This paper investigates the determinants and their factors that affect governments’ decision to employ sovereign Sukuk over conventional bonds; the research is based on a sample of 143 Sukuk and 602 conventional sovereign bonds issued in 16 OIC countries from 2000 to 2015. The results depict that more nations that have developed financial markets, higher credit quality, and strong economic/financial prospects, issue sovereign Sukuk rather than sovereign conventional bonds. Dealing with Sukuk bonds can be a strategy to diversify and develop current debt markets by introducing newly-developed debt tools. However, less economically developed nations countries are typically issuing insurance for classic sovereign bonds. Our findings suggest that a government’s choice of sovereign debt is influenced mainly from national financial and macroeconomic indicators, as well as specific events. Countries with developed financial markets, strong economic indicators, high credit quality, and sustainable financial position are more likely to issue sovereign Sukuk rather than sovereign bonds as a strategy to develop and diversify their financial markets by promoting new debt products.
Guided by the extreme value theory, this study empirically investigates the impact of tail risk measures on financial distress of publicly traded bank holding companies (BHCs) in the United States. Our results show that tail risk measures namely, value‐at‐risk and expected shortfall, are significantly and positively related to banks distress risk. Implying that BHCs with more frequent extreme negative daily equity returns induce higher tail risks, thereby increasing their likelihood of experiencing financial distress. Our results also show that tail risk measures enhance the explanatory power of traditional models explaining banks distress risk based on accounting information. These results indicate that market discipline is generally beneficial in managing and regulating banks, bolstering claims of the importance of macro‐prudential supervision of financial institutions.
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