Published in: Journal of Business Research, Volume 107, February 2020, Pages 104-117
Cited as: Sreevas Sahasranamam, M.K. Nandakumar, Individual capital and social entrepreneurship: Role of formal institutions, Journal of Business Research, Volume 107, 2020
Drawing on capital theory and institutional theory, we hypothesize the contingent role of a country’s formal institutions (financial, educational, and political) on the relationship between individual capital (financial, human and social capital) and social entrepreneurship entry. Using the Global Entrepreneurship Monitor data, we find that all three forms of individual capital are important for social entrepreneurship entry. Moreover, we find that this relationship is contingent on the formal institutional context such that (i) philanthropy-oriented financial systems have a positive moderating effect on investment of financial capital; (ii) educational systems have a positive moderating effect on investment of human capital; and (iii) political systems have a positive moderating effect on investment of both human and financial capital. We make substantial contributions to the literature on social entrepreneurship by ascertaining the nature of contingent effects of formal institutions on the relationship between individual capital and the emergence of social enterprises.
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Recommendations from this resource
Policy-makers need to pay due attention to the philanthropy orientation of their financial systems (rather than commercial orientation) to encourage individuals to invest their financial capital towards social enterprise. This could entail offering tax incentives and other benefits to philanthropic and charitable donors.
Secondly, improving educational standards is key for supporting the investment of individual human capital in social entrepreneurship, owing to potential inculcation of prosocial motivations through education.
Thirdly, given the significance of institutional support from the political system, policy-makers need to put in place legislations that enhance the legitimacy of social enterprise as an organizational form (e.g., Benefit corporations (Miller-Stevens, Taylor, Morris, & Lanivich, 2018)) and promulgate legislation that would offer resource support (e.g., the mandatory CSR policy in India (Agrawal & Sahasranamam, 2016).
1) Future research using longitudinal research designs that span a longer period could
unpack the dynamic relationships between individual capital and social enterprise. For instance, researchers could examine the combined role of individual capital and institutional context on social entrepreneurship across phases (nascent, new, and established).
2) Furthermore, given the differential effect of commercial and philanthropy-oriented financial systems that we observe, future research needs to consider different categories of external finance such as debt, equity, grants, social venture funds, and crowdfunding separately, and study both its direct and contingent effects on social entrepreneurship. Considering the insignificant moderating effect of political system on investment of social capital in social entrepreneurship entry, scholars could undertake a nuanced effort exploring the contingent effects on the relationship between different forms of social capital (such as bonding and bridging social capital) and social entrepreneurship entry.
3) This research considers only the contingent role of formal institutions; future research needs to explore the role of informal institutions such as culture in greater detail.
4) Future research could explore the role of sub-national institutions on social entrepreneurship. There is also need for greater quantitative research to study how social entrepreneurship emerges and thrives in contexts of formal institutional voids.