Asymmetric information and securitization design in Islamic capital markets

Halim, Zairihan Abdul and How, Janice and Verhoeven, Peter and Hassan, M. Kabir,(2019), Asymmetric information and securitization design in Islamic capital markets. , Pacific-Basin Finance Journal, UNSPECIFIED

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Motivated by religious prescriptions and severe informational problems in the corporate sukuk market, we investigate how capital market imperfections influence sukuk securitization design, focusing on tranching and subordination practices. Employing negative binomial regressions and a 2SLS regression framework for a sample of 335 corporate sukuk offerings in Malaysia between 2001 and 2014, we find Islamic finance principles matter to sukuk securitization design. For private firms, lease-based sukuk have less tranching, consistent with the significance of collateral value resilience (asset tangibility) in reducing investment risk. Contrary to expectations, equitybased sukuk have fewer tranches and lower levels of subordination – findings which we attribute to the principal and profit guarantee under this structure. We also find support for the stylized view that securitization stems from asymmetric information and market segmentation arguments. An implication of our research is that investors should pay attention to how sukuk structure, information asymmetry, and credit risk impact subordination to avoid deals with poor credit enhancement
Keywords : Tranching Securitization Subordination Sukuk Adverse selection Asymmetric information Market segmentation, UNSPECIFIED
Journal or Publication Title: Pacific-Basin Finance Journal
Item Type: Article
Subjects: Ekonomi Islam
Depositing User: Nila Nurjanah
Date Deposited: 20 Dec 2019 08:20
Last Modified: 20 Dec 2019 08:20

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