Islamic Equity Financing as an Alternative of Capital Structure to Improve Business Performance A Systematic Literature Review
Article Sidebar
Main Article Content
Abstract
This study presents a systematic literature review of capital structure choices with a particular focus on Islamic equity financing and its impact on business performance. By synthesizing 172 Scopus-indexed articles from 1999 to 2023, the research examines the comparative dynamics of internal financing, trade credit, debt financing, and equity financing—including the Islamic mode of mushārakah. Key theoretical frameworks, namely the Pecking Order Theory and Trade-Off Theory, are used to analyze how firms navigate capital structure decisions amid considerations such as cost, control, risk, and tax implications. The findings demonstrate a growing academic and practical interest in Islamic equity financing as a profit-and-loss sharing alternative that aligns with ethical finance principles. However, challenges remain in its adoption due to risk asymmetry and limited regulatory and institutional support. This review further highlights technological innovations—such as blockchain and big data analytics—as emerging solutions to mitigate risk and information asymmetry in Islamic equity models. The specific contribution of this study to the international research field lies in its comprehensive mapping of the development and application of mushārakah-based financing across various contexts and sectors, offering a unique cross-comparison with conventional equity models. It contributes to global discourse by positioning Islamic equity financing not merely as a faith-based solution, but as a viable, ethical, and technologically adaptive alternative to conventional financing models. The study opens new research directions for scholars and practitioners in Islamic finance, fintech, and capital structure optimization.
Downloads
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
Abozaid, A, ‘Economic and Shariah Considerations in Debt Financing ’, Journal of King Abdulaziz University, Islamic Economics, 35.3 (2022) <https://doi.org/10.4197/Islec.35-3.8>
Adhikari, Sudip;, and Aditya R. Khanal, ‘Business Risk, Financial Risk and Savings: Does Perceived Higher Business Risk Induce Savings among Small Agricultural Operations in the USA?’, Agricultural Finance Review, 83.1 (2023), 107–23 <https://doi.org/10.1108/AFR-01-2022-0006>
Alexis, N B, ‘Understanding the Microfinance’s Capital Structure: Does It Alter Its Business Model?’, FIIB Business Review, 12.1 (2023), 49–57 <https://doi.org/10.1177/2319714520948990>
Arshed, Noman, and Rukhsana Kalim, ‘Exploration of the Equilibrium Level of Musharaka Financing in Full-Fledged Islamic Banks’, Journal of Islamic Accounting and Business Research, 12.3 (2021), 340–61 <https://doi.org/10.1108/JIABR-02-2020-0048>
Audretsch, David, Maksim Belitski, and Candida Brush, ‘How to Secure an Innovation Grant for Firms in New Industries? Gender and Resource Perspectives’, International Journal of Entrepreneurial Behaviour and Research, 2023 <https://doi.org/10.1108/IJEBR-02-2022-0183>
Baek, H Y, D D Cho, and P L Fazio, ‘Family Ownership, Control and Corporate Capital Structure: An Examination of Small Capitalization Public Firms’, Journal of Family Business Management, 6.2 (2016), 169–85 <https://doi.org/10.1108/JFBM-02-2015-0006>
Bandyopadhyay, A, and N M Barua, ‘Factors Determining Capital Structure and Corporate Performance in India: Studying the Business Cycle Effects’, Quarterly Review of Economics and Finance, 61 (2016), 160–72 <https://doi.org/10.1016/j.qref.2016.01.004>
Bui, Phuong, Hai Ngo, Khuong Nguyen, and Nguyen Liem, ‘External Financing and Earnings Management: Evidence in Vietnam’, Cogent Economics and Finance, 10.1 (2022) <https://doi.org/10.1080/23322039.2022.2147703>
Cahyono, S B, and A S Chawla, ‘Capital Structure among Secondary Sectors of Indonesian Firms: Does Business Scale Matter?’, Indian Journal of Finance, 15.10 (2021), 8–27 <https://doi.org/10.17010/ijf/2021/v15i10/166509>
Campos, O V, and W M Lamounier, ‘The Effects of Monetary Policies on the Capital Structures of the Firms’, Brazilian Business Review, 19.6 (2022), 584–606 <https://doi.org/10.15728/BBR.2021.19.6.1.EN>
Chu, Jun, ‘Risk Mechanism and Architecture of Investment and Financing Based on DEA-Malmquist Index’, ed. by Yaxiang Fan, Journal of Sensors, 2022 (2022), 1–10 <https://doi.org/10.1155/2022/3613624>
Deias, Anna, and Alessandro Magrini, ‘The Impact of Equity Funding Dynamics on Venture Success: An Empirical Analysis Based on Crunchbase Data’, Economies, 11.1 (2023) <https://doi.org/10.3390/economies11010019>
Feng, T, and Q Meng, ‘Aligning Investment Strategy with Capital Structure, Transnational Business and Profit on Civil Engineering Companies’, in Conference Proceedings of the 10th International Symposium on Project Management, China, ISPM 2022 (Faculty of Business, Department of Financial Management, University of Hohai, Jiangning Campus, Room 602, Building 13, Nanjing, China, 2022), pp. 1286–91 <https://doi.org/10.52202/065147-0174>
Fianto, Bayu Arie, Christopher Gan, Baiding Hu, and Jamal Roudaki, ‘Equity Financing and Debt-Based Financing: Evidence from Islamic Microfinance Institutions in Indonesia’, Pacific Basin Finance Journal, 52 (2018), 163–72 <https://doi.org/10.1016/j.pacfin.2017.09.010>
Gafrej, Oussama, and Mouna Boujelbéne, ‘An Alternative Model for Islamic Venture Capital Firms’, International Journal of Islamic and Middle Eastern Finance and Management, 15.6 (2022), 1009–18 <https://doi.org/10.1108/IMEFM-04-2021-0145>
Gharaibeh, O K, and S AL-Tahat, ‘Determinants of Capital Structure: Evidence from Jordanian Service Companies’, Investment Management and Financial Innovations, 17.2 (2020), 364–76 <https://doi.org/10.21511/imfi.17(2).2020.28>
Gill, A, and C Wilson, ‘Bank Connections and Small Business Performance: Evidence from Canadian Survey Data’, International Journal of Finance and Economics, 26.4 (2021), 5110–34 <https://doi.org/10.1002/ijfe.2057>
Hang, H T T, T T Huy, N T K Phung, and N T H Uyen, ‘IMPACT OF CAPITAL STRUCTURE ON BUSINESS PERFORMANCE OF ENERGY COMPANIES LISTED ON VIETNAM STOCK MARKET’, Proceedings on Engineering Sciences, 4.4 (2022), 449–56 <https://doi.org/10.24874/PES04.04.006>
Hasna, E E, E Abdelaziz, and S Mohamed, ‘Platform for the Social and Solidarity Economy Based on Islamic Finance-Derived Crowdfunding: A Blockchain Infrastructure’, in Proceedings - 16th International Conference on Signal-Image Technology and Internet-Based Systems, SITIS 2022 (Cadi Ayyad University, Computer Systems Engineering Laboratory, Faculty of Sciences Semlalia, Marrakesh, Morocco, 2022), pp. 457–64 <https://doi.org/10.1109/SITIS57111.2022.00076>
Indomo, I L, and A W Lubis, ‘Capital Structure Behaviour among Indonesian Property Developers during Different Business Cycles’, Journal of Financial Management of Property and Construction, 28.1 (2023), 91–106 <https://doi.org/10.1108/JFMPC-07-2021-0050>
Khan, A, M A Qureshi, and P I Davidsen, ‘A System Dynamics Model of Capital Structure Policy for Firm Value Maximization’, Systems Research and Behavioral Science, 38.4 (2021), 503–16 <https://doi.org/10.1002/sres.2693>
Kim, Y J, and C H Kim, ‘The Impact of Capital Structure on the Profitability Efficiency of ICT Firms’, in Proceedings - 2021 21st ACIS International Semi-Virtual Winter Conference on Software Engineering, Artificial Intelligence, Networking and Parallel/Distributed Computing, SNPD-Winter 2021 (Incheon Univ., Graduate School, Dept of Business Administration, Incheon, South Korea, 2021), pp. 127–35 <https://doi.org/10.1109/SNPDWinter52325.2021.00036>
Levine, O, and Y Wu, ‘Asset Volatility and Capital Structure: Evidence from Corporate Mergers’, Management Science, 67.5 (2021), 2773–98 <https://doi.org/10.1287/mnsc.2020.3607>
Lindawati, A S L, O The, A Fiona Asri Dewanti, and J Tanuwijaya, ‘The Impact of Internal Factors on Risk Management Disclosure in Retail Industry’, in ACM International Conference Proceeding Series (Bina Nusantara University, Indonesia, 2021), pp. 199–205 <https://doi.org/10.1145/3457640.3457643>
Lubis, A W, and D Paramaanindya, ‘Determinants of Capital Structure: A Comparison between Sharia-Compliant and Sharia Non-Compliant Firms in Indonesia’, in ACM International Conference Proceeding Series (Universitas Indonesia, Indonesia, 2020), pp. 39–44 <https://doi.org/10.1145/3409929.3414735>
Ma, Z, and Z Yang, ‘Risk of Marginalization in the Process of Internationalization: A Case Study of Emerging Chinese Multinationals’, Nankai Business Review International, 3.1 (2012), 52–64 <https://doi.org/10.1108/20408741211201917>
Mutamimah, M, and I Kartika, ‘Blockchain Technology and Financing Risk in Profit Loss Sharing Financing of Indonesian Islamic Bank’, Lecture Notes on Data Engineering and Communications Technologies (Department of Management, Faculty of Economics, Universitas Islam Sultan Agung, Semarang, Indonesia, 2023), 171–79 <https://doi.org/10.1007/978-3-031-26281-4_17>
Nagano, Mamoru, ‘Does Islamic Finance Follow Financial Hierarchy? Evidence from the Malaysian Firms’, Singapore Economic Review, 67.1 (2022), 511–40 <https://doi.org/10.1142/S0217590821420030>
Nwachukwu, J, and D Mohammed, ‘Business Risk, Industry Affiliation, and Corporate Capital Structure: Evidence from Publicly Listed Nigerian Companies’, Journal of African Business, 13.1 (2012), 5–15 <https://doi.org/10.1080/15228916.2012.657918>
Peshkova, E P, S P Kyurdzhiev, and A A Martazanov, ‘Strategy for Forming Financial Resources in the Context of a Conflict of Interests Between an Economic Entity and Its Creditors’, Smart Innovation, Systems and Technologies (Russian Presidential Academy of National Economy and Public Administration (RANEPA), 344002, Rostov-on-Don, Russian Federation, 2021), 1257–67 <https://doi.org/10.1007/978-981-16-0953-4_119>
Pestana, L J, L P Gomes, and C Lopes, ‘Testing the Capital Structure of Portuguese Family Businesses’, Revista Contabilidade e Financas, 32.87 (2021), 510–27 <https://doi.org/10.1590/1808-057X202113190>
Poutziouris, P, D Markou, L Glyptis, and E Hadjielias, ‘Capital Structure of UK SMEs: An Integrated Understanding’, International Journal of Entrepreneurship and Small Business, 46.1 (2022), 64–95 <https://doi.org/10.1504/IJESB.2022.123986>
Rahman, Zafrin, and Wanying Shi, ‘How Does Frugal Innovation Help Young Firms in the US? The Moderating Roles of Venture Capital Investment and Debt Financing’, Journal of General Management, 2022, 030630702211364 <https://doi.org/10.1177/03063070221136407>
Rahmawati, L., & Faidah, M. Survival of Traditional Retailers: An Islamic Business Perspective. Al-Uqud : Journal of Islamic Economics, 4(1), 18–31 (2020) <https://doi.org/10.26740/al-uqud.v4n1.p18-31>
Rocha, C A C, and M A de Camargos, ‘Preferences, Sources, and Conditionals: A New Approach to Testing Financing Decisions’, Revista Contabilidade e Financas, 34.91 (2023) <https://doi.org/10.1590/1808-057x20221624.en>
Selim, Mohammad, ‘Financing Homes by Employing Ijara Based Diminishing Musharaka’, International Journal of Islamic and Middle Eastern Finance and Management, 13.5 (2020), 787–802 <https://doi.org/10.1108/IMEFM-05-2019-0217>
———, ‘Issuing Credit Cards on the Basis of Musharaka and Qard Hasan and Its Effects on the Earnings of the Card Holders’, 2021 International Conference on Sustainable Islamic Business and Finance, SIBF 2021, 2021, pp. 71–74 <https://doi.org/10.1109/IEEECONF53626.2021.9686327>
Suzuki, Yasushi, and Mohammad Dulal Miah, ‘Lender’s Position in the Profit and Loss Sharing Islamic Finance: An Analytical Perspective of Izutsu’s Hypotheses on “Islam” and “Hilm”’, International Journal of Islamic and Middle Eastern Finance and Management, 2022 <https://doi.org/10.1108/IMEFM-12-2021-0496>
Ullah, A, C Pinglu, S Ullah, M Zaman, and S H Hashmi, ‘The Nexus between Capital Structure, Firm-Specific Factors, Macroeconomic Factors and Financial Performance in the Textile Sector of Pakistan’, Heliyon, 6.8 (2020) <https://doi.org/10.1016/j.heliyon.2020.e04741>
Utomo, Prasetyo, and Novriana Sumarti, ‘The Application of Simulated Annealing Method in Optimizing Profit-Loss Sharing Ratio with Vasicek Model’, AIP Conference Proceedings, 2021 <https://doi.org/10.1063/5.0075344>
Vega-Gutierrez, Pedro Luis, and Juan Antonio Rodriguez-Sanz, ‘Interest Rates, Liquidity and the Corporate Financing Decision throughout the Business Cycle: A European Analysis’, Spanish Journal of Finance and Accounting / Revista Española de Financiación y Contabilidad, 51.2 (2022), 232–62 <https://doi.org/10.1080/02102412.2021.1914388>
Vieira, K M, V M Valcanover, A C G Potrich, and E A Cavalheiro, ‘My Business and I: Entrepreneur Personality Traits and Capital Structure Choice ’, Revista de Administracao Mackenzie, 21.6 (2020) <https://doi.org/10.1590/1678-6971/ERAMD200300>
Wan, Xiaole, Zhengwei Teng, Zhen Zhang, Xiangtong Liu, and Zhuoqian Du, ‘Equity Financing Risk Assessment Based on PLTS-ER Approach in Marine Ranching from the Ecological and Circular Economy Perspectives’, Annals of Operations Research, 2023 <https://doi.org/10.1007/s10479-023-05222-8>
Wang, Cheng-Ben, Jie-Ru Rong, and Jia-Ming Zhu, ‘Algorithm Research on the Influence of Financing Structure and Cash Holding on Enterprise Innovation Based on System GMM Model Function Theory’, Journal of Combinatorial Optimization, 45.2 (2023) <https://doi.org/10.1007/s10878-023-00991-1>
Wu, N, J Zhao, M Musah, Z Ma, L Zhang, Y Zhou, and others, ‘Do Liquidity and Capital Structure Predict Firms’ Financial Sustainability? A Panel Data Analysis on Quoted Non-Financial Establishments in Ghana’, Sustainability (Switzerland), 15.3 (2023) <https://doi.org/10.3390/su15032240>
Xia, Chuanxin, Yujie Xiao, Wenyan Zhuo, and Yu Jen Hsiao, ‘Mixed Financing Strategies for Capital-Constrained Retailer in the Chinese Financial Market’, Pacific Basin Finance Journal, 63 (2020) <https://doi.org/10.1016/j.pacfin.2020.101395>
Yusuf Zaini Aprizal, Iva Faizah, and Anas Malik. “Islamic Philanthropy in the Indonesian Sharia Capital Market: Filantropi Islam Di Pasar Modal Syariah Indonesia ”. El-Qist: Journal of Islamic Economics and Business (JIEB) 12, no. 2 (February 12, 2023): 193–210. https://jurnalfebi.uinsa.ac.id/index.php/elqist/article/view/1244.
Zhang, Xiaoli, Guoyi Xiu, Fakhar Shahzad, and Caiquan Duan, ‘The Impact of Equity Financing on the Performance of Capital-Constrained Supply Chain under Consumers’ Low-Carbon Preference’, International Journal of Environmental Research and Public Health, 18.5 (2021), 1–22 <https://doi.org/10.3390/ijerph18052329>
Zhuo, Wenyan, Jiawu Peng, Zhiyuan Zhen, and Jingru Wang, ‘Mixed Financing Modes for Capital-Constrained Supply Chain with Risk-Averse Members’, RAIRO - Operations Research, 56.3 (2022), 1223–58 <https://doi.org/10.1051/ro/2022054>