2.1 Definition of Sukuk
Certificates of equal value that represent an undivided interest in the ownership of an underlying asset (both tangible and intangible), usufruct, services or investments in particular projects or special investment activities is the definition of Sukuk according to the Accounting and Auditing Organization for Islamic Institution (AAIOFI). The Securities Commission Malaysia defines Sukuk as a certificate or financial document which represents the value of an asset evidencing an undivided pro rata ownership of an underlying asset.
2.2 Overview literature review
There are still very limited and few studies have been done empirically concentrate on Sukuk particular characteristics or stock market responses to Sukuk issuance…show more content… The asymmetric information model is one of the early theoretical models examining the wealth impact of financial securities that being taken into account the works of (Myers & Majluf, 1984) where asymmetric information is when manager has more or better information about true value of a firm and manager only issue debt if share price is overvalued by market resulting debt issuance announcement signal that shares price overvalued and lead to negative reaction from market toward the announcement. One of the engaging characteristics of the model clarifies the reason stock prices do not fall if the debt is issued and cause behind fall in stock value when firms announce the stock issuance to back their…show more content… The findings indicate that there are positive, significant and asymmetric market reactions in the case of a service sector announcement in certain events. The positive market reactions can be interpreted in two ways. First, the market can readily distinguish the news. Second, there are confidence impacts that shareholder’s wealth will be increased through the issuance of these sectors. This is because, Sukuk being neither debt, nor shares are true to the calling of Islamic economics whereby the issue reflects the economic strength of the company and hence the real economic activities underlying the issuance. Same with a case of another study by (Ahmad & Rahim, 2014).
In addition, (Godlewski, Turk-Ariss & Weill, 2010) found that it have a significant difference in stock market reaction to Sukuk and conventional bond issues, following the negative reaction to Sukuk issues in comparison with insignificant reaction to conventional bond issues. A market-based approach is being used to investigate whether investors react differently to the announcements of issues of Sukuk and conventional bonds. They found that stocks market is neutral to the announcement of the conventional bond, but they observe a significant