SUMMARY

In this research paper author highlighted the religion effect on capital structure. He researched
about different countries region and their effect on capital structures.
Firms located in Protestant counties adjust towards the target leverage at a faster speed if the
firm's leverage is higher than its target leverage.
In contrast, firms located in Catholic counties adjust their capital structures at a faster pace if the
firm's leverage ratio is lower than the target.
There also exist a number of studies that empirically investigate the relations between the
religiosity in the location of the firm and the corporate decisions such as investments, executive
compensation, and option grants to corporate executive earnings management and tax
avoidance .Specifically, this literature links the religiosity of the firms to the geographic location
of the firm. More specifically, the preferences and practices associated with debt issuance
prevalent among Catholics (or Protestants) can be reflected in the practices of the firms located
in Catholic (or Protestant) regions. We hypothesize that if the observations of "La Porta", "Lopez
de-Silanes", "Shleifer and Vishny (1999)" are robust, and that the cultural forces are important in
determining the choice of financing method, then firms in Catholic areas will use more debt than
firms located in Protestant areas.
There is a statistically significant difference between the firms located in Catholic and Protestant
regions, with firms in Catholic countries using more debt. Research shows that the mean
leverage of the firms located in the Catholic majority counties is larger than the mean of the
firms located in Protestant majority counties. Interestingly, the industry leverage for the firms in
Catholic areas is also lower than that of the firms located in Protestant counties.For propensity
score matching, they identify firms located in counties which have a Catholic majority and match
them with firms located in counties with a Protestant majority.
Using firm level data from 25 Christian-majority countries, they test if there is any difference in
the capital structures of firms situated in Catholic and Protestant countries. Results support the
hypothesis that the firms located in high catholic Religiosity counties issue more debt, while
firms located in high Protestant Religiosity counties issue less.
It appears that larger firms are more levered; industry leverage explains a significant part of the
firm's leverage; firms with low market to book ratio are more levered; firms with more collateral
and the resulting larger debt capacity are more levered; and firms with low profitability are also
more levered. Specifically, we study the issuance decisions of the firms to test if firms located in
counties with higher Catholic Religiosity issue more debt and less equity; and whether higher
protestant Religiosity is related to less debt and more equity issuance.

Additionally, the research shows that a firm issues more debt and less equity if the industry's
leverage is high, the firm has more collateral, and it has high lagged leverage. The results for the
firms located in Catholic regions whose leverage is above the target and the results of the firms
located in Protestant regions whose leverage is below the target. The regression estimates show
that the adjustment speed for the firms located in Catholic regions is higher than that for the
firms located in Protestant regions.
Therefore, the firms located in Catholic regions adjust towards the target at a faster speed if the
firm's leverage is lower than the target.
As study shows, firms in Protestant countries tend to be more equity dependent, while the firms
in Catholic areas depend more on debt to finance their investments. We compare the capital
structures of firms situated in the Catholic-majority and the Protestant-majority counties within
the United States and find that firms located in Catholic-majority counties have more leverage.
We also find that firms located in the Protestant counties adjust towards their target capital
structure at a faster speed if the firm's leverage is higher than the target leverage. In contrast,
firms located in the Catholic counties adjust their capital structures at a faster speed if the firm's
capital structure is lower than the target.
This issue manifests itself in the literature's rather limited ability to explain why firms have
substantially different leverage than the optimal and why some firms frequently issue debt while
other firms rarely do so.