Believers' Premia in the Land of the Two Holy Mosques: On the Impact of Shari'a Compliant Bank Loan Announcements in Saudi Arabia
20 Pages Posted: 6 Nov 2017
Date Written: November 3, 2017
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.
Keywords: Islamic Bank Loans, Event Study, Saudi Arabia
JEL Classification: G21, G14, G30
Suggested Citation: Suggested Citation