Work

Does Firms' Exposure to Religion Lead to Conservative Loan Financing? The Mediating Role of ESG Performance

Year: 2025

Type: article

Abstract: ABSTRACT Recent studies suggest that religion influences firm outcomes. Our study extends this emerging stream of research by exploring how firms' exposure to religion affects their ESG performance and, subsequently, the cost of loans and the loan‐to‐asset ratio for those firms. Drawing upon social norms theory and signaling theory, we suggest that firms located in areas with a high level of religiosity have higher ESG performance due to the influence of religious social norms and that, in turn, such performance reduces both the cost of loans and the loan‐to‐asset ratio as a result of the signaling effect. Furthermore, we suggest that regional economic development positively moderates the relationship between firms' exposure to religion and their ESG performance. Our findings highlight the ethical complexity of religiosity, suggesting religion drives both risky (direct effect on loan‐to‐asset ratio) and conservative (indirect effect on loan‐to‐asset ratio) financial behavior. That is, contrary to conventional assumptions, we found that firms' exposure to religion can increase, not decrease, their loan‐to‐asset ratio; however, when religious exposure promotes firms' ESG performance, they become more conservative in their financing behavior. We discuss the implications of our study for financial management research.

Source: Business Ethics the Environment & Responsibility

DOI: 10.1111/beer.12853

Authors: Ying Chen, Ming Qian, Kim Klyver

Institutions: Fujian Normal University, Nanjing University of Science and Technology, University of Southern Denmark, The University of Adelaide

Language: English

Topic: Corporate Social Responsibility Reporting

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funders: National Natural Science Foundation of China, Fujian Provincial Department of Science and Technology

Award: G5537569467