Entrepreneurial finance, agency problems and Islamic ethics: complementarities and constraints. Issue 1 (2nd January 2022)

• Record Type: Journal Article
• Authors: Ahmed, Habib; Aassouli, Dalal
• Is Part Of: Venture capital. Volume 24:Issue 1(2022)
• Page Start: 25
• Page End: 46
• Publication Date: 2022-01-02
• Subjects: Entrepreneurial finance -- entrepreneurial ethics -- financial ethics -- Islamic finance -- Islamic ethics; Venture capital -- Periodicals; Entrepreneurship -- Periodicals; 332.041
• DOI: 10.1080/13691066.2022.2067017
• Languages: English
• ISSNs: 1369-1066

Abstract

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.