Abstract
This study examines the short- and long-run share performance of 40 Sharia-compliant IPO companies listed on the Saudi Arabia Stock Exchange (Tadawul) from 1 st January 2000 to 31 st August 2017. This study employs both market-adjusted initial returns and buy-and-hold abnormal return to measure the share performance of IPOs. First, the analysis shows that Sharia-compliant IPOs are underpricing with abnormal initial returns of 79.23%. Second, the results suggest that investors could earn positive and significant market-adjusted BHAR of 14.67% if they held IPO shares over the eighteen-month period following the listing date when EWI is used as a market benchmark. This study also finds that IPO companies outperformed the VWI although the results are insignificant. The findings on the long-run overperformance contribute to the IPO literature on long-run performance of Sharia-compliant IPOs. The present study would benefit foreign investors and market regulators who are trying to understand the market behaviour in an emerging market.
Highlights
The purpose of this study is to examine the shortand long-run financial performance of initial public offerings (IPO) of Sharia-compliant companies in Saudi Arabia for the period between 2000 and 2017
The present study finds overperformance of IPO shares in the long-run where the marketadjusted buy and hold abnormal return (BHAR) outperformed both market indices; (a) positive and significant when benchmarked against equal weight index (EWI); and (b) positive but not significant when benchmarked against Value Weight Index (VWI)
This study investigates the short- and long-run share performance of Sharia-compliant IPO companies listed on the Saudi Arabia Stock Exchange (Tadawul) from 1st January 2000 to 31st August 2017
Summary
The purpose of this study is to examine the shortand long-run financial performance of initial public offerings (IPO) of Sharia-compliant companies in Saudi Arabia for the period between 2000 and 2017. Many studies have examined the short- and long-run performance of IPO companies around the globe with mixed and inconclusive findings, at best. Mixed findings have been documented for long-run IPO performance, with on the one hand, findings of underperformance reported in the developed countries, like the US and UK Such mixed outcomes are controversial, as it clearly disproves the efficient market hypothesis that has been fundamental to market studies in finance
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