Determinants of Underpricing in Islamic and Non-Islamic Shares on IPO

Setya, Vabila Ananta; Supriani, Indri; Fianto, Bayu Arie

doi:10.22515/shirkah.v5i1.276

Cited by 5 publications

(8 citation statements)

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“…We contribute to studies on shariah IPOs in several ways. First, consistent with previous findings, we show that shariah compliance reduces information asymmetry, leading to lower compensation to investors (Barry and Jennings, 1993; Mohd-Rashid et al , 2018; Setya et al , 2020). Second, we find that shariah IPOs underperform benchmark and non-shariah IPOs in the long run.…”

Section: Introductionsupporting

confidence: 92%

“…The initial return (underpricing) for shariah-compliant firms was mainly explained by company size and type of offer, and the initial return for non-shariah-compliant firms was driven by risks (Rahim and Yong, 2010). However, Setya et al (2020) show that same fundamental factors, underwriter's and auditor's reputation, affect both shariah and non-shariah IPO underpricing in Indonesia setting. Overall, the evidence on the effect of shariah on IPO underpricing is still limited and tends to point toward inconsistent conclusions.…”

Section: Literature Reviewmentioning

confidence: 92%

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Shariah vs non-shariah IPO underpricing: evidence from Indonesia Stock Exchange

Hanafi

2022

JIABR

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Purpose This study aims to investigate the effect of shariah status on initial public offering (IPO) underpricing, long-term performance and relationship between short-term and long-term IPO performance, and attempt to gain an insight into the nature of shariah IPO underpricing: a signal or an overreaction. Design/methodology/approach This study uses IPOs during 1990–2018 from Indonesia. This study uses clustered regressions to address clustering phenomenon in IPO. To investigate long-term performance, this study uses cumulative returns, cumulative abnormal returns and Fama–French three factor regressions. This study also runs cross-sectional regressions on the relationship between short and long-term performances. Findings This study finds that shariah status reduces lowers non-trading returns (return from offer to open prices), suggesting that shariah status may reduce information asymmetry and compensation. This study finds that both shariah and non-shariah IPOs underperform the benchmarks, with shariah IPOs underperform more. Further analysis shows a negative relationship between initial return and long-term performance for both shariah and non-shariah IPOs, whereas the negative relationship is stronger for shariah IPOs. The results indicate that shariah compliance help reduce information asymmetry; however, shariah compliance does not necessarily signal quality. Instead, shariah compliance seems to induce investor sentiment, resulting in underperformance and reversal patterns in the long run. Research limitations/implications The results have various implications. Issuers may use shariah screening to lower underpricing. Investors may manage their investment horizons to mitigate IPO underperformance. Future research is needed to understand the nature of short and long-term performance of shariah IPO across countries. The use of ex-ante shariah definition becomes our limitation. This study also does not use buy and hold return to investigate long-term performance. Practical implications The results have various implications. Issuers may use shariah screening to lower underpricing. The results show that sharia certification may play an important role in the IPO process. However, sharia status induces individual investors, leading to more overreaction in the long term. Thus, companies need to balance between sharia certification and overreaction in the long term. Investors may manage their investment horizons to mitigate IPO underperformance. Originality/value This paper extends studies on the effect of shariah status on IPO performance using Indonesia data. Using non-trading returns, this study provides sharper analysis on the underpricing study. This study shows that shariah status leads to an overreaction, instead of a signal for quality.

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Section: Introductionsupporting

confidence: 92%

Section: Literature Reviewmentioning

confidence: 92%

Shariah vs non-shariah IPO underpricing: evidence from Indonesia Stock Exchange

Hanafi

2022

JIABR

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“…In the most recent publication, Otoritas Jasa Keuangan (2021) reported that before the COVID-19 crisis, the Islamic stock market in Indonesia had experienced unprecedented growth, which shows by the increasing market capitalization. Besides, Setya et al (2020) also added that Indonesian Islamic stock demonstrated a significant expansion measured by the greater accumulation of company assets in sharia-compliant indexes.…”

Section: Introductionmentioning

confidence: 99%

Islamic Stock Market Performance Pre-COVID-19: Empirical Evidence from Jakarta Islamic Index

Supriani

Herianingrum

Ninglasari

et al. 2022

JEBIS

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Islamic stock market has experienced massive growth globally, including in Indonesia. This study aims to investigate the predicting factors of the Indonesian Islamic stock market that presents by the stock price of the Jakarta Islamic Index (JII). Adopted the Augmented Distributed Lag (ARDL) approach, this study uses monthly data from January 2007 to February 2020. This study uses five macroeconomic variables, namely consumer price index, exchange rate, crude oil price, world gold price, and Dow Jones Islamic Index (DJIM), to determine the JII's stock price. As a result, the JII's price volatility is significantly driven by the macroeconomic variables simultaneously. Importantly, this study reports that world gold price and DJIM return to become the most crucial factors influencing the ' 'JII's stock price volatility in short and long-run investment periods. This study has passed robustness checks by conducting three out of sample periods, namely 25%, 50%, and 75% out of sample. The 75% and 50% out of sample data revealed an identical result. Thus, this study suggests that the investor evaluates the crude oil price and world gold price fluctuation to predict the price of JII. This study offers practical implications for policymakers and practitioners and recommendations for future research.

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“…The selection of sample period is based on the data availability, moreover, this study aims to covering the crises period in order to ascertained the contribution of business cycle towards Islamic banks' profitability ratio during economic turmoil. Therefore, this study covering the subprime-mortgage in 2008, the Greek crisis in 2010, and the depreciation of IDR against USD in 2018 (Bank Indonesia, 2018; Setya et al, 2020).…”

Section: Methodsmentioning

confidence: 99%

Examining the Correlation Between Islamic Banks Profitability and the Business Cycle in Indonesia

Sholikhin

Supriani

Amijaya

2021

IJIBE

Self Cite

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This study aims to examine the correlation between Islamic banks' profitability in Indonesia and the business cycle, which measured by composite leading Indicator (CLI).�This study used several annual data covering the period from 2004-2018. This study utilizes Islamic banks profitability represent by Return on Asset (ROA) data as the dependent variable, CLI data as the dependent variable, and six control variables including Gross Domestic Product, Inflation, Financial to Deposit Ratio, Capital Adequacy Ratio, Non-Performing Finance, and Operating Costs Operating Income. This study adopted multiple regression analysis by using EViews 9.0 software. This study reveals that CLI has a positive and significant impact on ROA, which indicated that the expansion of business cycle activities would increase Islamic banks' profitability. Thus, this study suggests that Islamic bank should engage with the companies that relied on their business activities in the rill sector to boost their profitability. The limitation of this study is this study adopted Indonesian Islamic banks in general. Therefore, this study does not capture the correlation amongst the variables in the specific Islamic banks and region, which might be different from this result due to the differences in banks' internal conditions, culture, and the business cycle in the various region.

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Determinants of Underpricing in Islamic and Non-Islamic Shares on IPO

Cited by 5 publications

References 0 publications

Shariah vs non-shariah IPO underpricing: evidence from Indonesia Stock Exchange

Shariah vs non-shariah IPO underpricing: evidence from Indonesia Stock Exchange

Islamic Stock Market Performance Pre-COVID-19: Empirical Evidence from Jakarta Islamic Index

Examining the Correlation Between Islamic Banks Profitability and the Business Cycle in Indonesia

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