Women-owned firms and discouragement to apply for credit: evidence before and during the COVID-19 pandemic.

Descrizione Progetto

Abstract

This study investigates the behaviour of female-owned firms as discouraged borrowers, i.e., not applying for credit. We specifically seek to understand the underlying reasons for not applying for credit both before and during the COVID-19 pandemic and whether this behaviour is due to demand-side or supply-side reasons. Our findings show that firms owned by women generally act as discouraged borrowers. However, we identify a change in the motivations behind the decision not to apply for credit; before the COVID-19 pandemic, the discouragement is due to expected denial (demand-side reasons), whereas during the COVID-19 pandemic, the choice not to apply is due to unfavourable credit conditions, including high cost of credit and the collateral required (supply-side reasons). Our research contributes to the lively debate exploring how policymakers and regulators can improve access to credit for women entrepreneurs, especially in times of crisis.

Plain English Summary

Are women-owned enterprises unfairly discouraged from applying for credit? If so, what are the underlying reasons for this discouragement? Literature suggests that women-owned enterprises are often discouraged from seeking credit. This study examines whether this phenomenon persists and analyses the underlying reasons, distinguishing between demand and supply-side factors and between before and during the COVID-19 pandemic. Using European firm-level data from the World Bank Enterprise Survey (WBES) and the COVID-19 Follow-up Enterprise Survey (CFES), we confirm the continued discouragement of female-owned businesses. Before the pandemic, this discouragement was mainly due to the expected denial of credit applications (demand-side factors). Instead, during the pandemic, the decision not to apply for credit was driven by unfavourable conditions imposed by banks (supply-side factors). The primary implication of this study is that policymakers and regulators should prioritise strategies to enhance credit access for women-owned enterprises, a focus that is especially crucial during periods of economic downturn when women-owned businesses encounter heightened challenges in securing financial support.