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

Using a longitudinal data set of balance sheets of 504 nonprofit and for-profit firms operating in the social residential sector in Italy, we investigate the relation between capital structure and type of enterprise. The nondistribution constraint typical of nonprofit organizations rises the fraction of own capital on total investment: this is shown, by means of a theoretical moral hazard model, to reduce their leverage (i). By contrast, the intrinsecally high committment of nonprofit entrepreneurs weakens the moral hazard problem: this augments leverage (ii). Our empirical analysis shows that once control 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 effect (i) prevails on effect (ii).