Does religious piety inspire corporate social responsibility (CSR)? Evidence from historical religious identification

Abstract

We explore the effect of religious piety on corporate social responsibility (CSR). Prior research links religion to honesty and risk aversion. Accordingly, religion induces managers to be more honest and likely view as opportunistic and unethical an exploitation of other stakeholders. Risk aversion also implies that managers are unlikely to take advantage of other stakeholders as stakeholders can take retaliatory actions against them. Religion therefore motivates managers to treat other stakeholders and the society at large more favourably, resulting in stronger CSR. Our evidence, based on over 17 000 observations across 16 years, shows that religious piety leads to stronger CSR. However, this is the case only when religious piety is sufficiently strong, that is, when it is beyond a certain threshold. To draw a causal inference, we use as our instruments religious piety in the distant past, that is from 1971 to 1952. Religious piety from decades ago is unlikely correlated with current CSR, except through its impact on contemporaneous piety. Our instrumental-variable analysis shows that the effect of religion on CSR is likely causal.

Keywords:

• religion
• corporate social responsibility
• CSR
• religious piety
• instrumental variable

JEL Classification:

• G30
• M14
• Z12

Notes

¹ Prior studies show that firms located in more religious areas exhibit stronger risk aversion and more conservative investment policies (Hilary and Hui, 2009), less opportunistic timing of option grants (Grullon et al., 2010), less earnings management (Grullon et al., 2010; McGuire et al., 2012), fewer class action lawsuits (Grullon et al., 2010), fewer financial restatements and financial reporting irregularities (Dyreng et al., 2012; McGuire et al., 2012).