Women-Owned Firms and Growth

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ABSTRACT

Prior research suggests that women are less likely than men to own and operate growth-oriented firms. This study uses data from the Federal Reserve's Survey of Small Business Finances to compare women-owned growth firms to women-owned non-growth firms. In addition, women-owned growth firms were compared to a sample of men-owned growth firms to determine whether the same factors contribute to growth in both. Results reveal that, for the most part, the variables associated with growth were the same for both women- and men-owned firms. Specifically, growth-oriented firms were more likely to be organized as limited liability entities and less likely to be primarily owned by one family. Human capital in the form of prior business experience and financial capital were predictors of growth for both women- and men-owned firms as anticipated. Surprisingly, however, human capital in the form of educational attainment was not significant in predicting growth for either women- or men-owned firms.

INTRODUCTION

Small firms are a vital part of the United States economy. The U.S. Small Business Administration defines a small firm as one that has 500 or fewer employees. Using this definition, 99% percent of all firms hi the U.S. would be categorized as small businesses. Data compiled by the SBA indicate that there were 23.6 million small firms in this country hi 2003 (Frequently Asked Questions, 2005). These firms generated over half of gross domestic product and employed half of all private sector employees. In fact, small firms have been responsible for 60-80% of net new jobs. They are also an important source of innovation hi the creation of new products, services, and technologies.

Within the larger category of small businesses, women-owned small businesses are a special subset. According to the Center for Women's Business Research, there were 10.6 million privately-held women-owned small firms hi the United States in 2004 (Top Facts About WomenOwned Businesses, 2005). These firms generated an estimated $2.46 trillion in sales and employed 19.1 million people. Although women-owned firms still constitute a minority of all small firms (47%), their numbers have been growing rapidly. The number of women-owned firms increased by 17.4% from 1997 to 2004 compared to a growth rate of 9.0% for privately-held firms overall. During the same timeframe, the revenues for women-owned firms increased by 39.3% compared to an increase of 33.5% for all firms. Thus, women-owned firms are growing hi terms of both numbers and economic importance.

In spite of then growing numbers, however, women-owned firms continue to lag behind men-owned firms in a number of performance measures. In particular, women-owned firms have traditionally been much smaller than men-owned firms in terms of total sales, total assets, and total number of employees. A number of possible reasons for this discrepancy have been posited It may be that women are more averse to risk than men and are thus unwilling to embark on larger ventures (Collerett & Aubry, 1990; Morris, Miyasaki, Waiters, & Coombes, 2006). Alternatively, the need to balance work and family may cause women to gravitate to smaller and more manageable firms (Caputo & Dolinsky, 1998; Lee & Denslow, 2005). Some researchers contend that women select industries and lines of business that do not particularly lend themselves to growth (Loscocco, Robinson, Hall, & Alien, 1991). Other research points to differences in financial capital and human capital that may ultimately serve as impediments to growth (Brush & Chaganti, 1998; Carter & Alien, 1997; Lucas, 2006). Finally, women may not measure success by the traditional indicators of growth and profitability; other factors may be more important to them as measures of achievement (Anna, Chandler, Jansen, & Mero, 1999). Whatever the reason, the fact remains that, in spite of their progress in the past two decades, women continue to start and operate very small firms thus denying themselves the opportunity for higher levels of sales and earnings. …