Religiosity and Corporate Risk-taking

This paper studies the influence of religiosity on corporate risk-taking. The study uses unique micro-level data on religious devotion and distinguishes between manager religiosity, firm intrinsic religiosity, firm extrinsic religiosity, and social capital. Analysis shows that manager religiosity is associated with lower risk-taking. Firm intrinsic religiosity however, moderates this association. Further analysis shows that managers of Islamic firms are more likely to make risky decisions as compared to managers of other firms due to socio-religious pressure. Manager religiosity is also associated with lower firm equity risk. The results also suggest that strong external monitoring weakens the negative relationship between religiosity and risk-taking. This study shows how religious managers may be a double-edged sword. Religious managers are not risk-takers but are susceptible to social pressure. They are however, also more well-adjusted to a changing environment which inspires confidence in the markets.