Religious Atmosphere and Agency Conflicts in Corporate Investment:An Empirical Study Based on the Number of Temples around Listed Companies

Abstract

Economic operation relies on specific social institutions,but it is difficult to explain the rapid development of Chinese economy from the perspective of formal systems.Therefore,this paper explores the role of religion as an informal system in microeconomic operation,and further investigates the effects of the interaction of informal and formal systems on corporate behavior.Using the hand-collected data of the number of temples around listed firms from 2001 to 2012,this paper takes the coefficient of the response of free cash flow to over-investment as a proxy of agency conflicts in corporate investment,and examines whether religious atmosphere affects agency conflicts between owners and managers in corporate investment.It finds that religious atmosphere is significantly negatively associated with agency conflicts between owners and managers,suggesting that religious atmosphere is conducive to the mitigation of agency conflicts in corporate investment.Moreover,it also shows that formal systems attenuate the negative association between religious atmosphere and agency conflicts.