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Sukuk issuance and information asymmetry: Why do firms issue sukuk?

Mamoru Nagano

Pacific-Basin Finance Journal, 2017, vol. 42, issue C, 142-157

Abstract: This study investigates the factors that promote a bank borrower to issue sukuk rather than conventional debt security in Malaysia and Indonesia from 2000 to 2014. First, our empirical results show that a bank borrower is likely to approach the sukuk market as the funding size grows and if the firm is valued highly. Second, we find that under high information asymmetry, a firm with a high stock price and large funding demand prefers sukuk issuance to conventional debt. We conclude that firms use the sukuk market as an intermediate funding market when the funding demand is too large to borrow from banks and the information asymmetry is too high for them to approach the conventional debt market.

Keywords: Sukuk; Debt issuance; Hold-up theory; Pecking order effect (search for similar items in EconPapers)
JEL-codes: G15 G30 O16 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:pacfin:v:42:y:2017:i:c:p:142-157