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Religiosity and bank lending: evidence surrounding the pandemic in the USA

Author

Listed:
  • Babu G. Baradwaj
  • Michaël Dewally
  • Liu Hong
  • Yingying Shao

Abstract

Purpose - The purpose of this study is to investigate the impact of religiosity on banks’ lending behavior during the COVID-19 pandemic in the USA. Design/methodology/approach - This study uses the evidence from the issuance of Paycheck Protection Program (PPP) loans to relate local religiosity to banks’ participation in the PPP loan program and to banks’ loan portfolio performance during the pandemic. Findings - The results of this study show that banks located in more religious counties have a higher level of lending through the PPP, supporting the ethical and moral concerns cultivated by local religious beliefs. In addition, banks’ lending before the pandemic is more prudential in more religious areas, as reflected in lower losses and higher returns at the onset of the crisis, especially in areas where business activities were most disrupted, supporting the stewardship role encouraged by religiosity. Originality/value - Thanks to the structure of the PPP loans programs, the authors are able to disentangle the conflicting effects of morality and prudence on banks’ behavior.

Suggested Citation

  • Babu G. Baradwaj & Michaël Dewally & Liu Hong & Yingying Shao, 2023. "Religiosity and bank lending: evidence surrounding the pandemic in the USA," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 40(3), pages 527-548, February.
    • Handle: RePEc:eme:sefpps:sef-07-2022-0381
    DOI: 10.1108/SEF-07-2022-0381
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    More about this item

    Keywords

    Banking; Religiosity; Lending; Mobility; G21; G41;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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