Does Local Religiosity Affect Organizational Risk-Taking? Evidence from the Hedge Fund Industry

56 Pages Posted: 1 Nov 2017 Last revised: 7 Jul 2021

See all articles by Lei Gao

Lei Gao

George Mason University

Ying Wang

State University of New York at Albany - School of Business

Jing Zhao

Portland State University - The School of Business

Date Written: October 30, 2017

Abstract

We examine the impact of local religious beliefs on organizational risk-taking behaviors using hedge funds as a new and unique setting. We find robust evidence that local religiosity is significantly negatively related to both total and idiosyncratic volatilities of hedge funds during 1996-2013. This relation is primarily driven by semi-directional funds, reversed for directional funds, and nonexistent for non-directional funds. Consistent with the local preference channel, the impact of local religiosity on risk-taking is only pronounced among funds for which local managers and investors are economically more important, namely young and small funds. Further, hedge funds located in more religious counties tend to hold less risky stocks and diversify their stock portfolios across industries, thus contributing to lower hedge fund risk-taking. Overall, our evidence suggests that local culture, in particular religiosity, may motivate hedge fund managers to reduce risk.

Keywords: Culture, religiosity, organizational risk-taking, hedge fund, local preference

Suggested Citation

Gao, Lei and Wang, Ying and Zhao, Jing, Does Local Religiosity Affect Organizational Risk-Taking? Evidence from the Hedge Fund Industry (October 30, 2017). Journal of Corporate Finance, Vol. 47, 2017, 1-22, Available at SSRN: https://ssrn.com/abstract=3062128

Lei Gao

George Mason University ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/view/lei-gao/home

Ying Wang

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

Jing Zhao (Contact Author)

Portland State University - The School of Business ( email )

631 SW Harrison St.
Portland, OR 97201
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
431
PlumX Metrics