Entrepreneurial finance, agency problems and Islamic ethics: complementarities and constraints

Ahmed, Habib; Aassouli, Dalal

Abstract

This paper examines the interactions between Islamic ethics related to entrepreneurs and finance and discusses their implications on entrepreneurial finance. The practice of Islamic entrepreneurial ethics creates trust that helps to mitigate agency problems. In such cases, investors can use contracts involving Islamic financial ethics. However, in the absence of the practice of normative entrepreneurial ethics, agency problems arise that need to be resolved contractually. This paper argues that Islamic legal and ethical principles impose constraints on contractual forms which reduce the flexibility of mitigating agency problems arising in entrepreneurial finance. When entrepreneurial ethics are not practiced, investors can finance entrepreneurs by diluting Islamic financial ethical principles to alleviate agency problems.

Citation

Ahmed, H., & Aassouli, D. (2022). Entrepreneurial finance, agency problems and Islamic ethics: complementarities and constraints. Venture Capital, 24, https://doi.org/10.1080/13691066.2022.2067017

• Journal Article Type: Article
• Acceptance Date: Apr 12, 2022
• Online Publication Date: Apr 21, 2022
• Publication Date: 2022
• Deposit Date: Apr 21, 2022
• Publicly Available Date: Aug 24, 2022
• Journal: Venture Capital
• Print ISSN: 1369-1066
• Electronic ISSN: 1464-5343
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 24
• DOI: https://doi.org/10.1080/13691066.2022.2067017
• Public URL: https://durham-repository.worktribe.com/output/1208694