Essays on Conservatism and Finance

Abstract

Conservatism is comprised of the personal views of certain individuals and, in aggregate, of collective communities. In both cases, conservatism can have a substantial influence over a range of important behavior including household financial choices, corporate decisions, and economic policies. This dissertation will empirically examine the relationship between personal conservatism and stock market participation as well as community conservatism, board gender diversity, and innovation. In the first chapter, I investigate the impact of personal conservatism and stock market participation across three distinct measures: religious conservatism, fiscal conservatism, and political conservatism. We examine this relationship utilizing extensive IRS tax return data to gauge stock market participation along with publicly available religious, personal consumption expenditures, and voting data for our conservatism measures. Our results consistently show that personal conservatism has a highly statistically significant and positive impact on stock market participation across each of our unique conservatism variables or measures. Furthermore, the results presented are robust to various model specifications. The second chapter examines the relationship between board gender diversity and community conservatism. The focus of this analysis will be to assess the impact a firm’s surrounding community conservatism has on its board gender diversity. Results indicate that both types of conservatism, religious and political, in the community surrounding a firm’s headquarters have no influence on the gender diversity of firms’ corporate boards. These results are robust to using numerous alternative measures to capture board gender diversity. Our analysis also demonstrates how significant results for this relationship are potentially misleading as they are highly sensitive to sample selection and choice of fixed effects. In the third chapter, we examine how board gender diversity as well as community conservatism impact aspects of firm innovation through R&D intensity and patent activity. We find that both types of conservatism do not influence R&D intensity while higher levels of religious conservatism are generally associated with less patent activity. Additionally, our analysis consistently demonstrates that board gender diversity has no significant impact on levels of R&D intensity within a firm. However, results also show that higher levels of board gender diversity are associated with fewer patents. The robustness of these results is established by utilizing the exogenous shock from California’s board gender diversity law in addition to various alternative measures of board gender diversity.