Skirting the Issues? Experimental Evidence of Gender Bias in IPO Prospectus Evaluations

Abstract

Given that women executives are present in the top management teams of IPO firms in increasing numbers, the lack of female-led IPO firms is a curious fact, especially since women-owned private businesses represent almost half of the new businesses formed in the United States, with patterns of founding similar to male-owned businesses. It hints at a potentially larger problem – a gender-based capital gap for new ventures. Given the empirical evidence suggesting a positive association between the presence of female executives and firm performance, we test whether investor perceptions are aligned with these empirical patterns. Using a sample of MBA students we construct a simulated initial public offering (IPO) manipulating the gender demographics of the top management team. Our results suggest that female CEOs may be disproportionately disadvantaged in their ability to attract growth capital when all other factors are controlled. Despite identical personal qualifications and firm financials, firms led by females were seen as having a poorer strategic position than those led by males, female Founder/CEOs were perceived as less capable then their male counterparts, and IPOs led by female Founder/CEOs were considered less attractive investments.

Keywords: Entrepreneurship, Top Management Teams, IPO, Gender Bias, Behavioral Finance

JEL Classification: M13, C91, G11, G24