The Influence of Country-Level Religiosity on Accounting Conservatism
55 Pages Posted: 30 Jun 2017 Last revised: 3 Apr 2021
Date Written: August 15, 2017
This study investigates how differences in religiosity (i.e., the strength of religion) across countries influence an important characteristic of financial reporting, accounting conservatism. Prior literature suggests that religious individuals are more risk-averse and have higher ethical standards, while accounting conservatism has been shown to reduce various risks to the firm (e.g., bankruptcy, stock price crashes.) at the expense of higher reported earnings. We find that managers in more religious societies report more conservatively. Specifically, our cross-country analysis reveals that firms headquartered in countries with higher levels of religiosity exhibit, on average, higher accounting conservatism in financial reporting. This positive association is stronger in countries following IFRS or U.S. GAAP, and weaker in countries with a high degree of uncertainty avoidance and in countries with greater numbers of religions.
Keywords: Financial reporting, Accounting conservatism, Religiosity, Informal Monitoring
JEL Classification: G34, M41, Z12
Suggested Citation: Suggested Citation