Are Islamic Investment Certificates Special? Evidence on the Post-Announcement Performance of Sukuk Issues

44 Pages Posted: 8 Jul 2010

See all articles by Christophe J. Godlewski

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business; EM Strasbourg Business School; LaRGE Research Center

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Multiple version iconThere are 2 versions of this paper

Date Written: July 7, 2010

Abstract

The last decade has witnessed rapid expansion of Islamic financial instruments, notably with the proliferation of Islamic investment certificates called Sukuk. Sukuk generally represent the Islamic financial instrument equivalent to conventional bonds. We evaluate the economic differences between these financing techniques and appraise the implications on the future expansion of Sukuk. We use a market-based approach to investigate whether investors react differently to the announcements of issues of Sukuk and conventional bonds. We find that the stock market is neutral to the announcement of conventional bonds, but we observe a significant negative stock market reaction to the announcement of Sukuk. We explain this different stock market reaction using the adverse selection mechanism, which favors Sukuk issuance by lower-quality debtor companies. Unlike arguments presented in prior literature, our results support the view that differences exist between Sukuk and conventional bonds because the market is able to distinguish among these securities.

Keywords: financial instruments, Islamic finance, sukuk, event studies

JEL Classification: G14, P51

Suggested Citation

Godlewski, Christophe J. and Turk-Ariss, Rima and Weill, Laurent, Are Islamic Investment Certificates Special? Evidence on the Post-Announcement Performance of Sukuk Issues (July 7, 2010). Available at SSRN: https://ssrn.com/abstract=1635878 or http://dx.doi.org/10.2139/ssrn.1635878

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

EM Strasbourg Business School ( email )

61 Avenue de la Forêt Noire
Strasbourg, 67000
France

HOME PAGE: http://www.em-strasbourg.eu/

LaRGE Research Center ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

Rima Turk-Ariss

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

Laurent Weill (Contact Author)

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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