The Effects of Government Funding on Social Performance of Korean Social Enterprises

During the last decade in Korea, social enterprises have shown incredible growth due to the civil society’s initiatives on the development of social economy as well as the government’s active promotions policies in the... [ view full abstract ]

During the last decade in Korea, social enterprises have shown incredible growth due to the civil society’s initiatives on the development of social economy as well as the government’s active promotions policies in the face of the rapid socio-economic changes such as high unemployment, the hollowing-out local economy, and the population changes toward the old-aging since the financial crisis in the late 1990s. Especially, since the Law on the Promotion of Social Enterprises enacted in 2007, the government began to subsidize the certified social enterprises and the number of social enterprises has rapidly increased. However, there have been criticisms and doubts that their social performance in meeting emerging social needs is somewhat limited and less sustainable. In this article, the authors explore whether and to what extent the government funding to social enterprises affects their social performance using data from the online regulatory filing system provided by Korean Social Enterprise Promotion Agency. We find that government funding negatively influences the social performance of social enterprises as defined as more benefits to the disadvantaged in terms of income and job stability, although the rapid growth of the new start-up social enterprises have increased overall jobs in the labor market. The additional funding from private companies and non-governmental organizations increases the number of full-time employees. However, further analysis suggests that government funding has no interaction effects with contribution from other types of organizations. Based on the results of this analysis, this study suggests implications for practice and future research.