Testing Sukuk And Conventional Bond Offers Based On Corporate Financing Theories Using Partial Adjustment Models: Evidence From Malaysian Listed Firms

摘要

Sukuk (Islamic debt securities) are dominating the Malaysian capital market with strong support from the government, mega-conglomerates and firms. Sukuk, as an important source of firms’ financing, is increasingly catching up with conventional bonds in terms of volume of transactions and number of sukuk issuances. However, from theoretical perspectives, it is still largely unknown why some firms may consider sukuk issuance while others consistently rely on conventional bond offers. In examining this corporate financing behavior, most studies employed a partial adjustment model to predict whether firm have an optimal debt ratio, in which they partially adjust towards it when they deviate from it, consistent with trade-off prediction. Thus, the objective of this paper is twofold: firstly, to test firm target debt optimizing behavior and secondly, to find firm specific determinants of target debt ratio using a sukuk or conventional bonds issuance4 dataset. Our sample consists of 120 conventional bonds and 80 sukuk issuers from the year 2000 until 2011. We employ two advanced dynamic panel data estimators5, which have resulted in three major findings. Firstly, our results provide stronger support for trade-off view based on firm optimizing behavior among sukuk and conventional bond issuers, however with different issuance motives. Secondly, issuers of partnership-based sukuk and convertible bonds follow closely pecking order view, in which, the former is chosen if firms face a higher information asymmetry cost. Finally, while both exchange-based sukuk and straight bond issuers aligning towards a particular target, only firm with higher sales growth prefer the former. As such, together with industry insights, we attribute our findings that sukuk offers bring unique “benefits” to the issuers that may not be available if conventional bonds are issued instead, although it is against traditional theoretical interpretation.