Abstract:

There is an ongoing debate on whether firms with low leverage should have good corporate governance. The primary objective of this paper is to present the financial characteristics of an innovative partnership (Musharaka) sukuk structure that combines the best features of debt and equities1. We study the implications of this new faith-based investing as a powerful tool enhancing Islamic and ethical aspects of corporate governance, mitigating moral hazard problem and promoting risk-sharing principle (a necessary form of purification and redistribution of wealth). The secondary objective of this paper is to propose a pricing methodology for MLP Musharaka sukuk (hereafter MLP sukuk) with an empirical illustration. This study is relevant and valuable to faith-based investors, sukuk market development and Islamic corporate financing decisions.