Religion and Corporate (Mis)Behavior
39 Pages Posted: 12 Sep 2009 Last revised: 16 Mar 2010
Date Written: September 8, 2009
We provide evidence that religiosity deters unethical corporate behavior. Firms headquartered in highly religious counties are less likely to backdate options, grant excessive compensation packages to their managers, practice aggressive earnings management, and be the target of class action securities lawsuits. Our results are strongest for locations with greater concentrations of Protestants, and especially of Mainline Protestants. Finally, we find that a regulatory change designed to curb option backdating has had a much larger effect in less religious counties, suggesting that in this case regulation and religion are substitute mechanisms for monitoring and control.
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