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Islamic finance and market segmentation: Implications for the cost of capital

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  • Hearn, Bruce
  • Piesse, Jenifer
  • Strange, Roger

Abstract

This paper considers the impact of full Islamic shari’ya compliance on developing stock exchanges in their effective provision of development capital. Evidence from a unique study focussing on the Sudan telecommunications company and its listings on the Khartoum as well as Arabian Gulf stock exchanges reveals that costs of capital are considerably higher in the former than latter markets. While there are firm governance benefits arising from Islamic finance monitoring costs are substantial and the banking system is better placed to administer financing arrangements. Larger firms are better placed to circumvent this segmentation through cross-listing on regional exchanges.

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  • Hearn, Bruce & Piesse, Jenifer & Strange, Roger, 2012. "Islamic finance and market segmentation: Implications for the cost of capital," International Business Review, Elsevier, vol. 21(1), pages 102-113.
    • Handle: RePEc:eee:iburev:v:21:y:2012:i:1:p:102-113
    DOI: 10.1016/j.ibusrev.2010.11.007
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    6. Uddin, Md Akther, 2015. "Principles of Islamic Finance: Prohibition of Riba, Gharar and Maysir," MPRA Paper 67711, University Library of Munich, Germany.
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