We investigate the effect of Lesbian, Gay, Bisexual, and Transgender -supportive corporate policies on credit ratings. To the extent that LGBT-friendly policies are beneficial to the firm and therefore improve its expected cash flows, credit rating agencies should assign more favorable credit ratings to the firm. To alleviate endogeneity concerns, we exploit the variations in the LGBT populations across the states in the U.S. as our instrument. Our instrumental-variable analysis reveals that firms that adopt LGBT-supportive corporate policies enjoy better credit (...) ratings, supporting the stakeholder and good management hypothesis. Further analysis using propensity score matching also yields consistent results. (shrink)

Because religious piety induces individuals to be more honest and risk averse, it makes managers less likely to exploit shareholders, thereby mitigating the agency conflict and potentially influencing governance arrangements. We exploit the variation in religious piety across the U.S. counties and investigate the effect of religious piety on anti-takeover provisions. Our results show that religious piety substitutes for corporate governance in alleviating the agency conflict. Effective governance is less necessary for firm with strong religious piety. As a result, religious (...) piety leads to weaker governance, as indicated by more anti-takeover defenses. We exploit historical religious piety as far back as 1952 as our instrumental variable. Religious piety from the distant past is unlikely correlated with current corporate governance directly, except through contemporaneous religious piety. Our instrumental variable analysis, which is far less vulnerable to endogeneity, corroborates the conclusion. (shrink)