Religiosity and Risk Taking: Corporate Culture or Demand Driven?

Abstract

Does local religiosity create a risk averse corporate culture, or is the relationship between religiosity and firm risk taking driven by risk-sensitive demand? We utilize the detailed financial statements of financial services firms and find that both, local religiosity and the religiosity of firms’ largest geographic market, are negatively related to risk taking. The impact of religiosity is stronger for financially unconstrained firms and firms with one salient market, robust to various specifications mitigating endogeneity concerns, and supported by an analysis of headquarter moves. Our evidence suggests that firms’ reduction in risk taking is both corporate culture and demand driven.

Keywords: Corporate culture, religiosity, risk taking, risk-sensitive demand, market discipline

JEL Classification: G32, G22, M14, Z12