Dividend Signaling and Local Religiosity: The Role of Risk Attitudes

Abstract

We link the stock market response to dividend announcements and religiosity attitudes for a sample of US commercial banks. We find that banks headquartered in highly religious areas see milder market reactions than those in less religious counties, implying that the announcements carry less information. Locations with a higher ratio of Protestants to Catholics exhibit weaker market responses to dividend announcements. Since Protestants are less inclined to gamble than Catholics, the likely mechanism behind our findings is heterogeneity of risk attitudes across religions. This underscores the role of local culture in market behavior, contributing to the literature on dividend signaling.

Keywords: Dividend announcement, religiosity, risk-taking, event-study, signaling.