In an effort to refute the notion that male-owned business achieve higher success than female-owned business, John Watson, MCom, PhD, FCA, a professor of accounting and finance at the University of Western Australia, and Alicia M. Robb, PhD, a research fellow from the Ewing Marion Kauffman Foundation, decided to examine the demographic factors that may be overlooked while analyzing a business’s success.

“Prior studies examining the performance of female- and male-owned firms have generally reported that female-owned firms underperform male-owned firms,” the authors wrote in the study, which was published in the Journal of Business Venturing. “However, it is conceivable that the performance measures used by previous studies and/or their inability to control for key demographic differences may have contributed to this finding.”

The researchers believed that factors such as the size of the business and risks taken are not typically considered, which can skew results.

“These two factors represent an important gap in our understanding of venture performance which, if left unchanged, could lead to inappropriate policy decisions and, more importantly, could discourage women from establishing new ventures,” the authors wrote.

Methods

To test their hypothesis, the researchers used information from the Kauffman Form Survey to compile a database of businesses that were started in the United States in 2004, which included 4,016 new ventures, 1,041 female-owned and 2,975 male-owned, that spanned a diverse range of industries and covered all geographic regions. The businesses were surveyed annually for 5 years.

Within the database, the researchers controlled for several variables, including age of business, type of industry, size and scale of the business and whether the business was incorporated, as well as the owner’s education, experience and hours worked in the business.

After controlling for these variables, the researchers looked at three performance measures: closure rates, return on assets and a risk adjusted measure using the Sharpe ratio, which controls for risk by calculating a reward-to-variability ratio.

Success unrelated to gender

Looking at business closure rates, the researchers found that owner gender is not significantly connected with closure rates. Incorporated and larger firms were less likely to close, but these factors had little to do with gender.

“Our findings on firm closure rates highlight the importance of incorporating important demographic differences, particularly age of business, when comparing female- and male-owned new ventures,” the authors wrote. “There should be no difference in the closure rates of female- and male-owned new ventures in the US provided key demographic differences are controlled for in the analysis.”

 

 

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Many prior studies have also focused solely on outputs, or the total income or profit. Instead, the researchers examined return on assets (ROA), which controls for firm size by relating business outputs, profit, to inputs, investment in assets.

“Female-owned businesses tend to be smaller than male-owned ventures,” the authors wrote. “And therefore, will appear to underperform male-owned businesses if firm outputs are not related to inputs.”

The researchers compared the return that business owners achieved on their investments in the firm and accounted for the owner’s financial and time commitments. After adjusting for these factors, they found that there was no significant difference in return on assets between male- and female-owned businesses.

Female business owners also tend to take fewer risks when compared with males, but this is rarely considered when comparing businesses between the two genders. To compensate for this, Watson and Robb used the Sharpe ratio to measure risk, which controls for risks in performance measures by calculating the ratio of reward to variability.

“Consistent with the results for firm closure and ROA, the results indicate no statistically significant performance difference based on the owner’s gender,” the authors wrote. “While there may be differences in the way women and men choose to operate their ventures, this does not imply that female-owned firms will underperform male-owned firms, provided appropriate performance measures are adopted and key demographic differences are controlled for in the analysis.” — by Megan Gilbride

 

For more information:
Robb AM. J Bus Vent. 2011, doi: 10.1016/j.jbusvent.2011.10.002.

Disclosure: The authors have no relevant financial disclosures.

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