Sukuk vs. conventional bonds: A stock market perspective

Christophe Godlewski, Rima Turk-Ariss and Laurent Weill
Authors registered in the RePEc Author Service: Rima Turk Ariss

Journal of Comparative Economics, 2013, vol. 41, issue 3, 745-761

Abstract: The last decade witnessed a wide expansion of Islamic finance in Middle Eastern and Southeast Asian countries. Sukuk issues, which are Islamic financial instruments structured to replicate the cash flows of conventional bonds, have notably proliferated, fuelling the debate on the similarity between Islamic and conventional finance. Using an event study methodology on a sample of Malaysian listed companies, we investigate whether stock market investors react differently to the announcements of sukuk and conventional bond issues. We find that the stock market is neutral to announcements of conventional bond issues, but it reacts negatively to announcements of sukuk issues. We attribute this finding to the excess demand for Islamic investment certificates and to an adverse selection mechanism that favors sukuk issuance by lower-quality debtor companies.

Keywords: Financial instruments; Islamic finance; Malaysia (search for similar items in EconPapers)
JEL-codes: G14 P51 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:41:y:2013:i:3:p:745-761

DOI: 10.1016/j.jce.2013.02.006

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