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Religion, Corporate Governance, and Executive Compensation

Ales Cornanic, Jiri Novak () and Jan Sarapatka
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Ales Cornanic: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague
Jan Sarapatka: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague

Czech Journal of Economics and Finance (Finance a uver), 2018, vol. 68, issue 1, 34-70

Abstract: We investigate how regional variation in religiosity and the prevalent religious denomination in a U.S. state where a company is headquartered are associated with the level and structure of executive compensation. We document a substantial compensation premium in executives working at firms headquartered in U.S. states with a high proportion of Catholics and conversely a discount in states with a high proportion of Protestants. We provide evidence suggesting that these findings are not caused by heterogeneous demand for executives’ effort, managerial ability, or social skills. Our results are consistent with the “Catholic premium” and the “Protestant discount” being associated with the adherence to different social values that have implications for corporate governance quality and for managerial entrenchment. Our results highlight the importance of social values for economic activity and for contracting between economic agents.

Keywords: executive compensation; religion; Catholic; Protestant; social values; corporate governance; entrenchment (search for similar items in EconPapers)
JEL-codes: A13 E24 G30 M12 (search for similar items in EconPapers)
Date: 2018
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