Journal Article

The last decade has witnessed a rapid expansion of Islamic financial instruments with a notable proliferation of Islamic investment certificates called sukuk. In spite of the expansion, research to appraise their growth implications remains limited. This paper investigated the structural differences within sukuk and conventional and their implications on investor return reactions. It also looked at the investors' different decision making time horizon dimensions in response to the respective debt security's announcement. Our sample consisted of 158 conventional bonds and 129 sukuk issuers between 2000 and 2013. Event-study methodology and wavelet analysis were used resulting in three major findings. Firstly, market investors perceived sukuk and conventional bonds as different financial instruments. Variations in investor reactions persisted when each sub-category of sukuk and conventional bond were examined separately. Lastly, firm value and shareholder wealth were affected in different ways upon the issuance announcement of of a specific sukuk or conventional bond. Specifically, the equity-like features within convertible bonds and partnership-based sukuk negated institutional investors' wealth, but were due to different 'dilution' arguments. Sukuk created unique wealth effects for corporate issuers, day traders and institutional investors in comparison with conventional bonds.

This paper investigates the effects of religious screening on payout behavior of US firms. Shariah compliant (SC) indices serve as suitable sample as they are emerging as alternative investment class in the last two decades. Through an analysis of a sample of US firms belonging to Dow Jones proprietary database for the period 2006-2018, this study provides evidence that SC firms are more prone to make total payout, cash dividends and repurchases. We use panel logistic regressions with industry and year fixed effects. The findings reveal that the drivers of higher propensity of total payout are higher profitability, higher retained earnings, lower debt capital structure and lower asset growth. The factors that contribute to likelihood of paying higher cash dividends are higher profitability, lower governance levels and lower market/book assets ratio. Moreover, better governance, lower asset growth and lower equity/assets increase the propensity of SC firms to make higher repurchases. These findings are important contribution to the Islamic corporate finance and dividend policy literature.

The purpose of this paper is to examine the extent of risk shifting behavior in bonds and sukuk. The examination is significant, as economists and scholars identify risk shifting as the primary cause of the global financial crisis. Yet, the dangers of this debt-financing feature are largely ignored - one needs to only witness the record growth of global debt even after the global financial crisis. To identify the signs of risk shifting existence in the corporations, this paper compares each corporation's operating risk before and after issuing debt. Operating risk or risk of a firm's activities is measured using the volatility of the operating earnings or coefficient variation of earning before interest, tax, depreciation and amortization (EBITDA). Using EBITDA as the variable offers one distinct advantage to using asset volatility as previous research has - EBITDA can be extracted directly from firms' accounting data and is not model-specific.

This paper aims at investigating the time varying relationship between Islamic equity and commodity returns in order to examine how combination of Islamic equities and commodities contribute to the benefits of portfolio investors and managers. In order to investigate this relationship, we employed multivariate GARCH method on return series of five different commodity groups (energy, precious metals, agricultural, non-ferrous metals and softs group), Dow Jones spot commodity index as a proxy of an aggregate commodity market and Dow Jones Islamic index over the period January 3, 2001 - March 28, 2013. Our findings show that correlations between commodity and Islamic stock markets’ returns change in different time periods and these two markets moved very closely during 2008 financial crisis in particular. Besides, volatility of returns in both markets reached at their peaks during the 2008 crisis period. We also show that despite sharing some common features, commodities cannot be considered as a homogeneous asset class: a speculation phenomenon is for instance, highlighted for energy sector comprising oil, while the safe-haven role of gold is evidenced, which constitutes a part of precious metal sector.

Although sukuk has been dominating the Malaysian capital market, the motivations of the firms issuing sukuk or conventional bonds remained largely unexplored. Using the partial adjustment model, we make the initial attempt, to test a firm's target debt optimizing behavior and secondly, to find the firm specific determinants of target debt ratio using a sukuk or conventional bond issuance 3 dataset. Our sample consists of 120 conventional bonds and 80 sukuk issuers from 2000 to 2012. We employ two recent dynamic panel data estimators, 4 which resulted in three major findings. Firstly, our results provide stronger support for trade-off view based on a firm's optimizing behavior among sukuk and conventional bond issuers, however with different issuance motives. Secondly, issuers of partnership-based sukuk and convertible bonds closely follow the pecking order view, in which the former is chosen based on firms facing a higher information asymmetry cost. Finally, while both exchange-based sukuk and straight bond issuers align towards a particular target, only firms with higher sales growth prefer the former. Reinforced by industry insights, our findings evidence that the sukuk offers bring unique “benefits” to corporate issuers unlike those of the conventional bonds.