Financial/Social Trade‐Offs in Dual‐Purpose Companies

Abstract Dual‐purpose companies (DPCs) encounter numerous financial and social trade‐offs in their operations. However, existing research has not fully explored the heterogeneity and antecedents of these trade‐offs. To bridge this gap, we first distinguish between scenarios in which trade‐offs are mitigated or intensified, and then categorize the intensification into two directions: social dominance and financial dominance. We hypothesize that unique combinations of governance arrangements and organizational capabilities result in different trade‐off scenarios. To test our hypothesis, we conducted a fsQCA of 46 subsidiaries within a Chinese state‐owned enterprise group. We identify three patterns that mitigate trade‐offs and three patterns that intensify them. The findings highlight the complex interplay between governance mechanisms and organizational capabilities related to different trade‐off scenarios, and the diverse pathways towards trade‐off mitigation, and the causal asymmetry between patterns of different trade‐off scenarios. Overall, this study advances our understanding of the heterogeneity of financial/social trade‐offs in DPCs.