The (little) difference that makes all the difference between Islamic and conventional bonds

Research output: Contribution to journalArticleResearchpeer-review

10 Citations (Scopus)

Abstract

This paper examines whether conventional bond ratings determinants can be similarly applied to Islamic bonds (sukuk) or if the specific Islamic features impact their credit ratings. We incorporate Islamic bond features as well as these conventional credit risk measures into the bond credit ratings model of Blume, Lim and MacKinlay (1998). We then test the model on a sample of Malaysian Islamic bonds. Our results confirm that conventional firm characteristics such as debt and size likewise drive Islamic credit ratings. Islamic bond characteristics such as the type of religious (Shariah) advisor, the regulatory changes by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the bond issuer's industry also influence their ratings. We also find that Islamic bonds were insulated from financial shocks in the conventional financial markets in 2008.
Original languageEnglish
Pages (from-to)46-59
Number of pages14
JournalPacific Basin Finance Journal
Volume42
DOIs
Publication statusPublished - Apr 2017

Keywords

  • Bond credit ratings
  • Islamic bonds
  • Sukuk

Cite this

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title = "The (little) difference that makes all the difference between Islamic and conventional bonds",
abstract = "This paper examines whether conventional bond ratings determinants can be similarly applied to Islamic bonds (sukuk) or if the specific Islamic features impact their credit ratings. We incorporate Islamic bond features as well as these conventional credit risk measures into the bond credit ratings model of Blume, Lim and MacKinlay (1998). We then test the model on a sample of Malaysian Islamic bonds. Our results confirm that conventional firm characteristics such as debt and size likewise drive Islamic credit ratings. Islamic bond characteristics such as the type of religious (Shariah) advisor, the regulatory changes by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the bond issuer's industry also influence their ratings. We also find that Islamic bonds were insulated from financial shocks in the conventional financial markets in 2008.",
keywords = "Bond credit ratings, Islamic bonds, Sukuk",
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The (little) difference that makes all the difference between Islamic and conventional bonds. / Azmat, Saad; Skully, Michael; Brown, Kym.

In: Pacific Basin Finance Journal, Vol. 42, 04.2017, p. 46-59.

Research output: Contribution to journalArticleResearchpeer-review

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AB - This paper examines whether conventional bond ratings determinants can be similarly applied to Islamic bonds (sukuk) or if the specific Islamic features impact their credit ratings. We incorporate Islamic bond features as well as these conventional credit risk measures into the bond credit ratings model of Blume, Lim and MacKinlay (1998). We then test the model on a sample of Malaysian Islamic bonds. Our results confirm that conventional firm characteristics such as debt and size likewise drive Islamic credit ratings. Islamic bond characteristics such as the type of religious (Shariah) advisor, the regulatory changes by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the bond issuer's industry also influence their ratings. We also find that Islamic bonds were insulated from financial shocks in the conventional financial markets in 2008.

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