Shariah-compliant status and investors demand for IPOs: the moderating role of regulatory quality

Abstract

PurposeThe purpose of this study is to look at how Shariah-compliant status and Shariah regulation affect the demand for initial public offerings (IPOs) in Pakistan. The Shariah-compliant status, which is seen as a method that offers a credible signal to investors, may explain the anomaly in IPO demand.Design/methodology/approachThis research used multivariate and quantile regression models to assess data from 85 IPOs issued on the Pakistan Stock Exchange between 2000 and 2019.FindingsShariah-compliant status has a considerable negative association with IPO demand. Nevertheless, there is a considerable positive association among Shariah regulation and IPO demand. Furthermore, the interaction among regulatory quality and Shariah-compliant status has a considerable strong influence on IPO demand. As a consequence, the findings show that Shariah-compliant firms might possibly attract the attention of investors. Investors were found to concur on the amicability of rigorous rules and permissible Shariah-compliance aspects.Research limitations/implicationsFuture studies could analyse the financial ratio benchmark (cash and debt) to determine the Shariah-compliant status and Shariah regulation to better understand the problem of IPO demand in the context of Pakistan.Practical implicationsThe outcomes of this research are useful for issuers and underwriters in comprehending the characteristics that influence high and early IPO success. Such knowledge may assist issuers and underwriters in responsibly planning and managing the IPO process.Social implicationsThe results may be useful to investors looking for critical information in prospectuses to make the best choice when subscribing to IPOs in Pakistan.Originality/valueThis is one of the first studies to provide empirical data on the links among Shariah-compliant status, Shariah regulation and IPO demand in Pakistan. Furthermore, this research demonstrates the interaction impact of regulatory quality and Shariah-compliant status on IPO demand.