Capital Structure Decisions in Islamic Banking : Empirical Evidence from Pakistan

This study aims to explore the determinants of capital structure in the Islamic banking industry of Pakistan. It also aims at exploring the effects of macroeconomic conditions and policy variables on the financing decisions of Islamic banking industry. To do this, the study uses an unbalanced panel data covering the period from 2006 to 2012. The results from fixed effect model indicate that bank-specific variables, namely bank size, tangibility, and growth are positively related to banks' capital structure, whereas profitability, liquidity, and capital adequacy ratio are negatively related to the capital structural decisions of banks. On the other hand, real interest rate and inflation are negatively related to the capital structure of Islamic banking industry, while industrial production index has a positive impact upon the capital structure decisions of the Islamic banking industry of Pakistan