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Do Social Enterprises Finance Their Investments Differently from For-proft Firms?

Author

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  • Fedele , Alessandro

    () (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

  • Miniaci, Raffaaele

    () (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

Abstract

Using a longitudinal data set of balance sheets of 504 non profit and for-profit firms operating in the social residential sector in Italy, we investigate the relationship between capital structure and type of enterprise. The nondistribution constraint typical of 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 (ii). Our empirical analysis shows that once control for observable characteristics for-profitt 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 prevails on effect.

Suggested Citation

  • Fedele , Alessandro & Miniaci, Raffaaele, 2010. "Do Social Enterprises Finance Their Investments Differently from For-proft Firms?," AICCON Working Papers 72-2010, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  • Handle: RePEc:ris:aiccon:2010_072
    Note: Contact author: Department of Economics, University of Brescia, Via San Faustino 74/b, 25122 Brescia - Italy. email: fedele@eco.unibs.it
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    Cited by:

    1. Amélie Artis & Simon Cornée, 2013. "Transformation informationnelle, certification et intermédiation financière : le cas de la banque solidaire," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201326, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    2. Monica Billio & Roberto Casarin, 2010. "Bayesian Estimation of Stochastic-Transition Markov-Switching Models for Business Cycle Analysis," Working Papers 1002, University of Brescia, Department of Economics.
    3. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
    4. Alessandro Fedele & Raffaele Miniaci, 2017. "Stakeholder Orientation and Capital Structure in the Social Care Sector," BEMPS - Bozen Economics & Management Paper Series BEMPS40, Faculty of Economics and Management at the Free University of Bozen.
    5. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 257-280, February.
    6. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    7. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers 0913, University of Brescia, Department of Economics.

    More about this item

    Keywords

    for-profit and nonprofit enterprises; capital structure;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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