Chapter in Book

Capital structure serves as an important device for mitigation of agency conflicts and, although firms combine debt and cash dividends to address the agency conflicts, debt is preferred as a bonding device by many managers due to its lower cost as compared to equity (John, Knyazeva & Knyazeva, 2015). However, shariah-compliant firms (SCF) cannot use this device due to prohibition of interest-bearing loans in Islam. In this scenario, the dividend payout policy becomes a highly important tool of corporate governance for shariah-compliant investors. Moreover, the managers of these firms cannot maintain stable dividends by issuing bonds and, therefore, the dividend policy of such firms would be different. This chapter highlights the dividend payout behaviour of SCF by comparing them to conventional firms.

Investment is an activity that involves the commitment of resources for a certain holding period in anticipation of creating more resource (wealth). This chapter focuses on the risk-adjusted performance of two-specific classes of assets, namely, the socially responsible investment (SRI) class and the shariah-compliant classes of assets. The aim is to ascertain whether investors have to bear an extra cost for choosing these classes of assets in their portfolio. In managing the Islamic finance space, religiosity and/or ethical practices prompt investors to discard so-called 'sin-stocks' and limit their investment horizons to permissible faith-based investment alternatives ...

The global Islamic finance industry has evolved from a small industry to a dynamic, robust, and competitive one. Currently, the industry, built on the notion of justice and fairness, has a global asset size of approximately USD2 trillion (MIFC, 2016). Despite the soft global economic outlook, this industry is expected to grow as many more nations are embracing this alternative system that is proven to be not only profitable but also resilient to macroeconomic shocks.

Similar to any type of financial asset, sukuk are vulnerable to macroeconomic conditions and business cycles. In 1999, there were a series of high-profile sukuk defaults globally that tarnised the market's confidence in sukuk. Among these were the East Cameron Partners (ECP), in which the company failed to pay the periodic returns that amounted to US$166 million (Zaheer and Wijnbergen, 2013). Nakheel Sukuk of Dubai are issued by the Gulf Cooperation Council (GCC) and Malaysian companies that include Johor Corporation, Ingress Sukuk Berhad, Tracoma Holdings Berhad and Nam Fatt Corporation Berhad.