Description
Title: Do Businesses Included in the Islamic Index Vary from Others? Evidence of Debt Cost in Indonesian Sharia Companies
Abstract: This study looks into how sharia businesses affect the price of debt on the Indonesian market. We apply 1870 data observations of nonfinancial companies registered on the Indonesia Sharia Stock Index (ISSI) between 2012 and 2018 to examine the relationship using OLS regression. We discovered that sharia firms have a negative relationship with the cost of debt, while sharia firms with a higher proportion of independent commissioners do not. These results suggest that a sharia firm’s position to obtain a lower cost of debt will not be boosted by a larger number of independent commissioners sitting on the board. Furthermore, the endogeneity test confirmed the validity of our findings. Based on the findings of this study, we propose that additional moderating variables, such as firm characteristics, be used to create independent commissioners that represent different facets of governance. Lenders believe that sharia-compliant businesses exhibit ethical corporate behavior and are deserving of receiving favorable interest rates. Sharia-compliant businesses do not automatically qualify as closed businesses just because their financial structures have less leverage than those of non-compliant businesses.
Keywords: cost of debt; independent commissioners; sharia firms
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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