Sukuk announcement effects during financial crisis: the case for Indonesia

Ziyaad Mahomed, Shamsher Ramadilli and Mohamed Ariff

Journal of Islamic Accounting and Business Research, 2018, vol. 9, issue 4, 567-586

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 theShariaguidelines 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. TheBai 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 (Chenet al., 2007;Amihud and Mendelson, 1986).

Keywords: Financial crisis; Indonesia; Sukuk; Announcement effect; Debt-based Sukuk; Equity-based Sukuk (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-10-2017-0143

DOI: 10.1108/JIABR-10-2017-0143

Access Statistics for this article

Journal of Islamic Accounting and Business Research is currently edited by Dr Mohammad Hudaib and Prof Roszaini Haniffa

More articles in Journal of Islamic Accounting and Business Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().