The Determinants of Sukuk Issuance in GCC Countries

Purpose – This paper focuses on Sukuk issuance determinants in Gulf Cooperation Council (GCC) countries. Given the dual characteristic of debt and equity of Sukuk as well as their unique benefits of social responsibility, the author questions whether the theories of capital structure, the trade-off and the pecking order are able to well explain the Sukuk issuance. Design/methodology/ approach – First, the author verifies these theories using capital structure determinants and regresses the Sukuk change on these determinants. Second, the author tests the trade-off theory with the target debt model and third, verifies the pecking order theory using the fund flow deficit model. Findings – The empirical results show that capital structure determinants fail to explain both theories. The author confirms that the Sukuk change is significatively linked to the deviation from a Sukuk target. So, issuing firms balance the marginal costs of Sukuk and their benefits of religiosity and social responsibility toward a target debt. The author finds no evidence of the pecking order theory. Research limitations/implications – This study contributes to corporate finance theory and corporate social responsibility. It verifies if capital structure theories proved in conventional financing can well explain Islamic bonds issuance given their social responsibility benefits. Practical implications – Managers and investors would pay attention to the social factors explaining Sukuk issuance in their finance and investment decisions. They would be enhanced to use this financing tool knowing its social unique benefits. This also should encourage governments to enhance this socially responsible financing. Rating agencies would be motivated to evaluate Sukuk and firms would improve the quality and relevance of disclosure to get the best rating. Social implications – The author highlights the social factors explaining Sukuk issuance and enhances corporate social responsibility (CSR). Originality/value – The author extends the few literature testing capital structure theories for Islamic bonds and highlights the specific social responsible features of Sukuk that would bridge their issuance to capital structure theories. So the author enhances the concept of Islamic CSR. Tying capital structure theories to CSR would also help developing Islamic finance theory as a unique social responsible framework