Unexpected losses, gender and alternative finance

Abstract

Access to capital can be critical for firm growth (Banerjee and Duflo, 2008; De Mel et al., 2008), especially for small firms (Beck et al., 2005) and women. Also, women-owned firms are less likely to use external financing as a source of capital, and they paid higher interest rates than men for their most recent loans (Coleman, 2000). In view of these facts, this study will answer two questions. What is the role of alternative finance before unexpected losses? Does alternative finance play a more important role in women? A recent investigation that examines individual firms that have effectively experienced crime events (Bernales et al., 2019) found out that crime worsens the access and conditions of external financing. This research aims to contribute to literature on funding channels utilized by firms when they suffer unexpected losses, specifically associated to crime events. It examines whether firms rely more in alternative financial channels when they face negative shocks. Alternative finance is defined as all the non-market and non-bank external sources. In addition, it studies if there is a heterogeneity between men and women firms owners in view of a gender gap. The results of this research are obtained from multivariate analysis with data from World Bank Enterprise Survey (WBES). This survey collects information on financing at the firm level as well as several other relevant firm characteristics, some of them are used as control. The sample covers 90.598 observations of firms from 129 countries between 2006 and 2017. This thesis reports four different regression applied to five different dependent variables. Our dependent variables are: Alternative Finance, Credit From Non-Bank Institutions, Credit From Suppliers/Customers, Credit From Money Lenders/Friends/Relatives and Credit from Bank. On the other hand, our independent variables of interest are Unexpected Losses, Gender (Female Owners) and the interaction of both of them. The study suggests that entrepreneurs rely as in alternative finance as in the banking sector. Unexpected Losses are positively correlated with all the different types of alternative finance and the bank finance. This effect is not homogeneous between men and women: women rely more in alternative finance, when they face a negative shock. This is consistent with the idea that women have less access to external formal sources, which is maintained even after controlling for firm s key characteristics and applying robustness checks.