Characteristics of New Firms: A Comparison by Gender

While the country’s 6.5 million privately held, women-owned firms generated an estimated $940 billion in sales and employed 7.1 million people in 2002, according to the U.S. Census Bureau, a Kauffman Foundation research report indicates that women-owned firms have relatively underperformed men-owned firms in a number of measures. The Kauffman Foundation research tracked new businesses’ performance measures from 2004 to 2006 and correlated the data to gender based on primary owner characteristics, firm characteristics, industry and outcomes.

The research paper, titled Characteristics of New Firms: A Comparison by Gender, was prepared by Alicia Robb, Research Associate, University of California at Santa Cruz; and Susan Coleman, Assistant Professor of Finance, University of Hartford. It is third in a series of Kauffman Firm Survey (KFS) studies. The KFS surveyed nearly 5,000 businesses founded in 2004 and tracks them annually over their early years of operation. The survey focuses on the nature of new business formation activity and characteristics of the firms and owners over time. This dataset provides a rich picture, and a first-time glimpse, of the early capital structure decisions of new firms.

Women-owned firms made impressive gains from 1997 to 2002, when the number of women-owned firms grew 19.8 percent, compared with a 10.3 percent growth rate in U.S. firms overall. During the same period, however, women-owned firms recorded lower survival numbers, as well as lower numbers for size, growth, earnings and profits. The data suggest that women-owned firms are smaller and less growth-oriented than men-owned firms.

One measure in the KFS revealed that women-owned firms tended to start with less capital. Nearly 62 percent of women started their firms with less than $25,000, compared with 55.9 percent of men. A higher percentage of women had “low” credit scores (38.1 percent) compared to men (31.6 percent). This distinction in credit quality could have implications for women owners’ ability to secure financing, particularly in the form of debt, for their firms. Multivariate results provided a positive link between startup capital inputs and performance outputs in terms of assets, revenue and employment.

Other key findings in the Gender Comparison report include:

• On average, both women and men firm owners were 44 years old, but men had more years of prior industry experience and devoted more time to the business.
• More women owners than men owners attended college, but men were more likely to graduate.
• Women were more likely to operate home-based businesses and were more likely to be organized as sole proprietorships, whereas men-owned firms tended to be LLCs or corporations.
• A higher percentage of women than men felt they had some comparative advantage.
• Approximately one-fifth of both women- and men-owned firms owned companies that had some type of intellectual property (patents, trademarks and/or copyrights) in their first year of operation.
• Women are more heavily represented in retail and “other services,” while men-owned firms are more heavily represented in construction.
• On average, men-owned firms had assets of $104,313, compared with $57,338 for women-owned firms.

A follow-up to the KFS study, which will examine the first four years of these young firms, will be available in spring 2009.