Journal of Business Ethics

, Volume 132, Issue 2, pp 277–296

Religiosity and Earnings Management: International Evidence from the Banking Industry

  • Kiridaran Kanagaretnam
  • Gerald J. Lobo
  • Chong Wang

DOI: 10.1007/s10551-014-2310-9

Cite this article as:
Kanagaretnam, K., Lobo, G.J. & Wang, C. J Bus Ethics (2015) 132: 277. doi:10.1007/s10551-014-2310-9


Using an international sample of banks, we study how differences in religiosity across countries affect earnings management. Given that religiosity is a major source of morality and ethical behavior, it may reduce excessive risk taking and act as deterrence for earnings manipulations. Therefore, we predict lower earnings management in societies that have higher religiosity. Consistent with expectations, our cross-country analysis indicates that religiosity is negatively related to income-increasing earnings management for loss-avoidance and just-meeting-or-beating prior year’s earnings. We also find that religiosity reduces income-increasing earnings management through abnormal loan loss provisions. In additional tests, we document that religiosity increases the information value of bank earnings, with both earnings persistence and cash flow predictability being enhanced by higher religiosity. For the crisis period analysis (i.e., 2007–2009), our evidence shows that banks in countries with higher religiosity exhibit lower probability of reporting asset deterioration and lower probability of having poor performance.


Religion Ethics Morality Earnings management Earnings benchmarks Loan loss provisions 

JEL Classification

G14 G21 M41 M42 

Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Kiridaran Kanagaretnam
    • 1
  • Gerald J. Lobo
    • 2
  • Chong Wang
    • 3
  1. 1.Schulich School of BusinessYork UniversityTorontoCanada
  2. 2.C. T. Bauer College of BusinessUniversity of HoustonHoustonUSA
  3. 3.Von Allmen School of AccountancyUniversity of KentuckyLexingtonUSA

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