Shariah-compliant status and IPO oversubscriptions

Purpose: The purpose of this paper is to examine the impact of Shariah-compliant status on oversubscription of initial public offerings (IPOs) in Malaysia. It is believed that the Shariah-compliant status serves as a platform that sends a credible signal to investors which could possibly explain the IPO oversubscription anomaly. Design/methodology/approach: This study used a multivariate and quantile regression model which involved 252 IPOs listed on Bursa Malaysia from 2005 to 2015. Findings: The results show a significant positive relationship between Shariah-compliant status and oversubscription ratio, which suggests that companies with Shariah status could draw the attention of the investors. Strict guidelines and permissible elements of Shariah-compliant are considered agreeable and amicable by the investors. Research limitations/implications: Future studies should look into financial ratio benchmark (cash and debt) for determining Shariah-compliant status to enhance the understanding of oversubscription of IPOs in Malaysia. Practical implications: This study offers practical understanding to the issuers and underwriters on the factors that should be considered in assuring a good early performance of their issuance. Therefore, it will benefit the issuers and underwriters in managing and planning the IPO process carefully. Social implications: The results of this study provide a new insight for investors regarding important information found in the prospectus when making the decisions to subscribe to IPOs. Originality/value: This paper is one of the first to provide an empirical evidence of the impact of Shariah-compliant status on oversubscription in the IPO market.