Two-sided Discrimination in an Entrepreneurial Financing Setting: Experimental and Theoretical Evidence

68 Pages Posted: 4 Apr 2022 Last revised: 30 Apr 2024

See all articles by Junlong Feng

Junlong Feng

Hong Kong University of Science & Technology (HKUST)

Ye Zhang

Stockholm School of Economics - Finance Department

Weijie Zhong

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Ofir Gefen

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: March 23, 2022

Abstract

This paper investigates discrimination within two-sided matching markets, focusing specifically on the entrepreneurial financing market. Through an experiment involving real US startup founders, we identify the presence of statistical gender discrimination against female investors among startup founders. Specifically, female investors' signals are perceived as less informative compared to those of male investors. This discrimination is predominantly driven by male founders and disproportionately affects high-quality female investors, indicating the presence of both gender homophily and a glass ceiling effect for women in this domain. Interestingly, Asian investors do not face similar levels of discrimination. Building upon these experimental findings, we develop a novel search and matching model with endogenously information aggregation and belief formation. This theoretical framework demonstrates how statistical discrimination arises endogenously within two-sided matching markets, leading to the observed glass ceiling effect and perpetuating a persistent low female participation rate in entrepreneurial financing. Overall, this paper offers novel insights into the nature and distinct characteristics of discrimination within two-sided matching markets.

Keywords: Matching, Discrimination, Field Experiments, Belief Formation, Entrepreneurship, Venture Capital

JEL Classification: C78, C93, D83, G40, G24, J15, J16, J71

Suggested Citation

Feng, Junlong and Zhang, Ye and Zhong, Weijie and Gefen, Ofir, Two-sided Discrimination in an Entrepreneurial Financing Setting: Experimental and Theoretical Evidence (March 23, 2022). Available at SSRN: https://ssrn.com/abstract=4065009 or http://dx.doi.org/10.2139/ssrn.4065009

Junlong Feng

Hong Kong University of Science & Technology (HKUST)

Ye Zhang (Contact Author)

Stockholm School of Economics - Finance Department ( email )

Stockholm
Sweden

HOME PAGE: http://https://www.yezhang.space/

Weijie Zhong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~wz2269

Ofir Gefen

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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