Religion and Stock Price Crash Risk

Posted: 8 Apr 2013 Last revised: 6 Jun 2013

See all articles by Jeffrey L. Callen

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Xiaohua Fang

Florida Atlantic University

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2012


This study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion, as a set of social norms, helps to curb bad news hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership. To ensure that the stock price crashes are a consequence of bad news hoarding, we show that firms that restated accounting data and suffered a resulting stock price crash experience significantly larger income decreases and are less likely to be from a religious milieu by comparison to matched samples including firms that restated but did not suffer a stock price crash.

Keywords: religion, crash risk, external monitoring, risk-taking

JEL Classification: G12, G34, Z12

Suggested Citation

Callen, Jeffrey L. and Fang, Xiaohua, Religion and Stock Price Crash Risk (January 31, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Rotman School of Management Working Paper No. 2246476, Available at SSRN:

Jeffrey L. Callen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
416-946-5641 (Phone)
416-971-3048 (Fax)

Xiaohua Fang (Contact Author)

Florida Atlantic University ( email )

United States

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