The Impact of Religion on Risk-Taking in the United States

Gilles Hilary, Former Professor of Accounting and Management Control - February 28th, 2009
In God we trust - The Impact of Religion on Risk-Taking in the United States
  • Companies’ aversion to risk is strongly linked to the level of religiousness of the community in which they operate.
  • The market reaction to a major investment announcement is more positive when it is made by a company based in a county with a high degree of religiosity.
  • During the course of their careers, leaders generally work for companies that operate in communities with similar levels of religiosity.
Gilles Hilary ©HEC Paris

Gilles Hilary was professor in Accounting at HEC Paris from 2009 to 2010. He has a MBA from Cornell University and a PhD from the University of Chicago. Before joining HEC Paris, (...)

Economic research has for a long time focused on the influence of religion on society. Analysis has been conducted on two levels: on the micro-economic level, research has focused on the impact of religious affiliation on the behavior of individuals; and on the macro-economic level, the links between religions and economic growth have been studied. Although these two areas have been the subject of much academic research, few researchers have studied the impact of corporate culture—analyzed from the perspective of the religiosity of the company’s environment—on a company’s propensity to take risks. It is this phenomenon that Gilles Hilary and KaiWaiHui1 have chosen to study, by evaluating the investment decisions taken by companies, whose environments—in terms of their religiosity—have also been compared.


Many studies that have examined the impact of religiosity on decision-making show that there is a strong link between risk aversion and people’s level of religiosity. This phenomenon is explained by the fact that, in many ways, religious practice can be viewed as a means to combat the fear of uncertainty. But do these individual characteristics also have an impact on the company’s global behavior? Starting with the principle that corporate culture is largely a reflection of the environment in which a company operates, Gilles Hilary and Kai Wai Hui endeavored to evaluate the impact of this environment’s religiosity on the propensity to take risks at corporate level. What does this entail? Imagine that a seller knows the value of an informational asset, and that the buyer values this asset at 100 or 200. Let’s then imagine that the latter—without any additional information—is prepared to pay 150. If the real value is higher than 150, the seller will willingly reveal it, according to the stated conditions. If the seller, on the other hand, discloses nothing, it means the asset is worth less than 150. Thus, buyers will not be willing to pay 150 – perhaps only 125. The unravelling process is then applied, and all scores will eventually be disclosed—the result of which has serious practical implications.


To evaluate the impact of religiosity on corporate behavior, the researchers focused on the firms’ investment decisions. They demonstrate that a company’s aversion to risk is inversely proportional to the level of religiosity of the county in which it is based. In the long run, firms that invest less often and opt for less risky projects achieve less—but more stable—growth. They have also observed that these companies invest less in assets and are less engaged in R&D activities. Can these results be segmented according to different religions? Gilles Hilary and KaiWai Hui provide an initial response to this question by focusing on two major religious groups in the United States: Catholics and Protestants. They show that there is a greater aversion to risk in a Protestant environment than in a Catholic one. This result is particularly significant when compared to the results of Barksy, Juster, Kimball, and Shapiro2 (1997),which revealed that Protestants, as individuals, generally have a greater aversion to risk than Catholics.


The fact that companies based in environments with a high level of religiosity invest less and generate more profit means that an investment announcement by such a firm would be viewed particularly favorably by the market. This theory has been confirmed by the researchers’ empirical study. In fact, by studying the market reaction to announcements of mergers and acquisitions, seasonal equity offerings (SEO), and major investmentsbetween1971 and2000, the researchers show that the market reaction is more positive when the announcement is made by a company based in a county with a high level of religiosity. Finally, the researchers focused on the impact of religiosity on selecting leaders. In other words, they wanted to find out if there was a link between a leaders’ religiosity and that of the company’s environment. To answer this question, Gilles Hilary and Kai WaiHui studied 65CEOswho changed company between 1991 and 2003. They show that the level of religiosity of the county in which the CEO is newly employed is linked to the level in the previous county. This result confirms the idea that leaders generally choose to work in companies with a similar culture. 

1. Associate professor in the Department of Accounting in the Hong Kong University of Science and Technology. 2. Barsky, Robert B., F. Thomas Juster,Miles S. Kimball,Mattew D. Shapiro, 1997, “Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study”, Quarterly Journal of Economics, Vol. 112, No. 2, pp. 537–579. Based on an interview with Gilles Hilary and the article “Does Religion Matter in Corporate Decision Making in America?” (to be published in the forthcoming Journal of Financial Economics) co-written with KaiWai Hui . 

The study conducted by Gilles Hilary and KaiWai Hui has a number of implications:

  • For managers: it improves their understanding of corporate culture and helps them gain a better understanding of how the culture directly influences the way decisions are taken at corporate level.
  • For investors: it enables them to better understand the various portfolio management strategies (particularly in terms of investment decisions) adopted by companies.
  • For researchers: by showing the strong link between religiosity and aversion to risk, this research provides an additional method for evaluating a company’s risk aversion— a variable that’s often difficult to isolate. 

To assess the level of religiosity of the community in which a company operates, Gilles Hilary and Kai Wai Hui measured the percentage of people who attended a place of worship in the county in which the firm was based. The level of religiosity was then aligned with the company’s propensity to take risks, assessed by studying the company’s investments. The study focuses on the United States, and data was obtained from the American Religion Data Archive (ARDA). The data relates to 133 Judeo-Christian movements, and is based on the number of churches and church members in each county. The researchers focused on one particular variable: the level of religiosity in the county in which the company’s based. The data relates to the period 1971 to 2000.