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

See all articles by Abdullah Almansour

Abdullah Almansour

King Fahd University of Petroleum & Minerals (KFUPM)

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: November 3, 2017

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.

Keywords: Islamic Bank Loans, Event Study, Saudi Arabia

JEL Classification: G21, G14, G30

Suggested Citation

Almansour, Abdullah and Ongena, Steven R. G., Believers' Premia in the Land of the Two Holy Mosques: On the Impact of Shari'a Compliant Bank Loan Announcements in Saudi Arabia (November 3, 2017). Available at SSRN: https://ssrn.com/abstract=3064584 or http://dx.doi.org/10.2139/ssrn.3064584

Abdullah Almansour

King Fahd University of Petroleum & Minerals (KFUPM) ( email )

Dhahran, 31261
Saudi Arabia

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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