Religious CEOs and earnings informativeness

Using manually collected data on the religious identification of ExecuComp CEOs through Marquis Who's Who and other sources, we find that firms with religious CEOs have more informative earnings compared with firms with non-religious CEOs. Also, there is a stronger association between current earnings and future cash flows for firms with religious CEOs than for firms with non-religious CEOs. Additionally, we find that the positive association between religious CEOs and earnings informativeness is more pronounced when investors face high uncertainty of information contained in the 10-K (i.e., low 10-K readability), when firms are located in areas with lower religious social norms, and when firms have weaker corporate governance. To alleviate endogeneity concerns, we develop a series of methodologies including a reverse causality test, an entropy balancing model, a treatment effect model, and a falsification test. Overall, our results suggest that CEO personal religion is important in earnings informativeness to equity market. Our findings add to the understanding of CEO personal religion on corporate outcomes and are especially relevant to financial statement users.