Does Religion Matter in Corporate Decision Making in America?

64 Pages Posted: 14 Oct 2008  

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting

Date Written: October 1, 2008

Abstract

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.

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

JEL Classification: G3, G31

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: https://ssrn.com/abstract=1284329

Gilles Hilary (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

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