Impacts of Zakat Avoidance on the Market Performance of Banks in Saudi Arabia
Dr. Salah Oraby, Ammar Abdullah Alhajjaj (MBA)

Abstract
This study aims at investigating whether investors in Saudi capital market are aware of the behavior of banks in the field of zakat avoidance especially that zakat dues are treated as a component of equity in balance sheet rather than as an item of income statement and that treatment may give a room to management to manipulate the calculation of the book value per share that is of value relevance. To test research hypotheses two regression models are developed: the first assumes that investors are not aware of zakat avoidance by banks whereas the declared book value per share as the independent variable is regressed on the market value per share as the dependent variable, the second model assumes that investors are aware of zakat avoidance by banks, whereas the adjusted book value per share as the independent variable is regressed on the market value per share as the dependent variable. The two models gave similar results indicating that both book values are of value relevance explaining about 51 % of changes in the market value per share. It can be said that investors are not aware of zakat avoidance by banks and are using the declared book value as the predictor of the market value per share rather than using the adjusted book value. The results of research may be due to the lack of sufficient disclosures by external auditors in some cases and due to the complete absence of disclosures by external auditors in most cases.

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