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Do Local Protestant Values Affect Corporate Cash Holdings?

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This study examines how local Protestant belief, as one type of social norms, affects corporate cash policies. We find that firms located in areas with more Protestants hold less cash reserves. The influence of local Protestant belief on cash holdings is more profound for firms with weak corporate governance and firms with one geographic segment. In addition, we find that the difference in cash deployment is reflected in the difference in firms’ investment and payout policies. Overall, our study shows that local Protestant belief is an important factor in determining corporate cash policies and helps to mitigate the potential free cash flow problem.

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  1. Hirshleifer (2014) argues, “Most importantly, there is a need to move from behavioral finance to social finance (and social economics). Social finance includes the study of how social norms, moral attitudes, religions and ideologies affect financial behaviors …”.

  2. Compustat files report only the latest available headquarter location. Heider and Ljungqvist (2015) report that some firms change headquarters. Using the historical headquarter locations from SEC filings, we find that in our sample 5% firms changed headquarter locations, but there is no economically significant change in the Protestants measure. All the test results are robust if we use the historical headquarter locations.

  3. The main results hold if we use the four-year survey data only (1980, 1990, 2000, and 2010).

  4. To alleviate the concern that the relation between cash holdings and local Protestant values is due to the correlation with other denominations, we control for other religious groups or Catholic only. Our results hold with those additional control variables.

  5. Due to the asymmetric distribution of G index and E index, the number of observations in the weak corporate governance group is different from the number of observations in the strong corporate governance group.

  6. We run the regressions of cash holdings on Protestant, interaction of Protestant and corporate governance dummy variables, and other control variables to test whether the coefficients of Protestant between firms with weak corporate governance and firms with strong corporate governance are significantly different. Our untabulated results suggest that the impact of local Protestant values is significantly different between firms with weak governance and firms with strong governance.

  7. We run the regressions of cash holdings on Protestant, interaction of Protestant and geographic segments dummy variables, and other control variables to test the difference in coefficients between firms with one geographic segment and firms with multiple geographic segments. The coefficients of the interaction of Protestant and segment dummy are all significantly negative. The results suggest that the impact of local Protestant values is significantly larger in firms with one geographic segment than that in firms with multiple geographic segments.


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Correspondence to Huajing Hu.

Appendix: Variable Definitions

Appendix: Variable Definitions

Variable names

Variable definition

Religion variables


The total Protestant adherents in a county divided by total population of that county

Firm characteristics


The ratio of cash to total assets


The ratio of cash to net assets


The natural logarithm of the ratio of cash to net assets


The natural logarithm of total assets


The book value of assets less the book value of equity plus the market value of equity, divided by assets. Market value of equity equals price per share times total number of shares outstanding


The ratio of total debt to total assets

 Cash flow

Earnings before interest, taxes, depreciation and amortization, less interest, taxes and common dividends, divided by total assets

 Net working capital (NWC)

Non-cash working capital divided by total assets


Capital expenditure over net property, plant, and equipment

 Dividend dummy

Equal to one for firms that pay dividends during the fiscal year and zero otherwise

 Dividend payout

Cash dividend over total assets

 Repurchase dummy

Equal to one for firms that repurchase shares during the fiscal year and zero otherwise


The research and development expense scaled by sales and set equal to zero if R&D is missing

 Industry sigma

The volatility of an industry’s cash flow for a 10-year period. Industries are defined by two-digit SIC codes


The ratio of acquisitions to total assets, where acquisition expenditures reflect only the cash outflows associated with acquisitions


The annualized standard deviation of the daily return calculated on a yearly basis


The ratio of income before extraordinary items over total assets


A dummy variable that takes the value of one if ROA is negative and zero otherwise

 Equity repurchase

Equal to one for firms that repurchase shares during the fiscal year and zero otherwise

 Earned equity

The ratio of retained earnings to book equity


The ratio of earnings before interest to total assets


The ratio of property, plant, and equipment to total assets


The stock return measured over the fiscal year

 Asset growth

The change in total assets over total assets

 E index

A six-factor firm entrenchment index including staggered boards, limits to shareholder amendments of the bylaws, supermajority requirements for mergers, and supermajority requirements for charter amendments, poison pills, and golden parachute arrangement (Bebchuk, Cohen, and Ferrell 2009)

 G index

G index is related to the prevalence of antitakeover provisions using given governance rules (delay, protection, voting, state, and other) for a total of 24 possible provisions according to Gompers, Ishii, and Metrick (2003). The index has the scale from one to 24

 Block ownership

The total blockholder shares out of the total outstanding shares. Blockholder is defined as an institutional investor with at least 5% of a firm’s outstanding shares

County-level variables


The percentage of people 25 years and above who have a Bachelor’s, postgraduate, or professional degree


The ratio of male to female in a county


Median family income in a county


Minority population in a county


The total population of the county


Proportion of households with a married couple


A dummy variable equals to one if Democratic candidate received more votes than Republican candidate in the county


The number of local banks in the county

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Hu, H., Lian, Y. & Zhou, W. Do Local Protestant Values Affect Corporate Cash Holdings?. J Bus Ethics 154, 147–166 (2019).

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