IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v10y2022i5p119-d821840.html
   My bibliography  Save this article

Do Firms in the Islamic Index Differ from Others? Evidence of Cost of Debt in Sharia Firms in Indonesia

Author

Listed:
  • Vidia Gati

    (Department of Accounting, Faculty of Economics and Business, Airlangga University, Surabaya 60115, Indonesia)

  • Iman Harymawan

    (Department of Accounting, Faculty of Economics and Business, Airlangga University, Surabaya 60115, Indonesia)

  • Mohammad Nasih

    (Department of Accounting, Faculty of Economics and Business, Airlangga University, Surabaya 60115, Indonesia)

Abstract

This study investigates the effect of sharia firms on the cost of debt in the Indonesian market. We use OLS regression to examine the relationship by applying 1870 data observations of nonfinancial companies registered on the Indonesia Sharia Stock Index (ISSI) during 2012–2018. We found that sharia firms are negatively related to the cost of debt, and sharia firms with a higher percentage of independent commissioners are not associated with the cost of debt. These findings indicate that a more significant number of independent commissioners sitting on the board will not stimulate a sharia firm’s position to get a lower cost of debt. Furthermore, our results are robust after performing the endogeneity test. Based on this study, we suggest that independent commissioners who represent aspects of governance also need to be developed using firm characteristics as other moderating variables. Sharia firms are viewed by lenders as having corporate behaviors that are ethical and worthy to get low interest on the debt. Even though the financial structure of sharia firms has lower leverage than non-sharia firms, it does not mean that they are seen as closed firms.

Suggested Citation

  • Vidia Gati & Iman Harymawan & Mohammad Nasih, 2022. "Do Firms in the Islamic Index Differ from Others? Evidence of Cost of Debt in Sharia Firms in Indonesia," Economies, MDPI, vol. 10(5), pages 1-14, May.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:5:p:119-:d:821840
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/10/5/119/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/10/5/119/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bliss, Mark A. & Gul, Ferdinand A., 2012. "Political connection and cost of debt: Some Malaysian evidence," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1520-1527.
    2. Shamsuddin, Abul, 2014. "Are Dow Jones Islamic equity indices exposed to interest rate risk?," Economic Modelling, Elsevier, vol. 39(C), pages 273-281.
    3. Chen, Hanwen & Huang, Henry He & Lobo, Gerald J. & Wang, Chong, 2016. "Religiosity and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 70-85.
    4. Kim, Wi Saeng & Sorensen, Eric H., 1986. "Evidence on the Impact of the Agency Costs of Debt on Corporate Debt Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(2), pages 131-144, June.
    5. Matthew Blackwell & Stefano Iacus & Gary King & Giuseppe Porro, 2009. "cem: Coarsened exact matching in Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 524-546, December.
    6. Michael Bradley & Dong Chen, 2015. "Does Board Independence Reduce the Cost of Debt?," Financial Management, Financial Management Association International, vol. 44(1), pages 15-47, March.
    7. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2004. "Board characteristics, accounting report integrity, and the cost of debt," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 315-342, September.
    8. Chansog (Francis) Kim & Liandong Zhang, 2016. "Corporate Political Connections and Tax Aggressiveness," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 78-114, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anastasia N. Stepanova & Olga O. Kopyrina, 2019. "The Influence Of Ownership Structure And Board Independence On The Cost Of Debt In Bric Countries," HSE Working papers WP BRP 74/FE/2019, National Research University Higher School of Economics.
    2. Kopyrina, Olga & Stepanova, Anastasia, 2023. "The influence of ownership structure and board independence on the cost of debt in BRIC countries," Economic Systems, Elsevier, vol. 47(2).
    3. ManYing Kang & Marcel Ausloos, 2017. "An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies," Economies, MDPI, vol. 5(4), pages 1-23, November.
    4. Gan, Tian & Jiang, Yan & Wu, Xi & Zhang, Mingxin, 2023. "Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market," Journal of Asian Economics, Elsevier, vol. 87(C).
    5. Min Jung Kang & Y. Han (Andy) Kim & Qunfeng Liao, 2020. "Do bankers on the board reduce crash risk?," European Financial Management, European Financial Management Association, vol. 26(3), pages 684-723, June.
    6. Gul, Ferdinand A. & Munir, Sa'adiah & Zhang, Liang, 2016. "Ethnicity, politics and firm performance: Evidence from Malaysia," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 115-129.
    7. Omid Mehri Namakavarani & Abbas Ali Daryaei & Davood Askarany & Saeed Askary, 2021. "Audit Committee Characteristics and Quality of Financial Information: The Role of the Internal Information Environment and Political Connections," JRFM, MDPI, vol. 14(6), pages 1-18, June.
    8. Sabrina Pisano & Luigi Lepore & Rocco Agrifoglio, 2015. "Corporate governance and information asymmetry between shareholders and lenders: an analysis of Italian listed companies," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2015(2), pages 27-53.
    9. Owusu, Andrews & Kwabi, Frank & Owusu-Mensah, Ruth & Elamer, Ahmed A, 2023. "Lead independent director, managerial risk-taking, and cost of debt: Evidence from UK," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    10. Mai, Nhat Chi, 2020. "Related Party Transactions, State Ownership, the Cost of Corporate Debt, and Corporate Tax Avoidance: Evidence from Vietnam," OSF Preprints y5qj3, Center for Open Science.
    11. Joni, Joni & Ahmed, Kamran & Hamilton, Jane, 2020. "Politically connected boards, family and business group affiliations, and cost of capital: Evidence from Indonesia," The British Accounting Review, Elsevier, vol. 52(3).
    12. Jara, Mauricio & López-Iturriaga, Félix & San Martín, Pablo & Saona, Paolo & Tenderini, Giannina, 2019. "Chilean pension fund managers and corporate governance: The impact on corporate debt," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 321-337.
    13. Majeed, Muhammad Ansar & Yan, Chao, 2021. "Financial statement comparability, state ownership, and the cost of debt: Evidence from China," Research in International Business and Finance, Elsevier, vol. 58(C).
    14. Tao Chen & Sidney Leung & Lingmin Xie, 2021. "Does credit rating conservatism matter for corporate tax avoidance?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5681-5730, December.
    15. Almaghrabi, Khadija S. & Tsalavoutas, Ioannis, 2022. "Political spending, related voluntary disclosure, and the cost of public debt," Journal of Financial Stability, Elsevier, vol. 63(C).
    16. Gareth Anderson & Saleem Bahaj & Matthieu Chavaz & Angus Foulis & Gabor Pinter, 2023. "Lending Relationships and the Collateral Channel," Review of Finance, European Finance Association, vol. 27(3), pages 851-887.
    17. Feng, Yuruo & Hao, Wei & Fang, Jiali & Wongchoti, Udomsak, 2024. "In the radiance of enlightenment: The influence of nontheistic religions on corporate default risk," Emerging Markets Review, Elsevier, vol. 60(C).
    18. Tee, Chwee Ming, 2020. "Political connections and income smoothing: Evidence of institutional investors’ monitoring in Malaysia," Journal of Multinational Financial Management, Elsevier, vol. 55(C).
    19. Ashraf, Dawood & Rizwan, Muhammad Suhail & Azmat, Saad, 2021. "Not one but three decisions in sukuk issuance: Understanding the role of ownership and governance," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    20. Qiankun Meng & Yupei Liu & Wei’an Li & Mingshan Yu, 2023. "Bonding or Indulgence? The Role of Overborrowing on Firms’ Innovation: Evidence from China," Sustainability, MDPI, vol. 15(2), pages 1-23, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:10:y:2022:i:5:p:119-:d:821840. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.