Testing the financial distress prediction model for sukuk-issuing companies in Malaysia

Mohamad Shafi, Roslina and Syed Mohd Zain, Sharifah Raihan and Mohid Rasid, Mohamed Eskandar Shah and Mydin Meera, Ahamed Kameel (2017) Testing the financial distress prediction model for sukuk-issuing companies in Malaysia. In: Handbook of empirical research on Islam and economic life. Edward Elgar Publishing Limited, Cheltenham, UK, pp. 687-705. ISBN 9781784710729

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Abstract

Companies are exposed to business and financial risk and are affected by business cycles and economic downturns. A company is fortunate if it is capable of preventing and alleviating financial crises by utilizing existing financial distress models to deal with volatile markets and changes in the global economy. Such models are capable of signalling to a company worst case scenarios and remedial possibilities to prevent future distress. However, applying such risk models to sukuk-issuing companies remains a point of contention because sukuk and related bonds are fundamentally different types of financial instruments and possess dissimilar risk exposure to traditional instruments. The current study examines this difference by testing existing financial distress prediction models on sukuk-issuing companies. The results show that the Altman and Ohlson financial distress models were capable of alerting companies of possible financial distress with a 52.78 per cent prediction accuracy. Further testing revealed that the Ohlson model produced a higher prediction power than the Altman model for Malaysian sukuk-issuing companies. These signify that logit model is more powerful for sukuk issuing companies.

Item Type:	Book Chapter
Additional Information:	2392/57419- Book call number: BPH254 H36 2017
Uncontrolled Keywords:	Financial distress Model, Sukuk, Islamic bonds, Malaysia,
Subjects:	H Social Sciences > HB Economic Theory > HB126.4 Islamic Economics H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences
Depositing User:	Sharifah Raihan Syed Mohd Zain
Date Deposited:	26 Mar 2019 17:30
Last Modified:	14 Oct 2019 09:41
URI:	http://irep.iium.edu.my/id/eprint/57419

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