Does Trust Level Matter in Sukuk Issuance?

Abstract

Rather than focusing on issuer characteristics as done in prior studies, this paper presents a macro-level perspective on the role of societal trust in Sukuk issuance. Using a comprehensive sample of global Sukuk issuances spanning over the period of 2001 to 2018 and controlling for issuer characteristics and Sukuk features, we find that the level of societal trust in a country significantly and positively influences the amount of Sukuk issued. These results hold after controlling for time, industry and country-specific fixed effects and are robust under various settings. Moreover, we also unfold a moderating role of societal trust in (i) mitigating the investor risk perception associated with the Sukuk investments reflected by a decline in the yield to maturity and yield spread on Sukuk issuances and (ii) improving the financial performance of the issuing firms.

Keywords: Trust, Sukuk, Islamic Finance, Culture

JEL Classification: G15, G32, Z19