The value of certification in Islamic bond offerings

We examine whether reputable intermediaries provide valuable certification which help corporate issuers of Islamic bonds lower their cost of capital. Our focus on Islamic bonds is motivated by the fact that besides information risk, investors also face unique Shariah non-compliance risk. Based on a sample of 3462 Islamic bond tranches issued in Malaysia from 2001 to 2014, we find certification by reputable Shariah advisors and Shariah committees is associated with a significantly lower average bond spread, as is information certification by reputable lead arrangers. Our results thus support the certification hypothesis