The long-run performance of initial public offerings:
comparison between shari’ah and non shari’ah-based firms
This paper empirically investigates the difference of the performance between shariah-based and non shariah-based firms that listed on the Jakarta Stock Exchange (JSX) during the period July 2001 to December 2005. The results show that, when using equally-weighted cumulative abnormal return (EW-CAR) and equally-weighted buy-and-hold abnormal return (EW-BHAR), the long-run performance of IPOs return between shariah and non shariah firms are significantly different. However, the significance disappears when the returns are calculated with value-weighted cumulative abnormal return (VW-CAR) and value-weighted buy-and-hold abnormal return (VW-BHAR). Further, the results show that shariah-based firms outperform the market in almost every month for two years, except month 7 and 10 when using VW-CAR. However, non shariah-based firms underperform in almost each month.
Key words: long-run performance, IPO, shari’ah, equally-weighted, value-weighted.
JEL Classification: G1.
In recent years, the academic community has closely examined and intensely debated the performance of IPOs, particularly in the long-run. The analysis of the long-run returns is directed towards a methodological approach. Thus, Barber and Lyon (1997), Kothari and Warner (1997), Brav and Gompers (1997), Fama (1998), Lyon, Barber and Tsai (1999), Loughran and Ritter (2000), Gompers and Lerner (2003), Ang, Gu, and Hochberg (2005), and Ahmad-Zaluki, Campbell, and Goodacre (2007) have argued that the method of performance measurement influences both the magnitude of the abnormal returns as well as the size and power of the statistical test.