Bank credit constraints for women‐led SMEs: Self‐restraint or lender bias?

Author:Danilo V. Mascia, Emma Galli, Stefania P. S. Rossi
Publication Date:01 Sep 2020
Eur Financ Manag. 2020;26:11471188. © 2019 John Wiley & Sons Ltd.
DOI: 10.1111/eufm.12255
Bank credit constraints for womenled SMEs:
Selfrestraint or lender bias?
Emma Galli
Danilo V. Mascia
Stefania P. S. Rossi
Department of Social and Economic
Sciences, Sapienza University of Rome,
Roma, Italy
International Banking Institute, Leeds
University Business School, University of
Leeds, Leeds, United Kingdom
Department of Economics, Business,
Mathematics and Statistics, University of
Trieste, Trieste, Italy
Danilo V. Mascia, International Banking
Institute, Leeds University Business
School, University of Leeds, Maurice
Keyworth Building, Leeds LS2 9JT,
United Kingdom.
Funding information
Autonomous Region of Sardinia,
Grant/Award Number: CRP59890
We test the existence of possible gender biases affecting
firm behavior in demanding and obtaining bank credit
using a crosscountry sample of European smalland
mediumsized enterprises (SMEs). We show consistent
evidence that femaleled firms are more likely than their
male counterparts to refrain from applying for loans.
When they apply, femaleled enterprises do not seem to
face gender discrimination from the lender. Interest-
ingly, however, signs of gender bias appear to arise
during the upside phase of the economy. Overall, our
study provides support for policy actions aimed at
reducing the frictions faced by womenled SMEs when
accessing credit markets.
access to finance, bank lending, SMEs, selfrestraint,
gender discrimination
D22; G21; G32; J16
We thank John A. Doukas (the editor) and an anonymous reviewer for their constructive and helpful comments on an
earlier draft of this paper. We are also grateful to Jie Chen and Kevin Keasey for insightful discussions. Some of the
ideas and methodological issues in this study have been discussed at the University of Graz Seminar (Department of
Economics), May 22, 2018, and at the European Central Bank (ECB) in Frankfurt, January 30, 2017; we thank seminar
participants for their useful comments. Furthermore, we thank the ECB for granting us access to the data from the
Survey on the Access to Finance of Enterprises (SAFE). Finally, Danilo V. Mascia and Stefania P. S. Rossi gratefully
acknowledge research grants from the Autonomous Region of Sardinia (grant code CRP59890).
Smalland mediumsized enterprises (SMEs) heavily rely on banks to finance their projects
as they find it difficult to raise funds via capital markets (Caglayan & Xu, 2016; Cingano,
Manaresi, & Sette, 2016). The conditions faced by SMEs when accessing bank credit are thus
crucial for their existence and development (Degryse, Matthews, & Zhao, 2018; Ferrando,
Popov, & Udell, 2017; Vermoesen, Deloof, & Laveren, 2013). Specific issues concern the impact
that such conditions may have on businesses led by women managers. If we look at the
worldwide data on the gender gap in 2018 (Global Gender Gap Index), significant gender
inequalities, especially in economic participation and political empowerment, emerge even
across European countries. This is not inconsequential, as gender differences may also affect the
bankfirm relationship. Indeed, several studies demonstrate that problems with access to
finance represent a major impediment to women successfully managing their businesses
(see, for example, Marlow & Patton, 2005; World Bank, 2011).
The literature highlights the existence of issues faced by womenled firms, when accessing
finance, from both the demand and the supply sides of the channel. More specifically, from the
demand side there is a discrete branch of the literature highlighting that womenled enterprises
tend to refrain from applying for bank credit because they generally feel less confident than
men about their bargaining abilities when dealing with lenders. Hence, they are more likely not
to apply, thus behaving as discouraged borrowers (Bardasi, Sabarwal, & Terrell, 2011; Freel,
Carter, Tagg, & Mason, 2012; Moro, Wisniewski, & Mantovani, 2017; Ongena & Popov, 2016).
Other scholars have also pointed that femaleled businesses may be more likely to refrain from
applying for external funds (e.g. equity capital) as they prefer to finance their projects via
internal sources (Carter, Shaw, Wing, & Wilson, 2007; Coleman & Robb, 2009; Mukhtar, 2006),
thus limiting their growth opportunities, or by relying on networks of friends and family (see,
for example, Alesina, Lotti, & Mistrulli, 2013; Guiso, Sapienza, & Zingales, 2004; Lim & Suh,
2019; Sena, Scott, & Roper, 2012). With regard to the supply side, on the other hand, a typical
issue that femaleled firms may face, compared to maleled enterprises, is a higher rate of
rejection of their loan applications (see, for example, Cavalluzzo, Cavalluzzo, & Wolken, 2002).
Additionally, womenled businesses may experience a partial rejection from the lender
(Kremel & Yazdanfar, 2015; TreichelZimmerman & Scott, 2006), or may even face higher price
conditions or be required to provide higher collateral than men in order to obtain credit
(Alesina et al., 2013; Bellucci, Borisov, & Zazzaro, 2010; Mascia & Rossi, 2017; Muravyev,
Talavera, & Schäfer, 2009; Wu & Chua, 2012). It is also worth mentioning that the literature on
this issue is not conclusive and that several studies have not detected signs of genderbased
discrimination (see, for example, Carter et al., 2007; Moro et al., 2017).
In this paper we build on the above literature to comprehensively investigate whether and in
what way femaleled companies are likely to be discriminated against, compared to men, when
they apply for bank loans, as well as whether and why they avoid applying for bank loans to
finance their projects.
Various reasons motivate our study. First, although the topic appears to be widely debated,
even recent papers (such as Bui, Nguyen, Pham, & Phung, 2019) underscore the need for more
empirical investigations, in response to the numerous qualitative and theoretical works, on the
potential gender gap faced by the SMEs when accessing finance. Second, as recently highlighted
by Rostamkalaei, Nitani, and Riding (2018), most papers still provide mixed evidence on the
existence of gender issues in access to finance, which motivates us to further investigate the
topic. Third, the vast majority of existing studies tend to focus on single issues, rather than
jointly considering a range of reasons, arising from the demand or the supply side of the bank
lending market. In this regard, it is worth mentioning that most scholars in the field have
investigated the issue of borrower discouragement to apply for bank loans, and loan rejection
perpetrated by the lenders (see, for example, Cowling, Marlow, & Liu, 2019; Moro et al., 2017;
Presbitero, Rabellotti, & Piras, 2014). What is missing, though, to the best of our knowledge, is a
study that jointly assesses a variety of motivations (from the borrowersperspective) not to
apply for loans, as well as a range of adverse outcomes (of applications for bank lending)
experienced by the SMEs.
By relying on the wealth of information provided by the Survey on the Access to Finance of
Enterprises (SAFE) confidentially released by the European Central Bank (ECB), our study
offers the following contributions. First, we extend the literature on gender gap issues in access
to finance by concurrently considering (with an appropriate methodology) a variety of self
restraint motives of the firms, as well as a number of adverse outcomes arising from
applications for external finance. Notably, with regard to the former, in addition to the
discouragement motivation, we investigate whether femaleled SMEs tend, more than men, not
to apply for bank loans because of sufficient funds or for other reasons. When we turn to the
results of the loan applications, not only do we consider the actual rejection by the lender, but
also we investigate whether femaleled firms are more likely than men to be partially rejected or
to refuse the loan because the price conditions are too costly. Overall, to do so we employ
multinomial logistic models that allow simultaneous and efficient estimates to predict the
probabilities of alternative outcomes of a categorically distributed dependent variable. In our
study, these are represented by the reasons for nonapplication, on the demand side, and by the
results of the applications, on the supply side. Furthermore, because the choice to appoint a
female leader as head of a company might not fully be exogenous (Adams & Ferreira, 2009;
Mascia & Rossi, 2017; Sila, Gonzalez, & Hagendorff, 2016), we address possible endogeneity
affecting our estimates through the use of a twostep instrumental variable technique, in a
similar fashion to Cumming (2008) and Heger and Tykvová (2009).
Second, we exploit the macroeconomic heterogeneity characterizing our data to detect whether
possible disparities between female and male firms arise during different phases of the economic
cycle. Negative macroeconomic scenarios, by affecting banks, translate into lower lending quantity
or higher cost of credit for SMEs (Cole & Sokolyk, 2016; Degryse et al., 2018). Therefore, the
perception of such issues might significantly impact on the firm's behavior leading, for instance, to
discouragement conduct (Mac an Bhaird, Vidal, & Lucey, 2016). Interestingly, recent studies on
access to finance have limited their analysis to the postglobal financial crisis period in a specific
country only (Cowling et al., 2019), or have exploited the country heterogeneity characterizing
their data regardless of the timespecific macroeconomic conditions (Mascia & Rossi, 2017). To the
best of our knowledge, we are thus the first to explore whether differences in macroeconomic
conditions affect the selfrestraint behavior of womenled firms, as well as the outcomes of their
bank loan applications, focusing on opposite dynamics of the business cycle occurring during and
after a particular turbulent period across our sampled countries.
Our findings reveal that femaleled firms are more likely than maleled ones to be financially
constrained since they behave as discouraged borrowers. Moreover, they also tend to refrain
from taking out loans as they rely, more than menled businesses, on internal funding. Results
are robust to various model specifications and are corroborated after addressing endogeneity. In
addition, female discouragement persists in both phases of the business cycle, whereas non
applications for sufficient funds and other reasonsby femaleled SMEsmainly occur during
economic downturns. As regards the supply, signs of discrimination perpetrated by the lender

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