Purpose
The Islamic bond, known as sukuk, is an ethical financing avenue driven by religious and profit motives. This study aims to analyze the relation between related party transactions and Sukuk. Companies with high related parties transactions are deemed to be committed toward social capital that they are more likely to choose sukuk for their debt financing.
Design/methodology/approach
Logistic regression analyses were conducted using data from 122 listed companies in Malaysia. Related party transactions proxy for companies’ commitment to social capital, while the likelihood to choose sukuk represents ethical financing.
Findings
This study documents a positive relationship between related party borrowings and sukuk, suggesting that close ties through related parties have created an ethical sense that is associated with the uptake of sukuk.
Research limitations/implications
Future research can opt other measures of related party transactions, such as by identifying the different categories of transactions and related parties. Future research may also extend the sample size by using samples from several countries to enable analysis involving institutional environment variables of the countries.
Practical implications
Findings of this study highlight sukuk uniqueness by supporting its role as ethical financing avenue through commitment toward social capital.
Originality/value
This study is the first to use the social capital perspective of related party transactions in identifying ethical financing choice that the authors believe is relevant in the institutional context of developing Muslim countries.