A Community-Based Theoretical Framework for Impact Investment Research

Abstract

Impact investment has quickly emerged to become the new frontier for social entrepreneurial finance over the past two decades. Impact investment creates both financial and social returns by supporting hybrid form of organizations that pursue financial and social goals simultaneously. The proliferation of impact investments, however, is not matched by the production of relevant theoretical knowledge. To advance the understanding about impact investing from a theoretical perspective, I first review the existing literature on impact investing through the lens of two commonly used theoretical frameworks—institutional logics and organizational categories. Although these two frameworks have produced useful insights, they tend to ignore the social embeddedness of impact investment in the context of local communities where investment opportunities are located. Next, I develop a community-based framework for impact investment research. Specifically, I draw upon the literature in sociology of community and organization theory to develop theoretical propositions about how the allocation of impact investment capital is influenced by the ecological, institutional and social contexts of local communities where investee organizations are embedded. The community-based framework offers research on impact investment a new theoretical perspective and opens up a new direction for empirical investigation.