CEO’s Religious Affiliation and Managerial Conservatism

Abstract

We investigate if an individual manager’s preferences affect corporate decisions. Specifically, we consider the effects of religion since it is an important force shaping individual preferences. We hand-collect data on the religious affiliations of CEOs and find that firms with Catholic CEOs have about 3.91% less leverage, issue debt (equity) less (more) often, increase business diversification by 24.16% and geographic diversification by 26.10%, and invest 1.26% less in R&D and 0.42% less in capital expenditures than firms with Protestant CEOs. These conservative corporate actions are also reflected in the Catholic CEOs personal decisions, such as owning fewer stocks of the company and playing less risky sports.

Keywords: Culture, religion, behavioral finance, risk aversion, capital structure, investment, diversification, compensation

JEL Classification: G02