Religiosity, Religious Typology and Firm Investment Efficiency

This study is the first to distinguish between the general influence of religiosity on activities of the firm, and the influence of specific religiosity subtypes. We find religious subtypes reveal countervailing influences of religiosity on firm policy through agency channels. Religiosity is associated with higher investment inefficiency due to risk aversion. At the same time general religiosity may benefit firms through lower monitoring costs. Firms headquartered in relatively more religious U.S. counties benefit from local religious indoctrination, reducing the cost of monitoring by equity and debt holders. The currently predominant form of Protestant religiosity, evangelicalism is associated with the overinvestment form of investment efficiency. Catholic religiosity is less clearly associated with inefficiency due to differences in institutional form and indoctrination versus evangelicalism, offsetting prior findings of a coarse-grained association of religiosity with risk aversion. Future studies will benefit from considering the firm policy implications of religious typology.