Sukuk and Conventional Bond Issuance
Malaysian is having sustainable foreign flows of the capital market from both conventional and Islamic issuance. Being recognized as a market leader in Islamic bonds or better known as sukuk, evidence of its enormous growth since 1970s. Centering on the p
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Sukuk and Conventional Bond Issuance Wahida Ahmad
Abstract Malaysian is having sustainable foreign flows of the capital market from both conventional and Islamic issuance. Being recognized as a market leader in Islamic bonds or better known as sukuk, evidence of its enormous growth since 1970s. Centering on the private debt market, the paper is to find evidence if currency exchange rates, overnight prime rate (OPR), and industrial production index (IPI) growth does influence the issuance of conventional bonds and sukuk. Using balanced monthly aggregate data, the study covers issuance from January 2008 until April 2014. By pooling the data, the Ordinary Least Squares (OLS) estimation reveals currency exchange significantly influence Malaysian private capital market while the study fails to rule out the null hypotheses for the OPR and the IPI growth. The result indicates depreciation of Ringgit will encourage greater conventional and sukuk issuance. The moderating variable evidence difference effects of OPR on sukuk and conventional bonds. Meanwhile, with regards to the model, the Islamic dummy implies there is a negative effect of sukuk issuance compared to conventional bond issuance in Malaysia. Keywords Capital market
Sukuk
1 Introduction Malaysian capital market plays an important role in business development and country growth. Among others, it provides liquidity to both domestic and international markets. As the Islamic financial market evolves, the existence of the Islamic bond market in Malaysia increasingly supports the capital market. As reported by the Global Islamic Finance Forum (2010), almost half of Malaysian Islamic financial assets contributed by sukuk issuance. Sukuk or similar refer to W. Ahmad (&) Faculty of Business Management, Universiti Teknologi MARA Perlis, 02600 Arau, Perlis, Malaysia e-mail: [email protected] © Springer Science+Business Media Singapore 2016 M.A. Abdullah et al. (eds.), Regional Conference on Science, Technology and Social Sciences (RCSTSS 2014), DOI 10.1007/978-981-10-1458-1_29
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W. Ahmad
Islamic bonds issued alongside the existing of conventional bonds in the market, rapidly become important in Malaysia. The development of sukuk issuance in Malaysia started since 1990 where Malaysia is recognized as the pioneer issuer of sukuk. To date, Malaysia has contributed a significant amount of sukuk issuance worldwide, followed by the Middle East countries. In the dual-capital market, sukuk becomes an alternative to the conventional source of financing, the straight or conventional bonds. Compliance to Shari’ah, the structure and provision of sukuk and conventional bonds differs. Knowing the facts, it is worth to investigate if there are any differences in terms of their issuance. This paper is to identify if the selected economics factors do influence Malaysian capital market, the sukuk, and conventional bond issuance.
2 Literature Survey Many empirical studies on the determinants of bond issuance have taken place from various aspects. One prominent area is the inf
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