Financing and Performance of Female-Owned Firms in Middle Eastern and African Economies

Abstract

ABSTRACTEmpirical evidence suggests that lack of access to financing is a major constraint to performance of female-owned firms in most countries. Firm performance, financing structure, and constraints have been well explored in the case of firms in developed economies but remain understudied in the case of firms in developing countries, especially in Africa and the Middle East. Largely due to lack of relevant cross-country financial data, existing literature on African firms has presented some survey-based evidence on firm performance and financing structures, while evidence based on detailed financial information remains lacking. This study aims at filling this research gap. We identify female-owned firms operating in the formal sector and examine the impact of ownership structure on financing and firm performance. We use a panel of financial data covering 25,500 companies in the Middle East and Africa for the years 2006 to 2015. Our results reveal a clear, but perhaps surprising, gender-specific pattern. Increased availability of equity and/or debt capital as well as higher leverage has significant positive effects on firm performance, measured by sales, profits and returns on equity. Female ownership per se appears to lower firm performance significantly, according to all measures used even when we control for the levels of available capital and the degrees of leverage. However, when the interplay of female ownership with capital availability is taken into account, we find that this interaction has a positive impact, implying that women are actually more productive when they are equally able to access finance. These results are also confirmed for a subsample including only Sub-Saharan African countries.