Societal trust and Sukuk activity

Abstract

Sukuk investments require investors and issuers to adhere to subtle moral and ethical
standards beyond following mere profit maximization objectives. Investor trust
manifested through the level of societal trust could be vital in the global Sukuk investment
surge. This study investigates the relationship between the societal trust level and
Sukuk activity. It employs a global sample of Sukuk issuances spanning over
2001–2019 and finds that a country’s societal trust level significantly and positively
influences the amount of Sukuk issued. Moreover, this positive effect supersedes the
negative effects of higher information asymmetry associated with equity-based Sukuk
or Sukuk issued by risky firms. Ultimately, trust is both a deterrent and critical for
Islamic finance success.

Keywords: Trust, Sukuk, Islamic Finance, Culture

JEL Classification: G15, G32, Z19