Mohamed Hisham Hanifa; Abul Mansur Mohammed Masih; Obiyathulla Ismath Bacha (INCEIF, 2015)
Sukuk is dominating the Malaysian capital market with strong support from the government, mega-conglomerates and firms. As an important source of firms' financing, sukuk is increasingly catching up with existing conventional debt in terms of transaction volume and the number of deals. In spite of the rising interest among issuers in sukuk offers, research to appraise firm's issuance motives and the subsequent effects on shareholders' wealth upon sukuk and conventional bond announcement remains limited. Hence, through this initial study, firstly, we examine the association of firm specific characteristics with the respective debt security principles offers. Secondly, we also investigate the impact of each debt security offer announcement on issuer overall shareholders’ wealth effects. To address the first issue, we employed the dynamic GMM (both difference and system) analyses for testing the “partial adjustment model” with a view to investigating whether firms maintain an optimal target debt ratio when issuing each debt security principles, consistent with the trade-off theory key predictions. We also used the same model to examine the firm’s specific determinants of target debt ratio in an integrated approach. To address the second issue, we adopt both, “event-study” methodology and “wavelet” analysis. The aim is to examine the true dynamics of relationship between the debt security announcement and the shareholders’ wealth effects, given multi-horizon nature of investors.
