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Article
Publication date: 15 August 2016

IPO underpricing in the insurance industry and the effect of Sharia compliance: Evidence from Saudi Arabian market

Zakaria Boulanouar and Faisal Alqahtani

The purpose of this paper is to explore the existence of underpricing in the cooperative insurance sector in the Saudi Arabian market and to examine whether Sharia…

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Abstract

Purpose

The purpose of this paper is to explore the existence of underpricing in the cooperative insurance sector in the Saudi Arabian market and to examine whether Sharia compliance requirements have an impact on the level of underpricing.

Design/methodology/approach

Underpricing and the effect of Sharia compliance are analysed using a comprehensive sample of 33 insurance companies with data collected between 2007 and 2013, after taking into account market movements, as well as some factors well-known in the literature.

Findings

The authors find that underpricing not only exists but also is among the highest in the world (455 per cent), which contradicts the literature on initial public offerings (IPOs)’ pricing in highly regulated sectors. In light of one of the other findings of the authors, namely, the small number of insurance underwriters, the authors attribute these very high levels of underpricing in part to the monopsony power of insurance underwriters in Saudi Arabia. Regarding the Sharia compliance effect, they find that it does not significantly reduce the underpricing of insurance offerings. The authors interpret this as the fact that Sharia status might not be taken into account by underwriters when they price the offerings of insurance companies, due to a major drawback in the implementing regulations of cooperative insurance which have been highly criticised by practitioners.

Research limitations/implications

Future research should try to include more factors that might explain the underpricing and its determinants. Two important recommendations flowing from this study for regulatory and supervisory institutions are the need to improve disclosure and transparency conditions and to work towards reducing the monopsony power enjoyed by the underwriters. As for Sharia effect, the Saudi central bank should resolve the issue of Sharia compliance by adopting one of the Sharia-friendly models suggested by Islamic finance scholars, such as wakala or mudaraba.

Originality/value

To the best of authors’ knowledge, this paper is among the first to offer empirical evidence of the impact of Sharia compliance on the initial return of the IPOs of cooperative insurance firms.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/IMEFM-12-2014-0118
ISSN: 1753-8394

Keywords

  • IPO
  • Saudi Arabia
  • Takaful
  • Investments
  • Sharia compliance
  • Stocks and shares

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Article
Publication date: 23 August 2013

Sharia governance in Islamic banks: effectiveness and supervision model

Hichem Hamza

The Sharia governance is topic that has generated much interest in the literature of Islamic banking industry. The Sharia supervision plays an essential role in the…

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Abstract

Purpose

The Sharia governance is topic that has generated much interest in the literature of Islamic banking industry. The Sharia supervision plays an essential role in the governance of Islamic banks. The Sharia Board (SB) which is peculiar to Islamic banks is considered as the principal component of the Sharia governance framework. The purpose of this paper is to examines the link between Sharia compliance, the form of Sharia supervision and the effectiveness of Sharia governance.

Design/methodology/approach

This paper compares two model of Sharia governance framework, the first is the decentralized model in the Gulf Cooperation Council (GCC) and the second is the centralized model in Malaysia.

Findings

The independence of the SB in their mission of supervision and the consistency of Sharia ruling are the principal components of an efficient Sharia governance structure. Centralized Sharia governance system, basically in Malaysia, seems to be beneficial to the industry in term of effectiveness and credibility of the Islamic banks.

Research limitations/implications

The research focuses exclusively on the qualitative analysis about the SB and Sharia governance in Islamic countries.

Practical implications

The model of centralization is able to strengthen the position and the independence of SB and can better examine the subjects of divergences between the whole of the SB in order to promote, in the long term, the consistency of Fatwas and interpretations between banks and regions.

Originality/value

To the best of our knowledge few studies have examined this subject in a comparative discussion between MENA and Southeast Asia region. This paper contributes to the literature on Sharia governance by considering the difference between these two regions in term of supervision model of Sharia rules and principles and its application in Islamic banking.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 6 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/IMEFM-02-2013-0021
ISSN: 1753-8394

Keywords

  • Sharia Board
  • Sharia governance
  • Sharia supervision
  • Islamic banking regulation
  • Islam
  • Banking

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Book part
Publication date: 1 March 2021

Sharia Disclosure, Sharia Supervisory Board and the Moderating Effect of Regulatory Framework: The Impact on Soundness of Islamic Banking

Siti Khomsatun, Hilda Rossieta, Fitriany Fitriany and Mustafa Edwin Nasution

The unique characteristic of Islamic bank leads in governance and disclosure. Using stakeholder, signaling, and market discipline theory, governance and adequate…

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Abstract

The unique characteristic of Islamic bank leads in governance and disclosure. Using stakeholder, signaling, and market discipline theory, governance and adequate disclosure may increase bank soundness. This study aims to investigate the relationship of sharia disclosure and Sharia Supervisory Board in influencing Islamic bank soundness in the different regulatory framework of the country. Using purposive sampling, the research covered 84 Islamic banks in 16 countries during the period 2013–2015 with lag data of Islamic bank soundness. The result shows sharia disclosure influences on Islamic bank soundness for management efficiency, capital adequacy ratio, asset quality, and liquidity. The results also show that sharia disclosure mediates the indirect effect of SSB on Islamic bank soundness. The regulatory framework (sharia accounting standard and SSB regulation) shows moderating effect of regulation framework proved on the association of sharia disclosure with management efficiency, capital, and liquidity. The effect is indirectly depending on the regulatory framework for proxy management efficiency, capital, and liquidity. The implication of the research suggests that sharia disclosure could increase the market discipline mechanism of Islamic bank stream. The Islamic bank can increase the transparency using sharia disclosure as a branding for increasing public trust, even though in the deficient Islamic bank regulation countries.

Details

Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics
Type: Book
DOI: https://doi.org/10.1108/S1571-038620210000028017
ISBN: 978-1-83867-359-8

Keywords

  • Sharia disclosure
  • sharia supervisory board
  • sharia regulatory framework
  • Islamic bank soundness
  • Sharia Accounting Standard
  • SSB regulation

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Article
Publication date: 14 September 2015

Underpricing of IPOs in Saudi Arabia and Sharia compliance

David Mayes and Faisal Alqahtani

The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether…

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Abstract

Purpose

The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs), offer explanations and consider whether Sharia-compliance had a significant impact on the initial returns.

Design/methodology/approach

A comprehensive sample of 72 IPOs in Saudi Arabia between 2004 and September 2010 is used to analyse the initial return after adjusting it to the market movement as well as controlling for some common factors.

Findings

This paper finds that not only underpricing occurs but it is also among the highest levels in the world. While traditional factors affecting initial returns include age, market timing and firm size, it is found that Sharia compliance significantly reduces underpricing in Saudi Arabia. This may imply that Sharia compliance helps to reduce the uncertainty and consequences of the limited information inherent in IPOs.

Research limitations/implications

Further research is needed to see if the effect of Sharia compliance status on the short-run performance of IPOs extends to other Islamic countries or is a country-specific characteristic. More firms need to be examined to identify the market characteristics that drive the returns.

Practical implications

Very substantial sums are being “left on the table” and more efficient pricing of IPOs would be of considerable benefit to firms.

Social implications

By considering two different regimes, this paper offers some important lessons for the treatment of risk-taking, particularly in Islamic countries.

Originality/value

This paper is among the first to provide an empirical evidence of the impact of Sharia compliance on the initial return pattern in the IPO market.

Details

Journal of Islamic Accounting and Business Research, vol. 6 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/JIABR-12-2013-0042
ISSN: 1759-0817

Keywords

  • Islamic finance
  • Saudi Arabia
  • Initial public offerings
  • Market performance
  • Stock returns

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Article
Publication date: 4 February 2021

A systematic literature review on AAOIFI standards

Sherif El-Halaby, Sameh Aboul-Dahab and Nuha Bin Qoud

This paper aims to systematically review the existing studies for Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards which include…

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Abstract

Purpose

This paper aims to systematically review the existing studies for Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards which include different tracks of researches and then identify the gaps to propose opportunities for future research.

Design/methodology/approach

By adopting a systematic literature review approach, 46 papers that were published between 2000 and 2020 from 23 journals concerned with AAOIFI were selected for review and analysis.

Findings

The authors combine electronic searches to identify relevant studies using keywords such as “AAOIFI” or and “Islamic standards.” In light of the existing studies’ limitations, this paper derives and summarizes five leading future research tracks: identifies the research gaps in AAOIFI and then suggests that AAOIFI still requires more empirical analyses; identifies the alternative analytical methods as meta-analysis; identifies additional measurements for macro and microeconomics factors; identifies recent tracks as corresponding to Covid-19 pandemic; and future studies should consider the role of central banks and positive criticism for AAOIFI.

Practical implications

This analysis address the literature gaps on measuring compliance, determinants and consequences of AAOIFI adoption as this study serves as a guide for the researchers, regulators and Islamic financial institutions in research associated with this area. The findings would support AAOIFI, regulators and related authorities across jurisdictions with suggestions on improving the current AAOIFI practices.

Originality/value

This literature review is a historical record and guidance for researchers who seek to examine and explore several questions about AAOIFI. To the best of the authors’ knowledge, this is the first paper that applies systematic literature review over AAOIFI research field.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
DOI: https://doi.org/10.1108/JFRA-06-2020-0170
ISSN: 1985-2517

Keywords

  • Systematic literature review
  • AAOIFI standards
  • Compliance with AAOIFI
  • Consequences of AAOIFI adoption
  • Determinants of AAOIFI

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Article
Publication date: 18 April 2016

Determinants of compliance with AAOIFI standards by Islamic banks

Sherif El-Halaby and Khaled Hussainey

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and…

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Abstract

Purpose

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and governance standards by Islamic banks (IBs).

Design/methodology/approach

The sample consists of 43 IBs across eight countries. The authors use ordinary least squares regression analyses to examine the impact of bank-specific characteristics and corporate governance (CG) mechanisms concerned with Board of Directors (BOD) and Sharia Supervisory Board (SSB) on the levels of compliance with AAOIFI standards.

Findings

The paper finds that the average compliance level based on AAOIFI standards concerning the SSB is 68 per cent; corporate social responsibility (CSR) is 27 per cent; and presentation of financial statements (FSs) is 73 per cent. The aggregate disclosure based on the three indices is 56 per cent. The analysis also shows that size, existing Sharia-auditing department, age and CG of SSB are the main determinants of compliance levels.

Originality/value

The determinants of compliance with AAOIFI standards for IBs around the world have not been explored before, and therefore, this paper is the first of its kind to this issue.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/IMEFM-06-2015-0074
ISSN: 1753-8394

Keywords

  • Determinants
  • Islamic banking
  • AAOIFI standards
  • Compliance and non-Compliance
  • Cross-country

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Article
Publication date: 14 July 2020

Screening of Murabaha business process through Quran and hadith: a text mining analysis

Issam Tlemsani, Farhi Marir and Munir Majdalawieh

This paper revolves around the usage of data analytics in the Qur’an and Hadith through a new text mining technique to answer the main research question of whether the…

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Abstract

Purpose

This paper revolves around the usage of data analytics in the Qur’an and Hadith through a new text mining technique to answer the main research question of whether the activities and the data flows of the Murabaha financing contract is compatible with Sharia law. The purpose of this paper is to provide a thorough and comprehensive database that will be used to examine existing practices in Islamic banks’ and improve compliancy with Islamic financial law (Sharia).

Design/methodology/approach

To design a Sharia-compliant Murabaha business process originated on text mining, the authors start by identifying the factors deemed necessary in their text mining techniques of both texts; using a four-step strategy to analyze those text mining analytics; then, they list the three basic approaches in text mining used for new knowledge discovery in databases: the co-occurrence approach based on the recursive co-occurrence algorithm; the machine learning or statistical-based; and the knowledge-based. They identify any variation and association between the Murabaha business processes produced using text mining against the one developed through data collection.

Findings

The main finding attained in this paper is to confirm the compatibility of all activities and the data flows in the Murabaha financing contract produced using data analytics of the Quran and Hadith texts against the Murabaha business process that was developed based on data collection. Another key finding is revealing some shortcomings regarding Islamic banks business process compliance with Sharia law.

Practical implications

Given Murabaha as the most popular mode of Islamic financing with more than 75% in total transactions, this research has managed to touch-base on an area that is interesting to the vast majority of those dealing with Islamic finance instruments. By reaching findings that could improve the existing Islamic Murabaha business process and concluding on Sharia compliance of the existing Murabaha business process, this research is quite relevant and could be used in practice as well as in influencing public policy. In fact, Islamic Sharia law experts, Islamic finance professionals and Islamic banks may find the results of this study very useful in improving at least one aspect of the Islamic finance transactions.

Originality/value

By using a novel, fresh text mining methods built on recursive occurrence of synonym words from the Qur’an and Hadith to enrich Islamic finance, this research study can claim to have been the first of its kind in using machine learning to mine the Quran, Hadith and in extracting valuable knowledge to support and consolidate the Islamic financial business processes and make them more compliant with the i.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 9
Type: Research Article
DOI: https://doi.org/10.1108/JIABR-05-2020-0159
ISSN: 1759-0817

Keywords

  • Islamic banking
  • Murabaha financing contract
  • Quran text mining
  • Screening and audit

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Book part
Publication date: 19 June 2019

What Determines Sukuk Issuance Type in Indonesia?

Datien Eriska Utami, Irwan Trinugroho and Bruno S. Sergi

We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia…

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Abstract

We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia-related factors, and firm characteristics, provide empirical evidence on the determinants of sukuk issuance type by incorporating sukuk-specific factors, firm-specific factors, and sharia compliance variables, and address the role of Sharia Supervisory Board, as the sharia representative of firm compliance for sharia products, in the issuer’s choice of sukuk type. By studying 88 sukuk issuance in Indonesia from 2009 to 2017, we find that firm profitability and the sharia compliance level have a significant effect on the probability of issuing mudharabah sukuk. Some other factors’ characteristics including sukuk yield, firm age, and inflation rate are also found to have a significant effect.

Details

Asia-Pacific Contemporary Finance and Development
Type: Book
DOI: https://doi.org/10.1108/S1571-038620190000026010
ISBN: 978-1-78973-273-3

Keywords

  • Sukuk
  • Ijarah
  • Mudharabah
  • sharia supervisory board
  • profitability
  • yield
  • Indonesia
  • G15
  • G23

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Article
Publication date: 4 July 2016

The determinants of the choice of Islamic banks in Tunisia

Moez Ltifi, Lubica Hikkerova, Boualem Aliouat and Jameleddine Gharbi

The purpose of this paper is to determine the explanatory factors for the selection of Islamic banks and evaluate the moderating role of demographic characteristics. This…

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Abstract

Purpose

The purpose of this paper is to determine the explanatory factors for the selection of Islamic banks and evaluate the moderating role of demographic characteristics. This study seeks to better understand these determinants in Tunisia, a country with a developing Islamic finance system and a culture different from those in other Muslim countries studied in the literature.

Design/methodology/approach

The authors developed a two-sided approach: a quantitative survey and 12 semi-structured interviews based on four customer segments identified by the quantitative study. For the survey, data were collected from 180 Islamic bank clients in Tunisia. The factors adopted for the selection of an Islamic bank are service quality, trust, and compliance with Sharia (Islamic) law. The authors identified and measured the selection criteria using a factor analysis, regression analysis, and demographic characteristics analysis.

Findings

Customers consider several factors while choosing an Islamic bank: the quality of service offered by the financial institutions, trust, and (especially) compliance with Sharia law. Moreover, gender and age appear to be the only moderators between the selection of an Islamic bank and these determinants.

Practical implications

This study offers Islamic banks a better understanding of how Tunisian customers select financial institutions. These banks must consider the different determinants of choice in order to create value for consumers and prepare their marketing strategies. The authors identify four customer segments based on gender and age by which the banks may improve their positioning and market share, thus contributing to the development of Islamic financial institutions in Tunisia.

Originality/value

This is the first study of its kind in Tunisia, where the market share of Islamic finance remains low. The study enriches the Islamic marketing literature on the quality of Islamic financial institutions’ service, trust, and compliance with Sharia law. It also tests demographic characteristics as moderators. The results and implications of this research can be applied to countries similar to Tunisia.

Details

International Journal of Bank Marketing, vol. 34 no. 5
Type: Research Article
DOI: https://doi.org/10.1108/IJBM-11-2014-0170
ISSN: 0265-2323

Keywords

  • Consumer behaviour
  • Islamic bank
  • Trust
  • Service quality

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Book part
Publication date: 20 July 2016

Is Crowdfunding Sharia Compliant?

Sophie Nivoix and Fatima Zahra Ouchrif

The comparative analysis of the characteristics of both crowdfunding and Islamic finance shows that there is little divergence between these financing tools. In fact, an…

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Abstract

The comparative analysis of the characteristics of both crowdfunding and Islamic finance shows that there is little divergence between these financing tools. In fact, an “Islamic crowdfunding” has recently emerged, with activities in several countries, despite a conceptual status which has to be confirmed because of the absence of consensus about its exact name. Meanwhile, platforms of “Islamic crowdfunding” are quite heterogeneous as far as the proposed financing type and the reference to Sharia are concerned.

Details

International Perspectives on Crowdfunding
Type: Book
DOI: https://doi.org/10.1108/978-1-78560-315-020151011
ISBN: 978-1-78560-315-0

Keywords

  • Islamic finance
  • Islamic crowdfunding
  • crowdfunding platform
  • Sharia compliance
  • Sharia board

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