Islamic Corporate Governance: Risk-Sharing and Islamic Preferred Shares

Al-Suhaibani, Mohammad and Naifar, Nader,(2014), Islamic Corporate Governance: Risk-Sharing and Islamic Preferred Shares. , J. Bus Ethics, UNSPECIFIED

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The recent financial crises (including the Asian and subprime crises) indicated the need to reinforce corporate governance mechanisms in emerging and developing market economies. Corporate governance refers to all the factors that affect firm processes (including, among others, financing strategies). Firms must avoid debt financing instruments and adopt financing instruments that allow for ‘‘risk-sharing’’ rather than ‘‘risk-shifting’’ because all recent financial crises were, in essence, debt crises. The primary objective of this paper is to examine the principles of risk-sharing promoted by Islamic finance and study their implications for corporate governance. The secondary objective of this paper is to propose a pricing model for a new risk-sharing financial instrument (Islamic preferred shares, IPS) that was recently discussed by Zarka and Al-Suhaibani (Shariah-compatible preference shares: The Sharia Basis and Economic Rationale. Working paper, SABIC Chair for Islamic Financial Market Studies, 2012). We study the implications of this new instrument as a powerful tool for corporate governance in the case of Islamic markets. We explain the possible contribution of IPS to agency cost reduction, Sharia screening costs and ethical corporate governance.
Keywords : Risk-sharing; Islamic finance; Corporate governance; Agency cost; Ethical finance; Islamic preferred shares ; Pricing model ; Monte Carlo simulations; Sharia screening, UNSPECIFIED
Journal or Publication Title: J. Bus Ethics
Volume: 124
Item Type: Article
Subjects: Ekonomi Islam
Depositing User: Heru Prastyo
Date Deposited: 30 Dec 2019 08:20
Last Modified: 30 Dec 2019 08:20

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