Abstract:
The paper examines the influence of financial sources on capital structure – operationalised through the ratio of financial debt to total assets – of social enterprises, followed by the relationship between financial debt and performance. Data on income distribution, financial sources, and financial statements are collected from 207 social enterprises in four states of India – Karnataka, Telangana, Maharashtra, and Tamil Nadu – through cluster sampling. Multiple regression and panel data analysis tests are conducted to study the research objectives. The findings indicate social enterprises prefer debt from donors for capital investments over impact investments as well as debt from formal institutions. Furthermore, financial debt has a negative influence on return on capital employed component of social enterprises performance. Financial debt has no influence on financial results and suggests the independence of social enterprises from the funders. Furthermore, social enterprises’ ability to use capital efficiently to generate returns may be negatively affected by the repayment of interest and loans to lenders.