Religion and returns in Europe |
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| Institution: | 1. Universitas Mercatorum, Italy;2. Governance and Economics Research Network, Spain;3. Oxford Brookes University (UK), Department of Accounting Finance and Economics, Wheatley Campus, OX33 1HX, UK;1. School of Economics, University of Kent, Kent CT2 7NP, United Kingdom;2. School of Economics, University of Surrey, Guildford, Surrey GU2 7XH, United Kingdom;3. Department of Economics Mathematics Statistics, Birkbeck College, University of London, London WC1E 7HX, United Kingdom;1. Department of Finance, School of Business and Administration, American University of Sharjah, Sharjah, United Arab Emirates;2. USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon;3. Center for Energy and Sustainable Development, Montpellier Business School, Montpellier, France;4. Department of Accounting, School of Business and Administration, American University of Sharjah, Sharjah, United Arab Emirates |
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| Abstract: | Drawing on social identity and social impact theory, this paper is the first to investigate the impact of religious preferences on share prices and expected returns at the country level. Using data from 12 European countries, our findings suggest that religion has a significant effect on the share price of companies whose activities are considered unethical, i.e., tobacco manufacturers and alcohol producers. The share price of these companies (called sin stocks) is depressed when they are located in a predominantly Protestant environment (relative to a Catholic environment). With investors in Protestant countries being more sin averse than in Catholic countries, they insist upon higher expected returns on sin stocks. Conversely, religious preferences do not have the same impact on the performance of other companies, e.g. socially responsible companies. Our results are robust to various methodologies and controlling for several firm-specific, industry-specific and country-specific characteristics. |
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