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Determinants of sukuk credit rating: evidence from issuing firms in Malaysia

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Date
2023
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Abstract
This study aims to examine the determinants of sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa. A total of 328 sukuk issuances and 1,110 sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and sukuk structures (debt or equity based) were among the important determinants used to explain the different sukuk credit ratings. The results indicate a positive association of sukuk credit rating with issuing firm's financial information, governance attributes and the sukuk structure whilst the macroeconomic factors did not explain the changes in the sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on sukuk credit rating for listed firms whilst only firm's profitability had a positive effect on sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive sukuk credit rating for unlisted firms. Equity-based sukuk are associated with positive sukuk credit rating for listed firms while for unlisted firms only the ijarah sukuk had a positive sukuk credit rating.
Keywords
Sukuk , Credit rating , Governance , Sukuk structure
Citation
Al Homsi, M., Muhamad Sori, Z., & Ramadili Mohd, S. M. (2023). Determinants of sukuk credit rating: evidence from issuing firms in Malaysia. Journal of Islamic Accounting and Business Research, 14(8), 1324-1343. https://doi.org/10.1108/JIABR-05-2022-0127
Publisher
Emerald Publishing Limited
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Determinants_of_sukuk_credit_rating_evidence_from_issuing_firms_in_Malaysia_Mahmoud_Zulkarnain_Shamsher.pdf

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