Comparing the Performance of Male-And Female-Controlled Businesses: Relating Outputs to Inputs

By Watson, John | Entrepreneurship: Theory and Practice, Spring 2002 | Go to article overview
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Comparing the Performance of Male-And Female-Controlled Businesses: Relating Outputs to Inputs


Watson, John, Entrepreneurship: Theory and Practice


Previous research has found that female-owned businesses generally underperform male-owned businesses on a variety of measures such as sales and profit. Further, this under-performance appears to persist even after controlling for demographic differences. However, previous studies have tended to limit their assessment of performance to output measures (sales or profit, for example) without relating these output measures to appropriate inputs (such as total assets or owner's equity). This would appear to be a significant oversight.

After controlling for industry, age of business, and the number of days a business operated, this study finds no significant differences between male- and female-controlled businesses with respect to total income to total assets (TITTA), the return on assets (ROA), or the return on equity (ROE). Interestingly, if the control variables are removed, there is evidence to suggest that female-controlled businesses outperform male-controlled businesses.

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Studies examining and comparing the performance of male- and female-owned businesses have generally found that female-owned businesses underperform male-owned businesses (Du Rietz & Henrekson, 2000). Liberal feminist theory (Fischer, Reuber, & Dyke, 1993) suggests that small and medium enterprises (SMEs) run by women will exhibit poorer performance because women are overtly discriminated against (by lenders, for example) or because of other systematic factors that deprive women of important resources (for example, business education and experience). By way of contrast, social feminist theory (Fischer et al., 1993) suggests that men and women are inherently different by nature. These differences do not imply that women will be less effective in business than men, but only that they may adopt different approaches, which may or may not be as effective as the approaches adopted by men.

The majority of research to date appears to have adopted a liberal feminist theory perspective in the sense that the researchers have attempted to explain the apparent underperformance of female-owned businesses by examining the systematic differences between male and female entrepreneurs. The assumption (sometimes implicit) in these studies is that if demographic differences are controlled for (thereby removing the effects of any bias against female entrepreneurs) there should be no significant difference in the relative performances of male- and female-owned businesses (Anna, Chandler, Jansen, & Mero, 2000). Unfortunately, even after controlling for demographic differences, the majority of prior research has still found that female-owned businesses underperform relative to male-owned businesses (Kalleberg & Leicht, 1991; Cooper, Gimeno-Gascon, & Woo, 1994; Rosa, Carter, & Hamilton, 1996; Fasci & Valdez, 1998; Du Rietz & Henrekson, 2000). (1) However, it is conceivable that the performance measures used by p revious studies (as discussed in the following section) may have contributed to this finding.

This study takes a social feminist theory perspective and assumes that male and female entrepreneurs are likely to be equally effective in business, although they may adopt different approaches. In order to adequately test this proposition it is critical to use an appropriate measure of performance. The next section examines the issue of performance measurement and develops three hypotheses for testing.

PERFORMANCE MEASUREMENT AND HYPOTHESES

As noted by Palepu, Healy, and Bernard (2000, p. 9-3) the "starting point for a systematic analysis of a firm's performance is its return on equity (ROE)." Return on assets (ROA) is an important determinant of ROE because it shows how much profit a company is able to generate for each dollar of assets invested (Palepu et al., 2000). Although ROE and ROA are commonly used to assess the performance of large companies, research into SME performance has tended to focus on sales or profit, or growth in sales or profit (see, for example, Kalleberg & Leicht, 1991; Fischer et al.

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