IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v10y2022i8p150-d872867.html
   My bibliography  Save this article

The Determinant of Sukuk Rating: Agency Theory and Asymmetry Theory Perspectives

Author

Listed:
  • Bedjo Santoso

    (Department of Management, Faculty of Economics, Universitas Islam Sultan Agung, Semarang 50145, Indonesia)

  • Widodo Widodo

    (Department of Management, Faculty of Economics, Universitas Islam Sultan Agung, Semarang 50145, Indonesia)

  • Muhammad Taufiq Akbar

    (Directorate General of Taxes, Indonesian Finance Ministry, Semarang Branch Office, Semarang 50188, Indonesia)

  • Khaliq Ahmad

    (Putra Business School (PBS), Universiti Putra Malaysia, Serdang 43400, Malaysia)

  • Rahmat Heru Setianto

    (Department of Management, Universitas Airlangga, Surabaya 60286, Indonesia)

Abstract

This research aims to develop a determinant variable of the Sukuk rating derived from agency and asymmetry theories. This research is essential because Sukuk or Islamic Bonds is needed in Indonesia, with 85% of its population out of 320 million people being Muslim. Many studies on the determinants of Sukuk ratings have been conducted and are still trending research. However, they are rarely observed from the perspective of agency and asymmetry theories, which are the basis for the relationship between principals and investors. The relationship produces three primary variables in the Sukuk rating determinants, namely financial disclosure quality (FDQ), accounting-based risks (ABRs), and earnings management (EM). This research used 570 panel annual reports from 2018 to 2020 and involved 190 firm-issued Sukuk . Meanwhile, the variables’ reflection used several indicators. SEM (structural equation modeling) was used for the statistical analysis with the help of PLS—primarily smart PLS version. The results exposed that FDQ, ABRs, and EM derived from the two theories are affected significantly by the determinant of the Sukuk rating. In comparison, earnings management successfully moderates the FDQ and Sukuk rating variables but fails to moderate the ABRs to the Sukuk rating. The conclusion also revealed that these relationship theories are fundamental in developing the Sukuk rating. However, the variables should be more complex for future research. With significant results, the agency and asymmetry theories proxied by three variables can explain the Sukuk rating. Accordingly, these theories are relevant as approaches in determining important factors of the Sukuk rating.

Suggested Citation

  • Bedjo Santoso & Widodo Widodo & Muhammad Taufiq Akbar & Khaliq Ahmad & Rahmat Heru Setianto, 2022. "The Determinant of Sukuk Rating: Agency Theory and Asymmetry Theory Perspectives," Risks, MDPI, vol. 10(8), pages 1-23, July.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:8:p:150-:d:872867
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/10/8/150/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-9091/10/8/150/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Daniel M. Covitz & Paul Harrison, 2003. "Testing conflicts of interest at bond rating agencies with market anticipation: evidence that reputation incentives dominate," Finance and Economics Discussion Series 2003-68, Board of Governors of the Federal Reserve System (U.S.).
    3. Omaima A. G. Hassan & Claire Marston, 2019. "Corporate Financial Disclosure Measurement in the Empirical Accounting Literature: A Review Article," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 54(02), pages 1-54, June.
    4. Atang Hermawan & Ardi Gunardi, 2019. "Motivation for disclosure of corporate social responsibility: evidence from banking industry in Indonesia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 6(3), pages 1297-1306, March.
    5. West, Rr, 1970. "Alternative Approach To Predicting Corporate Bond Ratings," Journal of Accounting Research, Wiley Blackwell, vol. 8(1), pages 118-125.
    6. Hanna Czaja-Cieszyńska & Dominika Kordela & Beata Zyznarska-Dworczak, 2021. "How to make corporate social disclosures comparable?," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 268-288, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Griffin, Paul A. & Hong, Hyun A. & Ryou, Ji Woo, 2018. "Corporate innovative efficiency: Evidence of effects on credit ratings," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 352-373.
    2. Hidaya Lawati & Khaled Hussainey & Roza Sagitova, 2021. "Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 557-594, August.
    3. Hans B. Christensen & Valeri V. Nikolaev, 2012. "Capital Versus Performance Covenants in Debt Contracts," Journal of Accounting Research, Wiley Blackwell, vol. 50(1), pages 75-116, March.
    4. Arpita Sharma & Shailesh Rastogi, 2021. "Impact of Efficiency on Voluntary Disclosure of Non-Banking Financial Company—Microfinance Institutions in India," JRFM, MDPI, vol. 14(7), pages 1-21, June.
    5. Juan Pedro Sanchez-Ballesta & Emma Garcia-Meca, 2011. "Ownership Structure and the Cost of Debt," European Accounting Review, Taylor & Francis Journals, vol. 20(2), pages 389-416.
    6. Pornsit Jiraporn & Pandej Chintrakarn & Jang-Chul Kim & Yixin Liu, 2013. "Exploring the Agency Cost of Debt: Evidence from the ISS Governance Standards," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(2), pages 205-227, October.
    7. Suliman Alshahmy & Hafez Abdo, 2023. "Impacts of reserve and decommissioning disclosures on value and performance of oil and gas firms listed in the UK," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(2), pages 168-184, June.
    8. Steve Fortin & Jeffrey A. Pittman, 2007. "The Role of Auditor Choice in Debt Pricing in Private Firms," Contemporary Accounting Research, John Wiley & Sons, vol. 24(3), pages 859-896, September.
    9. Mohammed T. Abusharbeh, 2024. "Technology-Profitability Paradox in Banking Sector: Evidence from Palestine," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14855-14873, September.
    10. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    11. Yeon‐Koo Che & Kathryn E. Spier, 2008. "Strategic judgment proofing," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 926-948, December.
    12. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    13. Hartarska, Valentina M. & Nadolnyak, Denis A., 2012. "Financing Constraints and Access to Credit in Post Crisis Environment: Evidence from New Farmers in Alabama," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124882, Agricultural and Applied Economics Association.
    14. Hasan, Iftekhar & Lozano-Vivas, Ana, 2002. "Organizational Form and Expense Preference: Spanish Experience," Bulletin of Economic Research, Wiley Blackwell, vol. 54(2), pages 135-150, April.
    15. Fabbri, Daniela & Menichini, Anna Maria C., 2016. "The commitment problem of secured lending," Journal of Financial Economics, Elsevier, vol. 120(3), pages 561-584.
    16. Sang Cheol Lee & Mooweon Rhee & Jongchul Yoon, 2018. "Foreign Monitoring and Audit Quality: Evidence from Korea," Sustainability, MDPI, vol. 10(9), pages 1-22, September.
    17. Lu, Yao & Zhan, Shuwei & Zhan, Minghua, 2024. "Has FinTech changed the sensitivity of corporate investment to interest rates?—Evidence from China," Research in International Business and Finance, Elsevier, vol. 68(C).
    18. DEGEORGE, François & DING, Yuan & JEANJEAN, Thomas & STOLOWY, Hervé, 2005. "Does Analyst Following Curb Earnings Management?," HEC Research Papers Series 810, HEC Paris.
    19. Xueyan Dong & Jingyu Gao & Sunny Li Sun & Kangtao Ye, 2021. "Doing extreme by doing good," Asia Pacific Journal of Management, Springer, vol. 38(1), pages 291-315, March.
    20. Gerry Gallery & Emerson Cooper & John Sweeting, 2008. "Corporate Disclosure Quality: Lessons from Australian Companies on the Impact of Adopting International Financial Reporting Standards," Australian Accounting Review, CPA Australia, vol. 18(3), pages 257-273, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:10:y:2022:i:8:p:150-:d:872867. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.