Do Religious Norms Influence Corporate Debt Financing?

  • Jay CaiEmail author
  • Guifeng Shi
Original Paper


Previous studies substantiate that religious social norms influence individual and organizational decisions. Using debt financing settings, we examine whether a firm’s religious environment influences outside parties’ perceptions in contracting with the firm. We document that firms located in the more religious areas use less debt financing and receive better credit ratings. Bond investors require lower yields and impose fewer covenants on such firms. Using the 2002 revelation of sex abuse by Catholic priests as an exogenous shock, we verify that these findings are not driven by endogeneity issues. Our study highlights the role of social norms in financial transactions.


Religiosity Contracting Cost of debt Credit ratings Covenants 

JEL Classification

G24 G32 Z12 



A part of this study was completed, while Guifeng Shi was visiting Wharton. Guifeng Shi acknowledges funding from the National Nature Science Foundation of China (NSFC-71002036), Shanghai Pujiang Program (13PJC078), and the China Scholarship Council. We thank Matt Billett, Greg Shailer (the Editor), and two anonymous referees for their constructive comments.


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Copyright information

© Springer Science+Business Media B.V. 2017

Authors and Affiliations

  1. 1.LeBow College of BusinessDrexel UniversityPhiladelphiaUSA
  2. 2.Antai College of Economics and ManagementShanghai Jiao Tong UniversityShanghaiChina

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