Determinants of impact investments: Evidence from portfolio-level data

Impact companies, particularly small and medium-sized enterprises (SMEs) whose core operations, services, and products are designed to generate measurable positive social or environmental outcomes, play a vital role in achieving the ambitious goals of the 2030 United Nations agenda. However, despite their importance, many SMEs struggle to access external financing, particularly equity capital, which limits their ability to scale impact-driven initiatives. This paper investigates the determinants of equity impact investments and investment volumes for SMEs, employing a unique identification strategy based on the Global Impact Investing Network and using portfolio-level data. Using a heterogeneous dataset of more than 50,000 unlisted firms in developed and developing countries, we find that impact investments are more likely to target younger medium-sized firms with greater transparency of information. Additionally, SMEs in developing countries, particularly those in the agriculture sector, receive greater attention from impact investors. Unlike traditional early-stage financing, impact companies tend to receive large lump sum equity investments. Our findings reveal distinct financing patterns that shape investor allocation decisions and have important implications for SME funding and sustainable development.