How Sukuk Shapes Firm Performance

24 Pages Posted: 12 Mar 2018

See all articles by Paul‐Olivier Klein

Paul‐Olivier Klein

University of Strasbourg

Laurent Weill

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

Christophe J. Godlewski

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

Date Written: March 2018

Abstract

With the large expansion of Islamic finance in the recent years, sukuk, which are the Sharia‐compliant substitute to conventional bonds, are now becoming more prominent. The aim of this study was to examine the impact of sukuk issuance on firm performance. To do so, we analyse how stock market performance and operating performance (OP) are influenced by issuance of sukuk and bonds on a sample of Malaysian listed companies. We consider the short‐term and medium‐term stock market reaction through the computation of cumulative abnormal returns and buy‐and‐hold abnormal returns. We investigate the impact on OP by performing regressions and by calculating abnormal operating performance (AOP) so that we can compare how issuance affects similar firms. We find that sukuk issuance generates a negative stock market reaction both in the short term and in the medium term. We also find evidence that issuing sukuk hampers OP. The analysis of AOP shows that sukuk issuers have better performance than their matched bond issuers, but that sukuk contributes to reduce the gap in performance over time. Overall, our results support the view that sukuk issuance hampers stock market performance, but that it is not attributable to a signalling effect on the bad financial situation of the issuer. We interpret our findings as evidence of adverse selection taking place on the financed projects and agency problems stemming from the specific sukuk structuring with stock market investors more reluctant to invest in sukuk issuers.

Suggested Citation

Klein, Paul‐Olivier and Weill, Laurent and Godlewski, Christophe J., How Sukuk Shapes Firm Performance (March 2018). The World Economy, Vol. 41, Issue 3, pp. 699-722, 2018. Available at SSRN: https://ssrn.com/abstract=3137360 or http://dx.doi.org/10.1111/twec.12509

Paul‐Olivier Klein (Contact Author)

University of Strasbourg

61, avenue de la foret noire
Strasbourg, Alsace 3000
France

Laurent Weill

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

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/

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