Religious atmosphere and the cost of equity capital: Evidence from China

The cost of equity capital (ICC) is a crucial component of investment decisions and corporate performance evaluations. This study explores the effect of a region's religious atmosphere on ICC and finds that ICC tends to be lower when stronger religious atmosphere is created. We further use the mediation effect method to clarify the specific channel through which religious atmosphere reduces ICC, and find that earnings quality, corporate investment efficiency and corporate social responsibility partially mediate the effect of religious atmosphere on ICC. Moreover, the relationship between religious atmosphere and ICC is more pronounced in firms with stronger external law environments and higher audit quality, indicating that formal institutions and religious tradition complement each other.