Does Religion Matter to Equity Pricing?

57 Pages Posted: 6 Mar 2012 Last revised: 26 Feb 2014

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Yang Ni

Shanghai Jiao Tong University (SJTU)

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Samir Saadi

Smith School of Business

Date Written: February 2012

Abstract

For a sample comprised of 36,105 U.S. firm-year observations from 1985 to 2008, we find that firms located in more religious counties enjoy cheaper equity financing costs. This result is robust to a battery of sensitivity tests, including alternative assumptions and model specifications, additional controls for noise in analyst forecasts, and various approaches to addressing endogeneity. In another set of tests, we find that the equity pricing role that religion plays comes predominantly from Mainline Protestants. We also document that the effect of religiosity on firms’ cost of equity capital is larger for firms (periods) lacking alternative monitoring (regulation) mechanisms as measured by lower institutional ownership (the pre-SOX era), implying that religion plays a corporate governance role. Finally, we find that the importance of religion to equity pricing is concentrated in firms that suffer lower visibility, which tend to be more sensitive to local social and economic factors. By examining the links between religiosity and valuation at the firm level, we provide strong, robust evidence supporting the perspective that religion facilitates economic development.

Keywords: Religion, Cost of Equity Capital, Investor Protection, Corporate Governance

JEL Classification: G10, G12, G34, G39

Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Ni, Yang and Pittman, Jeffrey A. and Saadi, Samir, Does Religion Matter to Equity Pricing? (February 2012). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2016869

Sadok El Ghoul

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Yang Ni (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Samir Saadi

Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
83
rank
281,763
Abstract Views
733
PlumX Metrics