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Religiosity and the Speed of Corporate Leverage Adjustment: International Evidence

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  • Yue Lu
  • Ly Ho

Abstract

This paper investigates the impact of religiosity on the speed of leverage adjustment (SOA) in a large international sample. Our main result indicates that religiosity has a positive impact on SOA. This finding remains valid after conducting various robustness checks and the correction of endogeneity. In the mechanism test, we show that religiosity accelerates leverage SOA by increasing social trust and reducing agency costs. Further exploring how institutional environments reshape the relationship between religiosity and SOA, we show that religiosity has a greater impact in countries with weaker formal institutions, supporting the idea that informal social norms can act as substitutes for formal institutions. In our cross‐sectional analysis, we demonstrate that the beneficial effect of religiosity on SOA comes predominantly from Protestantism and is more significant for firms with low visibility and those that are under‐levered. Overall, we emphasise the importance of religiosity in shaping corporate capital structure decisions.

Suggested Citation

  • Yue Lu & Ly Ho, 2025. "Religiosity and the Speed of Corporate Leverage Adjustment: International Evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(5), pages 4284-4327, December.
    • Handle: RePEc:bla:acctfi:v:65:y:2025:i:5:p:4284-4327
    DOI: 10.1111/acfi.70061
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