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Daily traders' and institutional investors' wealth effect upon sukuk and conventional bond announcements: a case study of Malaysian firms using event-study methodology and wavelet analysis

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Date
2014
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Abstract
The last decade has witnessed a rapid expansion of Islamic financial instruments with a notable proliferation of Islamic investment certificates called sukuk. In spite of the expansion, research to appraise their growth implications remains limited. This paper investigated the structural differences within sukuk and conventional and their implications on investor return reactions. It also looked at the investors' different decision making time horizon dimensions in response to the respective debt security's announcement. Our sample consisted of 158 conventional bonds and 129 sukuk issuers between 2000 and 2013. Event-study methodology and wavelet analysis were used resulting in three major findings. Firstly, market investors perceived sukuk and conventional bonds as different financial instruments. Variations in investor reactions persisted when each sub-category of sukuk and conventional bond were examined separately. Lastly, firm value and shareholder wealth were affected in different ways upon the issuance announcement of of a specific sukuk or conventional bond. Specifically, the equity-like features within convertible bonds and partnership-based sukuk negated institutional investors' wealth, but were due to different 'dilution' arguments. Sukuk created unique wealth effects for corporate issuers, day traders and institutional investors in comparison with conventional bonds.
Keywords
Conventional bonds , Signaling theory , Sukuk , Wavelet analysis
Citation
Hanifa, Mohamed Hisham and Mohammed Masih, Abul Mansur and Bacha, Obiyathulla Ismath. (2014). Daily traders' and institutional investors' wealth effect upon sukuk and conventional bond announcements: a case study of Malaysian firms using event-study methodology and wavelet analysis. Capital Markets Review, 22, pp. 59-81.
Publisher
Bursa Malaysia & Malaysian Finance Association
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