Entrepreneurs play a pivotal role in enhancing productivity, job creation and innovation in the US. Despite the increase in the proportion of women entrepreneurs in the US in recent years, there are still pronounced gender gaps in various business dimensions, both in terms of rates of company ownership (female owners constitute only 35% of the entrepreneurial pool) and in aspects such as business financing (women received only 2.2% of the total US startup funding in 2018).

An article by Marta Morazzoni and Andrea Sy, students of the UPF PhD programme in Economics, Finance and Business and Alumni of the Master in Economics at the Barcelona School of Economics (BSE), examines both empirically and quantitatively how the allocation of talent and capital, as well as aggregate production, are affected by gender-based financial frictions. The paper shows how this asymmetry can be responsible for distortions affecting the optimal allocation of productive inputs across firms.

“Our work shows that the gap observed in access to credit explains most of the gender differences in capital allocation”

“Our work shows that the gap observed in access to credit explains most of the gender differences in capital allocation. According to our data, in a hypothetical scenario, we estimate that the elimination of this credit imbalance would potentially increase aggregate production by 4% and reduce capital misallocation by 12%”, the researchers assert.

Other results they have obtained in their research indicate that in the US, female-owned firms operate with lower levels of assets and a higher average product of capital, resulting in gender-driven capital misallocation. Likewise, women-led companies are relatively more profitable, with lower levels of business debt, better credit risk scores, higher profit margins and higher total factor productivity in revenues.  

In addition, women entrepreneurs are (10%) more likely to have a loan application rejected. “All these prejudicial results for women are not driven by differences in observable individual or business characteristics, but by the gender gap”, they assure. In addition, “a lower access to credit may be acting as a barrier to entrepreneurship for female individuals”.

To carry out their work, the UPF PhD students used micro-level data belonging to the Kauffman Firm Survey, a panel of nearly 5000 US nascent entrepreneurs that covers the years between 2004 and 2011 and contains detailed information on owners’ characteristics and firm balance sheet variables.

Young Economist Award 2021 by the European Economic Association

This article, which was published last  July in the Journal of Monetary Economics (after its original publication in BSE Working Papers), received the Young Economist Award 2021 from the European Economic Association (EEA), an award to young researchers granted by this international scientific body that promotes the development of economic science throughout Europe.

According to the evaluation committee, “the paper addresses an extremely important topic, offers new empirical evidence from micro-level data cleverly identifying informative moments, and builds a state-of-the-art general equilibrium model to rationalize the evidence and to provide highly relevant policy implications”.

Reference work: Marta Morazzoni, Andrea Sy (July 2022). “Female Entrepreneurship, Financial Frictions and Capital Misallocation in the US”. Journal of Monetary Economics, Volume 129, pp. 93-118

https://doi.org/10.1016/j.jmoneco.2022.03.007