Do the type of sukuk and choice of shari’a scholar matter?

What is it about?

We examine sukuk, the shari’a-compliant alternative mode of financing to conventional bonds. We analyze the stock market reaction to two key features of this instrument: sukuk type and characteristics of the shari’a scholar certifying the issue. We find that Ijara sukuk structures exert a positive influence on the stock price of the issuing firm. We observe a similar positive impact from shari’a scholar reputation and proximity to issuer.

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Why is it important?

Our findings provide important insights for the expansion of sukuk markets across different countries. They suggest that Ijara structures may benefit the most from the expansion of sukuk markets because of the better investor reaction to them compared to other structures. One of the constraints for Ijara sukuk expansion, however, is its requirement in terms of existing assets that could be relaxed looking forward to finance new assets. The findings also suggest that investors attach value to the selection of scholars with certain characteristics.