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Which firms do prefer Islamic debt? An analysis and evidence from global sukuk and bonds issuing firms

Md Hamid Uddin, Sarkar Humayun Kabir, Mohammed Sawkat Hossain, Nor Shaipah Abdul Wahab and Jia Liu

Emerging Markets Review, 2020, vol. 44, issue C

Abstract: The Islamic debt instrument sukuk has been in the market for two decades; still, we do not know why a firm prefers an Islamic debt over conventional debt, set aside religiosity issue. We argue there is a genuine reason to choose Islamic debt because it has lighter indebtedness, benefits of avoiding external monitoring, and tax incentives. Based on the cross-country data for 346 firms issuing dollar-denominated global sukuk and bonds, we find that firms that prefer Islamic debt and issue sukuk are financially more unstable, and thus exposing to higher insolvency risk as compared to bond issuing firms.

Keywords: Islamic debt; Sukuk; Bond; Insolvency risk; Debt market barrier (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ememar.2020.100712

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