Religiosity and corporate financial decisions: a literature review

Purpose This paper aims to review the major studies that have examined the relationship between religiosity and managerial decisions, with a focus on behavioural corporate finance. Design/methodology/approach In the field of accounting, corporate governance and corporate finance, the main works related to five areas (religiosity, managerial decisions and ethical behaviour; religiosity and corporate risk-taking; religiosity and corporate cash holding; religiosity and corporate financial decisions; and religiosity and corporate governance), were reviewed to provide a systematic literature review. Findings The results of previous works suggest that religiosity, as a cultural proxy, is an important determining variable in corporate decisions and that it can be a useful tool to improve a firm’s ethics towards its management and towards its stakeholders, and to reduce agency costs, especially in firms operating in weaker institutional contexts (weaker corporate governance, higher debt levels and lower stakeholder protection). Practical implications This study provides two practical contributions. Firstly, it provides a comprehensive literature review that can be used for future research. Secondly, this study provides evidence that a country’s national culture, especially religion, is a key factor in shaping organisational and financial behaviour through two channels: local religiosity and personal religious beliefs. Prior to their appointment, it may be very useful for business owners to know that managers and directors are influenced by their personal culture, including religious beliefs, when making business decisions. In other words, corporate decisions may be driven more by personal beliefs than by “first best” criteria. Originality/value This study adds to the body of literature and provides practical implications. Firstly, to the best of the authors’ knowledge, it is the first study to attempt a systematic review of the literature. Secondly, knowing that religiosity, as a cultural proxy, could be a useful determinant in empirical models certainly limits phenomena related to omitted variable bias. Finally, this study could serve as a stimulus to investigate other areas not yet explored in the literature, namely, financial distress, firm longevity and agency costs, especially in small and medium-sized enterprises.