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Journal of Corporate Finance

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Risk taking -- Religious aspects, Organizational behavior, Hedge funds -- Management


We examine the impact of local religious beliefs on organizational risk-taking behaviors using hedge funds as a new and unique setting. We find that local religiosity is significantly negatively related to both total and idiosyncratic volatilities of hedge funds during 1996-2013, even after controlling for endogeneity using managers’ college-location religiosity. Consistent with the local preference channel, the impact of local religiosity on risk-taking is only pronounced among funds for which local managers and investors are more important, namely semi-directional, young, and small funds. Further, hedge funds located in more religious counties tend to hold less risky stocks and diversify their stock portfolios across industries, thus contributing to lower hedge fund risk-taking. Overall, our evidence suggests that local religiosity may motivate hedge fund managers to reduce risk.


NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Corporate Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Corporate Finance, Vol. 47, Dec. 2017, DOI: 10.1016/j.jcorpfin.2017.08.006



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