Sub-theme 2.2. Towards a benefits theory of social enterprise finance

Sub-theme 2.2. Towards a benefits theory of social enterprise finance

Our research aims to enrich the initial model developed by Young (2007) in three regards: by adapting it to the case of social enterprises that do not adopt a nonprofit legal form, by integrating the "organizational lifecycle" dimension and by linking the financing mix to the socio-political context in which social enterprises are active.

First, while conceived to account for the financing mix of nonprofit organizations, this theory could also serve as a basis for a theoretical model of the financing mix of social enterprises including also those enterprises that have adopted another legal form than that of nonprofit organization.

Secondly, and more fundamentally, this theory was not developed in a dynamic perspective. The capacity of social enterprises to mobilize resources by valorizing the benefits that they produce to their various stakeholders is very likely to vary over time. Indeed, the access to various sources of funding can evolve according to the enterprise's developmental stage. Some resources are probably more adequate and more accessible in the start-up stage (volunteering, donations by relatives, one-shot public grants), while others become accessible later on, as the enterprise develops (recurring subsidies or sales on the market). In corporate finance theory, links can be found between the structure of capital and the enterprise's life cycle. These theoretical elements are inspiring in that they suggest an evolution in the financing needs of enterprises and an evolution in their capacity to gain access to capital. However, they do not enable to understand the evolution that can be observed in the operating financing-mix of social enterprises.

Thirdly, the progress made at the global level in the statistical apprehension of the nonprofit sector allowed to demonstrate that the socio-political contexts within which organizations are active have an obvious impact on their financing mix. The "benefits theory" establishes a very useful distinction between the private benefits and the collective benefits produced by organizations, but it remains vague on the criteria that allow to decide whether a collective benefit is valorized as a public benefit (leading to public financial support) or whether it is valorized as an indirect benefit (requiring a support of the philanthropic type). In order to reinforce its explicative and predictive capacity, the benefits theory should be enriched by taking the context into account.

From a methodological point of view, three complementary approaches are to be considered. First, a theoretical model inspired by the benefits theory is to be built which includes the lifecycle dimension. This model is to be tested through a quantitative analysis carried out among Belgian social enterprises in three sectors of activity (work integration, personal services and renewable energy). Special attention is to be paid to the impact of the life cycle on the financing mix. Secondly, in order to take into account the historical evolution of the socioeconomic context, case studies are to be carried out, in two fields that have undergone significant evolutions (modes of public regulation, change in public opinion, etc.): work integration and microfinance. Thirdly, a comparative geographical perspective will enable to take into account the influence of the socio-economic context, through a comparative quantitative analysis of the financing mix of a sample of social enterprises active in the same fields in three regions identified by theory as having different models of social enterprises (see WP5).