CEO's Religious Affiliation and Managerial Conservatism

Abstract

We investigate whether managers' religious affiliations affect corporate decisions. We hand collect data on the religious affiliations of chief executive officers (CEOs) and find that firms with Catholic CEOs have less leverage, issue debt less often, increase business and geographic diversification, and invest less than firms with Protestant CEOs. We also find that the decisions of Catholic CEOs are associated with lower firm value. These corporate actions are also reflected in the CEOs’ personal decisions, such as owning fewer company stocks and playing less risky sports.

Local religious beliefs and municipal bond market outcomes

“…I also control for corruption, as bonds issued from corrupt states are associated with higher credit risk ratings and are likely to have credit enhancement (Butler, Fauver, & Mortal, ). Consistent with recent empirical evidence (see, e.g., Baxamusa & Jalal, ; Gao et al., ), the results show that CPratio has negative effect on credit risk ratings, indicating that bonds issued from counties with a high Catholic‐to‐Protestant population ratio have lower credit risk ratings. Credit enhancement improves bond issuer's credit risk (i.e., reduces default risk of municipal debt), thereby lowering the credit risk rating and costs of borrowing.…”

“…However, a growing literature shows that risk‐taking behavior differs across religious beliefs. For instance, recent empirical studies provide mixed results about the effect of Catholic and Protestant beliefs on risk‐taking behavior (see, e.g., Baxamusa & Jalal, ; Gao, Wang, & Zhao, ; Kumar, Page, & Spalt, ; Shu, Sulaeman, & Yeung, ). This paper extends the literature by investigating the impact of local religious beliefs on municipal bond market outcomes.…”

Local Culture and Dividends

“…These results can be provided upon request. Also note that although Baxamusa and Jalal () examine the impact of religion on corporate policies, there are some differences between Baxamusa and Jalal () and my paper. I examine the impact of local investor bases on corporate dividend policies as opposed to the impact of CEOs.…”

“…In a similar spirit, Baxamusa and Jalal () examine CEO religious affiliation and managerial conservatism by focusing on other corporate policies including diversification, investment, and leverage. They suggest that CEO religion is important in determining these corporate policies.…”

“…Shu et al. () report that recent studies indicate that Protestant and Catholic beliefs have “differences in speculative risk but share a common aversion to pure risk.” Alternatively, Baxamusa and Jalal () suggest that when the impact of managerial religion on some corporate policies is considered, Catholics have less risk tolerance when compared to non‐Catholics in terms of pure risk. As Hilary and Hui () suggest; the impact of religious phenomena on economic outcomes can be complex.…”