FINANCIAL STABILITY: AN ANALYSIS AND EMPIRICAL EVIDENCE

Mohammed Sawkat Hossain, Faculty of Business Studies, Jahangirnagar University, Bangladesh
Roksana Aktar, Faculty of Business Studies, Jagannath University, Bangladesh

Published in

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH
Volume 18, Issue 4, p47-64, December 2018

ABSTRACT

As of now, the financial stability, paramount for economic growth, is widely used for assessing the resilience of firm solvency of different financial institutions, particularly the banks. With the global evidence, this paper examines the financial stability (solvency) of conventional debt and Islamic debt issuing firms. Based on 300 dollar-denominated bond and Sukuk issuing firms, the analysis documents that the financial stability of Islamic bond (sukuk issuing firms) is significantly lower than that of bond issuing counterparts. Along with the sROA based Z-score models such as Stiroh, 2004; and Bouvatier et al., 2017, we validate the important empirical findings by Altman five and four-factor Z-scores. We conclude that the less financially stable firms can preferably issue sukuk in place of conventional bond to raise corporate fund, and thereby bypass the stringent conventional bond market obstacles. Hence, with the global evidence, this conclusion significantly contributes to corporate capital structure decision in the capital market. In addition, our findings have meaningful investment implications for different stakeholders such as fund managers, financial analysts, institutional investors, and policymakers, among others. Therefore, this study sheds the new lights on the corporate investment decision in the global market.

Keywords

Financial Stability, Conventional-Islamic Bond Issuing Firms, Z-Scores, Global Evidence.


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