Islamic finance: the capital structure and profitability perspective from MIDCAP companies

Capital structure theories in finance aim towards an ideal debt-equity ratio in the traditional interest-based financial system. The capital structure theories as per the Shariah law also aim towards an ideal debt-equity ratio but the debt contract used here is different with different intention. Also, since the debt-equity ratio affects the bottom line of a business organisation and thus becomes an important aspect to study. This paper is an attempt to study the relationship between capital structure and profitability from the perspective of Islamic finance. It is an empirical attempt to verify the application of the concepts and beliefs of Islamic finance focusing on financial risk as an issue of corporate finance. The study is particularly relevant in the light of current global financial crisis as the root of the crisis lies in the failures of some of the big multinational corporations. It aims to make a significant contribution to the available literature on the subject.