Abstract
This study investigates the relationship between Gross Domestic Product (GDP), Consumer Price Index (CPI), Unemployment Rate (UE), Interest rate (IR), Household Debt (HD) on bankruptcy discharge and test the application of an Islamic concept of mutual cooperation, Social Relief Fund (SRF) to enhance the bankruptcy discharge. The study period is from 2000 to 2019. The autoregressive distributed lag (ARDL) was used in the study. Two models were tested; Model 1 consists of the macroeconomic variables without SRF and Model 2, with SRF. Model 1 shows none of the variables has significant effect on bankruptcy discharge for long run relationship. However, Model 2 shows GDP, CPI and SRF have significant positive long run relationship with bankruptcy discharge. This provides statistical evidence that SRF has a beneficial long-run relationship to enhance bankruptcy discharge in Malaysia. For short run relationship, Model 1 reveals GDP, CPI, and UE as significant variables to discharge. Model 2 shows stronger short run relationships in which GDP, IR, HD, SRF are positive and CPI is negative to bankruptcy discharge. These variables are significant at 1 percent level. The findings contribute new knowledge on determinants of bankruptcy discharge in Malaysia. The study provides empirical evidence that SRF is a potential component as a social safety net in providing financial assistance among distressed debtors from bankruptcy. We recommend the use of SRF as the current bankruptcy reform is being viewed from the legislative lens and lacks the social capital component to assist debtors achieve financial restitution.
Highlights
Financial crisis, economic recession and natural calamities such as COVID 19 pandemic forced many businesses to close down and businessmen to bankruptcy
We investigate macroeconomic factors which influence bankruptcy discharge and testing the application of an Islamic concept of mutual cooperation using AlNahd and Ta’awun; Islamic social capital concept to provide a solution for the problem on bankruptcy discharge
This paper highlights the problem faced in Malaysia with regards to personal bankruptcy and personal bankruptcy discharge
Summary
Economic recession and natural calamities such as COVID 19 pandemic forced many businesses to close down and businessmen to bankruptcy. One of the legal reforms from bankruptcy is bankruptcy discharge. A person can be discharged from bankruptcy by order of the court after the debtor pays all his debts according to the prescribed schedule. There are many factors which affect the debtor’s ability to pay especially when he is already bankrupt. The main issue is the inability to raise the funds for the discharge. We investigate macroeconomic factors which influence bankruptcy discharge and testing the application of an Islamic concept of mutual cooperation using AlNahd and Ta’awun; Islamic social capital concept to provide a solution for the problem on bankruptcy discharge
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