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

Listed author(s):
  • 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)

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.

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Paper provided by Associazione Italiana per la Cultura della Cooperazione e del Non Profit in its series AICCON Working Papers with number 72-2010.

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Length: 14 pages
Date of creation: 17 Mar 2010
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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