Academic journal article Journal of Small Business Management

The Debt Structure of Small Businesses Owned by Women in 1987 and 1993

Academic journal article Journal of Small Business Management

The Debt Structure of Small Businesses Owned by Women in 1987 and 1993

Article excerpt

An important phenomenon in the U.S. economy in the last twenty-five years has been the rapid growth of women-owned businesses. In 1972, women owned under five percent of all businesses and produced less than one percent of total sales (Bureau of the Census 1976). By 1992, women-owned businesses accounted for 34 percent of all businesses and produced nearly 20 percent of total sales (Bureau of the Census 1996). based on recent estimates of small business activity supplied by the Board of Governors of the Federal Reserve System, women-owned businesses now comprise 27 percent of the 5.5 million small businesses in the U.S. (Cole and Wolken 1996). Even though female ownership of small businesses has increased significantly over the past 25 years, many women who own small businesses claim they have less access to the market for financial capital than men who own similar businesses.

While previous literature has offered no evidence of price discrimination in financial capital markets, advocacy groups still claim that female business owners face discrimination (Ando 1985 and Peterson 1981). If real discrimination occurs in the financial services market, one would expect women-owned businesses to receive less favorable treatment by lenders than men-owned businesses, even when the quality of the business is the same. The borrower could receive less favorable treatment in a number of ways: having to pay higher loan prices; being offered smaller loan amounts; being refused credit from a mainstream lender, making it necessary for the borrower to search for non-conventional lenders; or being offered only non-traditional debt instruments. The purpose of this study is to determine whether women-owned small businesses had less access to traditional leases and loans from institutional lenders (primarily commercial banks) in 1987 and 1993 than men-owned small businesses.

The next section reviews previous literature on financial credit access by women-owned businesses. Subsequent sections present the empirical models and the results and conclusions derived from this study.

Literature Review

The literature on the financial structure of women-owned businesses has focused on the relative financial success of women- and men-owned small businesses, the perceived reluctance of lenders to loan money to women-owned business borrowers, and the demand for financial capital by women- and men-owned small business borrowers.

The literature presents conflicting evidence on the relative financial success of women- and men-owned small businesses. Several reasons have been cited for the relatively lower level of financial success realized by women-owned businesses. The most persuasive reasons suggest that: (1) women-owned businesses are relatively small; (2) the business owners lack relevant business experience; and (3) they tend to be concentrated in business classifications earning relatively low profits (Aldrich and Auster 1986; Aronson 1991; Lascocco et al. 1991).

Other authors suggest that men- and women-owned small businesses have similar financial characteristics. In the rural economy, women-owned businesses appear to have significantly lower gross sales than men-owned small businesses; however, the factors influencing the business' success are the same for women- and men-owned small businesses (Tigges and Green 1994). When examining women-owned businesses in specific service industries (for example, food and drink, computer and software sales, and health), women-owned businesses are similar to men-owned businesses in earnings, earnings growth rates, and business failure rates (Kalleberg and Leicht 1991).

This literature on the financial success of women-owned businesses suggests that they are less successful financially than men-owned small businesses, except in rather specific industries. Apart from the demographic characteristics of the business (size, age and Standard Industrial Classification), women-owned businesses may not be given the opportunity to succeed because they lack financial and human capital resources. …

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