Religiosity, CEO Overconfidence, and Labor investment Decisions

40 Pages Posted: 21 Aug 2020 Last revised: 21 Sep 2020

See all articles by Mehdi Khedmati

Mehdi Khedmati

Monash University

Mohammed Aminu Sualihu

Monash University

Alfred Yawson

University of Adelaide; Financial Research Network (FIRN)

Date Written: December 3, 2018

Abstract

We examine the impact of county-level religiosity on labor investment decisions. Specifically, we examine the effect of county-level religiosity on labor investment inefficiency. Drawing on the social norm theory, we hypothesize that firms located in religious counties do not engage in inefficient labor investment decisions. Consistent with this prediction, we find that county-level religiosity reduces inefficient labor investment. Utilizing the exogenous shock of the 2002 revelation of the Catholic Church’s sexual abuse scandal, we show a causal relationship between religiosity and inefficient labor investment. We also find that the negative impact of religiosity on inefficient labor investment decisions is weakened when the CEO is over-confident. Our findings suggest that religious beliefs and character traits of CEOs matter in corporate decision-making.

Keywords: Labor, social norm theory, religion, CEO overconfidence, corporate governance

JEL Classification: M51, M54, J24

Suggested Citation

Khedmati, Mehdi and Sualihu, Mohammed Aminu and Yawson, Alfred, Religiosity, CEO Overconfidence, and Labor investment Decisions (December 3, 2018). Available at SSRN: https://ssrn.com/abstract=3674423 or http://dx.doi.org/10.2139/ssrn.3674423

Mehdi Khedmati (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Mohammed Aminu Sualihu

Monash University ( email )

Caulfield Campus
Sir John Monash Drive
Caulfield East, Victoria 3145
Australia
+61 3 9903 4997 (Phone)

Alfred Yawson

University of Adelaide ( email )

No 233 North Terrace
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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