Risk Tolerance, Legitimacy, and Perspective: Navigating Biases in Social Enterprise Evaluations

Abstract

Social enterprises viewed as viable from societal perspectives are often regarded differently from traditional business perspectives. To examine this difference, we undertook two empirical studies of risk tolerance and legitimacy perceptions among observers of social enterprise and for-profit ventures. In Study 1, participants (n = 115) drawn randomly from Amazon’s Mechanical Turk, an online crowdsourcing marketplace for human intelligence tasks, examined two hypothetical cases and completed the risk tolerance scale of the Jackson Personality Inventory. Results show that social enterprises were seen as having lower industry legitimacy, especially by individuals with lower risk tolerance. Here, industry legitimacy mediated the effect of venture purpose on cognitive legitimacy. In Study 2, practicing entrepreneurs (n = 23) narratively interpreted Study 1 results from social enterprise and traditional business perspectives. Both studies demonstrate that social enterprise legitimacy evaluations vary based on risk tolerance and the type of legitimacy in question. Overall findings show that explicit observations of risk tolerance effects, and multidimensional conceptualizations of legitimacy, are important to accurate evaluations of social enterprises.

Measuring impacts of social enterprises: perspectives from Brazilians entrepreneurs and investors

“…This does not mean that evaluation is unnecessary to them, but it is often a request beyond what ventures can bear and should be thought of within a critical business survival context. It is exciting thinking from Murphy et al (2019) that there is a positive relationship between the industry and the SE itself: the more the industry is perceived as legitimate, so is the social enterprise within it. This kind of thinking may support EI3 and the entrepreneurs’ vision as they see themselves as legitimate in a causal relationship: working on an enterprise benefits the society to some extent, and this is enough to demonstrate its positive impact even without data proof.…”

“…In opposition to the third sector, where organizations seek the generation of impact for outside donors and beneficiaries rather than financial returns for shareholders (Mitchell and Berlan, 2018), aiming long-term viability by avoiding losses, SE search is financially viable to continue operating and serving their social missions alongside generating profit (Luke et al , 2013). Murphy et al (2019) emphasize that the dimension of risk tolerance and legitimacy perceptions is especially emblematic when comparing evaluation in for-profit sectors and SE since there are nonstandard denominations of “value,” bringing difficulties in measuring returns on investment. Therefore, an evaluation in SE should not be reduced or quantified only in monetary aspects but should be valued and considered relevant for what it represents beyond profits (Luke et al , 2013).…”

“…Besides, the investees must have adequate organizational capacity to manage innovative and scalable projects, complex financing and potential associated financial risks (Phillips and Johnson, 2019). However, there is still a lack of consensus about delineating legitimate SE, which creates problems when looking for resources to support their growth and development (Murphy et al , 2019).…”

The organizational legitimacy of Russian firms: Contextual specificity and legitimization strategies

“…Size of a firm [Dobbin et al, 1998;Ruef, Scott, 1998] Name attributes (based on length, ambiguity, and domain specificity) [Glynn, Abzug, 2002;Kuilman, Wezal, 2013] A density is the total number of similar firms in existence [Kuilman, Wezal, 2013;Hannan, Carrol, 1992] Favorable press coverage [Deeds, Mang, Frandsen, 2004;Murphy et al, 2019;Pollock, Gulati, 2007;Pollack, Rutherford, Nagy, 2012] Receiving financial or other support from state or credible centers [Deeds, Mang, Frandsen, 2004] Network activities [Human, Provan, 2000;Prashantham, Kumar, Bhattacharyya, 2019] Charitable donations [Galaskiewicz, 1985;Golant, Sillince, 2007;Humphreys, Latour, 2013] Moral legitimacy…”

“…Thus, the accepted and legitimate organizational practices, and product or service will encourage the new organizations also have the similar ones in order to be locally customized that are essential for Russian firms' successful expanding abroad . Marketing, promotional efforts [Tornikoski, Newbert, 2007] and favorable press coverage of a company or even industry have the influence on the cog-РЖМ 18 (3): 289-312 2020nitive legitimacy too [Deeds, Mang, Frandsen, 2004;Murphy et al, 2019;Pollock, Gulati, 2007]. This will decrease Russian firms' liability of foreignness at foreign markets.…”