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Does Firms' Exposure to Religion Lead to Conservative Loan Financing? The Mediating Role of ESG Performance

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  • Ying Chen
  • Ming Qian
  • Kim Klyver

Abstract

Recent studies suggest that religion influences firm outcomes. Our study extends this emerging stream of research by exploring how firms' exposure to religion affects their ESG performance and, subsequently, the cost of loans and the loan‐to‐asset ratio for those firms. Drawing upon social norms theory and signaling theory, we suggest that firms located in areas with a high level of religiosity have higher ESG performance due to the influence of religious social norms and that, in turn, such performance reduces both the cost of loans and the loan‐to‐asset ratio as a result of the signaling effect. Furthermore, we suggest that regional economic development positively moderates the relationship between firms' exposure to religion and their ESG performance. Our findings highlight the ethical complexity of religiosity, suggesting religion drives both risky (direct effect on loan‐to‐asset ratio) and conservative (indirect effect on loan‐to‐asset ratio) financial behavior. That is, contrary to conventional assumptions, we found that firms' exposure to religion can increase, not decrease, their loan‐to‐asset ratio; however, when religious exposure promotes firms' ESG performance, they become more conservative in their financing behavior. We discuss the implications of our study for financial management research.

Suggested Citation

  • Ying Chen & Ming Qian & Kim Klyver, 2026. "Does Firms' Exposure to Religion Lead to Conservative Loan Financing? The Mediating Role of ESG Performance," Business Ethics, the Environment & Responsibility, John Wiley & Sons, Ltd., vol. 35(3), pages 1517-1535, July.
    • Handle: RePEc:wly:buseth:v:35:y:2026:i:3:p:1517-1535
    DOI: 10.1111/beer.12853
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