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The composition and characteristics of stockholders in GCC markets, and their response to the released information : an application to credit rating agencies' and Imams' announcements

Abstract : We examine the possible influence of the domination of individual investors on stock markets’ behaviour in Gulf Cooperation Council (GCC) countries, with respect to the credit rating agencies’ and Imams’ “Islamic scholars” announcements. We assume that the English language used by the international Credit Rating Agencies (CRAs) to publish their news may fail to reduce the asymmetric information in GCC markets, due to the low level of English knowledge amongst the individual investors. We also assume that Sharia law (Islamic law) is an essential characteristic that is likely to affect the formulation of investment decisions in GCC countries. Hence, we suggest, in Saudi Arabia, the Imams’ announcements (the announcements that classify the listed firms in Saudi Stock Exchange to Sharia and non-Sharia compliant firms) are likely to affect the stock prices and the firms’ financial health. Arguing that the religious status of a firm may control the market reaction to CRAs’ decisions, as Sharia legitimacy might come first compared to the default risk. To examine our assumptions, we firstly apply a questionnaire to investigate the behaviour of individual investors in the Saudi market. We tend to investigate how the individual investors reach the financial information concerning the stock market, and how these individuals treat the foreign news (announced in the English language). We find that the majority of individual investors tend to rely only on the Arabic sources and pay attention to the translated news, whereas following the English news directly from the source is appeared to be only amongst the individual investors who understand the English language. Regarding the Imams’ announcements, we also aim in our questionnaire to find out whether the religion factor plays a role in their investment’ decisions, and to which extent the religious status of a firm can affect the individual investors’ desire to hold and purchase its securities. This investigation will allow us to examine whether the religion factor has the power to impact the firms’ financial health in high religious markets, which also allows us to suggest taking into consideration this factor when assessing firms for a credit rating in high religious areas. Based on the survey, the findings indicate an essential role played by the religion amongst the individual investors, where the religion factor is likely to affect the market as much as other financial indicators could do. Secondly, we apply an event study methodology and find positive (negative) abnormal returns following the positive (negative) credit rating events, indicating that the market participants see the positive (negative) rating events as good (bad) news. Interestingly, the stock reaction on markets characterised with lower individual investors’ domination is found to occur faster than on the markets characterised with higher individual investors’ domination. We assume the language used by the CRAs to publish their decisions is likely to be one cause of the lag, due to the low level of English knowledge amongst the individual investors. Then, we use the raw data of a previous Meta-Analysis study with respect to the CRAs’ announcements, to examine the difference in times of reactions in markets located in Anglophone countries and non-Anglophone countries. The results provide insights about a faster response in Anglophone countries than non-Anglophone countries. Furthermore, the event study applied on the Imams’ announcements in the Saudi market proves the influence of the religion factor on the stock prices, as the market immediately reacts positively (negatively) to the Imams’ announcements.Therefore, we suggest that international CRAs should 1- choose the proper language to deliver their opinions (not only in English), and 2- take into consideration the religion factor when assessing firms in high religious areas, especially the ones characterized by a high proportion of individual investors
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https://hal.univ-lorraine.fr/tel-03007537
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Submitted on : Monday, November 16, 2020 - 1:53:50 PM
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Turki Alshammari. The composition and characteristics of stockholders in GCC markets, and their response to the released information : an application to credit rating agencies' and Imams' announcements. Business administration. Université de Lorraine, 2020. English. ⟨NNT : 2020LORR0098⟩. ⟨tel-03007537⟩

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