Do board characteristics influence Islamic banks’ capital structure decisions? Empirical evidence from a developing country

Abstract

AbstractThis study investigates the relationship between board characteristics (Sharia boards and boards of directors) and capital structure decisions of Islamic commercial banks (ICBs). The sample consisted of 14 ICBs in Indonesia operated during 2007–2021. The data were analyzed using the random effect model and the feasible generalized least square model. The results reveal that the size and independence of the board of directors and Sharia board expertise have a positive impact on the Indonesian ICBs’ debt-to-total asset ratio decision. Furthermore, board gender diversity encourages ICBs in Indonesia to adopt a lower debt-to-total equity ratio (DTER) while the size and expertise of Sharia boards encourage ICBs to pursue higher DTER. This study reinforces the agency theory’s view regarding the relationship between board characteristics and corporate capital structure decisions.

Keywords

• Board characteristics
• Capital structure
• Islamic bank
• Indonesia
• Developing country
• David McMillan