Do Markets Perceive Sukuk and Conventional Bonds as Different Financing Instruments?

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

doi:10.2139/ssrn.1833344

Cited by 33 publications

(31 citation statements)

References 25 publications

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“…Over the first decade of the 21st century the market witnessed several Sukuk issuances in different forms and structures. Since 2001, a greater number of entities such as government and corporations have started issuing Sukuk and hence establishing the Sukuk market (Saeed and Salah, 2014 Godlewski, 2011).…”

Section: Development Of the Sukuk Industrymentioning

confidence: 99%

Sukuk and conventional bonds: shareholder wealth perspective

Sherif

Erkol

2017

JIABR

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This paper investigates whether the stock market reacts differently to the issuance of fixed-rate Sukuk as compared to fixed-rate conventional bonds and hence, if there is a difference in the shareholder wealth effect of these two types of issuances. We use Malaysian publicly listed non-financial firms, event study methodology, market model and FTSE Bursa Malaysia EMAS Index on fourteen different event windows of which five are symmetric and nine are asymmetric. Our sample is divided into three subsamples: overall period (2000-2015), pre-crisis period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007) and post-crisis period (2010)(2011)(2012)(2013)(2014)(2015). Our analysis indicates only insignificant difference in the Malaysian stock market reaction to fixed-rate Sukuk-and to fixed-rate conventional bond issuances for the overall period and pre-crisis period. However, and importantly, we find a highly significant difference in the Malaysian stock market reaction to fixed-rate Sukuk compared to fixed-rate conventional bond issuances after the global financial crisis. Such evidence is confirmed when using a wide range of robustness checks including four different market indices and both parametric and non-parametric tests.

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Section: Development Of the Sukuk Industrymentioning

confidence: 99%

Sukuk and conventional bonds: shareholder wealth perspective

Sherif

Erkol

2017

JIABR

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“…Thus, the market associates higher risks to sukuk structures rather than conventional structures. Godlewski, Turk-Ariss, & Weill (2011) suggested that an adverse selection can cause this phenomenon. Firms with lower profit expectations tend to issue profit-loss-sharing based sukuk, while firms with higher profit expectations issue interest-based conventional bonds."…”

Section: Resultsmentioning

confidence: 99%

“…Another group of authors (Godlewski, Turk-Ariss, & Weill, 2011 has addressed the same question -are sukūk and bonds different -from a different angle. They try to identify differences indirectly by observing the reaction of some variables such as stock prices on comparable "events" in the bond or sukūk markets.…”

Section: Sukūk Issuance As Risk Signal In the Stock Marketsmentioning

confidence: 99%

Comparing Sukūk and Conventional Securities: The Challenge of Consistency

Karataş¹,

Nienhaus²

2015

JIBF

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Sukūk and bonds are legally distinct, but not necessarily in the perception of market players. Empirical studies show differences in yields and in the impact on other financial assets. However, the findings are not conclusive: For example, industry and idiosyncratic risks, qualitative differences between types of sukūk, the role of conventional investors and actual trading practices in OTC markets are not considered. Data have a strong country bias (Malaysia), political support for sukūk (e.g. tax incentives, initial pricing) is ignored, and models are inadequate to explain observed phenomena. The consistent integration of sukūk data, practices and models remains a challenge.

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“…The study's results confirm that market risk, credit risk, operational risk and liquidity risk significantly influence the sukuk returns. Godlewski, Turk, and Weill (2011) using Malaysian sukuk data, empirically examine whether investors react differently to the announcements of sukuk and conventional bond issues. They conclude that "the stock market is neutral to announcements of conventional bond issues, but reacts negatively to the announcements of sukuk issues."…”

Section: Theoretical Issues and Literature Reviewmentioning

confidence: 99%

Co-integration of Sukuk and Bond Yields - Evidence from Globally Placed Sukuk

Uppal¹,

Mangla²

2017

jms.2014

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The study addresses the question "How do the financial markets perceive and price internationally issued Islamic bonds?" It is examined by empirically testing for the evidence of co-integration of sukuk yields with the US Treasury yields using Vector Error Correction (VEC) models. Our results indicate that the sukuk yields are highly co-integrated with the US Treasury yields in long-term relationships. The short-term dynamics of the sukuk yields with the interest rate series is, however, complex showing bi-directional influences. We infer that the international financial markets are viewing and pricing sukuk in a manner similar to that for the conventional bonds.

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Do Markets Perceive Sukuk and Conventional Bonds as Different Financing Instruments?

Cited by 33 publications

References 25 publications

Sukuk and conventional bonds: shareholder wealth perspective

Sukuk and conventional bonds: shareholder wealth perspective

Comparing Sukūk and Conventional Securities: The Challenge of Consistency

Co-integration of Sukuk and Bond Yields - Evidence from Globally Placed Sukuk

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