Does Religion Matter on Financial Decisions? The Case of SMEs Capital Structure

Different finance theories have tried to explain the capital structure of companies considering it as a rational choice with limited results. In contrast, upper echelons theory highlights the influence of top managers’ values and beliefs in the decisions of firms. This research aims to fill this gap and looks into the linkage of religious belonging to explain why SMEs differ in their preferences between equity and liabilities. Therefore, the present study uses the two main Christian faiths to analyze the impact on the capital structure. We hypothesize that SMEs in countries with a mainly Catholic faith preferably carry higher amounts of debt, and contrary, firms in predominantly Protestant nations are more willing to issue equity.