distress
cost

MM 1958
(Modilgiani-Miller)

PECKING ORDER MARKET TIMING

VL = VU + (t*d) – PV THEORY THEORY
TRADE OFF
TRADITIONAL (cost of financial distress) Minimise
THEORY Myers & Majluf Baker & Wurgler
(1984) (2002)

DEBT
claim that market timing is the first order determinant
R: Net Income Relevance of a corporation's capital structure use of debt and
Approach (NI) Irrelevance (With Taxes) equity. In other words, firms do not generally care
(No Taxes) (1963) whether they finance with debt or equity, they just
Cost Tax Benefits choose the form of financing which, at that point in
time, seems to be more valued by financial markets
IR: Net
Operating
Income MM P1: Value of Firm is MM P1: Value is maximised Financial Distress
Approach unaffected by the capital at 100% debtVL=VU +(t*d) Agency Cost
(Warner, 1977)
(NOI) structure VL = VU

MM P2: Cost of equity tax saving on interest

increases linearly as the From Agency Theory ASYMMETRIC
proportion of debt increases
Bankruptcy Cost INFORMATION
(Jensen and Meckling
Ke=Ko+ D/E*(Ko-Kd) (Stiglitz 1969) 1976)
MM P2: WACC in
minimised at 100% debtKe=
Ko+ D/E*(Ko-Kd)*(1-t)

WACC remains firms have their own

constant. target capital structure STATIC
that balances the Bradley et al.
costs and benefits of (1984)
debt

results suggest that

DYNAMIC
there is a mean
Hennessy &
reversion of capital Whited (2005)
structure as firms try
to reach such target
levels to maximise the Information failure, occurs when
firm value one party possesses more
(better) information than
another party, which causes an
imbalance in transaction power.