Modeling of Zakat in the capital structure theory

Abstract

Islamic financial instruments are subject to taxes and zakat for Muslim shareholders and debt
holders. Therefore, it is important to investigate the implementation of corporate taxes and
corporate zakat in capital structure compositions. In order to model corporate zakat in terms
of conventional capital structure theories, this study will discuss the conventional view of
those theories in depth. The introduction of zakat are based on the conventional static
trade-off theory developed by previous researchers

Keywords: wealth tax; optimal capital structure; Islamic financial instrument.