The Impact of Sukuk Structures on Sukuk Ratings and Yields
DOI:
https://doi.org/10.33736/ijbs.4606.2022Keywords:
Sukuk structures, Sukuk rating, Sukuk yield, Islamic financeAbstract
Sukuk has been developed into a global asset class, supporting development with the participation of a wide range of issuers and investors irrespective of demographic continents. Sukuk structuring is not only related to regulations imposed by the regulators but also has high consideration on rating and yield performance. This study aims to examine the effect of the Sukuk structures on Sukuk rating and yield in Bursa Malaysia (Malaysian Stock Exchange) listed companies during the term of 2008–2013. This study uses the ordinal logit regression model (OLRM) to investigate the effect of Sukuk structures on the rating, and the ordinary least-square (OLS) to investigate the effect of Sukuk structures on the yield. The result demonstrates two opposite directions after controlling for firm characteristics. While Sukuk rating is negatively related to Sukuk structures, Sukuk yield shows a positive direction with Sukuk structures. This study evidently shows that the selection of Sukuk structure is among the important factors for Sukuk yield performance, in addition to fulfilling the regulatory requirements on Sukuk structuring. The selection of the best structure can achieve the issuance and investment objectives. This study was limited to the study of the relationship between Sukuk structure on Sukuk ratings and yield using the aggregate data of Malaysian public listed companies that issued Sukuk during the period of 2008 to 2013. The study provides new insights into the issue of how the Sukuk structure influences the Sukuk rating and yield. The findings of this study contribute to the existing literature on the determinants of Sukuk ratings and yields.
References
Accounting and Auditing Organization for Islamic Financial Institutions. (2010). Shari'ah Standards (3nd ed). AAOIFI.
Adesina-Uthman, G. A. (2011). Performance and term structure of profit rate of Sukuk bonds in Malaysia. [Thesis, University Putra Malaysia].
Ahmad, W., & Radzi, R. M. (2011). Sustainability of Sukuk and conventional bond during financial crisis: Malaysia's capital market. Global Economy and Finance Journal, 4(2), 33-45.
Al-Hares, O. M., AbuGhazaleh, N. M., & El-Galfy, A. M. (2013). Financial performance and compliance with Basel III Capital Standards: Conventional vs. Islamic banks. Journal of Applied Business Research, 29(4), 1031-1048. https://doi.org/10.19030/jabr.v29i4.7914
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315-342. https://doi.org/10.1016/j.jacceco.2004.01.004
Aquil, B. (2005). Takaful: Models and Markets in United Kingdom and Europe. In Jaffer, S. (Ed.), Islamic Retail Banking and Finance: Global Challenges and Opportunities. Euromoney Books.
Arundina, T., & Omar, M. A. (2010). Determinant of Sukuk rating; The case of Malaysia. [Doctoral Dissertation, International Islamic University Malaysia]. https://lib.iium.edu.my/mom/services/mom/document/getFile/SmCJnmHZa66vtYnaVA2frGAIsxzCBOWK20170906085624965
Arundina, T., Kartiwi, M., & Omar, M. A. (2016). Artificial intelligence for Islamic Sukuk rating predictions. In C. L. Dunis, P. W. Middleton, K. Theofilatos & A. Karathanasopoulos (Eds.), Artificial intelligence in financial markets (pp. 211-241). Palgrave Macmillan. https://doi.org/10.1057/978-1-137-48880-0_8
Arundina, T., Omar, M. A., & Kartiwi, M. (2015). The predictive accuracy of Sukuk ratings; Multinomial Logistic and Neural Network inferences. Pacific Basin Finance Journal, 34, 273-292. https://doi.org/10.1016/j.pacfin.2015.03.002
Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R. (2006). The effects of corporate governance on firms' credit ratings. Journal of Accounting and Economics, 42(1-2), 203-243. https://doi.org/10.1016/j.jacceco.2006.02.003
Benaicha, M., Saif Qasem, B. M., & Abubakar Kassim, A. A. (2019). Selected Shariah issues in Sukuk structures: A comparative approach. International Journal of Management and Applied Research, 6(4), 328-343. https://doi.org/10.18646/2056.64.19-025
Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. The Journal of Business, 76(3), 455-476. https://doi.org/10.1086/344114
Bradley, M., Chen, D., Dallas, G. S., & Snyderwine, E. (2007). The relation between corporate governance and credit risk, bond yields and firm valuation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1078463
Butler, A. W., Fauver, L., & Mortal, S. (2009). Corruption, political connections, and municipal finance. Review of Financial Studies, 22(7), 2873-2905. https://doi.org/10.1093/rfs/hhp010
Dusuki, A. W. (2010). Do equity-based Sukuk structures fulfil the objectives of Sharī'ah (Maqāsid al-Sharī'ah)? Journal of Islamic Business and Management, 14(2), 127-151. https://doi.org/10.12816/0027406
Elyasiani, E., Jia, J. J., & Mao, C. X. (2010). Institutional ownership stability and the cost of debt. Journal of Financial Markets, 13(4), 475-500. https://doi.org/10.1016/j.finmar.2010.05.001
El-Galfy, A., & Khiyar, A. (2012). Islamic banking and economic growth: A review. Journal of Applied Business Research, 28(5), 943-956. https://doi.org/10.19030/jabr.v28i5.7236
Fairchild, L., Shin, Y., & Yan, Y. (2015). Does SEC rating agency certification matter? The case of A.M. Best. International Journal of Financial Research, 6(4), 10-21. https://doi.org/10.5430/ijfr.v6n4p10
Fama, E. F., & Miller, M. H. (1972). The theory of finance. Holt, Rinehart and Winston.
Grassa, R. (2016). Corporate governance and credit rating in Islamic banks: Does Shariah governance matters? Journal of Management and Governance, 20(4), 875-906. https://doi.org/10.1007/s10997-015-9322-4
Han, S. H., Moore, W. T., Shin, Y. S., & Yi, S. (2013). Unsolicited versus solicited: credit ratings and bond yields. Journal of Financial Services Research, 43(3), 293-319. https://doi.org/10.1007/s10693-012-0137-z
Hijazi, F., Howladar, K., Lotter, P., Hassoune, A., & Gribot-Carroz, D. (2009). Global Sukuk issuance: 2008 slowdown mainly due to credit crisis, but some impact from Shari'ah compliance issues. Moody's Investors Service, London.
Hovakimian, A., Kayhan, A., & Titman, S. (2009, February). Credit rating targets. (Working Paper). https://doi.org/10.2139/ssrn.1098351
International Islamic Financial Market. (IIFM) (2020). Sukuk report, a comprehensive study of the global Sukuk market (9th ed). https://www.iifm.net/frontend/generaldocuments/bb676e86bd089c016b9d937badcce1881635251491.pdf
Iqbal, Z., & Mirakhor, A. (2011). An Introduction to Islamic Finance: Theory and Practice (2nd edition). John Wiley & Sons. https://doi.org/10.1002/9781118390474
Kamaluddin, N., Manan, S. K. A., Sufian, F., & Htay, S. N. N. (2012, October 18-20). Shari'ah principles of Sukuk structure in Malaysia Islamic capital market. 3rd Terengganu International Business and Economics Conference (TIBEC 111), Terengganu, Malaysia. http://irep.iium.edu.my/id/eprint/28223
Khudari, M., & Saad, N. M. (2019). Sukuk issuance in the emerging markets-a relative evaluation. International Journal of Engineering and Advanced Technology, 9(1), 3571-3574. https://doi.org/10.35940/ijeat.A2689.109119
Lahsasna, A., & Lin, L. S. (2012). Issues in Islamic capital markets: Islamic bond/sukuk. 3rd International Conference on Business and Economic Research, Bandung, Indonesia.
Malaysia International Islamic Financial Centre. (MIFC) (2013). Sukuk Using Musyarakah Structure. http://www.mifc.com/index.php?ch=ch_kc_definitions&pg=pg_kcdf_Sukuk&ac=306
Majid, H. A., Shahimi, S., & Abdullah, M. (2011). Sukuk defaults and its implication: A case study of Malaysian capital market, 8th International Conference on Islamic Economics and Finance, Qatar. http://www.iefpedia.com/english/wp-content/uploads/2011/12/Hafizi-Ab-Majid.pdf
Rating Agency Malaysia (2009). Sukuk Wrap-up 2009. Rating Services Berhad.
Rating Agency Malaysia (2013). Sukuk Focus Edition. Rating Services Berhad.
Saad, N. B. M., & Mohamed, N. E. A. B. (2012). Sukuk in Malaysian capital market. 3rd International Conference on Business and Economic Research (3rd ICBER 2012), Bandung, Indonesia.
Securities Commission of Malaysia. (2009). Malaysian debt securities and Sukuk market. https://www.sc.com.my/api/documentms/download.ashx?id=9b218a7d-9ce0-47e6-a2e1-2ee38bad11b1
Securities Commission of Malaysia. (2017). Guidelines on issuance of corporate bonds and sukuk to retail investors. https://www.sc.com.my/api/documentms/download.ashx?id=dfc6c5dc-8945-4e40-ac56-9a8ac69bf66f
Shaheen, R., & Javid, A. Y. (2014). Effect of credit rating on firm performance and stock return: evidence form KSE listed firms [Working Paper No 2014:104], Pakistan Institute of Development Economics Islamabad.
S&P Global Ratings. (2016). Islamic Finance Outlook Report (2017 ed). https://www.spglobal.com/ratings/en/
Tariq, A. A. (2004). Managing financial risks of Sukuk structures. [Dissertation, Loughborough University, UK].
Torres-Reyna, O. (2012). Data and statistical services: Getting started in data analysis using Stata and R, Logit and Ordered Logit Regression. Stata Tutorial Princeton. Princeton University. https://www.princeton.edu/~otorres/Logit.pdf.
Uluyol, O., Lebe, F., & Akbas, Y. E. (2014). The relation between financial leverage and return on equity of the companies : A research on the companies traded on İstanbul stock exchange in the base of industries. Journal of Business Research-Türk, 1(6), 70-89. https://doi.org/10.20491/isader.2014115964
Vogel, F. E., & Hayes, S. L. (1998). Islamic Law and Finance: Religion, Risk, and Return. Mass, Kluwer Law International.
Zakaria, N. B., Isa, M. A. M., & Abidin, R. A. Z. (2012). The construct of Sukuk, rating and default risk. Procedia-Social and Behavioral Sciences International Congress on Interdisciplinary Business and Social Science, 65, 662-667. https://doi.org/10.1016/j.sbspro.2012.11.181
Zakaria, N. B., Isa, M. A. M., & Abidin, R. A. Z. (2013). Sukuk rating, default risk and earnings response coefficient. Advances in Natural and Applied Sciences, 7(2), 131-137.
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
