Do Local Protestant Values Affect Corporate Cash Holdings?
- 322 Downloads
This study examines how local Protestant belief, as one type of social norms, affects corporate cash policies. We find that firms located in areas with more Protestants hold less cash reserves. The influence of local Protestant belief on cash holdings is more profound for firms with weak corporate governance and firms with one geographic segment. In addition, we find that the difference in cash deployment is reflected in the difference in firms’ investment and payout policies. Overall, our study shows that local Protestant belief is an important factor in determining corporate cash policies and helps to mitigate the potential free cash flow problem.
KeywordsCash policy Corporate cash holdings Corporate governance Protestant Religion
- Cialdini, R. B., & Trost, M. (1998). Social norms, conformity and compliance. In D. Gilbert, S. Fiske, & G. Lindzey (Eds.), The handbook of social psychology (4th ed., Vol. II, pp. 151–192). New York: Oxford University Press Inc.Google Scholar
- Grullon, G., Kanatas, G., & Weston, J. P. (2010). Religion and corporate (mis)behavior. Working paper, Rice University.Google Scholar
- Hirshleifer, D. A. (2014). Behavioral finance. Working paper.Google Scholar
- Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.Google Scholar
- Jiang, F., John, K., Li, C. W., & Qian, Y. (2015). Earthly reward to the religious: Religiosity and the cost of public and private debt. Available at SSRN 2331401.Google Scholar
- Keynes, J. M. (1936). The general theory of employment, interest and money. London: Harcourt Brace.Google Scholar
- Kohlberg, L. (1984). Essays on moral development: The psychology of moral development (Vol. 2). San Francisco: Harper & Row.Google Scholar
- Kuhnen, C. M., & Niessen-Ruenzi, A. (2010). Is executive compensation shaped by public attitudes? AFA 2010 Atlanta Meetings Paper.Google Scholar
- Putnam, R. D. (1993). Making democracy work: Civic traditions in modern Italy. Princeton: Princeton University Press.Google Scholar
- Weber, M. (1905). The protestant ethic and the spirit of capitalism. London: Allen & Unwin.Google Scholar