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The Role of Ownership and Governance Mechanism in Sukuk Financing by Malaysian Firms: An Application of A Double Selection Model

Dawood Ashraf, Muhammad Suhail Rizwan and Saad Azmat
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Muhammad Suhail Rizwan: NUST Business School, National University of Sciences and Technology, Islamabad, Pakistan
Saad Azmat: Lahore University of Management Sciences Lahore, Pakistan

No 2018-2, Working Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: After controlling for the double selection bias in a sequential three-equation model of the decisions to issuance, to choose a Sukuk structure, and the volume of Sukuk engagements, we find robust evidence suggesting that ownership structure and governance mechanisms play a significant role in controlling agency costs through issuance of Sukuk. In line with monitoring hypothesis, we find that higher government ownership positively influences the decisions to participate, issue a debt-like Sukuk and volume thereof. Similarly, in line with complementarity hypothesis, the empirical evidence suggests that firms with higher board of directors’ independence are more likely to participate in issuing Sukuk with higher volumes. We also find that ethnicity, in the form of a higher proportion of Malay/Muslim members on the board of directors, does not influence the initial decision on whether or not to issue Sukuk. However, once the decision to issue Sukuk is made, firms with higher institutional ownership or a higher proportion of Malay/Muslim board members are more likely to issue equity-like Sukuk

Keywords: ukuk Financing; Ownership Structure; Governance Mechanisms; Double Selection Models (search for similar items in EconPapers)
JEL-codes: F40 G21 G29 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cdm, nep-cfn, nep-isf and nep-sea
Date: 2018-05-14
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