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This study aims to examine the potential of Sharia status as ex ante information to signal the quality of an issuing firm by improving the decision-making process of potential investors when assessing initial public offerings (IPOs) in an environment where information asymmetry is pronounced. Potential investors face challenges in evaluating and determining the true value of IPO issues, which inherently influences their decision-making. Consequently, this results in pronounced price fluctuations in IPO shares, leading to higher underpricing.

This study uses a sample of 350 IPOs listed on the Kuala Lumpur Stock Exchange (KLSE) between 2004 and 2021 to examine the signaling role of Sharia-compliance status. A three-model approach is used to ensure that the study's objectives are met. The first model investigates the effect of Sharia status on underpricing to determine whether the main beneficiary of such a signal is the investor or the issuer. The second model examines the effect of Sharia status on investor demand to determine if such a signal influences prospective investors' investment decision-making processes. The third model inspects the effect of Sharia status on investor divergence of beliefs to measure the signal's ability to reduce information asymmetry within the Malaysian IPO market.

The Malaysian IPO market relies heavily on the fixed-price mechanism, which exacerbates high information asymmetry, affecting potential investors' behavior, asset price formation and return generation on the first day of listing. The study results indicate that Sharia status does not have any signaling role in the Malaysian IPO market. This is because investors in the Malaysian market are driven by ex ante information that helps unveil relevant information that leads to capital gains. Furthermore, most new issues in the Malaysian IPO market fall under Sharia status, diluting the relevance of such information for prospective investors in determining profitable investments.

The findings highlight the challenges faced by issuing firms in estimating market demand due to limited premarket insights and the difficulties prospective investors face in identifying the quality of issuing firms. Efforts to provide more information on investor demand can reduce uncertainty and facilitate more informed decision-making.

This research stands as one of the pioneering efforts to provide an empirical explanation of the potential signaling influence of Sharia status in an emerging IPO market.

This study aims to examine the extent to which traditional juristic approaches to determining intention in Islamic law are altered in the institutional framework and standard-setting project of the Malaysian state.

The study used the transnational law theory, which views normativity as culturally, socially and religiously embedded. The development of norms, customs and laws is also contingent on self-maximizing behavior. The Sharīʿa Advisory Council’s interpretation of the bayʿ al-ʿīnah standard is a case study of this approach to the development of law.

This study shows that traditional approaches to determining the validity of an Islamic contract have been displaced by the institutional logic of the state, which prioritizes uniformity and certainty in law and reflects liberal, Western and capitalistic values. Islamic standard setting is part of the state’s objective to uniformize law due to the globalization of financial markets. The normative collisions in the standard-setting project produce a new jurisprudence based on the state’s uniform and purposive determination of a contract’s validity.

Further research on institutional frameworks is needed to conceptualize how Islamic commercial principles and ethics can be incentivized in the state’s legal systems.

Few works, if any, have examined the interaction of the state’s institutional environment with jurists’ traditional approaches to determining contractual intention. Most scholarship assumes the decisive role of market forces, but the role of law and institutions in this context is under-researched.

This paper aims to examine the relationship between Shariah compliance and corporate capital structure decisions. This study explores the variation of capital structure speed of adjustment.

The authors’ sample includes a sample of the largest 200 nonfinancial firms trading in the Malaysian and Pakistan stock markets. This study uses ordinary least squares and dynamic two-step system generalized method of moments to test the hypotheses of the study.

The results show that Shariah-compliant firms use a lower level of leverage than the noncomplaint firms. Moreover, while both types of firms have optimal capital structures, the speed of adjustment toward the targets is slower for Shariah-complaint firms than non-Shariah-compliant firms. This variation can be seen through the different levels of market imperfection experienced by the two types of firms. Shariah-compliant firms follow Islamic rules that restrict the type and degree of leverage, thus affecting the availability of external funding to Shariah-compliant firms.

The findings call for more development and innovation of financing instruments that comply with Shariah rules that will increase of supply of external funds for Shariah-compliant firms and, thus, reduce market imperfections that are faced by Shariah-compliant firms.

The study contributes to the limited number of studies that examine the nexus between conventional corporate theories and Islamic corporate finance.

The purpose of this study is to empirically investigate the asymmetric effects of financial risk on Sukuk market development for a sample of Malaysian countries over the period of 2010–2021.

This study refers to the International Country Risk Guide (ICRG) in determining the financial risk factors to be studied in addition to the Malaysia financial stress index (FSI) to capture changes in financial risk level. The authors use the nonlinear autoregressive distributed lag (NARDL) model to tackle the nonlinear relationships between identified financial risk variables and Sukuk market development.

The results suggest the existence of a long-run relationship between foreign debt service stability, international liquidity stability (ILS), exchange rate stability (ERS) and financial stress level with the Sukuk market development in Malaysia. Indeed, higher ILS and ERS will boost Sukuk market size, whereas higher foreign debt services and financial stress are negatively related to Sukuk market development. Findings also indicate that the long-run positive and negative impacts of identified financial risk components on Sukuk market development are statistically different. Taking into account the role of the Sukuk market in facilitating Malaysia’s economic growth, the country should aim to keep the foreign debt-to-GDP ratio at a sustainable level.

This study points to three possible directions for future research. The first is the differential impact of financial risk components on Sukuk issuance for different Sukuk structures. As more data becomes available in the future, this area could be further explored by conducting the above analysis for different combinations of Sukuk structures and currency denominations. In addition, future researchers could also consider exploring the variability of financial risk impacts through comparative studies of the leading Sukuk-issuing countries to account for differences in regulatory frameworks and supporting infrastructure.

This study provides valuable practical and policy implications for strengthening the growth of the Sukuk market. While benefiting from the diversification benefits of funding sources to finance private or government projects and developments, Malaysia should remain vigilant to global economic conditions, foreign exchange markets and financial stress levels, as all of these factors may significantly influence investor sentiment and the rate of return offered by Sukuk issuance.

The use of the NARDL approach, which investigates the long-run effects of financial risk factors on Sukuk market development in Malaysia, makes this study a valuable addition to the literature, as there has been little research into the asymmetric effects of those variables on Sukuk market development using samples from emerging Asian markets.

Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

From 1979 to 2023, the takaful structure has been adopted in many jurisdictions, making the documenting of its early days of establishment relatively difficult and somewhat unreliable. This is unlike conventional insurance, where the history and legislation are well documented and archived in various research (Hellwege, 2016; Marano and Siri, 2017). The purpose of this paper is to provide a chronology for the establishment and development of takaful via the takaful establishment in each jurisdiction, documenting its first takaful operator and first takaful regulation.

This paper has used a qualitative method in the form of reviewing literature and available data such as journals, books and official resources. The data is thoroughly analysed in order to build the chronology for takaful. It adopted an exploratory research design, which is deemed suitable in situations where few works of literature have examined the subject (Neuman, 2014). The paper explores the establishment and non-establishment of takaful in 57 countries. The paper categorises the countries into seven regions starting with the GCC, Levant, Asia, Central Asia, Africa, Europe and Others.

The takaful chronology presented in this paper shows that takaful operations exist in 47 jurisdictions, starting from Sudan and the UAE in 1979, with the most recent adopters being Morocco and Iran in December 2021. It is found that 22 jurisdictions do not have takaful regulations, and the Takaful Act 1984, issued in Malaysia, is considered the first takaful regulation that sets the basis for other regulations that follow.

The paper contributes to the literature by providing a comprehensive chronology of takaful, especially as the few existing timelines have been found to be incomplete and consist of contradictory information.

SRI Sukuk, with its outcome-based emphasis, aims to align the Islamic finance industry with its original ideals and address criticisms related to form over substance. In Malaysia, while the pioneering Sukuk Ihsan was a “social” sukuk, recent SRI Sukuk issuances have predominantly been “green” or “sustainable” sukuk. This paper aims to evaluate the Malaysian SRI Sukuk market, identifying factors favouring “green” sukuk. It also examines whether structural issues in Sukuk Ihsan deterred subsequent issuers from “social” sukuk. The emergence of SRI Sukuk responds to sustainable development goals and the shift towards a low-carbon economy. Sukuk Ihsan, as the first Shariah-compliant pay-for-success structure, poses complexity and risk management challenges to meet performance criteria.

The study used a qualitative method in the form of a critical review of literature, interview sessions with experts and stakeholders who are familiar with SRI Sukuk and Sukuk Ihsan and a case study analysis of Sukuk Ihsan.

The popularity of “green” sukuk reflects the growing global environmental consciousness. The main factors driving the popularity of “green” sukuk are the maturity of the market and the existence of a strong supporting infrastructure for “green” issuances while the positive profiling benefits and availability of incentives for “green” issuances also contribute to a lesser extent. The recommendations include the promotion of “social” sukuk by regulators through a focus on establishing a similar supporting infrastructure for “social” sukuk as there are for SRI and standard Sukuk. In addition, issuers of “social” sukuk may want to reconsider the inclusion of key performance indicators (“KPI”) into the structure of future “social” sukuk issuances.

Although all respondents considered Sukuk Ihsan to be a success, some potential areas of improvement were also noted. These include the structuring of future “social” sukuk issuances with a bigger discount to compensate for the additional risk being assumed by the investor; the need to be more careful in the KPI selection process; and one respondent even went so far as to suggest the possibility of totally removing the step-down feature of Sukuk Ihsan.

Industry implications of Sukuk Ihsan study include findings that require balancing disclosure and economics by providing additional disclosure requirements for SRI Sukuk that may pose risks without corresponding benefits for issuers. KPI selection and investor confidence should also be properly identified, as KPIs are essential for the pay-for-success model to work successfully. For sukuk holders, findings indicate that any approval for waivers during issuance can impact investor confidence negatively. Investor literacy and impact understanding should also be improved for social Sukuk success. Investors should understand the different risk exposures and evolving impact requirements vital for sustainable growth.

The findings provide significant implications for social impact Sukuk issuance. They include providing a substantial case study for future social impact issuances, based on the pioneering impact of Sukuk Ihsan. Furthermore, Sukuk Ihsan’s unqualified success validates the feasibility of socially responsible sukuk. Despite its early introduction, both tranches being fully subscribed reflects robust investor interest. Stakeholders were also proud of their involvement in such an initiative, viewing it as a significant achievement in creating societal impact.

Although there have been several prior studies done on Sukuk Ihsan, the focus of those studies was on its structure and the novelty of its “step down” returns structure where investors would receive lower returns if certain key performance indicators (“KPIs”) are met by Yayasan AMIR in the execution of its Trust School Programme. Bearing in mind that the first Sukuk Ihsan has a June 2022 maturity date, and the results of its KPIs were announced in December 2021, to the best of the authors’ knowledge, this is the only documented case study that comprehensively reviews Sukuk Ihsan and identifies lessons learned and/or opportunities for improvement for the benefit of potential SRI Sukuk issuers in the future.

In this research, arbitrage opportunity is tested between the yield rates computed by the NSS model, and the computed forward rates between conventional and Islamic finance to see any arbitrage opportunity. The research questions are the conventional and Islamic finance yields at the same level and equal to each other to avoid arbitrage? Whether conventional and Islamic forward rates differ significantly and thus create any arbitrage opportunity. This study aims to find the presence or absence of arbitrage between conventional and Islamic finance yield rates.

The NSS model is the latest model in calculating yield and forward rates. In the method the error level is minimized so expected yield rate and given yield rate both converged (Vahidin and Anastasios, 2020). When they converged it gives the researchers all six months’ yield rates. For the Nelson Siegal method, all the six months’ yield rates are available and these yield rates can be used to compute the forward rates.

The authors concluded there is a significant difference between the conventional yield rate and the Islamic yield rate. It suggests that because there are significant differences, its suggest arbitrage is possible. So anyone interested in making a guaranteed profit. The conventional yield rates are lower; hence, anyone can borrow from the conventional finance system and invest the money in the Islamic financial system because investments are getting higher rates of income in the form of yield rate in Islamic Finance. So, one can make money because of this difference. Statistically, it is possible to make money, but practically, the authors observed the difference, however it is very meager. The arbitrage opportunity between Islamic finance and conventional finance will not affect the economy because the significant difference is too small. The disturbance in the arbitrage opportunity due to the values is very meager and insignificant.

This research does not address the derivative contracts’ role in risk management; future researchers could take up this as another research.

This research will be beneficial for financial institutions, especially institutional investors. Besides, this research will help the regulators and investment bankers in assisting where and future losses especially bond portfolios in conventional finance and Islamic finance. This study will also contribute and help the asset manager of mutual funds in the mutual fund industries.

In effect, this research will strengthen the financial system, capital market and bond market, derivative contracts such as options contracts, futures contracts, swap contracts and forward contracts will use computed forward rates for assessing future losses (value at risk [VaR]) and to hedge them (Balakrishnan, 2020).

As this topic is rarely studied it will increase the literature present in this domain.

This paper aims to examine the profitability of Islamic banks benefits from economic freedom and its subcomponents.

This study uses a sample of 41 Islamic banks from the Organization of Islamic Cooperation (OIC) Countries selected from 2010–2020. It conducts an empirical approach based on the System Generalized Method of Moments (SGMM).

Overall, economic freedom has a substantial impact on the profitability of Islamic banks. We then investigate the relationship between the subcomponents of economic freedom and the profitability of Islamic banks. The study’s breakdown components suggest that financial and investment freedoms are favorable indicators, while business and monetary freedoms have a negative effect.

This research can serve as a guideline for Islamic bank management in terms of maintaining performance. The results of this study provide policy implications for the government to offer friendly regulations for economic actors to engage in financial transactions by looking at the economic freedom sub-component.

To the best of the authors' knowledge, the study of the role of economic freedom in Islamic banking performance is limited, particularly in the context of OIC Countries.

This study aims to examine the impacts of global geopolitical risks (GPRs) and COVID-19 pandemic stringency on the size of Sukuk issuance in Malaysia.

To examine the issue, this paper collected yearly data for the Sukuk issuance from the DataStream, and the rest of the variables, including the control variables from the World Bank, were from 2018 to 2022. Several econometric approaches have been used, that is, ordinary least square (OLS), two-stage least squares (2SLS) and generalized method of moment (GMM) with fixed effects and random effects in examining the impacts.

The results demonstrate that global GPRs negatively impact the size of Sukuk issuance due to the investment risk during the high global geopolitical conflicts, war and rampant terrorism. Besides, the COVID-19 pandemic-related stringency also similarly affects the country's Sukuk issuance market because of the long-time lockdown measures, border closures, travel restrictions and low access to the market. The control variables also demonstrate similar results except for the gross domestic products, which shows positive and significant impacts on the Sukuk market of Malaysia.

The study's policy implications for Sukuk investors and issuers stress the importance of disclosing risk mitigation procedures, strengthening the regulatory framework and raising investor knowledge to attract and protect investors in the Sukuk sector.