Does religiosity matter for corporate labor investment decisions?

Abstract

We examine the effect of county-level religiosity on labor investment decisions. Drawing on the social norm theory, we hypothesize that firms located in religious counties are less likely to engage in inefficient labor investment decisions. Consistent with this prediction, we find that county-level religiosity reduces inefficient labor investment. Using the exogenous shock of the 2002 revelation of the Catholic Church’s sexual abuse scandal, we show a causal relationship between religiosity and inefficient labor investment. We also find that religiosity’s impact on inefficient labor investment diminishes for firms that adopt greater corporate social responsibility (CSR) practices. Our findings suggest that religious beliefs matter in managerial labor investment decisions.