Religion and Firm Reputation Risk

Abstract

Religion has received attention as it is reported to have a strong impact on firm decision making. To test the impact of religiosity on the reputation risk of firm we focus on cross country data that has been collected from the RepRisk database from 2007 to 2018. We find that country-level religiosity does reduce firm reputation risk while firms in a more economically developed countries have less reputation risk. Firms in more religious countries face less governance risk but more social risk. Risk aversion and motivation for ethical practice can explain the negative impact of religiosity on governance risk. On the other hand, discriminative behavior toward minority induced from more religiosity can explain the positive relation to social risk. Analyzing different dimensions of religiosity, we find belief index has significant negative impact on governance risk while practice index has positive impact on social risk. Our results show clear channel how religiosity affect ESG reputation risk. These findings would be useful for ESG based valuation and risk management.