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Book part
Publication date: 19 June 2019

Datien Eriska Utami, Irwan Trinugroho and Bruno S. Sergi

We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics…

Abstract

We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia-related factors, and firm characteristics, provide empirical evidence on the determinants of sukuk issuance type by incorporating sukuk-specific factors, firm-specific factors, and sharia compliance variables, and address the role of Sharia Supervisory Board, as the sharia representative of firm compliance for sharia products, in the issuer’s choice of sukuk type. By studying 88 sukuk issuance in Indonesia from 2009 to 2017, we find that firm profitability and the sharia compliance level have a significant effect on the probability of issuing mudharabah sukuk. Some other factors’ characteristics including sukuk yield, firm age, and inflation rate are also found to have a significant effect.

Details

Asia-Pacific Contemporary Finance and Development
Type: Book
ISBN: 978-1-78973-273-3

Keywords

Article
Publication date: 9 July 2018

Ziyaad Mahomed, Shamsher Ramadilli and Mohamed Ariff

The effects of capital-raising announcements have long been used as an indicator of increased shareholder wealth (Brown and Warner, 1985). Studies on bond announcements…

Abstract

Purpose

The effects of capital-raising announcements have long been used as an indicator of increased shareholder wealth (Brown and Warner, 1985). Studies on bond announcements, for example, have been largely inconclusive. However, when effects are measured based on bond underlying structure, “straight and convertible bonds”, then the results are more conclusive (Abdul Rahim, 2012). Furthermore, issuances around crisis period are expected to result in negative market reaction as investors prefer liquidity (Fenn, 2000).

Design/methodology/approach

Sukuk are bond-like instruments that are issued based on the Sharia guidelines and perceived to be less risky due to their risk sharing attribute. Sukuk are issued by the governments and also corporations. Sukuk can either be debt-based or equity-based. The former resembles the conventional bond, and equity-based Sukuk resembles the convertible bonds. It is interesting to ascertain the market reaction to issuance of both type of Sukuk. This study determines the wealth effects of debt-based Sukuk issuances in Indonesia, around crisis period. Sukuk issues have steadily increased in Indonesia, and it is the second largest issuer in 2015 (Zawya, 2015a, 2015b).

Findings

The market reaction to corporate Sukuk issuance by Indonesian firms is yet to be documented, and the findings of this study address this issue, especially during the crisis period when the risk aversion is high and investors prefer liquidity. The Bai and Perron’s (2003) multiple breakpoint analysis was applied to determine the crisis period, which was between 2007 and 2010.

Originality/value

The findings suggest that the market reacts positively and significantly to debt-based Sukuk issuance during the crisis period, contrary to the theory that postulates a negative market reaction. Though these findings seem to be unique, it is possible that it is a behavioral effect of investors requiring less liquidity premium during crisis, contrary to expectations (Chen et al., 2007; Amihud and Mendelson, 1986).

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 16 December 2021

Imron Mawardi, Tika Widiastuti and Muhammad Ubaidillah Al Mustofa

This study aims to examine the constraints in the issuance of municipal Sukuk in Indonesia and proposed potential solutions and strategies to support its implementation.

Abstract

Purpose

This study aims to examine the constraints in the issuance of municipal Sukuk in Indonesia and proposed potential solutions and strategies to support its implementation.

Design/methodology/approach

This study used the analytic network process (ANP) method with four groups of relevant respondents that comprised representatives from the local government, universities (academicians), experts (practitioners) and regulators.

Findings

Four elements support municipal Sukuk issuance: issuer (regional government or municipality), investor, market and infrastructure. The element with the highest score was the lack of commitment from the regional government in issuing municipal sukuk due to leadership change that occurs every five years. Thus, specific regulations that strengthen and regulate municipal Sukuk issuance and the support from the central government are the priority solutions and strategies that should be undertaken to encourage regional governments in issuing municipal Sukuk.

Practical implications

The establishment of specific regulations by the central government that support and strengthen municipal Sukuk issuance is necessary to promote successful implementation. Supports from the central government include tax incentives, accessible licensing processes and bureaucracy aids.

Originality/value

This study extended the literature by examining problems, solutions and strategies for municipal Sukuk issuance in terms of four aspects: the issuer (municipal government), investors, markets and infrastructure. The multiple aspect analyses provided a broader understanding of the lack of municipal Sukuk issuance in Indonesia.

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Journal of Islamic Accounting and Business Research, vol. 13 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 17 May 2021

Sudipa Majumdar and Rashita Puthiya

The global sukuk market has seen widespread innovations in the last couple of decades, which helped sukuk develop into one of the most acceptable Islamic instruments for…

Abstract

Purpose

The global sukuk market has seen widespread innovations in the last couple of decades, which helped sukuk develop into one of the most acceptable Islamic instruments for raising finance. According to the State of the Global Islamic Economy Report (2018–19), United Arab Emirates (UAE) is ranked second among Islamic economies and Nasdaq Dubai is credited to be the leading international center for sukuk listings (Thomson Reuters, 2018). However, there has been limited research studies on this financing option within the region. To the best of the authors’ knowledge, this study is the first to focus on the role of signaling theory driving the financing choice for listed entities in the UAE. The paper aims to make a significant contribution in light of the recent expansion of sukuk issuances and fills the lacuna in research carried out in the UAE bond market.

Design/methodology/approach

This study empirically tested the hypotheses on a data set that covered a sample of 1,354 bond issuances over the period 2008–2019. The authors used logistic regression to distinguish between the issuance of sukuk versus conventional bond. Sukuk structuration leads to information asymmetry that prompts firms to send signals to the capital market. Information asymmetry has been studied in terms of issue-specific (maturity and issue size) and issuer-specific (firm size, growth, profitability, leverage) variables. Two control variables were included to capture the years under study and the macroeconomic effects of economic slowdown.

Findings

The banking sector accounted for 93% of bond issuances but contributed only 63% of the bond market in the UAE in terms of issue size. The data evidenced that non-banking sukuk issuances expanded over the years, with participation from sectors like real estate, oil and gas, logistics and utilities and contributed 50% of issuances in the UAE sukuk market. Typically, firms with smaller asset sizes and higher financing requirements were found to favour sukuk. The banking sector revealed irrelevance of information asymmetry, as Islamic Banks were mandated to issue sukuk. Non-financial firms with high profits and high debts were prompted to prefer conventional bonds, in line with the adverse selection mechanism.

Originality/value

Although UAE’s sukuk market has existed for more than a decade, scant research has been carried out. Few studies exist for the GCC region that either concentrated on stock market reactions to issuances of Islamic versus conventional bonds or studied capital market characteristics of non-financial entities alone. This is the first study to focus on signaling theory and information asymmetry playing a role in the capital structure of all listed firms (banking and non-banking) issuing bonds in the UAE.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 5
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 4 September 2017

Mohamed Sherif and Cennet Tuba Erkol

This study aims to comprehensively examine the stock market effects of announcements by firms to issue conventional bonds versus Sukuk. In addition, the authors…

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Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Originality/value

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.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 18 May 2018

Hasib Ahmed, M. Kabir Hassan and Blake Rayfield

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Originality/value

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.

Details

Managerial Finance, vol. 44 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 26 May 2022

Tiezheng Yang

This paper aims to conduct a detailed analysis of the feasibility of issuing sukuk in China and examine the regulatory issues related to the issuance of sukuk in China.

Abstract

Purpose

This paper aims to conduct a detailed analysis of the feasibility of issuing sukuk in China and examine the regulatory issues related to the issuance of sukuk in China.

Design/methodology/approach

This study uses SWOT analysis to explore China’s internal and external environments related to the issuance of sukuks and examines the application of sukuks as an alternative financing instrument in China.

Findings

As a unique financial instrument, a sukuk can assist in meeting China’s current financing needs. Moreover, it is feasible to issue a sukuk. China should be prepared to modify its legal system and set up a regulatory framework conducive to the issuance of sukuks. Furthermore, blockchain technology can be used to overcome certain limitations of sukuks.

Originality/value

This study provides a detailed analysis of sukuk issuances in China. This study discusses the issue of sukuk issuance in China from the perspective of finance and law.

Details

Journal of Islamic Accounting and Business Research, vol. 13 no. 7
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 29 July 2019

Raditya Sukmana

The purpose of this paper is to critically evaluate the retail sovereign sukuk in Indonesia, which so far is not found elsewhere in the world and is an effective…

Abstract

Purpose

The purpose of this paper is to critically evaluate the retail sovereign sukuk in Indonesia, which so far is not found elsewhere in the world and is an effective instrument to raise funds for covering government budget deficits.

Design/methodology/approach

The paper adopts qualitative research combining literature studies, valid data from sukuk.com, government official documents and also in-depth interviews with relevant government officials to strengthen the arguments.

Findings

Competitive rates, ability to be bought by individual and risk-free funding are some of the specific features of sukuk, while economic growth and large populations are some of the key success factors.

Practical implications

This study will be the main reference for other governments which are keen to adopt similar instruments for their respective countries.

Social implications

As individual is eligible to buy this sukuk, this may lead to a better wealth distributions

Originality/value

To the best of the author’s knowledge, this paper is the first to comprehensively and critically evaluate the one and only retail sovereign sukuk as an alternative government instrument to raise funds.

Details

Qualitative Research in Financial Markets, vol. 12 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 28 July 2021

J.S. Keshminder, Mohammad Syafiq Abdullah and Marina Mardi

Green sukuk is a tool to finance climate change which has garnered considerable attention. However, having only recently come into existence has its own set of challenges…

Abstract

Purpose

Green sukuk is a tool to finance climate change which has garnered considerable attention. However, having only recently come into existence has its own set of challenges for this tool that require immediate identification and government intervention to intensify its growth. This study aims to explore the challenges encountered by green sukuk issuers and the structure of a reconciled green sukuk issuance framework to speed up the market’s growth with the right interventions.

Design/methodology/approach

The study engaged a qualitative approach via multiple case study interviews with green sukuk issuers and used expert views for data triangulation to generate the findings. A total of four green sukuk issuers participated in the interviews, and for data triangulation purposes, four expert’s opinions and views were considered. The thematic analysis technique is used to report the findings.

Findings

It was revealed that amongst the challenges encountered in the green sukuk market are shoddy green taxonomy, difficulty in identifying green assets, it is time-consuming and costly, no compelling benefits and exposure to higher-risk profiles.

Research limitations/implications

This study may be influenced by observer error and observer bias. However, the researchers have taken cautious steps to overcome these issues by following strict case study methodology procedures and triangulating the qualitative research findings with views from green sukuk experts. These interventions increased the rigour and trustworthiness of the results.

Originality/value

This study is amongst the pioneer in Malaysia, exploring challenges in the green sukuk market. The results are relevant to governments, regulators, institutions and central banks to structure the right interventions to counter the challenges. Greater government involvement is required to strengthen the green sukuk market and to spearhead the green agenda.

Details

Qualitative Research in Financial Markets, vol. 14 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 2 September 2021

Saheed Abdullahi Busari and Sikiru Olanrewaju Aminu

This study aims to explore the opportunities and challenges in activating a Smart Contract to enhance the efficiency and effectiveness of Ṣukūk offerings in the Islamic…

Abstract

Purpose

This study aims to explore the opportunities and challenges in activating a Smart Contract to enhance the efficiency and effectiveness of Ṣukūk offerings in the Islamic capital market.

Design/methodology/approach

The study adopts a mono-method qualitative approach. Data were obtained from survey interviews of two issuances on the fusion of smart contracts in Ṣukūk structures that were Sharīʿah-compliant. A thematic approach was further used to analyze the interview data based on the onion research method while opportunities and challenges of activating the Smart Ṣukūk (SṢ) relied on doctrinal evidence.

Findings

The results from the issuances across two jurisdictions showed that deployment of SṢ can resolve contractual ambiguities arising from Sharīʿah interpretations, jurisdictional policies and legal regime issues, which affect Ṣukūk origination and issuances especially on the right of investors in the event of Ṣukūk defaults. Although SṢ is automated, the third party’s presence is not eliminated as the blockchain platform still relies on the validators who are usually blockchain developers functioning as a third party in the Ṣukūk chain.

Research limitations/implications

The study relies on doctrinal literature to explain the features and requirements of SṢ. The empirical approach is limited to interview data based on local SṢ issuances. Future studies need to explore regulators’ role and global standards in cross-border issuance of SṢ with multiple jurisdictions/laws.

Practical implications

The paper concludes that the offering of SṢ using local currency has been successful in the two issuances because of the facilitative regulatory environment. However, addressing Ṣukūk’s challenges in cross-border offerings would require guidance from international standard-setters such as the Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board.

Originality/value

This study is an advanced application of smart contracts to alleviate the related Ṣukūk challenges in the Islamic capital market.

Details

Journal of Islamic Accounting and Business Research, vol. 13 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

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