Religiosity and Corporate Illegal Activity

Abstract

This paper explores the effects of regional religiosity on the illegal financial
actions of business executives. In particular, we examine the extent to which agency
and institutional theories may be used to explain fraudulent financial reporting and
stock options backdating. Our findings indicate that religiosity has a negative influence
on illegal corporate activity but that this relationship is primarily limited to stock
options backdating. Board size and independence are also shown to moderate the
relationship between religiosity and illegal corporate activity. These results provide
support for an institutional theory perspective on mitigating executive opportunism.