Research conducted by Texas A&M U. professors Sean McGuire, Thomas Omer and Nathan Sharp showed corporations in religious areas were less likely to commit fraud or “misstate” financial statements.

“I became interested in the project because I do some archival audit research and this was an interesting look at what might be one of the determinants of financial statement irregularities,” Omer said. “Research in accounting has investigated the how and why of financial statement irregularities for many years, and this was a chance to consider how a social norm, religion, might alter individuals’ incentives to misrepresent their firm’s
financial statements.”

The research process began last fall, using data from Gallup Inc. The study represented 50 states and analyzed 4500 U.S. public corporations. Evaluation of results was based on theories and models from previous research.

McGuire, Omer and Sharp said they were not attempting to prove whether religion was good or bad, but were curious about whether it affected accounting ethics.

Their work is now in the process of being peer reviewed by The Accounting Review. Peer review evaluates the validity of the study by questioning ideas and looking for flaws. They received positive feedback from the first round of peer review, and are currently in the process of revising the paper to send back to the journal. The publication process will, at best, take at least another year.

“All of the major world religions have the same core values and emphasize the same core ethics. Research that has been done says that the specific denomination matters much less than whether religion is important to a person. That’s really what matters,” Sharp said.

Citizens of the counties were asked if they had a religious affiliation, if religion is important in their daily life and if they attended weekly religious services. With these questions, the researchers were able to decipher whether the county had strong religious social norms.

“Religion creates very important social norms that people want to conform to so that they ‘fit in’ in the areas where they live,” Sharp said. “You can see behavior, even in corporations, affected by religions because people want to live their religion when it is important to them.”

McGuire said he, Omer and Sharp started the project because they are all interested in the factors associated with firms’ financial reporting decisions.

“This project is one of the most interesting ones I’ve worked on because we examine whether a non-financial factor is associated with aggressive financial reporting.  In addition, it is great working with two of my colleagues at the Mays Business School to develop this research,” McGuire said.