The short and long-run performance of Shariah-compliant IPOs on Tadawul

Abstract

We examine the short- and long-run financial performance of Sharia-compliant IPO companies in Saudi Arabia for the period between 2000 and 2017. While the literature on the short-run performance is more consistent in presenting evidence of underpricing (see T. Loughran, Ritter, and Rydqvist, 1994), the evidence for long-run performance have been rather mixed and inconclusive (T.  Loughran & Ritter, 1995) between under-and-over-performance outcome. Intrigued by where Saudi Arabia may be positioned on this continuum our analysis indicates that Sharia-compliant IPOs on Tadawul are underpricing with abnormal initial returns of 79.23%. For the long-run performance, our analysis indicates that investors could earn positive and significant market-adjusted BHAR of 14.67% if IPO shares were held over the eighteen-month period following the listing date using the EWI as a market benchmark. The present study would benefit foreign investors and market regulators who are trying to understand the market behaviour in an emerging market.