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Does religious faith affect household financial market participation? Evidence from China
Economic Modelling xxx (xxxx) xxx
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Economic Modelling journal homepage: www.journals.elsevier.com/economic-modelling
Does religious faith affect household financial market participation? Evidence from China☆ Yang Yang, Cheng Zhang *, Yu Yan School of Finance, Capital University of Economics and Business, Beijing, 100070, China
A R T I C L E I N F O
A B S T R A C T
JEL classification: G11 D14 Z12
Based on the 2013 China Household Finance Survey data, this paper investigates the impact of religious faith on household financial market participation and portfolio choice. The results show that religious faith can significantly promote household financial market participation. Besides, religious faith can increase the proportion of risky assets held by households, including equities. We also find that the need for social interaction and human capital accumulation can significantly induce religious residents to participate in financial markets and hold risky assets. Overall, our results reveal how faith affects household finance activities in China.
Keywords: Religious faith Financial market participation Portfolio choice Household finance
1. Introduction As the world’s populous country, China is experiencing a religious upsurge, despite disputing this topic (Potter, 2003; Yang, 2006). Data from the Chinese General Social Survey (CGSS) shows that the proportion of religious believers in China increased by 120% from 2003 to 2010, compounded by domestic as well as international religion. Religion plays an important role in the lives of many Chinese de facto, but rare research provides empirical evidence from China for no apparent reason. From the international perspective, Dehejia et al. (2007) and Zhang et al. (2019) argue that religion, by virtue of its organizational characteristics, makes it easy to construct intra-religious social network and circle of acquaintances. Besides, faith promotes communication and interaction between people, and influence people’s participation in financial market investment (Li, 2006). Moreover, religious faith influences the accumulation of human capital and indirectly affect whether households participate in financial markets (Zeng, 2014). The above-mentioned studies motivate us to study Chinese household financial decision-making behavior from the perspective of religious faith. Or precisely, we seek to answer the question: Does religion influence household financial decisions in China?
Based on the 2013 China Household Finance Survey (CHFS) data,1 this paper uses the density of religious places as the instrumental variable (IV) for religion and adopts the maximum likelihood estimation method to study the influence of religious faith on household financial decisions. We also attempt to find the possible channels through which religious faith influence household financial decisions. We show that religious faith can significantly promote household participation in the financial market, while religious faith can increase the proportion of households holding risky assets, which is in line with Zhang et al. (2019). Further analysis shows that social interaction and human capital accumulation can significantly induce religious residents to participate in the financial market and hold risky assets. Finally, consistent with Narayan et al. (2016), different religious cultures significantly affect residents’ participation in the financial market. Our research thus provides novel findings on the topic on family member heterogeneity (in terms of religious faith) and household financial decisions in China. In the report of the 19th National Congress of the Communist Party of China, General Secretary Xi Jinping redefines “the principal contradiction” faced by Chinese society, pointing out that Chinese society is now facing the contradiction between unbalanced and inadequate
☆ We thank the editor and two reviewers for their insightful comments that improved the paper. We also thank Zhichao Yin, Pengpeng Yue, Yezhou Sha, and seminar participants in the Capital University of Economics and Business on household finance. We acknowledge the support from National Natural Science Foundation of China (Grant Number:71373213). All errors are our own. * Corresponding author. E-mail address: [email protected] (C. Zhang). 1 The survey is conducted by the survey and research center for China household finance (Southwestern University of Finance and Economics, Chengdu, China). The most recent data with religious belief information is the 2013 data.
https://doi.org/10.1016/j.econmod.2019.10.023 Received 15 August 2019; Received in revised form 21 October 2019; Accepted 23 October 2019 Available online xxxx 0264-9993/© 2019 Elsevier B.V. All rights reserved.
Please cite this article as: Yang, Y. et al., Does religious faith affect household financial market participation? Evidence from China, Economic Modelling, https://doi.org/10.1016/j.econmod.2019.10.023
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the financial market. The institutional attribute affects people’s social networks and social contacts through religious organizations. Social networks are important factors that influence household participation in the financial market (Wang et al., 2015). Gruber (2005) points out that religion influences the accumulation of human capital (especially an individual’s educational level), which affects household participation in the financial market consequently. Religion may influence household financial decisions in three ways. First, religion influences household participation in financial markets and investment choices through social interaction. Religion, as a form of social organization, is conducive to the formation of social networks and the promotion of social interaction, thus influencing people’s participation in financial markets and purchase of risky assets. In the current financial market environment, there is a wide range of information asymmetry, and social networks and acquaintances play an important role in financial market participation (Wang et al., 2015). On the one hand, religious faith can play a role as a bridge between people. It is easy to build trust and connection among religious believers. Johansson-Stenman et al. (2009) study the relationship between religious faith and trust in rural Bangladesh, and find that faith is conducive to the improvement of trust among people. Additionally, Dehejia et al. (2007) point out that religious organization can protect households against income shocks and improve their social security level through donation. The organizational effect people get through religion is much higher than their other faith effect, and religion provides various social security and support for farmers through the organizational effect. On the other hand, social interaction can promote household participation in the stock market. For example, Hong et al. (2004) find that social interaction (e.g. participation in church activities) can promote household participation in financial markets. Li (2006) finds that the higher the level of social interaction and trust, the higher the probability of residents’ participation in the financial market. Social interaction can significantly promote household participation in the stock market, and the mechanism, through which social interaction promotes household participation in the stock market, is mainly formed through the relative wealth focus effect. Wang et al. (2015) discuss the decision-making of residents’ participation in the stock market from the perspective of household social networks, and show that the social network of relatives and friends can significantly improve the households’ participation in the stock market. Based on these studies, our first hypothesis is as follows:
development and the people’s ever-growing needs for better life. From the perspective of household finance, inadequate development is reflected in the low rate of household financial market participation and the small proportion of financial assets held. Unbalanced development is more reflected in the huge difference between urban and rural areas, and between different regions in the degree of household financial market participation and the proportion of risky assets held. Although the structure of Chinese households holding financial assets is changing, the accumulation of wealth in the family is still in its infancy (Li, 2018). According to the CHFS data, China’s household financial market participation rate is 12.5%, stock market participation rate is 7.9%, and the proportion of risky assets and stock assets held by households is 5.4% and 2.5%, respectively. With regards to urban and rural areas, the household financial market participation rates are 17.7% and 1.3%, respectively; while the proportion of risky assets held is 7.7% and 0.4%, respectively. According to the eastern, central and western regions, the household financial market participation rate is 17.7%, 7.9%, and 8.1%, respectively; while the proportion of risky assets held is 7.8%, 3.3%, and 3.5%.It can be seen from these statistics that the degree of household participation in the financial market is low, and the proportion of risky assets held is small. Moreover, there is huge difference in the proportion of financial market participation and risky asset holdings between urban and rural areas, and between China and other economies (Sha and Gao, 2019). Therefore, exploring the causes of the low rates of financial market participation becomes an important issue. The existing literature explores the factors influencing household financial decisions from the following three aspects. First, from the perspective of demographic characteristics, Cocco et al. (2005) study this issue based on individual’s age, gender, household size, and marital status. Second, Rosen and Wu (2004) show that human capital accumulation plays an important role in household financial decisions. Similarly, Yin et al. (2014) studies the impacts of educational qualifications, health conditions, cognitive ability, and investment experience of the household head on household financial decisions. Third, Christelis et al. (2010), and Stango and Zinman (2009) explain individual financial decisions from the perspective of behavioral economics. Randazzo and Piracha (2019) show that remittances have a positively impact on different types of investment products. Narayan et al. (2016), Narayan et al. (2018), and Zhang et al. (2019) find that religious belief plays an important role in predicting asset prices. However, due to the difficulty in accessing religious belief data in China, few studies are able to examine whether the unique feature of China’s demographic characteristics will produce a different conclusion regarding the impact of religion on financial decisions. Our study contributes to the literature in the following ways. First, our study broadens the research field on the role played by household heterogeneity in financial decisions. To the best of our knowledge, we are the first to link household finance with religious belief in China using household survey data. Second, we show that trust and human capital accumulation are the two factors driving the relation between religion belief and financial decisions. This provides an empirical support for Zeng (2014) theory by showing that the needs for social interaction and cultivating children are the universal driving factors of financial inclusion, which goes beyond the distinction of various religious beliefs. The paper is organized as follows. Section 2 presents the literature review and the research hypotheses. Section 3 discusses the empirical model and variables. We present our empirical results in Section 4 and robustness tests in Section 5. Section 6 discusses the results. Section 7 provides the conclusion.
Hypothesis 1. Religious faith enhances the social interaction of the household, thus significantly increasing its probability of participating in the financial market. Secondly, religion influences household participation in financial markets through human capital. Gruber (2005) demonstrates that there is a close relationship between religious faith and human capital accumulation, and that human capital accumulation is an important factor influencing people’s decision to participate in the financial market. Due to the threshold of entry in the financial market, financial asset investment requires a high level of human capital. Therefore, human capital may be an important channel through which religious faith affects people’s participation in financial investment. Gruber (2005) uses the General Social Survey (GSS) data and find that religious faith is significantly positively correlated with educational level. Becker and Woessmann (2009) explain the economic prosperity of protestant areas from the perspective of human capital. They argue that attaining religious knowledge can significantly improve the overall human capital level, thus making up for the economic gap of the whole region. Bai and Kung (2015) study the relation between China’s economic growth and the spread of Christianity from 1840 to 1920, and find that the spread of religion promotes the accumulation of human capital and improves the level of local economic development. He and Wu (2017) find that human capital has a significant impact on financial market participation. Further studies show that education level, which is a part of human capital, plays an important role in promoting the depth of household
2. Hypotheses development Stark and Finke (2000) argue that religion has two basic attributes, named cultural attribute and institutional attribute. The cultural attribute shapes religious views on wealth, which, in turn, influences people’s economic decision-making and thus affects household participation in 2
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participation in the financial market. Huang (2014) explores the mystery of non-participation in China’s stock market and concludes that residents’ cognitive ability and educational level have a great impact on their participation in the financial market. People with higher educational level are more likely to participate in the financial market, and invest products with higher risks. Therefore, our second hypothesis is as follows:
3.2. Data and variables The data are from the CHFS conducted nationwide in 2013 by Southwestern University of Finance and Economics. The survey covers 1048 communities of 262 counties in 29 provinces, and obtains information on household demographic characteristics, wealth, income, expenditure, insurance, security, and employment. The CHFS data adopts the scientific sampling method, and the survey has good representativeness, making the data a popular choice for leading research articles (see Li, 2018; Clark et al., 2019; Yin et al., 2019, for example). After removing from the sample interviewees who do not disclose their religious beliefs, we have 28,120 observations, and 7.03% of whom have religious beliefs. The details are described in what follows.
Hypothesis 2. Religious faith is conducive to the accumulation of household human capital, thus significantly increasing the probability of their participation in the financial market. Thirdly, religion influences household participation in financial markets and asset selection through culture and doctrine. The cultural traits influence an individual’s values and wealth views, which, in turn, influence his/her economic decisions. The influence of religion on an economy and financial decisions depends on specific value and wealth views (Zeng, 2014). For example, Christianity encourages people to build wealth through hard work; Taoism claims that wealth is public; Islam states that wealth should be acquired through proper channels; Buddhism encourages people to meet their needs without hurting others and to contribute to the society. Religion, based on unique culture and faith, will undoubtedly have a direct impact on individuals’ economic decisions. Stocks and financial products, as investment products, will have a positive or negative impact on individuals’ wealth. Religious faith may influence residents’ decisions in the financial market through culture or doctrine. As explained by Iannaccone (1998), religion influences an individual’s faith and values, thereby influencing his/her economic decisions. McCleary and Barro (2006) analyze the relationship between religious faith and economic growth using cross-country data, and find that religion affects economic performance by influencing individuals’ professional ethics, honesty, frugality, and other characteristics. Guiso et al. (2003) empirically analyze the relationship between belief strength and economic attitude based on the World Values Surveys (WVS) data and find that religious faith is related to good economic attitude. Ruan et al. (2014) find that different religions influence entrepreneurial behavior differently. Narayan et al. (2018) find that an Islamic bank dominates the price discovery process in each country, and that portfolio trading strategies using the price discovery is beneficial. Therefore, our third hypothesis is as follows:
3.3. Religious faith The main explanatory variable is whether the head of a given household is a religious believer. The question about religious faith in the CHFS questionnaire is “what is your religion?” The options include: “1. Buddhism; 2. Taoism; 3. Islam; 4. Christianity; 5. none; 6. others (note)”. If respondents choose any of these options, we identify them as having religious faith with a value of 1, and if they choose “no”, we identify them as having no religious faith with a value of 0. Furthermore, we divide religious believers into local and foreign religious believers. Referring to the classification of Ruan et al. (2014), we classify Buddhism and Taoism as local religions, and Islam and Christianity as foreign religions. Since the answers to other religions only appear once in the sample, and the sample size of other religions is small, we do not classify other religions into local and foreign religions. We exclude respondents who do not answer the question. Table 1 gives the summary statistics on question related to religious faith. Table 1 show that the proportion of households with religious faith is 7.03%, and the proportion of local religion believers is 4.77%, which is higher than that of foreign religion believers, 2.13%. 3.3.1. Explained and control variables The explained variables are financial market participation and household financial asset selection. Financial market assets include risky assets and risk-free assets. Risk-free assets include current deposits, time deposits, the cash balance in stock accounts, and cash, while risky assets contain equity funds, bonds, derivatives, financial products, gold, nonRMB assets, etc. Financial market participation is defined in terms of whether households own risky assets. The other explained variables of interest are the proportion of risky assets and stock assets in financial assets. Referring to the existing literature (Yin et al., 2014; Clark et al., 2019), we select the following control variables2: age, risk preference of head of household, gender, educational level, number of household members, running individual business, marital status, self-owned houses, income, per capita gross domestic product (GDP) of provinces, and rural household registration. In processing the data, we drop missing values. In order to avoid the influence of outliers, we censor the data of 1% above and below income and age to obtain the summary statistics shown in Table 2. As can be seen from Table 2, the proportion of individuals with religious faith is 6.9%, among which the proportion of households participating in the financial market is 12.5%, and the proportion of households participating in the stock market is only 7.9%, indicating that the financial market and stock market participation of Chinese households is relatively limited. The proportion of risky assets held by Chinese
Hypothesis 3. Households with different religious faith differ widely with respect to financial market participation attitude and the proportion of risk asset holdings. 3. Model and variables 3.1. Model specification Since a household’s decision to participate in the stock or financial market is a binary choice, the Probit model is appropriate for our analysis. The model is set as follows: Probð YjX ¼ 1Þ ¼ ProbððαReligion þ Xβ þ μ > 0jXÞ
(1)
where μeNð0，; σ 2 Þ . Y is the binary choice variable, which equals 1 if a given household participate in the financial market, and 0 otherwise. Religion is the indicator of religious faith of interest, X is vector of the control variables, including household and regional characteristics. We observe that the proportion of risky assets held by many residents is 0. That is, the proportion of risky assets held by households is censored. Therefore, we adopt the Tobit model to analyze the influence of religious faith on household portfolio choice. The model is set as follows: y* ¼ αReligion þ Xβ þ μ ; Y ¼ maxð0; y* Þ
(2) 2 The set of explanatory variables is carefully identified and chosen according to studies such as Clark et al. (2019), and Yin et al. (2014). In their baseline models the number of explanatory variables is 16. These variables are necessary to control the family heterogeneity.
where y * is the indicator of the observed proportion of stock assets in financial assets, which lies between (0, 1).
3
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Spatial Religion Analysis System developed by the University of Michigan and Wuhan University. On the one hand, the greater the number of religious places where the household is located, the stronger the religious atmosphere will be and the greater the possibility of the household to participate in religions. On the other hand, the density of local religious places is not directly related to the participation in the financial market and the choice of financial assets. Therefore, using the density of religious places as IV for religious faith is reasonable.
Table 1 Summary statistics of religious faith.
N Proportion Proportion
Religiosity
Taoism
1977 7.03%
45 0.16%
Buddhism 1296 4.61% 4.77%
Christian
Islam
362 235 1.29% 0.84% 2.13%
Others 29 0.10%
Note: Data are sourced from the 2013 CHFS.
4. Empirical results
Table 2 Summary statistics. Variable
N
Mean
SD
Min
Max
Financial Market Participation Stock Market Participation Proportion of Risky Assets Proportion of Stock Assets Religious Faith Age Risk Neutrala Risk Preferenceb Risk Aversionc Gender Educational Level Party Member Running Individual Business Number of Household Members Social Insurance Marriage Status d Income (10,000￥) Self-owned Houses Per Capita GDP of Provinces (10,000￥) Rural
28,120
0.125
0.324
0
1
28,120 26,968 26,969 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120
0.079 0.054 0.025 0.070 51.399 0.410 0.060 0.517 0.757 3.461 0.201 0.095 3.491
0.263 0.174 0.112 0.253 14.339 0.491 0.233 0.500 0.428 1.682 0.401 0.285 1.631
0 0 0 0 23 0 0 0 0 1 0 0 1
1 1 1 1 84 1 1 1 1 9 1 1 19
28,120 28,120 28,120 28,120 28,120
0.624 0.943 5.890 0.677 5.085
0.484 0.232 5.716 0.466 2.153
0 0 0.528 0 2.298
1 1 47.622 1 10.169
28,120
0.497
0.500
0
1
4.1. Religious faith and financial market participation Firstly, we estimate the impact of religious faith on risky asset market participation. As column 1 of Table 3 shows, the marginal effect of religious faith is 0.013, which is significant at the 10 percent level. The results indicate that religious faith can significantly promote household participation in the risky asset market. Column 2 shows the IVprobit results, where the density of religious places is used as IV. At the bottom of Table 3, we present the Durbin-Wu-Hausan result. The p-value is 0.000, which shows that the religious faith is endogenous. The F-value and t-value are 35.62 and 8.32, respectively. Stock and Yogo (2005) suggest that instruments are weak if the first-stage F-value is less than l6.38. The results suggest that it is appropriate to use the number of religious places per 10,000 square kilometers as the IV for religious faith, since it is fairly strong. As can be seen from column 2, the marginal effect of religious faith is 0.447, which is significant at the 1% level, and thus illustrates that religious faith can significantly promote household participation in the financial market. Li and Zhu (2016) find that people with religious beliefs are more willing to participate in the risky financial market using the 2011 CGSS data, which is supported by our results. Household heads’ risk preference, educational level, participation in social security, and household income all contribute to household participation in the venture capital market at the 1% significance level. As there are many uncertainties and risks in the financial market, people with preference towards risk will participate in it. Participation in the financial market requires certain knowledge and skills, so households with higher educational level are more likely to participate in the financial market, which is consistent with the results of Yin et al. (2014). The number of household members and living in rural areas inhibit the participation in the financial market at the 1% significance level. The reason may be that the more household members there are, the greater the economic pressure they face. Hence, they cannot spare extra money to participate in the financial market. Due to the backwardness of knowledge and economic conditions, rural areas are less involved in the financial market than urban areas. Being married inhibits financial market participation, with a marginal effect of 0.004, which is significant at the 5 percent level. Age has a non-linear effect on financial market participation. At the beginning, age will promote financial market participation, but as age increases, it will inhibit financial market participation, which is consistent with Guiso et al. (2003). The results in columns (3) and (4) show the influence of religious faith on stock market participation. The results show that religious faith has a positive effect on stock market participation. The marginal effect of the Probit model is 0.011 and is significant at the 10 percent level. The coefficient remains positive after considering endogeneity. The DWH statistic and the associated p-value are, 101.91 and 0.000, respectively. The F-value and t-value are 35.62 and 8.32, respectively, so there is no weak IV problem. The coefficient of religious faith on residents’ participation in the stock market is 3.026, and the marginal effect of 0.444 is significant at the 1% level. The marginal effect of risk preference is 0.087, which is significant at the 1% level, indicating that risk preference promotes residents’ participation in the stock market. This is consistent with Guiso et al. (2008). The results also show that householders with higher educational level are more willing to participate in the stock market,
Notes: N, SD, Min, Max, and ￥denote, respectively, total number of observations, standard deviation, minimum, maximum, and Yuan. a The question about risk attitude in the questionnaire: If you have a choice, what kind of investment will you make? 1. High risk and high return project; 2. Secondary high-risk and secondary high-return project; 3. Average risk and average return project; 4. Secondary low-risk and secondary low-return project; and 5. Not willing to take any risks. This paper defines option 3 as risk neutral. b This paper defines option 1 and option 2 in the question of risk attitude as risk preference. c This paper defines option 4 and option 5 in the question of risk attitude as risk aversion. d The marital status in the questionnaire is as follows: 1. Unmarried; 2. Married; 3. Cohabitation; 4. Separation; 5. Divorce; and 6. Widowed. This paper defines options 2, 4, 5, and 6 as married, and defines oprions1 and 3 as unmarried.
households is only 5.4%, while the proportion of stock assets is only 2.5%, which further indicates that the risky assets held by Chinese households are fewer. 3.3.2. Identification In eq. (1) and eq. (2), religious faith may be an endogenous variable. On the one hand, the omitted variables may cause endogeneity. For example, household culture, individual psychological state, household tradition, etc., will not only affect the household religion choice, but also affect the choice of household financial assets. On the other hand, simultaneity may cause endogeneity. More capital is needed to participate in the financial market, so the income level of households participating in the financial market is often higher, while the high-income households in China are more likely to be religious. All the above reasons will lead to bias in our estimation. We use IV estimation to overcome the endogeneity problem. After repeated experiments and following Chen and Williams (2016), we adopt the density of religious places (the number of religious places per 10,000 square kilometers) as IV for religious faith. This data comes from The 4
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Table 3 Religious faith and participation in financial and stock markets. (1)
(2)
(3)
Probit
IVprobit
Probit
IVprobit
0.013*(0.007) 0.009*** (0.001) 0.000*** (0.000) 0.129*** (0.025) 0.230 (0.024) 0.016*** (0.004) 0.029 (0.001) 0.002 (0.004) 0.027*** (0.006) 0.006*** (0.001) 0.017*** (0.004) 0.001 (0.001) 0..024*** (0.002) 0.003 (0.004) 0.074*** (0.004) 0.098*** (0.005) 27,737 0.262
0.447***(0.072) 0.011*** (0.001) 0.000*** (0.000) 0.143*** (0.025) 0.049** (0.024) 0.010 (0.006) 0.033*** (0.001) 0.004 (0.004) 0.018*** (0.006) 0.005*** (0.001) 0.012*** (0.004) 0.004** (0.002) 0.025*** (0.002) 0.005 (0.004) 0.068*** (0.005) 0.106*** (0.005) 27,737
0.011*(0.006) 0.008*** (0.001) 0.000*** (0.000) 0.072*** (0.019) 0.016 (0.018) 0.004 (0.004) 0.020*** (0.001) 0.006 (0.004) 0.019* (0.005) 0.004*** (0.001) 0.018*** (0.003) 0.001 (0.002) 0.015*** (0.002) 0.005 (0.003) 0.049*** (0.004) 0.082*** (0.004) 27,737 0.260
0.444*** (0.059) 0.010*** (0.001) 0.000*** (0.000) 0.087*** (0.019) 0.010 (0.018) 0.022*** (0.005) 0.024*** (0.001) 0.003 (0.004) 0.010* (0.005) 0.003** (0.001) 0.014*** (0.003) 0.001 (0.002) 0.015*** (0.002) 0.003 (0.003) 0.042*** (0.004) 0.089*** (0.004) 27,737
Financial Market Participation
Religious Faith Age Age2 Risk Preference Risk Aversion Gender Educational Level Party Member Running Individual Business Number of Household members Social Insurance Marriage Status Ln(Income) Self-owned Houses Per Capita GDP of Provinces Rural N Pseudo R2 F-statistic T-statistic Wald Test
(4)
Stock Market Participation
35.62 8.32 64.18 (0.000)
35.62 8.32 101.91 (0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The coefficients of the Probit and IVprobit models are marginal effects.
there is no weak IV problem. The results show that religious faith can significantly induce householders to choose risky assets in columns (1) and (2). This is reflected in the marginal effect of 0.309, which is significant at the 1% level. People with risk-taking preference hold risky assets, while those with risk aversion reduce their holdings to avoid risks. The more educated the household head is, the better the understanding of financial assets will be, and thus they are more likely to hold venture capital, which is consistent with the conclusions drawn by Hong et al. (2004) and Campbell (2006). The larger number of household members, the greater economic pressure, and consequently the smaller the proportion of risky assets held due to the crowding out effect. In addition, households’ participation in social security encourages them to hold
which is consistent with Vissing-Jorgensen (2002). Households with social security and higher income levels have more spare cash to buy shares, thereby boosting their participation in the stock market. Household size and house ownership discourage participation, which is consistent with Yin et al. (2014). 4.2. Religious faith and risky asset holdings Table 4 reports the regression of religious faith on financial assets selection. Column (2) shows the results after considering endogeneity, with DWH and p-value of 37.83 and 0.000, respectively, indicating that religious faith is endogenous. The F-statistic is 36.55, which shows that Table 4 Religious faith and financial asset selection.
Religious Faith Age Age2 Risk Preference Risk Aversion Gender Educational Level Party Member Running Individual Business Number of Household Members Social Insurance Marriage Status Ln(Income) Self-owned Houses Per Capita GDP of Provinces Rural N Pseudo R2 F-statistic T-statistic Wald Test
(1)
(2)
Risk Asset
Risk Asset
Stock Asset
Stock Asset
Tobit
IVtobit
Tobit
IVtobit
0.012**(0.005) 0.007*** (0.001) 0.000***(0.000) 0.025** (0.005) 0.050 (0.003) 0.016*** (0.003) 0.020*** (0.001) 0.001 (0.003) 0.019*** (0.004) 0.004*** (0.001) 0.011*** (0.003) 0.002 (0.001) 0.015*** (0.001) 0.002 (0.003) 0.050*** (0.003) 0.073*** (0.004) 26,605 0.237
0.309***(0.037) 0.008*** (0.001) 0.000*** (0.000) 0.020*** (0.005) 0.047 (0.003) 0.001 (0.003) 0.023*** (0.001) 0.008* (0.003) 0.012*** (0.004) 0.003*** (0.001) 0.016*** (0.001) 0.003** (0.001) 0.016*** (0.001) 0.003 (0.003) 0.046*** (0.003) 0.078*** (0.004) 26,605
0.012**(0.004) 0.006*** (0.001) 0.000*** (0.000) 0.030** (0.017) 0.060*** (0.017) 0.010 (0.017) 0.014*** (0.001) 0.006** (0.003) 0.014** (0.004) 0.003** (0.010) 0.013*** (0.002) 0.000 (0.001) 0.009*** (0.001) 0.003 (0.002) 0.035*** (0.003) 0.061*** (0.004) 26,605 0.236
0.348***(0.045) 0.007*** (0.001) 0.000*** (0.000) 0.024*** (0.004) 0.036*** (0.003) 0.013*** (0.004) 0.017*** (0.001) 0.004 (0.003) 0.007* (0.004) 0.002** (0.001) 0.009*** (0.003) 0.002 (0.001) 0.009*** (0.001) 0.004 (0.003) 0.029*** (0.003) 0.067*** (0.004) 26,605
36.55 14.91 37.83 (0.000)
(3)
(4)
36.55 14.91 49.64 (0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. 5
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Table 5 Religious faith and household financial behavior (excluding ethnic minorities). (1)
(2)
(3)
Probit
IVprobit
Probit
IVprobit
Tobit
IVtobit
Tobit
IVtobit
0.020***(0.008) YES 23,996 0.261
0.400***(0.055) YES 23,996
0.015**(0.007) YES 23,996 0.256
0.403***(0.061) YES 23,996
0.015*** (0.005) YES 23,100 0.234
0.313**(0.050) YES 23,100
0.012**(0.005) YES 23,100 0.236
0.334***(0.045) YES 23,100
Financial Market
Religious Faith Control Variables N Pseudo R2 F-statistic T-statistic Wald Test
(4)
(5)
Stock Market
32.71 8.07 53.16(0.000)
(6)
Risk Asset
32.71 8.07 86.2(0.000)
(7)
(8)
Stock Asset
32.71 7.71 57.83(0.000)
32.71 7.71 90.07(0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as those in Table 3. Due to space constraints, we do not show them here.
examine the effects of social interaction and of human capital on this relationship. Following Yin et al. (2019), the level of social interaction is measured by the exchange of gifts and funds, and the level of human capital accumulation is measured by educational level. In order to estimate the influence of religious culture, four different religions (Buddhism, Taoism, Islam, and Christianity) are selected to implement the regression. The model is set as follows:
more risky assets. Similarly, households with higher incomes tend to hold riskier assets. Living in rural areas discourages risky asset holdings among households. Columns (3) and (4) are the results regarding the proportion of stock asset holdings. Note that column (3) does not consider endogeneity. The DWH statistic shows that religious faith is endogenous, while the F-statistic shows that there is no weak IV problem. Religion significantly encourages the household to hold stock assets. This is supported by a marginal effect (in column (4)) of 0.348, which is significant at the 1% level. The analysis shows that households’ religious faith significantly promotes their participation in the financial and stock markets and deeply affects their portfolio choice.
ProbðY ¼ 1jXÞ ¼ Probðα1 Religion þ α2 Religion effect þ X ρ þ μ > 0jXÞ (3) y* ¼ α1 Religion þ α2 Religion effect þ X ρ þ μ ; Y ¼ maxð0; y* Þ
(4)
Eqs. (3) and (4) are used to estimate the effects of social interaction and human capital accumulation on the selection of household assets; effect represents dummy variables for social interaction and human capital accumulation, respectively. In order to explore whether religious faith affects household participation in risky and stock markets through the two factors, we adopt the Probit model in eq. (3). To further estimate the impact on household holdings of risky and stock assets, we adopt the Tobit model in eq. (4). These models are:
5. Robustness tests To test the reliability of these results, we exclude households and ethnic minorities3 whose members work in the financial sector. Because the religious atmosphere in minority areas (such as Regional Ethnic Autonomy) is more intense, people living in these areas are more likely to have religious faith. In order to avoid this influence on sample selection, we remove the respondents from minority areas. The regression results using these sample restrictions are reported in Table 5. After controlling for other variables, the coefficients are still significant at the 1% level. Besides, the marginal effects are consistent with those reported in the benchmark regression results, showing that the results are robust. Households with a financial practitioner are more likely to participate in the financial market due to access to financial knowledge, which may, in turn, affect their choice of risky assets. In order to avoid the interference of family members engaged in financial sectors, we drop the heads of households engaged in financial sectors from the sample. Table 6 reports these regression results. Compared with the results of benchmark regression, these results are still significant at the 10% significance level, except for minor changes in the coefficients, which further indicates that the results are robust. Based on the results in Tables 5 and 6, we conclude that religious faith can significantly promote the household’s participation in the financial and the stock markets. Furthermore, religious faith increases the allocation of households to risky assets and stock assets.
ProbðY ¼ 1jXÞ ¼ ProbðReligion doctrine þ Xδ þ τ > 0jXÞ
(5)
y* ¼ α1 Religion doctrine þ Xδ þ τ ; Y ¼ maxð0; y* Þ
(6)
Models (5) and (6) are used to estimate the impact of different religious faiths on asset selection. Religion_doctrine represents the four different religions (i.e. Buddhism, Taoism, Islam, and Christianity). Similarly, the Probit model in eq. (5) is used to estimate the impact of different religious faith on household participation in the risky and stock markets. In order to estimate the impact of different religious faiths on household holdings of risky and stock assets, we use the Tobit model in eq. (6). Table 7 reports the results of the social interaction effect. Based on the amount of gift exchanges, social interaction is divided into two groups. The regression results of Panel (1) indicate that higher degree of residents’ social interaction induces more religious household to participate in the financial market, which is consistent with Hong et al. (2004). Panel (2) further estimates the influence of religious faith on residents’ participation in the stock market through social interaction. Consistent with the conclusion of Panel (1), the coefficients of religious faith and the interaction terms are significantly positive, meaning that social interaction can enhance the participation of religious household in the stock market. Panels (3) and (4) show the influence of social interaction on household risky asset and stock asset selection. The coefficient of religious faith and the interaction terms are significantly positive at the level of 1%, indicating that religious faith can induce households to hold risky and stock assets. In addition, the higher the degree of social interaction, the more likely it is that religious households will hold a significant proportion of risky assets. Households often face information asymmetry
6. Further analyses As mentioned above, the influence of religious faith on financial market participation, stock market participation, and financial asset selection may be attributed to the following three factors: social interaction, accumulation of human capital, and religious culture. We further
3 Except for the Han nationality, the other ethnic groups are “minorities” in terms of their economic and social privileges in China, and the value of minorities identification is assigned to 1, while the other values are assigned to 0.
6
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Table 6 Religious faith and household financial behavior (excluding households working in the financial industry). (1)
Religious Faith
(2)
(4)
(5)
(6)
(7)
(8)
Financial Market Participation
Stock Market Participation
Risk Asset Proportion
Stock Asset Proportion
Probit
Probit
Tobit
Tobit
IVprobit
0.083* (0.047) YES 27,409 0.256
Control Variables N Pseudo R2 F-value T-value Wald Test
(3)
0.435*** (0.071) YES 27,409
IVprobit
0.011* (0.006) YES 27,409 0.250
35.77 8.47 58.84(0.000)
0.449*** (0.058) YES 27,409
0.012** (0.005) YES 26,280 0.231
35.77 8.47 98.98(0.000)
IVtobit 0.305*** (0.050) YES 26,280
IVtobit
0.011** (0.005) YES 26,280 0.233
0.364*** (0.045) YES 26,280
35.77 8.12 61.61(0.000)
35.77 8.12 102.38(0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors.
interaction term between religious faith and human capital is positive and significant at the level of 1%. This suggests that the religion itself can inhibit the household from participating in the financial markets, and that the household with higher human capital accumulation is more likely to participate in financial markets. This means that human capital plays an important role in influencing religious households to participate in the financial market. Panel (2) estimates the influence of human capital on stock market participation. The coefficient of the interaction term is significantly positive, indicating that higher human capital accumulation can induce the household to participate in the stock market. Panels (3) and (4), respectively, estimate the influence of human capital on the selection of risky and stock assets. In Panel (3), religious faith inhibits the selection of risky assets at the 5% significance level, while human capital accumulation helps reverse this trend (as evidenced by the positive and significant coefficient of interaction term). In Panel (4), the coefficient of the interaction term is significantly positive, and shows that an increase in the accumulation of human capital influences the household to hold stock assets. Due to the entry threshold of financial market participation and investment, financial asset investment is a technology with a high content of knowledge and requires a high level of human capital (He and Wu, 2017), and religious belief can promote the accumulation of human capital (Gruber, 2005; Bai and Kung, 2015). Therefore, human capital is an important factor affecting the participation of religious households in financial investment. This result verifies Hypothesis 2. Different religions have different doctrines. They may have different values and concepts of wealth, and these differences can impact on household financial decisions. One of the important aspects of religion is its influence on economic behavior. Guiso et al. (2003), using cross-country data, find that religion shapes believers by imparting good economic behavior upon them. We use four different religions to represent the cultural attributes of different faiths and test whether different religious faiths will shape different economic behaviors of believers, and consequently influencing the household’s financial market participation and asset selection. Table 9 reports the influence of different religions on
Table 7 Religious faith, social interaction and household financial behavior.
Religious Faith Religious Faith Social Interaction a Control Variables N
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection
0.323*** (0.106) 0.362*** (0.060)
0.460*** (0.086) 0.256*** (0.051)
0.233*** (0.073) 0.236*** (0.042)
0.382*** (0.064) 0.167*** (0.038)
YES
YES
YES
YES
27,737
27,737
26,605
26,605
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level, Standard errors in parentheses are clustered heteroskedasticityrobust standard errors. The control variables are the same as in Table 3. a Using the exchange measurement of gift money in the questionnaire, the social interaction in this paper sets the household whose exchange value is greater than or equal to the average exchange value of gift money in the sample as a group with a high degree of social interaction, and assigns a value of 1, while the others are assigned a value of 0.
in the financial market. Hence, the circle of acquaintances and social interaction can help residents understand the information in the financial market (Li, 2006; Hong et al., 2004). Religious faith enables households to easily build a social network (Dehejia et al., 2007), thus promoting their participation in the financial market. Our finding is consistent with this reasoning and Hypothesis 1. Table 8 further estimates the effect of human capital on household assets. Following Barro and Lee (1993), we use a household head’s educational level to measure human capital, which we, then, divide into high and low human capital groups. Panel (1) estimates the effect of human capital on household’s decision to participate in the financial market. The regression results show that the coefficient of religious belief is significantly negative at the 1% level, while the coefficient of the
Table 8 Religious faith, human capital and household financial behavior.
Religious Faith Religious Faith Human Capitala(Dummy) Control Variables N
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection
0.210*** (0.095) 0.958*** (0.087) Yes 27,737
0.070 (0.076) 0.664*** (0.066) Yes 27,737
0.152** (0.061) 0.625*** (0.055) Yes 26,605
0.088* (0.053) 0.444*** (0.049) Yes 26,605
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level, Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as in Table 3. a In question A2012, if the head of the household answered: 6 junior colleges/higher vocational colleges,7 undergraduate colleges,8 postgraduate students, and 9 doctoral students, we set it as the group with higher human capital accumulation, and the value was 1. The other answers were set to the group with low human capital accumulation, with a value of 0. 7
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influences household risky asset participation and selection, we find the following. Firstly, the higher the degree of social interaction between religious households, the more likely they are to participate in the risky market and to invest in risky assets. Secondly, the higher is the level of human capital accumulation of religious households, the higher are the probability of their participation in the risky markets and the proportion of their risky asset holdings. Finally, religious culture plays an important role in the relation between religious culture and financial decisions. There are significant differences in the attitudes of households across different religious faiths towards financial market participation and risk asset holdings. The probability that Buddhist and Taoist households will participate in the financial market is relatively high, while that of Islamic and Christian households is small and insignificant. We provide solid evidence that religious faith can significantly increase the proportion of residents participating in risky financial markets. We, therefore, enrich the relevant literature on household financial decision-making, and provide policymakers and regulators with a better insight into developing policies and evaluating their effects.
Table 9 Religious types and household financial behavior.
Buddhism
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection 0.014*** (0.005) 0.058** (0.025) 0.009 (0.010) 0.003 (0.014) Yes 26,605
Taoism
0.024 (0.049)
0.016** (0.007) 0.055 (0.036)
Christianity
0.011 (0.016)
0.008 (0.001)
0.043* (0.023)
0.014 (0.018)
Yes
Yes
0.015** (0.006) 0.031 (0.033) 0.014 (0.011) 0.014 (0.016) Yes
27,737
27,737
26,605
Islam
0.020** (0.009)
Control Variables N
participation in the financial market. We choose Buddhism, Taoism, Christian, and Islam to represent different religious faiths. The results show that the coefficient of Buddhism is significant at the 5% level, suggesting that they are more likely to participate in financial market. This conclusion is different from people’s intuition. Buddhist believers are more cautious and conservative, and therefore are more resistant to financial market products with higher risks. However, Luo (2014) argue that believers tend to regard wealth as the gift of god, which encourages them to use right means to obtain wealth. Taoism and Christianity have no significant effect on financial market participation. Islam significantly inhibits household participation in financial markets at the 10% significance level. For a long time, Islam has been against speculation and interest rate collection. Therefore, since China’s financial market environment gives people the impression that there exists arbitrage opportunities, Islam believers naturally reject participating in this market, consistent with our results. Narayan et al. (2016) find that investors can achieve higher returns by investing in Islamic stocks, indicating that China’s stock market is very different from other countries (Sha and Gao, 2019). Our results show that the participation of households of different religions in the financial market is significantly different, which further indicates that different religions have different values and wealth views, thus affecting the investment behavior of believers in the financial market. This conclusion is consistent with Hypothesis 3. Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as in Table 3.
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7. Conclusions By using 2013 CHFS data, the paper investigates the impact of religious faith on Chinese household financial decisions. Moreover, the paper analyzes the influence of social interaction, human capital accumulation, and religious culture on the relation between religious faith and household financial decision-making. To avoid possible endogeneity issues, we use the density of religious sites as an IV for religious faith. Our results show that religious faith has a significant positive effect on household financial and stock market participation. The more educated the head of the household, the more likely he or she is willing to participate in financial markets. Meanwhile, household size and house ownership can inhibit the household’s involvement in financial markets. The economic development level of a region and the income level of a household are positively correlated with participation in financial markets. In rural areas, household participation in the financial market and risky asset holdings are significantly inhibited. The age of household head has a non-linear relationship with household participation in the financial market and risky asset holdings. Regarding the transmission mechanism through which religious faith
8
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Economic Modelling xxx (xxxx) xxx Wang, C., Chai, S.J., Tian, C.Z., 2015. Family social network and stock market participation. World Econ. 5, 105–124 (Translate from Mandarin). Yang, F., 2006. The red, black, and gray markets of religion in China. Sociol. Q. 47 (1), 93–122. Yin, Z.C., Song, Q.Y., Wu, Y., 2014. Financial literacy, trading experience and household portfolio choice. Econ. Res. J. 4, 62–75 (Translate from Mandarin). Yin, Z., Gong, X., Guo, P., Wu, T., 2019. What drives entrepreneurship in digital economy? Evidence from China. Econ. Modell. https://doi.org/10.1016/ j.econmod.2019.09.026. Zeng, K.L., 2014. On culture, religion and financial industry development. Credit Ref. 7, 1–6 (Translate from Mandarin). Zhang, W., Sun, T., Wang, Z., Kumar, V.R., Ma, Y., 2019. Does faith has impact on investment return: evidence from REITs. Int. J. Strateg. Prop. Manag. 23 (6), 378–389.
Sha, Y., Gao, R., 2019. Which is the best: a comparison of asset pricing factor models in Chinese mutual fund industry. Econ. Modell. https://doi.org/10.1016/ j.econmod.2019.09.016. Stango, V., Zinman, J., 2009. Exponential growth bias and household finance. J. Financ. 64 (6), 2807–2849. Stark, R., Finke, R., 2000. Catholic religious vocations: decline and revival. Rev. Relig. Res. 42 (2), 125–145. Stock, J.H., Yogo, M., 2005. Identification and Inference for Econometric Models: Asymptotic Distributions of Instrumental Variables Statistics with Many Instruments. Cambridge University Press, pp. 109–120. Vissing-Jorgensen, A., 2002. Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures (No.W8884). National Bureau of Economic Research.
9
Contents lists available at ScienceDirect
Economic Modelling journal homepage: www.journals.elsevier.com/economic-modelling
Does religious faith affect household financial market participation? Evidence from China☆ Yang Yang, Cheng Zhang *, Yu Yan School of Finance, Capital University of Economics and Business, Beijing, 100070, China
A R T I C L E I N F O
A B S T R A C T
JEL classification: G11 D14 Z12
Based on the 2013 China Household Finance Survey data, this paper investigates the impact of religious faith on household financial market participation and portfolio choice. The results show that religious faith can significantly promote household financial market participation. Besides, religious faith can increase the proportion of risky assets held by households, including equities. We also find that the need for social interaction and human capital accumulation can significantly induce religious residents to participate in financial markets and hold risky assets. Overall, our results reveal how faith affects household finance activities in China.
Keywords: Religious faith Financial market participation Portfolio choice Household finance
1. Introduction As the world’s populous country, China is experiencing a religious upsurge, despite disputing this topic (Potter, 2003; Yang, 2006). Data from the Chinese General Social Survey (CGSS) shows that the proportion of religious believers in China increased by 120% from 2003 to 2010, compounded by domestic as well as international religion. Religion plays an important role in the lives of many Chinese de facto, but rare research provides empirical evidence from China for no apparent reason. From the international perspective, Dehejia et al. (2007) and Zhang et al. (2019) argue that religion, by virtue of its organizational characteristics, makes it easy to construct intra-religious social network and circle of acquaintances. Besides, faith promotes communication and interaction between people, and influence people’s participation in financial market investment (Li, 2006). Moreover, religious faith influences the accumulation of human capital and indirectly affect whether households participate in financial markets (Zeng, 2014). The above-mentioned studies motivate us to study Chinese household financial decision-making behavior from the perspective of religious faith. Or precisely, we seek to answer the question: Does religion influence household financial decisions in China?
Based on the 2013 China Household Finance Survey (CHFS) data,1 this paper uses the density of religious places as the instrumental variable (IV) for religion and adopts the maximum likelihood estimation method to study the influence of religious faith on household financial decisions. We also attempt to find the possible channels through which religious faith influence household financial decisions. We show that religious faith can significantly promote household participation in the financial market, while religious faith can increase the proportion of households holding risky assets, which is in line with Zhang et al. (2019). Further analysis shows that social interaction and human capital accumulation can significantly induce religious residents to participate in the financial market and hold risky assets. Finally, consistent with Narayan et al. (2016), different religious cultures significantly affect residents’ participation in the financial market. Our research thus provides novel findings on the topic on family member heterogeneity (in terms of religious faith) and household financial decisions in China. In the report of the 19th National Congress of the Communist Party of China, General Secretary Xi Jinping redefines “the principal contradiction” faced by Chinese society, pointing out that Chinese society is now facing the contradiction between unbalanced and inadequate
☆ We thank the editor and two reviewers for their insightful comments that improved the paper. We also thank Zhichao Yin, Pengpeng Yue, Yezhou Sha, and seminar participants in the Capital University of Economics and Business on household finance. We acknowledge the support from National Natural Science Foundation of China (Grant Number:71373213). All errors are our own. * Corresponding author. E-mail address: [email protected] (C. Zhang). 1 The survey is conducted by the survey and research center for China household finance (Southwestern University of Finance and Economics, Chengdu, China). The most recent data with religious belief information is the 2013 data.
https://doi.org/10.1016/j.econmod.2019.10.023 Received 15 August 2019; Received in revised form 21 October 2019; Accepted 23 October 2019 Available online xxxx 0264-9993/© 2019 Elsevier B.V. All rights reserved.
Please cite this article as: Yang, Y. et al., Does religious faith affect household financial market participation? Evidence from China, Economic Modelling, https://doi.org/10.1016/j.econmod.2019.10.023
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the financial market. The institutional attribute affects people’s social networks and social contacts through religious organizations. Social networks are important factors that influence household participation in the financial market (Wang et al., 2015). Gruber (2005) points out that religion influences the accumulation of human capital (especially an individual’s educational level), which affects household participation in the financial market consequently. Religion may influence household financial decisions in three ways. First, religion influences household participation in financial markets and investment choices through social interaction. Religion, as a form of social organization, is conducive to the formation of social networks and the promotion of social interaction, thus influencing people’s participation in financial markets and purchase of risky assets. In the current financial market environment, there is a wide range of information asymmetry, and social networks and acquaintances play an important role in financial market participation (Wang et al., 2015). On the one hand, religious faith can play a role as a bridge between people. It is easy to build trust and connection among religious believers. Johansson-Stenman et al. (2009) study the relationship between religious faith and trust in rural Bangladesh, and find that faith is conducive to the improvement of trust among people. Additionally, Dehejia et al. (2007) point out that religious organization can protect households against income shocks and improve their social security level through donation. The organizational effect people get through religion is much higher than their other faith effect, and religion provides various social security and support for farmers through the organizational effect. On the other hand, social interaction can promote household participation in the stock market. For example, Hong et al. (2004) find that social interaction (e.g. participation in church activities) can promote household participation in financial markets. Li (2006) finds that the higher the level of social interaction and trust, the higher the probability of residents’ participation in the financial market. Social interaction can significantly promote household participation in the stock market, and the mechanism, through which social interaction promotes household participation in the stock market, is mainly formed through the relative wealth focus effect. Wang et al. (2015) discuss the decision-making of residents’ participation in the stock market from the perspective of household social networks, and show that the social network of relatives and friends can significantly improve the households’ participation in the stock market. Based on these studies, our first hypothesis is as follows:
development and the people’s ever-growing needs for better life. From the perspective of household finance, inadequate development is reflected in the low rate of household financial market participation and the small proportion of financial assets held. Unbalanced development is more reflected in the huge difference between urban and rural areas, and between different regions in the degree of household financial market participation and the proportion of risky assets held. Although the structure of Chinese households holding financial assets is changing, the accumulation of wealth in the family is still in its infancy (Li, 2018). According to the CHFS data, China’s household financial market participation rate is 12.5%, stock market participation rate is 7.9%, and the proportion of risky assets and stock assets held by households is 5.4% and 2.5%, respectively. With regards to urban and rural areas, the household financial market participation rates are 17.7% and 1.3%, respectively; while the proportion of risky assets held is 7.7% and 0.4%, respectively. According to the eastern, central and western regions, the household financial market participation rate is 17.7%, 7.9%, and 8.1%, respectively; while the proportion of risky assets held is 7.8%, 3.3%, and 3.5%.It can be seen from these statistics that the degree of household participation in the financial market is low, and the proportion of risky assets held is small. Moreover, there is huge difference in the proportion of financial market participation and risky asset holdings between urban and rural areas, and between China and other economies (Sha and Gao, 2019). Therefore, exploring the causes of the low rates of financial market participation becomes an important issue. The existing literature explores the factors influencing household financial decisions from the following three aspects. First, from the perspective of demographic characteristics, Cocco et al. (2005) study this issue based on individual’s age, gender, household size, and marital status. Second, Rosen and Wu (2004) show that human capital accumulation plays an important role in household financial decisions. Similarly, Yin et al. (2014) studies the impacts of educational qualifications, health conditions, cognitive ability, and investment experience of the household head on household financial decisions. Third, Christelis et al. (2010), and Stango and Zinman (2009) explain individual financial decisions from the perspective of behavioral economics. Randazzo and Piracha (2019) show that remittances have a positively impact on different types of investment products. Narayan et al. (2016), Narayan et al. (2018), and Zhang et al. (2019) find that religious belief plays an important role in predicting asset prices. However, due to the difficulty in accessing religious belief data in China, few studies are able to examine whether the unique feature of China’s demographic characteristics will produce a different conclusion regarding the impact of religion on financial decisions. Our study contributes to the literature in the following ways. First, our study broadens the research field on the role played by household heterogeneity in financial decisions. To the best of our knowledge, we are the first to link household finance with religious belief in China using household survey data. Second, we show that trust and human capital accumulation are the two factors driving the relation between religion belief and financial decisions. This provides an empirical support for Zeng (2014) theory by showing that the needs for social interaction and cultivating children are the universal driving factors of financial inclusion, which goes beyond the distinction of various religious beliefs. The paper is organized as follows. Section 2 presents the literature review and the research hypotheses. Section 3 discusses the empirical model and variables. We present our empirical results in Section 4 and robustness tests in Section 5. Section 6 discusses the results. Section 7 provides the conclusion.
Hypothesis 1. Religious faith enhances the social interaction of the household, thus significantly increasing its probability of participating in the financial market. Secondly, religion influences household participation in financial markets through human capital. Gruber (2005) demonstrates that there is a close relationship between religious faith and human capital accumulation, and that human capital accumulation is an important factor influencing people’s decision to participate in the financial market. Due to the threshold of entry in the financial market, financial asset investment requires a high level of human capital. Therefore, human capital may be an important channel through which religious faith affects people’s participation in financial investment. Gruber (2005) uses the General Social Survey (GSS) data and find that religious faith is significantly positively correlated with educational level. Becker and Woessmann (2009) explain the economic prosperity of protestant areas from the perspective of human capital. They argue that attaining religious knowledge can significantly improve the overall human capital level, thus making up for the economic gap of the whole region. Bai and Kung (2015) study the relation between China’s economic growth and the spread of Christianity from 1840 to 1920, and find that the spread of religion promotes the accumulation of human capital and improves the level of local economic development. He and Wu (2017) find that human capital has a significant impact on financial market participation. Further studies show that education level, which is a part of human capital, plays an important role in promoting the depth of household
2. Hypotheses development Stark and Finke (2000) argue that religion has two basic attributes, named cultural attribute and institutional attribute. The cultural attribute shapes religious views on wealth, which, in turn, influences people’s economic decision-making and thus affects household participation in 2
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participation in the financial market. Huang (2014) explores the mystery of non-participation in China’s stock market and concludes that residents’ cognitive ability and educational level have a great impact on their participation in the financial market. People with higher educational level are more likely to participate in the financial market, and invest products with higher risks. Therefore, our second hypothesis is as follows:
3.2. Data and variables The data are from the CHFS conducted nationwide in 2013 by Southwestern University of Finance and Economics. The survey covers 1048 communities of 262 counties in 29 provinces, and obtains information on household demographic characteristics, wealth, income, expenditure, insurance, security, and employment. The CHFS data adopts the scientific sampling method, and the survey has good representativeness, making the data a popular choice for leading research articles (see Li, 2018; Clark et al., 2019; Yin et al., 2019, for example). After removing from the sample interviewees who do not disclose their religious beliefs, we have 28,120 observations, and 7.03% of whom have religious beliefs. The details are described in what follows.
Hypothesis 2. Religious faith is conducive to the accumulation of household human capital, thus significantly increasing the probability of their participation in the financial market. Thirdly, religion influences household participation in financial markets and asset selection through culture and doctrine. The cultural traits influence an individual’s values and wealth views, which, in turn, influence his/her economic decisions. The influence of religion on an economy and financial decisions depends on specific value and wealth views (Zeng, 2014). For example, Christianity encourages people to build wealth through hard work; Taoism claims that wealth is public; Islam states that wealth should be acquired through proper channels; Buddhism encourages people to meet their needs without hurting others and to contribute to the society. Religion, based on unique culture and faith, will undoubtedly have a direct impact on individuals’ economic decisions. Stocks and financial products, as investment products, will have a positive or negative impact on individuals’ wealth. Religious faith may influence residents’ decisions in the financial market through culture or doctrine. As explained by Iannaccone (1998), religion influences an individual’s faith and values, thereby influencing his/her economic decisions. McCleary and Barro (2006) analyze the relationship between religious faith and economic growth using cross-country data, and find that religion affects economic performance by influencing individuals’ professional ethics, honesty, frugality, and other characteristics. Guiso et al. (2003) empirically analyze the relationship between belief strength and economic attitude based on the World Values Surveys (WVS) data and find that religious faith is related to good economic attitude. Ruan et al. (2014) find that different religions influence entrepreneurial behavior differently. Narayan et al. (2018) find that an Islamic bank dominates the price discovery process in each country, and that portfolio trading strategies using the price discovery is beneficial. Therefore, our third hypothesis is as follows:
3.3. Religious faith The main explanatory variable is whether the head of a given household is a religious believer. The question about religious faith in the CHFS questionnaire is “what is your religion?” The options include: “1. Buddhism; 2. Taoism; 3. Islam; 4. Christianity; 5. none; 6. others (note)”. If respondents choose any of these options, we identify them as having religious faith with a value of 1, and if they choose “no”, we identify them as having no religious faith with a value of 0. Furthermore, we divide religious believers into local and foreign religious believers. Referring to the classification of Ruan et al. (2014), we classify Buddhism and Taoism as local religions, and Islam and Christianity as foreign religions. Since the answers to other religions only appear once in the sample, and the sample size of other religions is small, we do not classify other religions into local and foreign religions. We exclude respondents who do not answer the question. Table 1 gives the summary statistics on question related to religious faith. Table 1 show that the proportion of households with religious faith is 7.03%, and the proportion of local religion believers is 4.77%, which is higher than that of foreign religion believers, 2.13%. 3.3.1. Explained and control variables The explained variables are financial market participation and household financial asset selection. Financial market assets include risky assets and risk-free assets. Risk-free assets include current deposits, time deposits, the cash balance in stock accounts, and cash, while risky assets contain equity funds, bonds, derivatives, financial products, gold, nonRMB assets, etc. Financial market participation is defined in terms of whether households own risky assets. The other explained variables of interest are the proportion of risky assets and stock assets in financial assets. Referring to the existing literature (Yin et al., 2014; Clark et al., 2019), we select the following control variables2: age, risk preference of head of household, gender, educational level, number of household members, running individual business, marital status, self-owned houses, income, per capita gross domestic product (GDP) of provinces, and rural household registration. In processing the data, we drop missing values. In order to avoid the influence of outliers, we censor the data of 1% above and below income and age to obtain the summary statistics shown in Table 2. As can be seen from Table 2, the proportion of individuals with religious faith is 6.9%, among which the proportion of households participating in the financial market is 12.5%, and the proportion of households participating in the stock market is only 7.9%, indicating that the financial market and stock market participation of Chinese households is relatively limited. The proportion of risky assets held by Chinese
Hypothesis 3. Households with different religious faith differ widely with respect to financial market participation attitude and the proportion of risk asset holdings. 3. Model and variables 3.1. Model specification Since a household’s decision to participate in the stock or financial market is a binary choice, the Probit model is appropriate for our analysis. The model is set as follows: Probð YjX ¼ 1Þ ¼ ProbððαReligion þ Xβ þ μ > 0jXÞ
(1)
where μeNð0，; σ 2 Þ . Y is the binary choice variable, which equals 1 if a given household participate in the financial market, and 0 otherwise. Religion is the indicator of religious faith of interest, X is vector of the control variables, including household and regional characteristics. We observe that the proportion of risky assets held by many residents is 0. That is, the proportion of risky assets held by households is censored. Therefore, we adopt the Tobit model to analyze the influence of religious faith on household portfolio choice. The model is set as follows: y* ¼ αReligion þ Xβ þ μ ; Y ¼ maxð0; y* Þ
(2) 2 The set of explanatory variables is carefully identified and chosen according to studies such as Clark et al. (2019), and Yin et al. (2014). In their baseline models the number of explanatory variables is 16. These variables are necessary to control the family heterogeneity.
where y * is the indicator of the observed proportion of stock assets in financial assets, which lies between (0, 1).
3
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Spatial Religion Analysis System developed by the University of Michigan and Wuhan University. On the one hand, the greater the number of religious places where the household is located, the stronger the religious atmosphere will be and the greater the possibility of the household to participate in religions. On the other hand, the density of local religious places is not directly related to the participation in the financial market and the choice of financial assets. Therefore, using the density of religious places as IV for religious faith is reasonable.
Table 1 Summary statistics of religious faith.
N Proportion Proportion
Religiosity
Taoism
1977 7.03%
45 0.16%
Buddhism 1296 4.61% 4.77%
Christian
Islam
362 235 1.29% 0.84% 2.13%
Others 29 0.10%
Note: Data are sourced from the 2013 CHFS.
4. Empirical results
Table 2 Summary statistics. Variable
N
Mean
SD
Min
Max
Financial Market Participation Stock Market Participation Proportion of Risky Assets Proportion of Stock Assets Religious Faith Age Risk Neutrala Risk Preferenceb Risk Aversionc Gender Educational Level Party Member Running Individual Business Number of Household Members Social Insurance Marriage Status d Income (10,000￥) Self-owned Houses Per Capita GDP of Provinces (10,000￥) Rural
28,120
0.125
0.324
0
1
28,120 26,968 26,969 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120 28,120
0.079 0.054 0.025 0.070 51.399 0.410 0.060 0.517 0.757 3.461 0.201 0.095 3.491
0.263 0.174 0.112 0.253 14.339 0.491 0.233 0.500 0.428 1.682 0.401 0.285 1.631
0 0 0 0 23 0 0 0 0 1 0 0 1
1 1 1 1 84 1 1 1 1 9 1 1 19
28,120 28,120 28,120 28,120 28,120
0.624 0.943 5.890 0.677 5.085
0.484 0.232 5.716 0.466 2.153
0 0 0.528 0 2.298
1 1 47.622 1 10.169
28,120
0.497
0.500
0
1
4.1. Religious faith and financial market participation Firstly, we estimate the impact of religious faith on risky asset market participation. As column 1 of Table 3 shows, the marginal effect of religious faith is 0.013, which is significant at the 10 percent level. The results indicate that religious faith can significantly promote household participation in the risky asset market. Column 2 shows the IVprobit results, where the density of religious places is used as IV. At the bottom of Table 3, we present the Durbin-Wu-Hausan result. The p-value is 0.000, which shows that the religious faith is endogenous. The F-value and t-value are 35.62 and 8.32, respectively. Stock and Yogo (2005) suggest that instruments are weak if the first-stage F-value is less than l6.38. The results suggest that it is appropriate to use the number of religious places per 10,000 square kilometers as the IV for religious faith, since it is fairly strong. As can be seen from column 2, the marginal effect of religious faith is 0.447, which is significant at the 1% level, and thus illustrates that religious faith can significantly promote household participation in the financial market. Li and Zhu (2016) find that people with religious beliefs are more willing to participate in the risky financial market using the 2011 CGSS data, which is supported by our results. Household heads’ risk preference, educational level, participation in social security, and household income all contribute to household participation in the venture capital market at the 1% significance level. As there are many uncertainties and risks in the financial market, people with preference towards risk will participate in it. Participation in the financial market requires certain knowledge and skills, so households with higher educational level are more likely to participate in the financial market, which is consistent with the results of Yin et al. (2014). The number of household members and living in rural areas inhibit the participation in the financial market at the 1% significance level. The reason may be that the more household members there are, the greater the economic pressure they face. Hence, they cannot spare extra money to participate in the financial market. Due to the backwardness of knowledge and economic conditions, rural areas are less involved in the financial market than urban areas. Being married inhibits financial market participation, with a marginal effect of 0.004, which is significant at the 5 percent level. Age has a non-linear effect on financial market participation. At the beginning, age will promote financial market participation, but as age increases, it will inhibit financial market participation, which is consistent with Guiso et al. (2003). The results in columns (3) and (4) show the influence of religious faith on stock market participation. The results show that religious faith has a positive effect on stock market participation. The marginal effect of the Probit model is 0.011 and is significant at the 10 percent level. The coefficient remains positive after considering endogeneity. The DWH statistic and the associated p-value are, 101.91 and 0.000, respectively. The F-value and t-value are 35.62 and 8.32, respectively, so there is no weak IV problem. The coefficient of religious faith on residents’ participation in the stock market is 3.026, and the marginal effect of 0.444 is significant at the 1% level. The marginal effect of risk preference is 0.087, which is significant at the 1% level, indicating that risk preference promotes residents’ participation in the stock market. This is consistent with Guiso et al. (2008). The results also show that householders with higher educational level are more willing to participate in the stock market,
Notes: N, SD, Min, Max, and ￥denote, respectively, total number of observations, standard deviation, minimum, maximum, and Yuan. a The question about risk attitude in the questionnaire: If you have a choice, what kind of investment will you make? 1. High risk and high return project; 2. Secondary high-risk and secondary high-return project; 3. Average risk and average return project; 4. Secondary low-risk and secondary low-return project; and 5. Not willing to take any risks. This paper defines option 3 as risk neutral. b This paper defines option 1 and option 2 in the question of risk attitude as risk preference. c This paper defines option 4 and option 5 in the question of risk attitude as risk aversion. d The marital status in the questionnaire is as follows: 1. Unmarried; 2. Married; 3. Cohabitation; 4. Separation; 5. Divorce; and 6. Widowed. This paper defines options 2, 4, 5, and 6 as married, and defines oprions1 and 3 as unmarried.
households is only 5.4%, while the proportion of stock assets is only 2.5%, which further indicates that the risky assets held by Chinese households are fewer. 3.3.2. Identification In eq. (1) and eq. (2), religious faith may be an endogenous variable. On the one hand, the omitted variables may cause endogeneity. For example, household culture, individual psychological state, household tradition, etc., will not only affect the household religion choice, but also affect the choice of household financial assets. On the other hand, simultaneity may cause endogeneity. More capital is needed to participate in the financial market, so the income level of households participating in the financial market is often higher, while the high-income households in China are more likely to be religious. All the above reasons will lead to bias in our estimation. We use IV estimation to overcome the endogeneity problem. After repeated experiments and following Chen and Williams (2016), we adopt the density of religious places (the number of religious places per 10,000 square kilometers) as IV for religious faith. This data comes from The 4
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Table 3 Religious faith and participation in financial and stock markets. (1)
(2)
(3)
Probit
IVprobit
Probit
IVprobit
0.013*(0.007) 0.009*** (0.001) 0.000*** (0.000) 0.129*** (0.025) 0.230 (0.024) 0.016*** (0.004) 0.029 (0.001) 0.002 (0.004) 0.027*** (0.006) 0.006*** (0.001) 0.017*** (0.004) 0.001 (0.001) 0..024*** (0.002) 0.003 (0.004) 0.074*** (0.004) 0.098*** (0.005) 27,737 0.262
0.447***(0.072) 0.011*** (0.001) 0.000*** (0.000) 0.143*** (0.025) 0.049** (0.024) 0.010 (0.006) 0.033*** (0.001) 0.004 (0.004) 0.018*** (0.006) 0.005*** (0.001) 0.012*** (0.004) 0.004** (0.002) 0.025*** (0.002) 0.005 (0.004) 0.068*** (0.005) 0.106*** (0.005) 27,737
0.011*(0.006) 0.008*** (0.001) 0.000*** (0.000) 0.072*** (0.019) 0.016 (0.018) 0.004 (0.004) 0.020*** (0.001) 0.006 (0.004) 0.019* (0.005) 0.004*** (0.001) 0.018*** (0.003) 0.001 (0.002) 0.015*** (0.002) 0.005 (0.003) 0.049*** (0.004) 0.082*** (0.004) 27,737 0.260
0.444*** (0.059) 0.010*** (0.001) 0.000*** (0.000) 0.087*** (0.019) 0.010 (0.018) 0.022*** (0.005) 0.024*** (0.001) 0.003 (0.004) 0.010* (0.005) 0.003** (0.001) 0.014*** (0.003) 0.001 (0.002) 0.015*** (0.002) 0.003 (0.003) 0.042*** (0.004) 0.089*** (0.004) 27,737
Financial Market Participation
Religious Faith Age Age2 Risk Preference Risk Aversion Gender Educational Level Party Member Running Individual Business Number of Household members Social Insurance Marriage Status Ln(Income) Self-owned Houses Per Capita GDP of Provinces Rural N Pseudo R2 F-statistic T-statistic Wald Test
(4)
Stock Market Participation
35.62 8.32 64.18 (0.000)
35.62 8.32 101.91 (0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The coefficients of the Probit and IVprobit models are marginal effects.
there is no weak IV problem. The results show that religious faith can significantly induce householders to choose risky assets in columns (1) and (2). This is reflected in the marginal effect of 0.309, which is significant at the 1% level. People with risk-taking preference hold risky assets, while those with risk aversion reduce their holdings to avoid risks. The more educated the household head is, the better the understanding of financial assets will be, and thus they are more likely to hold venture capital, which is consistent with the conclusions drawn by Hong et al. (2004) and Campbell (2006). The larger number of household members, the greater economic pressure, and consequently the smaller the proportion of risky assets held due to the crowding out effect. In addition, households’ participation in social security encourages them to hold
which is consistent with Vissing-Jorgensen (2002). Households with social security and higher income levels have more spare cash to buy shares, thereby boosting their participation in the stock market. Household size and house ownership discourage participation, which is consistent with Yin et al. (2014). 4.2. Religious faith and risky asset holdings Table 4 reports the regression of religious faith on financial assets selection. Column (2) shows the results after considering endogeneity, with DWH and p-value of 37.83 and 0.000, respectively, indicating that religious faith is endogenous. The F-statistic is 36.55, which shows that Table 4 Religious faith and financial asset selection.
Religious Faith Age Age2 Risk Preference Risk Aversion Gender Educational Level Party Member Running Individual Business Number of Household Members Social Insurance Marriage Status Ln(Income) Self-owned Houses Per Capita GDP of Provinces Rural N Pseudo R2 F-statistic T-statistic Wald Test
(1)
(2)
Risk Asset
Risk Asset
Stock Asset
Stock Asset
Tobit
IVtobit
Tobit
IVtobit
0.012**(0.005) 0.007*** (0.001) 0.000***(0.000) 0.025** (0.005) 0.050 (0.003) 0.016*** (0.003) 0.020*** (0.001) 0.001 (0.003) 0.019*** (0.004) 0.004*** (0.001) 0.011*** (0.003) 0.002 (0.001) 0.015*** (0.001) 0.002 (0.003) 0.050*** (0.003) 0.073*** (0.004) 26,605 0.237
0.309***(0.037) 0.008*** (0.001) 0.000*** (0.000) 0.020*** (0.005) 0.047 (0.003) 0.001 (0.003) 0.023*** (0.001) 0.008* (0.003) 0.012*** (0.004) 0.003*** (0.001) 0.016*** (0.001) 0.003** (0.001) 0.016*** (0.001) 0.003 (0.003) 0.046*** (0.003) 0.078*** (0.004) 26,605
0.012**(0.004) 0.006*** (0.001) 0.000*** (0.000) 0.030** (0.017) 0.060*** (0.017) 0.010 (0.017) 0.014*** (0.001) 0.006** (0.003) 0.014** (0.004) 0.003** (0.010) 0.013*** (0.002) 0.000 (0.001) 0.009*** (0.001) 0.003 (0.002) 0.035*** (0.003) 0.061*** (0.004) 26,605 0.236
0.348***(0.045) 0.007*** (0.001) 0.000*** (0.000) 0.024*** (0.004) 0.036*** (0.003) 0.013*** (0.004) 0.017*** (0.001) 0.004 (0.003) 0.007* (0.004) 0.002** (0.001) 0.009*** (0.003) 0.002 (0.001) 0.009*** (0.001) 0.004 (0.003) 0.029*** (0.003) 0.067*** (0.004) 26,605
36.55 14.91 37.83 (0.000)
(3)
(4)
36.55 14.91 49.64 (0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. 5
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Table 5 Religious faith and household financial behavior (excluding ethnic minorities). (1)
(2)
(3)
Probit
IVprobit
Probit
IVprobit
Tobit
IVtobit
Tobit
IVtobit
0.020***(0.008) YES 23,996 0.261
0.400***(0.055) YES 23,996
0.015**(0.007) YES 23,996 0.256
0.403***(0.061) YES 23,996
0.015*** (0.005) YES 23,100 0.234
0.313**(0.050) YES 23,100
0.012**(0.005) YES 23,100 0.236
0.334***(0.045) YES 23,100
Financial Market
Religious Faith Control Variables N Pseudo R2 F-statistic T-statistic Wald Test
(4)
(5)
Stock Market
32.71 8.07 53.16(0.000)
(6)
Risk Asset
32.71 8.07 86.2(0.000)
(7)
(8)
Stock Asset
32.71 7.71 57.83(0.000)
32.71 7.71 90.07(0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as those in Table 3. Due to space constraints, we do not show them here.
examine the effects of social interaction and of human capital on this relationship. Following Yin et al. (2019), the level of social interaction is measured by the exchange of gifts and funds, and the level of human capital accumulation is measured by educational level. In order to estimate the influence of religious culture, four different religions (Buddhism, Taoism, Islam, and Christianity) are selected to implement the regression. The model is set as follows:
more risky assets. Similarly, households with higher incomes tend to hold riskier assets. Living in rural areas discourages risky asset holdings among households. Columns (3) and (4) are the results regarding the proportion of stock asset holdings. Note that column (3) does not consider endogeneity. The DWH statistic shows that religious faith is endogenous, while the F-statistic shows that there is no weak IV problem. Religion significantly encourages the household to hold stock assets. This is supported by a marginal effect (in column (4)) of 0.348, which is significant at the 1% level. The analysis shows that households’ religious faith significantly promotes their participation in the financial and stock markets and deeply affects their portfolio choice.
ProbðY ¼ 1jXÞ ¼ Probðα1 Religion þ α2 Religion effect þ X ρ þ μ > 0jXÞ (3) y* ¼ α1 Religion þ α2 Religion effect þ X ρ þ μ ; Y ¼ maxð0; y* Þ
(4)
Eqs. (3) and (4) are used to estimate the effects of social interaction and human capital accumulation on the selection of household assets; effect represents dummy variables for social interaction and human capital accumulation, respectively. In order to explore whether religious faith affects household participation in risky and stock markets through the two factors, we adopt the Probit model in eq. (3). To further estimate the impact on household holdings of risky and stock assets, we adopt the Tobit model in eq. (4). These models are:
5. Robustness tests To test the reliability of these results, we exclude households and ethnic minorities3 whose members work in the financial sector. Because the religious atmosphere in minority areas (such as Regional Ethnic Autonomy) is more intense, people living in these areas are more likely to have religious faith. In order to avoid this influence on sample selection, we remove the respondents from minority areas. The regression results using these sample restrictions are reported in Table 5. After controlling for other variables, the coefficients are still significant at the 1% level. Besides, the marginal effects are consistent with those reported in the benchmark regression results, showing that the results are robust. Households with a financial practitioner are more likely to participate in the financial market due to access to financial knowledge, which may, in turn, affect their choice of risky assets. In order to avoid the interference of family members engaged in financial sectors, we drop the heads of households engaged in financial sectors from the sample. Table 6 reports these regression results. Compared with the results of benchmark regression, these results are still significant at the 10% significance level, except for minor changes in the coefficients, which further indicates that the results are robust. Based on the results in Tables 5 and 6, we conclude that religious faith can significantly promote the household’s participation in the financial and the stock markets. Furthermore, religious faith increases the allocation of households to risky assets and stock assets.
ProbðY ¼ 1jXÞ ¼ ProbðReligion doctrine þ Xδ þ τ > 0jXÞ
(5)
y* ¼ α1 Religion doctrine þ Xδ þ τ ; Y ¼ maxð0; y* Þ
(6)
Models (5) and (6) are used to estimate the impact of different religious faiths on asset selection. Religion_doctrine represents the four different religions (i.e. Buddhism, Taoism, Islam, and Christianity). Similarly, the Probit model in eq. (5) is used to estimate the impact of different religious faith on household participation in the risky and stock markets. In order to estimate the impact of different religious faiths on household holdings of risky and stock assets, we use the Tobit model in eq. (6). Table 7 reports the results of the social interaction effect. Based on the amount of gift exchanges, social interaction is divided into two groups. The regression results of Panel (1) indicate that higher degree of residents’ social interaction induces more religious household to participate in the financial market, which is consistent with Hong et al. (2004). Panel (2) further estimates the influence of religious faith on residents’ participation in the stock market through social interaction. Consistent with the conclusion of Panel (1), the coefficients of religious faith and the interaction terms are significantly positive, meaning that social interaction can enhance the participation of religious household in the stock market. Panels (3) and (4) show the influence of social interaction on household risky asset and stock asset selection. The coefficient of religious faith and the interaction terms are significantly positive at the level of 1%, indicating that religious faith can induce households to hold risky and stock assets. In addition, the higher the degree of social interaction, the more likely it is that religious households will hold a significant proportion of risky assets. Households often face information asymmetry
6. Further analyses As mentioned above, the influence of religious faith on financial market participation, stock market participation, and financial asset selection may be attributed to the following three factors: social interaction, accumulation of human capital, and religious culture. We further
3 Except for the Han nationality, the other ethnic groups are “minorities” in terms of their economic and social privileges in China, and the value of minorities identification is assigned to 1, while the other values are assigned to 0.
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Table 6 Religious faith and household financial behavior (excluding households working in the financial industry). (1)
Religious Faith
(2)
(4)
(5)
(6)
(7)
(8)
Financial Market Participation
Stock Market Participation
Risk Asset Proportion
Stock Asset Proportion
Probit
Probit
Tobit
Tobit
IVprobit
0.083* (0.047) YES 27,409 0.256
Control Variables N Pseudo R2 F-value T-value Wald Test
(3)
0.435*** (0.071) YES 27,409
IVprobit
0.011* (0.006) YES 27,409 0.250
35.77 8.47 58.84(0.000)
0.449*** (0.058) YES 27,409
0.012** (0.005) YES 26,280 0.231
35.77 8.47 98.98(0.000)
IVtobit 0.305*** (0.050) YES 26,280
IVtobit
0.011** (0.005) YES 26,280 0.233
0.364*** (0.045) YES 26,280
35.77 8.12 61.61(0.000)
35.77 8.12 102.38(0.000)
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors.
interaction term between religious faith and human capital is positive and significant at the level of 1%. This suggests that the religion itself can inhibit the household from participating in the financial markets, and that the household with higher human capital accumulation is more likely to participate in financial markets. This means that human capital plays an important role in influencing religious households to participate in the financial market. Panel (2) estimates the influence of human capital on stock market participation. The coefficient of the interaction term is significantly positive, indicating that higher human capital accumulation can induce the household to participate in the stock market. Panels (3) and (4), respectively, estimate the influence of human capital on the selection of risky and stock assets. In Panel (3), religious faith inhibits the selection of risky assets at the 5% significance level, while human capital accumulation helps reverse this trend (as evidenced by the positive and significant coefficient of interaction term). In Panel (4), the coefficient of the interaction term is significantly positive, and shows that an increase in the accumulation of human capital influences the household to hold stock assets. Due to the entry threshold of financial market participation and investment, financial asset investment is a technology with a high content of knowledge and requires a high level of human capital (He and Wu, 2017), and religious belief can promote the accumulation of human capital (Gruber, 2005; Bai and Kung, 2015). Therefore, human capital is an important factor affecting the participation of religious households in financial investment. This result verifies Hypothesis 2. Different religions have different doctrines. They may have different values and concepts of wealth, and these differences can impact on household financial decisions. One of the important aspects of religion is its influence on economic behavior. Guiso et al. (2003), using cross-country data, find that religion shapes believers by imparting good economic behavior upon them. We use four different religions to represent the cultural attributes of different faiths and test whether different religious faiths will shape different economic behaviors of believers, and consequently influencing the household’s financial market participation and asset selection. Table 9 reports the influence of different religions on
Table 7 Religious faith, social interaction and household financial behavior.
Religious Faith Religious Faith Social Interaction a Control Variables N
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection
0.323*** (0.106) 0.362*** (0.060)
0.460*** (0.086) 0.256*** (0.051)
0.233*** (0.073) 0.236*** (0.042)
0.382*** (0.064) 0.167*** (0.038)
YES
YES
YES
YES
27,737
27,737
26,605
26,605
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level, Standard errors in parentheses are clustered heteroskedasticityrobust standard errors. The control variables are the same as in Table 3. a Using the exchange measurement of gift money in the questionnaire, the social interaction in this paper sets the household whose exchange value is greater than or equal to the average exchange value of gift money in the sample as a group with a high degree of social interaction, and assigns a value of 1, while the others are assigned a value of 0.
in the financial market. Hence, the circle of acquaintances and social interaction can help residents understand the information in the financial market (Li, 2006; Hong et al., 2004). Religious faith enables households to easily build a social network (Dehejia et al., 2007), thus promoting their participation in the financial market. Our finding is consistent with this reasoning and Hypothesis 1. Table 8 further estimates the effect of human capital on household assets. Following Barro and Lee (1993), we use a household head’s educational level to measure human capital, which we, then, divide into high and low human capital groups. Panel (1) estimates the effect of human capital on household’s decision to participate in the financial market. The regression results show that the coefficient of religious belief is significantly negative at the 1% level, while the coefficient of the
Table 8 Religious faith, human capital and household financial behavior.
Religious Faith Religious Faith Human Capitala(Dummy) Control Variables N
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection
0.210*** (0.095) 0.958*** (0.087) Yes 27,737
0.070 (0.076) 0.664*** (0.066) Yes 27,737
0.152** (0.061) 0.625*** (0.055) Yes 26,605
0.088* (0.053) 0.444*** (0.049) Yes 26,605
Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level, Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as in Table 3. a In question A2012, if the head of the household answered: 6 junior colleges/higher vocational colleges,7 undergraduate colleges,8 postgraduate students, and 9 doctoral students, we set it as the group with higher human capital accumulation, and the value was 1. The other answers were set to the group with low human capital accumulation, with a value of 0. 7
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influences household risky asset participation and selection, we find the following. Firstly, the higher the degree of social interaction between religious households, the more likely they are to participate in the risky market and to invest in risky assets. Secondly, the higher is the level of human capital accumulation of religious households, the higher are the probability of their participation in the risky markets and the proportion of their risky asset holdings. Finally, religious culture plays an important role in the relation between religious culture and financial decisions. There are significant differences in the attitudes of households across different religious faiths towards financial market participation and risk asset holdings. The probability that Buddhist and Taoist households will participate in the financial market is relatively high, while that of Islamic and Christian households is small and insignificant. We provide solid evidence that religious faith can significantly increase the proportion of residents participating in risky financial markets. We, therefore, enrich the relevant literature on household financial decision-making, and provide policymakers and regulators with a better insight into developing policies and evaluating their effects.
Table 9 Religious types and household financial behavior.
Buddhism
(1)
(2)
(3)
(4)
Financial Market Participation
Stock Market Participation
Risk Asset Selection
Stock Asset Selection 0.014*** (0.005) 0.058** (0.025) 0.009 (0.010) 0.003 (0.014) Yes 26,605
Taoism
0.024 (0.049)
0.016** (0.007) 0.055 (0.036)
Christianity
0.011 (0.016)
0.008 (0.001)
0.043* (0.023)
0.014 (0.018)
Yes
Yes
0.015** (0.006) 0.031 (0.033) 0.014 (0.011) 0.014 (0.016) Yes
27,737
27,737
26,605
Islam
0.020** (0.009)
Control Variables N
participation in the financial market. We choose Buddhism, Taoism, Christian, and Islam to represent different religious faiths. The results show that the coefficient of Buddhism is significant at the 5% level, suggesting that they are more likely to participate in financial market. This conclusion is different from people’s intuition. Buddhist believers are more cautious and conservative, and therefore are more resistant to financial market products with higher risks. However, Luo (2014) argue that believers tend to regard wealth as the gift of god, which encourages them to use right means to obtain wealth. Taoism and Christianity have no significant effect on financial market participation. Islam significantly inhibits household participation in financial markets at the 10% significance level. For a long time, Islam has been against speculation and interest rate collection. Therefore, since China’s financial market environment gives people the impression that there exists arbitrage opportunities, Islam believers naturally reject participating in this market, consistent with our results. Narayan et al. (2016) find that investors can achieve higher returns by investing in Islamic stocks, indicating that China’s stock market is very different from other countries (Sha and Gao, 2019). Our results show that the participation of households of different religions in the financial market is significantly different, which further indicates that different religions have different values and wealth views, thus affecting the investment behavior of believers in the financial market. This conclusion is consistent with Hypothesis 3. Notes: *, ** and *** denote, respectively, statistical significance at the 10%, 5%, and 1% level. Standard errors in parentheses are clustered heteroskedasticity-robust standard errors. The control variables are the same as in Table 3.
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7. Conclusions By using 2013 CHFS data, the paper investigates the impact of religious faith on Chinese household financial decisions. Moreover, the paper analyzes the influence of social interaction, human capital accumulation, and religious culture on the relation between religious faith and household financial decision-making. To avoid possible endogeneity issues, we use the density of religious sites as an IV for religious faith. Our results show that religious faith has a significant positive effect on household financial and stock market participation. The more educated the head of the household, the more likely he or she is willing to participate in financial markets. Meanwhile, household size and house ownership can inhibit the household’s involvement in financial markets. The economic development level of a region and the income level of a household are positively correlated with participation in financial markets. In rural areas, household participation in the financial market and risky asset holdings are significantly inhibited. The age of household head has a non-linear relationship with household participation in the financial market and risky asset holdings. Regarding the transmission mechanism through which religious faith
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