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Studies and Research

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Has the issuance of the loss-making companies' procedures contributed to improving the financial performance of these companies?

     

September 2020                                                                                 

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In mid-2014, the Saudi Capital Market Authority has introduced new procedures and instructions related to listed companies with accumulated loss of their share capital. The present study questions whether the enforcement of these procedures has improved the financial performance of targeted firms using Difference-in-Difference models. The results show a positive and significant impact of the introduction of these procedures on financial performance of loss-making firms. The average improvement of the return on assets, which is contributed by the procedures, is estimated to be 8.4%. The results are robust given the results of the Placebo test where a false shock is presumed in addition to the results of sub-samples. The study also finds a positive spillover-effect on other loss-making firms. The study, further, applies Difference-in-Difference-in-Difference models to identify the channels where the improvement of financial performance has emerged. The results show that the increases in assets` efficiencies and profitability are the channels of the improvement.

​​​​​​​​​​​​​Has the issuance of the loss-making companies' procedures contributed to improving the financial performance of these companies?​

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The Effect of Incentive Structure Offered to Top Executives and Corporate Governance Culture on the Performance of Publicly Listed Companies in Saudi Arabia

September 2020


shutterstock_6666.jpgthe performance of a business has always intrigued researchers and investors alike, This report provides an overview of the incentives offered to the top five executives in publicly listed companies in Saudi Arabia and investigates its impact on their performance. The findings suggest that the majority of the companies offers short-term contracts, but the executives tend to stay longer than the duration of the standard contract. About a quarter of the companies believe that their top executives' salary is below their local competitors and about one in every ten companies believe that their top executive salary is better than their competitors, which is positively related to performance. Most of the companies offer incentive structures that focus on short term interest of the shareholders which is found to have a positive impact on performance. Around 15% of the firms offer long term bonuses in our sample. These companies, however, tend to consistently outperform companies which do not offer retention bonuses and the effect is more pronounced than the short-term incentives. Majority of the companies do not offer stockownership as part of the incentive scheme, but a good number has reported stockownership by top executives as a personal investment which has a positive impact on performance. Around two-thirds of the companies reported that they offer bonuses to non-executive employees with a complex set of criteria to award bonuses. Interestingly, this has a significant negative impact on performance which points toward problems underlying these incentives schemes, Saudi companies do not offer any stock-option as part of the incentive scheme which is getting popular these days around the world.​

The Effect of Incentive Structure Offered to Top Executives and Corporate Governance Culture on the Performance of Publicly Listed Companies in Saudi Arabia​​






The Impact of Shari'a Compliance Advices (SCAs) on the Saudi Capital Market: Evidence from the IPO Market     

December, 2018                                                                                  

shutterstock_6666.jpgThis report documents the finding of investigation on how investors in Saudi Arabia react to Shari'a scholars' advices, about the compliance of an investment to Islamic teachings they adhere to. The setting of Saudi Arabia initial public offerings (IPOs) market enables to map the decisions of individuals to subscribe into as IPO with the Shari'a compliance advices, Shari'a scholars announced about that particular IPO.

The number of individuals subscribing to an IPO is expected to drop by 80% if Shari'a scholars agree all to reject the IPO firm A  Shari'a compliant firm in their compliance advices announced during the IPO subscription period. Moreover, if Shari'a scholars disagree about the Shari'a compliance status of a firm, individuals tend to react to the scholars who approved the IPO as a Shari'a compliant investment while show no significant reaction to the advice of the ones who rejected it.

​​​​​​​​​The Impact of Shari'a Compliance Advices (SCAs) on the Saudi Capital Market: Evidence from the IPO Market


 

The Information Content of Earnings Announcements : Evidence from the Saudi Market 

JAN 2019

Do earnings announcements convey useful information to investors in the marketplace? Our results reveal that the market reaction to the information content of earnings announcement, measured by abnormal trading volume, has been increasing over the years. The results provide supportive evidence that regulatory applications have played an important role to enhance the efficiency of announcements released by companies in the marketplace. Additionally, our findings suggest that the leakage of information and the level of insider trading have relatively decreased due to the Capital Market Authority's efforts in improving the information                                                         environment. ​

 The Information Content of Earnings Announcements : Evidence from the Saudi Market ​


 

An Empirical Investigation of the Post-IPO Operating Performance in the Saudi Stock Market

May 2018

Consistent with the empirical findings in the literature in developed and emerging markets, our analysis suggests that the operating performance, measured by return on assets (ROA) and return on equity (ROE), deteriorates in post-IPO period. The analysis has been conducted on the firm level, industry level, across time, based on the use of the IPO proceedings, and government holdings before and after the IPO. The main result of the analysis still holds in all specifications. Data Envelopment Analysis (DEA) technique has also been implemented to investigate the question in hand. DEA allows us to examine the difference between the pre-and the post-IPO operating performance based on several inputs and outputs. The empirical results are similar to the analysis of means. Most companies show a decline in their performance relative to their pre-IPO performance. 
This is the final report of the project “An Empirical Investigation of the Post-IPO Operating Performance in the Saudi Stock Market”. This report summarizes the two previous reports and adds further analysis to the post-IPO operating performance across sectors, time, government ownership, and the IPO proceedings. Also, this report discusses the challenges and the opportunities encountered by the team throughout the project stages. Finally, the report concludes and gives recommendations that arise from the analysis and the investigation process.​

   An Empirical Investigation of the Post-IPO Operating Performance in the Saudi Stock Market​


 

Mutual Funds Performance in Saudi Arabia

This study offers a consideration of the performance of locally focused equity mutual funds in Saudi Arabia, specifically in comparison to the performance of their benchmarks in the Saudi Arabian context. The purpose is to present an in-depth analysis of the performance of Saudi equity mutual funds. The central research question is: Do locally focused equity mutual funds outperform the Saudi market?​

 Mutual Funds Performance in Saudi Arabia


 

 

 

The CMA and the Saudi Stock Market Crash of 2006 (summary)

By the end of 2006, the stock market’s main index (TASI) had lost approximately 65% of its value, and market capitalization had fallen by half. Also the global financial crisis of 2008 had caused the stock market to plummet even more than it had in 2006, two lessons from this experience should be learned.

  • First, what could it have done to prevent the crash at the time?
  • Second, what could it do now to prevent future catastrophes?

 The CMA and the Saudi Stock Market Crash of 2006

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