Determinants of Corporate Bond and Sukuk Ratings in Indonesia

Ni’mah, Afifatun; Laila, Nisful; Rusmita, Sylva Alif; Cahyono, Eko Fajar

doi:10.21098/jimf.v6i3.1106

Cited by 8 publications

(18 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In line with signaling theory, a higher leveraged firm would prefer to send positive signals to the market by issuing conventional bonds. A similar result was found in a study on bond ratings by Ni’mah et al (2020) for listed firms in Indonesia between 2013–17. Our findings are further supported by Ross (1977) and Denis and Mihov (2003), who asserte20d that higher leverage is used as a signaling device for better reputation in the capital market, indicating better access to finance through conventional channels.…”

Section: Discussionsupporting

confidence: 87%

Role of signaling in issuance of sukuk versus conventional bonds – an empirical analysis of the bond market in the UAE

Majumdar

Puthiya

2021

IMEFM

View full text Add to dashboard Cite

Purpose The global sukuk market has seen widespread innovations in the last couple of decades, which helped sukuk develop into one of the most acceptable Islamic instruments for raising finance. According to the State of the Global Islamic Economy Report (2018–19), United Arab Emirates (UAE) is ranked second among Islamic economies and Nasdaq Dubai is credited to be the leading international center for sukuk listings (Thomson Reuters, 2018). However, there has been limited research studies on this financing option within the region. To the best of the authors’ knowledge, this study is the first to focus on the role of signaling theory driving the financing choice for listed entities in the UAE. The paper aims to make a significant contribution in light of the recent expansion of sukuk issuances and fills the lacuna in research carried out in the UAE bond market. Design/methodology/approach This study empirically tested the hypotheses on a data set that covered a sample of 1,354 bond issuances over the period 2008–2019. The authors used logistic regression to distinguish between the issuance of sukuk versus conventional bond. Sukuk structuration leads to information asymmetry that prompts firms to send signals to the capital market. Information asymmetry has been studied in terms of issue-specific (maturity and issue size) and issuer-specific (firm size, growth, profitability, leverage) variables. Two control variables were included to capture the years under study and the macroeconomic effects of economic slowdown. Findings The banking sector accounted for 93% of bond issuances but contributed only 63% of the bond market in the UAE in terms of issue size. The data evidenced that non-banking sukuk issuances expanded over the years, with participation from sectors like real estate, oil and gas, logistics and utilities and contributed 50% of issuances in the UAE sukuk market. Typically, firms with smaller asset sizes and higher financing requirements were found to favour sukuk. The banking sector revealed irrelevance of information asymmetry, as Islamic Banks were mandated to issue sukuk. Non-financial firms with high profits and high debts were prompted to prefer conventional bonds, in line with the adverse selection mechanism. Originality/value Although UAE’s sukuk market has existed for more than a decade, scant research has been carried out. Few studies exist for the GCC region that either concentrated on stock market reactions to issuances of Islamic versus conventional bonds or studied capital market characteristics of non-financial entities alone. This is the first study to focus on signaling theory and information asymmetry playing a role in the capital structure of all listed firms (banking and non-banking) issuing bonds in the UAE.

show abstract

Section: Discussionsupporting

confidence: 87%

Role of signaling in issuance of sukuk versus conventional bonds – an empirical analysis of the bond market in the UAE

Majumdar

Puthiya

2021

IMEFM

View full text Add to dashboard Cite

show abstract

“…Furthermore, conventional bonds are issued with underwriters, a fact not necessary in the case of Sukuk. Different is also the determinant factors that influence Sukuk and bond ratings (Ni′mah et al , 2020). Finally, Sukuk must abide by Shariah (Maurer, 2010), whereas conventional bonds need to adhere to the legislation of the country they are issued in.…”

Section: Introductionmentioning

confidence: 99%

The connectedness between Sukuk and conventional bond markets and the implications for investors

Samitas¹,

Papathanasiou²,

Koutsokostas³

2021

IMEFM

View full text Add to dashboard Cite

Purpose The purpose of this paper is to examine the connectedness across a variety of Sukuk and conventional bond indices and the implications for optimal asset allocation for the period January 1, 2010–April 30, 2020. Design/methodology/approach The data set consists of five major Sukuk (Dow Jones Sukuk, Thompson Reuters BPA Malaysia Sukuk, Indonesia Government Sukuk, S&P MENA Sukuk and Tadawul Sukuk and Bonds Index) and five conventional bond indexes, one for developed (USA) and four for emerging markets (Malaysia, Indonesia, Africa and Qatar). This study investigates the connectedness and volatility spillover effects across the aforementioned indices, by following the Diebold and Yilmaz (2012) approach, based on the time-varying parameter vector autoregressive (TVP-VAR) model. In addition, this paper provides optimal hedge ratios and portfolio weights for investors. Findings The empirical results show that Sukuk and conventional bond markets are highly integrated and that total connectedness exhibits sensitivity to exogenous shocks. The Dow Jones and the Malaysian Sukuk indices are the primary shock transmitters to other markets. However, the weak volatility spillovers between the Dow Jones and conventional bonds suggest that opportunities for optimal asset allocation may in fact exist. The highest (lowest) hedging effectiveness can be achieved by taking a short position in Malaysian (Qatarian) bonds. Originality/value To the best of the knowledge, this is the largest sample taken into account to investigate the connectedness between Sukuk and conventional bonds.

show abstract

“…The difference between this study and Ni'mah et al ( 2020) research was used firm size, profitability, guarantee status, type of Sukuk, leverage, and growth, while Ni'mah et al (2020) was used ROA, Current Ratio, Debt to Equity Ratio, Growth, Securities Structure, Maturity, Bond Ratings, Sukuk Ratings. The method used in the previous study used Ordinal Logistic Regression, while this study used Panel Data Regression.…”

Section: Previous Researchmentioning

confidence: 98%

What Are the Factors Affecting the Sukuk Rating in Indonesia?

Kusumanisita¹,

Yusuf²

2022

j.econom.buss.asea

View full text Add to dashboard Cite

Penelitian ini bertujuan untuk mengidentifikasi peringkat sukuk perusahaan Indonesia dan mencoba untuk mengetahui determinan mana yang memiliki pengaruh paling signifikan. Kerangka tersebut mencoba membangun hubungan antara ukuran perusahaan, profitabilitas, leverage, pertumbuhan perusahaan, status penjaminan sukuk, dan jenis sukuk dengan peringkat sukuk dari perspektif Agency Theory. Studi ini menemukan bahwa hanya tiga variabel yang berpengaruh signifikan terhadap sukuk rating. Hasil penelitian menunjukkan bahwa firm Size, leverage, and type of sukuk berpengaruh signifikan terhadap sukuk rating, sedangkan profitabilitas, guarantee status, and growth tidak berpengaruh signifikan terhadap sukuk rating. Implikasi pada penelitian ini mencari variabel apa saja yang mempengaruhi sukuk rating. Hasil penelitian ini memiliki implikasi penting bagi pelaku industri, khususnya perusahaan penerbit, investor, dan pembuat kebijakan

show abstract

Determinants of Corporate Bond and Sukuk Ratings in Indonesia

Cited by 8 publications

References 12 publications

Role of signaling in issuance of sukuk versus conventional bonds – an empirical analysis of the bond market in the UAE

Role of signaling in issuance of sukuk versus conventional bonds – an empirical analysis of the bond market in the UAE

The connectedness between Sukuk and conventional bond markets and the implications for investors

What Are the Factors Affecting the Sukuk Rating in Indonesia?

Contact Info

Product

Resources

About