Dynamics of Female-Owned Smallest Businesses in the U.S.

Abstract

Purpose: This study attempts to answer: 1) whether the female-owned smallest firms differ from their male-owned counterparts in terms of their performance; 2) if so, whether this affects banks’ loan approval decisions.

Design/methodology/approach: The study uses the Kauffman Firm Survey - the largest and longest longitudinal data set containing 4,928 new firms that started their business in the U.S. in 2004. We use two measures of median asset values to classify firms into smallest firm category. We use multiply imputed logit estimates to predict the probability of loan approval in each category.

Findings: Our results show that female-owned smallest firms have a significantly lower rate of loan approval. In addition, the study finds that a minority of women owners face a double burden. However, married women have a significantly higher probability of loan approval. Our results are robust.

Implications: From a public policy perspective, providing equal access to credit to women business owners, especially unmarried and/or minority women, may help solve the issue of why female-owned firms are so small.

Originality/value: Although many studies examined why businesses owned by women are typically smaller compared to men-owned firms, limited studies exist on female-owned smallest firms and why they stay smaller. This study fills this gap in the literature by examining female-owned smallest businesses.

Keywords: women entrepreneurs, access to credit, smallest firms

JEL Classification: G21, J16, L26