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I study the determinants of conventional leverage in a sample of publicly listed corporations based in Saudi Arabia, United Arab Emirates, and Qatar, for a period spanning from 2005 up to end of 2014, and investigate whether those determinants can also explain the utilization of Sukuk by the same corporations in their capital structures. Evidence related to the determinants of conventional leverage is consistent with results from prior studies conducted on corporations based in developed and developing countries. Firm’s size, profitability, tangibility, age, and tendency to pay dividends are significant determinants of conventional leverage. However, not all those factors significantly explain the utilization of Sukuk as a financing vehicle. The size of the firm remains to be the most significant factor, in addition to the conformance of those corporations with respect to Shari’a principles measured by their utilization of other Islamic investments and financing instruments. Overall, I conclude that models used to predict conventional leverage are not capable of fully explaining the determinants of Sukuk issuances.

This study aims to investigate the public deficit issue by contrasting conventional and Islamic views encompassing the paradigm, technical base, orientation and consequence detailed in nine discussions, which are rarely investigated in the research. There is a predisposition that contemporary Muslim scholars discuss the public deficit as well as the private sector perspective, which is used in the conventional conception, without riba as a primary feature.

The paper develops a comparative approach that derives two perspectives from the available literature using the qualitative method under the critical thinking method. It was drawn up in detail on how the paradigm and its related budgeting process contribute to public deficits, mainly in government institutions.

The paper reveals a prominent difference in public deficit in the Islamic view from a conventional perspective. From 9 points of comparison, the analysis covers 18 discussion that differentiates between private and public area criticism seems to overlap. The foundation giving a unique perspective in Islam toward public deficit is the concept of ownership that differs from capitalism, mainly the function of public spending is to distribute the wealth among people not for economic growth. The Islamic Government spent for public purposes based on cash-basis budgeting. The budgeting system in Islamic public spending is founded on treasure availability.

The paper uses a qualitative method that cannot empirically snapshot the actual or factual condition, in which subjectivity plays a plausible role. Furthermore, there is no actual sample (best practices) of the concept to be examined.

The research encompasses overlap between Islamic and conventional perspectives, including public and private issues regarding public deficits. The main beneficiary of the paper is a policymaker, including academicians or practitioners who are appropriate to use the concept in their circumstances.

The study is a pioneering study in public deficit comprehensively comparing conventional and Islamic perspectives and drawing up conceptual and technical aspects.

The purpose of this paper is to examine the phenomenon of debt culture in the conventional financial systems and then to compare the existing or emerging trends in the Islamic finance industry. It provides critical insight into why economic policies that are delinked from some fundamental wisdom about sustainable lifestyle might be increasingly less effective.

The paper identifies various areas of impact of the debt culture and provides qualitative analysis based on relevant data.

The data presented in the paper shows that the Islamic finance industry is clearly biased in favor of debt-creating modes, which is expected to lead to promoting the same kind of debt culture as experienced in the conventional financial system.

Finding comprehensive and current data for Islamic financial institutions is a challenging task. The IFIs are not as transparent as their conventional counterparts in sharing relevant data and information.

The paper highlights and analyzes a problem – i.e., the debt culture. Dealing with this problem would be indispensable in the long run for any credible as well as sustainable solutions to contemporary crisis.

Debt culture is more than an economic phenomena. The paper identifies/analyzes several areas, including consumption explosion, speculation, ethics, that are related to debt culture.

This is probably the first research paper that looks into the issue of debt culture in the context of Islamic finance. The contemporary, ongoing global crisis underscores the kind of conventional problems that Islamic finance needs to avoid.

This paper aims to propose an Islamic compliant approach that deals with the prepayment rebate on debts resulting from cost-plus sales and their accompanied sale-based financing contracts. The proposed approach uses the time value of money concept without charging excessive fees from the debtor in the early settlement of debts.

The paper uses a qualitative analysis via analyzing and reviewing relevant literature. A quantitative analysis is subsequently used with a proposed computation that addresses prepayment rebate accompanied by debts resulting from cost-plus sales.

The proposed approach results in a rebate amount for the debtor greater than those rebate amounts resulting from either conventional finance techniques or current Islamic finance practices.

The application of the descending rebate proposed computation in this paper is restricted to cost-plus sale and their accompanied sale-based financing contracts only. The computation does not address any agreement or deal that may involve a rebate without a selling transaction.

The paper criticizes the prevailing practices for computing rebates in the case of debt prepayment, whether those nominated by conventional finance or others currently employed by most Islamic financial institutions. The paper also introduces a new rebate computation aimed to comply with Islamic finance's real context.

The paper aims to construct a theoretical framework to investigate whether the Shariah debt ratio screening in contemporary Shariah stock screening methodologies results in a bias towards a certain set of corporate financial behaviour for Shariah-compliant firms in the USA where access to a liquid Islamic debt market is non-existent.

The paper extends the earnings valuation approach of Modigliani and Miller (1963) to theoretically asses the impacts of the 33% conventional debt limit on Shariah-compliant firms’ corporate financial behaviour. Then, supporting evidence is shown via empirical stylised facts of samples of Shariah-compliant firms in the USA.

A theoretical floor limit to investment cut-off rates is found for US Shariah-compliant firms so that lesser projects pass their internal rate of return versus conventional firms. Subsequently, such firms consistently show the following corporate financial characteristics: above-average size, larger marginal change in size and profitability in response to a given marginal change in investments, low book-to-market ratio and lower investment rates.

The findings of this paper may not hold where access to a liquid Islamic capital market is present.

Caveat emptor. These findings may be inconsistent to the investor’s risk preferences.

The findings suggests that Shariah-compliant firms are more conservative compared to their conventional counterparts.

The paper is the first to introduce a theoretical framework to address consistent biasness in corporate financial behaviour due to the Shariah debt screening. It may prove useful for future academic studies as well as investment managers.

The purpose of this paper is to examine whether and how Islamic banks' financing affects corporate investment efficiency.

To achieve the research purpose, an empirical model was constructed to describe the relationship between Islamic banks' financing and corporate investment efficiency. The empirical model was tested through generalized method of moments (GMM) estimation technique using a panel data of 163 Malaysian listed firms for the period 2007–2017.

This study provides evidence that Islamic banks' financing plays an important role in enhancing investment efficiency and that this positive effect comes mainly from non-PLS contracts. Moreover, the results show that the effect of Islamic banks' financing in preventing suboptimal investments is stronger in the financial crisis period. The results also reveal that the contribution of Islamic banks' financing in reducing suboptimal investments is more prominent when firms face over-investment problems.

This research contributes to the debate on the financial implications of Islamic banks' financing modes by exploring their effect on corporate investment efficiency.

From a managerial perspective, the research findings are beneficial to Islamic bank managers to the extent that they highlight the role of Islamic financial contracts in improving corporate investment efficiency. In addition, the lower effect of PLS contracts on investment efficiency implies that policymakers in Malaysia should multiply their efforts to further expand the PLS financing.

This paper offers some insights on the role of Islamic banks' financing in mitigating agency conflicts and reducing asymmetric information problems. It is the first attempt focusing on the role of Islamic financing in fostering corporate investment decisions.

This study aims to comprehensively examine the stock market effects of announcements by firms to issue conventional bonds versus Sukuk. In addition, the authors investigate whether the choice of instrument depends on the tax status and government backing of the issuing firm. They split the sample into whole (2000-2015), pre-crisis (2000-2007) and post-crisis (2010-2015) subsamples.

The authors use event study methodology, market model and FTSE Bursa Malaysia EMAS index on 14 different event windows of which five are symmetric and nine are asymmetric. Further, parametric and distribution-free tests are used to investigate the difference of cumulative abnormal returns when using the two instruments (Sukuk and conventional bonds). For the choice of issuing conventional bonds or Sukuk, Heckman procedure is employed to control for the self-selection of the announcement effects.

The analysis indicates only insignificant difference in reaction to Sukuk and conventional bond issuances for the overall period and pre-crisis period. However, and importantly, they find strong evidence supporting the Malaysian stock abnormal return reaction to Sukuk compared to conventional bond issuances after the global financial crisis. Interestingly, they find that tax incentives and government backing are significant determinants in issuing Sukuk over conventional bonds. Such evidence is confirmed when using a wide range of robustness checks including four different market indices and both parametric and non-parametric tests.

The empirical analysis is subject to limitations. First, the sample is limited to Sukuk issues domiciled in Malaysia. Second, given that Sukuk are collateralized whereas conventional bonds are not, it would only seem logical for the former to be issued by riskier firms whereas the latter would be issued by stronger firms with stable cash flows. The future research can explore this issue some more. Finally, comparing Sukuk with other similar ethical sources of traded capital may provide insights into the globalization of such economic, trade and financial reforms in and outside Malaysia.

To the author’s knowledge, no research has been conducted studying the differential and conflicting results to announcement of Sukuk issuance in the literature, nor the stock market effects of announcements to issue Sukuk over the pre-crisis (2000-2007) and post-crisis (2010-2015) periods. Thus, the study attempts to assess previous findings and contribute additional evidence that investigates the issue in rich setting.

This paper aims to provide an economic rationale for Islamic finance.

Its methodology is simple. It starts with listing the contributions to economic analysis relevant to the required rationale in the theories of banking, finance, price, money and macroeconomics, to identify the main rationale for Islamic finance. A concise description of the author’s model for an Islamic economic system, within which Islamic finance can be operational, is provided.

The paper finds distinct advantages of Islamic finance, when properly applied within the author’s model. Islamic finance can therefore be a candidate as a reform agenda for conventional finance. It opens the door for significant monetary reform in currently prevalent economic systems.

The first limitation of the paper is that the distinct benefits of Islamic finance are all of macroeconomic types which are external to Islamic banking and finance institutions. They are therefore not expected to motivate such institutions to apply Islamic finance to the letter, without regulators interference to ensure strict application. The second limitation is the necessity to set up enabling institutional and regulatory arrangements for Islamic finance.

The results are unique as they challenge the received doctrine and provide non-religious rationale for Islamic finance.

This paper aims to test the empirical validity of the dynamic trade-off theory in its symmetric and asymmetric versions in explaining the capital structure of a panel of publicly listed US industrial firms over the period from 2013 to 2019. It analyzes the existence of an adjustment of leverage toward its target level and whether the speed of this adjustment is influenced by the debt measure, the model specification or/and the fact that the actual debt ratio is higher or lower than its long-term target level.

This paper uses a quantitative research methodology using panel data analysis under the partial adjustment model and the error correction model using the generalized moment method in first differences and in systems to explore the dynamic nature of firms’ capital structure behavior.

The results show that the effects of the conventional determinants of leverage are globally consistent with the trade-off theory predictions. The dynamic versions confirm that firms exhibit leverage-targeting behavior. Although this speed of adjustment (SOA) depends on the debt and model specifications, it is around 60% on average. The estimated SOA is higher for the market leverage measure compared to the book leverage. The asymmetric adjustment model reveals that firms are more sensitive to reducing leverage than increasing it when they are away from their target; overleveraged firms exhibit approximately 5% faster adjustment than underleveraged firms when book leverage is used.

The originality of this research paper lies in its development and test of an asymmetric model to allow the leverage adjustment speed to vary depending on whether the firm’s debt ratio is above or below its target level and the methodological approach as well as the different model specifications used and the insights generated through the application of rigorous econometric techniques.

The purpose of this paper is to analyze whether investors perceive the issuance of sukuk differently than they do in case of conventional bonds, by using event study with superior data. Then, it analyzes whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. Finally, the paper proposes a testable model explaining the investor reaction.

This paper uses market model event study to assess investor reaction to the issuance of sukuk. Then, linear and logistic regressions are used to test whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. To investigate the differences between sukuk issuers and bond issuers, this paper tests the difference in means of issuer characteristics. Finally, the sample is subdivided into good and bad firm prospects according to dividend/earnings ratio and book-to-market ratio. The subdivisions are used to test the proposed model explaining the investor reaction.

The study finds that a large variety of firms issues sukuk. The event study reports significant negative abnormal returns around the announcement date of sukuk issuance. The study also reveals that the earning prospect of issuer firms affect the investor reaction. Firms with lower earning prospect receive a negative reaction from the investors. Also, smaller, or financially unhealthy firms are more likely to issue sukuk. Smaller and riskier firms issue sukuk, because participation in the market is less constrained. In other words, the risk-sharing nature of sukuk might imply that the firm is not confident about the future prospect. However, if the firm has good earnings prospects, investors react to the issuance of sukuk negatively.

Reliability and availability of data is a hurdle to test the investor reaction model. As more data become available, the models implications can be further tested.

This paper uses the most complete set of data to study sukuk, making it the most selection bias-free and complete study. Moreover, the proposed investor reaction model will enrich the theory.