Preference of sukuk over conventional bond by Malaysian Corporates

Malaysia has dual banking systems consisting of conventional and Islamic banking systems. In a country that is dominated by conventional banking system as compared to Islamic banking which raises a question why Malaysia is the most successful country in the world for sukuk issuance with having over 86% of the market share in the short-term global market valuing USD 318 billion. The objective of the paper is to look in to the determinants that companies consider while selecting sukuk over conventional bonds based on the studies of Nagano et al (2010) and Shahida and Sapiyi (2013). The paper found that both researches had no specially focused on purely on sukuk and conventional bonds in Malaysia as they focused mainly on Islamic capital structure. The variables that have bene considered for the study are: capital investment (asse creation), firm size, return on asset, total sukuk outstanding, total bond outstanding, tax incentives and total markup and yearly financing cost of borrowing. A cross sectional model was used to run two regression using the sample size of 43 public and private companies that have bonds and sukuk outstanding in the market from the period 2009 to 2018. Taxation, firm sizes and capital investment are significant in explaining the company’s determinants to select issuance of sukuk over conventional bonds. The new variable introduced as finance cost doesn’t have significant impact on sukuk issuance. The paper provides a bases for other markets around the world to further study these variables to increase issuance in their countries