Capital structure determinants of Islamic hybrid securities / Mohamad Nizam Jaafar

Firms raise their capital via the common external funds either debt or equity. However, under certain conditions, firms are required to issue more complex financial engineering instruments namely hybrid securities. Literatures showed that very little studies have been conducted on Islamic Capital Market and in establishing the determinants of hybrid securities. Based on theories of capital structure which related to non hybrid capital structure, the variables and the models on hybrid financing are developed. In further filling the gap of the preceding studies, we developed a dynamic model by incorporating important variables that are associated to macroeconomic indicators that are economic growth (GDP), interest rate (BFR), level of stock market development and bond market development. Several estimation models are developed namely convertible bond plus loan stock which signify for debt treat hybrid (model 1) and warrant which is represent equity treat hybrid (model 2) respectively. This study employs the static model via panel ordinary least square (OLS), fixed effects model and random effects model to identify the best estimation model. Besides that, the study also include dynamic model via General Method of Moment (GMM) – first and second generation GMM, to get the most excellent model. From the analysis of static model, it reveals that the best estimation models for both hybrid securities are from model 1 and 2 of fixed effect model. Meanwhile from dynamic analysis, system GMM is considered the most excellent model. As inferences to the body of knowledge, this research has established several factors that are significant in determining hybrid securities for both debt and equity feature hybrid respectively

Corporate Social Performance (CSP) influences on Islamic Bank's financial performance / Amirul Afif Muhamat, Mohamad Nizam Jaafar, Mohd Faizal Basri

This paper aims to assess the influence of corporate social performance (CSP) categories which are legal, ethical, economic and discretionary responsibilities over the Dummy Islamic Bank’s (the original name of the bank is remained confidential) financial performance. There are four components of CSP and findings indicate that this Islamic bank has fulfilled each category at minimum level - highest contribution was allocated for discretionary responsibility which is the pinnacle stage of CSP. This study has some limitations which need to be highlighted for future study. First, it only focused on one Islamic bank and may not reflect other Islamic banks in the country or in other region. Next, the period of observation is not lengthy to facilitate for more robust and rigorous analysis

The efficiency of Islamic banks in Malaysia: Based on DEA and Malmquist productivity index / Mohd Faizal Basria, Amirul Afif Muhamat and Mohamad Nizam Jaafar.

This paper aims to investigate the impact of liberalisation move by Bank Negara Malaysia (BNM) towards the efficiency of domestic and foreign Islamic banks (IBs) in Malaysia. This is consequence of decision of BNM that awarded licenses to three international IBs, namely Kuwait Finance House (KFH), Al Rajhi Bank, and Asian Finance Bank in 2005. In addition, this study takes into consideration the existing foreign banks in the country that operate via Islamic banking subsidiaries as part of foreign IBs. The research evaluates the impact of foreign Islamic banks in Malaysia by measuring their contribution to the growth of the Malaysian Islamic banking industry. Using a sample of 16 IBs in Malaysia from 2008 to 2015, the study uses Data Envelopment Analysis (DEA) in measuring the efficiency level of each bank and comparative between the performance of domestic and foreign IBs in the country. The paper also employs the Malmquist Productivity Index to gauge the changes in its components between the same subjects and timeframe. The DEA results showed that the domestic Islamic banks are considered more efficient than most domestic Islamic banks outperforming the foreign Islamic banks. Banks like Hong Leong Islamic, Maybank Islamic, Public Islamic, and RHB Islamic are considered among the top performers for technical efficiency and scale efficiency. The study also found that based on the Malmquist Productivity Index, the least efficient banks based on DEA have improved in technical efficiency, technology, and total factor productivity (TFP)

Bank Stability Index for Selected Countries with Dual Banking Systems

A robust and comprehensive measure of bank stability is crucial to identify healthy banks and save troubled banks from deteriorating in order to avoid banking crises, hence prevented a systemic effect on the overall financial system of the country. The study aims to develop a comprehensive measure of bank stability for selected Organization of Islamic Cooperation (OIC) countries with dual banking systems. The measure is in the form of a composite index, comprehensively adopts relevant indicators from the existing literatures based on annual data from 1999 to 2015, obtained from the Bankscope database. The factor analysis method used by the Organization of Economic Co-operation and Development (OECD) is adopted to develop the index. The findings reveal the comprehensive measure of bank stability for all bank models. The policy implication for the regulatory is to use similar measure of bank stability in monitoring and reporting the stability of different bank models

General Takaful claims: An experience of Takaful operator in Malaysia / Amirul Afif Muhamat, Mohamad Nizam Jaafar and Sharifah Faigah Syed Alwi.

Takaful is interchangeably referred as Islamic insurance. In Malaysia, the takaful sector is part of the main components for Islamic finance industry. The business can be divided into two: general and family takaful. To ease understanding on this niche sector; general takaful is comparable to general insurance while family takaful is akin to life insurance with special reference needs to be given on the requirement of the business to adhere to the Islamic precepts. The main business in general takaful is motor takaful and this line of business is faced with high takaful claims. This study appraised the factors which affect the general takaful claims based on the experience of one takaful operator in Malaysia (the name of takaful operator is not disclosed due to confidentiality). The factors are: number of claims; fraud; and coverage for protection. The limitation of this study is that the observation period is only 10 years which limits rigorous analysis to be done. Nevertheless, previous studies in this area depict the same limitation – constraint in gathering data that has long observation period. On the bright side, the data in this study is still capable to produce meaningful results to be referred with regards to this issue – general takaful claims

Determinants of capital structure: Empirical evidence from Shariah compliant plantation firms in Malaysia / Mohamad Nizam Jaafar … [et al.]

Capital structure choice is vital in corporate financial management due to its effect on both return and risk to investors. As such, the objective of this research is to analyse the capital structure of listed shariah compliant plantation companies in Bursa Malaysia. The factors that influence the level of debt in this research are profitability, tangibility and liquidity respectively. The research is conducted by observing financial data of 34 listed shariah compliant plantation firms in Malaysia from period 2006 to 2016. The study has used panel data and the regression analysis is based on ordinary least square (OLS). Capital structure is the dependaple variable referring to debt ratio of the companies, decomposed into total debts over total assets. The independent variables are profitability, liquidity and tangibility. Three theories of capital structure have guided this study i.e. the Trade-Off Theory, Asymmetric Information and the Pecking Order Theory. The study shows that profitability and tangibility have significant positive relationship capital structure. Nevertheless, liquidity does not have any significant relationship with the debt ratio. It is most likely that liquidity is not taken into account by listed plantation companies in Malaysia in making their capital structure decision. Since profitability and tangibility have significant relationship with the level of debt, the Theory of Capital Structure such as Trade Off Theory is applicable to plantation shariah compliant firms listed in Bursa Malaysia

Bank stability measures in dual banking system: a critical review / Norzitah Abdul Karim … [et al.]

The 2007-2009 Global Financial Crisis showed that despite reported as ‘healthy’ financial institution prior to crisis had indeed suffered many problems including liquidity during the crisis. Thus, there is confusion on the healthy financial institutions, leading to loss of confidence on the overall stability of the banking system. Thus, there is an urgent need to review the current measures of financial as well as banking stability. This paper aims to look at the definition of ‘stability’ used in the academic researches and by different regulatory bodies, like International Monetary Fund, Basel Committee for Banking Supervision (BCBS) and central banks in selected countries with dual banking systems. It is then, critically review indicators used as measures of financial as well as banking stability. This review is hope to identify areas of strengths as well as weaknesses of the current measures of stability and serves as foundation for further research in future

The impact of financial crisis on the determinants of capital structure among Shariah constructions firms / Mohamad Nizam Jaafar … [et al.]

The aim of this empirical study is to explore the factors that affect the capital structure of construction firms and to investigate whether the capital structure models derived from Western settings provide convincing explanations for capital structure decisions of the Malaysia firms. This study focuses on Shariah compliant construction companies since this industry has been contributing significantly towards Malaysia economic growth. In addition, this study also includes the impact of financial crisis towards firms’ capital structure decision. Panel data from 11 Shariah compliant construction companies in Malaysia were analyzed for duration of 17 years (2001-2017). Different conditional theories of capital structure are reviewed i.e. trade‐off theory, pecking order theory, agency theory, and theory of free cash flow, in order to formulate testable propositions concerning the determinants of capital structure of the construction firms. The dependent variable that being used is debt ratio, while independent variables are firm size, profitability, tangible asset, growth opportunity, liquidity, and crisis respectively. Finding indicates that firm size, profitability and tangible asset are significant towards debt ratio. However, other variables including financial crisis did not have any significant impact on capital structure decision. The results of this study provide important implication to investors and manager of firms in making best decision on capital structure. This study also adds values to the existing knowledge regarding determinants of capital structure and financial crisis

Bank stability measures in dual banking system: a critical review / Norzitah Abdul Karim … [et al.]

The 2007-2009 Global Financial Crisis showed that despite reported as ‘healthy’ financial institution prior to crisis had indeed suffered many problems including liquidity during the crisis. Thus, there is confusion on the healthy financial institutions, leading to loss of confidence on the overall stability of the banking system. Thus, there is an urgent need to review the current measures of financial as well as banking stability. This paper aims to look at the definition of ‘stability’ used in the academic researches and by different regulatory bodies, like International Monetary Fund, Basel Committee for Banking Supervision (BCBS) and central banks in selected countries with dual banking systems. It is then, critically review indicators used as measures of financial as well as banking stability. This review is hope to identify areas of strengths as well as weaknesses of the current measures of stability and serves as foundation for further research in future