Impact Investing and the Fostering of Business Ventures' Financial Performance and Social Impact in Disadvantaged Urban Areas

56 Pages Posted: 24 Nov 2020 Last revised: 8 Nov 2021

See all articles by Romain Boulongne

Romain Boulongne

IESE Business School

Rodolphe Durand

HEC Paris - Strategy & Business Policy

Caroline Flammer

Boston University

Date Written: October 26, 2021

Abstract

We examine whether impact investing is more effective in fostering business venture success and social impact when investments are directed toward ventures located in disadvantaged urban areas (that is, areas with high crime, unemployment, and poverty) compared to similar investments directed toward ventures located outside these areas. We explore this question in the context of loans made to business ventures in French “banlieues” vs. “non-banlieues.” We find that loans issued to banlieue ventures yield greater improvements in financial performance, as well as greater social impact in terms of the creation of local employment opportunities, quality jobs, and jobs for minorities. These results suggest that impact investors are able to contract with ventures of greater unrealized potential in banlieues, as banlieue ventures tend to be left out of the traditional loan market. This is confirmed in a controlled lab experiment in which participants—business professionals who are asked to act as loan officers—are randomly assigned to identical business ventures that only differ in their geographic location. We find that participants are indeed less likely to grant loans to banlieue ventures compared to non-banlieue ventures, despite the ventures being identical.

Keywords: Impact Investing, Social Impact, Disadvantaged Urban Areas, Sustainable Cities, Sustainable Development Goals (SDGs), Business Ventures

JEL Classification: D6, E2, G1, G3, E2, H5, H7, H8, I3, J1, J7, L2, L3, M1, O1, R1, R2, R5

Suggested Citation

Boulongne, Romain and Durand, Rodolphe and Flammer, Caroline, Impact Investing and the Fostering of Business Ventures' Financial Performance and Social Impact in Disadvantaged Urban Areas (October 26, 2021). HEC Paris Research Paper No. SPE-2020-1405, Available at SSRN: https://ssrn.com/abstract=3705510 or http://dx.doi.org/10.2139/ssrn.3705510

Romain Boulongne

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Rodolphe Durand

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Caroline Flammer (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

HOME PAGE: http://sites.bu.edu/cflammer/

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