Does religious culture matter for corporate risk-taking? Evidence from China

ABSTRACT

This study investigates the impact of religious culture on corporate risk-taking. Motivated by several considerations including risk aversion trait, we predict a negative relation between religion and corporate risk-taking and support it with Chinese data. We also find that this negative relation is strengthened by female executives while weakened by higher managerial incentives. Further analysis shows that R&D expenditures and cash flow volatility are underlying channels for religion to influence corporate risk-taking. In addition, we find that religious culture improves firms’ investment quality. These findings add to literature by uncovering that risk aversion trait of religion is an important determinant of corporate risk-taking in China.

KEYWORDS:

• Religion
• corporate risk-taking
• female executives
• managerial incentives
• China

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The laid-offs wave in 1990s that causes social uncertainty may lead people look for security and comfort from religion. This may to some extent drives the sharp increase in the number of religious sites in 1990s. (Thanks the reviewer for pointing out this event).

2. Firms in more religious regions are more likely to recruit and retain employees who fit the religious culture and weed out those who do not. Besides, the population who are sharing religious value may choose to work in firms with stronger religious intensity. These processes will produce distinctly different proportion of religious employees in different firms.

3. ST is a warning from the stock exchange that the firm has risk of termination of listing or the firm’s prospect is hard to judge. Firms which suffer continuous losses for two years will be marked with ST.

4. This system is developed by China Data Center of the University of Michigan (UMCDC), the Center for Religion and Chinese Society of Purdue University (CRCS), and the State Key Laboratory for Information Engineering in Surveying, Mapping and Remote Sensing (LIESMARS) of Wuhan University. Detailed information refers to http://chinadataonline.org/religionexplorer/.

5. Many studies (Hilary and Hui 2009; Dyreng, Mayew, and Williams 2012) adopt the number of local religious adherents to total population as proxy for local religion. However, it is not easy to obtain accurate number of religious believers in China since quite a few people are conservative and discreet in telling belief. Thus, it is not appropriate to use the ratio of religious individuals to measure religiosity in China.

6. When independent variable is Relig₂₀₀ or Relig₃₀₀, results show the same finding that coefficient of religion is significantly negative when dependent variable is R&D or Std(CFO) while insignificant when dependent variable is Lev.

7. There are four major ethic minority regions in China, including Tibet, Xinjiang, Ningxia, and Guangxi.

8. The seven regions are North China, East China, South China, Central of China, Northeast China, Northwest China, and Southwest China.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [grant number 71572019]; National Natural Science Foundation of China [grant number 71802169]; Late-stage Subsidy Project for Philosophical and Social Sciences Research of the Ministry of Education [grant number 18JHQ079]; Humanity and Social Science Planning Foundation of Ministry of Education [grant number 17YJA630017].