Analyzing Financial Synergy Through Leland's (2007) Framework and Ensuring Shariah Compliance in Sukuk Issuance

Fakhrunnas, F; Ahmad, MHS

doi:10.7187/GJATSI072024-2

Authors

Fakhrunnas, F Fakultas Bisnis dan Ekonomika, Universitas Islam Indonesia, Ring Road Utara, Condongcatur, Sleman, 55283 Yogyakarta, Indonesia
Ahmad, MHS Academy of Contemporary Islamic Studies, Universiti Teknologi MARA (UiTM) Cawangan Terengganu, Kampus Dungun, Sura Hujung, 23000 Dungun, Terengganu, Malaysia

DOI:

https://doi.org/10.7187/GJATSI072024-2

Keywords:

Project financing, Limited liability, Sukuk issuance, Capital structure, Asset securitization

Abstract

The objective of this study is to determine whether issuing sukuk as part of separate financing of a project would increase the value of business. This study adopts Leland Framework (2007) to measure the impact of several variables in separate financing to the value of the firm. The findings revealed that changes in maturity period, tax rate, interest rate and standard deviation can bring similar or different effects depending on each variable. It can be concluded that the separate financing using hypothetical sukuk issuance has a positive effect on the firm. This is visible from the value of the change in optimally levered firm as well as firm value in this paper which both are positive. This shows that the variables above have an impact on the optimal capital structure as well as the results of structured financing. This study further proposes to modify Leland’s model (2007) by using a stochastic model rather than a static one, considering that some sukuk use a profit-sharing contract.

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