Credit risk in Islamic joint venture bond

This paper focuses on Islamic joint venture (IJV) bonds and examines whether conventional structural credit risk models capture Islamic bonds’ underlying risk. Their various extensions have first been adjusted for the IJV bonds’ unique characteristics and then tested through simulations to identify...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2014-07, Vol.103, p.S129-S145
Main Authors: Azmat, Saad, Skully, Michael, Brown, Kym
Format: Article
Language:English
Subjects:
Bond issues
Credit ratings
Credit risk
Economic models
Islamic bonds
Islamic financing
Risk assessment
Studies
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Summary:This paper focuses on Islamic joint venture (IJV) bonds and examines whether conventional structural credit risk models capture Islamic bonds’ underlying risk. Their various extensions have first been adjusted for the IJV bonds’ unique characteristics and then tested through simulations to identify any appraisal issues. The models are then used to assess data from 52 Malaysian Islamic bond issuers. We find that conventional structural models and their Islamic extensions misevaluate IJV bonds and so afford them lower credit ratings.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2014.03.020