The Moderating Effects of Size and Experience in Balancing Social and Financial Performance in Social Enterprises: Evidence From Microfinance Institutions

Abstract

Social enterprises address societal problems with conventional business models. While scholars have extensively theorized the trade-offs between social and financial goals, little is known about the factors that affect the co-existence of these dual objectives. We theorize social enterprises’ ability to balance their social and financial performance as a function of their size and experience. We argue that the acuteness of social-financial trade-offs varies across organizations and that social enterprises get better at balancing their dual objectives as they grow larger and older. We study microfinance institutions (MFIs), which are social enterprises that provide financial services to the poor. Using data on 611 MFIs, the empirical analysis confirmed our predictions. We attribute our findings to learning effects and efficiency gains. Overall, in contrast to studies that gloss over heterogeneities among social enterprises, our study shows that the ability of these organizations to balance their dual goals depends on firm-level characteristics.