The Encumbrance of Institutional Investor and Board of Directors in Reducing Risk of Default for Conventional Bonds and Sukuk in Malaysia

Noriza Mohd Saad, Mohd Nizal Haniff, Norli Ali

Abstract


ABSTRACT

Sukuk yields mimic those of conventional bonds due to having similar features. Sukuk are shariah-compliant securities that offer different structures to those of conventional bonds. Therefore, it is believed that the spreading of yields should also be different. The presence of key institutional investors/owners and certain Board of Directors (BOD) characteristics as highlighted by the Malaysian Code on Corporate Governance (MCCG) may influence the yield to maturity (YTM) of conventional bonds and sukuk. Thus, the main objective of this study is to investigate the relationship between these two yield spreads instruments with corporate governance mechanisms. The data is obtained from firm issuers’ annual reports, the Bondinfo Hub of the Malaysian Central Bank, the Rating Agency Malaysia (RAM), the Malaysian Department of Statistics and Bloomberg databases for the period beginning 2000 to 2014 for 256 and 405 tranches of long-term and medium-term issuances of conventional bonds and sukuk respectively. The most significant findings show that the presence of top-six and other institutional ownerships as corporate governance mechanism proxy insignificantly and significantly reduce yield spreads within the firm revealed by Ordinary Least Square (OLS) and random effects models in long-term and medium-term issuances.

Keywords: Institutional ownership; board of directors; yield spreads; robust; default risk

ABSTRAK

Sukuk adalah sekuriti patuh-shariah yang mempunyai struktur berbeza berbanding struktur bon konvensional tetapi mempunyai ciri-ciri yang hampir serupa. Sehubungan itu, pembahagian julat hasil sepatutnya tidak sama. Kehadiran pelabur/pemilik institusi utama serta ciri-ciri Lembaga Pengarah (LP) yang tertentu yang ditekankan oleh Kod Tadbir Urus Korporat Malaysia (‘MCCG’) mungkin mempengaruhi hasil hingga tempoh matang (YTM) bagi bon konvensional dan sukuk. Oleh itu, tujuan utama kajian ini adalah untuk menyelidik hubungan di antara julat hasil kedua-dua instrumen ini dengan mekanisma tadbir urus korporat. Data kajian diambil dari laporan tahunan syarikat penerbit, Bondinfo Hub Bank Negara Malaysia, Rating Agency Malaysia (RAM), Jabatan Perangkaan Malaysia dan Bloomberg bermula dari tahun 2000 sehingga 2014 ke atas penerbitan bon-bon konvensional dan sukuk jangka-panjang dan jangka-sederhana, masing-masing sebanyak 256 dan 405 tranch. Penemuan utama menunjukkan bahawa kehadiran pemilikan enam teratas dan lain-lain institusi sebagai proksi mekanisma tadbir urus korporat masing-masing mengurangkan julat hasil secara tidak signifikan dan signifikan seperti yang diperolehi dari model ‘ordinary least squares’ dan ‘random effects’ bagi penerbitan jangka-panjang dan jangka-sederhana.

Kata kunci: Pelabur Institusi; Lembaga Pengarah; Julat Hasil; Dinamik; Risiko Tidak-bayar


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