Edinburgh Napier University

  This study explores to what extent the Islamic financing instruments are used by non-financial firms and whether profitability influences such financing choice. Based on a panel data of firms from fourteen developing countries for the 2005-2009 period, we find that Islamic financing contributes a significant share of the firms’ capital structures. Less profitable firms are found more likely to use debt than equity in which case Islamic instruments were preferred over conventional debt. The finding suggests that Islamic financing does benefit less profitable firms, which is consistent with the agency cost perspective.