Regional religiosity and financial scandals

A July 2, 2010 article in the Nashville Business Journal and other publications reported that a study by accounting faculty members Sean McQuire, Thomas Omer and Nathan Sharp at the Mays Business School of Texas A&M University revealed that the more religious the state, the less chance there is of financial malfeasance.  The researchers concluded that for every 10% increase in the population’s religiosity, the odds that a firm headquartered there will be sued over accounting issues decreases by 49%. According to a Gallop poll of residents who said that religion was important to them, Mississippi, at 86% was number one, followed by Alabama at 84%. New York was last, at 44%.

The study also found that small and medium-sized firms tend to use religion as a self-regulating mechanism in the absence of more formal external monitoring.  Sharp cautioned that the study is more a measure of an overall accounting approach among multiple firms of various sizes in the Bible Belt and cannot predict massive frauds such as those at Birmingham-based HealthSouth Corp., Clinton, Miss.-based WorldCom and Houston-based Enron. “We would view them as anomalies,” Sharp said. “We focused on smaller, systemic aggressive accounting occurring as almost a part of doing business. On average, when you hold everything constant, accounting practices are less aggressive in areas with high religiosity.” Sharp added that the study did not account for people using religion itself as a means to defraud.