Conclusions
According to Allen et al. (2005), it is difficult to explain the rapid growth of China’s economy given the relatively weak formal institutions. We construct quasi-firm-level religious variables using a digital map and explore the impact of religious atmosphere on the cost of equity capital for listed companies. Our research expands the study of religious economies in emerging markets. The empirical results show that firms registered in areas with stronger religious atmosphere enjoy a lower cost of equity capital. Moreover, this relationship is more pronounced in subsamples with stronger external legal environments and higher auditing quality, indicating that formal institutional arrangements and religious traditions are to some degree complementary. In addition, to further clarify the specific path through which religious atmosphere reduces the cost of equity capital, we use Wen’s (2004) method of intermediary effect to verify that religious atmosphere reduces the cost of equity capital by influencing the quality of accounting information, investment decisions and the disclosure of social responsibility. Our study helps market practitioners to understand the role of religion in emerging markets and provides new micro-empirical evidence from China that may affect religious policy.
