Religiosity and sovereign credit quality

Wen-Liang G. Hsieh, Wei-Shao Wu and Anthony H. Tu

Journal of Empirical Finance, 2022, vol. 68, issue C, 84-103

Abstract: Sovereign credit quality has been shown to depend on macroeconomic factors, global risk factors, and financial/economic/political/social institutions. In this paper, we find that religiosity, a cultural factor deep-rooted to every national characteristic, can adversely affects sovereign credit. The finding is consistent with the conflict hypothesis that strong religiosity within a country may consume resources, weaken government authority, and lead to political instability, thus exerts a negative influence on sovereign creditworthiness. The results are robust to a number of alternative measures of religiosity and sovereign credit quality, and after control of endogeneity issues using several instrumental variables. In addition, we trace and identify the national financial development as the main channel through which religiosity indirectly affects sovereign credit. Collectively, the new evidence provided in this paper clearly depicts the influential role of religiosity in sovereign credit markets.

Keywords: Religiosity; Sovereign credit; Credit default swaps; Structural equation modeling (search for similar items in EconPapers)
JEL-codes: G12 G15 Z12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:68:y:2022:i:c:p:84-103

DOI: 10.1016/j.jempfin.2022.07.004

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