The Influence Of Religion On Stock Price Crash Risk

Religion,as a vital part of Chinese long history,plays a significant role not only in community life but also in the development of economy.Religion as an important spiritual civilization does affect individuals'characteristic and the development of company at micro-level,and it also influences the politics,economy and society of a region or a country at macro-level.The stock market in China has experienced sudden slump for several times.Until now,researchers have reach an agreement on the reason why stock price crashes suddenly that can be explained by the bad-news-hoarding theory.Most of them focus on the formal institution to solve the problem.By focusing on a unique perspective,this paper shed light on whether religion influences the future stock price crash risk at a time when the stock in China going up and down.By presenting existed research,we found that people who are influenced by religion deeply have some common traits:(1)religious managers have more self-control ability and moral self-discipline.(2)They expect to maintain the role of a believer in life.And(3)they expect to keep a high moral identity.Thus social norms generated by the religious ethos against manipulation,which contributes to reducing stock price crash risk though reducing the unethical information management by managers.Based on 2000-2014 and using firm-level religion data measured by the number of religious sites within a radius of certain distance around a listed firm registered address and survey data named GSS,we find robust evidence that firms registered in area with higher levels of religiosity exhibit lower levels of future stock price crash risk.We then verified the path of the model from perspective of information disclosure,over investment and tax avoidance,finding that this association is transmitted by over investment,but not by financial opacity or tax avoidance.Moreover,our findings suggest that the negative association between religion and future stock price crash risk is strengthened for firms with low investor protection mechanisms(formal institution).Perspective from informal institution,this study contributes to explaining the reason of future crash risk,in the meantime which provides new evidence concerning the economic consequences of religion and has some reference for stabilizing stock market and protecting investors.Most researchers put their attention to the formal institution to stabilize stock market,while this study adds to the existing ethical literature on how to mitigate unethical behavior in contemporary enterprises and organizations.This study contributes to the existing literature in several ways.First,this paper uses Chinese context to investigate the impact of religion on stock price crash risk and adds to the existing literature that explores the role of some western religions in corporate decisions.And unlike previous study that analyze the reason of stock price crash risk,this paper explore the medium factor between stock price crash risk and bad-news-hoarding theory,which can be explained from over investment.So this paper guides investors to pay more attention to the investment plan of a company.Second,combined with China domestic culture,this paper address the differences in religious influence on stock price crash risk among different investor protection institution.Moreover and importantly,the substitutive effect between religion and formal institution on mitigating stock price crash risk is especially important for and is likely to fit in well with emerging markets and developing countries in which the current status of institutional environment is far from perfect and formal institutions are incomplete.