Pandej ChintrakarnPornsit JirapornYoung S. KimShenghui TongMahidol UniversityPennsylvania State UniversityThailand National Institute of Development AdministrationNorthern Kentucky UniversityChina Huarong Asset Management2018-12-112019-03-142018-12-112019-03-142016-10-12Applied Economics Letters. Vol.23, No.15 (2016), 1110-111614664291135048512-s2.0-84958042411https://repository.li.mahidol.ac.th/handle/20.500.14594/43625© 2016 Taylor & Francis. Prior research shows that religion promotes honesty. Honesty in turn motivates managers to view an expropriation from shareholders as self-serving, opportunistic and unethical, thereby alleviating the agency conflict. Religious piety is thus expected to discourage agency-driven acquisitions that reduce shareholder wealth. We exploit the variation in religious piety across US counties (and states) and show that firms located in a more religious environment are indeed less likely to make poor acquisitions, measured by the stock market reactions to the acquisition announcement. To draw a causal inference, we use historical religious piety as far back as 1952 as our instrument. The two-stage least squares (2SLS) analysis confirms that religious piety induces firms to make better acquisitions. Our analysis based on propensity score matching also corroborates the conclusion.Mahidol UniversityEconomics, Econometrics and FinanceArticleSCOPUS10.1080/13504851.2015.1137541