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Business model innovation, Growth of

social
legitimacy and performance: social enterprises in
China
enterprises in China
Zhong Wang and Yating Zhou
School of Business Administration, Hunan University, Changsha, China
Received 31 May 2019
Revised 2 December 2019
Abstract 22 January 2020
Accepted 28 January 2020
Purpose – Social enterprises pursue growth through business model innovation, and acquiring legitimacy is
critical to ensuring such innovation. The purpose of this paper is to examine how business model innovation
and legitimacy affect the performance of new social enterprises during different development stages.
Design/methodology/approach – This paper uses the hierarchical regression analysis and fuzzy-set
qualitative comparative analysis (fsQCA) to examine social enterprise performance and constructs and verifies
a moderated mediation effect of business model innovation, based on a survey of 183 new social enterprises
in China.
Findings – This paper finds that business model innovation has a positive effect on social enterprise
performance and an organization’s legitimacy, acting as the partial mediator between them. The mediating
effect of legitimacy is more positive when social enterprises are in the early growth stage. A more detailed
analysis of fsQCA explores the necessary and sufficient conditions for the growth of social enterprise
performance across different stages and reveals five configurations that improve the performance of social
enterprises.
Practical implications – This study explores the role of business model innovation and legitimacy in social
enterprise growth and provides empirical evidence about the causal configuration of high-performing social
enterprises.
Originality/value – This research clarifies two antecedents of social enterprise performance and proposes a
more inclusive framework that addresses the factor of dynamic development stages. This paper deepens the
understanding of social enterprise performance in China.
Keywords Social enterprise, Legitimacy, Performance, Business model innovation, Development stage
Paper type Research paper

1. Introduction
Complex social problems call for the creation and development of social enterprises and social
entrepreneurship research (Dacin et al., 2011). In addition to the increasing number of social
enterprises, the growing number of nonprofit organizations and for-profit enterprises in
China is transforming social enterprises by innovating existing business models. However,
social enterprises often encounter the “paradox of legitimacy,” and the conflict between their
social mission and economic performance is a challenging topic for them. This research aims
to address these questions: How can social enterprise business model innovation (BMI)
impact its social and economic performance? What role does legitimacy play in this process?
How business model innovation promotes social enterprise performance (SEP) through
organizational legitimacy? Is there a difference between the start-up stage and early growth
stage in the current Chinese environment?
Existing studies on social enterprises have focused on the connotations and characteristics
of social entrepreneurship, the antecedents of social entrepreneurship and performance
measurement for social enterprises (Austin et al., 2006; Desa and Basu, 2013). Dees (1998)
defines social enterprises as organizations that fall between nonprofit organizations and for-
profit or commercial enterprises; these enterprises have both economic and social attributes
Management Decision
The authors gratefully acknowledge Major Project in Hunan Province “Women’s Theory and Practice” © Emerald Publishing Limited
0025-1747
(19ZDB03) and Hunan Province Teaching Reform Research Project 2017 for financial support. DOI 10.1108/MD-05-2019-0678
MD and pursue the maximization of social value rather than corporate profit. Zahra and Wright
(2015) believe that social enterprises create social wealth by creating new organizations or
managing organizations in innovative ways that include economic, social, health and
environmental considerations. Yet, little research has paid attention to the dynamics inside a
social enterprise, particularly the role of legitimacy and the organization’s early development to
balance its mission with its economic performance.
BMI in an organization is the key that supports the sustainable development of social
enterprises (Mongelli and Rullani, 2017). By establishing a new organization or adopting an
innovative management model, social enterprises can build a hybrid sustainable business
model in the process of creating economic and social value, thereby improving performance
and sustaining growth.
Legitimacy is another factor that influences whether enterprises garner recognition
and support. As pointed out by Suchman (1995), the literature on organizational legitimacy
falls fairly and neatly into two camps–one is strategic and the other, institutional. Studies
on strategic legitimacy depict legitimacy as an operating resource (Ashforth and Gibbs,
1990; Suchman, 1995), while institutionalism depicts legitimacy as a set of constitutive
beliefs that external institutions construct and that then interpenetrate the organization
(Suchman, 1988).
In the field of organizational legitimacy, the institutional camp “looked in” from the
perspective of the whole society, emphasizing the impact of the institutional forces reflected
in the “legality mechanism” on enterprises (Meyer and Rowan, 1977; Elsbach, 1994;
Suchman, 1995); while the strategic camp “looked out” from the organizational perspective,
focusing on the exertion of the organization’s subjective initiative, it advocates legalizing
the organization through strategic behavior, that is, obtaining the legality approval of key
stakeholders (Ashforth and Gibbs, 1990; Elsbach, 1994; Zimmerman and Zeitz, 2002). It can
be seen that legitimacy is the result of the joint construction of organizations and social
institutions. As Suchman pointed out, organizations face both the challenges of strategic
operations and institutional pressure of the external environment. It is important to
integrate the two perspectives of organizational legitimacy into a framework and deal with
the dynamics inside a social enterprise in addressing the business model and legitimacy.
That is to say, in the process of BMI, social enterprises not only need to respond to social
and institutional pressures by obeying or changing the practices in the social environment
but also must regard legitimacy as a controllable resource. That is how social enterprises
work dynamically.
As mentioned above, the strategic (BMI) and institutional (legitimacy) approaches to
organizations are synergetic and complementary with a point of view that looks “out” instead of
“in” (Elsbach, 1994), especially in the case of social enterprises. In China, more social enterprises
are pursuing BMI as well as legitimacy. These two considerations have strong connections with
each other, framing the construction of social enterprises, but there remains a gap in the
knowledge of how internal mechanisms combine with specific situations to promote SEP.
This paper aims to fill this gap by empirically testing a conceptual model that includes
BMI, legitimacy and SEP. On the one hand, to explore the importance of legitimacy
embeddedness in innovation activities and study the role of institutional factors on the
performance of new enterprises. On the other hand, the legalization of social enterprises is
significantly affected by environmental factors such as the time period and situation in
which an organization is embedded. Thus, we firstly propose a moderated mediation model
in order to reveal, in detail, how BMI promotes SEP through organizational legitimacy
regulated by new venture development stages in the current Chinese environment. We use
hierarchical regression analysis to examine the moderated mediation between the variables
and fuzzy-set qualitative comparative analysis (fsQCA) to identify the causal configurations
of high SEP.
2. Literature review Growth of
2.1 The effect of business model innovation on social enterprise performance social
The essence of BMI is the conceptualization and adoption of new organizational exchanges
that can be achieved by connecting potential partners; offering new combinations of products,
enterprises in
services and information or designing new transaction mechanisms (Zott and Amit, 2007). China
According to Zott and Amit (2007, p. 184), BMI may complement innovation in products and
services; methods of production, distribution or marketing and markets (Schumpeter, 1934).
Most existing studies believe that BMI can sustain the creation of enterprise value constantly
and that such innovation matters to the performance of entrepreneurial firms. Schlegelmilch
et al. (2003) emphasize that BMI can enhance customer value and promote the rapid growth of
enterprises. Yang (2019) found that BMI has a positive effect on enterprise performance based
on the perspective of dynamic capabilities.
In recent years, innovative business models for social enterprises have received extensive
attention from researchers (Yunus et al., 2010). Studies have focused on how to innovate the
components of business models and achieve the joint creation of social and economic value
through innovation activities (Janssen et al., 2018; Liu and Jin, 2015; Mair and Schoen, 2007).
Social enterprises can be characterized by the goal of creating “blended value” and their use of
innovative business models to make a social impact in an economically sustainable way (Alter,
2007; Battilana and Lee, 2014; Doherty et al., 2014; Pache and Santos, 2013). Seelos and Mair
(2005) argue that the key to social enterprise BMI is how such organizations manage the
contradiction between inherent economic sustainability and social value creation. Thus,
Santos et al. (2015) propose four hybrid social enterprise organizational forms, summarize the
relevant business models and organizational structures and share their management insights.
As far as social enterprises are concerned, good economic performance creates the
possibility of sustainable development for their business models. Mair and Marti (2006)
analyzed underlying mechanisms of social enterprise BMI to promote enterprise performance
from the aspects of a value network and resource acquisition. But the goal of sustainable
development for social enterprises requires them to pay attention to the relationship between
BMI, social performance and economic performance. While social enterprises already pay
attention to these two dimensions of performance, they need to build more comprehensive
systems to ensure that the social mission is preserved while the organization’s economic
performance is being promoted (Zhao and Guo, 2018).
There are many extensive studies on the relationship between social and economic
performance within social enterprises. On the one hand, the mission of a social enterprise can
be described as a strategic corporate social responsibility concept that stretches beyond profit
and market value maximization (Baron, 2007). Thus, the overall performance is improved
when guided by a social mission. On the other hand, when an organization performs better, a
virtuous circle exists between social and economic performance such that they are working in
conjunction to achieve sustained growth (Surroca et al., 2010). Organizational performance
promoted by BMI can be more significant when the social and economic environment is
favorable (Felicio et al., 2013). Meanwhile, some researchers have pointed out that the focus of
BMI for social enterprises in the Chinese context is to manage the inherent blended nature of
performance. This innovation must maintain a balance between realizing a social mission and
meeting the market demand based on the status quo of China’s social enterprise development.
Above all, social enterprise BMI helps organizations achieve their social goals, positively
impacts social performance and promotes economic performance.
H1a. Business model innovation has a significant positive influence on social
performance.
H1b. Business model innovation has a significant positive influence on economic
performance.
MD 2.2 The mediating effect of legitimacy
The concept of legitimacy was first proposed by Meyer and Rowan (1977). Research
completed by Scott (1995) and Suchman (1995) has further enriched the connotations and
classifications of legitimacy. Scott (1995) divided the concept into regulatory legitimacy (RL),
normative legitimacy (NL) and cognitive legitimacy (CL)—thus linking legitimacy to the
three pillars of institutions. RL refers to an organization’s degree of compliance with the laws
and regulations formulated by the government and industry. NL reflects the degree of
consistency between the organization’s behavior and its ethics, social values and customs. CL
covers public acceptance and recognition of the organization.
The process of organizational emergence can be understood and predicted by viewing it
as a quest for legitimacy (Erno and Scott, 2005, p. 311). BMI can empower legitimacy, helping
to form the core competitiveness of new enterprises and improving corporate performance.
As noted by Suchman (1995), organizations gain legitimacy by manipulating rather than
conforming to environments. Zhang and Du (2007) emphasize the importance of social
embeddedness in innovation activities and studied the role of institutional factors on the
performance of new enterprises. Meanwhile, novelty-centered firms may be accompanied by
high uncertainty costs, causing enterprises to face the “legal paradox,” which may lead to
innovation failure (Aspara et al., 2010). Therefore, the interaction between organizational
innovation and powerful institutions is an evolving process when it comes to establishing
legitimacy.
Although previous studies have affirmed the influence of legitimacy on corporate
performance, there is a huge difference between a social enterprise and a traditional business
enterprise, especially under the current immature institutional and market environment for
social enterprises in China. The information asymmetry caused by innovation can lead to the
public’s lack of understanding about social entrepreneurial activities, thus reducing the CL of
social enterprises. In order to overcome the potential legal conflict between a social mission
and economic performance, social enterprises must carry out BMI management (Mongelli
and Rullani, 2017).
Researchers have begun to pay attention to the role of institutions in the acquisition of
social enterprise resources. By establishing legitimacy, organizations are more likely to
obtain strategic resources that are vital to their growth and survival. For instance, the state or
government plays an important role in the regulatory approval of social entrepreneurship,
affecting investment behavior and ability of a social enterprise to acquire resources (Ault and
Spicer, 2014).
The innovation process for social enterprises includes both resource integration and a
legalization strategy in different innovation dimensions in response to consistency and
sustainability requirements. Social enterprises must break the constraints of the institutional
environment to obtain necessary resources and support. Katre and Salipante (2012) studied
23 newly created social enterprises and found that social entrepreneurs establish new social
connections and enhance trust and cooperation by seeking social and economic opportunities
in tandem. Meanwhile, social enterprises also gain broad CL by creating a common vision
with their stakeholders in the process of BMI. Thus, social enterprises can exert initiative and
use interactions between formal and informal institutions to drive their growth (Suchman,
1995). In addition, a series of safeguard measures, such as profit distribution methods and
governing models, have been proposed to help social enterprises gain internal and external
legitimacy in the process of BMI. Adopting these practices can free social enterprises from the
risk of drifting far away from their missions while pursuing economic success.
More recently, interest in the topic of legitimacy has spread into strategic management to
test how various types of legitimacy affect performance measures (Deephouse and Suchman,
2008). It has been shown that various kinds of legitimacy have different effects on
organizational growth.
 On the whole, BMI makes it possible for social enterprises to enter a market and gain Growth of
competitive advantages. However, organizational legitimacy and its dimensions become the social
key factor that decides the success of an organization’s business model as well as effective
ways for the organization to improve its performance.
enterprises in
China
H2a. Legitimacy mediates the relationship between business model innovation and
social performance.
H2b. Legitimacy mediates the relationship between business model innovation and
economic performance.

2.3 The moderating effects of new venture development stages

In studies on the development stages of new ventures, researchers have focused on the start-up
stage and the early growth stage (McDougall and Patricia, 1989). For newly created social
enterprises, the enterprise development process is a legalization process. Legitimacy at different
stages of this development has varying points of emphasis and impacts on performance.
There is a need for further research on the development of legitimacy in social enterprises
to specify the general process such organizations go through. Researchers have already
incorporated indicators of society-wide legitimacy, most notably time period variables based
on institutional changes and stages of the adoption cycle, into studies of this process
(Deephouse and Suchman, 2008; Liu et al., 2015; Ruef and Scott, 1998). The legalization of
social enterprises is significantly affected by environmental factors such as the time period
and situation in which an organization is embedded. With these changes, the organizational
structure and its internal stability as well as the external system and market competition are
constantly in flux. Katre and Salipante (2012) have investigated how innovation behaviors
influence organizational performance in an enterprise’s start-up and early growth stages. It is
known that investors’ expectations change based on the different stages of social enterprise
development and significantly affect the innovation behaviors of social enterprises (Zhao and
Lounsbury, 2016). Moreover, managers adopt active legalization strategies in different ways.
For example, social enterprises attach great importance to moral legitimacy in the start-up
stage, whereas pragmatic legitimacy is the focus in the early growth stage (Chen and
Chen, 2018).
Therefore, this paper introduces the development stages of new ventures as a moderating
variable and discusses its adjustment effect on the relationship between legitimacy and SEP.
H3. New venture development stages moderate the strength of the mediated
relationships between BMI and SEP via legitimacy such that the mediated
relationship will be stronger in the early growth stage than in the start-up stage.
Based on the above theoretical analysis, we firstly propose a moderated mediation model in
order to reveal, in detail, how BMI promotes SEP through organizational legitimacy regulated
by new venture development stages in the current Chinese environment. This model is shown
in Figure 1.
Secondly, we focus on the interpretation of the overall case and explore the configuration
of high-performance growth in social enterprises across different stages of development. This
model is shown in Figure 2.

3. Samples and measures

3.1 The sample and data collection
In order to allow respondents to fill out the questionnaire with ease, we clearly defined
new Chinese social enterprises as public welfare social enterprises and market-oriented
MD social enterprises. Next, we conducted a focused interview with some exemplary social
entrepreneurs through the 3rd Outstanding Social Entrepreneur Awards Conference in
2018. Finally, making use of social entrepreneurs’ social resources, quantitative surveys
were conducted on a sampling of China’s social enterprises using communication
platforms, such as WeChat and QQ. In this survey, a total of 224 questionnaires were
received, and 196 of them were valid. We identified 183 of these questionnaires as coming
from enterprises that had been established for less than 8 years. Thus, most of these social
enterprises in China represent new ventures, and they are spread across the entire
country. These organizations focus on topics such as education, women and children,
culture, agricultural poverty alleviation, environmental protection, medical and health
care and pensions. The sample distribution of this study is both extensive and
representative. In the hierarchical regression analysis, in order to identify influential
observations, samples outside three standard deviations were deleted and 179 companies
were finally obtained.

3.2 Measures
We developed the scales in this study based on the existing literature and theories as well as
our field interviews and investigation. All of the multi-item measures were rated based on a

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The conceptual
model 1

Business Model
Innovation
the antecedent configuration of high
business system innovation
performance for newly created social
organizational routines innovation enterprises in the start-up stage

conceptual cognitive innovation

+
Legitimacy
the antecedent configuration of high
regulative legitimacy performance for newly created social
normative legitimacy enterprises in the early growth stage
Figure 2.
The conceptual
model 2 cognitive legitimacy
5-point Likert scale, ranging from 1 for “completely disagree” to 5 for “totally agree.” We Growth of
averaged the items to create the scores for the constructs. social
3.2.1 The antecedent variable: business model innovation. We measured BMI using the
following three dimensions proposed by Zeng and song (2014): business system innovation
enterprises in
(BSI), organizational routines innovation (ORI) and conceptual cognitive innovation (CCI). China
We adapted interpretation by Zott and Amit (2007) of BSI and ORI and supplemented the
characteristics of social entrepreneurship. Then we defined the CCI of social entrepreneurship
based on the contributions of Peredo and Mclean (2006) to measure the intrinsic
characteristics of social enterprises. Sample items include “the business model offers new
combinations of products, services and information,” “the business model introduces new
operational processes, routines and norms” and “the business model shows a capacity to
recognize and take advantage of opportunities to create social value.”
3.2.2 The outcome variable: social enterprise performance. We used two variables from Liu
et al. (2015) and Zhang and Zhang (2018), that is, social performance and economic
performance, both of which affect a social enterprise’s performance objectives. We measured
social performance using five items and economic performance using six items. Sample items
include “provide more social services” and “reaching enterprise financial goals.”
3.2.3 The mediating variable: legitimacy. We considered legitimacy to be an institutional
approach based on Scott (2008) and measured it in the Chinese context through the three
following dimensions proposed by Yu and Mei (2016): RL, NL and CL. Sample items include
“received honors from the government or industry,” “received more praise for social welfare
activities such as solving social problems and promoting the employment of vulnerable
groups” and “products or services are understood and accepted by customers.”
3.2.4 The moderating variable: new venture development stages. It was measured by the
year of the new social enterprise establishment. The scale for the new venture development
stages was created based on the work of McDougall and Patricia (1989). This study defined
0–3 years as the start-up stage and 4–8 years as the early growth stage for newly created
enterprises.
3.2.5 Control variables. A firm’s size and location should serve as the control variables
when studying innovation (Patel et al., 2014). Research has shown that larger-sized firms
tend to have more resources to engage in strategic planning and develop social activities
(Husted and Allen, 2007). Thus, we controlled the firm size, which was measured by the
number of employees reported in the questionnaire. Meanwhile, we also took the firm
location into consideration because in the Chinese context regional differences in policy
support and the entrepreneurial environment may greatly affect the development of
social enterprises. In this research, we coded 1–7 for seven geographic regions: North
China, South China, East China, Central China, Southwest China, Northeast China and
Northwest China.
In addition, we included the firm industry as an indicator variable to illustrate potential
innovation trends across industries. The participants were required to decide which sector
his/her organization should be from a sector list, which was based on the classification of
social enterprise sectors from the 2018 China Social Enterprises and Investment Forum
Conference. The majority sectors that were reported include the education industry (15.3
percent), elderly care service industry (14.8 percent), medical and health, poverty alleviation,
culture and environmental protection, which reported a similar rate, ranking from 9.8 to 11.5
percent, women and children (6.6 percent), disabled (6 percent), information technology (6
percent), finance (4.4 percent) and other fields (4.3 percent).
The firm type was also controlled and measured as an indicator variable. Zhao and Guo
(2018) provided a framework to categorize social enterprise in China from the combined view,
which are defined as the public welfare social and market social enterprises. Different types of
organizational forms as well as the industry will generate different BMIs.
MD 3.3 Reliability, validity and common method bias
This study used SPSS 20.0 to test the reliability of the items in the questionnaire. Cronbach’s a
coefficient and the composite reliability of all constructs were all above 0.7, which shows
favorable internal consistency between the questionnaire items and the scale. Convergent
validity was tested based on factor loading, the composite reliability and the average
variance extracted, which were greater than 0.65, 0.7 and 0.5, respectively. We used
confirmatory factor analysis through AMOS 21.0 software to test the construct validity, and
the fit indices show that the measurement model fits the data reasonably well (Table I).
In order to avoid common method biases, this paper developed clear and concise items and
allowed questionnaire respondents to remain anonymous. Moreover, we checked the possible
common method bias using Harman’s single-factor test (Podsakoff et al., 2003). The results
show that the first factor explains 32.76 percent of the total variance and is below 40 percent
threshold, indicating the common method bias is unlikely to be a threat to our findings
(Iverson and Maguire, 2000).

4. Empirical results
4.1 Descriptive statistics
Table II presents the means, standard deviations and correlations for all of the key constructs.
We found that the BMI, legitimacy and social and economic performance of new social
enterprises in China is at a medium level. Moreover, BMI was significantly correlated with
legitimacy and social and economic performance while legitimacy and social and economic
performance were also significantly correlated, providing some initial evidence for the
hypotheses.

4.2 Hierarchical regression analysis and results

Tables III and IV show the results of the hypothesis test: Model 2 and Model 10 tested whether
BMI has a significant positive impact on the social and economic performance of social
enterprises (β 5 0.827, p < 0.01; ß 5 0.958, p < 0.01) and verified Hypothesis 1a and
Hypothesis 1b. In Model 8, BMI had a significant positive impact on legitimacy (β 5 0.635,
p < 0.01). Model 4 added mediator variables based on Model 2, and the impact of BMI on
legitimacy was reduced (β 5 0.609, p < 0.01). Legitimacy still had a significant impact on
social performance (β 5 0.347, p < 0.01), indicating that legitimacy plays a part in mediating
the impact of BMI on social performance. This verifies Hypothesis 2a. Similarly, legitimacy in
Model 10 and Model 12 plays a partially intermediary role in the impact of BMI on economic
performance, which validates Hypothesis 2b. Next, the Legitimacy and Year were centralized,
and multilevel regression methods were used to add the interactions between the control
variables, Legitimacy, Year and the cross-term of Legitimacy and Year. The moderating
effect of the new venture development stages can be seen in Model 6 and Model 14, and the
results verify Hypothesis 3. We estimated variance inflation factors (VIF) to examine
collinearity and found that they were below harmful levels.
In order to further verify the hypothesis about the moderated mediation effect, we divided
year of the new social enterprise establishment into two stages and conducted bootstrapping
analysis to assess the significance of indirect effects (Shrout and Bolger, 2002). The
bootstrapping results indicate that the indirect effect of BMI on social performance in the
early growth stage through legitimacy is significant, with a 95 percent confidence interval not
containing 0 ([0.19, 0.53]), while the indirect effect is not significant in the start-up stage.
Similarly, the indirect effect of BMI on economic performance in the early growth stage
through legitimacy is significant, with a 95 percent confidence interval not containing 0 ([0.26,
0.56]), while the indirect effect is not significant in the start-up stage (Table V).
 Loading Loading Loading Reliability and
Growth of
Construct (source)/indicator 1 2 3 validity social
enterprises in
Business model innovation (α 5 0.84) CMIN/DF 5 1.051
Business system innovation (α 5 0.79, p < 0.05 China
CR 5 0.822, AVE 5 0.536) GFI=0.975
Our company offers new combinations of 0.716 AGFI 5 0.948
products, services and information RMSEA 5 0.016
Our company attracts many new customers 0.705 CFI 5 0.998
Our company attracts many new suppliers 0.693 NFI 5 0.952
and partners PNFI 5 0.636
Our company brings together new 0.809 RFI 5 0.928
participants in novel ways IFI 5 0.998
Organizational routines innovation (α 5 0.741,
CR 5 0.771, AVE 5 0.629)
We introduce new operational processes, 0.723
practices and norms into our business
Our company has simplified organizational 0.858
structure on a large scale
Conceptual cognitive innovation (α50.732,
CR 5 0.808, AVE 5 0.584)
Our company has introduced and spread the 0.764
concept of social value creation
Our company is good at identifying social 0.726
needs and taking opportunities to create value
Our company is good at obtaining resources 0.801
through multiple relationship networks
when resources are scarce
Legitimacy (α 5 0.892) 0.778 CMIN/DF 5 1.461
Regulative legitimacy (α 5 0.87, CR 5 0.875, 0.787 p < 0.05
AVE 5 0.585) GFI 5 0.926
Our company complies with local laws 0.747 AGFI 5 0.898
Our company complies with local 0.706 RMSEA 5 0.051
government regulations, standards and CFI 5 0.971
expectations NFI 5 0.916
Our company complies with local industry 0.801 PNFI 5 0.746
regulations RFI 5 0.895
Our company has been awarded accolades IFI 5 0.971
by the government or industry
Our company has gained respect and
recognition from competitors in the industry
Normative legitimacy (α 5 0.832, CR 5 0.856,
AVE 5 0.544)
Our company conforms to social values and 0.760
ethics
The technical process and organizational 0.694
structure adopt local practices
Our products or services are in line with the 0.744
common values of the local public
The entrepreneur’s personal behavior 0.793
conforms to public perception and moral code
Our company has won good comments for 0.693
participating in social welfare activities,
such as solving social problems and
promoting employment of the vulnerable Table I.
group Construct
measurement,
(continued ) reliability and validity
MD Loading Loading Loading Reliability and
Construct (source)/indicator 1 2 3 validity

Cognitive legitimacy (α 5 0.874, CR 5 0.867,

AVE 5 0.62)
Our employees have a strong sense of 0.821
belonging
Entrepreneurs themselves can be approved 0.819
and accepted by the public
Customers can understand and accept our 0.707
products or services
The media pay more attention to our 0.798
company and report positively
Social enterprise performance (α 5 0.886) CMIN/DF 5 1.557
Social performance (α 5 0.859, CR 5 0.872, p < 0.05
AVE 5 0.577) GFI 5 0.939
Bidding for public service contract 0.685 AGFI 5 0.911
Bidding government (or its funding body’s) 0.801 RMSEA 5 0.057
grants for enterprise activities CFI 5 0.973
Serves more beneficiaries in the community 0.818 NFI 5 0.928
Provide more social service (different types) 0.774 PNFI 5 0.728
Expand social service to different locations 0.712 RFI 5 0.908
Economic performance (α 5 0.841, CR 5 0.868, IFI 5 0.973
AVE 5 0.523)
Business unit profitability 0.745
Reaching enterprise financial goals 0.682
Enterprise customer satisfaction 0.696
Delivering value to your enterprise customer 0.703
Expand enterprise activities to different 0.779
locations
Engage more enterprise activities (different 0.731
Table I. types)

Figures 3 and 4 illustrate the differences between the moderating effects in the start-up and
early growth stages. In summary, it can be clearly seen that the relationship between BMI and
new SEP (social and economic performance combined) is influenced by the new venture
development stages.

4.3 Fuzzy-set qualitative comparative analysis

The above analysis demonstrates that the development stages of newly established social
enterprises not only have a moderating effect on the performance of social enterprises
through legitimacy but also have a moderating effect on the indirect effect of BMI on the
performance of social enterprises through legitimacy. In order to further analyze the ways in
which BMI and legitimacy impact the performance of social enterprises in different new
venture development stages and further explore the complementarity and trade-off between
BMI at all levels and legitimacy dimensions, this paper adopts fsQCA (Ragin, 2000), focuses
on the interpretation of the overall case and explores the configuration of high-performance
growth in social enterprises across different stages of development.
4.3.1 Calibration. We adopted relative anchors based on the characteristics of the sample
distribution proposed by T
oth (2015) due to the subjective scales. This included two anchors
that define full nonmembership (the 10th percentile) as 0 and full membership (the 90th
Variable Mean SD 1 2 3 4 5 6 7 8 9

Firm size 2.58 1.16 1

Firm location 3.74 1.526 0.04 1
Firm industry 5.06 3.03 0.03 0.1 1
Firm type 1.45 1.74 0.02 0.07 0.02 1
Year 4.18 2.11 0.19 0.1 0.02 0.05 1
BMI 3.58 0.49 0.04 0.05 0.13 0.2* 0.197 1
Legitimacy 3.89 0.46 0.13 0.04 0.03 0.05 0.036 0.667** 1
SP 3.82 0.66 0.09 0.03 0.14* 0.13 0.214* 0.632** 0.564** 1
* **
EP 3.62 0.63 0.03 0.05 0.15 0.18 0.165 0.735 0.657** 0.601** 1
Note(s): N 5 179. BMI: business model innovation; SP: social performance and EP: economic performance. *p < 0.05 (two-sided), **p < 0.01
China
enterprises in
social
Growth of

Table II.
Descriptive statistics
and correlations
 MD

Table III.

legitimacy)
performance,
(Dependent: social
Regression results
Dependent: SP Dependent: legitimacy
Variable Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Firm size 0.042 0.041 0.006 0.027 0.008 0.004 0.051 0.045
Firm location 0.012 0.004 0.012 0.003 0.01 0.004 0.009 0.003
Firm industry 0.004 0.011 0.014 0.012 0.016 0.012 0.023 0.015
Firm type 0.07 0.028 0.054 0.036 0.022 0.021 0.033 0.02
BMI 0.827*** 0.609*** 0.635***
Legitimacy 0.784*** 0.347*** 0.779*** 0.797**
Year 0.172* 0.179*
Legitimacy*Year 0.423**
Model statistics
R2 0.005 0.405 0.319 0.438 0.344 0.358 0.028 0.474
ΔR2 0.4*** 0.314*** 0.033** 0.025* 0.014** 0.446**
*** ***
F 0.356 27.47 23.464 22.86*** 19.645*** 14.883*** 1.642 36.952***
VIF (max) 3.257 2.368 3.853 3.421 4.432 3.747 4.379 3.632
Note(s): N 5 179. BMI: business model innovation. *p < 0.05 (two-sided), **p < 0.01
 Dependent: EP
Growth of
Variable Model 9 Model 10 Model 11 Model 12 Model 13 Model 14 social
enterprises in
Firm size 0.029 0.025 0.011 0.011 0.015 0.014
Firm location 0.026 0.014 0.028 0.014 0.016 0.022 China
Firm industry 0.016 0.01 0.009 0.008 0.009 0.011
Firm type 0.058 0.036 0.034 0.027 0.044 0.031
BMI 0.958** 0.721**
Legitimacy 0.896** 0.385** 0.893** 0.915**
Year 0.154* 0.161*
Legitimacy*Year 0.485**
Model statistics
R2 0.007 0.55 0.431 0.593 0.402 0.415
ΔR2 0.543** 0.424** 0.043** 0.023* 0.106** Table IV.
F 0.647 71.644** 39.853** 52.54** 32.653** 36.349** Regression results
VIF (max) 2.912 3.049 4.143 3.228 4.850 4.345 (Dependent: Economic
Note(s): N 5 179. BMI: business model innovation. *p < 0.05 (two-sided), **p < 0.01 performance)

Indirect effect Boot SE 95% unbiased confidence interval

BMI → Legitimacy → SP
Mediating effect 0.22 0.07 [0.09,0.37]
Moderated mediating effect
Start-up stage 0.10 0.08 [ 0.05,0.26]
Early growth stage 0.37 0.09 [0.19,0.53]
BMI → Legitimacy → EP
Mediating effect 0.25 0.06 [0.13,0.37]
Moderated mediating effect
Start-up stage 0.12 0.07 [ 0.02,0.26] Table V.
Early growth stage 0.41 0.08 [0.26,0.56] Bootstrapping analysis

SP 5
early growth stage
4.5
start-up stage
4

3.5
Figure 3.
3 The relationship
between legitimacy
2.5 and social performance
in different
2 development stages
Low legitimacy High legitimacy

percentile) as 1 as well as a crossover point (the median) set at 0.5. After defining the set
membership, fsQCA 3.0 was applied for the automatic calibration procedure. Table VI
presents the results of the calibration.
4.3.2 Analysis of the necessity. To determine whether a single condition is sufficient to
produce a result, we used fsQCA 3.0 software to calculate the necessity of each condition
MD for the start-up stage and the early growth stage, respectively. As shown in Table VII, in
the start-up stage, the necessity that not high NL causes low SEP is greater than 0.9, while
the necessity that high NL leads to high performance is close to 0.9. That is, all the
individual conditions do not constitute a necessary condition except for NL for the high/
low performance of the social enterprise. Meanwhile, it can be seen from Table VIII that
only BSI approximately constitutes a sufficient condition for the high performance of
social enterprises in the early growth stage. In other words, in addition to NL and BSI,
which are relatively important to explain the growth results of social enterprises, the
other conditions cannot be regarded as necessary conditions for social enterprise growth,
which also means that the rationality of the set and substitution effect between conditions
should be examined based on their configuration. Hence, we conducted fsQCA in the
next step.

EP 5
early growth stage
4.5
start-up stage
4
Figure 4. 3.5
The relationship
between legitimacy 3
and economic
performance in 2.5
different development
2
stages
Low legitimacy High legitimacy

Full membership 5 1
Cross-over point 5 0.5
Construct Calibration rule Nonmembership 5 0

Business system innovation (BSI) If BSI > 4.7 1

If BSI 5 3.75 0.5
If BSI < 2.75 0
Organizational routines innovation (ORI) If ORI > 4 1
If ORI 5 3 0.5
If ORI < 2.8 0
Conceptual cognitive innovation (CCI) If CCI > 4.67 1
If CCI 5 4 0.5
If CCI < 3 0
Regulative legitimacy (RL) If RL > 4.76 1
If RL 5 4 0.5
If RL < 3.2 0
Normative legitimacy (NL) If NL > 4.6 1
If NL 5 3.8 0.5
If NL < 3.04 0
Cognitive legitimacy (CL) If CL > 4.75 1
If CL 5 4 0.5
If CL < 3 0
Table VI. Social enterprise performance (SEP) If SEP > 4.4 1
Overview of the If SEP 5 3.82 0.5
calibration rules If SEP < 2.87 0
 High social enterprise performance (SEP)
Growth of
Presence Absence social
Condition Consistency Coverage Consistency Coverage enterprises in
BSI 0.86 0.76 0.47 0.54 China
∼BSI 0.48 0.41 0.79 0.88
ORI 0.80 0.83 0.40 0.54
∼ORI 0.56 0.41 0.88 0.86
CCI 0.81 0.67 0.56 0.60
∼CCI 0.52 0.47 0.69 0.83
RL 0.73 0.65 0.50 0.59
∼RL 0.53 0.45 0.70 0.77
NL 0.89 0.76 0.44 0.50
∼NL 0.42 0.36 0.79 0.90 Table VII.
CL 0.75 0.66 0.49 0.57 Overview of the
∼CL 0.51 0.43 0.71 0.79 necessary conditions
Note(s): ∼indicates the absence of a condition (Start-up stage)

High social enterprise performance (SEP)

Presence Absence
Condition Consistency Coverage Consistency Coverage

BSI 0.89 0.77 0.57 0.47

∼BSI 0.39 0.49 0.73 0.87
ORI 0.73 0.79 0.49 0.52
∼ORI 0.55 0.53 0.80 0.74
CCI 0.88 0.75 0.60 0.49
∼CCI 0.40 0.51 0.69 0.84
RL 0.84 0.80 0.50 0.45
∼RL 0.42 0.47 0.77 0.82
NL 0.67 0.71 0.56 0.56
∼NL 0.59 0.58 0.71 0.67 Table VIII.
CL 0.86 0.85 0.48 0.45 Overview of the
∼CL 0.45 0.47 0.84 0.85 necessary conditions
Note(s): ∼indicates the absence of a condition (Early growth stage)

4.3.3 Configurations for high social enterprise performance. Consistency is used to assess
the proximity of a fuzzy set for an antecedent combination. In this paper, the consistency
threshold was set at 0.85, which is higher than the 0.8 used by Fiss (2011), to produce more
robust results. Next, we analyzed the components of high SEP in the start-up and early
growth stage through the fuzzy-set truth table. The overall consistency is 0.96, greater than
the threshold of 0.85 and the coverage rate reaches 0.67, as shown in Table IX.

5. Discussion
This study constructed and verified a moderated mediation model of BMI to SEP by using
hierarchical regression analysis and fsQCA based on a survey of 183 new social enterprises in
China. We found that BMI has a positive effect on new SEP and that legitimacy acts as a
partial mediator between them. Meanwhile, the mediating effect of legitimacy is more positive
when new social enterprises are in the early growth stage. A more detailed analysis of fsQCA
explored the necessary and sufficient conditions for the growth of new SEP in different stages
and revealed five configurations that enhance new SEP.
MD Configurations
Start-up stage Early growth stage
Causal conditions C1 C2 C3a C3b C4

BSI C • • C
ORI C • C •
CCI • ⊗ C C C
RL • ⊗ • •
NL C C ⊗ C
CL C ⊗ C C
Consistency 0.97 0.96 0.97 0.99 0.96
Raw coverage 0.19 0.10 0.40 0.19 0.29
Unique coverage 0.14 0.04 0.09 0.01 0.02
Table IX. Solution consistency 0.96
Configurations of high Solution coverage 0.67
social enterprise Note(s): black circles indicate the presence of a condition; circles with “x” indicate the absence; large circles
performance indicate core conditions; small ones indicate peripheral conditions

This research has three main contributions. First, by providing an integrated perspective on
institutional and strategic theory, this paper clarifies the relationship between BMI and SEP.
Second, from a dynamic perspective, this study analyzed the different effects of BMI on the
performance of social enterprises across different development stages. Third, studying the
configurations of BMI and legitimacy that lead to the growth of new social enterprises at
different development stages enriches the literature on the factors that affect SEP and
improves the growth path for social enterprises.
This study has three practical implications. First, in China, social enterprises are the
inevitable result of the market economy’s transformation and have shown a continuous
growth trend. In the process of BMI, social enterprises need to respond to social and
institutional pressures by obeying or changing established practices in the social
environment. Meanwhile, social enterprises also need to make full use of their resources and
adopt legitimacy strategies to bridge the gap between formal and informal institutions.
This study shows that newly created social enterprises should promote BMI and legitimacy
at the same time.
Second, newly created social enterprises at different stages of development should pay
attention to the following considerations. The results show that NL determines the level of
SEP in the start-up stage. In order to obtain legitimacy, social enterprises should attach
importance to resonating with the expectations of key stakeholders, highlighting the core
competitiveness of the enterprise, and promoting corporate values in line with social norms
and expectations in the process of implementing new business models. Reporting should be
done through positive publicity and other forms of media coverage. Moreover, for social
enterprises in the early growth stage, value innovation at the business systems level is a key
condition for their organizational growth. On the one hand, it is necessary for an enterprise to
integrate social elements into its economic activities and promote responsible consumption
by satisfying the value pursuit of its social consumers. On doing so will allow economic and
social value to be realized in tandem. On the other hand, enterprises should also consider the
expectations and demands of different stakeholders to promote the participation of and
cooperation between interested parties. This will lead to a multi-win value-sharing situation
while allowing the enterprise to obtain legitimacy resources through BMI to promote the
development of its innovation activities.
Third, the different configurations of high SEP across varying stages of development
can be categorized as follows. During the start-up stage, some social entrepreneurial
organizations are created from nonprofit and charitable organizations. They have an Growth of
inherent legal advantage and can overcome existing core rigidity through the innovation social
of traditional social organization concepts and cognition. Newly created social
enterprises in this same stage will find legitimacy hard to obtain and should focus on
enterprises in
changing traditional operating methods by innovating their organizational routines. This China
will allow them to realize flexibility and collaboration in their organizational structures,
which in turn will help them create a sustainable business model. Meanwhile, during a
social enterprise’s early growth stage, BSI and RL become the key factors in high
performance. Thus, social enterprises should emphasize the value of ORI by focusing on
careful resource allocation and their continuous innovation ability, both of which are
strengthened by considering BMI from all angles and pursuing legitimacy from all
dimensions.
There are some limitations of this research that need to be addressed in the future. First,
this paper has collected a very limited amount of information on the sampled enterprises.
Future research should confirm the information and acquire more knowledge of core
enterprise characteristics through in-depth interviews. Second, we studied the antecedent
configuration of high performance in social enterprises in a predominantly exploratory way.
In the future, researchers can consider different scenarios, collect larger samples and compare
fsQCA results with traditional quantitative research methods.

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Corresponding author
Yating Zhou can be contacted at: 471814535@qq.com

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