Determinants of Sukuk credit rating: evidence from issuing firms in Malaysia

Mahmoud Al Homsi, Zulkarnain Muhamad Sori and Shamsher Mohamad

Journal of Islamic Accounting and Business Research, 2023, vol. 14, issue 8, 1324-1343

Abstract: Purpose - This study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa. Design/methodology/approach - A total of 328 Sukuk issuances and 1,110 Sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and Sukuk structures (debt or equity based) were among the important determinants used to explain the different Sukuk credit ratings. Findings - The results indicate a positive association of Sukuk credit rating with issuing firm’s financial information, governance attributes and the Sukuk structure whilst the macroeconomic factors did not explain the changes in the Sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on Sukuk credit rating for listed firms whilst only firm’s profitability had a positive effect on Sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive Sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive Sukuk credit rating for unlisted firms. Equity-based Sukuk are associated with positive Sukuk credit rating for listed firms while for unlisted firms only theIjarahSukuk had a positive Sukuk credit rating. Research limitations/implications - Data on credit rating is scarce and had to be hand-collected from published reports. Furthermore, issues on the lack of standardisation of Islamic contracts in different geographical areas could constrain on the comparability of findings on determinants of ratings in different jurisdictions. Practical implications - The findings provide some guide to the rating agencies to objectively assess the issuer’s creditworthiness that could mitigate default risk. Mitigating the default risk will boost investors’ confidence and credibility of credit rating agencies. Originality/value - This study examines the determinants of Sukuk credit rating of issuing firms in Malaysia, which include not only the listed firms but also the unlisted firms.

Keywords: Sukuk; Credit rating; Governance; Sukuk structure (search for similar items in EconPapers)
Date: 2023
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-05-2022-0127

DOI: 10.1108/JIABR-05-2022-0127

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 ().