Religion and Ownership

Abstract

This study examines if geographical variation in the dominant religion of a firm’s location is associated with corporate ownership structures as a governance mechanism to address agency conflicts within firms. We contrast two Christian faiths, Protestantism and Catholicism, which—despite theological similarities—have been associated with contrasting preferences for autonomy and reliance on trust. We address identification challenges by combining evidence from panel regressions, geographical regression discontinuity design, and instrumental variable estimation. We find that the local strength of Protestantism reduces ownership concentration. A subsequent analysis suggests that the local strength of Protestantism directly affects blockholder ownership, whereas the effect on shareholding size and insider ownership is indirect through trust.

Keywords: Protestantism; hierarchy; ownership concentration; monitoring; governance; trust

JEL Classification: G32; M2; M41; N3