Advertisement

Journal of Business Ethics

, Volume 154, Issue 1, pp 147–166 | Cite as

Do Local Protestant Values Affect Corporate Cash Holdings?

  • Huajing HuEmail author
  • Yili Lian
  • Wencang Zhou
Original Paper
  • 322 Downloads

Abstract

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.

Keywords

Cash policy Corporate cash holdings Corporate governance Protestant Religion 

References

  1. Adhikari, B. K., & Agrawal, A. (2016a). Religion, gambling attitudes and corporate innovation? Journal of Corporate Finance, 37, 229–248.CrossRefGoogle Scholar
  2. Adhikari, B. K., & Agrawal, A. (2016b). Does local religiosity matter for bank risk-taking? Journal of Corporate Finance, 38, 272–293.CrossRefGoogle Scholar
  3. Alesina, A., & La Ferrara, E. (2000). Participation in heterogeneous communities. Quarterly Journal of Economics, 115, 847–904.CrossRefGoogle Scholar
  4. Arruñada, B. (2010). Protestants and Catholics: Similar work ethic, different social ethic. The Economic Journal, 120(547), 890–918.CrossRefGoogle Scholar
  5. Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much more cash than they used to? Journal of Finance, 64, 1985–2021.CrossRefGoogle Scholar
  6. Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22(2), 783–827.CrossRefGoogle Scholar
  7. Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. The Journal of Business, 76(3), 455–475.CrossRefGoogle Scholar
  8. Callen, J. L., & Fang, X. (2015). Religion and stock price crash risk. Journal of Financial and Quantitative Analysis, 50(1–2), 169–195.CrossRefGoogle Scholar
  9. Chen, Y., Dou, P. Y., Rhee, S. G., Truong, C., & Veeraraghavan, M. (2015). National culture and corporate cash holdings around the world. Journal of Banking and Finance, 50, 1–18.CrossRefGoogle Scholar
  10. Cialdini, R. B., & Goldstein, N. J. (2004). Social influence: Compliance and conformity. Annual Review of Psychology, 55, 591–621.CrossRefGoogle Scholar
  11. 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
  12. Coval, J. D., & Moskowitz, T. J. (1999). Home bias at home: Local equity preference in domestic portfolios. Journal of Finance, 54(6), 2045–2073.CrossRefGoogle Scholar
  13. DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: A test of the lifecycle theory. Journal of Financial Economics, 81, 227–254.CrossRefGoogle Scholar
  14. Denis, D., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62–82.CrossRefGoogle Scholar
  15. Dittmar, A., & Mahrt-Smith, J. (2007). Corporate governance and the value of cash holdings. Journal of Financial Economics, 83(3), 599–634.CrossRefGoogle Scholar
  16. Dyreng, S. D., Mayew, W. J., & Williams, C. D. (2012). Religious social norms and corporate financial reporting. Journal of Business Finance and Accounting, 39(7–8), 845–875.CrossRefGoogle Scholar
  17. Fama, E. F., & French, K. R. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60, 3–43.CrossRefGoogle Scholar
  18. Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118(1), 107–155.CrossRefGoogle Scholar
  19. Grullon, G., Kanatas, G., & Weston, J. P. (2010). Religion and corporate (mis)behavior. Working paper, Rice University.Google Scholar
  20. Guiso, L., Sapienza, P., & Zingales, L. (2003). People’s opium? Religion and economic attitudes. Journal of Monetary Economics, 50, 225–282.CrossRefGoogle Scholar
  21. Halek, M., & Eisenhauer, J. G. (2001). Demography of risk aversion. Journal of Risk and Insurance, 68(1), 1–24.CrossRefGoogle Scholar
  22. Harford, J. (1999). Corporate cash reserves and acquisitions. The Journal of Finance, 54(6), 1969–1997.CrossRefGoogle Scholar
  23. Harford, J., Mansi, S., & Maxwell, W. (2008). Corporate governance and firm cash holdings. Journal of Financial Economics, 87, 535–555.CrossRefGoogle Scholar
  24. Hartzell, J. C., & Starks, L. T. (2003). Institutional investors and executive compensation. The Journal of Finance, 58(6), 2351–2374.CrossRefGoogle Scholar
  25. He, W., & Hu, M. R. (2016). Religion and bank loan terms. Journal of Banking and Finance, 64, 205–215.CrossRefGoogle Scholar
  26. Heider, F., & Ljungqvist, A. (2015). As certain as debt and taxes: Estimating the tax sensitivity of leverage from state tax changes. Journal of Financial Economics, 118(3), 684–712.CrossRefGoogle Scholar
  27. Hilary, G., & Hui, K. W. (2009). Does religion matter in corporate decision making in America? Journal of Financial Economics, 93, 455–473.CrossRefGoogle Scholar
  28. Hirshleifer, D. A. (2014). Behavioral finance. Working paper.Google Scholar
  29. Hutton, I., Jiang, D., & Kumar, A. (2014). Corporate policies of republican managers. Journal of Financial and Quantitative Analysis, 49(5–6), 1279–1310.CrossRefGoogle Scholar
  30. Inglehart, R., & Abramson, P. R. (1999). Measuring postmaterialism. American Political Science Review, 93, 665–677.CrossRefGoogle Scholar
  31. Ivković, Z., & Weisbenner, S. (2005). Local does as local is: Information content of the geography of individual investors’ common stock investments. The Journal of Finance, 60(1), 267–306.CrossRefGoogle Scholar
  32. Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.Google Scholar
  33. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.CrossRefGoogle Scholar
  34. 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
  35. Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 112(1), 169–215.CrossRefGoogle Scholar
  36. Kennedy, E. J., & Lawton, L. (1998). Religiousness and business ethics. Journal of Business Ethics, 17(2), 163–175.CrossRefGoogle Scholar
  37. Keynes, J. M. (1936). The general theory of employment, interest and money. London: Harcourt Brace.Google Scholar
  38. Kohlberg, L. (1984). Essays on moral development: The psychology of moral development (Vol. 2). San Francisco: Harper & Row.Google Scholar
  39. Kuhnen, C. M., & Niessen-Ruenzi, A. (2010). Is executive compensation shaped by public attitudes? AFA 2010 Atlanta Meetings Paper.Google Scholar
  40. Kumar, A., Page, J., & Spalt, O. (2011). Religious beliefs, gambling attitudes, and financial market outcomes. Journal of Financial Economics, 102, 671–708.CrossRefGoogle Scholar
  41. Liu, Y., & Mauer, D. C. (2011). Corporate cash holdings and CEO compensation incentives. Journal of Financial Economics, 102(1), 183–198.CrossRefGoogle Scholar
  42. Loughran, T., & Schultz, P. (2004). Weather, stock returns, and the impact of localized trading behavior. Journal of Financial and Quantitative Analysis, 39(2), 343–364.CrossRefGoogle Scholar
  43. McGuire, S., Omer, T., & Wang, D. (2012). Tax avoidance : does tax – specific industry expertise make a difference? The accounting review, 87(3), 975–1003.CrossRefGoogle Scholar
  44. Opler, T., Pinkowitz, L., Stulz, R. M., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52, 3–46.CrossRefGoogle Scholar
  45. Pirinsky, C., & Wang, Q. (2006). Does corporate headquarters location matter for stock returns? The Journal of Finance, 61(4), 1991–2015.CrossRefGoogle Scholar
  46. Putnam, R. D. (1993). Making democracy work: Civic traditions in modern Italy. Princeton: Princeton University Press.Google Scholar
  47. Schneider, B. (1987). The people make the place. Personnel Psychology, 40(3), 437–453.CrossRefGoogle Scholar
  48. Stulz, R. M. (1990). Managerial discretion and optimal financing policies. Journal of Financial Economics, 26(1), 3–27.CrossRefGoogle Scholar
  49. Stulz, R. M., & Williamson, R. (2003). Culture, openness, and finance. Journal of Financial Economics, 70, 313–349.CrossRefGoogle Scholar
  50. Sunstein, C. R. (1996). Social norms and social roles. Columbia Law Review, 96(4), 903–968.CrossRefGoogle Scholar
  51. Weaver, G. R., & Agle, B. R. (2002). Religiosity and ethical behavior in organizations: A symbolic interactionist perspective. Academy of Management Review, 27(1), 77–97.CrossRefGoogle Scholar
  52. Weber, M. (1905). The protestant ethic and the spirit of capitalism. London: Allen & Unwin.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Robert B. Willumstad School of BusinessAdelphi UniversityGarden City, New YorkUSA
  2. 2.Pennsylvania State University, Worthington ScrantonDunmoreUSA
  3. 3.School of BusinessMontclair State UniversityMontclairUSA

Personalised recommendations