 Does local religiosity matter for bank risk-taking?Binay Kumar Adhikari and Anup Agrawal Journal of Corporate Finance, 2016, vol. 38, issue C, 272-293 Abstract: We investigate whether local religiosity matters for risk-taking by banks. Banks headquartered in more religious areas exhibit lower stock return volatility, lower tail risk, and lower idiosyncratic risk. They also tend to be farther away from default as measured by their z-scores. But these banks command lower market valuations during normal times. These results stand up to several robustness checks, tests for mitigating endogeneity concerns, and are supported by an analysis of bank CEOs' religiosity. Moreover, banks in more religious areas remain less vulnerable to crises. To reduce risk, these banks grow their assets more slowly, hold safer assets, rely less on non-traditional banking, and provide less incentives to their executives to increase risks. Local religiosity has a more pronounced influence on risk-taking by banks for which local investors and managers are more important. Overall, this paper contributes to the literature by uncovering an important and previously unidentified determinant of risk-taking by banks, namely, religion-induced risk aversion. Keywords: Local religiosity; Bank risk-taking; Financial crises (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:38:y:2016:i:c:p:272-293 DOI: 10.1016/j.jcorpfin.2016.01.009 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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