Impact Investing Strategies

Anirudh Agrawal

Research output: Book/ReportPhD thesis

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Access to finance at a ‘fair price’ is one of the major issues in many economies. Both developed and developing economies struggle to fund promising social entrepreneurs. The traditional financial systems are designed to discourage promising social entrepreneurs without any collateral from obtaining financial services. To address this disequilibrium in the finance ecosystem, impact investing is one of the most promising, innovative types of financing aimed at making the financial system more inclusive.
The field of impact investing is growing, and multiple players populate it. They provide substantial capital to projects and social enterprises with a strong social mission and promising financial return capability. However, there remains a lack of a knowledge base to understand the complexities surrounding impact investing, investment logics, and organizational form. The lack of a strong knowledge base of impact investing increases the risks (financial risks, legitimacy risks, and institutional risks) of impact investments. Therefore, this thesis investigates impact investing, historical development, distinction, investment strategies, and their relationship with investee firms. The thesis aims to develop a greater understanding of impact investing. It provides elements that should offer a more significant knowledge base upon which investors can base their impact investing decisions.
First, legitimacy of impact investing is linked to how well it selects and invests in social enterprises. Second, most venture capital literature is focused on the performance of investees. The performance of impact investing is tied to social and commercial value creation. Given the difference in objectives of (compared with traditional venture capital firms), our understanding of how impact investors and investee social enterprises interact at the inter-organizational level remains weak and must be explored. Third, most studies on impact investing consider it as merely a practice of investing with social and financial benefits. Given the vast institutional difference between the global north and the global south, how social and commercial expectations vary remains to be explored.
This dissertation is composed of three articles, each contributing to impact-investing field by drawing insights from the institutional theory, institutional logic, impact investing, and social entrepreneurship literature. The research design of this dissertation primarily relies on a systematic literature review for understanding the current status of the field, interviews, and multiple case studies for developing an in-depth understanding of the process, strategy, and application of impact investing.
Article #1 is a review of 85 impact investing articles that explore the longitudinal growth of the field and compare the development of impact investing scholarship with the Kuhnian scientific paradigm. The analysis in the review suggests that the scholarship in impact investing is currently at the exploratory stage, known as the pre-paradigmatic stage of scientific inquiry. For impact investing scholarship to develop into an established field of inquiry, scholars must expand the scope of inquiry by studying different aspects of the field’s intra-organizational, inter-organizational, and institutional complexities using novel theoretical positions. Also, it must pursue both model development and model testing studies.
The legitimacy of impact investing lies in how effectively it invests and how well it manages its investments. Article #2 is an analysis of multiple cases of six impact investing firms and their investees based out of India, exploring the inter-organizational collaboration between impact investors and investee social enterprises. Using competing logics literature and inter-organizational literature, the article provides insights into impact investing and investee social enterprises. It further empirically recommends strategies for long-term engagement and sustainable value creation between impact investing and investee social enterprises.
The dominating view on impact investing field is that its scholarship lacks depth and breadth. Article #3 explores questions related to variance among impact investors at the global level and examines the impact of investment strategies. To answer these questions, the article presents an interview of impact investors from 22 cases of impact investing firms. Based on the context, the article suggests three distinct categories of impact investing. Similarly, using context and the literature on value creation, article #3 suggests three separate impact investing strategies. Furthermore, the article discusses the implications of these suggestions on our understanding of competing goals' hybridization.
These three articles collectively form the core of the dissertation and provide a broad overview of what is currently being studied, what is missing, and what must be considered in impact investing. First, the dissertation provides a clear understanding of the current growth in impact investing and future research possibilities. Also, the articles suggest a list of impact investing strategies that impact investors should pursue. The article discusses how impact investors and investee social enterprises must interact to establish a sustainable collaboration that ensures long-term value creation. Overall, the dissertation makes a significant contribution to impact investing and expands upon the knowledge base of practitioners investing in social enterprises.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School [Phd]
Number of pages239
ISBN (Print)9788793956605
ISBN (Electronic)9788793956612
Publication statusPublished - 2020
SeriesPhD Series

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