Capital Structure of Social Purpose Companies - A Panel Data Analysis

Academic research on financial issues of social enterprises is scant. There are neither theoretical nor empirical studies which discuss the capital structure of these enterprises. However, the understanding of these points is... [ view full abstract ]

Academic research on financial issues of social enterprises is scant. There are neither theoretical nor empirical studies which discuss the capital structure of these enterprises. However, the understanding of these points is fundamental for the effective management, creating the future strategy, modelling processes and finally, for building the framework for these enterprises in the theory. We aim to help close this research gap by describing and explaining the capital structure of social enterprises, as well as its determinants and potential consequences.
This paper examines the determinants of borrowing decisions of social enterprises. Following the streams of research dealing with for-profit firms and non-profit organisations, we apply a panel data analysis of 2,228 Belgian social purpose companies over the period of 2004-2013.
We find that, in their capital structures, Belgian social purpose companies show a high dependence on financial determinants such as: profitability, nature of assets, growth opportunities, size, the probability of agency problem and the previous year's leverage. They also demonstrate a high susceptibility to activity domain, legal form, region and evolution over time. Our results are in line with the mainstream literature on both for-profit organisations and non-profit organisations. We conclude that the capital structure of social enterprises mixes features of both research streams.

Keywords: Social enterprises, capital structure.