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PurposeThe study of credit risk has been of the utmost importance when it comes to measuring the soundness and stability of the banking system. Due to the growing importance of Islamic banking system, a fierce competition between Islamic and conventional banks have started to emerge which in turn is impacting credit riskiness of both banking system.Design/methodology/approachUsing the system GMM technique on 283 conventional banks and 60 Islamic banks for the period of 2006–2017, this paper explores the important impact of size and competition on the credit risk in 15 dual banking economies.FindingsThe authors found that as bank competition increases credit risk seems to be reduced. On the size effect, the authors found that big Islamic banks are less risky than big conventional banks whereas small Islamic banks are riskier than small conventional banks. The results are robust for different panel data estimation models and sub-samples of different size groups. The findings of this paper provide important insights into the competition-credit risk nexus in the dual banking system.Originality/valueThe paper is specifically focused on credit risk in dual banking environment and tries to fill the gap in the literature by studying (1) do the Islamic and conventional banks exhibit a different level of credit risk; (2) does competition in the banking system impact the credit risk of Islamic and conventional banks and finally (3) do the big and small banks exhibit similar levels of credit risk.

PurposeTo examine the impact of corporate governance on Cost of Capital (COC) and financial distress in the ASEAN countries.Design/methodology/approachWe compiled a list of the 50 largest publicly listed firms by market capitalization in each of the following five East Asian countries, namely Malaysia, Singapore, Thailand, the Philippines, and Indonesia. Furthermore, we then divided the five countries into two distinctive categories – (i) Malaysia and Singapore (Common Law/strong legal protection countries) and (ii) Thailand, the Philippines, and Indonesia (Civil Law/weak legal protection countries). The annual data is collected for the time period ranging from 2006 to 2015, allowing a total observation of 1,317 firm years.FindingsOverall, the paper supports the findings of many researchers that Board independence, promulgating good corporate governance, leads to better access to capital at lower cost, thus providing growth opportunities for ASEAN region. Taking lead from Simpson and Gleason (1999) and similar, we emphasize that during financial distress CEO duality will strengthen control systems and reduce internal discord in ASEAN firms.Originality/valueThe paper is one of the niche studies that has incorporated the difference between civil and common law rule in the study of corporate governance and its impact on financial measures of firms' in the ASEAN countries.

Recent financial crises have highlighted the importance of banking regulations to hedge against the high risk accredited to imbalances in banks' balance sheets. Nonetheless, banking regulations may have adverse effects. On the one hand, they serve as prudential measures that alleviate the effects of crises on the stability of the banking system while on the other hand; they may increase the cost of intermediation and reduce banks' profitability. Implementation of non-suitable regulations such as Islamic banks adopting conventional banks regulations could also impair banks' performance. This paper analyses the linkages between bank regulatory and supervisory structures associated with Basel III's pillars has any significant impact on Islamic banks' performance in Asia and Gulf Cooperation Council (GCC) using two-step Generalized Methods of Moments (GMM) technique. Findings suggest that regulatory variables are positively significant with Islamic banks' performance in Asian region but not in the GCC. JEL classification: G21, L5

The novel Coronavirus disease (COVID-19) has quickly evolved from a provincial health scare to a global meltdown. While it has brought nearly half the world to a standstill it has affected the financial markets in unseen ways by eroding a quarter of wealth in nearly a month. This paper investigates the reaction of financial markets globally in terms of their decline and volatility as Coronavirus epicentre moved from China to Europe and then to the US. Findings suggest that the earlier epicentre China has stabilized while the global markets have gone into a freefall especially in the later phase of the spread. Even the relatively safer commodities have suffered as the pandemic moves into the US.

PurposeThe purpose of this paper is to investigate the default characteristics of Sukuk issues by corporate firms in Malaysia using value-at-risk (VaR) techniques over a period of 16 years from 2000 to 2015 and across nine economic sectors.Design/methodology/approachThe paper employs non-parametric and Monte Carlo simulations to estimate Sukuk defaults.FindingsThe authors analyses revealed that the VaR predictions were fairly consistent with the ratings provided by credit rating agencies, despite the limited tradability of Sukuk in the secondary market. The study was able to demonstrate that Sukuk is not riskier than conventional bonds in the Malaysian context.Research limitations/implicationsThe research findings suggested that VaR values will depend on the fundamental value of a firm based on the considerations of market, credit and operational risk. It does not rely on the type of debt instrument, whether a Sukuk or conventional bonds.Practical implicationsThe use of Sukuk along with conventional bonds as debt instruments creates opportunities for investors and bond issuers globally.Originality/valueAlthough Sukuk has generated much interest among financial market players, studies are lacking on how to predict Sukuk defaults and whether Sukuk has the same risk profile compared to conventional bonds.

Purpose The purpose of this paper is to examine if the hedging strategy of the firm adds value to the firm, and if so, is the source of the benefit consistent with the hedging theory? Design/methodology/approach The paper used data from 129 top non-financial Indian companies spanning a period of 2008-2015 and analyzed using the ordinary least squares regression technique. Findings The study finds that firms engaged in hedging compared to non-hedgers have less volatility in the firm’s value. The use of hedging during the financial crisis is found to be value enhancing for the hedgers. The results also found that some firms do not disclose the notional value of derivatives clearly, which highlights the need of clear regulation for derivative declaration in the annual reports. Research limitations/implications Research implications of this study are to gain an insight into the hedging effectiveness in the highly volatile Indian market as compared to developed countries. High volatility in the exchange rate of Indian rupee further makes it one of the most relevant markets to study the effect of hedging on the firm’s value. Practical implications Mostly hedging is done purely for risk management, and if managers try to time the market by selective hedging, it can bring a negative impact for the firm. Findings show that managers should manage their hedging strategy based on changing the economic environment and not purely on the firms’ financial value. Originality/value To the authors’ best knowledge, this is the first study to extract the dollar value of derivative usage of sample firms and analyze its effectiveness in enhancing firm value in the presence of other financial parameters. This will be an advancement of previous studies, which used hedging as a dummy variable only. Most studies on this topic are carried out in developed countries; there is a limited research on developing markets such as India, and past studies have been more generic one like determinants of hedging and overall derivative scenario.

The objective of this paper is to analyse the time-varying changes of the three parameters, volatility, efficiency and integration on stock markets across emerging markets. We do this using a four-step process with focus on Multifractal Detrended Fluctuation Analysis to measure its efficiency. Our analysis show that lower volatility was found in short-term for countries that experienced fast paced economic growth. This increase in volatility is supported by a decrease in efficiency for the short-term, while market integration rose during periods of crises, which represent higher volatility. Hence, a tripartite relationship between our parameters is observed.

An index-linked coupon bond is defined that pays coupons whose values are stochastic, depending on a market defined index. This is an asset class distinct from the existing coupon bonds. The index-linked coupon bond is an example of a sukuk, which is an instrument that implements one of the cornerstones of Islamic finance (Askari et al., 2012): that an investor must share in the risk of the issuer in order to earn profits from the investment. The index-linked coupon bond is defined using the mathematical framework of quantum finance (Baaquie, 2004, 2010). The coupons are stochastic, with the quantum of coupon payments depending on a publicly traded index that is chosen to reflect the primary drivers of the revenues of the issuer of the bond. The index ensures there is information symmetry – regarding the quantum of coupon being paid – between issuer and investor. The dependence of the coupon on the index is designed so that the variation of the index mirrors the changing fortunes of the issuer, with the coupon’s quantum increasing for increasing values of the index and conversely, decreasing with a fall of the index.

Literature is rife with studies on efficiency of stock markets and financial performance aspects. One such aspect is the measurement of sectoral efficiency amongst stock markets. While there are several studies analysing sectorial efficiency, there is no study on the efficiency of Islamic sector indexes. The rise of Islamic indices has raised the question and multiple studies have been undertaken in exploring and validating the better performance from a risk return framework for the Islamic indices. This study attempts to pioneer in this niche area by conducting a comparative analysis of 10 sectoral global indices for both conventional and Islamic counterpart spanning over 18 years. The sample time period runs from 1 January 1996 until 31 December 2014. To further validate our study, we have divided our data into four major time periods, to factor in different phases the world markets have gone through in the sample period, i.e. 1996–2000; 2001–2002; 2003–2006 and 2006 to 2014. The methodology selected in understanding the efficiency of these sectoral stock indices is the multifractal de-trended fluctuation analysis (MFDFA). Our analysis reveals that in the shorter horizon, efficiency tends to follow a similar pattern amongst the conventional and Islamic counterpart. Furthermore, Islamic sectoral indices generally tend to exhibit a higher efficiency regime across the last decade. Overall, Islamic index seems to have stayed attractive and resilient, allowing conformity with the weak form efficient market hypothesis.

Islamic banks should share their profits and losses with their customers through equity financing but most of their assets are mark-up financing, which resembles loans. Theoretically, one of the reasons is Islamic banks operate in poor contracting environments where equity financing is very risky. Using fixed-effects models, we examine whether better contracting environments induce Islamic banks to shift from mark-up to equity financing. We find no evidence that contracting environments do, which means debt-like instruments will continue dominating Islamic banks’ assets in the near future.

This study investigates the impact of the Board characteristics, Chief Executive Officer’s (CEO) power and Shariah supervision on Earnings Management (EM) within conventional and Islamic banks. We provide evidence that EM levels do not significantly differ between Islamic and conventional banks. Contrary to public belief, additional value-based attributes such as the Shariah Supervisory Board (SSB) that promotes ethical and religious values, do not help in the restriction of opportunistic behaviour in Islamic banks. Additionally, attributes such as board size, firm size and leverage have a significant negative influence on EM of both Islamic and conventional banks. Our results are important in deliberating that the word ‘Islamic’ must not be used merely as a profit manifestation, but instead must promote a value-based business, which in turn could ensure reliability and sustainability.

Islamic banking is an emerging research theme in banking-related studies that can be further expanded owing to a dearth of extensive studies in this field. A major part of the literature contains a comparative analysis of Islamic banking and its conventional counterparts, based on performance and regulatory theme. The aim of this chapter is to demonstrate the extraordinary potential and depth of current and future research theme in Islamic banking domain. The chapter discusses the areas and issues that have been covered intensively in the recent literature, and also helps to identify the areas that have received relatively less attention. Finally, it also points to the newest areas of research that seem promising for future research in Islamic banking theme.

Islamic capital markets are an emerging research theme in financial market studies, which can be further expanded owing to a dearth of extensive studies in this field. A major part of the literature covers the comparative analysis of the Islamic financial system with conventional counterparts, divided amongst banking and capital markets. The aim of this chapter is to demonstrate the extraordinary potential and depth of current and future research themes in Islamic capital markets. The chapter discusses the areas and issues that have been covered intensively in the recent literature and also helps to identify the areas that have received relatively less attention. Finally, the chapter also points to the newest areas of research that seem promising for future research into Islamic capital markets.

Green sukuk are Shariah compliant investment vehicles that fund environmentally friendly projects such as solar parks, bio-gas plants and wind farms. The main objective behind the development of green sukuk is to address Shariah concerns for protecting the environment. For Shariah-compliant investors notably in South East Asia and the Gulf Cooperation Council region, green sukuk represent an ideal investment that benefits the environment and promotes Corporate Social Responsibility. This chapter looks into the potential for Green sukuk in major Islamic finance markets. It maps the differences between more conventional types of socially responsible investments (SRI) and those funds that are guided by the morals promoted through Islam. The chapter also presents a case study of the French Orasis Sukuk, the first green sukuk in existence.