How sukuk shapes firm performance

What is it about?

We analyse the impact of sukuk issuance on the performance of the issuing firms in Malaysia. Sukuk is an alternative mode of financing to bonds that is compliant with the islamic law and Malaysia is the biggest country of issuance for corporate sukuk. We find that sukuk are issued by more profitable firms but its issuance generates a negative stock market reaction.

Featured Image

Why is it important?

The results are important to have a better view of all consequences of the issuance of sukuk for a firm. Our findings support the view that adverse selection does not take place at the firm level but at the investment project level. Issuing sukuk hampers firm performance and increases agency problems. Our findings contribute to understand the implications of sukuk issuance and then of the expansion of sukuk markets. Indeed, by end of 2013, worldwide value of outstanding sukuk was US$270 billion, representing 14.6% of global Islamic financial assets.