Debt and Financial Performance of Reits In Malaysia: A Moderating Effect of Financial Flexibility.

This paper investigates the effect of firm-specific characteristics on debt maturity in Malaysia. We examine the impact of Shari'ah compliance on debt maturity structure by grouping companies based on compliance status as governed by the Securities Commission of Malaysia over the sample period of 2007 to 2016. The results indicate that Shari'ah compliant firms tend to have longer debt maturity structure indicating that the nature of compliance determines the maturity structure of companies in Malaysia as managers of these firms tend to focus on mitigating liquidity risks potentially faced. In addition, Shari'ah compliant firms also tend to have lower bankruptcy costs. Contrary to their non-compliant counterparts, managers of Shari'ah compliant firms tend to change debt maturity structure as a signaling tool whilst opting for longer structures in periods of positive share price performance. We also find that Shar'iah compliance has no impact on firms' strategy of matching debt to asset maturity structure.

Non Linear Speed of Adjustment to Lead Leverage Levels: Empirical Evidence from Firm Level Data

Dynamic Capital Structure and Factors Influencing the Speed of Adjustment of UK Firms

This paper investigates the speed of adjustment to target debt maturity for a sample of Malaysian firms based on the sample period of 2007 to 2016. We examine the impact of Sharia compliance on the speed of adjustment to target debt maturity structure by grouping companies based on nature of compliance to Sharia requirements which is categorised by the Securities Commission of Malaysia. In line with our expectations, the analysis shows that firms classified as Sharia compliant tend to adjust at more rapid rates to target debt maturity when below target levels suggesting that compliant firms are able to issue long-term debt at cheaper levels relative to noncompliant counterparts. In addition, the reverse is observed when evaluating firms above target levels where non-compliant firms adjust at more rapid rates. Our findings indicate that compliant firms are able to raise long-term debt at cheaper rates relative to non-compliant firms given the captive market situation observed in the Islamic capital markets in Malaysia. This does however indicate the potential for higher agency costs as well as greater levels of information asymmetry for compliant firms relative to noncompliant firms given that non-compliant firms are more willing to reduce maturity structures to reach target levels when above target levels.