Financial resources are critical for any young social enterprise. This study investigates the impact of social and economic signals on those social enterprises receiving loans from a social finance institution. Analysis of a sample of 109 social enterprises in South Korea showed that social entrepreneurship and management capabilities at the CEO level, and the corporate pursuit of social values and validity of business plans at the firm level, have a positive impact on getting loans approved by a social finance institution. We also found that those social enterprises that perform well on both social and economic dimensions, namely ambidextrous enterprises, are at a disadvantage when it comes to securing loan approval. Such a trade-off is counterintuitive, making the financial resource strategies and consequent signals of social enterprises more complicated than previously assumed.
The capital structure of co-operatives can differ from that of IOB (Investor-Owned Businesses) since the two organizations differ in their aims, governance structures and decision-making principles. This paper examines whether the determinants verified in IOB affect the leverage ratio of consumer co-operatives. Consumer co-operatives in South Korea have been rapidly growing during the last decade. There are two leading theories in finance that explain capital structure: the trade-off and pecking order theories. Focusing on consumer co-operatives in South Korea, the paper aims to analyze empirically what determinants have effect on the capital structure of consumer co-operatives and which of the two theories is more plausible. This study reveals that profitability and firm size have a significantly negative effect on leverage while tangibility and growth have a significantly positive effect on it. In conclusion, it seems that neither of the theories above perfectly accounts for the capital structure of consumer co-operatives because of the differences in governance characteristics between consumer co-operatives and IOB as well as in the costs of bankruptcy, agency, informational asymmetry and securities issuance. *
Member shares of co‐operatives are hybrid securities in that they have characteristics of both equity and liabilities. Prior studies propose that in order to classify hybrid securities as equity or liabilities, the economic substance of those securities should be considered. This study aims to examine whether the economic substance of member shares can be considered as equity or liabilities. Systematic risk is used as a proxy of economic substance. This study tests whether the proportion of member shares to equity is positively or negatively related to equity betas. If the test shows a negative relation, member shares can be considered to have the economic substance of equity; a positive relation implies that member shares have the substance of liabilities.
The results show that the proportion of member shares to equity is significantly negatively related to systematic risk of equity, which means that member shares have equity‐like characteristics. The robustness checks taking into account the tax effect of debt support the findings more strongly that redeemable member shares play an equity‐like role in consumer co‐operatives in South Korea. Although the legal and institutional systems in Korea do not provide member shares of consumer cooperatives with a clear status as equity, member shares still show equity‐like economic substance.
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