Does religion affect capital structure?

•We study capital structures of firms in Catholic- and Protestant-majority areas.•Firms located in Catholic-majority counties in the U.S. have more leverage.•Firms located in Protestant-majority counties issue less debt and more equity.•There are differences in capital structure adjustment speeds based on religiosity.•Difference in leverage among U.S. firms is similar to international firms.

We hypothesize that if the cultural characteristics of a region are important, then firms located in Protestant- and Catholic-majority counties within the U.S. will have different attitude toward leverage. We find that a 1% increase in a county's Protestant religiosity leads to a 0.4% lower leverage and less frequent debt issuances. This religiosity also has significant effect on the firms’ adjustment speeds toward the target capital structure. Using a sample of international firms, we find that these differences in leverage in the U.S. are similar to the behavior of firms in Catholic and Protestant countries outside of the U.S.