Is Religion Good for Business? New Study Reveals Surprising Link

First Posted: Dec 25, 2013 08:37 AM EST

You might think that religion may deter business, but researchers have now found that the opposite is true. It turns out that businesses with head offices in places with high levels of "religiosity" are less likely to experience stock price crashes as a result of not disclosing bad financial news. The findings reveal that if you're looking for a business to invest in, you may want to consider one that's religious.

In order to examine how religiosity might impact business, the researchers examined data from 1971 to 2000 about the number of churches and church membership in U.S. countries from the American Religion Data Archive. The scientists then compared this data with information about stock returns and accounting restatements for U.S. companies, including where those companies were headquarters.

"There is nothing quicker to losing your good name in a religious milieu than doing something like withholding bad news and not being upfront," said Jeffrey Callen, one of the researchers, in a news release. "There's a real cost."

Previous research actually showed that religious managers are less likely to manipulate the flow of information and a religious setting tends to foster more whistleblowers within a corporation. In this study, the scientists found a strong correlation between religiosity and a low risk of stock price crash due to bad news "hoarding" was particularly strong among companies with weak governance.

"Where you have strong corporate governance, religion doesn't need to kick in," said Callen in a news release. "But where there is poor corporate governance, religion substitutes for it."

The findings reveal a little bit more about how religion impacts business. It turns out that, in fact, businesses that have strong religiosity may be a bit more honest in their dealings.

The findings are published in the Journal of Financial and Quantitative Analysis.

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