Myths and Realities: An Empirical Study of Banks and the Gender of Small Business Clients

Article excerpt

Abstract

This research addresses empirically the impact of gender on the relationship between bank lenders and small business borrowers. Both quantitative and qualitative aspects of the relationship are considered. Data are drawn from a national random sample of 1,393 bank loan files. Terms of lending across gender are examined, controlling for covariates such as size and sector Findings that borrower attributes and terms of lending do not vary by gender of borrower are consistent with the null hypothesis of no discrimination.

Resume

La presente recherche examine de facon empirique l'influence du sexe de l'emprunteur sur la relation entre les preteurs bancaires et les petites entreprises qui font une demande d'emprunt. Elle en etudie a la fois les aspects quantitatifs et qualitatifs en utilisant des donnees qui proviennent d'un echantillon national tire au hasard de 1 393 dossiers de credit bancaire. Les termes du pret, qu'il soit destine a des femmes ou a des hommes, sont etudies en fonction de la taille et du secteur de l'entreprise. Les resultats demontrent que les caracteristiques et les termes du pret ne changent pas que l'emprunteur soit un homme ou une femme ; ils sont conformes a l'hypothese nulle de non-discrimination.

"Discrimination against women small business owners by Canada's major financial institutions is widespread across the country. ... Women seeking financing are refused 20 per cent more often than men; and women are regularly charged a higher rate of interest than men."

Canadian Federation of Independent Business //www.cfib.ca/english/research/reports/financin.htm

"Financing Double Standard," August 28, 1998

There is a pervasive belief that women owners of small firms face disproportionately greater difficulty obtaining bank credit than do men. This belief is articulated in the popular media (Languedoc, 1988, among many), in the professional literature (Berard & Brown, 1994), by lobby organizations (Canadian Federation of Independent Business [CFIB], 1995), and in the academic literature (Belcourt, 1991). One consequence of this widespread perception is that policymakers, industry regulators, and officials of lending institutions devote significant resources of time and money in efforts to address this accusation. Moreover, women business owners, fearing discriminatory treatment, may avoid banks as a source of capital.

Conversely, there are significant empirical findings that do not support the allegation of gender bias (for example, Buttner & Rosen, 1992; Fabowale, Orser, & Riding, 1995; Riding & Swift, 1990; Statistics Canada, 1994). In spite of Berard and Brown's contention that "there is agreement in studies ... that women entrepreneurs who seek outside financing face more obstacles than men" (1994, p. 10), no such agreement exists and this important question remains open.

Virtually all of the empirical evidence to date has been drawn from mail surveys of small business owners. Such surveys are plagued with low response rates, issues of survivor and nonresponse biases, and problems related to disentangling empirically the confounding effects of gender, firm size, age of firm, and industry sector. Accordingly, the objective of this study is to further inform the debate by drawing on a large sample of bank borrowers, thereby avoiding many of the problems associated with earlier studies.

To accomplish this goal, we argue that lenders employ a set of criteria that determine the "bankability" of a prospective client. SME clients that meet the threshold criterion obtain credit; others do not. Under the null hypothesis of no discrimination, we argue that borrower attributes ought not to differ materially by gender. Under the alternate hypothesis, one that is consistent with discrimination, women business owners who successfully obtain bank credit would have to display greater competency than men to get the same terms of credit. …