This paper seeks to address the questions of how and why the negative consequences emanating from a stricken social enterprise spread to other social enterprises, threatening viability of social enterprises as a whole.
Based on social categorization theory, a conceptual model is developed to understand how and why the perception of stakeholders on one single, stricken social enterprise can spread to other social enterprises, and ultimately affecting viability of social enterprises.
A conceptual model outlines how a violation of the legitimacy of a single social enterprise results in bad perception of this stricken enterprise, and which in turn evokes negative responses from stakeholders. Then stakeholders are likely to further conclude that other social enterprises may have similar problems. As a result, they spread their negative responses to other social enterprises as the initially stricken enterprise. These negative consequences can seriously damage a social enterprise and threaten viability of other social enterprises as well.
To regain legitimacy, social entrepreneurs of a focal social enterprise need to upgrade their skills, rationalize operations and enhance governance structure. Given the harmful spillover effect(s) that may inflict other social enterprises, social entrepreneurs of these social enterprises need to differentiate themselves from the focal social enterprise. Social investors need to take the spillover effects into consideration when making investment decisions.
This paper seeks to contribute to social enterprise literature by highlighting the importance of cognitive processing of stakeholders that is subsumed under social categorization theory, while advancing the understanding of viability of social enterprises from a critical perspective.
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