The Influence Of Social Networks And Financial Capability On Risk Management Tool Adoption

In the context of anchoring the goal of building a strong agricultural country,constructing a modernized agricultural industrial system,and promoting the high-quality development of rural industries,family farms have increasingly become an important force in improving the quality and efficiency of China’s agriculture.With the rapid growth in the number of developments,the problem of short operating life of farms and rapid renewal is gradually exposed.The reason for this is that on one hand,as a weak industry,agriculture itself is characterized by multiple,sudden,and complex risks,and the scale,intensification and marketisation of family farms have contributed to the proliferation of their agricultural risk exposure.On the other hand,as the decision makers and implementers of agricultural risk management,family farmers have problems such as differences in the level of risk awareness among individuals and insufficient transformation of the intrinsic demand for risk management tools into effective demand.Along with the continuous extension of family farms’ participation in the agricultural industry chain,the contagiousness of agricultural risks will no longer be limited to individuals and agriculture but will even threaten the development of other related industries.Therefore,research on the adoption of risk management tools by family farms is an important issue to boost the resilience of family farms,enhance their riskresistant ability,and mitigate the risks of large-scale production and operation in Chinese agriculture,which can help to complement the research perspective of agricultural risk management system.The adoption of risk management tools by farmers is a rational choice based on utility maximization around the subject’s decision-making environment and intrinsic ability,while social networks,as an important informal system and information resource supply channel in Chinese vernacular societies,can effectively influence farmers’ behavioral decisions,and transform the information resources through the individual’s intrinsic financial ability,which then affects the farmers’ risk management tool adoption behaviour and performance.The results of this study are summarized in the following table.Based on the analysis above,this paper defines the connotation of farmers’ social network,financial capability and risk management tool adoption based on the information asymmetry theory,transaction cost theory,social network theory,risk aversion theory and planned behaviour theory,etc.Secondly,on the basis of constructing the mechanism analysis of social network influencing the risk management tool adoption of family farms,and financial capability influencing the risk management tool adoption of family farms,we deeply explore the mediating role of financial capability in the mechanism path.Second,on the basis of constructing the mechanism analysis of social network affecting the adoption of risk management tools in family farms and the mechanism analysis of financial capability affecting the adoption of risk management tools in family farms,the mediating role of financial capability in the mechanism path is deeply explored.Further,based on the 1990-2022 China Statistical Yearbook and Shaanxi Statistical Yearbook,we analyzed the types and evolutionary characteristics of the main agricultural risks of family farms in Shaanxi Province,and comprehensively analyzed the awareness profiles of farmers on informal and market-based risk management tools in response to the data from the sample area.Further,the current status and characteristics of farmers’ social network,financial capability,risk management cognition,risk perception,risk perception,willingness to adopt risk management tools,and risk management tool adoption decision-making were measured based on 563 questionnaires of planting family farms in 9 prefectural-level cities and 12 counties(districts)in Shaanxi Province in 2022.OLS,Probit,ordered logit and PSM models were used to explore the influence of social network,financial capability on risk management perception,risk management tool adoption willingness,decision-making and performance of family farms.Sobel mediation effect was used to test the mediating role of financial capability,risk management cognition and risk management tool adoption intention.Finally,this paper proposes policy recommendations to optimize the adoption of risk management tools by family farmers and to enhance the sustainable development of farms from both internal and external perspectives of social network and financial capability.After the theoretical and empirical analyses,this paper draws the following main conclusions:(1)The profile of agricultural risk environment and risk management tools in family farms.In terms of natural risk disaster anomaly index,natural risk in Shaanxi Province shows a high fluctuation trend,and in the past five years,the risk of major disasters shows a decreasing trend,and the risk of minor disasters accounts for a high proportion.In terms of market risk,the growth rate of agricultural product prices has shown a development trend of fluctuating decline to slow recovery,while the prices of agricultural production materials have basically maintained the trend of successive years of growth,exacerbating the risk of farm operation in terms of both lower sales proceeds and higher production costs.In terms of policy risk,the No.1 document of the Central Government in 2013-2023 has played a better role in guiding the development of family farms,but there are problems of missing policy details and deviation in practice landing.In terms of the risk management tools understanding profile of family farmers in Shaanxi Province,farmers have a higher level of understanding of informal risk management tools,and the market-based risk management tools,from highest to lowest,are agricultural insurance,order contracts,and options/futures on agricultural products.(2)Characteristics of social network,financial literacy,and adoption of risk management tools among family farmers in the research area of Shaanxi Province.The level of farm owners’ social network and sub-dimension levels are low overall,and there are large inter-individual differences.Farmers’ financial literacy level is slightly higher than the average but there are differences in sub-dimension levels.In terms of risk perception,farmers’ perception of market risk is slightly higher than that of natural risk,and there is a big difference in risk perception among individuals;in terms of risk management cognition,farmers’ risk management cognition is higher than the average,but there is a difference in risk management cognition between demonstration and non-demonstration areas;in terms of willingness to adopt risk management tools,the overall willingness of farmers to adopt risk management tools is more positive,but in terms of the adoption type of specific market risk management tools,the willingness to adopt agricultural insurance is lower than the average,and there is a big difference between individuals.In terms of risk management tool adoption willingness,farmers’ overall adoption willingness is relatively positive,but in terms of specific marketbased risk management tools,agricultural insurance has the highest level of willingness,followed by order contracts,and options/futures on agricultural products have the lowest level;in terms of risk management tool adoption decision-making,51.87% of the farmers adopted risk management tools,and those who have already adopted risk management tools show a single feature in terms of the degree of adoption.(3)Social network and financial capability help to improve farmers’ risk management cognitive level,and financial capability has a mediating role in the relationship between social network and farmers’ risk management cognitive level.First of all,social network significantly and positively affects the level of risk management cognition of farmers,traditional social network and new social network sub-dimension has a positive and significant effect on the risk management cognition of family farms,the effect is 0.1774 and 0.4346 respectively.financial capability positively affects the level of risk management cognition of farmers,basic financial capability,and advanced financial capability on the level of risk management cognition effect is 0.0926 and 0.4346 respectively.In addition,financial capability has a mediating role in the influence of social network on farmers’ risk management cognitive level.(4)Social network and financial capability contribute to farmers’ willingness to adopt risk management tools,and risk management cognition mediates the relationship between social network and financial capability in influencing farmers’ willingness to adopt risk management tools,and financial capability mediates the relationship between social network and financial capability in influencing farmers’ willingness to adopt risk management tools.First,social network and its sub-dimensions significantly and positively affect farmers’ willingness to adopt risk management tools,and the positive effect of social network still exists for the willingness to adopt each market-based risk management tool.Second,financial capability and its sub-dimensions significantly affect the willingness to adopt risk management tools and positively and significantly affect the willingness to adopt individual risk management tools.Finally,risk management perceptions mediated the influence of social networks and its sub-dimensions on farmers’ willingness to adopt risk management tools,and also mediated the influence of financial capability and its sub-dimensions on the willingness of family farms to adopt risk management tools.Furthermore,financial capability plays a mediating role in the relationship between social network and farmers’ willingness to adopt risk management tools,and based on the test of chain mediation effect,we found that the chain mediation of social network-financial capability-risk management cognition-willingness to adopt risk management tools is significant,and the chain mediation of willingness to adopt agricultural insurance is also significant.The chain mediation of willingness to adopt agricultural insurance is also significant,but the chain mediation of willingness to adopt agricultural options/futures and order contracts is not significant.(5)Social network and financial capability are conducive to the adoption of risk management tools by farmers.Willingness to adopt risk management tools plays a mediating role in the relationship between social network and financial capability on the adoption of risk management tools by family farms,and financial capability plays a mediating role in the relationship between social network and the willingness of farmers to adopt risk management tools.First,social network and its sub-dimensions significantly and positively affect farmers’ risk management tool adoption decisions and the degree of adoption.Second,financial capability and its sub-dimensions also significantly affect risk management tool adoption decision and adoption level.Finally,in the mediation effect test,willingness to adopt risk management tools mediated the relationship between social network and financial capability and its sub-dimensions on risk management tool adoption decision and adoption level in family farms.Financial capability plays a mediating role in the relationship between social network influencing farmers’ risk management tool adoption decision and degree.Finally,in a further exploration of chain mediation effects it was shown that the chain mediation effects of social network-financial capability-intention to adopt risk management tools-adoption decision and extent of risk management tools were all valid.The results remain robust after considering endogeneity issues.(6)Risk management decisions significantly contribute to the improvement of farms’ subjective and objective performance.Family farms involved in risk management improved subjective performance by 28.53% and objective performance by 10.95%.And the path of social network affecting family farms’ subjective and objective risk management performance through risk management decisions is established,with mediating effects accounting for 12.85%and 11.13%,respectively.In addition,the path of financial capability influencing subjective and objective performance through risk management decisions holds,with mediating effects of 15.23% and 18.14%.Finally,the path of social network influence on subjective and objective performance of risk management of family farms under the mediating effect of financial capability was established.Based on the theoretical analysis and conclusions of the study,this paper puts forward the following policy recommendations: promote the multi-dimensional development of farmers’ social networks,take the village as the carrier,take the flow of information elements as the purpose,and enhance the supply of external resources for risk management by starting from the traditional and new social networks in both directions;enhance the level of financial capacity of farmers,formulate the top-level enhancement strategy from the government departments,and cooperate with financial institutions to implement it,and reduce the inherent barriers to agricultural risk management;accelerate the construction of agricultural risk prevention system;explore the risk management factors of family farms,reduce the risk perception bias,and connect the risk prevention multiple subjects.To accelerate the construction of the agricultural risk prevention system,tap into the risk management factors of family farms,reduce the risk perception bias,and link up the diversified subjects of risk prevention.