Religious Social Norms and Corporate Financial Reporting

AAA 2010 Financial Accounting and Reporting Section (FARS) Paper

50 Pages Posted: 6 Aug 2009 Last revised: 6 Oct 2015

Scott Dyreng

Duke University

William J. Mayew

Duke University - Fuqua School of Business

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2009

Abstract

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.

Keywords: Social Norms, Financial Reporting, Accounting Quality, Restatements, Effective Tax Rates, ETR

JEL Classification: M41, M14, H25, D71, D21

Suggested Citation

Dyreng, Scott and Mayew, William J. and Williams, Christopher D., Religious Social Norms and Corporate Financial Reporting (August 3, 2009). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1444839 or http://dx.doi.org/10.2139/ssrn.1444839

Scott Dyreng (Contact Author)

Duke University ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

William J. Mayew

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

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