Funding New Business Ventures: Are Decision Makers Biased Against Women?
- UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
- Eleanor "Holly" Buttner, Professor (Creator)
- Institution
- The University of North Carolina at Greensboro (UNCG )
- Web Site: http://library.uncg.edu/
Abstract: Women have been leaving large corporations in increasing numbers in recent years to start their own businesses. However, they have not been succeeding at the same rate as their male counterparts. One potential barrier to a successful new venture is access to startup capital. Anecdotal evidence suggests that women starting their own businesses may have more difficulty obtaining financial support than men. In a loan decision simulation, this study systematically tested the allegations of female entrepreneurs that bank loan officers are more likely to grant loans, to make a counteroffer, and to make larger counteroffers to male entrepreneurs compared to female entrepreneurs under identical circumstances.
Loan officers usually make funding decisions on the basis of information gathered from an interview and a business plan, while venture capitalists often screen proposals on the basis of a business plan alone. A second purpose of this study was to determine whether the mode of presentation— business plan versus business plan with interview—increased the male or female entrepreneur's probability of successfully obtaining a loan.
A third purpose of this study was to examine the effects of the decision maker's previous experience on funding decisions. The recommendations of (experienced) loan officers versus (inexperienced) undergraduate students were compared in order to determine how experience and accountability influence loan decisions.
The study consisted of a 2 x 2 x 2 research design with three independent variables. Loan officers and undergraduate students either read a business plan, or read a business plan and watched a videotape of an interview between a loan officer and a male or female entrepreneur who was seeking a loan to start a business. Participants then indicated the likelihood that they would recommend approval of the loan, make a counteroffer of a smaller amount, and the magnitude of the counteroffer. There was no evidence that sex stereotypes influenced business funding decisions. With respect
to the amount of counteroffer, a significant three-way interaction was obtained between entrepreneurial gender, presentation format, and participant status. Loan officers made larger counteroffers to the female compared to the male when they read the business plan and watched the interview. Students made larger counteroffers to the male compared to the female when they read the business plan and observed the interview. Loan officers were significantly more cautious and conservative than students in their funding decisions.
Failure to support allegations of bias against women entrepreneurs is discussed in terms of possible unrealistic expectations regarding the ease of obtaining startup capital. Further research is needed to examine this explanation.
One implication of these findings is that female entrepreneurs should seek opportunities to meet with loan officers to present their business proposals. In the interview, the female has the opportunity to address questions of motivation and competence. On the other hand, bankers may make more impartial decisions when relying on information in the business plan alone, where financial considerations would have greater weight. Finally, the results suggest that studies using students as proxies for bank loan officers have very limited generalizability.
Funding New Business Ventures: Are Decision Makers Biased Against Women?
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Created on 1/1/1989
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Additional Information
- Publication
- Journal of Business Venturing, 4, 249-261
- Language: English
- Date: 1989
- Keywords
- Female entrepreneurs, Funding decisions