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Does Religion Matter in Corporate Decision Making in America?

Gilles Hilary


Kai Wai Hui

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

October 1, 2008

Journal of Financial Economics (JFE), Forthcoming

We examine how corporate culture influences firms' behaviors and, more specifically, how the level of religiosity in a firm's environment affects its investment decisions. We focus on one country (the U.S.) to minimize differences in legal and economic environments. Prior research suggests a positive link between individual religiosity and risk aversion. We find that this relation also influences organizational behavior. Specifically, firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or in returns on assets. In turn, such firms require a higher internal rate of return before investing. They exhibit a lower rate of investment either in tangible capital or in R&D but generate a more positive market reaction when they announce new investments. Their long-term growth is also lower. Finally, we document that CEOs are more likely to join firms with similar religious environment as their last firm when they switch employers. All results are both economically and statistically significant. They are robust to many alternative specifications that minimize the risk of omitted variables or endogenous relations.

Number of Pages in PDF File: 64

Keywords: Corporate investment, risk aversion, corporate culture, religion

JEL Classification: G3, G31

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Date posted: October 14, 2008  

Suggested Citation

Hilary, Gilles and Hui, Kai Wai, Does Religion Matter in Corporate Decision Making in America? (October 1, 2008). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1284329

Contact Information

Gilles Hilary (Contact Author)
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
Kai Wai Hui
Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )
Clear Water Bay
Hong Kong
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