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Bank loan announcements and religious investors: Empirical evidence from Saudi Arabia


Ongena, Steven; Almansour, Abdullah M (2018). Bank loan announcements and religious investors: Empirical evidence from Saudi Arabia. Journal of Empirical Finance, 47:78-89.

Abstract

We study how investors in a conservative Muslim society react to announcements of bank loans depending on their compliance with Shari’a law. We hand-collect 173 announcements of bank loans granted to listed corporations in Saudi Arabia, assess their issuance and estimate the reaction of the borrowing firms‘ stocks. We find that loans that are not Shari’a compliant are larger and are granted to larger firms. Controlling for firm and loan characteristics commonly present in other loan announcement studies, we further document that equity market investors react negatively to non-compliant loan announcements with the two-day cumulative abnormal return preceding the announcement up to 1.8 percentage points lower for the smaller non-compliant loans.

Abstract

We study how investors in a conservative Muslim society react to announcements of bank loans depending on their compliance with Shari’a law. We hand-collect 173 announcements of bank loans granted to listed corporations in Saudi Arabia, assess their issuance and estimate the reaction of the borrowing firms‘ stocks. We find that loans that are not Shari’a compliant are larger and are granted to larger firms. Controlling for firm and loan characteristics commonly present in other loan announcement studies, we further document that equity market investors react negatively to non-compliant loan announcements with the two-day cumulative abnormal return preceding the announcement up to 1.8 percentage points lower for the smaller non-compliant loans.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:June 2018
Deposited On:12 Sep 2018 14:22
Last Modified:24 Sep 2019 23:36
Publisher:Elsevier
ISSN:0927-5398
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jempfin.2018.02.002
Other Identification Number:merlin-id:16210

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