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Sukuk vs. conventional bonds: A stock market perspective

Author

Listed:
  • Christophe J. Godlewski

    (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)

  • Rima Turk-Ariss
  • Laurent Weill

    (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Christophe J. Godlewski & Rima Turk-Ariss & Laurent Weill, 2013. "Sukuk vs. conventional bonds: A stock market perspective," Post-Print hal-03047768, HAL.
    • Handle: RePEc:hal:journl:hal-03047768
    DOI: 10.1016/j.jce.2013.02.006
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    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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