Impacts of CEO’s Overconfidence in Financing Decisions on Sharīʿah-Compliant Firms Listed on the Bursa Malaysia

• Published in: Journal of King Abdulaziz University, Islamic Economics
• Main Author: Shahdila-Shahar W.S.; Ahmad N.; Jaafar M.N.
• Format: Article
• Language: English
• Published: King Abdulaziz University Scientific Publishing Center 2020
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85102817539&doi=10.4197%2fIslec.33-1.9&partnerID=40&md5=66d1bc0caf8a24ca32356164dfe0a0f0

A firm’s financing decision is a key concern in corporate finance and has drawn strong interest from various stakeholders. This decision is more pertinent in Malaysia due to its uniqueness of having a dual financial system. Since the financing decision is part of a firm’s strategic decisions, the CEO holds a significant responsibility for a firm’s financial strategic policy and direction. In most cases, empirical results from previous studies could not pinpoint the factors as well as the theories that best explain a firm’s financing choice. This issue arises because traditional theories assumed that economic players are always rational. However, corporate financing decisions can be less than fully rational or biased. Thus, this study aims to fill the gaps by examining the impacts of a CEO’s overconfidence on financing decisions in Sharīʿah-compliant firms (SCFs) listed on the Bursa Malaysia. This study analyzed panel data over a period from 2009 to 2017. The findings show that male CEOs are willing to take high-risk corporate strategic policies by increasing the debt level which enables SCFs to maximize the firm’s value resulting from the benefits of tax-shield and lower agency costs arising from the conflict between managers and shareholders. © 2020. All Rights Reserved.