BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 6/2011:
Do markets perceive sukuk and conventional bonds as different financing instruments?
Christophe J. Godlewski ()
, Rima Turk-Ariss and Laurent Weill
Abstract: The last decade witnessed a proliferation in issues of
sukuk, Islamic financial instruments structured to replicate the cash flows
of conventional bonds. Using a market-based approach on Malaysian data, we
consider whether investors react differently to the announcements of sukuk
and conventional bond issues. Our findings suggest the stock market is
neutral to announcements of conventional bond issues, but reacts negatively
to announcements of sukuk issues. We attribute this finding to the excess
demand for Islamic investment certificates and explain the difference in
stock market reactions as an adverse selection mechanism that favors sukuk
issuance by lower-quality debtor companies. Unlike previous studies, our
findings indicate markets readily distinguish between sukuk and
conventional bonds.
Keywords: financial instruments; Islamic finance; sukuk; event studies; (follow links to similar papers)
JEL-Codes: G14; P51; (follow links to similar papers)
37 pages, May 6, 2011
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