Determinants of Financial Leverage in Islamic Banks

  • M. A. Rehman ShahEmail author
  • A. Rashid
  • M. Khaleequzzaman


This study aims to explore the determinants of financial leverage 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. The study uses 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’ financial leverage, whereas profitability, liquidity, and capital adequacy ratio are negatively related to the financial leverage of banks. On the other hand, real interest rate and inflation are negatively related to the financial leverage of Islamic banking industry, while industrial production index has a positive impact upon the financial leverage of the Islamic banking industry of Pakistan.


Financial leverage Capital structure Islamic banking 

JEL Classification

G32 G34 


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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • M. A. Rehman Shah
    • 1
    Email author
  • A. Rashid
    • 2
  • M. Khaleequzzaman
    • 3
  1. 1.Basic Sciences and Humanities DepartmentUniversity of Engineering and TechnologyTaxilaPakistan
  2. 2.International Institute of Islamic EconomicsInternational Islamic UniversityIslamabadPakistan
  3. 3.School of Islamic Banking & FinanceInternational Islamic UniversityIslamabadPakistan

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