The link between corporate governance, corporate social sustainability and credit risk of Islamic bonds

PurposeMotivated by lack of empirical research on sukuk (Islamic bonds) defaults and factors influencing the credit risk in sukuk industry, the study investigates the impact of corporate governance (CG) practices and corporate social sustainability (CS) disclosures on default risk of Islamic bonds i...

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Bibliographic Details
Published in:International journal of emerging markets 2023-12, Vol.18 (12), p.5990-6014
Main Authors: Ur Rehman, Awais, Farid, Saqib, Naeem, Muhammad Abubakr
Format: Article
Language:English
Subjects:
Corporate governance
Costs
Credit risk
Debt management
Default
Emerging markets
Hypotheses
Islam
Islamic financing
Islamic law
Moral hazard
Social sustainability
Stakeholders
Stockholders
Sustainability
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Summary:PurposeMotivated by lack of empirical research on sukuk (Islamic bonds) defaults and factors influencing the credit risk in sukuk industry, the study investigates the impact of corporate governance (CG) practices and corporate social sustainability (CS) disclosures on default risk of Islamic bonds in an emerging market.Design/methodology/approachIn the Malaysian context the authors use generalized method of moments (GMM) to examine the mitigating effect of CG structure and CS disclosures on distance to default (DD) of sukuk issuers.FindingsThe results show that although both CG and CS have a significant and positive relationship with distance to default, the contribution of CS to augment DD is higher. Moreover, different CG variables have a varied relationship with distance to default, while the association is positive for all three pillars of CS, videlicet economic, social and environmental sustainability.Practical implicationsThe findings of the study hold important implications for issuers, subscribers and regulators in the sukuk industry.Originality/valueLimited research investigates the relationship between CG, CS and default risk of Islamic bonds. In light of this, the study attempts to fill the theoretical void in literature by examining the relationship among the underlying variables.
ISSN:1746-8809
1746-8817
DOI:10.1108/IJOEM-02-2021-0210