IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v47y2018icp78-89.html
   My bibliography  Save this article

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

Author

Listed:
  • Almansour, Abdullah
  • Ongena, Steven

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.

Suggested Citation

  • Almansour, Abdullah & Ongena, Steven, 2018. "Bank loan announcements and religious investors: Empirical evidence from Saudi Arabia," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 78-89.
    • Handle: RePEc:eee:empfin:v:47:y:2018:i:c:p:78-89
    DOI: 10.1016/j.jempfin.2018.02.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092753981830015X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jempfin.2018.02.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fama, Eugene F. & French, Kenneth R., 2007. "Disagreement, tastes, and asset prices," Journal of Financial Economics, Elsevier, vol. 83(3), pages 667-689, March.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
    4. Steven Ongena & Viorel Roscovan, 2013. "Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter?," International Review of Finance, International Review of Finance Ltd., vol. 13(2), pages 137-159, June.
    5. David Gaddis Ross, 2010. "The "Dominant Bank Effect:" How High Lender Reputation Affects the Information Content and Terms of Bank Loans," The Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2730-2756, July.
    6. Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
    7. repec:zbw:bofitp:2011_006 is not listed on IDEAS
    8. Li, Chunshuo & Ongena, Steven, 2015. "Bank loan announcements and borrower stock returns before and during the recent financial crisis," Journal of Financial Stability, Elsevier, vol. 21(C), pages 1-12.
    9. Fields, L. Paige & Fraser, Donald R. & Berry, Tammy L. & Byers, Steven, 2006. "Do Bank Loan Relationships Still Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1195-1209, August.
    10. Canepa, Alessandra & Ibnrubbian, Abdullah, 2014. "Does faith move stock markets? Evidence from Saudi Arabia," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 538-550.
    11. Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
    12. Kumar, Alok & Page, Jeremy K. & Spalt, Oliver G., 2011. "Religious beliefs, gambling attitudes, and financial market outcomes," Journal of Financial Economics, Elsevier, vol. 102(3), pages 671-708.
    13. Bollen, Nicolas P. B., 2007. "Mutual Fund Attributes and Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(3), pages 683-708, September.
    14. Białkowski, Jędrzej & Etebari, Ahmad & Wisniewski, Tomasz Piotr, 2012. "Fast profits: Investor sentiment and stock returns during Ramadan," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 835-845.
    15. Billett, Matthew T & Flannery, Mark J & Garfinkel, Jon A, 1995. "The Effect of Lender Identity on a Borrowing Firm's Equity Return," Journal of Finance, American Finance Association, vol. 50(2), pages 699-718, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Izzeldin, Marwan & Johnes, Jill & Ongena, Steven & Pappas, Vasileios & Tsionas, Mike, 2021. "Efficiency convergence in Islamic and conventional banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    2. Alexakis, Christos & Kenourgios, Dimitris & Pappas, Vasileios & Petropoulou, Athina, 2021. "From dotcom to Covid-19: A convergence analysis of Islamic investments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    3. Khan, Abdullah & Rizvi, Syed Aun R. & Ali, Mohsin & Haroon, Omair, 2021. "A survey of Islamic finance research – Influences and influencers," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    4. Huang, Kuo-Jui & Bui, Dien Giau & Hsu, Yuan-Teng & Lin, Chih-Yung, 2024. "The ESG washing in banks: Evidence from the syndicated loan market," Journal of International Money and Finance, Elsevier, vol. 142(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Qing & Lu, Liping & Ongena, Steven, 2015. "Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China," BOFIT Discussion Papers 1/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    2. Li, Chunshuo & Ongena, Steven, 2015. "Bank loan announcements and borrower stock returns before and during the recent financial crisis," Journal of Financial Stability, Elsevier, vol. 21(C), pages 1-12.
    3. Kathleen Herbohn & Ru Gao & Peter Clarkson, 2019. "Evidence on Whether Banks Consider Carbon Risk in Their Lending Decisions," Journal of Business Ethics, Springer, vol. 158(1), pages 155-175, August.
    4. repec:zbw:bofrdp:2018_017 is not listed on IDEAS
    5. Ambrocio, Gene & Hasan, Iftekhar, 2018. "Private information and lender discretion across time and institutions," Bank of Finland Research Discussion Papers 17/2018, Bank of Finland.
    6. Ramona DUMITRIU & Razvan STEFANESCU, 2017. "The Behavior of Stock Prices during Lent and Advent," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 95-112.
    7. Ramona DUMITRIU & Razvan STEFANESCU, 2017. "The Behavior of Stock Prices during Lent and Advent," Proceedings RCE 2017, Editura Lumen, vol. 0, pages 95-112, November.
    8. Ambrocio, Gene & Hasan, Iftekhar, 2019. "What drives discretion in bank lending? Some evidence and a link to private information," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 323-340.
    9. Ambrocio, Gene & Hasan, Iftekhar, 2018. "Private information and lender discretion across time and institutions," Research Discussion Papers 17/2018, Bank of Finland.
    10. repec:zbw:bofitp:2018_013 is not listed on IDEAS
    11. Al-Khazali, Osamah & Bouri, Elie & Roubaud, David & Zoubi, Taisier, 2017. "The impact of religious practice on stock returns and volatility," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 172-189.
    12. Almansour, Abdullah, 2019. "Muslim investors and the capital market: The role of religious scholars," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    13. Marshall, Andrew & McCann, Laura & McColgan, Patrick, 2019. "The market reaction to debt announcements: UK evidence surrounding the global financial crisis," The British Accounting Review, Elsevier, vol. 51(1), pages 92-109.
    14. Bai, Yiyi & Dang, Tri Vi & He, Qing & Lu, Liping, 2018. "Does lending relationship help or alleviate the transmission of liquidity shocks? Evidence from a liquidity crunch in China," BOFIT Discussion Papers 13/2018, Bank of Finland, Institute for Economies in Transition.
    15. Fungáčová, Zuzana & Godlewski, Christophe J. & Weill, Laurent, 2020. "Does the type of debt matter? Stock market perception in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 247-256.
    16. Godlewski, Christophe J., 2015. "The certification value of private debt renegotiation and the design of financial contracts: Empirical evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 1-17.
    17. Christophe J. Godlewski & Bulat Sanditov, 2018. "Financial Institutions Network and the Certification Value of Bank Loans," Financial Management, Financial Management Association International, vol. 47(2), pages 253-283, June.
    18. Gavriilidis, Konstantinos & Kallinterakis, Vasileios & Tsalavoutas, Ioannis, 2016. "Investor mood, herding and the Ramadan effect," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 23-38.
    19. Huang, Weihua & Schwienbacher, Armin & Zhao, Shan, 2012. "When bank loans are bad news: Evidence from market reactions to loan announcements under the risk of expropriation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 233-252.
    20. Filippo De Marco & Silvio Petriconi, 2019. "Bank Competition and Information Production," BAFFI CAREFIN Working Papers 19130, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    21. He, Qing & Lu, Liping & Ongena, Steven, 2015. "Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China," BOFIT Discussion Papers 1/2015, Bank of Finland, Institute for Economies in Transition.
    22. Tianxi Wang, 2020. "Put Your Money Where Your Mouth Is: A Model of Certification with Informed Finance," International Review of Finance, International Review of Finance Ltd., vol. 20(2), pages 323-349, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:47:y:2018:i:c:p:78-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.