Female entrepreneurship, financial frictions and capital misallocation in the US.

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Authors: Marta Morazzoni and Andrea Sy
Date: July 2022
Publisher: Elsevier B.V.
Document Type: Report
Length: 446 words

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Keywords Entrepreneurship; Misallocation; Aggregate productivity; Gender gaps; Financial constraints Highlights * In the US, female entrepreneurs receive less business funding compared to male entrepreneurs. * Female-owned firms operate with lower levels of assets, resulting in gender-driven capital misallocation. * Female-led businesses are nonetheless relatively more profitable and have better credit risk scores. * Removing the gender gap in business financing is estimated to potentially increase output by 4%. Abstract We document and quantify the effect of a gender gap in credit access on both entrepreneurship and input misallocation in the US. Female entrepreneurs are found to be more likely to face a rejection on their loan applications and to have a higher average product of capital, a sign of gender-driven capital misallocation that decreases in female-led firms' access to finance. These results are not driven by differences in observable individual or businesses characteristics. Calibrating a heterogeneous agents model of entrepreneurship to the US economy, we show that the observed gap in credit access explains the bulk of the gender differences in capital allocation across firms. Eliminating such credit imbalance is estimated to potentially increase output by 4%, and to reduce capital misallocation by 12%. Author Affiliation: (a) Morazzoni: Universitat Pompeu Fabra and Barcelona School of Economics Address: Carrer de Ramon Trias Fargas, 25-27, Barcelona 08005, Spain (b) Sy: Universitat Pompeu Fabra and Barcelona School of Economics Carrer de Ramon Trias Fargas, 25-27, Barcelona 08005, Spain * Corresponding author. Article History: Received 17 March 2022; Accepted 18 March 2022 (footnote)[white star] We are grateful to Isaac Baley, Andrea Caggese and Edouard Schaal for their guidance and support, and to Mariacristina De Nardi, Priit Jeenas and Jaume Ventura for many insightful discussions. We thank our discussants Pete Klenow and Francesca Lotti, and the editor Ariel Zetlin-Jones for their invaluable suggestions. We are indebted to Fernando Broner, Andrea Chiavari, Gaurav Chiplunkar, Fabrizio Core, Davide Debortoli, Matthias Doepke, Jan Eeckhout, Mircea Epure, Andrea Fabiani, Rosa Ferrer, Manuel Garcia-Santana, Pinelopi Goldberg, Libertad Gonzalez, Sampreet Goraya, David Nagy, Giacomo Ponzetto, Paola Profeta, Gianmarco Ruzzier and Alessandro Tarozzi, as well as participants at the CREI International Lunch, 3Ms Reading Group (Minnesota), CEPR Macroeconomics and Growth Programme Meeting, Carnegie-Rochester-NYU Conference on Public Policy and numerous conferences for helpful comments. We acknowledge financial support from the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S), and the receipt of the 2021 EEA Young Economist Award. We thank the Kauffman Foundation for giving us access to their confidential data. The results and conclusions in this paper are ours and do not reflect the views of the Kauffman Foundation. Byline: Marta Morazzoni [marta.morazzoni@upf.edu] (*,a), Andrea Sy [andrea.sy@upf.edu] (b)

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Gale Document Number: GALE|A706769204