Gender Differences in Business Success of German Start-Up Firms

29 Pages Posted: 30 Mar 2011

See all articles by Sandra Gottschalk

Sandra Gottschalk

Center for European Economic Research (ZEW)

Michaela Niefert

Center for European Economic Research (ZEW)

Date Written: 2011

Abstract

Many studies found that women-owned firms underperform when comparing performance indicators at an aggregate level. The performance gap might be attributed to gender differences in personal and firm characteristics affecting performance. However, previous studies were not able to entirely explain female underperformance in this way. There are two theoretical perspectives on the causes of female underperformance. Liberal feminist theory suggests that women lack access to relevant resources like education and business experience or financial capital. Social feminist theory suggests that women have different attitudes and values and, consequently, adopt a different approach to business.

This paper shall contribute to a better understanding of the causes of female underperformance using performance indicators related to size, growth and profitability. We analyze whether gender differences in observable characteristics like education, experience, team size, entrepreneurial motivation and industry choice explain differences in performance and how large the impact is. We use data from the KFW/ZEW Start-Up Panel and track the performance of about 4,700 German start-up firms over up to four years after foundation. Sales, two measures of employment growth, and return on sales are used as performance indicators.

We find that female-founded firms perform worse for all indicators. At the same time, there are significant gender differences in many of the characteristics observed. Compared to male entrepreneurs, female entrepreneurs have a lower level of formal education, less professional experience, are part of smaller start-up teams, are more often driven by necessity, and are overrepresented in the retail and service industries and in lower-tech industries in general. These differences can explain parts of female entrepreneurial underperformance, but their contribution to the performance gap depends largely on the performance indicator considered.

Our results do not provide clear evidence for either liberal or social feminist theory. As to liberal feminist theory, we find that gender differences in founders’ resources (human capital, business partners) partly explain the performance gaps in growth and sales. But there is also evidence that the profitability gap becomes even larger when accounting for gender differences in specific resources like the number of team partners and entrepreneurial experience. As to social feminist theory, the gap in profitability itself speaks against the theory’s implication that female entrepreneurs are as efficient managers as male entrepreneurs.

We do not find evidence for gender differences in profit orientation but find that female entrepreneurs are less growth-oriented. Unfortunately, we lack information on the time resources available to male and female entrepreneurs. Thus we are unable to test the hypothesis that female entrepreneurs underperform because they are more strained by domestic responsibilities. Moreover, we lack information on personal traits like risk attitude and self-efficacy which may also affect entrepreneurial performance.

Keywords: Start-ups, performance, gender, female entrepreneurship

JEL Classification: L25, L26, J16

Suggested Citation

Gottschalk, Sandra and Niefert, Michaela, Gender Differences in Business Success of German Start-Up Firms (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-019, Available at SSRN: https://ssrn.com/abstract=1795228 or http://dx.doi.org/10.2139/ssrn.1795228

Sandra Gottschalk (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Michaela Niefert

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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