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

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  • Alqahtani, Faisal
  • Boulanouar, Zakaria

Abstract

Using a sample of 80 IPOs in the Saudi Arabian market between 2004 and 2011, in this paper we empirically investigate the effect of sharia compliance status on investor (individuals and institutions) demand for new shares offered in initial public offerings (IPOs). After controlling for some pre-listing information including size, age of the firm, offer risk, offer price, block-holding, market condition and the effect of the Global Financial Crisis (GFC), we find that Sharia compliance status significantly alters the demand for new issues when measured by two different proxies, the ratio of oversubscription and the number of subscribers. We also find that market condition and block-holding, offer risk, age and size of firms can significantly explain some of the variations in the demand. Pivotally, institutional investors were found to emphasize profit-maximization over considerations of Sharia-compliance, whereas for individual investors (the majority here) the opposite was true. We conclude that sharia compliance status should be taken into account by issuers with a greater emphasis on privatization IPOs where the government aim is to distribute wealth among its citizens.

Suggested Citation

  • Alqahtani, Faisal & Boulanouar, Zakaria, 2017. "Sharia compliance status & investor demand for IPOs: Evidence from Saudi Arabia," Pacific-Basin Finance Journal, Elsevier, vol. 46(PB), pages 258-268.
    • Handle: RePEc:eee:pacfin:v:46:y:2017:i:pb:p:258-268
    DOI: 10.1016/j.pacfin.2017.09.012
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    Cited by:

    1. Boulanouar, Zakaria & Alqahtani, Faisal & Hamdi, Besma, 2021. "Bank ownership, institutional quality and financial stability: evidence from the GCC region," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    2. Ahmad Hakimi Tajuddin & Kanesh Gopal & Rasidah Mohd-Rashid & Waqas Mehmood & Elkhan Richard Sadik-Zada, 2023. "Do Share Allocations to the Indigenous Investor Drive the Demand for IPOs?," Economies, MDPI, vol. 11(4), pages 1-18, April.
    3. Khan, Abdullah & Rizvi, Syed Aun R. & Ali, Mohsin & Haroon, Omair, 2021. "A survey of Islamic finance research – Influences and influencers," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    4. Murat Yaş & Ahmet Faruk Aysan & Mohamed Eskandar Shah Mohd Rasid, 2022. "Are religious investors financially smart? evidence from equity funds," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 33-45, February.
    5. Alnori, Faisal & Alqahtani, Faisal, 2019. "Capital structure and speed of adjustment in non-financial firms: Does sharia compliance matter? Evidence from Saudi Arabia," Emerging Markets Review, Elsevier, vol. 39(C), pages 50-67.
    6. Almansour, Abdullah, 2019. "Muslim investors and the capital market: The role of religious scholars," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    7. Alqahtani, Faisal & Samargandi, Nahla & Kutan, Ali M., 2020. "The influence of oil prices on the banking sector in oil-exporting economies: Is there a psychological barrier?," International Review of Financial Analysis, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    IPO; Oversubscription; Investor demand; Sharia compliance; Saudi Arabia;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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