This study examines whether religion influences the financial development and structure of a country. In a sample of 46 countries between 1996 and 2015, we find that religiosity fosters financial development and a market-based financial structure, whereas religious hierarchy and moderate religious heterogeneity induce financial underdevelopment and a bank-based structure. Furthermore, these religious effects are more pronounced for countries with a weaker contractual environment, supporting the ameliorating role of social trust in a contractual environment. Overall, our study provides the first evidence that religion has a crucial impact on financial development and structure by affecting social trust. (JEL G10, G21, O16, Z12)​

Keywords: Financial Development; Financial Structure; Religion; Social Trust; Contractual Environment.