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Religion, Corporate Governance, and Executive Compensation

Author

Listed:
  • Ales Cornanic

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

  • Jiri Novak

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

  • Jan Sarapatka

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

Abstract

We investigate how regional variation in religiosity and the prevalent religious denomination in a U.S. state where a company is headquartered are associated with the level and structure of executive compensation. We document a substantial compensation premium in executives working at firms headquartered in U.S. states with a high proportion of Catholics and conversely a discount in states with a high proportion of Protestants. We provide evidence suggesting that these findings are not caused by heterogeneous demand for executives’ effort, managerial ability, or social skills. Our results are consistent with the “Catholic premium” and the “Protestant discount” being associated with the adherence to different social values that have implications for corporate governance quality and for managerial entrenchment. Our results highlight the importance of social values for economic activity and for contracting between economic agents.

Suggested Citation

  • Ales Cornanic & Jiri Novak & Jan Sarapatka, 2018. "Religion, Corporate Governance, and Executive Compensation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(1), pages 34-70, February.
    • Handle: RePEc:fau:fauart:v:68:y:2018:i:1:p:34-70
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    References listed on IDEAS

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    More about this item

    Keywords

    executive compensation; religion; Catholic; Protestant; social values; corporate governance; entrenchment;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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