The religion effect on corporate cash holding in China: Buddhism and Taoism

Abstract

Buddhism and Taoism have been deeply rooted in China for generations and both of them have a profound impact on the local culture and social norms. By employing 23,999 firm‐year observations between 2008 and 2018, we examine how local religious norms affect corporate cash policies. We provide strong evidence that religiosity significantly reduces the level of corporate cash holdings, by mitigating financial constraints and earnings management of the listed companies. Managers from religious areas make more effective investments and distribute more dividends. Furthermore, our findings document that religion has a more pronounced influence on cash holdings amongst the firms with the smaller size, lower leverage, higher marketization, effective internal control and facing fierce market competition. Overall, Buddhism and Taoism, constituting the main religious norms in China, significantly optimize the firms' cash holdings and firm value.

Buddhism and M&A performance: Evidence from China

“…As for the channel analysis, we also find that firms with higher Buddhism intensity commit fewer unethical violations. Our conclusion is line with the findings of earlier research, which indicates that religion could reduce agency conflicts between shareholders and managerial teams (Du, 2013, 2014; Xiong et al, 2022), and also contributes to the research on Chinese corporate governance.…”

“…Following Du (2014), Li and Cai (2016) and Xiong et al (2022), we define Buddhism as advanced temples (monasteries) within a 50 km radius of a company. Data on temples come from the China Listed Firms' Cultural Research Database in CSMAR.…”

“…However, historically, only about 10%–30% of the deals actually succeed (Joshi et al, 2018), and yet studies such Agrawal et al (1992) show that acquirers invariably demonstrate significant post‐merger underperformance. There are many explanations for poor performance following a takeover (Gao & Mohamed, 2018; Moeller et al, 2004; Renneboog & Vansteenkiste, 2019; Travlos, 1987); religion, for instance, is perceived as an important element of corporate governance, as it can lessen the agency conflicts between managerial teams and shareholders (Du, 2013, 2014; Xiong et al, 2022). Research on Buddhism in China reveals that it can mitigate unethical behaviours and regulate the actions of shareholders.…”