MOTIVATION OF FIRMS TO ISSUE SUKUKS
Abstract
Our paper critically reviews the different factors that motivate a corporation to issue a Sukuk versus a Conventional Bond. Currently, Sukuk papers are growing, yet the studies are limited compared to Conventional Bond research. Our paper analyzes firm performance and characteristics to demonstrate how this affects choosing between the two securities. We examine these in a time series with the 2008 financial crisis intervention to see how this may have affected the issuance choice through logistic regression. Our study examines 628 Conventional Bonds and 227 Sukuk issuers globally across 12 countries from 2005 – 2017. We find in our research that the performance of companies issuing Sukuks resembles Conventional Bond issuers in financial performance. We confirm that larger companies will enter the Sukuk market as an alternative to the Conventional Bond market when there is a higher demand for capital. We also find that firms with higher financial performance may enter the Sukuk market as a premium where it may not be accessible in the Conventional Bond Market.
JEL Classification Codes: G15, G31, G41, F23.
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