Earthly Reward to the Religious: Religiosity and the Cost of Public and Private Debt

Abstract

We document that a firm’s culture, as influenced by its local religiosity, can affect its cost of capital. Firms headquartered in higher-religiosity counties have higher credit ratings and lower cost of debt. The impact of religiosity is stronger for firms with greater information asymmetry. Further, religiosity has explanatory power for the cost of bank loans (but not the cost of public bonds) above and beyond its impact through ratings. This supports the argument that banks have superior abilities in pricing soft information, such as corporate culture. Finally, the impact of religiosity is stronger when the lender is a small bank.