Academic journal article Journal of Small Business Management

Failure Rates for Female-Controlled Businesses: Are They Any Different?

Academic journal article Journal of Small Business Management

Failure Rates for Female-Controlled Businesses: Are They Any Different?

Article excerpt

Previous research has found that female-owned businesses generally underperform male-owned businesses on a variety of measures such as revenue, profit, growth, and discontinuance (failure) rates. It has been suggested that this finding might be the result of systematic differences between male- and female-owned businesses, particularly industry differences. This paper analyzes data from a representative sample of 8,375 small and medium-sized Australian enterprises that originally were surveyed in 1994-95, with follow-up surveys in each of the subsequent three years for a subsample of businesses. The aim was to determine whether female-owned businesses exhibit higher failure rates than male-owned businesses and, if so, whether this finding persists after controlling for industry differences. The results suggest that while female-owned businesses do have higher failure rates compared to male-owned businesses, the difference is not significant after controlling for the effects of industry.

Introduction

Previous research has found that female-owned businesses generally underperform male-owned businesses on a variety of measures such as revenue, profit, growth, and discontinuance rates (Du Rietz and Henrekson 2000). Anna et al. (1999) suggested that one explanation for this systematic difference in performance might be because "female business ownership is concentrated primarily in the retail and service industries where businesses are relatively smaller in terms of employment and revenue as opposed to high technology, construction, and manufacturing" (p. 279). As noted by Brush and Chaganti (1999), "Service and retail companies are at the 'end' of the value chain" (p. 233). Similarly, Rosa, Carter, and Hamilton (1996) argued that at least some of the gender difference in business performance might be related to industry differences, because women tend to start up businesses in sectors that have low returns.

There are a number of other potential systematic differences between male and female business owners that might explain (at least partially) why female-owned businesses appear to under-perform male-owned businesses, the first being age of business. Female-owned businesses (on average) may be younger than male-owned businesses (Rosa, Carter, and Hamilton 1996). Second, because of family commitments, female business owners (on average) may have less time available for their businesses than male owners (Fasci and Valdez 1998; Birley 1989). Third, female-owned businesses (on average) may have less borrowings (or less access to capital), and female owners may not have the same levels of education and prior experience compared to male owners (Cooper, Gimeno-Gascon, and Woo 1994; Brush and Hisrich 1991). Fourth, female owners (on average) may be more risk averse than male owners (Anna et al. 1999; Cooper 1993). Finally, female owners (on average) may be less concerned with financial rewards than male owners (Rosa et al. 1994; Brush 1992). Although these other potential systematic differences are worthy of examination, this paper is restricted to an analysis of the industry differences between male- and female-owned (controlled) businesses and the impact this may have on performance. Similarly, although there are a number of dimensions to performance that legitimately could be examined, the focus of this paper is on discontinuance (failure) rates.

Prior Research on Failure Rates for SMEs

Many studies have examined the perceived causes of small and medium-sized enterprise (SME) failure. These studies generally have been based on the opinions of one or more of the following three groups: failed owner/managers (Gaskill and Van Auken 1993; Hall 1992; Hall and Young 1991; Smallbone 1990; Fredland and Morris 1976); nonfailed owner/managers (Chaganti and Chaganti 1983; Peterson, Kozmetsky, and Ridgway 1983; Fredland and Morris 1976); or third parties such as liquidators or official receivers (Watson and Everett 1996a; Hall 1992; Hall and Young 1991; Lowe, McKenna, and Tibbits 1991). …

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