SOCIAL ENTREPRENEURSHIP AND ENVIRONMENTAL FACTORS: A CROSS-COUNTRY COMPARISION
Research Work International Doctorate in Entrepreneurship and Business Management Department of Business Economics & Administration

Author: Elisabet Ferri elisabet.ferri@uab.cat

Supervisor: David Urbano david.urbano@uab.cat

September 2011

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ABSTRACT Social entrepreneurship is a subject of growing interest for both academics and governments. However, from the quantitative approach, little is known about the environmental factors that affect this phenomenon. For this reason, the main purpose of the present study is to statistically explore the relationship between environmental factors and social entrepreneurship, as seen through a cross-country comparison and in the light of institutional economics as the conceptual framework. Linear regression analysis is used over a sample of 49 countries to study the impact of formal institutions (public spending, access to finance and governance effectiveness) and informal institutions (social needs, societal attitudes and education) on social entrepreneurial activity. The main findings suggest that, while societal attitudes increase the rates of social entrepreneurship, public spending has a negative relationship with this phenomenon. Contributions of the research are both conceptual, in terms of development in the field of social entrepreneurship from an institutional perspective, and practical, in terms of designing policies to promote social enterprise creation. Keywords: Social entrepreneurship, social entrepreneurial activity, environmental factors, institutions, institutional economics.

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TABLE OF CONTENTS
1. Introduction 2. Conceptual framework
2.1 Social entrepreneurship: State of the art 2.1.1 Contents of existing research on social entrepreneurship 2.1.2 Methodological issues on social entrepreneurship research 2.2 Institutional approach and social entrepreneurship 2.3 Environmental factors conditioning the creations of new social ventures: Research hypotheses 2.3.1 Formal institutions 2.3.2 Informal institutions 18 18 20

6 9
9 9 14 15

3. Methodology
3.1 Model and data 3.2 Variables 3.2.1 Dependent variables 3.2.2 Independent variables 3.2.3 Control variable

22
22 22 22 23 24

4. Results and discussion 5. Conclusions References Annex

26 30 32 36

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Index of Tables
Table 1. Main definitions of SE Table 2. Main research lines Table 3. Main traits of empirical studies Table 4. Formal and informal institutions in SE Table 5. Description of Variables Table 6. Descriptive statistics and correlation matrix Table 7. Results 10 12 15 17 25 26 27

Index of Figures
Figure 1. Evolution in the number of published articles on social entrepreneurship in JCR Figure 2. Type of Research: Conceptual versus empirical research Figure 3. Model of the environmental factors affecting social entrepreneurial activity 14 15 21

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1. INTRODUCTION Social Entrepreneurship (SE), as a new type of entrepreneurship, is emerging around the world, based on a social wealth creation against the generation of economic wealth as its main objective (Dees, 2001; Drayton, 2002; Leadbeater, 1997). There are some researchers who note that social entrepreneurial activities affect economic growth, reduce poverty and improve large-scale social development (Yunus & Weber, 2008; Zahra, Gedajlovic, Neubaum, & Shulman, 2009). SE is a new concept, but it is not a new phenomenon (Dees, 2001). Although the term is relatively new, social entrepreneurs can be found throughout history1 such as Florence Nightingale and Robert Owen, among others. In the literature, the concept of SE was first used between the 1980s and 1990s (Waddock & Post, 1991; Young, 1983). However, as a result of the intensity and complexity of social and environmental problems, SE – defined as the employment of entrepreneurial skills through an innovative process or activity that creates social, which can occur within or across non-profit, government or business sectors – has become increasingly prominent. Many researchers in this area recognise three decisive macro-dynamics in the emergence of social entrepreneurial activities around the world. The first of these is the slowdown of the public offering of products and social services, which has contributed to an increase in unmet needs (Light, 2008). This is especially true for social welfare, with regards to which public sector involvement is rather limited (Sharir & Lerner, 2006). Second, the existing disequilibrium in the distribution of income level in both developing and developed countries has increased the need for a new paradigm and new business strategies (Bornstein, 2004). Over the past two decades, social entrepreneurs have also increasingly employed business strategies to address problems and generate revenues. Finally, the increased competition within the non-profit sector to achieve donations and grants has led to the need to professionalise the activities undertaken with the objective of reducing financial dependence, and thus ensure their economic stability for the development of their social mission (Perrini, 2006). In this regard, and over the last couple of decades, social movements and organisations led by Ashoka Foundation (Bill Drayton), the Skoll Foundation (Jeff Skoll), and Schwab Foundation (Hilde and Klaus Schwab) have begun promoting SE. The increasing dynamism and vitality are observed in the search for new themes and ideas concerning SE (Christie & Honig, 2006). The literature in SE has tended to focus on renowned social entrepreneurs’ experiences, personal characteristics, leadership and success factors. However, there is no solid evidence regarding one of the interesting aspects of SE: the study of how the environment factors affect (promote or inhibit) the
1

In the past, social entrepreneurs were called: visionaries, humanitarians, philanthropists, reformers or activists (Bornstein &

Davis 2010).

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emergence of social entrepreneurial activities (Urbano, Toledano, & Soriano, 2010). In this sense, an important number of both theoretical and case studies can be found (Bacq & Janssen, 2011; Dhesi, 2010; Mair & Martí, 2009; McMullen, 2011; Sud, VanSandt, & Baugous, 2009; Townsend & Hart, 2008; Weerawardena & Mort, 2006). Despite this, most studies deal with the issue in a fragmented and excessively descriptive way. This lack of empirical studies is putting limits on our understanding of social entrepreneurial activities, so it is important to devote efforts in this direction. Taking into account the considerations noted earlier, the framework of institutional economics (North, 1990, 2005) is adopted to analyse environmental factors that affect SE. According to this framework, institutions include any form of constraint that human beings devise to shape their interaction. In general terms, North (1990) distinguishes between formal institutions, such as political and economic rules and contracts, and informal institutions, such as codes of conduct, attitudes, values, and norms of behaviour. In the case of social entrepreneurial activity, recent studies have pointed to a relation between SE and institutions, where the institutional approach is considered an appropriate theoretical framework for the analysis of the environmental factors that affect the creation of new social enterprises (Nicholls, 2010; Mair & Martí 2006, 2009; McMullen, 2011; Townsend & Hart, 2008; Urbano et al., 2010). Nevertheless, there are very few studies that make use of the institutional approach in the specific area of SE to research the environmental factors that affect social entrepreneurial activities. According to the above, and in order to overcome this lack of research, the main purpose of the present study is to statistically explore the relationship between environmental factors and social entrepreneurial activity, as seen through a cross-country comparison and in the light of institutional economics (North 1990, 2005). The main research questions of this study, then, are the following: (a) What environmental factors significantly affect the creation of new social enterprises, and how does this occur? (b) What kind of institutional factors, formal or informal, have more influence in the process of creating new social enterprises? With regard to the methodology, a quantitative approach will be used; specifically, a linear regression analysis will be applied, considering 49 countries and data from different databases such as Global Entrepreneurship Monitor (GEM), World Value Survey (WVS), World Bank (WB) and International Monetary Fund (IMF). Contributions of the research are both conceptual, in terms of development in the field of SE from an institutional perspective, and practical, in terms of designing policies to promote social enterprise creation. Further, the present work responds to the need for an in-depth 7

study across countries, and it represents an effort to systematise the institutional factors that condition social entrepreneurial activity. Having a clear idea about the institutional framework for social enterprise creation can help to guide public policies in social enterprise creation. Following this introduction, the research is organised as follows. Firstly, the relevant literature is discussed and the hypotheses are stated. Secondly, the research method and the main data used to test the hypotheses are elaborated upon. Next, the results of regressions are presented and discussed; and finally, we conclude by summarising the implications of this study for the literature and discussing its limitations, as well as ideas for future research.

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2. CONCEPTUAL FRAMEWORK Within entrepreneurship inquiry, the number of articles and special issues in the SE area has increased significantly, which, together with the emergence of new international journals on this phenomenon (e.g. Journal of Social Entrepreneurship or Social Enterprise Journal), demonstrates the new dynamic of research in entrepreneurship. This section seeks to cover the existing gaps in this new dynamic and, most specifically, the part of entrepreneurship literature that investigates the environmental factors that influence social entrepreneurial initiatives. To accomplish this, in Section 2.1, the state of the research on SE is discussed, identifying knowledge gaps based upon under-studied themes and insufficient or inadequate methodological development. Following this, in Section 2.2, we present the framework of this study, institutional economics. Finally, based on the literature review and in the light of institutional approach, Section 2.3 presents the conceptual model and hypotheses used in the present research to analyse the factors that affect the creation and development of social entrepreneurial activities.

2.1 Social Entrepreneurship: State of the Art To give an overview of the many studies undertaken in the SE area, we conducted a literature review. The methodology used for this part of the study was based on exploratory analysis. The literature review focuses on articles published in the main academic journals from the area of Business, Management and Economics, especially those articles included in the Journal Citations Report (JCR): Business Horizons; California Management Review; Entrepreneurship and Regional Development; Entrepreneurship: Theory and Practice; Journal of Business Ethics; Journal of Business Venturing; Journal of Political Economy; Journal of World Business; Management Decision; Public Administration Review; Strategic Entrepreneurship Journal; and Third World Quarterly. Also, the literature review was based on articles published in other international journals: Accounting, Organizations and Society; International Entrepreneurship and Management Journal; International Journal of Non profit and Voluntary Sector Marketing; International Journal of Social Economics; Journal of Applied Behavioural Science; Journal of Developmental Entrepreneurship; Journal of Social Entrepreneurship and Social Enterprise Journal. The key words used were: Social entrepreneurship, social entrepreneur, social enterprise, institutions and institutional theory; and the period of analysis was 1998-2011.

2.1.1 Contents of existing research on SE A new wave of entrepreneurship is taking hold around the globe. SE is riding the crest, supported by the long debate on the role and responsibility of business in society that has

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been taking place in recent decades (Elkington & Hartigan, 2008). As with any newly emerging field, the literature in SE has grown, but there is no clear definition of its domain, and it remains fragmented (Short, Moss, & Lumpkin, 2009).
Table 1. Main definitions of Social Entrepreneurship
Year Author Definition "Play the role of change agents in the social sector, by: 1) Adopting a mission to create and sustain social value (not just private value), 2) Recognizing and relentlessly pursuing new opportunities to serve that mission, 3) Engaging in a process of continuous innovation, adaptation, and learning, 4) Acting boldly without being limited by resources currently in hand, and 5) Exhibiting heightened accountability to the constituencies served and for the outcomes created." (p.4) "Social entrepreneurship is the creation of viable (socio-) economic structures, relations, institutions, organisations and practices that yield and sustain social benefits.” (p.649) "Social entrepreneurship that creates innovative solutions to immediate social problems and mobilizes the ideas, capacities, resources, and social arrangements required for sustainable social transformations.” (p.262) "We define social entrepreneurship as innovative, social value creating activity that can occur within or across the non-profit, business, or government sectors." (p.2) "We view social entrepreneurship broadly, as a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs." (p.37) "Social entrepreneurship is exercised where some person or group: (1) aim(s) at creating social value, either exclusively or at least in some prominent way; (2) show(s) a capacity to recognize and take advantage of opportunities to create that value (“envision”); (3) employ(s) innovation, ranging from outright invention to adapting someone else's novelty, in creating and/or distributing social value; (4) is/are willing to accept an above-average degree of risk in creating and disseminating social value; and (5) is/are unusually resourceful in being relatively undaunted by scarce assets in pursuing their social venture." (p.64) "We define social entrepreneurship as a behavioral phenomenon expressed in a NFP organization context aimed at delivering social value through the exploitation of perceived opportunities." (p.25) "To apply business strategies for the purpose of more effective confrontation with complex social problems." (p.16) "Social entrepreneurship encompasses the activities and processes undertaken to discover, define, and exploit opportunities in order to enhance social wealth by creating new ventures or managing existing organizations in an innovative manner." (p.522)

2001

Dees

2000

Fowler

2004

Alvord, Brown and Letts

Austin, Stevenson and Wei-Skillern

Mair and Martí

2006 Peredo and McLean

Weerawardena and Mort Sharir and Lerner

2009

Zahra, Gedajlovic, Neubaum and Shulman

As it can be seen, in Table 1, SE is an interdisciplinary concept, and although the use of the term is widespread, its meaning often varies. There are at least two major contexts in which the notion takes different meanings: the Anglo-Saxon and European traditions (Friedman & Desivilya, 2010). The differences between the two could be due to the different conceptions of capitalism and the role of government (Bacq & Janssen, 2011). In the Anglo10

Saxon tradition (in particularly, United States of America), SE usually refers to a wide array of experiences in both the non-profit and for-profit sectors, and even in the public sector (given a certain number of conditions) in which market strategies are used to generate own incomes. In the European tradition, SE is very often seen as a different way of doing business. As can be seen in Table 1, the number of definitions used to describe SE has increased in the articles of international journals and in books. Social entrepreneurial activities mean different things to people in different places because the geographical and cultural contexts in which they appear is different (Mair & Martí, 2006). Under the “umbrella construct” of SE, other types of social entrepreneurial activities are discussed, such as: social venturing, nonprofit organisations adopting business tools, hybrid organisations or social cooperative enterprises (Smallbone, Evans, Ekanem, & Butters, 2001). Despite the different meanings, a key distinction that can be found in all definitions is social mission as the central driving force of social entrepreneurs (Leadbeater, 1997). The particular organisational form a social enterprise takes should be a decision based on whichever format would most effectively mobilise the resources needed to address that problem in order to produce a social impact in the current social institutions (Austin, Stevenson, & Wei-Skillern, 2006; Peredo & McLean, 2006). For the sake of our crosscountry perspective, which includes these diverse contexts and meanings, we need to apply a definition of SE at a high level of abstraction. Therefore, we seek a definition that entails three dimensions: entrepreneurial and innovative activities, social mission (social wealth creation) and social impact. Thus, for the present study “social entrepreneurship is a entrepreneurial and innovative process by which social entrepreneurs build or transform institutions to catalyze social changes”. As outlined in Table 2, a considerable amount of scholarly effort is devoted to defining the key concepts of the field: Social entrepreneur, social entrepreneurship and social enterprise. The previously mentioned lack of consensus in defining the main parameters that configure the paradigm of SE (e.g social entrepreneur) is a limitation for the development of future research and, in particular, for the development of empirical studies (Mair & Martí, 2006). In another stream of research, a number of studies have been dedicated to describing the similarities and distinctions between commercial and business entrepreneurs (Austin et al., 2006; Spear, 2006), non-profit enterprises (Fowler, 2000) and corporate social responsibility (Seelos & Mair, 2005; Sharir & Lerner, 2006). As Austin et al. (2006) noted, the main difference between social and other types of entrepreneurship has to do with purpose, or what the enterprise is trying to maximise. The main findings suggest that, for social entrepreneurs, the bottom line is to maximise some form of social impact, usually addressing a social need that is being mishandled or ignored by other institutions (McMullen, 2011). In 11

contrast, for business entrepreneurs, the bottom line may be to maximise profits or shareholder wealth (Shaw & Carter, 2007). Hence, the world needs both types of entrepreneurs, due to there are sometimes overlaps between different types of entrepreneurs.
Table 2. Main research lines
Domains Defining the phenomenon Research questions What is social entrepreneurship? What does a social entrepreneur do? What are social enterprises like? What are the differences between social and business entrepreneurship? Comparison between SE and others forms of organization What are the differences between social entrepreneurship and government, NGO's, activism? How is different social entrepreneurs forms business entrepreneur? How is the social entrepreneurial process? Study the core elements of social entrepreneurial process What are social opportunities? How do social entrepreneurs evaluate their impact? What are the main financial constraints? Identify environmental factors Can the field attract and cultivate talented workers? How social entrepreneurs interplay with their environment?

In the same line of research, some note that social enterprises are distinctive from many non-profit organisations in their entrepreneurial approach to strategy, their innovation in the pursuit of social goals and their engagement in training (Thompson & Doherty, 2006). Moreover, social venturing is best understood more broadly. In this sense, Fowler (2000) has produced the most complex SE typology to date, highlighting three broad categories of socially entrepreneurial activities. In discussing these three models of SE, the author highlights the difference between economic activities that simultaneously provide social benefits and those that do not (as in the third model), and notes that the former make more complex and stringent demands on an organisation than the latter. As in the entrepreneurship area, another stream of research is concerned with building knowledge about how social opportunities are discovered, created and exploited (e.g. Corner & Ho, 2010; Zahra, Rawhouser, Bhawe, Neubaum, & Hayton, 2008). Weerawardena and Mort (2006) define the process of social opportunities identification and evaluation as a separate activity in which social entrepreneurs seek opportunities to create social value. Moreover, the authors conclude that this process is simultaneously influenced by different elements: social mission, organisational sustainability and context. In the same line, Dees 12

(2001) suggests that the entrepreneurship components of social entrepreneurial activities include the recognition and pursuit of social opportunities to create social value. Furthermore, according to Mort, Weerawardena, and Carnegie (p.82, 2003) social entrepreneurs have the “ability to recognise opportunities to create better social value for their clients”. Hence, social entrepreneurs are motivated to address the issue that markets ineffectively value social improvements and public goods (Austin et al., 2006). Finally, another key area of interest in SE research is focused on the environmental sustainability (e.g. Di Domenico, Haugh, & Tracey, 2010). As presented in the entrepreneurship field, new (social) organisations are impacted by specific factors often associated with cultural, economic or market factors (Gnyawali & Fogel, 1994). This issue, in SE inquiry, is raised by Neck, Brush and Allen (2009) in a discussion of the complex, shifting and often unpredictable environment that social entrepreneurs face in trying to simultaneously fulfil social and economic goals. Moreover, Amin, Cameron and Hudson (2002) stressed the idea that cross-country differences in social entrepreneurial activities reflect differences in welfare systems and in political and institutional contexts. Research in this domain focuses on the context in which social ventures operate, and has direct bearing on their ability to meet the dual mission of creating social value while also creating a business model that is financially stable. In this way, several researchers suggest that environmental factors are very important to the emergence and implementation of social actions (e. g Mair & Martí, 2009; Nicholls, 2010). For example, social entrepreneurs typically address areas of unsatisfied social needs or the creation of new social opportunities that the public or private sectors have failed to address (Corner and Ho, 2010). Thereby, social opportunities and institutional factors are related (Zahra et al., 2008). Furthermore, the lack of finance for the development of social capital is one of the main constraints that social entrepreneurs encounter in fulfilling their social mission (Sharir & Lerner, 2006). In order to make progress in this field of study, we propose the institutional approach as a theoretical framework (North, 1990, 2005). The main causes that have led to this decision are varied. The first is related to the analysis we have made of the most important articles published in journals of impact in the last decade. It was observed that most of them base their explanations on two elements: formal institutions and/or informal institutions. Second, several articles on entrepreneurship have established its efficacy as a useful theory for understanding environmental factors. More specifically in the area of SE, some authors are beginning to point out its viability as a valid theoretical framework (Mair & Martí, 2006, 2009; McMullen, 2011; Nicholls, 2010; Townsend & Hart, 2008; Urbano et al., 2010).

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2.1.2 Methodological issues on SE research2 Although SE is a new field of inquiry, literature on social issues in Management, Business and Economics areas has in the last ten years given increasing attention to SE. With regard to the evolution of such publications, Figure 1 shows an upward trend starting from 2006 (14.82%), when the Journal of World Business published a special issue on SE. Since that time, articles and special issues on SE have appeared in scholarly journals (within the JCR), such as the Journal of Business Venturing (2009) and Entrepreneurship: Theory and Practice (2010).
Figure 1. Evolution in the number of published articles on SE in JCR
45 40 35 30 25 20

42,59%

18,52% 14,82%

15

11,11%
10 5

9,25%

1,85%
0 2003

0%
2004

1,85%
2005 2006 2007 2008 2009 2010

Despite this growing attention to SE as a scholarly field of research, it is still in a stage of infancy (Short et al., 2009). Research in the past decade has been primarily dedicated to establishing a conceptual foundation, which has resulted in a considerable stream of conceptual papers. According to this, as shown in Figure 2, most publications consist of a conceptual set-up (78%) with an intuitive touch and aim to define key constructs and explore why and how these constructs are related. As can be seen in Table 3, the majority of empirical studies are qualitative articles (96.9%), and in particular, case-based studies that introduce powerful and inspiring stories of various types of social entrepreneurs (90.3%). Another method found in our review is grounded theory methodology (9.7%). The quantitative papers used only descriptive statistics (100%), and the sample size of the qualitative studies is small, with a large proportion based on 2-5 case studies (87.1%). A very small proportion of studies had either
2

In order to conduct a comparative analysis, it was considered appropriate to omit the publications for

2011, due to this year has not yet completed.

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a sample size of more than ten cases or a single case (3.2%). These studies are characterised by rich descriptions and are suitable, once again, for descriptive and explanatory purposes. Second, the samples used are very diverse in terms of their scope. Additionally, these empirical studies are characterised by a micro-level perspective with a qualitative approach.
Figure 2. Type of Research: Conceptual versus empirical research

22%

Conceptual Research Empirical Research

78%

In conclusion, these findings confirm the stage of infancy of SE research. The findings can be summarised as follows: there are a limited number of empirical studies with a limited quantitative research approach, mainly of an exploratory type; rigorous hypothesis testing is lacking; little variety in research design is applied; and research is based on relatively small sample sizes. The case studies may be accurate and specific, but they often lack the ability to offer generalisable findings. Additionally, our data indicates that SE research needs to incorporate specific hypotheses to be tested and the use of multivariate research methods.
Table 3. Main traits of empirical studies
No. 31 1 28 3 1 1 27 2 1 % 96.9% 3.1% 90.3% 9.7% 100.0% 3.2% 87.1% 6.5% 3.2%

Type of research Method of qualitative articles Method of quantitative articles

Qualitative Quantitative Case study Grounded theory Descriptive Statistics Single case 2 - 5 cases 6 - 10 cases More than 10 cases

Case study sample size

2.2 Institutional Approach and Social Entrepreneurship This research work has taken a theoretical framework institutional approach, and specifically considers the contributions of economist Douglass C. North (1990, 2005). The selection of institutional economics as the theoretical framework of this study is mainly because, in general, this theory can be adapted to the study of the determinants of SE and, 15

in more specific terms, North’s approaches can assist formal and informal institutions in the analysis of environmental factors as determinants of social entrepreneurial activities. Furthermore, some researchers have placed emphasis on the need to develop a theoretical basis on which to develop our understanding of the many forms that social entrepreneurial activities take (Townsend & Hart, 2008). The field of institutional economics develops a broad concept of institutions, understood as implicit or explicit rules governing decision-making by individuals and limited, voluntarily or involuntarily the choice, or how they relate to the people of a society in search of greater benefit for this group. According to North (1990, 2005), organisations, such as firms set up by entrepreneurs, will adapt their activities and strategic models to fit the opportunities and limitations provided through the formal and informal institutional framework. As explained in the previous paragraphs, social entrepreneurs are most effective when they create entrepreneurial organisations that interact with their environment in an innovative way. Thus, as noted by Mair and Martí (2009) and McMullen (2011), understanding the relation between the social entrepreneur, the organisation and their environment is vital. It is now generally accepted that institutions determine the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction (North, 1990). Therefore, the institutional context affects the performance of economies, particularly through its influence on the entrepreneur’s behaviour, and therefore this context should be explored and analysed closely. Likewise, some researchers note that social enterprises are extremely sensitive to changes in public policy (Thompson, Alvy, & Lees, 2000), especially regarding the types of service eligible for public subsidies, as these changes generate new social opportunities (Sharir & Lerner, 2006). North (1990) distinguishes between two types of institutions: formal and informal. He also points out that the role of institutions in society is to reduce uncertainty by establishing a stable (but not necessarily efficient) structure of human interaction. In the entrepreneurship field, some scholars propose the application of North’s view (1990, 2005) toward the analysis of the creation of new ventures within the institutional approach (e.g. Aidis, 2005; Welter, 2005; Aidis, Estrin, & Mickiewicz, 2008; Veciana & Urbano, 2008; Alvarez, Urbano, Coduras, & Ruiz-Navarro, 2011; Thornton, Ribeiro-Soriano, & Urbano, 2011). In this way, researchers note that entrepreneurs, in their role as leaders and catalysts in the process of enterprise creation, will be conditioned by environmental factors, both formal and informal; they are also in charge of both implementing the rules and regulations related to entrepreneurial activity and the informal norms resulting from their learning and socialisation process, having the added impact of other political, economic, social and educational norms. With respect to the research about the conditioning factors of new social venture creation, a significant number of both theoretical and case studies can be found (e.g. Di Dominico et 16

al., 2010; Townsend & Hart, 2008; Weerawardena & Mort, 2006). For example, Borzaga and Defourny (2001) did a comparative research project on the social enterprise activity in 15 European countries. They suggest three factors to explain country variations in Europe: the level of development of the economic and social systems, the characteristics of the welfare systems and of the traditional third sector, and the nature of the underpinning legal systems. Despite this, most studies deal with the issue in a fragmented and excessively descriptive way. In addition, there are very few studies that make use of the Institutional approach in the specific area of SE to research the institutional factors that affect social entrepreneurial activities (Urbano et al., 2010). With reference to the formal factors, the most relevant studies deal with governmental policies. For example, Sharir and Lerner (2006) show that laws and states are factors that influence the environment of organisations and therefore their social success. The importance of economic support measures to the emergence of new social enterprises is analysed by some academics (Spear, 2006; Thompson, 2002) who identify the lack of finance for the development of social capital as one of the major factors that prevent the implementation of new social projects. With respect to the informal factors, social needs and values are analysed in a number of different types of case studies (e.g Anderson, Dana, & Dana, 2006; Harris, 2009; Tan, Williams, & Tan, 2005). For instance, Smith and Stevens (2010) focus on how location and differences in geography influence the types of social networks in which social enterprises are embedded. They note, in particular, that different types of social entrepreneurs occur in different types of spaces, from local or regional through to transnational or global. Consequently, formal (e.g., government rules) and informal (e.g., public debate) institutions are important environmental elements in the understanding of SE. However, Urbano et al. (2010) find that informal factors have more influence than formal factors on the emergence and implementation of new social enterprises.
Table 4. Formal and informal institutions in SE
Formal Institutions Public spending Access to finance Governance effectiveness Informal Institutions Social needs Societal attitudes Education

For the present research, and based on institutional economics, Table 4 presents the environmental factors considered as the framework for SE. In this case, and in accordance with North (1990), formal institutions have been grouped into public spending, access to finance and governance effectiveness; likewise, informal institutions have been grouped into social needs, societal attitudes and education.

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2.3 Environmental Factors Conditioning the Creation of New Social Ventures: Research hypotheses Taking into account the earlier theoretical considerations, six hypotheses based on a literature review3 are proposed in the following paragraphs. The selection of variables is by no means exhaustive. We are well aware that the process of the creation of new social ventures is highly complex and that no one institutional factor can determine the evolution of this process. A number of variables are necessary, but not sufficient, so they work in combination rather than as single predictors, as will be shown in the results and discussion sections.

2.3.1 Formal institutions Public Spending In many countries, both developed and developing, there has been a systematic retreat by governments from the provision of public goods in the face of new political ideologies that stress citizen self-sufficiency and that give primacy to market-driven models of welfare (Bornstein, 2004). As a result, in many territories, the “supply side” of resources available for public goods has remained static or diminished (Yunus & Weber, 2008). In the same way, Cornwall (2008) notes that, in countries where the provision of social services (health, cultural, leisure and welfare) is scarce and mainly undertaken by public institutions, the emergence of social entrepreneurs is significant. In contrast, Friedman and Desivilya (2010) argue that the work carried out by governments and social entrepreneurs is complementary, due to the public sector having been able to mobilise massive efforts in several periods, but having been unable to choose models that incorporate and maintain their efficiency and effectiveness. For their part, social entrepreneurs’ efforts provide efficient and effective models in performance. Despite this, recent empirical evidence indicates the negative impact of the percentage of public expenditure on the emergence of new social enterprises (Sharir & Lerner, 2006; Mair & Martí, 2009; Thompson et al., 2000). Taking into account the early consideration, it is expected that low levels of public spending increase the rate of social entrepreneurial activities. H1: Public spending is negatively related to social entrepreneurial activity. Access to finance It is often assumed that start-up capital is a significant hurdle for social entrepreneurs. Studies conducted in several countries show that individuals are sensitive to capital
3

Annex 1 presents the most relevant studies about the relationship between institutions and SE used in this

work.

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constraints in their decision to take entrepreneurial positions – in particular, self-employment (Blanchflower & Oswald, 1998; Holtz-Eakin et al., 1994). In the same way, literature on the emergence and development of social entrepreneurial activities highlights the existence of financial constraints that social entrepreneurs must cope with in order to carry out their social mission (e. g. Bacq & Janseen, 2011; Certo & Miller, 2008; Di Domenico et al., 2010). In this sense, many non-profit organisations see social enterprise as a way to reduce their dependence on charitable donations and grants, while others view the business itself as the vehicle for social change (Nicholls, 2010; Peredo & McLean, 2006). Therefore, as mentioned in entrepreneurship firms with economic goals (e.g. Gnyawali & Fogel, 1994), we suggest that a reduction of barriers to access finances, along with greater access to credit, will positively promote the emergence of new social enterprise projects, thus reducing the risks of budget uncertainty and dependence on public grants or aid. H2: Access to finance is positively related to social entrepreneurial activity. Governance Effectiveness Inefficient government regulation in the economy may be perceived negatively, especially by those interested in starting new organisations (Gnyawali & Fogel, 1994). According to Leadbeater (1997:8), social entrepreneurs are “the bridge the gap between the private and public sectors, the state and the market, to develop effective and efficient solutions to our most complex and pressing social problems”. In the same line, McMullen (2011) puts strong emphasis on market processes and argues that many cases of alleged market failure are better understood as government failure. Therefore, the failure of conventional institutions to address them has also led to a rapid growth in the ‘demand side’ for new models that create social value. Many researchers note that social entrepreneurs typically address areas of unmet social need or new social opportunity creation that the public or private sectors have failed to address (Borzaga & Defourny, 2001; Elkington & Hartigan, 2008). In many cases, these can be considered as failures in the social market of public goods. Such a market may be inherently dysfunctional due to a range of reasons, including a lack of credible performance information, high transaction costs and a lack of innovation (Smallbone et al., 2001; Wallace, 1999). Social market failures in the political context, then, represent the failure of the state to provide sufficient or appropriate public goods. Accordingly, H3: Governance effectiveness is negatively related to social entrepreneurial activity.

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2.3.2 Informal institutions Social needs As has already been noted, the primacy of the social mission over all other organisational objectives is the first key determinant of a potentially socially entrepreneurial venture (Dees, 2001). A social mission focus equates to an identification of an unmet social need or a new social value creation opportunity. In these senses, Waddock and Post (1991) define SE as a situation in which entrepreneurs that have social responsibility to improve their communities. Weerawardena and Mort (2006) offer a comparison of various definitions of SE and “social entrepreneur” shows that all authors include the term social in their definition. While some authors explicitly refer to the social “outcome” of an entrepreneurial behaviour, such as social change (Alvord, Brown, & Letts, 2004), social value (Dees, 2001), social capital (Zahra et al., 2009) or social return on investment (Rotheroe, 2007), others refer to social problems and issues that trigger entrepreneurial behaviour (Harris, 2009). Thus, these arguments suggest the following proposition: H4: Social needs are positively related to social entrepreneurial activity.

Societal attitudes On the other hand, the current resurgence of SE is a renewal of spirit that promotes the foundations of the non-profit sector; it is independent, and is built by individuals who see it as their responsibility to act to ameliorate social problems (Bornstein, 2004). Thus, the involvement with the social sector allows social entrepreneurs to recognise new opportunities and, also, to turn themselves into altruistic and more sensitive citizens, dissatisfied with the status quo and motivated to act with social responsibility (Zahra et al., 2008). In this way, specific works in SE indicate that sensitivity to the feelings of others motivates social entrepreneurs to create social enterprises (Harris, 2009). In addition, as shown by many researchers, previous social experience is an important aspect for understanding SE as a process (Dhesi, 2010; Shaw & Carter, 2007). In sum, it is claimed that social attitudes represent an important informal factor in the SE process, affecting the perceived social venture as a good way to achieve their social missions. Accordingly, is proposed: H5: Societal attitudes are positively related to social entrepreneurial activity.

Education Level Social entrepreneurs come from all walks of life. Some begin their careers as doctors, engineers, economists, teachers and journalists, among others. The literature on entrepreneurship states that people’s behaviour is usually guided by their knowledge and 20

skills. Specifically, recent research studies show that, in general, higher levels of education have a positive effect on the probability of creating a firm (Arenius & Minniti, 2005; Davidsson & Honig, 2003; Delmar & Davidsson, 2000). Along the same lines, several authors in the SE field note that high levels of education are common denominators between the social environments (e.g. Shaw & Carter, 2007; Nga & Shamuganathan, 2010). While conducting research for his book, Light (2008) surveyed 131 high-performing social organisations and found that their success depended less on personality than on the disciplined applications of (teachable) leadership and entrepreneurial skills. His study suggests that colleges and universities can prepare students to think and behave like innovators. Moreover, to develop social entrepreneurs, universities could establish innovation funds to encourage student changemaking and stimulate collaborations with leading social organisations. In short, the background of social entrepreneurs is critical for triggering the desire to launch a social enterprise. Thus, taking into account that individuals may be more inclined to make the decision to start a business if they believe they have the skills to successfully carry out the activity (Nga & Shamuganathan, 2010), the following hypothesis is formulated: H6: Education level is positively related to social entrepreneurial activity. Figure 1 shows the theoretical framework that we have proposed through the literature review in the field of SE based on an institutional approach. In this figure, the hypotheses are synthesised and integrated into the model to be tested in the next section.
Figure 3. Model of the environmental factors affecting social entrepreneurial activity

FORMAL FACTORS Public spending (PS) Access to finance (AF) Governance effectiveness (GE)
H1 (-) H2 (+) H3 (-)

SOCIAL ENTREPRENEURIAL ACTIVITY
H4 (+) H5 (+) H6 (+)

INFORMAL FACTORS Social needs (SN) Societal attitudes (SA) Education level (ED)

Institutional Framework

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3. METHODOLOGY 3.1 Model and Data Previous studies have recognised the difficulties in collecting secondary data on the main traits of social enterprises. In order to overcome these problems, we have used different sources to obtain significant information: Global Entrepreneurship Monitor (GEM), World Value Survey (WVS), World Bank (WB) and International Monetary Fund (IMF). To find a causal relationship between institutional factors (formal and informal) and social entrepreneurial activity in 49 countries, linear regression analysis is used (Ordinary Least Squares; OLS). The general specification of the model used was as follows:

seai = α + β1 psi + β2 af i + β3 gei + β4 sai + β5 sn + β6edi + β7 gdpi + μi
Where:

seai = Social Entrepreneurial Activity for country i. psi = Public spending for country i. af i = Access to finance for country i.

gei = Governance effectiveness for country i. sai = Societal attitudes for country i. sni = Social needs for country i. edi = Education for country i. gdpi = Gross domestic product per capita for country i.
3.2 Variables 3.2.1 Dependent Variable Social Entrepreneurial Activity (SEA) from the Global Entrepreneurship Monitor (GEM)4 Adult Population Survey (2009) is used as a dependent variable. In 2009, in the context of the growing interest from politicians and academics in measuring social entrepreneurial activity, the GEM project introduced a new battery of specific questions about social activities within the global arena. It is noteworthy that the same institution has conducted another survey including questions about SEA in previous editions on the United Kingdom
4

The GEM project began in 1999, with 10 countries, as a joint investigation between the US Babson College and

London Business School to study the relationship between the creation of new enterprises and economic growth. So far, GEM 2009 has conducted research in 54 countries.

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(e.g. Harding and Cowling 2004). This, then, is the first time that such an exercise has ever been attempted across so many countries. Thus, from surveys in 495 countries around the World, GEM has been able to obtain the percentage of individuals between 18 and 64 who: (a) are in the process of starting a business or company; (b) currently, or expect to partly or wholly, own a young business or social enterprise, including self-employment (the newest activity up to 42 months); and (c) use (or intend to use) the profit or revenues of their business or company for community or social purposes.

3.2.2 Independent Variables Public spending. One of the most widespread source of information used for measuring public spending is the World Bank. Many reports are published by this institution, and it is for this reason that we have considered it useful to take account of public expenditure defined in the terms of the World Bank, such as cash payments for operating activities of the government in providing goods and services. In doing so, this indicator measures the percentage of public expenditure in relation to the GDP of each country (year 2008), which will allow us to assess whether or not greater efforts by public institutions cause less action by social entrepreneurs. Access to finance. From the database of the World Bank, specifically from the “Doing Business”6 project of 2008, this indicator of the public record provides credit information to classify the countries in terms of their public organisms and/or private information on repayment history, unpaid debts or credit outstanding from the past five years. Thus, the number is expressed as a percentage of the adult population (aged 15 and above) on which credit information exists. Such indicators allow us to obtain information on the availability of credit circulating in the country, which means that high levels of information are accompanied by a greater supply of resources for entrepreneurs to obtain. In the present study, this indicator has made as the maximum between public and private credit registry coverage. Governance effectiveness. This variable comes from World Bank, in particular from the project "Worldwide Governance Indicators" (2008), which reflects the set of traditions and

5

Data from Gaza, the Kingdom of Tonga and Yemen were collected but have not been included. Gaza’s data are not

available for the independent variables. The Kingdom of Tonga and Yemen returned a high nascent social entrepreneurial activity rate and were clear outliers, probably because of their unique social/political/cultural heritages. These countries were therefore not included in this analysis.
6

The Doing Business report covered 10 indicator sets in 183 economies. The initial goal remains to be the provision of objective basis for understanding and improving the regulatory environment for business

an

(http://www.doingbusiness.org).

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institutions by which authority is exercised in a country. This includes the process by which governments are selected, monitored and replaced, and the government’s capacity to formulate and implement effective policies (the indicator chosen for this study) with regard to citizens and the state institutions that govern their economic and social interactions. The governance indicators cover 213 countries and are based on 33 sources that include a collection of more than 120,000 responses from citizens, experts and businesses around the world. The indicator has units ranging from -2.5 to 2.5, where higher values correspond to better institutions in the field of political action. Social needs. This variable was obtained through interviews conducted by the World Value Survey (WVS), and it provides a measurement of the values, from a political and social perspective, that societies hold regarding the development of their countries. For the present study, an indicator of social need is chosen which measures the percentage of the adult population who consider the achievement of social objectives, such as the fight against poverty, more desirable than economic goals (e.g., economic growth). The impact of this survey is comprehensive because it represents 97 countries (almost 90% of the world population). In order to monitor changes across the World, the WVS has executed five waves of surveys from 1981 to 2008. For the present study, the fifth wave is used, which includes 2008. Societal attitudes. This variable measures the level of awareness and commitment of society to social aspects. The information is also obtained from the WVS database, which provides data on the percentage of the adult population that is part (active or inactive) of an association or organisation with social purposes. Education level. Concerning the education variable, the information is obtained from UNESCO (2008), one of the most comprehensive databases on this topic. Specifically, taking into account the vast universe of students in higher education by considering the number of students enrolled in advanced studies is a way to evaluate the impact of education levels on the field of entrepreneurship in general.

3.2.3 Control Variable In this empirical study, we control for possible confounding effects by including a relevant control variable, Gross Domestic Product (GDP). As already mentioned, given that the level of economic development of countries, and specifically the per capita income, is a key factor in explaining entrepreneurial activity in general (Carree, Van Stel, Thurik, & Wennekers, 2007; Wennekers, Wennekers, Thurik, & Reynolds, 2005), GDP per capita is used as the control and is adjusted for purchasing power parity (PPP) in US dollars. This information is obtained from the database of the International Monetary Fund (IMF), specifically from the World Economic Outlook Databases (WEO) for 2008. 24

There are indications in the literature that countries with a greater propensity to encourage the emergence of social entrepreneurs have significantly lower economic development levels than the major world powers (Mair & Martí, 2009; Harding, 2006; Thompson & Doherty, 2006; Wallace, 1999). The logic behind this is that the increased demand for social needs is not being met by public or private institutions, so that countries with low income and resources will be subject to a greater imbalance of social services. However, there are also cases like that of the United Kingdom, where the high rates of social entrepreneurs do not support this line of argument. In Table 5, more details can be seen regarding the variables for this empirical study.
Table 5. Description of Variables
Variables Dependent Variable Social Entrepreneurial Activity (SEA) Public Spending (PS) Description Percentage of individuals between 18 and 64 who are in the process of starting a business or company with social purposes. Cash payments for operating activities of the government in providing goods and services (% of GDP). It is the maximum between the public registry coverage and the private bureau coverage (% of adults). Capturing perceptions (of public sector, private sector and NGO experts, as well as citizen) of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. Moreover, all scores lie between -2.5 and 2.5, with higher scores corresponding to better outcomes. Percentage of individuals between 18 and 64 who believe that the main objective should be to pursue their country, in the next ten years, should be a social objective (e.g., reducing poverty), against an economic objective (e.g., economic growth). Percentage of individuals between 18 and 64 who are members (active or inactive) of voluntary social organizations. Source GEM

WB Doing Business

Access to Finance (AF)

Governance Effectiveness (GE) Independent Variables

WGI

Social Needs (SE)

WVS

Societal attitudes (SA)

WVS

Education (ED) Control Variable Gross Domestic Product (GDP)

Percentage of people who have enrolled in total tertiary, UNESCO public and private centres and full and part time. Gross Domestic Product per capita adjusted for purchasing power parity in U.S. dollars (billions). IMF

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4. RESULTS AND DISCUSSION Descriptive statistics and correlations are shown in Table 6. As can be seen, descriptive statistics indicate that the average social entrepreneurial activity is 1.8% across the 49 countries of our sample. However, the rate of social entrepreneurial activity ranges from 0.12% to 5.42% (Guatemala and Denmark, respectively), probably indicating the existence of different institutional structures in the countries of our sample. As expected, Argentina shows significant social entrepreneurial activity, at 4.1%, while in Spain the percentage of the adult population who have created some social organisation in the last 42 months amounts to only 0.5%. This finding is important, as suggested by Zahra et al. (2008), as it probably indicates some relationship between social opportunities, as well as basic needs that need to be satisfied, and levels of wealth in different countries. The average level of public spending is 25.9% of the GDP, and the sample countries have credit information on 42% of the adult population. Even so, it is important to contextualise these results within the framework of the economic and financial crisis that erupted in mid-2007. Governance effectiveness is 0.54 on average and social needs are an average of 48%, which is to say that 48% of adults consider a prime national objective to be the achievement in the next 10 years of social goals such as the reduction of poverty. In addition, an average of 53% of adults across the 49 countries in our sample are active or inactive members of some social organisation and 3.8% of individuals have taken part in tertiary education. Finally, the average income per capita is $26,673.
Table 6. Descriptive statistics and correlation matrix
Mean 1.SEA 2.Public Spending 3.Access to Finance 4.Govern.Efect 5.Education 6.Social Needs 7.Societal Attitudes 8.GDP per capita US$ 1.86 S.D 1.28 1 -0.269** 0.222* 0.181 1 0.266** 0.349*** 0.179 0.286** 0.192* 0.373*** 1 0.393*** 0.116 0.284** 0.351*** 0.418*** 1 0.127 0.454*** 0.632*** 0.848*** 1 0.002 0.289** 0.279** 1 0.564*** 0.387*** 1 0.658*** 1 2 3 4 5 6 7

25.93 9.91 .54 3.84 0.92 1.56

41.73 32.59 0.06

47.72 14.61 0.373*** 53.39 23.05 0.661*** 20.67 13.88 0.195*

*, **, *** Significant at the 10%, 5%, 1% level by t-test

Table 6 presents a correlation matrix for all of the variables included in the analysis. As we expected, formal factors such as public spending and governance effectiveness are significantly correlated with social entrepreneurial activity. However, funding is not correlated with social entrepreneurial activity. In the same line, informal factors are positively and significantly correlated (at the 1% level) with SE. In contrast, we do not find a significant

26

correlation between education level and social entrepreneurial activity, even though, as we expected, their relationship is positive. It should be noted that there is a high correlation between the abilities of governments to formulate and implement effective policies. This is evident in the case of countries like Norway and the Netherlands with high values in variable public spending (44.6% and 39.6%, respectively) which, in turn, have positive rates for government effectiveness (1.95 and 1.86 respectively). Likewise, our findings are in line with those of Hofstede (2001), who notes that cultural beliefs seem to be even more highly correlated with the quality of governance. In our sample, the correlation between these variables is positive and significant at 63.2%. Finally, as might be expected from previous studies (e.g. Bornstein, 2006; Sharir & Lerner, 2006), countries with lower public spending have more unsatisfied social needs and a worse perception of the capacity of government to formulate and implement effective policies. For instance, countries like Uganda and Argentina have indicators of public spending below 20% and, in turn, the percentage of adults who prioritise social goals as national objectives is over 50%. These countries are characterised by rates that show the negative ability of government. Table 7 summarises the results of the regression analysis. Reading from left to right across the Table: Model 1 explores the independent effects of formal factors (public spending, access to finance and governance effectiveness). Model 2 explores the independent effects of informal factors (education, social needs and societal attitudes). Model 3 is a multivariate model that simultaneously introduces all the independent and control variables in our study.
Table 7. Results
Model 1 Constant Formal Factors Public Spending Access to Finance Governance Effectiveness Informal Factors Education Social Needs Societal Attitudes Control Variable GDP Observations Ajusted-R2 0,013 49 0,1867 (0,602) -0,040** 49 0,4366 (0,003) -0,025 49 0,6552 (0,168) 0,027 0,002 0,051*** (0,765) (0,886) (0,000) 0,072 0,011 0,046*** (0,390) (0,279) (0,000) -0,052*** 0,001 0,355 (0,009) (0,901) (0,328) -0,047*** -0,003 0,023 (0,001) (0,488) (0,929) 2,718*** (0,000) -2,45 Model 2 (0,661) 0,436 Model 3 (0,447)

*, **, *** Significant at the 10%, 5%, 1% level

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The first column in Table 7, Model 1, shows the results of such a regression in which informal factors are the omitted institutional factors. It can be seen that formal factors explain for 18.76% of the variation across countries with regard to social entrepreneurial activity. Moreover, these results suggest that low levels of public spending are more favourable to SE than those of other formal factors. Model 2 presents the result of informal factors to the explanatory variables. The change of these three variables raises the proportion of the variation of the dependent variable explained to 43.66%. However, the only explanatory variable with a significant coefficient is that of societal attitudes, where the estimated coefficient is positive. Finally, Model 3 includes all the formal and informal factors that are related to social entrepreneurial activity. Model 3 is highly significant, and it explain more than 65% of SE variation across 49 countries of our sample; thus, SEA is explaining formal (public spending) and informal institutions (societal attitudes). Table 7 shows that the coefficients of public spending and participation in social organisations (societal attitudes) are statistically significant and satisfy the expectations of the expected sign (negative and positive, respectively), supporting Hypotheses 1 and 5. Likewise, the coefficients of access to finance, governance effectiveness, social needs and education are not significant, although the signs are as expected, except in the cases of formal factors (access to finance and governance effectiveness). Regarding formal factors, in the same line of Mair and Martí (2009), Sharir and Lerner (2006) and Weerawardena and Mort (2006), the results indicate a negative and significant (at the 1% level) relationship between public spending raised by governments and SE. Thus, our results support Hypothesis 1. Likewise, although initially based on the theory proposing a positive relationship between access to finance and social entrepreneurial activity (Hypothesis 2), this hypothesis is rejected. Furthermore, it can be observed that the sign changes across the different models (Models 1 and 3). However, its coefficient is lower in both models (0.001 and -0.003, respectively). Despite the fact that our data does not support this hypothesis, changing the way they finance social change could produce greater clarity and more predictable successes. Additionally, we would expect that, in environments with high rates of capacity of governance effectiveness, social entrepreneurs have less incentive to act because social needs will be covered satisfactorily by the public authorities, and that this situation limits the size and scope of social actions and therefore reduces the incentive to create social enterprises. The results of this study do not reflect such a situation (e.g. Harding, 2006; McMullen, 2011). However, hypothesis 3 is rejected. We should highlight that there are high levels of SE in countries such as the UK, Norway and Denmark, which boast of good governance capabilities. In this context, we should reflect on whether the social entrepreneurial activity is concentrated only in disadvantaged institutional settings or if, on 28

the contrary, environmental facilities also encourage the emergence of this kind of entrepreneur. According to these estimations, the results of this study may indicate that the effects of informal factors on SE are not significant determinants versus formal factors. Specifically, Hypothesis 4 is rejected, in which social needs that are not provided by public or private institutions do not affect social entrepreneurial activity. Again, as in Hypothesis 3, the emergence and establishment of social entrepreneurs are not strictly related to the most disadvantaged institutional environments in terms of social quality. On other hand, the most important mindset shift that social entrepreneurs are working to effect today is that of convincing people that the world’s toughest problems can be solved. According to Alvord et al. (2006), the community is an important element of social entrepreneurial activities, as it provides a particular environment that influences the types of entrepreneurial activity that take place. Given the difficulty in determining attitudes towards SE, we have tried to gain insight by exploiting additional information from the WVS database. The estimation shows that, as was expected, the relationship between participation in social organisations and social entrepreneurial activity is positive and significant (p < 0.1) for the two models, Models 2 and 3; therefore, we do not reject Hypothesis 5. These results are in line with the literature (Anderson et al., 2006; Corner & Ho, 2010; Dhesi, 2010; Shaw & Carter, 2007; Thompson, 2002) that says that people who have had contact with social entrepreneurs or who have been socialised within social movements are more likely to start a social project. SE is concerned with building platforms that enable more people at every age to think and behave like changemakers and to help them work together powerfully in teams and in teams of teams. It looks stronger linkages across cultural and disciplinary boundaries, particularly with regard to business and governments, and facilitates the rapid circulation and sharing solutions at the global level. According to this, Bornstein (2006) states that the study of SE sheds light on how societies renew themselves. All of theses changes have come about because people who were dissatisfied with the status quo sought alternatives to the old approaches. The literature on SE has highlighted the role of education in providing the skills required to create a firm (Dhesi, 2010; Sharir & Lerner, 2006; Shaw & Carter, 2007). However, as can be seen in Models 2 and 3, the perception of these skills seems not to be directly associated with the rate of social entrepreneurial activity of the countries studied; as such, Hypothesis 6 is rejected. Finally, mention should be made of the need, with income per capita, to control for differences in countries with high and low income; however, this showed no statistically significant relationship to the model.

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5. CONCLUSIONS The need to know more about the SE process is driven by a number of factors. Recently, research and policy have been increasingly fuelled by the idea that social entrepreneurs are important for economic and social development. Social entrepreneurs have found ways of responding with creativity, energy and optimism, attacking global, national and local problems with powerful ideas and new tools. They also are able to see problems that are being ignored by traditional institutions. In this way, the present study draws attention to the environmental factors that affect (promote or inhibit) their efforts. The present study has analysed, in the light of institutional economic theory and by linear regression analysis, the influence of institutions on SE. Specifically, following the approach of North, we studied the impact that informal (social needs, societal attitudes and education skills) and formal institutions (public spending, access to finance and governance effectiveness) have on social entrepreneurial activities, using a final sample comprising 49 countries. SE is still emerging as an area for academic inquiry. Despite the vast number of articles published in specialised journals on SE over the last decades, no consensus has been reached regarding the key concepts. The lack of a unifying paradigm in the field has led to a proliferation of definitions. These gaps involve different theoretical problems. On the one hand, the lack of strong and consistent principles is causing stagnation in the evolution of SE, as researchers cannot take the next step, which would be to contrast hypotheses (Mair & Martí, 2006). Hence, academics remain stuck in a pluralistic debate to define the basic concepts of SE. On the other hand, if there is no unique and consistent definition, policy measures will be inconsistent and we cannot calculate or evaluate the impact of this phenomenon on society. Its theoretical underpinnings have not been adequately explored, and the need for contributions to theory and practice are pressing. In this context, by identifying a number of factors that increase social entrepreneurial activity, the results reveal that governments have a role to play in enhancing the entrepreneurial dynamism of the economy. In particular, the fact that public spending has a negative impact on the SE indicates that lower levels of public expense may discourage individuals from even considering a social entrepreneurial activity, and thus stifle the economy’s entrepreneurial potential. Additionally, participation by citizens in social purpose organisations, whether actively or inactively, promotes the creation of social enterprises. Indeed, we believe that an important contribution of the present paper to this strand of empirical literature lies in the analysis and discussion of the possible links between potential

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obstacles, such as administrative complexities and access to finance, and entrepreneurial drive. On the contrary, other variables have no statistically significant relationship with social entrepreneurial activity: social needs, education skills, access to finance and governance effectiveness. Strikingly, however, an overwhelming majority of the population identifies the lack of financial support as an obstacle to starting a new business, but this does not seem to have a significant impact on the revealed preference towards SE. Furthermore, education level does not appear to have any significant impact on social entrepreneurial activities. With these findings, a number of new research directions can be suggested. Although evidence has been provided that public spending and social attitudes influence SE, there is a need to better understand the relative importance of SE in different countries (developed and developing). Thus, it is important to increase the sample used in the present paper. In addition, further insights into the dynamic interactions of institutional factors with other variables thought to influence entrepreneurial activity (volunteering, skills, experience, social network, etc.) are needed. Richer insights are also needed into the relationship between particular formal factors and aspects of SE, such as financial structure and support measures. Another relevant research path would involve comparisons between social entrepreneurs who succeeded and those who failed. Despite the rigorous methodology used, the results of this research should be interpreted carefully because the availability of data constrained our analysis to only one year, 2009, and thus our results cannot be generalised. Finally, it is important that longitudinal comparisons be made between different countries along with the corresponding implications for SE. In terms of conceptual perspective, the study reaffirms that institutional economics could be an appropriate and robust theoretical framework for future research, stressing the importance of the environmental factors on the decision to become a social entrepreneur. The present study could also contribute to the practical perspective, especially with regard to the design of governmental policies to SE.

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Annex 1. Review articles that relate institutions and social entrepreneurship
No Author - year Alvord et al. (2004) Title Social entrepreneurship and societal transformation: An exploratory study Indigenous land rights, entrepreneurship, and economic development in Canada: “Optingin” to the global economy Objectives Findings

1

To study the links between social entrepreneurship and sustainable societal transformations. Also, this research has They generate propositions about core innovations, leadership and organization, sought to identify common patterns across a small set of and scaling up in social entrepreneurship that produces societal transformation. successful social entrepreneurship initiatives. To explore business development activities that flow from the The results suggest that the process is a particular and important instance of later aspect of indigenous land rights in a Canadian context social entrepreneurship.

2

Anderson et al. (2006)

3

Austin et al. (2006)

Social and commercial To offer a comparative analysis that identifies common and The opportunity dimension, the impact of the context, the nature of the human entrepreneurship: Same, different differentiating features between commercial and social and financial resources, and the terms of deals are fundamentally different for or both? entrepreneurship commercial and social entrepreneurs. The multiple faces of social entrepreneurship: A review of definitional issues based on geographical and thematic criteria Social entrepreneurship: Key issues and concepts How Opportunities Develop in Social Entrepreneurship The entrepreneur as building block for community The meaning of social entrepreneurship The objective of this paper is to clarify the concepts of ‘social entrepreneurship’, ‘social entrepreneur’ and ‘social The authors show that there is no clear-cut transatlantic divide, but that, even entrepreneurship organization’ and to examine whether there within the US, different conceptions coexist is a transatlantic divide in the way these are conceived and defined. To review research in social entrepreneurship to better Social entrepreneurs may face more difficulties in mobilizing financial and human understand how this concept has developed over time resources To explore how SE opportunities are recognized and The findings highlighted four patterns that emerged across the innovation exploited. episodes that provided data. To examine the impact that entrepreneurship can have to The impact of recognizing and acting on the responsibilities entrepreneurs have foster the rebuilding of poor or low-income communities back to their communities. Social entrepreneurs play the role of change agents in the social sector by: adopting social mission, pursuing new opportunities, with continuous innovation, acting boldly and exhibiting heightened accountability. There exist substantial factors, such as early socialization, experience in community work, education and health, that differentiate social entrepreneurs and philanthropists. Salience of relationship between formal and informal institutions, personal traits and social skills of social entrepreneurs in influencing outcomes of social entrepreneurial activity is indicated.

4

Bacq and Janssen (2011)

5

Certo & Miller (2008) Corner and Ho (2010) Cornwall (1998)

6

7

8

Dees (2001)

To define social entrepreneurship phenomenon

9

Dhesi (2010)

Diaspora, social entrepreneurs and community development

To identify attributes of social entrepreneurs and philanthropists among returning successful diaspora in North Indian villages. And, to ascertain key determinants and processes influencing outcomes of social entrepreneurial activity with a view to facilitate it.

10

Di Domenico et al. (2010)

Social Bricolage: Theorizing Social Value Creation in Social Enterprises

The study sought to address the following question: “How do Key constructs: making do, a refusal to be constrained by limitations, social enterprises acquire resources in resource-scarce improvisation, social value creation, stakeholder participation, and persuasion. environments?”

36

No

Author - year Friedman and Desivilya (2010)

Title Integrating social entrepreneurship and conflict engagement for regional development in divided societies.

Objectives

Findings

11

To present a theoretical model for promoting This paper argues that, in divided societies, social entrepreneurship can be an regional development in 'divided' societies by effective strategy for regional development if it is integrated with conflict integrating social entrepreneurship with conflict engagement. engagement. To review several streams of research at this nexus, The author highlights six specific lines of inquiry within each broad area, broadly construed, and identify and integrate the summarizing the major findings and highlighting a host of remaining research key themes that emerge, offering suggestions for questions. future research. To explain why entrepreneurial transformation of formal institutions is needed and what differentiates development entrepreneurship from related concepts such as social entrepreneurship, social business entrepreneurship, and socio-political activism.

12

Harris (2009)

Ethics and entrepreneurship

13

McMullen (2011)

Delineating the domain of development entrepreneurship: A market-based Approach to facilitating inclusive economic growth

The author demonstrates how social entrepreneurship, in the form of development entrepreneurship, can expand trade by removing institutional barriers that exclude a population from participating as producers or consumers in global markets.

14

Mair and Martí (2006)

Social entrepreneurship research: A source of explanation, prediction, and delight Entrepreneurship in and around institutional voids: A case study from Bangladesh

Social entrepreneurship is a process of creating social value by combining To clarify and define the key concepts and resource in new ways, and it can occur equally well in a new organization or in constructs in order to guide future research an established organization. To bridge these literatures on entrepreneurship and institutions, and more specifically, to advance theory The concept of institutional voids as opportunity spaces for institutional on institutional entrepreneurship and the emerging entrepreneurs becomes a key nexus between these two literatures theory of bricolage. To investigate the influence of the Big Five personality trait dimensions comprising openness, agreeableness, neuroticism and conscientiousness on social entrepreneurship This study has found that personality traits such as agreeableness, openness and conscientiousness have generally a positive influence on social entrepreneurship dimensions. In particular, agreeableness has been found to have a positive influence across all social entrepreneurship dimensions investigated, namely social vision, innovation, sustainability, social networking and financial returns. This paper identifies two ideal type investor rationalities (zweckrational; wertrational) that drive different institutional forms of social investment but also suggests that a third - systemic - rationality can be discerned that combines aspects of both in practice. The paper concludes with the proposal of a suitably flexible explication of the concept: social entrepreneurship is exercised where some person or persons (1) aim either exclusively or in some prominent way to create social value of some kind, and pursue that goal through some combination of (2) recognizing and exploiting opportunities to create this value, (3) employing innovation, (4) tolerating risk and (5) declining to accept limitations in available resources.

15

Mair and Martí (2009)

16

Nga and Shamuganathan (2010)

The Influence of Personality Traits and Demographic Factors on Social Entrepreneurship Start Up Intentions

17

Nicholls (2010)

Institutionalizing social entrepreneurship in regulatory space: Reporting and disclosure by community interest companies

To analyse the new landscape of social investment.

18

Peredo and McLean (2006)

Social entrepreneurship: A critical review of the concept.

Analytical, critical and synthetic examination of “social entrepreneurship” in its common use, considering both the “social” and the “entrepreneurship” elements in the concept

37

No

Author - year

Title Social return on investment and social enterprise: Transparent accountability for sustainable development Social entrepreneurship: Theoretical antecedents and empirical analysis of entrepreneurial processes and outcomes Gauging the success of social ventures initiated by individual social entrepreneurs Different types of social entrepreneurship: The role of geography and embeddedness on the measurement and scaling of social value Social entrepreneurship: A different model? Social entrepreneurship: The role of institutions Social entrepreneurship – a new look at the people and the potential The world of the social entrepreneur

Objectives To apply the social return on investment (SROI) concept to a case study based on the Furniture Resource Centre Group (FRC Group), a social enterprise based in Liverpool, UK, to satisfy a need for quality affordable furniture for low-income households.

Findings The results indicated that the SROI technique demonstrated many qualities of sustainability and, with stakeholder inclusiveness pivotal to the innovative process, it allows for truly connected thinking that reveals advancements in sustainable development.

19

Rotheroe (2007)

20

Shaw and Carter (2007)

The practice of social entrepreneurship could be compared and contrasted with To explore the historical and theoretical antecedents of for-profit entrepreneurship by five key themes: the entrepreneurial process, in social enterprise and its contemporary practice. By exploring particular, opportunity recognition; network embeddedness; the nature of financial key theoretical concepts, the paper draws comparisons risk and profit; the role of individual versus collective action in managing and between “for-profit” and social entrepreneurs. structuring enterprises; and creativity and innovation. Eight of the 15 variables were found to contribute to the social venture success: the social network; total dedication; the capital base at the establishment stage; To identify the factors affecting the success of social the acceptance of the idea of the venture in the public discourse; the venturing ventures operating in social settings in Israel team; long-term cooperation; the ability of the service to stand the market test; previous managerial experience. Entrepreneurs maintaining a more localized focus will maintain a more direct To we highlight the role of the geographic dimension of the relationship with that community and its key stakeholders. In contrast, social different types of social entrepreneurship and highlight the entrepreneurs seeking to address problems on a more universal scale will reach importance of geography in shaping social out to a more varied and less individually involved group of stakeholders, in order entrepreneurial behaviour to create the umbrella of impact they desire to achieve. There are strong similarities between social enterprise and SMEs institutional To develop a framework which allows both economic and forms, but there are also significant differences (a collective nature of social social entrepreneurship to be analysed entrepreneurs than individualistic, external support plays key roles (networking), To study the ability of SE, by itself, to provide solutions on a Interinstitutional collaboration is a necessary element in addressing our most scope necessary to address large-scale social issues. serious social ills. To explore the current need of social entrepreneurship and The social entrepreneurship growth is highly desirable, however a number of to describe a number of contemporary examples in UK hurdles have to be overcome. To map effectively the scope of social entrepreneurship in There are areas where social entrepreneurs need help and support, due to a both business and the voluntary sector in UK. number of hurdles remain to be overcome Perceptions regarding the ambiguity of the institutional environment specific to stakeholder alignment, resource acquisition, and legitimacy attainment substantially influence the social entrepreneur’s choice of organizational form. However, depending on the relative values of an entrepreneur’s social and economic motivations, the institutional environment may take on a greater or lesser role in determining the choice of organizational form.

21

Sharir and Lerner (2006)

22

Smith and Stevens (2010)

23

Spear (2006)

24

Sud et al. (2008) Thompson et al. (2000) Thompson (2002)

25

26

27

Townsend and Hart (2008)

Perceived institutional ambiguity and the choice of organizational form in social entrepreneurial ventures

To examine how the influence of an entrepreneur’s perception of ambiguous institutional factors (e.g., resource acquisition, stakeholder alignment, and legitimacy) at the time of venture founding affects this choice of organizational form.

38

No

Author - year

Title Analyzing social entrepreneurship from an institutional perspective: Evidence from Spain

Objectives

Findings

28

Urbano et al. (2010)

Informal and formal institutions are important to the generation of SE in To investigate how the institutional framework affects both Catalonia. But informal institutions have greater importance than formal the emergence and implementation of SE in a highly institutions due to the fact that they affect not only the implementation of SE, entrepreneurial Spanish region: Catalonia but also their emergence.

29

Wallace (1999)

Social entrepreneurship: The role of social purpose enterprises in facilitating community economic development

To examine the role of social and political cohesion in a community economic development context focusing on the emergence and dynamics of social purpose enterprises in facilitating community development and revitalization efforts

This paper argues the case for the recognition of and advocacy for the expansion of social purpose enterprises, often operating for-profit ventures, as an effective socio-political and economic link between government and free market enterprise

30

Weerawardena and Sullivan Mort (2006)

Investigating social entrepreneurship: A multidimensional model

To advance the conceptualization of the social Social entrepreneurship is a bounded multidimensional construct that is deeply entrepreneurship construct based on empirical research by rooted in an organization’s social mission, its drive for sustainability and highly using grounded theory method. influenced and shaped by the environmental dynamics. Social entrepreneurs might be attracted to opportunities that lie outside their To explain the forces contributing to the formation and home countries and launch ventures that go international from inception, even rapid internationalization of social ventures. when markets do not exist or where there are serious institutional failures. There are three types of social entrepreneurs: Social Bricoleurs, Social To advance a typology that identifies three types of social Constructionists and Social Engineers. Though these entrepreneurs share a entrepreneurs and to use the proposed typology of social passion for pursuing social issues, major differences exist among them in how entrepreneurs to explore various ethical issues they discover social needs (i.e., search processes), pursue social encountered in practice opportunities, and impact the broader social system.

31

Zahra et al. (2008)

Globalization of social entrepreneurship

32

Zahra et al. (2009)

A typology of social entrepreneurs: Motives, search processes and ethical challenges

39