Impact of family capital & social capital on youth entrepreneurship – a study of Uttarakhand state, India

Sharma, Lalit Article Impact of family capital & social capital on youth entrepreneurship – a study of Uttarakhand state, India Journal of Global Entrepreneurship Research Provided in Cooperation with: Springer Nature Suggested Citation: Sharma, Lalit (2014) : Impact of family capital & social capital on youth entrepreneurship – a study of Uttarakhand state, India, Journal of Global Entrepreneurship Research, ISSN 2251-7316, Springer, Heidelberg, Vol. 4, Iss. 1, pp. 1-18, https://doi.org/10.1186/s40497-014-0014-3 This Version is available at: https://hdl.handle.net/10419/161758 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ RESEARCH Open Access Impact of family capital & social capital on youth entrepreneurship –a study of Uttarakhand state, India Lalit Sharma Correspondence: [email protected] Quantum School of Business, 22 km Milestone, Roorkee- Dehradun Highway, Roorkee, Uttarakhand Abstract The research paper intends to interpret how the three forms of family capital viz. family’s financial capital, family’s man power capital and family’s human capital influences the career choice intention of students of HEI’s of Uttarakhand, India. Additionally the study also evaluates the impact of student’s individual social capital on his career intent. This is a quantitative study conducted at Uttarakhand state of India on a large sample of students studying in various professional courses of Uttarakhand. The research validates a positive relationship between the family’s financial capital and higher education intention of students. The study found no influence of family’s financial capital (measured as father’s annual income), manpower capital (measured as family size) and human capital (measured as father’s occupation) on career intentions of students. The study confirmed that there is a significant impact of students’social capital network span on his career intentions, especially in taking up entrepreneurship as a career choice. Jel Codes: D20; G34; L10 Keywords: Entrepreneurship; Factors influencing career choices; Family impact on career; Youth entrepreneurship in Uttarakhand; Family and career intentions; Family capital & youth entrepreneurship; Social capital & youth entrepreneurship Background The Forbes list of billionaires featured 55 Indians in 2013 and the net worth of top ten billionaires was estimated at $102.1 billion. In contrast, every second malnourished child and every third poor person in the world is also an Indian. This picture of sharp contrast clearly highlights that India has sharp rise in inequalities over years. Uttarakhand is the 27th state of India. It is located at the foothills of the Himalayan mountain ranges; it is largely a hill state, having international boundaries with China in the north and Nepal in the east. Uttarakhand has a unique culture of its own. It has a multiethnic population, mostly dependent on agriculture, tourism and handicrafts. People are spread across two recognized geo-cultural regions: the Garhwal, which corresponds roughly to the northwestern half of the state and the Kumaun, which spans the southeast. Uttarakhand houses seven different ethnic groups, having as many as seven different cultures. More than four-fifths of Uttarakhand’s residents are Hindu. Smaller communities of Muslims, Sikhs, Christians, Buddhists, and Jains make up most of the remainder of Uttarakhand’s © 2014 Sharma; licensee Springer. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited. Sharma Journal of Global Entrepreneurship Research 2014, 4:14 http://www.journal-jger.com/content/4/1/14 people. Struggling with the problems of rising rate of unemployment and immigration, the state has introduced host of financial incentives to promote and develop entrepreneurship in the state. But the lukewarm response, especially from the youth in the state, has predicted that local people of the state are not business oriented people, they are more inclined towards jobs. According to Lin (2000), differences in distribution of various types of capital across different groups in society lead to inequalities in career aspirations and economic achievement. Resource-based theory of entrepreneurship envisages that people’s likelihood of becoming an entrepreneur is influenced by their access to valuable and unique resources (Alvarez & Busenitz, 2001; Barney, 2001). Resources refer to financial capital (Schweinbacher, 2007), family capital (Parcel & Menaghan, 1993) as well as human and social forms of capital (Chiles et al. 2007; Davidsson & Honig, 2003). We have hereby emphasized on social forms of capital including family capital. The notion of social capital has been around for decades. It is with the early works of Jacobs (1961), Bourdieu (1983), Coleman (1988) and Putnam (1993; 2000) that it gradually received recognition. According to Putnam (2000), social capital refers to connections among individuals –social networks and the norms of reciprocity and trustworthiness that arise from them. He further explains that social capital is closely related to civic virtue, the difference being that social capital calls attention to the fact that civic virtue is most powerful when embedded in a dense network of reciprocal social relations. In other words, social capital enables people to collaborate, socialize, establish communities and live together by adhering to moral obligations, norms and social values. As such, Social Capital Theory refers to the ability of actors to extract benefits from their social structures, networks, and memberships (Lin et al. 1981; Portes, 1998). Broadly the relevant literature has accepted that social capital enhances the likelihood of several individual outcomes (Burt, 1997; Nahapiet & Ghoshal, 1998). Entrepreneurs require information, capital, skills, and labor to start business activities. Although they try to manage many of these resources on their own, the shortfalls are fulfilled by accessing their contacts (Aldrich & Zimmer, 1986; Aldrich et al. 1991; Cooper et al. 1995; Hansen, 1995). When the entrepreneurs’social contacts contribute to their entrepreneurial goals, these social contacts are their social capital (Burt, 1992). Social capital helps in entrepreneurship development (Bhagvatula et al. 2010; Birley, 1986) but its relevance for youth career intent needs further exploration. Family capital is considered to be a special type of social capital that exists in family relations (Parcel & Menaghan, 1993). Economic organization is largely structured around the family, with the family’s survival essential to the long-term functioning of society (Coale, 1973). Chrisman et al. (2002) asserted that family represents a critical and often used resource for startups. It is well-documented in the entrepreneurship literature that entrepreneurs tend to rely heavily on their family capital to derive various benefits (Zimmer & Aldrich, 1987). Several studies indicate that family plays an important role in the mobilization of financial resources during the initial stage (Aldrich & Waldinger, 1990; Steier & Greenwood, 2000) and during survival times (Holtz-Eakin et al. 1994). According to Smallbone and Welter (2001), in most developing countries, people are dependent on their income to handle financial constraints in starting their business. A vast majority of entrepreneurs in these countries use their own resources to finance their business (Acs et al. 1999). Since students of HEI’s in developing countries are either earning part time to generate some money to support themselves or entirely Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 2 of 18 http://www.journal-jger.com/content/4/1/14 depend upon their families for their education and other needed support, the role of families become even more important in career intent especially in taking up entrepreneurship as a career option. The career choice preference of an individual is at its highest point at student life and as such the influence of others, especially family & society, can result in determining entrepreneurial intention (Gelderen et al. 2008; Leffel & Darling, 2009). Family is seen to provide support for entrepreneurial start up in many ways. It has been found that the family plays an important role in the transmission of values such as independence, ambition, career orientation and actual career choice (Grimstad & Way, 1993). It helps in the provision of unique skills & pool of information (Greve & Salaff, 2003), human resources (Dyer & Handler, 1994; Aldrich & Langton, 1997) and physical resources (Birley, 1986) in the form of space and premises for enterprise development. Several research scholars (Wilson et al. 2007; Mueller, 2006; Matthews & Moser, 1996) have argued that family role models influence the preferences for self-employment. Cetindamar et al. (2012) states that family capital can be especially beneficial in facilitating individual’s entrepreneurial entry in developing countries. Another type of capital which is seen to play a significant role in entrepreneurship development is human capital. Human capital refers to economically salient personal resources (skills, specific knowledge associated with particular jobs, general education) of the sort that might for example be considered by prospective employers as justifying offers of employment (Becker, 1964; Coleman, 1988). Scholars (Hitt et al. 2001) argue that human capital is the most critical resource that economic actors possess. When new economic opportunities exist, individuals with better human capital should have a higher likelihood of identifying and exploiting them. (Cetindamar et al. 2012). Demographic structures of developed countries (Bianchi, 2014; Aksoy et al. 2012) as well as developing countries like India (James, 2011) are changing continuously and changing fast. It is seen that demographic variables have a significant impact not only on the economic variables like GDP, investments and inflation (Aksoy et al. 2012) but also on changes in the family (Bianchi, 2014). Demographic trends reveal an increasingly diverse and complex family life and a more ambiguous and fluid set of categories traditionally used to define the family (Cherlin, 2010). Changing trends in family composition and family members’role and relationships are witnessed in developed economies like USA (Walsch, 2012; Aldrich & Cliff, 2003) as well as in developing economies like Pakistan (Rehman & Roomi, 2012). Continuous changes in demographic structures and families could challenge the outcome of the earlier studies done on the role played by the demographic and family variables on entrepreneurial outcomes. Cramton (1993) has provided strong evidence that organizational foundings may represent responses to changing family relationships rather than outcomes of the rational assessments of discovered economic opportunities. This calls for a continuous study of effect of demographic and more specifically family variables on entrepreneurial outcomes. Furthermore, inspite of several studies on impact of social variables and demographic variables on entrepreneurial outcomes, the role of the family context for entrepreneurial orientation is not yet well understood (Cruz & Nordqvist, 2012). Similarly, Thornton et al. (2011) posit that the influence of social and cultural factors on enterprise development remains understudied. Based on the above discussion, we have undertaken three forms of family capital viz. father’s occupation as a measure of family’s human capital, father’s income as a measure of family’s financial capital, family size as a measure of family’s man power capital and Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 3 of 18 http://www.journal-jger.com/content/4/1/14 social network span of student as a measure of his individual social capital resource and evaluated their impact on students’career intent, more specifically entrepreneurial intent. The outcomes of the research would help the state government understand the impact of social & familial factors on youth entrepreneurship which can be used to formulate appropriate policies for youth entrepreneurship development in Uttarakhand. The research would also help educational institutions to do appropriate modifications in the curriculum to develop youth entrepreneurship. Review of literature and hypothesis formulation The youths’access to financial resources help ease the transition into self-employment (Henley, 2005; Delmar & Davidson, 2000) and that is one of the main reasons why the children born in rich family find it easy to venture on their own. The children may have less pressure to make a living by finding a stable job and tend to be more risk-taking. These factors indirectly impact entrepreneurial intention through the perception of desirability and feasibility (Wang et al. 2011). According to Dunn & Holtz-Eakin (2000) high income households are not only able to better provide the necessary financial resources to entrepreneurial firm growth but are also likely to see more entrepreneurial growth opportunities. Raijman (2001) posited that financial resources in the family have direct bearing on entrepreneurial intentions. A lot of studies have shown that family income influences the career development of youth (Alibaygi & Pouya, 2011; Mortimer, 1992) and self-employment of youth (Hundley 2006; Henley 2005). The financial status of the family has been observed to have an impact on the child’s choice of entrepreneurship (Hsu et al. 2007). Study by Millman et al. (2010) also confirmed that household incomes are positively related to their entrepreneurial Intentions. A recent study done by Nandamuri and Gowthami (2013) tested 11 competencies related to entrepreneurial orientation of management students and found that the household income significantly influences nine out of eleven competencies. Accordingly we propose the first hypothesis. H 1 : Annual income of the family has an influence on the career intentions of students’of HEI’s According to Schulenberg et al. (1984), family size appears to influence adolescent career aspirations because parents with large families tend to have less money to aid the older children in attending college, while younger children may receive more financial assistance since the financial strain is less once the older children leave home. A recent study by Cetindamar et al. in 2012 at Turkey found that family size was positively associated with the likelihood of engaging in entrepreneurship only when family size is more than seven people. People who had a family size of seven or more were 1.768 times more likely to engage in entrepreneurship compared with people who had fewer than three people in their family. In contrast, another study conducted by Pushpalatha (2013) in India found that majority of the women in Andhra Pradesh, India who turned into entrepreneurs had an average family size of 2–3 members. She interpreted that small family size have lessened their family responsibilities which motivated them to enter into entrepreneurship. Weber (1978) posited that cooperation from within a family stems not just from pure self-interest, but from a greater moral order in which the accumulation of obligations among members builds a kind of social cohesion that may be described as ‘household communism’. According to Cetindamar et al. (2012), family members can be trusted in under-the-counter transactions aimed at evading taxes and Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 4 of 18 http://www.journal-jger.com/content/4/1/14 other government regulations that are common in new and small businesses in many parts of the world, such as in developing countries. While larger families could contribute to greater motivation, larger social network and better support. Smaller families may provide more time and fewer obligations that would enable them to engage in diverse activities required in new business settings and taking more risks. A recent report by Global Entrepreneurship Monitor (Kelly et al. 2012) found that average household size for male and female entrepreneurs ranged from three people in Europe and the U.S. to five people in Sub-Saharan Africa and MENA/Mid-Asia. Finland, Austria, Denmark and Germany showed the smallest household sizes for both female entrepreneurs and non-entrepreneurs/business owners: less than three people per household on average. In Pakistan, Angola and Palestine, on the other hand, households for both groups averaged over six individuals; accordingly we propose our next hypothesis. H 2 : Size of the family has an influence on the career intentions of students’of HEI’s Most of the authors (Colombier & Masclet, 2008; Sørensen, 2007; Carr & Sequeira, 2007; Drennan et al. 2005; Arum & Mueller, 2004; McElwee & Al-Riyami, 2003; Krueger, 1993a; Krueger 1993b; Scott & Twomey, 1988) in the past have advocated that the children who grew up with entrepreneur parents had a greater propensity to choose an entrepreneurial career. According to Wang et al. (2011), due to the example of the self-employed parents, children with family business background have a higher probability to become entrepreneurs. Moreover, self-employed parents can provide more financial and (or) social support to their children to start their own business. According to Corak and Piraino (2011) & Dunn and Holtz-Eakin (2000) second generation entrepreneurs are two to three times more likely to work in the same occupation as their fathers. A study by Olomi and Sinyamwale (2009) found that the students who had families which engaged in business had been better socialized to the entrepreneurial career and were likely to engage in starting their own businesses. Studies conducted in different countries like US (Crant, 1996); Singapore (Phan et al. 2002); UK (Altinay et al. 2012) and Malaysia (Tong et al. 2011) gave similar results and found that entrepreneurial families or parents positively influence entrepreneurial career intentions in their children. Lindquist et al. (2012) found that having an entrepreneur for a parent increases the probability that own-birth children become entrepreneurs by 60%. Davidsson showed that the average of 40% of small business owner managers in Sweden have had a self employed parent(s) (Davidsson, 1995). The impact of family business background has been proven in several other studies as well (White et al. 2007; Hout & Rosen, 2000). On the basis of the above discussion, the following next hypothesis is proposed. H 3 : Father’s occupation has an influence on the career intentions of students’of HEI’s Social capital refers to the relationships, either formal or informal, generated by individuals in their interaction with other individuals trying to obtain an expected reward in the market, a capital captured in the form of social relationships (Lin, 2003). Social capital comprises of a person’s social connection in family, professional and social networks, friends, entrepreneurial role models and other known supporting networks comprising of investors, potential customers, bankers etc. Social capital has been linked to a variety of positive social outcomes, such as better public health, lower crime rates, Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 5 of 18 http://www.journal-jger.com/content/4/1/14 and more efficient financial markets (Adler & Kwon, 2002). One of the latest research on social capital showed that individuals in communities with high levels of social trust are more likely to be self-employed compared to individuals in communities with lower levels of social trust. Additionally, membership in organizations connected to the larger community is associated with higher levels of self-employment, but membership in isolated organizations that lack connections to the larger community is associated with lower levels of self-employment (Kwon et al. 2013). According to Davidsson and Honig (2003) bridging and bonding social capital, consisting of both strong and weak ties, was a robust predictor regarding who became a nascent entrepreneur as well as for advancing through the start-up process. A recent study by Kreiser et al. (2013) found that an increase in network tie strength is negatively associated with founding activities whereas an increase in the number of ties is positively associated with founding activities. Many other authors (Tararko & Schmidt, 2013; Bauernschuster et al. 2010, Linan, 2007) have also emphasized upon the positive role of social capital in facilitating entrepreneurship. Social capital helps in opportunity identification (Bhagvatula et al. 2010), establishment of business (Birley, 1986) as well as in firm performance (Stam et al. 2014). Another recent study by Light and Dana (2013) suggests that social capital promotes entrepreneurship only when supportive cultural capital is in place. Similarly Malecki (2009) has also argued that people living in different regions have different levels of trust and interaction among themselves so regional outcomes with regard to social entrepreneurship will vary. As such we formulate our next hypothesis. H 4 : The social capital network span of student has an influence on the career intentions of students’of HEI’s Research Methodology Quantitative research was used to conduct this study. The quantitative approach has helped us to prevent bias in gathering and presenting research data and the discussion and experimentation involved in the process are more objective. A self-administered questionnaire was developed & used as the main data-gathering instrument for this study. Questions regarding the career intentions after completion of degree, family size, father’s occupation and father’s income were asked directly and multiple choices were given to them to choose from. In order to determine the extent of social capital of students, 24 statements derived from ‘Sociological Capital Assessment’developed by Roberts (2010) were used. The answers were recorded on Likert’s 5 point scale. Since the study tends to evaluate the preferred career choices of students of professional courses the target respondents were the final year students of higher educational institutions of Uttarakhand, studying in B.Tech., MBA, PGDM, BHMCT, B.Pharm. and MCA courses. Students were typically in the age group of 21–25 years. Gender ratio of the respondents was 25% female students and 75% male students. The sampling method used in this research is proportionate stratified sampling. Students from each course were picked up based on their prevalence in the universe. This type of sampling has helped us in properly representing each stratum so the sample size drawn from the stratum is proportionate to the stratum’s share of the total population. The respondents were the students of Uttarakhand state only. The whole universe of the target respondents was nearly 20,300. For a size of population which falls Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 6 of 18 http://www.journal-jger.com/content/4/1/14 in the range of 20,000, the sample size for a 95% confidence level with a reliability of ±3% the sample size suggested is 530 (Zikmund, 2010). Accordingly, the sample size taken for this study is 530. Data Analysis and Interpretation On the basis of the data collected, the hypotheses have been tested using various statistical tools. H 1 : Annual income of the family has an influence on the career intentions of students’of HEI’s Based on the average annual income of their family, the students were divided into three different income categories (Table 1). To test the above hypothesis we have cross tabulated the data and used Chi-square test Table 2. Cross tabulation displays the number of cases in each category defined by two grouping variables i.e. ‘Average annual income’and ‘Career choice preference after completion of degree’. Total out of 530 respondents, 355 respondents are from ‘Low’income group, 125 respondents are from ‘Middle’income group and 50 respondents are from ‘High’income group category. The data indicates that irrespective of the income group the intention to become an entrepreneur remains to be low among all three income groups however the desire to seek a job is significantly reduced in high income group students in comparison to low and middle income group students and desire to go for higher education significantly increases in comparison to low and middle income group students. Table 3 contains the output of the Chi-square test. A low significance value of 0.012 and 0.031 of Pearson Chi-square test and likelihood ratio typically below 0.05 indicates that there may be a relationship between the two variables. Since the calculated value of Chi-square (~16.287) is greater than the tabulated value (~12.592), it is evident that variables ‘Income category’and ‘Career intention after completion of degree’are dependent. Since opting for higher studies is not actually a career, it is a postponement of the career choice, we have discounted the two options of ‘Go for higher studies’and ‘Not yet decided’and reapplied Chi-square test on the variables in order to get a precise picture of the relationship between income category & students’career intentions of starting a new business or seeking a job Table 4. Since the calculated value of Chi-square (~.178) is greater than the tabulated value (~5.99), it becomes clear that ‘Annual income’of the family does not actually influence the career intentions of starting an enterprise or seeking a job but the test applied earlier at Table 3 confirms that it does have an influence on the intention to pursue higher studies. H 2 : Size of the family has an influence on the career intentions of students’of HEI’s Based on the family size of student, four categories were defined. The first category was “Less than or equal to 4 members”, second category was “5 to 6 members”, third category Table 1 ‘Income category’vis-à-vis ‘Average annual income’ Average annual income Income category Below Rs.3.00 Lakh PA Low Rs.3.00 –Rs.5.99 Lakh PA Middle Rs.6.00 Lakh and above High Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 7 of 18 http://www.journal-jger.com/content/4/1/14 was “7to8members”and the fourth category was “9 members and above”.Thecareer choice preferences of students were bifurcated based on the above defined four categories Table 5. Cross tabulation displays the number of cases in each category defined by two grouping variables i.e. ‘Family size’and ‘Career choice preference after completion of degree’.Outofa total of 530 respondents 249 respondents fall in the category of ‘Less than or = 4 members’, 214 respondents fall in the ‘5-6 members’category, 45 respondents fall in the category of ‘7-8 members’and only 22 respondents fall in the ‘9 members and above’category. To test the above hypothesis, researcher has applied Chi-square test. Table 6 contains the output of the Chi-square test. A significance value of 0.181 and 0.262 of Pearson Chi-square indicates non-dependence of ‘Family size’on ‘Career intention of student after completion of degree.’Since the tabulated value of Chi-square (~16.919) is greater than the calculated value (12.621), it is evident that variables ‘Family size’and ‘Career intention after completion of degree’are independent. We again applied Chi-square on the variables after discounting the two options of ‘Goforhigherstudies’and ‘Not yet decided’, in order to get a precise picture of relationship between students’family size and their career intentions of starting a new business or seeking a job Table 7. Again the calculated value of Chi-square (~5.942) is greater than the tabulated value (~7.82). This confirms that we can reject the hypothesis at 5% level of significance. Hence we can say that manpower capital of the family, measured as the family size, does not influence the career intentions of students. H 3 : Father’s occupation has an influence on the career intentions of students’of HEI’s Father’s occupation was categorized into six different categories and arranged in a hierarchical structure based on both income and status. In the first and lowest in the hierarchy was the category ‘Others’which included those fathers who are retired or are home makers or have expired. In the second category we included farmers & skilled persons like electricians, mechanics etc. or low paid employees, in the third Table 2 Cross tabulation: ‘Income category’and ‘Career choice preference after completion of degree’ Career choice preference after completion of degree Income category Total Low Middle High Start a new business 21 6 2 29 Seek a suitable job 269 94 27 390 Go for higher studies 46 16 16 78 Not yet decided 19 9 5 33 Total 355 125 50 530 Table 3 Chi-square Test: ‘Income category’and ‘Career choice preference after completion of degree (including option of ‘Going for higher studies and ‘Not yet decided’ Value df Asymp. sig. (2-sided) Pearson Chi-square 16.287 a 6 .012 Likelihood ratio 13.878 6 .031 Linear-by-linear association 7.956 1 .005 N of valid cases 530 a 2 cells (16.7%) have expected count less than 5. The minimum expected count is 2.74. Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 8 of 18 http://www.journal-jger.com/content/4/1/14 Competing interests The author declares that he has no competing interests. Acknowledgement The author would like to thank all the students who have sincerely and enthusiastically participated in this research activity. The author would also like to extend his gratitude to the Directors & the Heads of various institutions of Uttarakhand who have cooperated in this research by allowing me to interact with their students even during the busy time of university examination. Special thanks are also conveyed to the Director & the Management of Quantum School of Business who have provided all support in carrying out this research. Received: 2 June 2014 Accepted: 11 August 2014 References Acs, ZJ, Carlsson, B, & Karlsson, C. (1999). Entrepreneurship, Small and Medium-Sized Enterprises and the Macroeconomy. Cambridge: Cambridge University Press. Adler, P, & Kwon, S. (2002). 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Submit your manuscript to a journal and benefi t from: 7 Convenient online submission 7 Rigorous peer review 7 Immediate publication on acceptance 7 Open access: articles freely available online 7 High visibility within the fi eld 7 Retaining the copyright to your article Submit your next manuscript at 7 springeropen.com Sharma Journal of Global Entrepreneurship Research 2014, 4:14 Page 18 of 18 http://www.journal-jger.com/content/4/1/14