Abstract
We demonstrate that religious scholars play a significant role in shaping investment preferences of Muslim investors. We hand-collect texts containing Shari'a compliance advises (SCAs) by influential Shari'a scholars about the status of firms that planned an initial public offering (IPO) in Saudi Arabia during the period from 2005 to 2017. We found that the number of individuals subscribing to an IPO, on average, drops by around 60% if all Shari'a scholars agree, in their SCAs, to reject the firm as a Shari'a-compliant firm during the subscription period. Interestingly, if the scholars disagree, individuals show no significant reaction to scholars whose SCAs rejected the IPO.
•Text of 76 Shari'a compliance advises (SCAs), or "Fatawa" as known in Arabic language, of influential Shari'a scholars about the compliance status of Saudi Arabian IPOs (total of 103) were hand collected and the impact of their content on number of individual subscribers attracted by the IPOs is studied.•If the IPO of a firm is given non-compliance status by all Shari’a scholars, number of individuals subscribing to the IPO drops significantly•If the Scholars disagree about the compliance status of an IPO, individuals follow the ones who grant Shari’a compliance status to the IPO