Observed by more than 1.5 billion Muslims, Ramadan is one of the most celebrated religious rituals in the world. We investigate stock returns during Ramadan for 14 predominantly Muslim countries over the years 1989-2007. The results show that stock returns during Ramadan are almost nine times higher and less volatile than during the rest of the year. No discernible difference in trading volume is recorded. We find these results consistent with a notion that Ramadan positively affects investor psychology, as it promotes feelings of solidarity and social identity among Muslims world-wide, leading to optimistic beliefs that extend to investment decisions.

Although the relationship between religion and economic development on the macro-level has been investigated, it is less clear how religious background influences economic attitudes and financial decision-making on the level of the individual or household, the micro-level. We use panel data from the extensive DNB Household Survey, covering the period from 1995 to 2008, to investigate whether – and through which channel – religious denomination affects household finance in the Netherlands. We find evidence that, in general, religious households care more about saving, are more risk-averse, consider themselves more trusting, have a more external locus of control, and have a stronger bequest motive. Furthermore, Catholics and Protestants have longer planning horizons, and Protestants and Evangelicals seem to have a greater sense of individual financial responsibility. Most of these factors matter for household financial decision-making, albeit to differing degrees. Using our religion variables as instruments for economic attitudes (and controlling for demographic and background risk characteristics), we demonstrate that the above-mentioned differences in economic beliefs and preferences explain the higher propensity to save by religious households in general and the lower investments in risky assets by Catholic households.

and International Merger and Acquisition Activity This study examines the role that CEO overconfidence plays in an explanation of international mergers and acquisitions during the period 2000-2006. Using a sample of CEOs of Fortune Global 500 firms over our sample period, we document a number of demographic and national patterns in the global distribution of overconfident CEOs. We find that the Hofstede measures of national culture partially explain these geographical patterns in the dispersion of overconfident CEOs. We conclude that CEO overconfidence is an international phenomenon, although it is most extensively observed in younger individuals heading firms headquartered in Christian countries that encourage individualism while deemphasizing a long-term orientation in their national cultures. We also find that overconfidence is related to a number of aspects of merger activity. CEO overconfidence helps to explain the number of offers made by a CEO, the

and seminar participants at the University of Miami for helpful discussions and valuable comments. We thank Yaniv Grinstein for the option backdating data and Frank Yu for the earnings management data. We are responsible for all remaining errors and omissions. Distance Matters! Shareholder Proximity and Corporate Policies Abstract – This paper investigates whether proximity to institutional shareholders influences corporate policies. We find that firms with high local institutional ownership are more profitable, less risky, and have a better governance structure. Specifically, these firms are less likely to engage in undesirable corporate activities such as aggressive earnings management or option back-dating and are therefore less likely to be a target of class action lawsuits. Further, firms with more local institutional shareholders are less likely to be a takeover target. We also find that both total and option-based executive compensation levels are lower for firms with more local institutional shareholders. In contrast, high local retail ownership does not have significant influence on corporate policies. Taken together, these results are consistent with our conjecture that local institutions serve as more effective monitors of corporate behavior because monitoring costs vary inversely with distance. 1.

Although many scholars (e.g., Weber, 1930) have hypothesized that religious identity norms affect economic outcomes, empirical tests have been hampered by the difficulty of identifying exogenous variation in religion. We create exogenous variation by randomly varying religious identity salience in laboratory subjects. The marginal effect of religious identity is the change in subjects ’ choices when religion is salient. We test six hypotheses from prior literature. We find that Protestantism increases contributions to public goods. Catholicism decreases contributions to public goods, decreases expectations of others ’ contributions to public goods, and decreases risk aversion. Judaism increases worker reciprocity in a bilateral labor market gift-exchange game. We find no evidence of religious identity effects on disutility of work effort, discount rates, or generosity in a dictator game.

Abstract. We investigate the effect of caution in real operating and investment decisions — which can be thought of as real conservatism — on the firm’s profitability and accounting conservatism. We document that firms exhibiting caution in their real decisions are characterized by higher profitability in the long run, lower probability of business failure, and lower conditional accounting conservatism. We provide evidence that managerial caution is distinct from risk-aversion, over-optimism, and overconfidence. We also argue that precautionary motive provides a more parsimonious explanation for a decrease in discretionary spending than real earnings management. Our results are relevant to accounting because caution is a real property that is strongly related to several accounting variables and has been extensively studied in economics and finance yet the accounting literature to date has largely ignored it.

We present evidence that individuals make political contributions strategically by targeting politicians with power to affect their economic well-being. Individuals in Congressional districts with greater industry clustering tend to support politicians with jurisdiction over the industry. The effect is stronger for Congressional committees with jurisdiction over more concentrated industries, in states with more concentrated industries and in states with higher unemployment. Individual political contributions are also associated with improvements in operating performance of firms in industry clusters. The relation between contributions and firm performance is strongest for poorly performing firms, firms closer to financial distress, and for contributions in close elections. The results imply that individual political contributions are valuable to firms, especially during bad economic times.

We explicitly examine the role of culture in corporate takeover decisions. Prior research suggests that the risk aversion of CEOs affects their takeover decisions. In this paper, we argue that managerial risk aversion at a national level is a cultural trait and affects the net synergies. CEOs of firms located in countries with higher level of risk aversion, measured by Hofstede’s (2001) uncertainty avoidance score, show less takeover activity, engage more in diversifying takeovers and require higher premiums on takeovers. Required net synergies are higher for smaller firms, relatively larger deals, and for firms that engage in more takeover activity.

Observed by more than 1.5 billion Muslims, Ramadan is one of the most celebrated religious rituals in the world. We investigate stock returns during Ramadan for 14 predominantly Muslim countries over the years 1989-2007. The results show that stock returns during Ramadan are almost nine times higher and less volatile than during the rest of the year. No discernible difference in trading volume is recorded. We find these results consistent with a notion that Ramadan positively affects investor psychology, as it promotes feelings of solidarity and social identity among Muslims world-wide,

Stocks appear to have investor clienteles based on their business practices and products. The variety in expressive benefits each individual receives from owning controversial stocks causes them to modify their portfolio to accommodate their beliefs. We examine the ownership of firms with social concerns and sin stocks (tobacco, alcohol and gambling). Women tilt their portfolios towards stocks with progressive labor policies for women and minorities. Younger investors avoid companies with poor environmental records but seek companies with progressive labor policies. Democratic voters favor stocks with progressive policies regarding women/minorities and gays/lesbians and are less likely to own sin stocks. Christian objections to homosexuality lead their members to invest less in stocks with progressive labor policies for gays and lesbians. The Christian denominations vary, though, in regard to sin stocks. Catholics are more likely while Mormons are less likely to own a sin stock relative to other investors. Socially responsible investors are clearly not all alike. Social characteristics that are important to one investor may not be important to another socially conscious investor.