Traditional Investors Overlook Women-led Ventures
3 min read · Jan 2025
Eddleston et al. (2016)
“Unexpectedly, we found that newer male-owned firms received the greatest amount of bank financing, which was significantly more than the amount received by newer female-owned firms.”
Summary
This study applies signalling theory to examine how banks determine loan amounts for entrepreneurs, emphasizing how business characteristics intersect with gender in shaping access to financing. The findings reveal that while factors like business size and past performance generally increase bank financing, their effects differ by gender. Men receive significantly more financing as their businesses grow, whereas women do not experience the same level of support. Likewise, strong past performance boosts financing for men but has little impact on women.
Method
This quantitative study surveyed 201 male and female entrepreneurs, recruited from a university-based entrepreneurship program, to examine differences in how men and women secured bank loans. The authors analyze the amount of loan financing obtained from banks over the past three years, with gender as the explanatory variable. The authors deploy a hierarchical linear model to understand the relationship between gender and debt financing.
Key Findings
Gender alone does not predict the amount of bank financing received by an entrepreneur.
Banks do not directly favour men over women when deciding loan amounts.
However, other factors, such as business size and past performance, intersect with gender and lead to differences in the amount of financing received.
However, certain business characteristics are associated with a higher amount of bank loans received by men than women.
As the number of employees grew, bank financing increased for both male and female entrepreneurs, however, men secured more bank financing than women.
Strong past performance significantly increased the amount of bank financing men received, while having little impact on the amount received by women.
The number of hours devoted to the business negatively affected the amount of financing received by male entrepreneurs, but had little effect on female entrepreneurs.
Newness of the business did not appear to be a liability for male-owned businesses, as newer businesses owned by men received more financing than those owned by women.
Takeaways
This study highlights how gender influences the interpretation of business quality signals by financial institutions, even though gender itself does not directly determine the amount of financing received. While men and women both receive financing based on factors such as business performance and the number of employees, these signals have a stronger positive impact for men than for women. For example, men with strong past performance and larger business sizes tend to secure more funding, while women do not experience the same level of financial support, despite demonstrating similar business success.
This suggests that while both women and men are assessed on business characteristics, the way these signals are perceived and rewarded by banks may be shaped by subtle gender biases. For example, men are more likely to receive larger loans based on the same indicators, such as business performance, while women may not be equally rewarded for similar achievements. This finding calls for further research to explore how these gendered interpretations of business signals affect not only bank financing but also other forms of entrepreneurial funding, such as venture capital or angel investing.
References
Eddleston, Kimberly A., Jamie J. Ladge, Cheryl Mitteness, and Lakshmi Balachandra. 2016. “Do You See What I See? Signaling Effects of Gender and Firm Characteristics on Financing Entrepreneurial Ventures.” Entrepreneurship Theory and Practice 40(3): 489–514.
About WIN-VC Canada:
New Power Labs is the research lead of the Women and Nonbinary (W) Impact (I) Network (N) for Venture Capital (VC), a national collaborative of organizations working to provide services, programming, events, and dedicated resources to women and non-binary entrepreneurs and gender lens investors across Canada who are working towards becoming investment ready and increasing the pool of investors driven to invest in these ventures.
This research is part of WIN-VC Canada, supported by the Government of Canada. WIN-VC acknowledges the support of Innovation, Science and Economic Development (ISED). ISED has awarded funding for WIN-VC that will make the venture capital environment more inclusive for women by transforming traditional investment processes, processes and knowledge into respectful and meaningful approaches that value equity and impact with a focus on diverse women and non-binary entrepreneurs and SMEs including Black communities, Indigenous peoples, racialized populations, persons with a disability, 2SLGBTQ2+ and new Canadians.
