Does Religion Shape Corporate Cost Behavior?

Lijun Ma (), Xin Wang () and Che Zhang ()
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Lijun Ma: University of International Business and Economics
Xin Wang: Renmin University of China
Che Zhang: Tsinghua University

Journal of Business Ethics, 2021, vol. 170, issue 4, No 11, 835-855

Abstract: Abstract Using U.S. listed firms during the period from 1971 to 2010, this paper investigates the effect of religion on corporate cost behavior. We find that religion mitigates cost stickiness induced by agency or behavioral biases of managers. This result holds for several robustness tests that address endogeneity concerns. The mitigating effect of religion on cost stickiness is through the channel of reducing top managers’ overconfidence and optimistic bias regarding future demand change (risk-aversion mechanism) and promoting managers’ adherence to fiduciary responsibilities and consideration of shareholder benefits (ethic mechanism). Further evidence shows that the reduction in cost stickiness caused by religion increases firm value. Overall, our findings suggest that religion reduces the wedge between a firm’s actual and optimal resource commitments, which helps to improve firm value and resource allocation efficiency.

Keywords: Religion; Cost stickiness; Agency; Behavioral bias (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s10551-019-04377-4

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