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Sukuk vs. conventional bonds: A stock market perspective

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  • Godlewski, Christophe J.
  • Turk-Ariss, Rima
  • Weill, Laurent

Abstract

The last decade witnessed a wide expansion of Islamic finance in Middle Eastern and Southeast Asian countries. Sukuk issues, which are Islamic financial instruments structured to replicate the cash flows of conventional bonds, have notably proliferated, fuelling the debate on the similarity between Islamic and conventional finance. Using an event study methodology on a sample of Malaysian listed companies, we investigate whether stock market investors react differently to the announcements of sukuk and conventional bond issues. We find that the stock market is neutral to announcements of conventional bond issues, but it reacts negatively to announcements of sukuk issues. We attribute this finding to the excess demand for Islamic investment certificates and to an adverse selection mechanism that favors sukuk issuance by lower-quality debtor companies.

Suggested Citation

  • Godlewski, Christophe J. & Turk-Ariss, Rima & Weill, Laurent, 2013. "Sukuk vs. conventional bonds: A stock market perspective," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 745-761.
    • Handle: RePEc:eee:jcecon:v:41:y:2013:i:3:p:745-761
    DOI: 10.1016/j.jce.2013.02.006
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    More about this item

    Keywords

    Financial instruments; Islamic finance; Malaysia;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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