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

• Date: 01 September 2020
• DOI: http://doi.org/10.1111/eufm.12255
• Author: Danilo V. Mascia,Emma Galli,Stefania P. S. Rossi
• Published date: 01 September 2020

Eur Financ Manag. 2020;26:1147–1188. wileyonlinelibrary.com/journal/eufm © 2019 John Wiley & Sons Ltd.

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DOI: 10.1111/eufm.12255

ORIGINAL ARTICLE

Bank credit constraints for women‐led SMEs:

Self‐restraint or lender bias?

Emma Galli

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Danilo V. Mascia

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Stefania P. S. Rossi

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1

Department of Social and Economic

Sciences, Sapienza University of Rome,

Roma, Italy

2

International Banking Institute, Leeds

University Business School, University of

Leeds, Leeds, United Kingdom

3

Department of Economics, Business,

Mathematics and Statistics, University of

Trieste, Trieste, Italy

Correspondence

Danilo V. Mascia, International Banking

Institute, Leeds University Business

School, University of Leeds, Maurice

Keyworth Building, Leeds LS2 9JT,

United Kingdom.

Email: D.V.Mascia@leeds.ac.uk

Funding information

Autonomous Region of Sardinia,

Grant/Award Number: CRP‐59890

Abstract

We test the existence of possible gender biases affecting

firm behavior in demanding and obtaining bank credit

using a cross‐country sample of European small‐and

medium‐sized enterprises (SMEs). We show consistent

evidence that female‐led firms are more likely than their

male counterparts to refrain from applying for loans.

When they apply, female‐led 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 women‐led SMEs when

accessing credit markets.

KEYWORDS

access to finance, bank lending, SMEs, self‐restraint,

gender discrimination

JEL CLASSIFICATION

D22; G21; G32; J16

EUROPEAN

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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 CRP‐59890).

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INTRODUCTION

Small‐and medium‐sized 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

bank–firm 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 women‐led 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 women‐led 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 female‐led 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 female‐led firms may face, compared to male‐led enterprises, is a higher rate of

rejection of their loan applications (see, for example, Cavalluzzo, Cavalluzzo, & Wolken, 2002).

Additionally, women‐led businesses may experience a partial rejection from the lender

(Kremel & Yazdanfar, 2015; Treichel‐Zimmerman & 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 gender‐based

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 female‐led 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

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GALLI ET AL.

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 borrowers’perspective) 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 female‐led 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 female‐led 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 non‐application, 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 two‐step 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 post‐global financial crisis period in a specific

country only (Cowling et al., 2019), or have exploited the country heterogeneity characterizing

their data regardless of the time‐specific 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 self‐restraint behavior of women‐led 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 female‐led firms are more likely than male‐led 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 men‐led 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 reasons—by female‐led SMEs—mainly occur during

economic downturns. As regards the supply, signs of discrimination perpetrated by the lender

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