The Long-Run Performance of Initial Public Offerings (IPOs): Comparison between Shari’Ah and Non Shari’Ah-Based Firms

Abstract

This paper empirically investigates the difference of the performance between shari’ah-based and non shari’ah-based IPO firms. The sample made IPOs in the Jakarta Stock Exchange (JSX) between July 2001 and December 2005. The sample consists of 8 shari’ah-based and 37 non shari’ah-based IPO firms. The results show that, when using equally-weighted cumulative abnormal returns (EWCARs) and equally-weighted buy-and-hold abnormal returns (EWBHARs), the long-run performance of IPOs between shari’ah and non shari’ah firms are significantly different. However, the significance disappears when the returns are calculated with value-weighted cumulative abnormal returns (VWCARs) and value-weighted buy-and-hold abnormal returns (VWBHARs). Further, the results show that shari’ah-based IPO firms outperform the market in almost every month over two years, except month 7 and 10 when using VWCARs. However, non shari’ah-based IPO firms underperform in almost every month over two years.

Keywords: Long-Run Performance, Initial Public Offerings, Shari’ah-Based Firms

JEL Classification: G1