No. 3: Religion and ownership

Abstract

This study examines the effect of religion on ownership structures. In particular, we expect that the local strength of Protestantism will reduce ownership concentration and insider ownership. Protestantism is less hierarchical than Catholicism, which suggests that adherents of the Protestant faith will have a strong preference for autonomy. Moreover, they rely strongly on horizontal ties between fellow citizens, which encourages trust and reduces a shareholders’ need to monitor a firms’ employees. Our identification is based on a panel regression, a geographical regression discontinuity design, a difference design, and an instrumental variable approach. In line with our predictions, we find that the local strength of Protestantism reduces ownership concentration and insider ownership. A subsequent channel analysis suggests that the local strength of Protestantism has a negative direct effect on blockholder ownership and a negative indirect effect on the size of shareholding and insider ownership through developing trust. Overall, our results underline the role of the demographic features of firms’ geographic environments in explaining ownership structures.