Roper, S. (Stephen); Scott, J. M. (Jonathan)

Transcription

1 TeesRep - Teessde's Research Repostory Perceved fnancal barrers and the start-up decson: An econometrc analyss of gender dfferences usng GEM data Item type Authors Ctaton Artcle Roper, S. (Stephen); Scott, J. M. (Jonathan) Roper, S. and Scott, J. M. (2009) 'Perceved fnancal barrers and the start-up decson: An econometrc analyss of gender dfferences usng GEM data', Internatonal Small Busness Journal, 27 (2), pp DOI / Publsher Journal Rghts SAGE Publcatons Internatonal Small Busness Journal Subject to restrctons, author can archve post-prnt (e fnal draft post-refereeng). For full detals see [Acessed 02/06/2010] Downloaded 13-Oct :01:35 Lnk to tem TeesRep - Teessde Unversty's Research Repostory -

2 Ths full text verson, avalable on TeesRep, s the post-prnt (fnal verson pror to publcaton) of: Roper, S. and Scott, J. M. (2009) 'Perceved fnancal barrers and the start-up decson: An econometrc analyss of gender dfferences usng GEM data', Internatonal Small Busness Journal, 27 (2), pp For detals regardng the fnal publshed verson please clck on the followng DOI lnk: When ctng ths source, please use the fnal publshed verson as above. Ths document was downloaded from Please do not use ths verson for ctaton purposes. All tems n TeesRep are protected by copyrght, wth all rghts reserved, unless otherwse ndcated. TeesRep: Teessde Unversty's Research Repostory

3 Perceved Fnancal Barrers and the Start-up Decson: An Econometrc Analyss of Gender Dfferences Usng GEM Data STEPHEN ROPER Warwck Busness School, Unversty of Warwck, UK JONATHAN M. SCOTT* Teessde Unversty, Mddlesbrough, UK *correspondence author 1

4 ABSTRACT Although accessng fnance s key to the foundaton of any busness, partcular concerns have been expressed about the ablty of UK women-owned frms to obtan external fnance. In ths paper we use an econometrc approach to explore the effect of perceptons of fnancal barrers to start-up on the start-up decson tself. Our analyss s based on the Global Entrepreneurshp Montor (GEM) UK 2004 database. Standardsng for a range of ndvdual characterstcs, we fnd that women are around 7.4 per cent more lkely to perceve fnancal barrers to busness start-up than men. As perceptons of fnancal barrers are lnked negatvely to the start-up decson, stronger perceptons of fnancal barrers among women are havng a dsproportonate effect on women s start-up decsons. However, beng female also has an addtonal negatve effect on the start-up decson, not lnked to fnancal barrers. Polcy responses, therefore, need to take nto account the demand-sde wth the am of counterng the more negatve perceptons of start-up fnance among potental women entrepreneurs. Mentorng and confdence buldng programmes are obvous possbltes. We also fnd support for the value of unversty and college-based work experence programmes. KEYWORDS: Fnance; entrepreneurshp; start-up; SME; gender; women. 2

5 Perceved Fnancal Barrers and the Start-up Decson An Econometrc Analyss of Gender Dfferences Usng GEM Data 1. Introducton The avalablty of fnance for busness start-up has attracted much attenton over recent years, and stmulated the development of a number of polcy ntatves n the UK. A partcular focus of recent ntatves has been to try to support women s enterprse gven consstent evdence of lower levels of nvolvement n enterprse among UK women (Hardng, 2004). Prevous research n ths area has, however, emphassed the complexty of the ssues relatng to busness fnance and, partcularly, the dffculty of tryng to solate and characterse any specfc gender effects. Is t the case, for example, that lendng nsttutons dscrmnate ether delberately or unwttngly aganst entrepreneurs who are women? Or, are women entrepreneurs smply more reluctant to seek busness fnance due to ther soco-economc stuaton or pror experence of fnancal nsttutons (Kon and Storey, 2003; Freel et al., 2007)? In ths study we use an econometrc approach to analyse the mpact of gender dfferences n ndvduals perceptons of dffcultes n accessng fnance on the start-up decson. Our analyss s based on the Global Entrepreneurshp Montor 2004 data for the UK. 1 There are three man research questons. Frst, how mportant s gender as a factor n shapng ndvduals perceptons of the dffculty of obtanng fnance for busness start-up? Secondly, how mportant are any such perceptons n nfluencng the start-up decson? And, thrd, does the relatonshp between ndvduals perceptons of fnancal barrers and the start-up decson dffer between men and women? It may be, for example, that UK women perceve greater dffculty n accessng fnance for busness start-up than men, but ths s havng no sgnfcant nfluence on start-up decsons. Conversely, f, as we antcpate from prevous studes, access to fnance s a key element of busness start-up, the fact that ndvdual women perceve that obtanng fnance s lkely to be dffcult may have a sgnfcant negatve effect on ther start-up decsons. Our objectve s to explore whether the rchness of the GEM database allows us to shed addtonal lght on the relatonshp between gender, perceptons of fnancal constrants and the start-up decson 2. 1 A detaled descrpton of the full range of UK GEM 2004 Survey results s avalable n Hardng (2004). 2 A number of GEM Global Reports have explored the ssue of women s entrepreneurshp. For example, Allen et al. (2008) hghlghts global trends n women s busness ownershp, emphassng that the socal context and general economc condtons wthn a country play a major role n the level of start-ups by women. 3

6 Our study complements the large exstng lterature on the role of access to fnance n shapng busness start-up, partcularly women s busness start-up. The value added n our analyss arses from two man sources. Frst, by concentratng on perceved dffcultes n obtanng fnance, rather than on the actual dffcultes ndvduals experence n accessng start-up fnance ex post, we focus attenton on the start-up decson tself, and ts relatonshp to ndvduals perceptons of ther busness envronment. Second, our econometrc approach and the large sample provded by the GEM database allows us to quantfy the lnkages between perceved barrers and the start-up decson, and to dentfy any gender-specfc elements n these relatonshps. Ths latter pont s potentally mportant n terms of ts contrbuton to effectve polcy desgn and development. The remander of the paper s organsed as follows. Secton Two provdes a bref overvew of prevous studes relatng to the role of gender n shapng ndvduals access to busness fnance and specfes our hypotheses. Secton Three ntroduces the UK GEM 2004 database and our emprcal methodology. Secton Four then examnes gender dfferentals n ndvduals perceptons of fnancal barrers to busness start-up, and Secton Fve focuses on the mpact of these perceved fnancal barrers on start-up tself. Secton Sx draws the results of the study together and suggests some possble polcy mplcatons and drectons for future research. 2. Lterature and Hypotheses The broad context for our study s set by the relatvely low representaton of women n dfferent enterprse actvtes n the UK. The UK Global Entrepreneurshp Montor Reports, for example, consstently suggest that the Total Entrepreneural Actvty (TEA) rate of women s less than half that of men (e.g. Hardng, 2004 found t to be 46 per cent of men s TEA rate). Smlarly, whlst around 25 per cent of company drectors n the UK are women, only 10 per cent of UK frms have a majorty of female drectors, a rato whch falls to 0.4 per cent amongst larger organsatons (Martn et al., 2008). In terms of the management lterature, the gendered processes whch dsadvantage or subordnate women n manageral roles have also been wdely dscussed snce Kanter (1977). Davdson (1992), Tanton (1994) and more recently Lndgren and Packendorff (2006) have explored and reported on the shftng, but persstent female subordnaton wthn manageral careers. Academc dscusson of the relatonshp between gender and entrepreneurshp s more recent, wth Holmqust and Sundn (1989, p. 1) commentng that, entrepreneural theores are made by men, for men and 4

7 about men. Ahl (2006) argues a smlar pont, emphassng that entrepreneural dscourse s fundamentally masculne, effectvely devalung the manner n whch women do busness ownershp. However, whlst the nterpretaton of women s achevements as busness owners contnues to be debated, there s relatvely broad agreement that the potental contrbuton of women s enterprse s currently constraned (Rosa et al., 1996; Marlow, 1997; Carter and Shaw, 2006; Watson, 2002: Ahl, 2002; Langowtz and Mnnt, 2007). Dfferent studes mplcate a range of nfluences on the relatonshp between gender and enterprse, although access to fnance s a consstent theme. Marlow and Watson (2006), for example, argue that, female-owned enterprses are more lkely to be under-captalsed n a varety of forms from the outset, locate n crowded sectors and so under perform over tme. Smlarly, Warren- Smth and Jackson (2004) comment that, systems of fnance and advce are also frmly orented towards [men], leavng women to face a range of barrers when engagng wth selfemployment. There s, therefore, a general feelng that women may be dsadvantaged n ther ablty to rase start-up fnance (Schwartz, 1976; Carter and Cannon, 1992; Johnson and Storey, 1993; Koper, 1993; Van Auken et al., 1993; Carter and Rosa, 1998) 3. An mportant strand n ths debate stresses that the objectves of enterprsng men and women may be dfferent, and that ther ntal endowments of socal and materal captal may vary. Orser et al. (2006), for example, found lower levels of human and socal captal n womenowned frms, and that women had less propensty to seek fnance than men because they reported that they dd not need the fnance, whle Helbrunn (2004) specfcally found that, women's ventures are smaller, servce-orented and 'cheaper' to fnance. Carter and Shaw (2006: 44) suggest the potental role of gender dfferentals n human and socal captal n shapng ndvduals access to entrepreneural fnance. Lack of busness or manageral experence may also dfferentally constran women s access to fnance, an effect exacerbated by men s broader socal and busness networks (Carter et al., 2003; Carter and Shaw, 2006; Manolova et al., 2006; Helbrunn, 2004). Madll et al. (2006) make a related pont, fndng, a sgnfcant gender dfference n the length of lender-borrower relatonshps. Even when controllng for age of the frm, the study showed that male SME owners have sgnfcantly longer relatonshps wth lenders suggestng that male entrepreneurs may beneft more from relatonshps wth ther lenders than do female entrepreneurs. These demand-sde effects on 3 Fraser (2005, p. 18) n hs analyss of the UK Survey of SME Fnances emphasses another gender related ssue, notng that: female-owned busnesses pay sgnfcantly hgher margns on term loans than male-owned busnesses (2.9 versus 1.9 percentage ponts over Base). 5

8 access to fnance may be renforced by supply-sde nfluences, wth Blake (2006) fndng evdence of both gender and spatal varatons n lendng due to the decsons of lendng offcers. More wdely, there s a general percepton that women owners were apparently more lkely to reply that they expected that they would be turned down, the dfference s not statstcally sgnfcant (Orser et al., 2006: 658). Ths could be the result of ether delberate dscrmnaton (Hsrch and Brush, 1986) or unconscous dscrmnaton by fnancers (Ennew and McKechne, 1998; Carter et al., 2007). Ths suggests our frst hypothess: Hypothess 1: Perceved Fnance Barrers to Start-up All else beng equal, women are more lkely to perceve barrers to accessng fnance for busness start-up than men. Indvduals percevng fnancal barrers to busness start-up may, of course, adopt a number of strateges. Frst, they mght be dscouraged from seekng fnance as Kon and Storey (2003) suggest, because of a belef that ther applcaton wll be rejected. In ths scenaro, f the percepton of fnancal barrers s more common among women, a more sgnfcant proporton of women may become dscouraged borrowers, dsproportonately reducng female start-up rates. The evdence on ths pont s mxed, however; Freel et al. (2007) found lttle evdence that gender was an mportant factor n the characterstcs of dscouraged borrowers, whle Fraser (2007) suggests that ethncty may play a more mportant role. Hll et al. (2006: ), however, found more support for the dscouraged borrower effect among women n Northern Ireland, wth women reportng that the banks have a negatve vew of women entrepreneurs. A second strategy for overcomng perceved barrers n obtanng commercal fnance s smply to avod the need for external fundng altogether (Kon and Storey, 2003; Hll et al., 2006; Trechel and Scott, 2006; Brooksbank et al., 2007; Wyer et al., 2007). Evans and Jovanovc (1989), for example, examne how fnancal constrants affect the self-employment decson,.e. he wll choose to start a busness f and only f hs [sc] expected net ncome from dong so exceeds that from waged work (pp ). Other research also hghlghts the mportance of lqudty constrants n the self-employment decson (e.g. Holtz-Eakn et al., 1994; Taylor, 1998; Burke et al., 2000), n some cases suggestng that such constrants are not a barrer to start-up (Cressy, 1996). On balance, the potental that perceved barrers to accessng fnance could mpact upon the start-up decson suggests our second Hypothess: 6

9 Hypothess 2: Fnancal Barrers and Start-up All else beng equal, ndvduals percevng dffcultes n obtanng fnance for busness start-up are less lkely to be engaged n enterprse actvtes. A number of studes, however, suggest that the start-up or self-employment decson may be very dfferent for men and women, reflectng ther alternatve opportuntes and preferences. Georgells and Wall (2005), for example, found that: captal constrants mpose a major obstacle for men to become self-employed but not for women (p. 322). Ths was due partly to women s hgher valuaton of the non-pecunary or non-wage aspects of self-employment or enterprse, such as flexblty (Burke et al., 2002; Buttner and Moore, 2001; Clan, 2000; Beaucage et al., 2004) 4. Leung (2006) also suggests that the gender pay gap may have a stronger nfluence on women choosng self-employment than men, although there s recognton that there may also be nequalty n the returns to self-employment. Even once the start-up or self-employment decson s made, however, perceptons of dffcultes n accessng external fnance may lead to under-captalsaton (Orser et al., 2006; Constantnds et al., 2006), and fnancal bootstrappng (Brush et al., 2006). Carter and Shaw (2006) and Carter et al. (2007) suggest that under-captalsaton may then have consequences n terms of the growth and longevty of women-owned frms (see also Verheul and Thurk, 2001). Followng Georgells and Wall (2005), we suggest: Hypothess 3: Gendered barrers to start-up All else beng equal, perceptons of dffcultes n obtanng fnance for busness start-up among women are lkely to have a smaller mpact on start-up rates than those among men. In summary, we therefore antcpate that whle women are more lkely to perceve fnancal barrers to start-up and, n general, those barrers wll have a negatve mpact on start-up, the start-up effect for women wll be weaker than that for men. 3. Data and Methods 4 Ths reflects the fndngs of Watson and Newby (2007) who dentfy varatons n men and women s entrepreneural goals, wth women beng more focused upon subjectve goals, whch may be ntrnsc or related to self-fulflment, whlst men s are objectve,.e. fnancal. 7

10 Data for ths study are taken from the UK Global Entrepreneurshp Montor Survey, Ths follows the standard GEM survey methodology,.e. a telephone survey of the adult populaton of the UK. The 2004 GEM survey ncludes responses from around 22,000 ndvduals wth a weghtng structure desgned to allow natonally representatve results to be constructed. The GEM survey provdes detaled data on ndvduals nvolvement n dfferent aspects of enterprse actvty as well as ther background characterstcs, locaton and experence. In addton, and of central nterest here, the GEM survey also provdes nformaton on ndvduals perceptons regardng the avalablty of busness fnance. In ths sense, the coverage of the GEM database makes t valuable n consderng the relatonshp between ndvduals perceptons of dffcultes n accessng fnance and ther engagement n busness start-up. Of course, the survey remans cross-sectonal suggestng potental dffcultes wth the drecton of causalty and capturng the tmng of what are nevtably dynamc lnkages. The cross-sectonal nature of the survey also means that t wll nevtably reflect economc condtons at the tme t was conducted (.e. June to October 2004). At ths tme, the nternatonal economc clmate was marked by uncertanty, wth some OECD countres (e.g. France and Germany) experencng net reductons n gross domestc product (GDP). In the UK, the stuaton was more stable wth contnued albet slower economc growth provdng perhaps a more bengn envronment for busness start-up than n some other countres. A detaled analyss and descrpton of the 2004 GEM data s provded n Hardng (2004). It s, perhaps, worth recallng some of the key descrptve statstcs here to set the scene for our subsequent model development. The key ndcator n the GEM survey s the Total Entrepreneural Actvty or TEA measure. Ths s the proporton of the year old populaton ether actvely engaged n creatng a new busness or nvolved n runnng a busness less than 42 months old. In 2004, the UK TEA rate was 6.3 per cent, smlar to ts level n 2003, but below levels n North Amerca and above those n major contnental European countres. Entrepreneural actvty n the UK s domnated by opportunty rather than necessty, and vared sgnfcantly by age group, educatonal level, pror employment status and household ncome. Relatvely large regonal varatons were also evdent n TEA rates between UK regons n the 2004 survey wth hgher TEA rates generally recorded n Southern regons of the UK and lower TEA rates n central and Northern regons and the 8

11 devolved terrtores (.e. Scotland, Wales and Northern Ireland) 5. These varatons emphasze the mportance of a multvarate approach to modellng the relatonshp between perceptons of fnancal barrers and start-up whch can control for the potental mpact of age, educaton, locaton, etc. The focus of our emprcal work here s on two varables collected as part of the 2004 GEM survey. The frst relates to the perceved fnancal barrers to busness start-up and s based on the responses to a queston posed to all respondents, Excludng money from famly and frends, would a lack of external fundng prevent you from startng up a busness? Whle ths queston provdes a farly straghtforward ndcaton of the perceved dffculty of obtanng commercal start-up fnance, one mght queston the actual mportance of commercal fnance (.e. non famly and frends) n the start-up process 6. Fraser (2005), for example, reports that whle around 80 per cent of UK SMEs accessed commercal fnance n the prevous three years, the man sources of fnance for start-ups were personal savngs (65 per cent), bank loan (10 per cent) and frends/famly loan (6 per cent) 7. The queston here, however, s not the actual dffculty encountered n obtanng external fnance, rather, the queston s one of percepton and whether perceved dffcultes n obtanng external fnance are lkely to act as a deterrent to subsequent start-up. The key focus of our emprcal analyss s whether, when ndvduals ndcated that they dd actually perceve these dffcultes, ths actually translated nto lower start-up rates. In the 2004 GEM survey, a sgnfcantly hgher proporton of women (64 per cent) suggested that they dd perceve a lack of external fundng for busness start-up compared to males (57 per cent, Table 1). TABLE 1 HERE Our second man varable of nterest reflects ndvduals partcpaton n busness start-up actvty. The specfc queston asked s as follows: Are you, alone or wth others, currently tryng to start a new busness, ncludng any type of self-employment or sellng any goods or servces to others?. In the GEM data the proporton of women engaged n busness start-up actvty was sgnfcantly lower than that of male respondents (Table 1). Ths reflects the 5 In some regons sample szes were relatvely small (around 1,000) suggestng around postve TEA responses. In these regons (London, East of England, North East, South East, South West and the West Mdlands), sgnfcant year on year varaton n TEA rates was observed (Hardng, 2004, Fgure 5, p.27). 6 One mght also queston whether the focus of the queston external sources of fnance s the same for men and women gven that male and female busness owners may use dfferent sources of external fundng. We are grateful to an anonymous referee for makng ths pont. 7 Ths pattern, of course, reflects other studes whch have suggested a peckng order of types of fnance wth entrepreneurs havng a preference for ther own resources and those of frends and famles before seekng commercal fnance (Hamlton and Fox, 1998; Howorth, 2001). 9

12 fndngs of Carter et al. (2001) and Carter and Shaw (2006) that the proporton of women startng busnesses and engaged n busness leadershp s sgnfcantly lower than that of men (see also Martn et al., 2008). Smple correlatons between perceptons of fnancal barrers and engagement n start-up actvty are negatve for all respondents ( ) and men ( ) but postve for women (0.0013), and are nsgnfcant at the 5 per cent level n each case. The GEM database also provdes a number of ndcators whch can be used to control for other nfluences on start-up asde from perceptons of fnancal barrers 8. Notably, a number of these varables also have sgnfcant mean dfferences between men and women (Table 1). For example, a sgnfcantly hgher proporton of male respondents have unversty degrees, whle school-level qualfcatons such as A levels and GCSEs are sgnfcantly more common as the hghest qualfcatons among women. Women respondents were also sgnfcantly more lkely to be n a lower quartle of the natonal dstrbuton of household ncome than male respondents. In terms of labour market status, male respondents were sgnfcantly more lkely to be workng full-tme and to have receved enterprse tranng or partcpated n work experence programmes. The one excepton here s respondents experence of school based enterprse educaton where no sgnfcant dfference s evdent between male and female respondents. The suggeston s that male respondents to the GEM survey were more lkely to be hghly qualfed; more lkely to have a stronger fnancal profle (.e. are n the upper quartles of the dstrbuton of household ncomes); and to have benefted from relevant workng and tranng experences than female respondents. Prevous research suggests that each of these factors s lkely to be postvely assocated wth busness start-up, asde from any underlyng gender dfferences emphassng the mportance of a multvarate approach. TABLE 2 HERE In our modellng we seek to dentfy what determnes ndvduals probablty of percevng barrers to obtanng fnance for busness start-up, and then to ascertan the mpact of these perceptons on start-up actvty tself. We can express the probablty that ndvdual wll perceve barrers to obtanng fnance for busness start-up ( FBarr ) as follows: * 8 Our choce of control varables here s suggested largely by the descrptve characterstcs of the GEM data hghlghted n Hardng (2004). Ths suggested mportant dfferences n start-up rates between ndvduals of dfferent age, educaton, household ncome, ethncty, regon and labour market status. 10

13 FBarr * 0 1Gend 2 Pchar Where Gend s an ndcator takng value 1 f the ndvdual s female and 0 otherwse, Pchar s vector of other personal characterstcs (.e. control varables) and ε s a normally dstrbuted error. What we observe s not the latent varable * FBarr, however, but whether or not an ndvdual actually perceves fnancal barrers to start-up ( FBarr ). That s, FBarr FBarr 1f FBarr * 1f FBarr * 0, 0. Ths suggests Pr( FBarr 1) 0 1Gend 2 Pchar, whch can be modeled by a smple Probt model. The second stage of our modellng approach explores the lnk between ndvduals perceptons of fnancal barrers to start-up ( FBarr ) and ther engagement n enterprse ( BStart ). A pror, we consder t possble, however, that the percepton of fnancal barrers * to start-up and the start-up decson may be related and, therefore, use a Bvarate Probt model to model ths potentally smultaneous data generaton process. In other words, we consder a model n whch there are two latent varables fnancal barrers and enterprse engagement,.e. * FBarr * BStart * 0 1Gend 2Pchar 1 Gend FBarr Pchar and where we antcpate the possblty that cov(ε 1 ε 2 )=σ 12. If emprcally, cov(ε 1 ε 2 ) = 0, ths suggests that the percepton of fnancal barrers and the start-up decson can be modelled separately. In each of the models we also nclude a set of regonal dummy varables (not reported) desgned to control for the regonal varatons n enterprse actvty dentfed n Hardng (2004). 4. Perceved barrers to obtanng fnance for busness start-up Our man am n ths secton s to explore Hypothess 1,.e. to see whether, controllng for ndvduals background characterstcs, gender nfluences the lkelhood that ndvduals 11

14 perceve fnancal barrers to busness start-up. In Table 3 we report Probt models of the probablty of percevng fnancal barrers to busness start-up excludng (Model 1) and ncludng (Model 2) an ethncty measure. In addton to the varables reported, both models also nclude a constant term and full set of regonal dummes desgned to control for regonal varatons n economc condtons and start-up rates (Hardng, 2004). Sample szes n both models are smaller than the aggregate sample suggested n Table 1 due to mssng responses. TABLE 3 HERE In terms of the mpact of gender on ndvduals percepton of fnancal barrers, our results here are straghtforward, consstent and statstcally robust. Even adjustng for a range of background characterstcs, beng female sgnfcantly ncreases the probablty that an ndvdual wll perceve fnancal barrers to busness start-up by around 7.4 percentage ponts. Ths result proves robust to the ncluson n the model of the ethncty ndcator, wth the ethncty varable tself suggestng that members of ethnc mnorty populatons are actually less lkely than others to perceve fnancal barrers to busness start-up. Our core result here adds weght to prevous studes whch have suggested that ceters parbus women face, or at least perceve that they face, greater fnancal constrants than men (Carter and Rosa, 1998; Carter and Shaw, 2006). The GEM data provde lttle by way of nsght nto why ths dfference n perceptons between men and women actually arses but, as Carter et al. (2001) suggest, these may stem from any combnaton of problems related to collateral, networks, dscrmnaton or fnancng preferences. Our analyss also suggests a number of other factors asde from gender whch prove mportant n determnng the probablty that an ndvdual wll perceve fnancal barrers to busness start-up. Frst, as ndcated earler, and contrary to expectatons, membershp of an ethnc mnorty populaton actually reduces the lkelhood that an ndvdual wll perceve fnancal barrers to start-up by around 4.4 percentage ponts (pp). Ths runs contrary to the analyss of Fraser (2007), for example, whch suggested that ethncty was a more mportant determnant of whether ndvduals were dscouraged borrowers than gender. There s also lttle evdence n our data of any sgnfcant connecton between the gender and ethncty effects. An nteracton term ncluded n Model 2, Table 3, for example, s negatve and nsgnfcant (df/dx=-0.040, t-stat=-0.78) and has lttle mpact on any other coeffcent. Second, ndvduals n households wth ncome n hgher quartles were sgnfcantly less lkely to perceve fnancal barrers to start-up than those n households n the lowest ncome quartle. For example, ndvduals n households n the top quartle of the dstrbuton of household 12

15 ncomes were 12 percentage ponts less lkely, for example, to perceve fnancal barrers than those n the lowest quartle. Ths may reflect the ponts made earler lnkng the avalablty of collateral (Carter and Shaw, 2001) or prevous ncomes (Leung, 2006) to ndvduals ablty to access commercal fnance. Older ndvduals were also less lkely to perceve fnancal barrers to busness start-up, as were those workng ether part tme or not workng (relatve to workng full-tme). Fnally, work experence at ether college or unversty s also lnked to a reduced percepton of fnancal barrers to start-up 9. Two explanatons for ths effect are possble. Frst, ths could reflect a credblty effect wth work experence gvng ndvduals a sense that they would be more credble lendng prospects, helpng perhaps to counter the negatve percepton of women entrepreneurs dentfed by Hll et al. (2006). Conversely, t could be that work experence s boostng ndvduals confdence n ther ablty to successfully obtan busness fnance. In summary, the UK GEM 2004 data provde strong support for Hypothess 1, that ceters parbus, women n the UK are more lkely to perceve fnancal barrers to busness start-up than men. Other factors also prove mportant, however, suggestng that perceptons of fnancal barrers to start-up wll be most common among younger women n low ncome households who are workng full-tme. Perceved fnancal barrers to start-up are sgnfcantly less common among older males from hgh ncome households n ethnc mnorty communtes, partcularly where these ndvduals are workng only part-tme. In the next secton we explore the mplcatons of these results for the start-up decson. 5. Effects on Busness Start-up The am of ths secton s to explore Hypotheses 2 and 3,.e. to nvestgate the role of perceved fnancal barrers on busness start-up, both n general and by gender. Two scenaros are possble here. Frst, f perceved fnancal barrers to busness start-up are mportant n nfluencng busness start-up, then our earler evdence that perceved fnancal barrers to busness start-up are concentrated among women may be contrbutng to lower start-up rates among women. If, however, perceved fnancal barrers to busness start-up are not a factor n shapng busness start-up, then dfferental perceptons between genders wll be less mportant n explanng lower start-up rates among women (e.g. Table 1). 9 Agan, there s only a weak gender dmenson to ths effect, wth nteracton terms (not reported) provng wholly nsgnfcant. 13

16 Identfyng the mpact of perceved fnancal barrers on busness start-up rases some classc econometrc and statstcal ssues. In partcular, the obvous approach s to estmate a model for busness start-up and nclude a dummy varable whch takes value 1 f an ndvdual perceves fnancal barrers to busness start-up. The coeffcent on ths treatment term would then suggest the sgnfcance of perceved fnancal barrers on the busness start-up decson. In fact, however, unless perceved fnancal barrers to busness start-up are randomly dstrbuted across the populaton and the evdence of Table 2 suggests they are not ths approach wll yeld potentally based estmates of the mportance of perceved fnancal barrers (see Maddala, 1973, pp for a general dscusson of ths ssue). Instead, an approach s needed whch allows for any connecton between the factors determnng perceved fnancal barrers to busness start-up and busness start-up. Ths s smply dealt wth usng a bvarate probt model whch smultaneously estmates the probablty that an ndvdual perceves fnancal barrers to start-up and start-up tself (Table 3). Intally, our focus here s on the error correlaton coeffcent; f ths s sgnfcant, t suggests the need to smultaneously examne the determnants of perceved fnancal barrers and busness start-up. If ths s not sgnfcant, t suggests the valdty of estmatng sngle equaton probt models for busness start-up, ncludng the percepton of fnancal barrers as a smple ndependent varable. Table 3 reports bvarate probt models ncludng (Model 1) and excludng (Model 2) the ethncty ndcator. In each case, the error correlaton s nsgnfcant, suggestng the valdty of examnng busness start-up usng sngle equaton probt models for the probablty of busness start-up, and these are gven n Table 4. Here, we report three models ncludng and excludng the ethncty ndcator and, n Model 3, ncludng an nteracton term for the female and perceptons of fnancal barrers varables. TABLE 4 HERE We fnd some support here for Hypothess 2, the general mpact of perceptons of fnancal dffcultes on busness start-up. In each of the models of busness start-up perceptons of fnancal barrers are assocated wth a reducton n start-up probablty of percentage ponts, although these effects are of only margnal statstcal sgnfcance (Table 4). Ths result provdes some support for the potental mpact of dscouragement (Kon and Storey, 2003) on start-up rates and others who have argued more generally that dffcultes n accessng external fnance may dscourage start-up (Holtz-Eakn et al., 1994; Taylor 1998; Burke et al., 2000; Hll et al., 2006). More specfcally, followng Georgells and Wall (2005), we suggest n Hypothess 3 that perceptons of fnancal barrers to start-up may be less mportant for women than men. The nteracton effect ncluded n Model 3 n Table 4 14

17 addresses ths pont and proves postve but nsgnfcant. In other words, we fnd no evdence of any gender effect n terms of perceptons of fundng dffcultes whch seem to nfluence male and female start-up rates n the same way. Ths reflects the earler fndngs of Freel (2007) n terms of the effect of gender on the dscouraged borrower effects, but provdes lttle support for the gendered effect of fnancal barrers to self-employment suggested by Georgells and Wall (2005) and Leung (2006) 10. In addton to perceptons of fnancal dffcultes, a number of other factors also prove sgnfcant n explanng start-up. Those workng part-tme or not-workng, for example, are more lkely to be nvolved n start-up actvty than those workng full-tme, perhaps reflectng the relatve balance of labour market opportuntes for those n each stuaton (Table 4). Smlarly, we fnd that work experence at college or unversty s also lkely to have a postve effect on start-up probablty. Other forms of enterprse experence age, household ncome and educaton all prove surprsngly weak nfluences on start-up. More nterestng are the more sgnfcant gender and ethncty effects. Over and above the effects of an ndvdual s background characterstcs, beng female stll reduces busness start-up probablty by around pp, whle membershp of an ethnc mnorty group has the opposte effect, ncreasng start-up probablty by 2.9 pp. Taken together, these effects suggest that negatve gender mpacts on start-up n the UK are both drect and ndrect, wth the ndrect effects operatng through perceved fnancal barrers to start-up. Women are more lkely to perceve fnancal barrers to start-up and these are lkely to reduce start-up rates (Hsrch and Brush, 1986; Ennew and McKechne, 1998; Carter et al., 2007). In addton, there remans a drect negatve gender effect on start-up rates, even allowng for educaton, locatonal and personal characterstcs. 6. Concludng remarks The UK GEM 2004 data suggest that n the UK women were 7.4 percentage ponts more lkely to perceve fnancal barrers to busness start-up than men. As perceved fnancal barrers are also lnked negatvely to start-up rates, ths gap n perceptons wll have a dsproportonately negatve effect on women s start-up rates. In addton to ths fnance effect, beng female also has an addtonal drect effect on start-up over and above the effects of 10 Interestngly, we also fnd no support for a lnk between ethncty and fnancal barrers to start-up, wth any nteracton effect here also beng nsgnfcant (margnal value = , t-stat = -0.88). 15

18 educaton, household ncome, etc. Other factors, of course, also nfluence ndvdual s percepton of fnancal barrers and the probablty of start-up, wth perceptons of fnancal barrers beng most common among younger women n low ncome households who are workng full-tme. Start-up probablty s lkewse nfluenced by ndvduals workng patterns and pror work experence at college or unversty. Our results provde support for the general message n the entrepreneural lterature that women may face or perceve greater barrers to busness start-up than males (e.g. Warren- Smth and Jackson, 2004). We fnd no evdence, however, that any gven level of percepton of fnancal barrers to start-up s lkely to have a more sgnfcant effect on start-up among women than men (Table 5). Ths suggests that a key polcy focus here should be on tryng to counter the more negatve perceptons of potental women entrepreneurs. Our data provde lmted nsghts, however, nto why women have more negatve perceptons of ther ablty to source external fnance, partcularly gven the general evdence that women s busnesses tend to be n sectors where captal requrements are low (Martn et al., 2008). Hll et al. (2006) for example, suggest that women s more negatve percepton mght be lnked to a vew that bankers regard women entrepreneurs as less credble. Others have argued that women s past experence of seekng fnance or of personal bankng may dscourage them from seekng further fnance (Kon and Storey, 2003). In ether case, measures desgned to ncrease the confdence of asprng women entrepreneurs potentally play a key role. In the UK, for example, the Openng Doors project run by Women n Rural Enterprse (WRE) provdes a range of actvtes to help women n busness gan the confdence, knowledge, support and sklls they need to start up ther own busness 11. Our study also suggests the potental value for both men and women of work experence at unversty or college n reducng the lkelhood that ndvduals wll perceve fnancal barrers to busness start-up (Table 2). Agan, ths mght be nterpreted as a confdence effect. Interestngly, we fnd no such effect from enterprse tranng or work experence undertaken at school. Whle our study provdes some new nsghts nto the role of perceptons of fnancal barrers on the start-up decson, there remans a sgnfcant and essentally unexplaned dfference n 11 See: accessed on 16 th June

19 start-up rates between men and women. Ths s reflected n the female dummy varable n our start-up models, a varable whch remans stubbornly sgnfcant and accounts for around percentage ponts of the dfference between male and female start-up rates. Perhaps the most lkely explanaton here s the omsson from the models of varables whch are dsproportonately lnked to women. Aspects of household or famly responsblty are perhaps the most obvous canddates (Jennngs and McDougald, 2007). Our study also has nothng to say about the qualty of the start-up companes n whch women and men are engagng. Recent studes, for example, have questoned the emphass of UK small busness polcy on start-up regardless of ssues of under-captalsaton n many women-led start-ups (Marlow and Watson, 2006). A number of potental drectons for future research are suggested. Frst, t remans mportant to understand why women s perceptons of fnancal barrers are dfferent to those of males wth essentally smlar characterstcs. From a polcy development standpont, ths understandng wll be mportant n desgnng effectve nterventon to reduce the dsproportonate dffculty whch women contnue to face n busness start-up. Secondly, as ndcated earler, our models stll contan an unexplaned gender element, and there s a need to dentfy varables whch can capture ths, and provde a clearer understandng of the startup decson. Fnally, perceptons of fnancal barrers mght have a range of dfferent effects on start-up behavour, changng ndvduals choce of busness, ther ntal scale and/or the tmng of ther start-up. GEM s a rch data source but ts cross-sectonal structure makes t dffcult to capture these more dynamc effects. In ths sense, more longtudnal data such as the Kauffman Panel Study on Entrepreneural Dynamcs would be useful n trackng ndvduals from pre-start-up perceptons through the start-up decson process. 17

20 Acknowledgements We are grateful to the Small Busness Servce for supportng the research on whch ths paper s based, and to partcpants n the 2007 Prowess (Brghton), ICSB (Turku) and ISBE (Glasgow) conferences for comments on earler drafts. We are also grateful for the detaled and constructve comments from two anonymous referees and the edtors n respect of ths specal ssue of ISBJ. Data for ths study were provded by Global Entrepreneurshp Montor UK (GEM UK) whch s part of the Global Entrepreneurshp Montor consortum. Names of the members of natonal teams, the global coordnaton team, and the fnancal sponsors are publshed n the Global Entrepreneurshp Montor 2005 Report, whch can be downloaded at The analyss and nterpretaton presented here are the sole responsblty of the authors. 18

21 Fnance Barrers and Start-up Indcators Table 1: Descrptve Data Females Males Test for n Mean Std. Dev. n Mean Std. Dev. mean dfference Perceved fnancal barrers to start-up t=-9.92, ρ<0.000 Involved n busness start-up t=8.71, ρ<0.000 Ethnc Mnorty Group t= , ρ<0.782 Hghest Educatonal Level Degree or hgher t= 6.88, ρ<0.000 A Levels t= -2.47, ρ=0.013 GCSE or equvalent t=-7.17, ρ<0.000 Other vocatonal qualfcatons t= 5.49, ρ<0.000 No formal qualfcatons t=-1.65, ρ<0.097 Natonal Household Income Dstrbuton Lower quartle t=-11.53, ρ< nd quartle t=0.82, ρ= rd quartle t= 4.51, ρ< th quartle t=6.39, ρ<0.000 Age Age n years t= 4.27, ρ<0.000 Workng Status Full-tme (30 or more hours) t=35.53, ρ<0.000 Part-tme (8-29 hours) t=-39.54, ρ<0.000 Not workng (8 or less hours) t=-11.54, ρ<0.000 Enterprse Tranng and Work Experence Enterprse tranng at school t=3.30, ρ<0.000 Enterprse tranng at college/unversty t=9.39, ρ<0.000 Work experence at school t=1.44, ρ<0.148 Work experence at college/unversty t= 5.22, ρ<0.000 Notes: Survey responses are weghted to gve representatve results. Source: GEM

22 Table 2: Probt Models of Perceved Fnancal Barrers to Busness Start-up Model 1 Model 2 dy/dx t-stat dy/dx t-stat Female Control Varables Ethnc mnorty Degree or hgher A Levels GCSE or equvalent Other vocatonal qualfcatons nd quartle rd quartle th quartle Age n years Part-tme (8-29 hours) Not workng (8 or less hours) Enterprse tranng at school Enterprse tranng at college/unversty Work experence at school Work experence at college/unversty No of observatons Ch Square Log Lkelhood Pseudo R Notes: Margnal values suggest the ncrease n the probablty of percevng fnance shortages when movng from dummy varable values of 0 to 1. Margnal values for the age varable are at varable means. Sample observatons are weghted. Reference categores are: No post-school qualfcatons, the lowest household ncome quartle, and that the ndvdual was workng full-tme. Both models ncluded a constant and full set of regonal dummy varables (not reported). Source: GEM

23 Table 3: Bvarate Probt Models of Shortage of Start-up Fnance and Start-up Model 1 Model 2 Coeff. t-stat Coeff. t-stat Part A: Busness Start-up Female Ethnc mnorty Degree or hgher A Levels GCSE or equvalent Other vocatonal qualfcatons nd quartle rd quartle th quartle Age n years Part-tme (8-29 hours) Not workng (8 or less hours) Enterprse tranng at school Enterprse tranng at college/unversty Work experence at school Work experence at college/unversty Constant Part B: Perceved Fnancal Barrers Female Ethnc mnorty Degree or hgher A Levels GCSE or equvalent Other vocatonal qualfcatons nd quartle rd quartle th quartle Age n years Part-tme (8-29 hours) Not workng (8 or less hours) Enterprse tranng at school Enterprse tranng at college/unversty Work experence at school Work experence at college/unversty Constant Part C: Error Correlaton Observatons Equaton Ch-Square (.) Log Lkelhood Wald test for zero error correlaton Sgnfcance of error correlaton test Notes: Sample observatons are weghted. Reference categores are: No post-school qualfcatons, the lowest household ncome quartle, and that the ndvdual was workng full-tme. Both models ncluded a full set of regonal dummy varables (not reported). Source: GEM

24 Table 4: Probt Models of Busness Start-up Indcators Model 1 Model 2 Model 3 dy/dx t-stat dy/dx t-stat dy/dx t-stat Perceptons of fundng dffcultes Female Interacton: Perceptons x Female Control Varables Ethnc mnorty Degree or hgher A Levels GCSE or equvalent Other vocatonal qualfcatons nd quartle rd quartle th quartle Age n years Part-tme (8-29 hours) Not workng (8 or less hours) Enterprse tranng at school Enterprse tranng at college/unversty Work experence at school Work experence at college/unversty No of observatons Ch Square Log Lkelhood Pseudo R Notes: Margnal values suggest the ncrease n the probablty of busness start-up when movng from dummy varable values of 0 to 1. Margnal values for the age varable are at varable means. Sample observatons are weghted. Reference categores are: No post-school qualfcatons, the lowest household ncome quartle, and that the ndvdual was workng full-tme. Both models ncluded a constant and full set of regonal dummy varables (not reported). Source: GEM

25 References Ahl, H. (2002) The Makng of the Female Entrepreneur: A Dscourse Analyss of Research Texts on Women s Entrepreneurshp, n Dssertaton Seres No. 15. Jonkopng: Jonkopng Internatonal Busness School. Ahl, H. (2006) Why Research on Women Entrepreneurs Needs New Drectons, Entrepreneurshp Theory and Practce 30: Allen, I.E., Elam, A., Langowtz, N. and Dean, M. (2008) The Global Entrepreneurshp Montor: Report on Women and Entrepreneurshp. Babson Park MA, Babson College. Beaucage, A., Laplante, N. and Légaré, R. (2004) Le Passage au Traval Autonome: Chox Imposé ou Chox qu s mpose? [The Shft to Self-employment: An Imposed Choce or an Obvous Choce?], Relatons Industrells/Industral Relatons 59(2): Blake, M. (2006) Gendered Lendng: Gender, Context and the Rules of Busness Lendng, Venture Captal 8(2): Brooksbank, D.J., Jones-Evans, D., Kwong, C.C.Y and Thompson, P. (2007) Are Potental Female Entrepreneurs n the UK Fnancally Constraned?, paper presented at the Internatonal Councl for Small Busness (ICSB) 52nd World Congress, Turku, Fnland, June. Brush, C.G., Carter, N.M., Gatewood, E.H., Greene, P.G. and Hart, M.H. (2006) The Use of Bootstrappng by Women Entrepreneurs n Postonng for Growth, Venture Captal 8(1): Burke, A.E., Ftzroy, F.R. and Nolan, M.A. (2000) When Less s More: Dstngushng between Entrepreneural Choce and Performance, Oxford Bulletn of Economcs and Statstcs 62(5): Burke, A.E., Ftzroy, F.R. and Nolan, M.A. (2002) Self-employment, Wealth and Job Creaton: The Role of Gender, Non-pecunary Motvaton and Entrepreneural Ablty, Small Busness Economcs 19(3): Buttner, E.H. and Moore, D.P. (2001) Women s Organzatonal Exodus to Entrepreneurshp: Self-reported Motvatons and Correlates wth Success, Journal of Small Busness Management January: Carter, N., Brush, C., Greene, P., Gatewood, E. and Hart, M. (2003) Women Entrepreneurs who Break through to Equty Fnancng: the Influence of Human, Socal and Fnancal Captal, Venture Captal 5(1): Carter, S. and Cannon, T. (1992) Women as Entrepreneurs. London: Academc Press. Carter, S. and Rosa, P. (1998) The Fnancng of Male- and Female-owned Busnesses, Entrepreneurshp & Regonal Development 10(3): Carter, S. and Shaw, E. (2006) Women s Busness Ownershp: Recent Research and Polcy Developments. Sheffeld: Small Busness Servce. Carter, S., Anderson, S. and Shaw, E. (2001) Women s Busness Ownershp: A Revew of the Academc, Popular and Internet Lterature. Glasgow: Unversty of Strathclyde. Carter, S., Shaw, E., Lam, W. and Wlson, F. (2007) Gender, Entrepreneurshp and Bank Lendng: The Crtera and Processes Used by Bank Loan Offcers n Assessng Applcatons, Entrepreneurshp Theory and Practce 31(3): Clan, S.H. (2000) Gender Dfferences n Full-tme Self-employment, Journal of Economcs and Busness 52: Constantnds, C., Cornet, A. and Asande, S. (2006) Fnancng of Women-owned Ventures: the Impact of Gender and Other Owner- and Frm-related Varables, Venture Captal 8(2):