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The premium is a deterministic function to compensate for losses due to random events and it is an essential part of an insurance company operation. Numerous issues are faced by the Takaful operator in the practice of insurance, one of them is “validity of life insurance” which is still under discussion among Islamic scholars. Their conversation leads to the issue of approach which are utilised by the Takaful operator to create a sales illustration product. Based on their current discussion, there are still some hidden elements and some missing points related to the concept of loss and surplus sharing utilised by Takaful operator. Therefore, this paper focuses on the practice of Family Takaful for producing the sale illustration product which Shariah compliant. The study develops a new model of the premium for an equity-linked policy (Unit-linked product) by considering the properties of Takaful contracts namely Tabarru and Mudarabah. It aims to ensure that a new model developed can comprehensively demonstrate Shariah compliance. The model adapted and derived from the current Takaful Business Model. We add several assumptions to implicate the approach in a real problem associated with the ratio of profit-sharing (Mudarabah) and loss-sharing (Tabarru). Secondary data are used to test and produce a sales illustration product by utilising a new integrated model of the premium developed. Based on the empirical results, a new model of premium is used to create a sales illustration product that comprehensively complies with Shariah and also more profitable and beneficial when compared with a standard approach used by Takaful operator.

The aim of this study is to develop basic artificial neural network models in forecasting the in-sample gross domestic product (GDP) of Malaysia. GDP is one of the main indicators in presenting the macro economic condition of a country as set by the world authority bodies such as the World Bank. Hence, this study uses an artificial neural network-based approach to make predictions concerning the economic growth of Malaysia. This method has been proposed due to its ability to overcome multicollinearity among variables, as well as the ability to cope with non-linear problems in Malaysia’s growth data. The selected inputs and outputs are based on the previous literatures as well as the economic growth theory. Therefore, the selected inputs are exports, imports, private consumption, government expenditure, consumer price index (CPI), inflation rate, foreign direct investment (FDI) and money supply, which includes M1 and M2. Whilst, the output is real gross domestic product growth rate. The results of this study showed that the neural network method gives the smallest value of mean error which is 0.81 percent with a total difference of 0.70 percent. This implies that the neural network model is appropriate and is a relevant method in forecasting the economic growth of Malaysia.

The aim of this study is to find out the time-series nexus of public debt and economic growth in Malaysia. For an upper-middle income country, Malaysia had experienced over 50% ratio of debt to GDP since 2009 until now. The question arises is whether this trend is healthy to the economy. With a focus into the debt-to-GDP ratio from 1970-2015, this study investigates the short-run and long-run relationship between public debt and economic growth in Malaysia. This study used secondary data by collecting time-series data (1970-2015) from the World Bank Data and Bank Negara Malaysia. Autoregressive Distributed Lag (ARDL) model is applied in this study to examine the relationship between debt and economic growth. Based on ARDL framework, it shows that there is a long-run effect between the debt and economic growth in Malaysia. While the significance value of Error Correction Term shows that there is a long-run adjustment in the short run. Generally, this study found government expenditures, in the long run, strongly influence the GDP per capita. Through the findings, the government expenditures could increase the GDP per capita. The study also reveals that any increment of the debt ratio will result in reduction of the GDP per capita.

There is the need to reexamine the nexus between industry forces and investment behavior due to mixed and ambiguous results in most previous studies. The purpose of this study is to investigate how...

The study examines the cointegration and causal relationship between credit default swap spreads, stock prices, VIX, interest rate and slope of the yield curve for the 10 industries in the USA over the period 14 December 2007 to 30 September 2015. Due to the presence of cross-sectional dependence in the panel, we employ the Pesaran (2007, Journal of Applied Econometrics, 22(2), 265–312) CIPS test to ascertain unit root properties. The cointegration test underscores the presence of a long-run association between the variables. The long-run heterogeneous panel elasticities are estimated via Dynamic OLS (DOLS) and the causality is examined by using the Dumitrescu and Hurlin (2012, Economic Modelling, 29(4), 1450–1460) Granger causality tests. The empirical results reveal that stock prices (volatility), interest rate and slope of the yield curve decrease (increase) the CDS premia; and stock prices, VIX and interest rate Granger-cause the CDS spreads for most of the industries.

PurposeThe purpose of this paper is to identify the arbitrage opportunities between US industry-level credit and stock markets with a focus on dynamic lead-lag relationships given that these markets involve heterogeneous agents operating over various time horizons.Design/methodology/approachThe authors use daily data of 11 US industries stock markets and their credit counterparts to model the dynamic dependence and casual nexuses using time-frequency approach, namely, wavelet squared coherence (WTC).FindingsThe WTC estimation results show that credit and stock markets are out of phase (counter cyclical) and stock markets lead their credit counterparts. The coherence between two markets increases during financial crises. The banks (utilities) industry credit and stock markets have relatively high (low) dependence.Research limitations/implicationsThe casual nexuses between stock and credit markets have multilateral dimensions. Greater interest in examining the relationship between stock markets and credit default swap (CDS) spreads emerged as an important albeit a complex area of research, and gained prominence especially at the onset and following the global financial crises of 2007-2008 which clearly showed that the positive views of CDSs contribution in creating a resilient and efficient financial sector was nothing further from the truth.Practical implicationsThe arbitrage and hedging opportunities between stock and credit markets are industry dependent and vary over investment time horizons. The utilities industry seems attractive for the investment with the objective to exploit arbitrage, but not for hedging.Originality/valueThe paper, for the first time, employs time-frequency approach to assess the arbitrage opportunities between US industry-level credit and stock markets.

The study of exchange rate behavior is important to identify the currency either experiencing an overvaluation or undervaluation. The traditional theory to estimate exchange rates behavior is the Law of One Price (henceforth LOP). This theory suggests that the price levels would be the same between two countries after converting their price into a common currency. However, the LOP does not take into account the real macroeconomic fundamentals factors. Hence, this model is seen missing to explain the possible a particular exchange rate is influenced by macroeconomics fundamentals. Therefore, this study is aim to investigates the behavior of exchange rate movement and identify the determinants of macroeconomics fundamentals on the exchange rates in Malaysia. By using fundamental equilibrium exchange rates (FEER) model, this study adopts the bound testing popularized by Pesaran et al., and autoregressive distributed lag (ARDL) to examine the long run relationships (or cointegration) among the variables and the dynamic effect within variables in the short run.

PurposeThe purposes of this study are twofold. First, to theoretically examine the profit-sharing (mudarabah) contract that produces an optimal distribution of return in the presence of social learning (shuratic process) within the environment of asymmetric information. Second, to empirically investigate the optimal condition of profit-sharing ratio (PSR) and social learning for profit-sharing (mudarabah) contract in Islamic banking.Design/methodology/approachData from one of the biggest and earliest Islamic banks in Malaysia were taken as a proxy of an Islamic bank. The data are collected from the period of 2009 to 2013, and these will be used for the simulation process by using the genetic algorithm (GA) technique.FindingsThe empirical results discovered that Islamic banks had used social learning in their daily activities, especially in the asset side. The results also showed that the trend of social learning has a positive relationship with the trend of Islamic banks’ net profit. Additionally, the results also indicated that the Islamic banks’ net profit has a positive relationship with its PSR from the profit-sharing (mudarabah) financing and securities investment.Originality/valueThis study is the first of its kind that investigates the implementation of the social learning process in Islamic banking operation. This study also used the latest technique from artificial intelligence system, i.e. a GA, to attain an optimal value for PSR and social learning process.

In the finance literature, the relationship between capital structure and firm value has been extensively investigated, both theoretically and empirically. The main issue on corporate finance is how firms dealing with the important decision of capital structure. In this study, a model of capital structure is formulated in which corporate tax and zakat payment exist by firms into the consideration of combination of debt and equity. The theoretical model as shown by comparative statics prove the implication which is negatively relationship between leverage of the firm and the corporate zakat payment. Meanwhile, the empirical evidence reveals several implication as follows, (1) tax deduction reduces the current liability item relative to the firms that prefer equity financing, (2) the significant of zakat is consistent with the theoretical model that zakat would encourage firm to issue more equity than debt, (3) the strong significant relationship between return on assets with the leverage are the leading indicator of capital structure in all models. Keywords: C apital structure, C orporate tax, Z akat JEL Classification: C33, G32, H2

Islamic financial instruments are subject to taxes and zakat for Muslim shareholders and debt holders. Therefore, it is important to investigate the implementation of corporate taxes and corporate zakat in capital structure compositions. In order to model corporate zakat in terms of conventional capital structure theories, this study will discuss the conventional view of those theories in depth. The introduction of zakat are based on the conventional static trade-off theory developed by previous researchers Keywords : wealth tax; optimal capital structure; Islamic financial instrument.

Purpose – The purpose of this paper is to determine the impact of wealth tax (zakat) and corporate tax (CT) on the firm's capital structure. The pioneering works of capital structure were introduced by Modgliani and Miller (1958). Subsequently, these studies were extended by other authors such as Elton and Gruber (1970), Miller (1977), DeAngelo and Masulis (1980), Mackie-Mason (1990), Harris and Raviv (1991), Rajan and Zingales (1995) and Booth et al. (2001). The diversity of the study covers from the advantage of CT to the cost of debt financing. The empirical evidence has also been applied to different countries with a good data access and different legal and accounting environments. However, this study is still relevant especially on the advantages of wealth tax, and the utilization of Islamic debt and equity financing to the firm's capital structure. Design/methodology/approach – The study uses the sample of Malaysian firms that are listed in the Kuala Lumpur Stock Exchange. The cross-sectional and time-series data covering 422 companies from 1996 to 2000 are compiled from the database published by the Kuala Lumpur Stock Exchange. All the sample firms are listed as a syariah company that normally pays the wealth tax. These data, then, are used to examine the effects of several explanatory variables, i.e. wealth tax and CT, and several controlled variables on firm capital structure decisions. Findings – The results showed that, first, the significance of wealth tax is consistent with the argument that firms that pay high wealth tax should be financed with relatively more debt. Second, as the CT rate is raised, firms are subjected to lower CT rates which would lead them to utilize more debt in their capital structures. Third, a significant relationship exists between age, size, return on assets, volatility, industry classification, tangible assets and bankruptcy with the capital structure. Originality/value – This paper viewed the tax benefits and the zakat payments in isolation. However, the tax deductions and the zakat payments are both expected to influence the capital structure decisions. The paper will study this decision and reveal the determinants that influence the capital structure decisions in general and the specific choice of payments, i.e. tax and zakat payments.

Sukuk has attached interest especially Islamic investors since the return is based on fixed assets. Currently, the supply of sukuk has become popular in both Islamic and non-Islamic countries enabling Malaysia to take advantage, since the product has been offered in the Islamic market since the 1980s. The performance has raised a question of what is the effect of the development in sukuk market to the Malaysian Islamic capital market. Accordingly, this study identifies the role of Islamic bonds in generating the Islamic capital market growth by using the Autoregressive Distributed Lag (ARDL) approach. Based on the first quarter of 2001 to second quarter 2008, the estimated results indicate the existence of the long run relationship between the variables in the regression model.

Since the pioneering work of Gurley and Shaw (1955), the attempt has been done to justify money as a primary focal point of macroeconomic theorizing. However, other researchers argue that variables such as financial development and indicators are also important to be linked with macroeconomic performance. Here, if money can be thought as means of production and consumer goods as the ultimate end toward which production is directed, and then capital also occupies a position that is both logically and temporarily intermediate between original means and ultimate ends. This temporarily intermediate status of capital is not in serious dispute, but its significance for macroeconomic theorizing is rarely recognized. The firms’ decision to acquire funds through debt and equity financings affects the capital structure, and, in the firm’s balance sheet, the impact of capital appears to influence the inventory investment. Hence, the significance of capital structure –induced inventory distortions in the context of firm-level is the basis for our article. The sample for our analysis is compiled from the balance sheets of listed syaria firms in the Kuala Lumpur Stock Exchange for the period 1995-2000.