Are female-led firms disadvantaged in accessing bank credit? Evidence from transition economies

Purpose: The purpose of this paper is to provide empirical evidence on the presence of gender-based discrimination in formal credit markets during the global financial crisis. Specifically, the study tests for gender differences in the probability of being credit-rationed, in the likelihood of being a discouraged borrower and in the price conditions of bank financing. Design/methodology/approach: This paper uses the fifth wave of the Business Environment and Enterprise Performance Survey (BEEPS), which provides detailed micro data on firms from 26 transition economies in Europe and Central Asia. The empirical analysis employs linear and non-linear sample selection regression models and extended Blinder-Oaxaca decomposition techniques to assess gender differences in access to credit. Findings: Controlling for a large set of observable firm characteristics and for endogenous selectivity, we find that female-led firms are more likely to face financing constraints and to be discouraged from applying for credit than their male counterparts. Conditional on having obtained a loan, female-led firms also face significantly higher interest rates. Furthermore, the observed gender gaps are mainly due to unexplained factors, supporting the hypothesis that banks discriminate against women-led firms in their credit-granting decision. Originality/value: This study provides new insights on gender discrimination in formal credit markets, highlighting that gender differentials in access to credit significantly vary across countries and strongly depend upon the definition of the firm's gender structure. From a policy perspective, the evidence obtained stresses the need for policies aimed at promoting the role of women in the economic environment in order to reduce discrimination and raise competition in credit markets. Moreover, public interventions should support lending to creditworthy female enterprises in order to improve their perceptions about banks' willingness to grant credit and reduce their propensity to be discouraged from applying.