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

Abstract

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