Islamic and Traditional Corporate Finance: a Comparative Study on WACC

• Main Authors: Nicola Miglietta, Enrico Battisti
• Format: Article
• Language: English
• Published: Università degli Studi di Torino 2016-06-01
• Series: European Journal of Islamic Finance
• Subjects: weighted average cost of capital; islamic corporate finance; traditional corporate finance; risk; listed companies
• Online Access: https://www.ojs.unito.it/index.php/EJIF/article/view/1609

The paper represents a first exploratory study based on the comparison between the Weighted Average Cost of Capital (WACC) of a sample of companies listed on Malaysian Stock Exchange, classified and shared according to the principles of Islamic finance (i.e. riba, risk sharing, haram). In particular, the main aim of the analysis is to provide some evidences of the potential effect on the risk (measured by beta) on the WACC as result of the principles used to divide the companies between Shari’ah Compliant and not Shari’ah Compliant. Generally our findings are focused on a greater level of WACC related to the LCSC that belong to the majority of selected sectors and, according to the principles of Islamic finance, they have shown a leverage ratio lower than that of companies not Shari’ah Compliant.