ABSTRACT
As a direct result of the intensified frequency of earnings restatement announcements of the past decade, concerns of general investor mistrust in corporate financial reports have risen. Recently, however, many American firms have drawn significant media attention for their religious standings and views, factors that could conceivably assuage individual investors’ doubts and enhance their confidence in financial reporting. In addition, archival research has found a significantly lower incidence of reported earnings irregularities for companies headquartered in more religious regions of the United States, evidence indicative of the potential influence of religious social norms within firms on their financial disclosure decisions. Recognizing the possible impact of religiosity on the financial reporting process, this study investigates individual investors’ perceptions of a firm’s religious proclivity as a determinant of the reliability of its reported earnings. The examination finds that nonprofessional investors, on average, ascribe greater credibility to a company’s earnings when the company is known for its religious oriented mission. This result suggests that a firm’s demonstrated religiosity may play an active role in building or maintaining individual investor trust.
Keywords
Religiosity, Investor Trust, Nonprofessional Investors, Earnings Quality, Earnings Credibility.