Religious beliefs and the promotion of socially responsible entrepreneurship in the Indian agribusiness industry

Amarjit Gill (Department of Finance and Management Science, University of Saskatchewan, Saskatoon, Canada)
Neil Mathur (College of Management and Technology, Walden University, Minneapolis, Minnesota, USA)

Journal of Agribusiness in Developing and Emerging Economies

ISSN: 2044-0839

Publication date: 12 March 2018

Abstract

Purpose

The purpose of this paper is to investigate the relationship between religious beliefs and socially responsible investment in the Indian agricultural industry.

Design/methodology/approach

Owners of small agribusiness firms from India were interviewed regarding their perceptions of religious beliefs and socially responsible investment in the agricultural industry.

Findings

The survey indicates that while religious beliefs and internal financing sources increase perceived socially responsible investment, the higher cost of debt capital decreases perceived socially responsible investment in the Indian agricultural industry. The higher level of internal financing sources, however, decreases the perceived cost of debt capital which may increase socially responsible investment in the Indian agricultural industry.

Research limitations/implications

This is a co-relational study that investigated the association between religious beliefs and socially responsible investment. There is not necessarily a causal relationship between the two. The findings of this study may only be generalized to firms similar to those that were included in this research.

Originality/value

This study contributes to the literature on the factors that increase socially responsible investment in the agricultural industry. The study also provides critical policy recommendations to minimize managerial implications. The findings may be useful for financial managers, agribusiness owners (farmers), investors, agribusiness management consultants, and other stakeholders.

Keywords

Citation

Gill, A. and Mathur, N. (2018), "Religious beliefs and the promotion of socially responsible entrepreneurship in the Indian agribusiness industry", Journal of Agribusiness in Developing and Emerging Economies, Vol. 8 No. 1, pp. 201-218. https://doi.org/10.1108/JADEE-09-2015-0045

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Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited


1. Introduction

Research on the effects of religious forces on economic activity has received growing attention in recent years. India is a democratic and multicultural country (Dana, 2000) where the majority of the population relies on self-employment because of the high unemployment rate. According to Chauhan (2014), the unemployment rate among those between the ages of 15 and 29 has increased marginally in India over last few years. Religious beliefs play a role in the promotion of entrepreneurship (Shukla, 2007; Christopher, 2011; Vinod, 2012) with and without socially responsible investment.

Socially responsible investment is an important part of corporate social responsibility in which the market expects firms to behave ethically. Agribusiness firms, however, have been confronted with numerous conflicts with society related to negative externalities of food production; moral concerns; alcohol abuse and other health-related issues; the use of genetically modified organisms which society considers an unethical practice; animal welfare; pesticide residues; dishonest practices such as corruption; poor corporate governance; poor working conditions in the meat industry; meat scandals (Heyder and Theuvsen, 2012); child labor and labor exploitation; tobacco and alcohol production; and environment degradation (Bengtsson, 2008; Star, 2008; Arjalies, 2010; Brimble et al., 2013). Therefore, socially responsible investment is necessary in the agribusiness industry because these conflicts and social concerns lead to an agency problem between the firm (agent) and society (principal)[1]. Socially responsible investment, in the context of small agribusiness industry, is defined as ethical investment that creates a better life for future generations by minimizing social concerns about issues such as tobacco and alcohol production, crops that lead to weapons production, and environmental degradation. The scholarly literature shows that religious beliefs and religious institutions play an important role in socially responsible investing (see Brimble et al., 2013; Yaron et al., 2014) which helps reduce agency problems between the firm and society.

Corporate philanthropy and industrial welfare, rooted in religious beliefs, began in practice in the late 1800s in India (Richa and Singh, 2010). Weber (1904) argued that cultural and religious factors could explain entrepreneurial activity (Yaron et al., 2014, p. 747). In the agricultural production industry, farmers grow new crops one after another, which requires investment. The importance of agricultural production firms is undeniable since these firms not only fulfill the needs of people but also act as the backbone of the Indian economy by creating more than 1.1 million jobs per year (Acharya, 2007) and contributing approximately 18.5 percent to gross domestic products (GDP). However, Indian farmers are constrained financially. They incur higher cost of debt capital pertaining to private financing institutions (Sandhu et al., 2012). Internal financing sources that come from personal savings and immediate family members provide most of the financing for agricultural production firms (Gill et al., 2015).

Since the last decade of the twentieth century, corporations started to distance themselves from corporate social responsibility (Richa and Singh, 2010); therefore, these corporations may be less concerned for disadvantaged groups in Indian society. By manipulating corporate social responsibility policies, Indian firms continue to exhibit a profusion of negative externalities. This occurs where those who incur the costs of resource use, environmental degradation, or community disruption do not pay for them nor are these costs reflected in actual prices. Although the Indian government passed legislation that requires large companies (i.e. net profit of at least 50 million rupees per year) to spend at least 2 percent of their profits every year on corporate social responsibility (Banerjee, 2015), the bill does not apply to small agribusiness firms because they do not have a high enough level of net income.

While the previous study by Brimble et al. (2013) found little difference between the attitudes of the more religious and the non-religious groups related to socially responsible investing in Australia, Yaron et al. (2014) found that religion and religious beliefs positively influence entrepreneurship. This study found that while religious beliefs and internal financing sources positively influence socially responsible investment, higher cost of debt capital negatively affects socially responsible investment in the agricultural industry of India. The findings of this study indicate that internal financing sources reduce the cost of debt capital, which may increase socially responsible investment in the agricultural industry of India. Thus, by lending some support to the findings of Brimble et al. (2013), Yaron et al. (2014), and Gill et al. (2015), this study contributes to the literature on the relationship between religious beliefs and socially responsible investment, internal financing sources and socially responsible investment, and internal financing sources and cost of debt capital. This study also helps academics to develop future research on the relationship between religious beliefs and socially responsible investment by collecting and testing data from different countries; and helps practitioners to understand the relationships between different variables used in this study and their managerial implications. The results can be generalized to agribusiness firms. Proxy variables used in this study were selected from previous empirical studies.

The organization of the remainder of the paper is as follows. Section 2 examines the previous literature and develops hypotheses. Section 3 describes the data and methodology used to investigate our research questions. Section 4 discusses and analyzes the empirical results. Section 5 concludes and considers the implications of the findings.

2. Literature review

The nature of the agribusiness industry differs from other industries; therefore, entrepreneurship in the agribusiness industry also differs from other production industries. For example, people from the Hindu religion do not eat beef because they worship cows (Adcock, 2010) and they will not invest in agribusiness firms to produce beef. Although agribusiness firms act as producers of agricultural products, wholesalers, processors, packagers, food chains, transporters, etc., their performance is characteristically cyclical because of seasonal production patterns (Bandyopadhyay, 2007). Other businesses do not operate principally around the basic producer of their raw products as agricultural firms do and these businesses deal with the owners of agribusiness firms directly or indirectly.

2.1 Relationship between religious beliefs and the promotion of socially responsible entrepreneurship

The scholarly literature shows that religious beliefs play a role in promoting entrepreneurship. The promotion of entrepreneurship exists with or without socially responsible investing. Socially responsible investing originated from religious beliefs thousands of years ago (Kinder and Domini, 1997; Knoll, 2002; Schwartz, 2003; Bengtsson, 2008) and is influenced by individual values and beliefs (Tippett and Leung, 2001). Previous studies argued that there is a relationship between religion and economic performance (Barro and McCleary, 2003; Grier, 1997; Guisa et al., 2006; McCleary and Barro, 2006; McCleary, 2008; Noland, 2003). However, these relationships are complex and indirect; therefore, these relationships have been poorly understood because of the lack of empirical studies (Yaron et al., 2014).

The relationships between religious beliefs and entrepreneurship are affected by many factors such as personality, ethnicity, network structures, education (Carswell and Rolland, 2004), risk tolerance of entrepreneurs (Caliendo et al., 2009), and the political system of the country (Yaron et al., 2014). According to Drakopoulou-Dodd and Seaman (1998), the religious loyalty of an individual leads to entrepreneurial behaviors. Landes (1999) also indicated that the Protestant work ethic encourages entrepreneurial activity. In addition, these authors argued that the Protestant (particularly Calvinist) work ethic influenced large numbers of people to engage in work in the secular world, developing their own enterprises, and engaging in trade and accumulation of wealth. Becker and Woessmann (2009) found that Protestantism also led to a higher educational level, which positively influenced economic growth and level of entrepreneurship.

MacDonald (1972) found that Protestants have a higher propensity for an internal locus of control, which is a significant psychological characteristic of entrepreneurs. Studies have found that religious beliefs positively, as well as negatively, affect entrepreneurial activities (see Yaron et al., 2014). For example, the religious beliefs of Jewish people positively influence their entrepreneurial behavior. This may be because of their high investment in education (Botticini and Eckstein, 2005, 2007; Chiswick, 1983), and their strong trust and high respect for the Jewish religion (Yaron et al., 2014, p. 751). Another example relates to entrepreneurship in India. Notable authors (Shukla, 2007; Christopher, 2011; Vinod, 2012) indicated that religious beliefs of the Hindu community are very effective in promoting entrepreneurship in India.

Previous studies have found that religiosity is generally linked to higher ethical attitudes related to corporate social responsibility (Angelidis and Ibrahim, 2004), environmentalism (Wolkomir et al., 1997), and insider trading (Terpstra et al., 1993). However, Brimble et al. (2013) found little difference between the attitudes of the more religious and non-religious groups related to socially responsible investing. The authors also found that both groups rated financial criteria as more important than socially responsible investment criteria, and only those variables strongly influenced by religious philosophy are significantly different. In a recent study, Yaron et al. (2014) found that religion and religious beliefs positively influence entrepreneurship.

Studies have found that religious beliefs impact managerial behavior. Angelidis and Ibrahim (2004) found a significant relationship between the degree of religiousness and attitudes toward the economic and ethical components of corporate social responsibility. Brammer et al. (2007) found that religious individuals do not prioritize the responsibilities of the firm differently, but do tend to hold broader conceptions of the social responsibilities of businesses than non-religious individuals do.

Table I shows the summary of the previous authors’ findings/arguments related to the relationship between religious beliefs, control variables, and socially responsible investment.

2.2 The relationship between internal financing sources, cost of debt capital, and socially responsible investment

It is well known that small businesses are financially constrained (Joeveer, 2013). According to Sandhu et al. (2012), Indian farmers are financially constrained and they pay higher interest rates to private lenders. This has a negative impact on the promotion of socially responsible entrepreneurship. Modigliani and Miller (1958) also asserted that cost of capital affects rational investment decision-making within the firm. The findings of Ghosal and Ray (2015) indicated that banks offer crop loans at 7 percent annually, while private money lenders charge 20-30 percent, if not more. However, a previous study by Gill et al. (2015) showed a negative correlation between internal financing sources and the cost of debt capital. This is because a higher level of internal financing sources reduces the chances of bankruptcy and mitigates default risk.

One of the important reasons for the lack of bank financing is the cyclical cash flows of agricultural firms (Bandyopadhyay, 2007) that increase the chances of bankruptcy. Other reasons include lack of credit ratings and collateral (Bates, 1997), lack of a record of accomplishment of performance (Kotey, 1999), and agency and asymmetric information problems that stem from conflicts of interest between lenders and borrowers (Myers, 1977; Ross, 1973; Smith and Warner, 1979; Myers and Majluf, 1984). These problems are more severe in the case of smaller agribusiness firms in developing economies. The findings of Turvey et al. (2011) also suggested that the character of farmers, their capacity to pay back agribusiness loans, and lack of collateral affect agribusiness financing. The research findings of Shete and Garcia (2011) indicated that small agribusiness firms are financially constrained and unable to obtain financing because of the lack of access to credit services. Pecking order theory of Myers (1984) suggested that companies prefer internal financing. Thus, Indian farmers most often tend to rely on internal financing sources, which come from retained earnings, close family members, and friends to promote entrepreneurship.

Table II shows the summary of the previous authors’ findings related to the relationship between internal financing sources, cost of debt capital, and socially responsible investment.

2.3 Summary of the literature review

The literature indicates that religious beliefs positively influence the promotion of entrepreneurship. Thus, religious beliefs promote social welfare by promoting socially responsible entrepreneurship. The literature also shows that internal financing sources positively, and the higher cost of debt capital negatively influences the promotion of entrepreneurship. A higher level of internal financing sources reduces the cost of debt capital since it reduces chances of bankruptcy. Socially responsible investment encouraged by religious beliefs reduces agency and asymmetric information problems between agribusiness firms, financial institutions, and the society. Hence, the following hypotheses are formulated:

H1.

Socially responsible investment is positively associated with religious beliefs of agribusiness owners in the agricultural industry.

H2.

The higher the level of internal financing sources, the higher the level of socially responsible investment in the agribusiness industry.

H3.

The higher the cost of debt capital, the lower the level of socially responsible investment in the agribusiness industry.

H4.

The higher the level of internal financing sources, the lower the level of cost of debt capital in the agribusiness industry.

3. Methodology

3.1 Research design

This study utilizes survey research (a non-experimental field study design) and interview data collection methods.

3.2 Variables and their measurement

To remain consistent with previous research, the evaluation of small agribusiness performance was adapted from Zehir et al. (2006) and the measurement of socially responsible investment was borrowed from Turker (2008). Note that to reduce heteroscedasticity (i.e. stabilize variance), the natural logarithm (ln) was calculated for – firm age, firm sales, owner age, owner experience, sales, and number of employees variables.

Socially responsible investment

Socially responsible investment (SRI) is the general perception of small agribusiness owners about the extent to which they invest in socially responsible small agribusiness firms. Following the definition, five separate components were selected to measure the SRI index. In the survey, all participants were asked to rate the extent to which they avoid investing in new ventures that lead to alcohol production, avoid investing in new ventures that lead to tobacco production, avoid investing in new ventures that lead to weapons production, make well-planned investments to avoid environmental degradation, and make socially responsible investment to create a better life for future generations. Their responses were categorized on a five-point Likert Scale assigning 5 as “strongly agree” and 1 as “strongly disagree.” Responses were initially collected for each of the above five sources of SRI. The five measures are highly correlated, with correlation values ranging from 0.73 to 0.93. Therefore, a new index was constructed by using principal component analysis (PCA). The SRI index is constructed using the first component, which explains approximately 86.55 percent of the variation[2].

Financial performance

The definition of financial performance of small agribusiness (FPSA) for the purposes of this study is small agribusiness owners’ general perception about the changes in net profit margin (NPM), return on investment (ROI), and cash flow from operations (CFO) of their small agribusinesses. Following the definition, three separate components were selected to measure the FPSA index. In the survey, all participants were asked to rate the extent to which they believe there are changes in NPM, ROI, and CFO of their small agribusinesses. Their responses were categorized on a five-point Likert Scale assigning 5 as “Gone up a lot” and 1 as “Gone down a lot.” Responses were initially collected for each of the above three sources of financial performance. The three measures are highly correlated, with correlation values ranging from 0.76 to 0.91. Therefore, a new index was constructed by using PCA. The FPSA index was constructed using the first component which explains approximately 89.70 percent of the variation[3].

Religious beliefs

Religious beliefs (RB) is measured as a categorical variable where RB =1 if the agribusiness owner follows religious beliefs. Alternatively, RB =0 if no religious beliefs are followed.

Private financing

Private financing (PF) is measured as a categorical variable. If a small agribusiness owner borrowed from a private financing institution, PF is given the value of 1; otherwise PF equals 0.

Internal financing sources

Internal financing sources (IFS) measure small agribusiness owners’ capacity to invest their personal and family assets in their own small agribusiness firms. IFS is measured as a categorical variable where IFS =1 if a small agribusiness owner has adequate internal (personal and family) financing sources to invest in a small agribusiness firm. Alternatively, IFS =0 if a small agribusiness owner does not have adequate internal (personal and family) financing sources to invest in a small agribusiness firm.

Interest rate

Interest rate (INT) is measured as the actual interest rate that small agribusiness firms pay to lending institutions. For empirical analyses, the natural logarithm (ln) of actual interest rate paid by small agribusiness firms on their borrowings was calculated.

Duality

Duality (DUAL) is a dummy variable with assigned value of 1 if a small agribusiness owner is both CEO and chair of the board of directors in the same company, 0 otherwise.

Firm age

Firm age (FA) is measured as the actual age of a small agribusiness firm. For empirical analyses, the natural logarithm (ln) of actual age of small agribusiness firms was calculated.

Firm size

Firm size (FS) is a categorical variable. In the survey, five different firm sizes are identified as follows: (1) INR0-500,000 (2) INR500,001-1,000,000 (3) INR1,000,001-2,000,000 (4) INR2,000,001-3,000,000, and (5) more than INR3,000,001. During the survey, respondents chose only one category to which the average sales of their business belong. For empirical analyses, the natural logarithm (ln) of average sales was calculated for the categories 1 to 4. To calculate the natural logarithm (ln) for category 5, INR3,000,001 was used.

Number of employees

Number of employees (EMP) is measured as actual number of employees work for a small agribusiness firm. For empirical analyses, natural logarithm (ln) of average number of employees was calculated.

Owner age

Owner age (AGE) is measured as the actual age of a small agribusiness owner. For empirical analyses, the natural logarithm (ln) of the actual age of small agribusiness owners was calculated.

Education

The education of a small agribusiness owner (EDU) is a categorical variable with an assigned value of 1=high school or less, 2=college diploma, 3=Bachelor’s degree, 4=master’s degree, and 5=PhD degree or more.

Owner experience

Small agribusiness owner’s years of experience (EXP) is measured as the actual number of years of owner experience. For empirical analyses, the natural logarithm (ln) of average number of years’ experience was calculated.

Female gender

Owner female gender (FEM) is a dummy variable indicating whether small agribusiness owners report that they are female.

3.3 Sampling

Given that the population is “abstract” (i.e. it was not possible to obtain a list of all members of the focal population), a non-probability (purposive) sample was obtained. In a purposive sample, participants are screened for inclusion based on criteria associated with members of the focal population. To achieve a convenience sample, an extensive list of small agribusiness owners’ names and telephone numbers was used to distribute surveys and to conduct telephone interviews.

The sample included owners of wheat production, rice production, and other crops production firms; dairy farms; and livestock production farms such as poultry farms from the Punjab, Haryana, and Rajasthan states of India. The majority of surveys came from the Punjab state of India because of the lack of cooperation from other states. The sample included approximately 800 research participants. A total of 204 surveys were completed over the telephone, through personal visits, or received by e-mail, and two were non-usable. Thus, the response rate was roughly 25.50 percent. The remaining cases were assumed to be similar to the selected research participants.

Common method bias does not appear to be a problem because variables used in this study, although self-reported, are largely measured objectively. Nevertheless, a factor analysis (e.g. Podsakoff and Organ, 1986) indicated that common method bias does not seem to be a concern for this study.

3.4 Confidentiality

To solve confidentiality issues, all subjects were assured that personal identification including names would not be disclosed during the analysis, interpretation, and publication of data. Before conducting the telephone interviews, all subjects were instructed regarding the purpose of the research, and asked for their permission to use the data provided. Any information obtained in connection with this study and that can identify specific respondents is confidential and will be disclosed only with subjects’ permission or as required by law.

4. Empirical models, analysis, and discussion

4.1 Empirical models

Religious beliefs (RB) and internal financing sources (IFS) play an important role, both directly and indirectly, in socially responsible investment (SRI). The cost of debt capital (INT) is influenced by IFS. The relationships among RB, IFS, and SRI and the relationship between IFS and INT were examined using two separate models. RB and IFS are considered the main explanatory variables in SRI models and IFS is considered the main explanatory variable in INT models. All other variables are considered individual control variables. The following basic models were initially estimated:

(1) S R I i = α 0 + α 1 . R B i + α 2 . I F S i + X i j + ε i t
(2) I N T i = α 0 + α 1 . I F S i + X i j + ε i t

In the model (1), i refers to individual small agribusiness firm, SRI is socially responsible investment of agribusiness firm i, and Xij represents individual control variables (j) corresponding to agribusiness firm i. εit is a normally distributed disturbance term. In the estimated model, α1 and α2 measure the magnitude at which RB and IFS impact SRI in the agribusiness industry.

In the model (2), i refers to individual small agribusiness firm, INT is cost of debt capital of agribusiness firm i, and Xij represents individual control variables (j) corresponding to agribusiness firm i. εit is a normally distributed disturbance term. In the estimated model, α1 measures the magnitude at which IFS impacts INT in the agribusiness industry.

Both models (1) and (2) are extended by considering different sets of control variables one at a time. The coefficients of variables of both models are estimated by applying ordinary least squares (OLS) method[4].

Because of issues related to endogeneity and reverse causality between changes in socially responsible investment, internal financing sources, changes in financial performance of small agribusiness firms (ΔFPSA), sales (SALES), and firm age (FA), a two stage instrumental variables regression procedure was adopted. For example, higher socially responsible investment could be associated with greater internal financing sources and internal financing sources could be associated with financial performance of small agribusiness firms, sales, and firm age which could affect SRI in the small agribusiness industry.

To implement the procedure, the first stage involves regressing IFS on FA, ΔFPSA, and SALES together with the other control variables. Thus, FA, ΔFPSA, and SALES are the main explanatory variables in the IFS regression. Equations (3) and (4) describe these regressions:

(3) Z i = β 0 + β 1 . F A i + β 2 . Δ F P S A i + β 3 . S A L E S i + X i j + ε i t

In Equation (3), Zi is a dummy variable representing to IFS of a small agribusiness firm i. β1, β2, and β3 measure the magnitude at which FA, ΔFPSA, and SALES influence the probability of IFS. The model is extended by considering different sets of control variables one at a time. Control variables include EDU and EXP. The coefficients of Equation (3) are estimated by applying binary logistics regressions[5].

The second stage regresses SRI on the fitted value of IFS and INT on fitted value of IFS from Equation (1), together with the other control variables (excluding the instrumental variables: FA, SALES, and ΔFPSA). Equation (3) describes these regressions:

(4) Y i = γ 0 + γ 1 Z ¯ i + X i j + ε i t

In Equation (4), Yi is agribusiness owners’ perception of SRI or INT whereas Z ¯ i is the predicted probability of IFS. Hence, γ1 estimates the effect of expected level of IFS on SRI or INT. The coefficients of Equation (4) are estimated by using OLS method in the case of SRI or INT[6]. Expected probability of IFS obtained from (3) is used in (4).

4.2 Descriptive data analysis

In the data set, some of the variables, except SRI and ΔFPSA indices, are individual dummy variables. The data exhibit that the distribution of SRI and ΔFPSA is almost symmetrical around their mean values and, thus, there is no outlier present in either index. The value of skewness for all the scales used in this study is within the range of −0.449 to −0.969, which can be considered an excellent range. According to Mason et al. (1991), values of skewness usually range from −3 to +3 when the data are normally distributed Table III.

4.3 PCA

As shown in Table IV, factor analysis extracts two factors (denoted as Component 1 and Component 2) and all the items loaded on the expected factors. This shows that common factor bias is not a concern. Varimax rotation explains 88.16 percent of the variance in the original scores. The test statistic for Kaiser-Meyer-Olkin, a measure of sampling adequacy, is 0.79. Kaiser (1974, p. 36) suggests accepting values greater than 0.50 as indicative of the validity of factor analysis.

Each question subset was analyzed to calculate the weighted factor scores. The first principal component is strongly correlated with five of the original variables: SRI1, SRI2, SRI3, SRI4, and SRI5. The second principal component increases with only three of the values: ΔFPSA1, ΔFPSA2, and ΔFPSA3.

The correlation coefficient matrix exhibits that RB, IFS, PF, DUAL, ΔFPSA, EMP, and EDU are positively and significantly, and INT and FA negatively and significantly, correlated with SRI, implying that religious beliefs, high internal financing sources, private financing, CEO duality, changes in financial performance, and higher number of employees increase, and interest costs and firm age decrease socially responsible investment in the Indian agribusiness industry. Likewise, the findings show a negative and significant correlation between IFS and INT, suggesting that internal financing sources reduce the cost of debt capital in the Indian agricultural industry (see Table V).

4.4 Regression results and discussion

Table VI reports the estimated coefficients of Equations (1) and (2). Findings show that SRI is positively and significantly associated with RB, IFS, DUAL, ΔFPAF, and EMP, and negatively and significantly associated with PF, INT, and FA, implying that religious beliefs, internal financing sources, CEO duality, positive change in financial performance, and higher number of employees increase, and private financing, higher cost of debt capital, and firm age decrease, socially responsible investment. Likewise, results show that INT is negatively and significantly associated with IFS and EDU, suggesting that higher level of internal financing sources and high level of owner education reduces the cost of debt capital in the Indian agribusiness industry.

The coefficients of RB in columns (I) and (II) of SRI are positive and significant at the 5 percent level, suggesting that religious beliefs of agribusiness owners increase socially responsible investment in the Indian agricultural industry. Similarly, the coefficients of INT in columns (III) and (IV) of SRI are negative and significant at the 1 percent level, indicating that higher cost of debt capital decreases socially responsible investment in the agribusiness industry. Likewise, the coefficients of IFS in columns (V) and (VI) of SRI are positive and significant at the 1 percent level, implying that higher levels of internal financing sources increase socially responsible investment in the agricultural industry. Further, the coefficients of IFS in columns (VII) and (VIII) of INT are negative and significant at the 1 percent level, suggesting that higher levels of internal financing sources decrease cost of debt capital in the Indian agribusiness industry.

In summary, the regression analysis indicates that socially responsible investment is significantly positively influenced by religious beliefs, internal financing sources, CEO duality, financial performance of small agribusiness firms, and higher number of employees; and significantly negatively influenced by private financing and higher cost of debt capital. Regression analysis also shows that internal financing sources and owner education reduce cost of debt capital. Thus, H1-H4 are validated.

The findings of this study lend some support to the findings of Brimble et al. (2013), Drakopoulou-Dodd and Seaman (1998), Shukla (2007), Becker and Woessmann (2009), Christopher (2011), Vinod (2012), and Yaron et al. (2014) in that religious beliefs of small agribusiness owners positively influence their perceptions of the promotion of socially responsible entrepreneurship in the agribusiness industry. The findings of this study also support the pecking order theory of Myers (1984) which suggested that small agribusiness firms prefer internal financing to promote socially responsible entrepreneurship in the Indian agribusiness industry. Finally, the findings of this study lend some support to the assertion of Modigliani and Miller (1958) in that cost of capital affects rational investment decision-making within the firm and the findings of Gill et al. (2015) who showed a negative correlation between internal financing sources and costs of debt capital.

Table VII reports the estimated coefficients of Equation (3). Results show that IFS is positively and significantly associated with SALES, ΔFPAF, EDU, and EXP, implying that sales, positive change in financial performance, owner education, and owner experience increase internal financing sources in the Indian agribusiness industry.

Table VIII reports the estimated coefficients of Equation (4). FA, SALES, and ΔFPAF variables were not used in Table VIII to estimate coefficients of Equation (4) because these variables were used as instrumental variables in Equation (3) to calculate fitted value of IFS. Findings show that SRI is positively and significantly associated with IFS_fit, RB, DUAL, and EMP, and negatively and significantly associated with PF, INT, and EXP, implying that internal financing sources built with sales and financial performance, religious beliefs, CEO duality, higher number of employees increase, and private financing, higher cost of debt capital, and owner experience decrease socially responsible investment in the Indian agribusiness industry. The regression analysis also shows that the fitted value of internal financing sources decreases cost of debt capital in the Indian agricultural industry. Thus, the second stage model validates H1-H4.

The coefficients of IFS_fit in columns (I) and (II) of SRI are positive and significant at the 1 percent levels, suggesting that internal financing sources built with sales and financial performance of small agribusiness firms increase socially responsible investment. Similarly, the coefficients of IFS_fit in columns (III) and (IV) of INT are negative and significant at the 1 percent level, indicating that internal financing sources built with sales and financial performance decrease cost of debt capital in the Indian agribusiness industry.

5. Conclusion, managerial implications, and critical policy recommendations

While a study by Brimble et al. (2013) found little difference between the attitudes of the more religious and the non-religious groups related to socially responsible investing in Australia, Yaron et al. (2014) found that religion and religious beliefs positively influence entrepreneurship. This study lends some support to the findings of above authors by showing that religious beliefs of agribusiness owners positively influence the promotion of socially responsible entrepreneurship in the Indian agribusiness industry. This study also lends some support to the findings of Myers (1984) and Gill et al. (2015) by showing that while internal financing sources increase perceived socially responsible investment, the higher cost of debt capital decreases perceived socially responsible investment in the Indian agricultural industry. A higher level of internal financing sources, however, decreases the perceived cost of debt capital, which may increase socially responsible investment in the Indian agricultural industry.

While the basis of the results rests on small agribusinesses located in India, the findings of this study may also be applicable to similar entities of other emerging markets. The findings of this study suggest that religious beliefs and internal financing sources positively influence socially responsible investment, which in turn, promote socially responsible entrepreneurship. Thus, the findings show that socially responsible investment favors both the firm and society since it helps reduce social concerns and at the same time helps in improving the growth and prosperity of small agribusiness firms.

The implications and limitations of this study should not be ignored. First, a managerial implication of this study is that small agribusiness owners who perceive that their religious beliefs are high are more likely to have heightened desires for socially responsible investment. Given the agency problem between agricultural production firms and society, socially responsible investment may reduce this problem. Therefore, managers/owners of agribusiness firms should consider socially responsible investment.

The second managerial implication is that small agribusiness owners who perceive that they have higher internal financing sources are more likely to have heightened desires for socially responsible investment. Agribusiness firms may not have a higher level of internal financing sources and this challenge may be minimized by the help of non-resident family members (if they are available) who may provide financial support to small agribusiness firms (Gill et al., 2015).

The third managerial implication is that small agribusiness owners who perceive that the cost of debt capital is high are less likely to have heightened desires for socially responsible investment. The findings of this study show that internal financing sources reduce the cost of debt capital. As described above, one way to build internal financing sources is to receive financial help from non-resident family members (if possible). One other way is to improve the profitability of the existing agribusiness firms by having joint production of the livestock (e.g. production of chickens, goats, cattle, etc.) and crops (e.g. wheat, rice, vegetables, and a variety of seeds such as mustard seeds). Strategic alliance (an agreement between two or more agribusiness owners to pursue a set of agreed upon objectives needed to improve the profitability of the agribusinesses while remaining independent) between two or more small agribusiness firms may be beneficial to improve profitability. However, one should keep in mind that the corporate culture of two agribusiness firms may differ, which may lead to strategic alliance failure.

6. Limitations and future research

This study is limited to perceptions and judgments that asked for responses from fixed format, set-question survey tools. The respondents were unable to provide additional input because a survey questionnaire was used to collect data. The sample size is also small. The finding of this study may not be applicable to every agribusiness firm. Therefore, the findings of this study should be used with caution. The findings of this study may only be generalized to firms similar to those that were included in this research. Although the results show a positive association between religious beliefs and socially responsible investment, there is not necessarily a causal relationship between the two.

A mail/drop-off survey data collection method contributed to a low response rate or response error. Some favorable techniques such as including postage-paid mail, sending a cover letter, providing a deadline for returning the survey, and promising anonymity were applied in order to increase the response rate. However, a short study period (eight weeks) limited any negative effects from maturation.

Although this study bridged some gaps in the literature, some questions still remain unanswered. One such knowledge gap is in understanding how small agribusinesses might overcome difficulties in borrowing from banks that charge lower interest rate than the private lenders so that socially responsible entrepreneurship can be promoted. The research was limited to three States of India; therefore, the generalizability of results and implications of this study requires further research of both a quantitative and qualitative nature, conducted not only in other Indian regions but also in other countries. Future studies can improve the methodological focus and framework by collecting data from a larger number of agribusiness firms, and by including among the investigated variables other qualifying elements such as religious beliefs, meditation, and spirituality.

Previous findings on the relationship between religious beliefs and the promotion of socially responsible entrepreneurship

Author(s) Previous findings/arguments
Tippett and Leung (2001) Individual values and beliefs influence SRI
Barro and McCleary (2003), Grier (1997), Guisa et al. (2006), McCleary and Barro (2006), McCleary (2008), Noland (2003) Argued that there is a relationship between religion and economic performance
Carswell and Rolland (2004), Caliendo et al. (2009), Yaron et al. (2014), Drakopoulou-Dodd and Seaman (1998), Landes (1999), Becker and Woessmann (2009) The relationships between religious beliefs and entrepreneurship are affected by personality, ethnicity, network structures, education; risk attitude of entrepreneurs; the political system of the country; the religious loyalty; work ethics; and the level of education
Shukla (2007), Christopher (2011), Vinod (2012) Religious beliefs of the Hindu community are very effective in promoting entrepreneurship in India
Angelidis and Ibrahim (2004), Wolkomir et al. (1997) A generalized link exists between religiosity and higher ethical attitudes related to corporate social responsibility (CSR) and environmentalism
Yaron et al. (2014) Religion and religious beliefs positively influence entrepreneurship
Angelidis and Ibrahim (2004) A significant relationship exists between the degree of religiousness and ethical components of CSR
Brammer et al. (2007) Religious individuals tend to hold broader conceptions of CSR of businesses than non-religious individuals do

Previous findings on the relationship between internal financing sources, cost of debt capital, and socially responsible investment

Author(s) Previous findings/arguments
Joeveer (2013), Sandhu et al. (2012) Small businesses are financially constrained and they pay higher interest rates to private lenders
Modigliani and Miller (1958) Cost of capital affects rational investment decision making within the firm
Gill et al. (2015) Showed a negative correlation between internal financing sources and the cost of debt capital
Bandyopadhyay (2007) Cyclical cash flow of agricultural firms increases the chances of bankruptcy
Bates (1997), Kotey (1999), Myers (1977), Ross (1973), Smith and Warner (1979), Myers and Majluf (1984) A lack of credit ratings and collateral, lack of record of accomplishment of performance, and asymmetric information problems cause bank financing challenges
Turvey et al. (2011) Character of farmers, their capacity to payback agribusiness loan, and lack of collateral affect agribusiness financing
Shete and Garcia (2011) Small agribusiness firms are unable to obtain financing because of the lack of access to the credit services
Myers (1984) Companies prefer internal financing

Descriptive statistics

Mean SD Minimum Median Maximum
SRI 0.00 1.00 −2.35 4 1.06
(SRI1). Avoids investing in new ventures that lead to alcohol production 3.66 1.24 1 4 5
(SRI2). Avoids investing in new ventures that lead to tobacco production 3.71 1.31 1 4 5
(SRI3). Avoids investing in new ventures that lead to weapons production 3.67 1.31 1 4 5
(SRI4). Makes well-planned investments to avoid environmental degradation 3.85 1.20 1 4 5
(SRI5). Makes socially responsible investment to create a better life for future generations 3.86 1.24 1 4 5
ΔFPSA 0.00 1.00 −2.72 0.28 1.27
FPSA1). Change in net profit margin 3.67 1.07 1 4 5
FPSA2). Change in return on investment 3.73 1.01 1 4 5
FPSA3). Change in operating cash flow 3.78 1.10 1 4 5
RB 0.93 0.26 0 1 1
IFS 0.59 0.49 0 1 1
PF 0.61 0.49 0 1 1
INT 2.60 0.31 1.61 2.48 3.22
DUAL 0.59 0.49 0 1 1
FA 3.09 0.71 1.10 3.22 4.38
SALES 14.26 0.79 12.43 14.73 14.91
EMP 0.78 0.71 0.00 0.69 3.30
AGE 3.88 0.28 2.71 3.95 4.38
EDU 1.69 0.96 1 1 4
EXP 3.08 0.62 1.61 3.22 4.09
FEM 0.82 0.39 0 1 1

Notes: Variables include the socially responsible investment (SRI), change in financial performance of small agribusiness firms (ΔFPSA), religious beliefs (RB), internal financing sources (IFS), private financing (PF), interest costs (INT), CEO duality (DUAL), firm age (FA), sales (SALES), number of employees (EMP), owner age (AGE), owner education (EDU), owner experience (EXP), and owner is female (FEM)

Rotated component matrixa, b

Component
1 2
SRI
My firm …
(SRI1) … Avoids investing in new ventures that lead to alcohol production 0.948 0.098
(SRI2) … Avoids investing in new ventures that lead to tobacco production 0.945 0.112
(SRI3) … Avoids investing in new ventures that lead to weapons production 0.930 0.107
(SRI4) … Makes well-planned investments to avoid environmental degradation 0.894 0.255
(SRI5) … Makes socially responsible investment to create a better life for future generations 0.852 0.294
ΔFPSA
On the average, over the last 5 years in what direction and to what degree do you perceive the ….?
FPSA1) … Net profit margin changed? 0.171 0.925
FPSA2) … Return on investment changed? 0.194 0.954
FPSA3) … Cash flow from operations changed? 0.131 0.915

Notes: aExtraction method: principal component analysis; rotation method: varimax with Kaiser normalization; rotation converged in three iterations. bVarimax rotation =88.16 percent

Correlation coefficient

SRI RB IFS PF INT DUAL FA
SRI 1
RB 0.242** 1
IFS 0.405** 0.092 1
PF 0.251** 0.141* 0.432** 1
INT −0.356** −0.115 −0.411** −0.805** 1
DUAL 0.173* 0.129 0.068 0.052 −0.007 1
FA −0.141* −0.031 0.064 0.055 −0.053 −0.048 1
SALES 0.134 0.012 0.286** 0.167* −0.155* 0.051 0.251**
ΔFPSA 0.353** 0.188** 0.406** 0.320** −0.276** 0.041 −0.007
EMP 0.301** 0.058 0.310** 0.284** −0.231** −0.075 −0.147*
AGE 0.052 −0.110 0.152* 0.064 −0.123 −0.074 0.368**
EDU 0.161* 0.177* 0.230** 0.252** −0.222** −0.079 −0.222**
EXP 0.000 −0.119 0.154* 0.000 −0.097 −0.072 0.588**
FEM 0.082 0.072 0.182** 0.119 −0.078 0.463** 0.056
SALES ΔFPSA EMP AGE EDU EXP FEM
SALES 1
ΔFPSA 0.221** 1
EMP 0.312** 0.302** 1
AGE 0.019 0.125 0.109 1
EDU 0.131 0.212** 0.157* −0.274** 1
EXP 0.162* 0.085 0.115 0.731** −0.318** 1
FEM 0.156* −0.011 0.065 −0.078 0.035 0.025 1

Notes: Variables include the socially responsible investment (SRI), change in financial performance of small agribusiness firms (ΔFPSA), religious beliefs (RB), internal financing sources (IFS), private financing (PF), interest costs (INT), CEO duality (DUAL), firm age (FA), sales (SALES), number of employees (EMP), owner age (AGE), owner education (EDU), owner experience (EXP), and owner is female (FEM). *p<0.05; **p<0.01; ***p<0.10

Ordinary least square regression analysis

Variables (I) SRI (II) SRI (III) SRI (IV) SRI (V) SRI (VI) SRI (VII) INT (VIII) INT
RB 0.950** 0.611*
(3.52) (2.52)
IFS 0.504** 0.823** 0.571** −0.258** −0.194**
(3.41) (6.26) (3.85) (−6.38) (−4.10)
PF −0.602**
(−2.77)
INT −1.304** −1.150** −0.818**
(−3.95) (−5.38) (−3.77)
DUAL 0.345* 0.373* 0.367* 0.006
(2.47) (2.56) (2.52) (0.12)
FA −0.158 −0.199*** −0.178 −0.012
(−1.38) (−1.69) (−1.52) (−0.35)
SALES −0.002 0.027 −0.009 −0.004
(−0.024) (0.31) (−0.10) (−0.15)
ΔFPAF 0.149* 0.210** 0.174* −0.032
(2.17) (3.05) (2.46) (−1.42)
EMP 0.227* 0.219* 0.214*
(2.28) (2.14) (2.09)
AGE 0.172 0.139 0.140 −0.110
(0.53) (0.41) (0.41) (−1.00)
EDU −0.009 0.033 0.034 −0.051*
(−0.12) (0.45) (0.47) (−2.15)
EXP −0.077 0.025 −0.005 0.001
(−0.45) (0.14) (−0.03) (0.01)
FEM −0.120 −0.063 −0.130 −0.02
(−0.67) (−0.34) (−0.70) (−0.34)
Constant −0.884** (−3.40) 2.714 (1.47) 2.998** (5.34) 1.341 (0.72) −0.489** (−4.83) −0.528 (−0.31) 2.759** (88.45) 3.345** (6.21)
N 202 202 202 202 202 202 202 202
F-test statistic 12.42* 7.83** 28.95** 7.09** 39.25** 7.16** 40.67** 5.59**
R2 0.058 0.351 0.126 0.271 0.164 0.273 0.169 0.208

Notes: In the regression models, the dependent variable is socially responsible investment (SRI). Independent variables include religious beliefs (RB), internal financing sources (IFS), private financing (PF), interest costs (INT), CEO duality (DUAL), firm age (FA), sales (SALES), change in financial performance of small agribusiness firms (ΔFPSA), number of employees (EMP), owner age (AGE), owner education (EDU), owner experience (EXP), and owner is female (FEM). Dependent variables = SRI and INT. The lowest tolerance is 0.305 and the highest Variance Inflation Factor (VIF) is 3.274 indicating that multicollinearity is not a serious issue. *p<0.05; **p<0.01; ***p<0.10

Binary logistic regression analysis

Variables (I) IFS (II) IFS
FA 0.051 (0.22) −0.273 (−0.84)
SALES 0.616** (2.90) 0.565* (2.57)
ΔFPAF 0.871** (4.89) 0.785** (4.30)
EDU 0.615**
(2.83)
EXP 0.922**
(2.50)
Constant −8.489** (−2.88) −10.582** (−3.38)
N 202 202
χ2-test 44.63** 56.30**
Pseudo R2 0.164 0.206

Notes: In the regression models, the dependent variable is internal financing sources (IFS). Independent variables include firm age (FA), sales (SALES), change in financial performance of small agribusiness firms (ΔFPSA), owner education (EDU), and owner experience (EXP). Dependent variable = IFS. *p<0.05; **p<0.01; ***p<0.10

Ordinary least square regression analysis

Variables (I) SRI (II) SRI (III) INT (IV) INT
IFS_fit 1.417** (5.31) 1.113** (3.17) −0.439** (−5.33) −0.360** (−3.25)
RB 0.614**
(2.49)
PF −0.547**
(−2.53)
INT −1.411***
(−4.21)
DUAL 0.368** 0.005
(2.58) (0.11)
EMP 0.289**
(3.08)
AGE 0.333 −0.153
(1.02) (−1.39)
EDU −0.085 −0.034
(−0.99) (−1.16)
EXP −0.340** 0.030
(−2.10) (0.56)
FEM −0.074 −0.059
(−0.41) (−0.97)
Constant −0.842* (−4.90) 2.291 (1.52) 2.867** (54.03) 3.424** (9.58)
N 202 202 202 202
F-test statistic 28.19** 8.40*** 28.38** 5.36**
R2 0.124 0.305 0.124 0.142

Notes: In the regression models, the dependent variable is socially responsible investment (SRI). Independent variables include fitted value of internal financing sources (IFS), religious beliefs (RB), private financing (PF), interest costs (INT), CEO duality (DUAL), number of employees (EMP), owner age (AGE), owner education (EDU), owner experience (EXP), and owner is female (FEM). Dependent variables = SRI and INT. The lowest tolerance is 0.305 and the highest Variance Inflation Factor (VIF) is 3.307 indicating that multicollinearity is not a serious issue. *p<0.05; **p<0.01; ***p<0.10

Notes

1.

An agency problem is an important part of the agency theory developed by Jensen and Meckling (1976).

2.

The eigenvalues of the five principal components are 4.328, 0.437, 0.101, 0.085, and 0.049, and the corresponding variances are 86.553 percent, 8.730 percent, 2.029 percent, 1.708 percent, and 0.981 percent, respectively, with Cronbach’s α of 0.961. As a result, SRI index is constructed using the first component. Factors that have eigenvalues greater than 1 are included in the construction of the component (Kaiser, 1960).

3.

The eigenvalues of the three principal components are 2.691, 0.245, and 0.064, respectively, with Cronbach’s α of 0.941. As a result, FPSA index is constructed using the first component. Factors that have eigenvalues greater than 1 are included in the construction of the component (Kaiser, 1960).

4.

SRI, the first principal component of SRI1, SRI2, SRI3, SRI4, and SRI5, is a continuous variable; therefore, ordinary least square regression method was used. INT is the actual cost of debt capital that differs agribusiness to agribusiness.

5.

IFS is a binary variable; therefore, logistics regression method was used.

6.

INT is the actual cost of debt capital that differs agribusiness to agribusiness.

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Corresponding author

Amarjit Gill can be contacted at: agill02@shaw.ca