The link between corporate governance, corporate social sustainability and credit risk of Islamic bonds

Awais Ur Rehman, Saqib Farid and Muhammad Abubakr Naeem

International Journal of Emerging Markets, 2022, vol. 18, issue 12, 5990-6014

Abstract: Purpose - Motivated by lack of empirical research on sukuk (Islamic bonds) defaults and factors influencing the credit risk in sukuk industry, the study investigates the impact of corporate governance (CG) practices and corporate social sustainability (CS) disclosures on default risk of Islamic bonds in an emerging market. Design/methodology/approach - In the Malaysian context the authors use generalized method of moments (GMM) to examine the mitigating effect of CG structure and CS disclosures on distance to default (DD) of sukuk issuers. Findings - The results show that although both CG and CS have a significant and positive relationship with distance to default, the contribution of CS to augment DD is higher. Moreover, different CG variables have a varied relationship with distance to default, while the association is positive for all three pillars of CS, videlicet economic, social and environmental sustainability. Practical implications - The findings of the study hold important implications for issuers, subscribers and regulators in the sukuk industry. Originality/value - Limited research investigates the relationship between CG, CS and default risk of Islamic bonds. In light of this, the study attempts to fill the theoretical void in literature by examining the relationship among the underlying variables.

Keywords: Sukuk; Credit risk; Corporate governance; Corporate social sustainability; Default risk (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-02-2021-0210

DOI: 10.1108/IJOEM-02-2021-0210

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