Religious beliefs and local government financing, investment, and cash holding decisions

• Religiosity is negatively related to municipal government debt and investments.
• Religiosity is positively related to municipal government cash holdings.
• Governments in counties with high religiosity are more conservatively managed.

This paper is the first to examine the association between religious beliefs and the local government financing, investment and cash holding decisions. Using a sample of 15,204 county-year observations for census years between 1992 and 2012, we show that the degree of religiosity is negatively associated with the level of local government debt and investments while it is positively associated with accumulated cash holdings. Our results indicate that local governments in counties with a higher degree of religiosity are more conservatively managed. To validate the main findings we conduct a range of robustness tests and demonstrate that our main results hold.