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Islamic Financial Decision-Making Among Smes in the Sultanate of Oman: an Adaption of the Theory of Planned Behaviour

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Islamic Financial Decision-Making Among Smes in the Sultanate of Oman: an Adaption of the Theory of Planned Behaviour Journal of Behavioral and Experimental Finance ( ) – Contents lists available at ScienceDirect Journal of Behavioral and Experimental Finance journal homepage: www.elsevier.com/locate/jbef Full length article Islamic financial decision-making among SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour Yasmeen Al Balushi a,*, Stuart Locke b, Zakaria Boulanouar c a School of Accounting, Finance and Economics, Waikato Management School, University of Waikato, New Zealand b University of Waikato, New Zealand c Umm Al Qura University & Muslim Marketing Matters, Saudi Arabia article info a b s t r a c t Article history: Adapting the theory of planned behaviour to the area of Islamic financial decisions among SMEs, we argue Received 1 June 2018 that nonfinancial factors such as SME owner-manager attitudes, subjective norms, perceived behavioural Accepted 18 June 2018 control and behavioural intentions largely affect the financial decisions of SMEs. A hierarchical multiple Available online xxxx regression with a sample size of 385 SMEs supports this study's behavioural approach to understanding financing decisions. While the factors mentioned above acted as stimuli for SME decision-making, Keywords: SMEs religiosity was shown to negatively affect behavioural intention to adopt Islamic financial instruments Islamic finance decision-making (IFI). Implications of financial decisions, specifically around Islamic finance and ideas for future research, Theory of planned behaviour are discussed. Religiosity ' 2018 Elsevier B.V. All rights reserved. 1. Introduction incontrovertibly explain critical factors that affect owners or man- agers' financing decisions (Myers, 1984; Norton, 1991). As Zell- Smaller firms are financed differently from larger firms (Moritz weger, Frey, and Halter conclude: ``We need to accept that financ- et al., 2016) because both economic and noneconomic motives ing in most privately held companies cannot be fully explained influence their financial reasoning (Gallo et al. 2004). Furthermore, with traditional financial theory based on the paradigm of pure López-Gracia and Sogorb-Mira(2008) and Berger and Udell(1995) rationality'' (2005, p. 20). confirm that SMEs not only behave and act differently from larger By using a noneconomic rationale and incorporating insight firms but also utilise different financing mechanisms. However, from social psychology to research Islamic financial decisions, our despite their distinctive approach to financing policy (Gallo et study answers calls in the literature to expand financial choice al., 2004), most research into SME financing employs traditional models to research financial decisions in privately held firms (Bar- capital structure theories – principally trade-off theory or pecking ton and Gordon, 1987, 1988; Beattie et al., 2006; Matthews et al., order theory – as a framework for analysis (Serrasqueiro et al., 1994) and to investigate how behavioural factors affect financial 2011). structure decision-making processes (Romano et al., 2001). While capital structure theories grounded in the finance Borrowing from behavioural psychology to develop a concep- paradigm have increased our understanding of capital structure tual model for understanding Islamic financial decision-making, decision-making (Matthews et al., 1994), from a managerial choice our study conducted a face-to-face survey in the Sultanate of Oman perspective that includes nonfinancial and behavioural factors among SME owner-managers because, as Matthews et al.(1994) (Barton and Gordon, 1988; Matthews et al., 1994), they fail to address the complexities around capital structure decision-making note, cognitive psychology research supports taking the individual in privately owned firms. Additionally, research shows that tradi- approach to understanding capital structure decisions in privately tional capital structure approaches either fail to account for the held firms. To gain better understanding of factors that influence importance of small businesses' preferences and norms (Pearson small business owners' funding decisions, we framed our study et al., 2008) or ignore managerial preferences. Thus, capital struc- around Ajzen's(1991) theory of planned behaviour (TPB). ture decision theories neither explain actual financing decisions TPB has been successfully applied in the small business re- adequately nor deliver financial theories or empirical studies that search domain (Brettel et al., 2009; Ghouri et al., 2016) where it fits particularly with understanding privately held firm financing decisions (Brettel et al., 2009; Kelley and Buultjens, 2003). Brettel * Corresponding author. E-mail addresses: [email protected] (Y.A. Balushi), et al.(2009) also supports TPB's empirical validity in the finance [email protected] (S. Locke), [email protected] (Z. Boulanouar). context, specifically SMEs' financing decision behaviour. While TPB https://doi.org/10.1016/j.jbef.2018.06.001 2214-6350/' 2018 Elsevier B.V. All rights reserved. Please cite this article in press as: Balushi Y.A., et al., Islamic financial decision-making among SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour. Journal of Behavioral and Experimental Finance (2018), https://doi.org/10.1016/j.jbef.2018.06.001. 2 Y.A. Balushi et al. / Journal of Behavioral and Experimental Finance ( ) – has been widely used to evaluate a range of individual behaviours small businesses are likely to engage in a financial logic based on in the finance and investment context (Koropp et al., 2014; Su- not only rational economic motivation but also nonfinancial and darsono, 2015), its suitability for use in evaluating decisions in an behavioural factors that have received relatively little attention organisational context is arguable because of the nature of the dy- from finance researchers (Michaelas et al., 1998). namic and complex ``multiphase, multiperson, multidepartmental Consequently, to better understand SME's financial decision- and multiobjective'' decision processes in organisations (Johnston making, we need to explore nonfinancial and behavioural factors & Lewin, 1996,p1). Consequently, the predictive capacity inherent (Baker and Ricciardi, 2014; Matthews et al., 1994) such as the in TPB may well have relevance to evaluating decision-making owner-managers' attitudes, subjective norms, and perceived be- within the small business field (Southey, 2011), especially as finan- havioural control that influence financing decisions, specifically cial decisions are at least partially the outcome of owners' personal Islamic financing decisions. Furthermore, financial literature has preferences (Brettel et al., 2009). Adopting this focus, therefore, ignored how religiosity may affect the financing decisions of SME allows us to establish the role of managerial beliefs, attitudes, and owner-managers (Baker and Ricciardi, 2014). Finally, in a country experience in influencing capital structure decisions. where Islamic finance is in its infancy, ways in which aware- This study contributes to the SME's finance literature in impor- ness about Islamic financing may affect financing decisions among tant ways. First, we broaden the understanding of SMEs' financial small business owners need to be understood. decision-making by recognising unique SME owner-manager in- fluences on financing decisions. Second, because most studies on 2.1. TPB and small business financing SME finance focus on conventional financing, we obtain a more comprehensive perspective by analysing Islamic financing. Thirdly, The theory of reasoned action (TRA) (Ajzen and Fishbein, 1980; we examine the factors that influence attitude formation towards Fishbein and Ajzen, 1975), of which TPB is an extension, has Islamic finance from the perspective of SMEs' owner-managers received considerable support in empirical studies of consumer because all previous research omitted that perspective and because behaviour and social psychology (Albarracin et al., 2001). TRA's we adopt TPB as the basis of our investigation. Fourth, by testing ability, however, to predict behaviour and behavioural intentions the full TPB model, as described by Ajzen(2011), we provide the when individuals cannot voluntarily control their behaviour is lim- foundation for further research that aims to incorporate new de- ited (Ajzen, 1991; Taylor and Todd, 1995). By adding the influence velopments into the model, thereby increasing our understanding of perceived behavioural control on behavioural intentions and behaviour, TPB proposed to remedy the model's limitations (Ajzen, of SMEs' intended behaviour around Islamic finance. Modifying 1985, 1991). the TPB model through the addition of variables like religiosity We use Ajzen's(1991) TPB to study Islamic financial decision- and awareness behind TPB constructs may help to maximise the making behaviour in SMEs. This theory explains and predicts hu- predictive efficacy of the model (Moon and Kim, 2001). Lastly, man behaviour that is not fully under volitional control (Ajzen, we contribute to the wider research around SMEs, particularly on 2002b) where behavioural decisions and the proximate behaviour SME financing, by showing that noneconomic variables, especially are seen as determined primarily by the decision-maker's be- psychological factors, can influence financing behaviour decisions. havioural intentions. Behavioural intentions, in turn, arise from three determining factors: attitudes, perceived norms, and per- 2. Literature
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