Religion and Corporate Accounting Conservatism

Posted: 1 Jun 2017

See all articles by Shengquan Hao

Shengquan Hao

Shanghai Jiao Tong University (SJTU)

Wen Li

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Guifeng Shi

Shanghai Jiao Tong University (SJTU)

Date Written: May 27, 2017

Abstract

This paper studies how religion influences corporate accounting conservatism choice. Accounting conservatism is a mechanism to reduce the agency costs between the corporate insiders and outsiders. Religion potentially impacts firms’ accounting conservatism choice in two contradictory ways. On one hand, religion calls for risk aversion, which predicts that religion would enhance corporate accounting conservatism. On the other hand, religion, as a social norm, potentially impacts firms’ accounting conservatism choice by reducing the contracting demands for accounting conservatism. In this paper, we empirically find that: 1) the local religiosity of the headquarters of the firms is negatively correlated with the firms’ accounting conservatism measures; and 2) the negative correlation between religion and accounting conservatism is more pronounced for firms with higher leverage and higher earnings-based compensations. Our results are robust to alternative model specifications, and different conservatism and religious adherence measures. Our study highlights the important role of social norms in corporate accounting choices.

Keywords: Religion; Accounting Conservatism; Debt Contracting; Compensation Contracting

JEL Classification: M41; Z10; D82

Suggested Citation

Hao, Shengquan and Li, Wen and Shi, Guifeng, Religion and Corporate Accounting Conservatism (May 27, 2017). Available at SSRN: https://ssrn.com/abstract=2975686

Shengquan Hao

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Wen Li

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Guifeng Shi (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

Antai College of Economics and Management
Shanghai 200052
China

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