Local Religious Beliefs and Organizational Risk-Taking Behaviors*

We study two distinct effects of local religions on organizational risk-taking: religious beliefs share a common aversion to pure risk but have diverging attitudes toward speculative risk. As predicted, we find that mutual fund managers’ speculative risk-taking behaviors vary with specific local religious beliefs – funds in low-Protestant (or high-Catholic) areas have higher return volatilities, display stronger “tournament” behaviors, have higher portfolio concentrations, and trade more aggressively. However, these diverging effects are attenuated by heightened employment risk, reflecting the common aversion to pure risk. We identify implicit compensation contracting as a channel linking local religious beliefs to mutual fund risk-taking behaviors. * We thank Linda Bamber, Jennifer Huang, Paul Irvine, Sheridan Titman, Kumar Venkataraman, and Julie Wu for helpful discussions and valuable comments. We are also grateful for excellent research assistance from Lei Gao, Michael Patterson, and Daniel Urrutia. Tao Shu, Department of Banking and Finance, Terry College of Business, University of Georgia, 443 Brooks Hall, Athens, GA 30602. Phone: (706) 542-3649. Johan Sulaeman, Finance Department, Edwin L. Cox School of Business, Southern Methodist University, PO Box 750333, Dallas, TX 75205. Phone: (214) 768-8284. Eric Yeung, J.M. Tull School of Accounting, Terry College of Business, University of Georgia, 242 Brooks Hall, Athens, GA 30602. Phone: (706) 542-3615.