Firm Opacity and Islamic Securities Issuance

Abstract

We study the relationship between opacity and external funding decisions when different types of sukuk and conventional financial instruments are available. For this purpose, we construct an opacity index for 107 Malaysian firms issuing sukuk and conventional financial instruments during 2005-2017. We apply a mixed-level multinomial logistic model for our analysis. We find that as opacity levels increase, the probability of firms issuing zero-coupon sukuk is the greatest followed by conventional bonds and profit-loss sharing sukuk, and equity. Our results suggest that issuing zero-coupon sukuk requires more supervision, which has important implications for policy-makers and investors.

Keywords: Corporate Capital Structure, Opacity, Islamic Finance, Sukuk, Emerging Markets, Multilevel Multinomial Logistic Model

JEL Classification: G3, G39, G32, D22, Z12