Religious Social Norms and Corporate Financial Reporting
William J. Mayew
Duke University - Fuqua School of Business
Christopher D. Williams
University of Michigan - Stephen M. Ross School of Business
August 3, 2009
AAA 2010 Financial Accounting and Reporting Section (FARS) Paper
Religion has been shown to influence economic choices and outcomes in a variety of contexts. Honesty and risk aversion are two social norms forwarded to characterize the religious. Using the level of religious adherence in the county of a U.S. firm’s headquarters as a proxy for these religious social norms, we find that higher levels of religious adherence are associated with both a lower likelihood of financial restatement and less risk that financial statements are misrepresented because of overstated (understated) revenue/assets (expenses/liabilities). We also find that accruals of managers in areas of high religious adherence exhibit smaller deviations from expectations, and deviations, when they occur, tend to improve the time series mapping of accruals into cash flows. These results hold overall and separately for both Catholic and Protestant religious adherence. Further analysis reveals that the effects of religious social norms extend beyond accrual choices. We find that firms located in areas of high religious adherence are less likely to engage in tax sheltering, and are more forthcoming with bad news in their voluntary disclosures. Collectively, our results provide new evidence on the role of religion and social norms in corporate financial reporting.
Number of Pages in PDF File: 50
Keywords: Social Norms, Financial Reporting, Accounting Quality, Restatements, Effective Tax Rates, ETR
JEL Classification: M41, M14, H25, D71, D21working papers series
Date posted: August 6, 2009 ; Last revised: June 9, 2012
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