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Religious Social Norms and Corporate Financial Reporting


  • Scott D. Dyreng,

  • William J. Mayew,

  • Christopher D. Williams

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    • The first and second authors are from Duke University, NC, USA. The third author is from the University of Michigan MI, USA. This research was supported by the Fuqua School of Business, Duke University, the Kenan-Flagler School of Business, University of North Carolina at Chapel Hill, Ross School of Business, University of Michigan, and Williams thanks the PriceWaterhouseCoopers – Norm Auerbach Faculty Fellowship for financial support. The authors thank Andrew Stark (editor), an anonymous referee, Dirk Black, Brian Bushee, Shane Dikolli, John Graham, Michelle Hanlon, Leslie Hodder, Wayne Landsman, Bob Libby, Ed Maydew, Sam Melessa, Chris Parsons, Chris Petrovits, Katherine Schipper, Nate Sharp, Doug Stevens, Bill Tayler, Kristy Towry, James Weston, Frank Zhang, brownbag participants at Duke University, participants at the 2009 Brigham Young University Accounting Research Symposium, and workshop participants at New York University, Rice University, the University of Texas Intersection of Economics and Psychology Accounting Conference, and the 2010 Financial Accounting and Reporting Section Mid-Year meeting for valuable comments.

Christopher D. Williams, University of Michigan, 701 Tappan Street, Ann Arbor, MI 48109, USA. e-mail:


Abstract:  Religion has been shown to influence economic choices and outcomes in a variety of contexts. Honesty and risk aversion are two social norms forwarded to characterize the religious. Using the level of religious adherence in the county of a US firm's headquarters as a proxy for these religious social norms, we find that higher levels of religious adherence are associated with both a lower likelihood of financial restatement and less risk that financial statements are misrepresented because of overstated (understated) revenue/assets (expenses/liabilities). We also find that accruals of managers in areas of high religious adherence exhibit smaller deviations from expectations, and deviations, when they occur, tend to improve the time series mapping of accruals into cash flows. These results hold overall and separately for both Catholic and Protestant religious adherence. Further analysis reveals that the effects of religious social norms extend beyond accrual choices. We find that firms located in areas of high religious adherence are less likely to engage in tax sheltering, and are more forthcoming with bad news in their voluntary disclosures. Collectively, our results provide new evidence on the role of religion and social norms in corporate financial reporting.