Glass Ceiling or Higher Hurdles?

Professor Nigar Hashimzade

According to The Fawcett Society, women in the UK make just “6% of FTSE 100 CEOs, 16.7% Supreme Court Justices, 17.6% of national newspaper editors, 26% of cabinet ministers, 32% of MPs”. Every sector is dominated by men*(1). Furthermore, women in business hold only 9.8% of executive roles and 27.7% of all directorships.

Only 4% of women in the UK are involved in entrepreneurial activities, less than half compared to men. At the same time, “companies across all sectors with the most women on their boards of directors significantly and consistently outperform those with no female representation – by 41% in terms of return on equity and by 56% in terms of operating results”, and “companies in the highest percentile of women on their boards outperformed those in the lowest percentile by 53% higher return on equity, 42% higher return on sales, and 66% higher return on invested capital.”*(2)

This raises a number of questions that are the subject of current academic and policy debates. What influences the choice between becoming an entrepreneur versus taking up a paid job, and to what extent is this choice affected by the discrimination in the capital market? Are women more successful in business than men in identical circumstances? If yes, is the reason behind this difference the fact that in a discriminating world a woman must have entrepreneurial skills superior to that of a man in order to achieve the same level of indicators of business performance? Does this pattern differ across countries with different institutions and regulations and at different stages of development?

To address some of these questions, Professor Hashimzade and colleagues conducted a theoretical and empirical investigation of the links across gender bias in lending, occupational choice and business performance*(3) . They constructed a theoretical model where lenders’ discrimination against female entrepreneurs results in a distorted occupational choice. An unequal access to finance leads to different distributions of entrepreneurial skill for men and women conditional on the choice of owning a business or entering paid high-skilled employment, such as a managerial job. In the pool of potential entrepreneurs, the marginal woman owner (or manager) has higher entrepreneurial skill than the marginal man owner (or manager). Therefore, the conditional average entrepreneurial skill of women business owners and women managers is higher than that of their male counterparts. If entrepreneurial skill contributes to the business success, then in the identical circumstances firms owned or run by women should perform better than the firms owned or run by men.

The model was tested using a detailed firm-level survey of businesses in Central and Eastern Europe and the former Soviet Union, conducted by the EBRD and the World Bank*(4). The empirical findings support the model assumptions and predictions. There is evidence in the data of discrimination of female entrepreneurs in the capital market. After controlling for the usual factors that determine business performance, including access to finance (captured by prohibitively high interest rates and the size of the collateral), the firms with female owners and/ or female top managers perform better than the firms with male owners and/or male top managers.

The findings suggest that, indeed, women entrepreneurs need to demonstrate higher skill than men to achieve the same career success, and that a masked discrimination in the capital market might be behind the distortion of occupational choice and waste of talent. The same may well be taking place in many other countries, including the UK. Policy makers should do more towards monitoring equality and elimination of open and hidden gender discrimination to allow aspiring female entrepreneurs to fully realise their potential.

1 https://www.fawcettsociety.org.uk/news uk-sex-and-power-index-reveals-men-dominate-in-every-sector

2 https://gender.bitc.org.uk/all-resources/factsheets/ women-and-work-facts

3 Nelli S. Gazanchyan, Nigar Hashimzade, Yulia Rodionova, and Natalia Vershinina (2017). “Gender, Access to Finance, Occupational Choice, and Business Performance”, CESifo Working Paper No. 6353.

4 https://openknowledge.worldbank.org/handle/10986/9393