Sukuk and Conventional Bond Issuance

Abstract

Malaysian is having sustainable foreign flows of the capital market from both conventional and Islamic issuance. Being recognized as a market leader in Islamic bonds or better known as sukuk, evidence of its enormous growth since 1970s. Centering on the private debt market, the paper is to find evidence if currency exchange rates, overnight prime rate (OPR), and industrial production index (IPI) growth does influence the issuance of conventional bonds and sukuk. Using balanced monthly aggregate data, the study covers issuance from January 2008 until April 2014. By pooling the data, the Ordinary Least Squares (OLS) estimation reveals currency exchange significantly influence Malaysian private capital market while the study fails to rule out the null hypotheses for the OPR and the IPI growth. The result indicates depreciation of Ringgit will encourage greater conventional and sukuk issuance. The moderating variable evidence difference effects of OPR on sukuk and conventional bonds. Meanwhile, with regards to the model, the Islamic dummy implies there is a negative effect of sukuk issuance compared to conventional bond issuance in Malaysia.