Do social enterprises finance their investments differently from for-profit firms? The case of social residential services in Italy

Raffaele Miniaci | Alessandro Fedele
2009

EMES Conferences Selected Papers Series, ECSP-T09-09
Thematic line: Fields of activities and country studies

We use a longitudinal data set of balance sheets of 504 firms operating in the social residential sector in Italy to investigate whether the capital structure differs between profit and nonprofit enterprises.

The nondistribution constraint of the nonprofit organizations increases the fraction of own capital on total investment: this is shown, by means of a theoretical moral hazard model, to reduce their leverage. By contrast, the intrinsecally high commitment of nonprofit entrepreneurs weakens the moral hazard problem: this augments leverage.

Our empirical analysis shows that once controlled for observable characteristics, for-profit companies have a leverage 6% higher than nonprofit enterprises, even if the latter faces lower credit costs. We explain this finding by arguing that the effect of the nondistribution constraints prevails on the effect of the higher commitment of the social entrepreneurs.

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