Financing Social Enterprises: An Upper Echelon Perspective

Social entrepreneurship literature is silent on what governs social enterprises' (SE) financing decisions in contexts where there are no clear legal distinctions between social and commercial enterprises. Using a qualitative multiple case study approach, this research explores how social entrepreneurs decide their financial strategies and evaluate investors in such contexts where such blurred boundaries exist. The case study of nine Indian SEs operating in emerging sectors of health, education, and agriculture reveals social entrepreneurs' perspectives on SE financing and practical dilemmas faced when moving beyond donation is considered. Our findings present that the organizational factors governing their financing strategy and due diligence criteria used for investor evaluation reflect the social entrepreneur's value-based lens of self-conceptualizing their own vision of 'What is a Social Enterprise' in their financial decisions. Though this does not adhere to popular capital structure theories used in commercial finance, it conforms with Hambrick and Mason's Upper Echelons Theory, which states that organizations reflect their top executive's values and belief in their decisions. We observe in our study that self-discretion and value expression is a contextual necessity for social entrepreneurs operating in emerging sectors where there are no clear legal distinctions in organizational forms or theoretical directives on financing decisions.

Automated summary

The social entrepreneurship literature lacks discussion on financing decisions of social enterprises in contexts where there are no clear legal distinctions between social and commercial enterprises. This research presents findings from a qualitative multiple case study of nine Indian social enterprises in emerging sectors, revealing that financing strategy and investor evaluation criteria reflect social entrepreneurs' value-based self-conceptualization of their own vision of 'What is a Social Enterprise'. The study observes that self-discretion and value expression play a contextual role for social entrepreneurs operating in emerging sectors without clear legal distinctions or theoretical guidance on financing decisions.