Abstract
Prior work finds mixed evidence of gender bias in lenders’ willingness to approve loans to entrepreneurs during normal macroeconomic conditions. However, various theories predict that gender bias is more likely to manifest when there is greater uncertainty or when decision-makers’ choices are under greater scrutiny from others. Such conditions characterized the lending market in the recent economic downturn. This article draws on an analysis of panel data from the Kauffman Firm Survey to investigate how the Great Recession affected the gender gap in entrepreneurial access to financing, net of individual and firm-level characteristics. Consistent with predictions, we find that women-led firms were significantly more likely than men-led firms to encounter difficulty in acquiring funding when small-business lending contracted in 2009 and 2010. We assess the consistency of our results with two different theories of bias or discrimination. Our findings shed light on mechanisms that may contribute to disadvantages for women entrepreneurs and, more broadly, highlight how the effects of ascribed status characteristics (e.g., gender) on economic decision-making may vary systematically with macroeconomic conditions.
Highlights
Prior work finds mixed evidence of gender bias in lenders’ willingness to approve loans to entrepreneurs during normal macroeconomic conditions
To the extent that men and women entrepreneurs may differ in their propensity to seek loans and that the tendency to seek a loan is associated with other individual or business characteristics that might impact loan approval, understanding the relevant predictors of loan-seeking is important for the interpretation of the results we later present regarding the effects of gender and the recession on loan denial rates
Model 3, whichincludes the battery of control variables that are used in our main analysis of loan denial, suggests that the observed negative effect of gender found in Model 1 can be attributed to the fact that men- and women-led businesses differ on other characteristics that predict applying for a loan; after controlling for other relevant characteristics, it appears that women may be more likely than men to apply for business loans during more normal macroeconomic conditions (β = 0.25, p < 0.10)
Summary
Prior work finds mixed evidence of gender bias in lenders’ willingness to approve loans to entrepreneurs during normal macroeconomic conditions. We investigate whether investors may have been more likely to apply different standards of evaluation to men- and women-led firms during the recession, a possibility that is predicted by status-based, but not statistical, theories of discrimination.
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