Capital structure of social purpose companies – a panel data analysis

Abstract

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 2228 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

Acknowledgements

We gratefully acknowledge comments by Simon Cornée, Bruno Heyndels, Marek Hudon, Luminita Postelnicu, Ariane Szafarz, the participants of the SSFII conference in Oxford (April 23–24, 2015), especially Gregor Dorfleitner, and two anonymous referees on an earlier version of the paper. We also thank Joshua Holm for linguistic editing.

Disclosure statement

No potential conflict of interest was reported by the authors.

Funding

This research has been carried out in the framework of an Interuniversity Attraction Pole funded by the Belgian Science Policy Office under the title ‘If not for Profit, for What and How?', coordinated by Jacques Defourny (Université de Liège).

Notes

1. in French: Sociétés à finalité sociale (SFS); in Dutch: Vennootschap met een sociaal oogmerk (VSO). With respect to the Belgian law, the legal form of the SPC is available for enterprises which run their business under any available legal ‘corporate’ form, focus their activities on their social aims and meet a set of formal criteria. For details, see: http://www.mi-is.be/be-fr/economie-sociale/statuts-0.

2. Financial debt is debt borrowed from the financial institutions.

3. As all SEs in the sample had some debt, nothing is gained from applying a Heckman analysis for total debt. The same argument applies to the Tobit analysis.

4. ConcertES asbl was developed as an Observatory of Social Economy in Belgium; for details, see, www.concertes.be.

5. The coefficient estimator of the debt ratio of the previous period is consistent, β∈(0,1) (Gujarati and Porter 2009).

6. The analysis of short-term and long-term financial debt separately do not fundamentally change the results; therefore, the financial debt ratio is evaluated with respect to total financial debt (short term + long term).