Sharia compliance status &amp; investor demand for IPOs: Evidence from Saudi Arabia

Alqahtani, Faisal; Boulanouar, Zakaria

doi:10.1016/j.pacfin.2017.09.012

Cited by 28 publications

(26 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As far as the existing literature is concerned, the number of empirical studies conducted on the oversubscription of IPOs is limited. The only literatures found in this study are the ones written by Alqahtani and Boulanouar (2017), Eng and Aw (2015), Rahman et al (2017), Low and Yong (2011) and Tajuddin et al (2015), which focused on IPO subscription in the Saudi Arabian, Bangladeshi and Malaysian markets, respectively. In Saudi Arabia, it was found by Alqahtani and Boulanouar (2017) that the average IPO oversubscription rate had been 6 times from 2004 to 2011.…”

Section: Review Of the Literaturementioning

confidence: 97%

“…The only literatures found in this study are the ones written by Alqahtani and Boulanouar (2017), Eng and Aw (2015), Rahman et al (2017), Low and Yong (2011) and Tajuddin et al (2015), which focused on IPO subscription in the Saudi Arabian, Bangladeshi and Malaysian markets, respectively. In Saudi Arabia, it was found by Alqahtani and Boulanouar (2017) that the average IPO oversubscription rate had been 6 times from 2004 to 2011. It was also observed that Shariah -compliant status had a negative impact on IPO subscription in these markets.…”

Section: Review Of the Literaturementioning

confidence: 97%

“…This investigation had only been done in Saudi Arabia and Malaysia. To be specific, it was found by Alqahtani and Boulanouar (2017) that the impacts posed by Shariah -compliant status on IPO oversubscription were negative, and it was shown that this matter was taken into consideration by the issuer and underwriter when the offer price was determined. This finding was in agreement with Mayes and Alqahtani’s (2015) finding, where the level of underpricing was higher in non- Shariah compliant IPOs.…”

Section: Review Of the Literaturementioning

confidence: 99%

See 2 more Smart Citations

Shariah-compliant status and investors’ demand for IPOs: the effects of information asymmetry

Tajuddin

Mohd‐Rashid

Khaw

et al. 2019

IMEFM

View full text Add to dashboard Cite

Purpose The purpose of this paper is to investigate the effects of Shariah-compliant status and the presence of information asymmetry on investors’ demand for initial public offerings (IPOs) in Malaysia. Design/methodology/approach The data regarding 260 IPOs dated for a duration of 11 years were acquired from the websites of Bursa Malaysia and Malaysian Issuing House. In evaluating the association between IPO oversubscription and the independent variables in this study, multivariate and quantile regression analyses were implemented. Findings It was found that Shariah-compliant status (DSHARIAH) had a significant positive relationship with IPO oversubscription. With this, it was indicated that Shariah-compliant status gains investors’ interests in subscribing to IPOs as these shares could be distributed to a wider group of investors. In the case of the proxies of information asymmetry, although firm size posed significant effects on IPO oversubscription, the effects were negative. Meanwhile, institutional investors posed significant positive effects on IPO oversubscription. Furthermore, it was indicated from the negative effects of firm size that less subscription is received by large firms which are perceived to possess lower information asymmetry from the investors. This is owing to the less underpricing provided by the issuers for their IPOs. However, it was indicated from the significant positive association between institutional investors and IPO oversubscription that the participation in the IPO among institutional investors would enhance the enthusiasm of investors for a specific stock and increase the probability of IPO oversubscription. With this, the winner’s curse hypothesis was supported. Research limitations/implications It is recommended that future studies investigate the compliance aspect, specifically the financial and nonfinancial aspects which may affect investors’ decision-making process for their investment. Practical implications With the availability of this study’s indicators in the prospectus, the findings of this study have provided useful insights for an issuer and underwriter to ensure a good subscription of its issuance. Social implications The findings of this study have provided further comprehension to investors regarding the essential information found in the prospectus during the decision-making process done for IPO subscription. Originality/value To the best of the authors’ knowledge, this is one of the first articles which have proven the effects of Shariah-compliant status and the presence of information asymmetry on IPO investors’ demand.

show abstract

Section: Review Of the Literaturementioning

confidence: 97%

Section: Review Of the Literaturementioning

confidence: 97%

Section: Review Of the Literaturementioning

confidence: 99%

See 1 more Smart Citation

Shariah-compliant status and investors’ demand for IPOs: the effects of information asymmetry

Tajuddin

Mohd‐Rashid

Khaw

et al. 2019

IMEFM

View full text Add to dashboard Cite

show abstract

“…We attempt to investigate whether the degree of religiosity affects IPO underperformance. This issue has not been investigated extensively and needs to be addressed (Rahim and Yong, 2010; Alqahtania and Boulanouar, 2017; Almansour, 2019). We conduct this exercise as a robustness check to the conclusion in the previous section.…”

Section: Robustness Check: Degree Of Religiosity and Ipo Underpricingmentioning

confidence: 99%

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

Hanafi

2022

JIABR

View full text Add to dashboard Cite

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.

show abstract

“…According to the literature, this relationship remains one of the least explored, despite the abundance in the IPO under-pricing studies (Alqahtani and Boulanouar, 2017). Combining the cascade model and winner's curse problem with the fixed-price regime high information asymmetry issue, one would expect that oversubscribed issues by informed investors would negate a positive (or negative) effect on uninformed investors' investment decisions.…”

Section: Literature Reviewmentioning

confidence: 99%

Divergence of beliefs and IPO initial return: the quasi-moderating role of investor demand

Albada

Low

Toh

2022

JABES

View full text Add to dashboard Cite

PurposeThis study aims to investigate the moderating role of investor demand on the relationship between the investors' divergence of beliefs and the first-day initial public offering (IPO) return.Design/methodology/approachThe study sample covers the period from 2010 to 2019 and consists of 117 IPOs that are priced using the fixed price and listed on the Malaysian stock exchange (Bursa Malaysia). This study employed both the ordinary least square (OLS) and the quantile regression (QR) methods.FindingsInvestor demand, proxied by the over-subscription ratio (OSR), plays a moderating role in increasing the effect of investors' divergence of beliefs on initial return, and the moderation effects vary across the quantile of initial return. Pure moderation effects are observed at the bottom and top quantiles, suggesting that investor demand is necessary for divergence of beliefs to influence IPO initial return. However, at the middle quantile of initial return, investor demand is a quasi-moderator. That is, the OSR not only moderates the relationship between the divergence of beliefs and initial return but also has a positive effect on the initial return.Practical implicationsInvestors' excessive demand for an IPO issue exacerbates the IPO under-pricing issue induced by a divergence of beliefs amongst investors, thus rendering greater equity market inefficiency.Originality/valueTo the authors' knowledge, this study is amongst the first to empirically investigate the moderating role of investor demand on the investors' divergence of beliefs and IPO initial return relationship.

show abstract

Sharia compliance status & investor demand for IPOs: Evidence from Saudi Arabia

Cited by 28 publications

References 42 publications

Shariah-compliant status and investors’ demand for IPOs: the effects of information asymmetry

Shariah-compliant status and investors’ demand for IPOs: the effects of information asymmetry

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

Divergence of beliefs and IPO initial return: the quasi-moderating role of investor demand

Contact Info

Product

Resources

About