Local religiosity and earnings quality.

摘要

In this study, I use the degree of religiosity in the U.S. county where a firm is headquartered as a proxy for the ethical climate of that firm and examine the association between the ethical climate and earnings quality. I hypothesize that the earnings quality of firms headquartered in U.S. counties with higher religiosity is greater on average than that of firms headquartered in U.S. counties with lower religiosity. This hypothesis is based on the observed positive relation between religiosity and business ethics documented in previous research and the theoretical prediction that ethically sensitive agents pose less severe agency problems for their firms. For a comprehensive sample of U.S. firms for the period 1971 to 2000, I find that firms headquartered in U.S. counties with higher religious indices tend to have lower (performance-matched) discretionary accruals, greater accruals quality, higher earnings persistence, and higher earnings response coefficients. These results indicate that religiosity and, by extension, ethical climate, are correlated with earnings quality. This study contributes to the literature on the role of ethics in the financial disclosure context.