research@hec - Issue #7 - (Page VII)

The Impact of Key ideas: of the community in which they operate. on Risk-Taking in the United States that operate in communities with similar levels of religiosity. • Companies’ aversion to risk is strongly linked to the level of religiousness • During the course of their careers, leaders generally work for companies • The market reaction to a major investment announcement is more positive when it is made by a company based in a county with a high degree of religiosity. Economic research has for a long time focused on the influence of religion on society. Analysis has been conducted on two levels: on the micro-economic level, research has focused on the impact of religious affiliation on the behavior of individuals; and on the macro-economic level, the links between religions and economic growth have been studied. Although these two areas have been the subject of much academic research, few researchers have studied the impact of corporate culture—analyzed from the perspective of the religiosity of the company’s environment—on a company’s propensity to take risks. It is this phenomenon that Gilles Hilary and Kai Wai Hui1 have chosen to study, by evaluating the investment decisions taken by companies, whose environments—in terms of their religiosity—have also been compared. Religion M THE IMPACT OF RELIGION ON AN INDIVIDUAL AND COLLECTIVE LEVEL Many studies that have examined the impact of religiosity on decision-making show that there’s a strong link between risk aversion and people’s level of religiosity. This phenomenon is explained by the fact that, in many ways, religious practice can be viewed as a means to combat the fear of uncertainty. But do these individual characteristics also have an impact on the company’s global behavior? Starting with the principle that corporate culture is largely a reflec- tion of the environment in which a company operates, Gilles Hilary and Kai Wai Hui endeavored to evaluate the impact of this environment’s religiosity on the propensity to take risks at corporate level.What does this entail? Imagine that a seller knows the value of an informational asset, and that the buyer values this asset at 100 or 200. Let’s then imagine that the latter — without any additional information —is prepared to pay 150. If the real value is higher than 150, the seller will willingly reveal it, according to the stated conditions. If the seller, on the other hand, discloses nothing, it means the asset is worth less than 150. Thus, buyers will not be willing to pay 150 – perhaps only 125. The unravelling process is then applied, and all scores will eventually be disclosed — the result of which has serious practical implications. RELIGIOUS ACTIVITIES AND RISK AVERSION To evaluate the impact of religiosity on corporate behavior, the researchers focused on the firms’ investment decisions. They demonstrate that a company’s aversion to risk is inversely proportional to the level of religiosity of the county in which it is based. In the long run, firms that invest less often and opt for less risky projects achieve less—but more stable—growth. They have also observed that these companies invest less in assets and are less engaged in R&D activities. Can these results be segmented according to different religions? Gilles Hilary and Kai Wai Hui provide BIOGRAPHY Gilles Hilary is an associate professor in Accounting at HEC Paris. He has a MBA from Cornell University and a PhD from the University of Chicago. He also has a French professional accounting degree (DESCF). Before joining HEC Paris at the beginning of 2009, he worked at the Hong Kong University of Science and Technology (HKUST) for close to seven years. Prior to that, he worked for leading accounting firms. His research focuses on the use of accounting information to make investing and financing decisions. February - March • research@hec VII

Table of Contents for the Digital Edition of research@hec - Issue #7

Cover & Table of contents
Business and Research: why Collaborate?
Are Biotechs Profitable?
An Initial Evaluation of the Better Regulation Initiative
The Impact of Religions on Risk-Taking in United States

research@hec - Issue #7