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Why do companies issue sukuk?

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  • Klein, Paul-Olivier
  • Weill, Laurent

Abstract

This paper investigates the determinants for firms to choose sukuk over conventional bond. We investigate the potential impact of information asymmetries through moral hazard and adverse selection to explain why firms prefer using sukuk. We perform logit regressions of the choice of debt type to determine which characteristics lead a firm to issue a sukuk rather than a bond. We use a dataset of sukuk and conventional bond issuances in Malaysia from 2004 to 2013. We find evidence of the influence of information asymmetries and adverse selection on the choice of the sukuk market.

Suggested Citation

  • Klein, Paul-Olivier & Weill, Laurent, 2016. "Why do companies issue sukuk?," Review of Financial Economics, Elsevier, vol. 31(C), pages 26-33.
  • Handle: RePEc:eee:revfin:v:31:y:2016:i:c:p:26-33
    DOI: 10.1016/j.rfe.2016.05.003
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    1. Arnoud W. A. Boot & Radhakrishnan Gopalan & Anjan V. Thakor, 2008. "Market Liquidity, Investor Participation, and Managerial Autonomy: Why Do Firms Go Private?," Journal of Finance, American Finance Association, vol. 63(4), pages 2013-2059, August.
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    9. Sweder van Wijnbergen & Sajjad Zaheer, 2013. "Sukuk Defaults: On Distress Resolution in Islamic Finance," Tinbergen Institute Discussion Papers 13-087/VI/DSF57, Tinbergen Institute.
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    16. Timur Kuran, 1995. "Islamic Economics and the Islamic Subeconomy," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 155-173, Fall.
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    Cited by:

    1. repec:ers:journl:v:xx:y:2017:i:3b:p:393-401 is not listed on IDEAS
    2. Nagano, Mamoru, 2017. "Sukuk issuance and information asymmetry: Why do firms issue sukuk?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 142-157.
    3. repec:mbr:jmonec:v:10:y:2015:i:3:p:1-28 is not listed on IDEAS

    More about this item

    Keywords

    Financial instruments; Islamic finance; Debt issuance; Emerging countries;

    JEL classification:

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

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