Gender stereotypes hold back investors

Study finds male investors just can't seem to come to grips with women executives

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All things being equal, women entrepreneurs would have the same access to capital as their male counterparts.

Dan Marsula, Post-Gazette
Click photo for larger image.

But all things aren't equal, as was illustrated in a recent experiment by Lyda Bigelow and Judi McLean Parks, professors at Washington University in St. Louis' Olin School of Business.

Ms. Bigelow and Ms. Parks asked themselves the following hypothetical question: how would potential investors react if they received one of two prospectuses? The offerings were identical in every respect but one: the sex of the person running the company. Although they had identical resumes, one CEO was a man and the other was a woman.

What a difference one minor detail made.

Male investors were prepared to invest three times more money in the male-run company as they were in the female-run firm, which they viewed as a riskier proposition. When asked what the CEO should be paid, they determined the woman should be paid only 86 percent of the male CEO's compensation.

Female investors, on the other hand, didn't find the sex of the CEO to be an important determinant in their investment decision.

"The persistence of outdated stereotypes and prejudices continues to make the playing field uneven for women in business," says Ms. Parks, whose specialty is organizational behavior.

Adds Ms. Bigelow: "The bottom line is that it's gender stereotypes that are driving the results."

Their findings confirm what many women entrepreneurs have suspected for some time.

"It does give some validation to what women entrepreneurs will talk about anecdotally," says Ms. Parks. "This study points out there may be unnecessary hurdles to capital for women."

Their experiment was inspired by the work of then Cornell University professor Theresa M. Welbourne, who examined the three-year performance of nearly 500 companies that went public in 1993. Ms. Welbourne, who subsequently taught at the University of Michigan, found that the IPOs of companies that had women in the top management team were more successful than those with male-only management.

Given the success of the firms in Ms. Welbourne's study, Ms. Bigelow and Ms. Parks wanted to see whether potential investors would recognize what women bring to the table in an IPO. Here's how their study was conducted.

The professors crafted two offering statements. The prospectuses were based on one used by a company that had a modestly successful IPO several years earlier. The mock circular contained a profit and loss statement, a balance sheet, the company's business plan, and information on the management team. Only the names of the CEOs -- Robert and Roberta -- and their pictures were different.

The prospectuses were given to about 300 second-year MBA students, not exactly high-rolling Wall Streeters, but more well informed than the average retail investor. They were between 24 and 40 years old with a mean age of about 28. Each student received either the male or female version of the document and, after examining it, was asked a series of questions to determine how they felt about investing in that company.

Ms. Parks says male students believed the male-run company would have a more cohesive top management team, would be less risky and was more appealing to the market.

"All those strategic type variables ended up being biased in favor of the male-run company," she says. "I wasn't expecting to see these enormously biased results."

Moreover, although each of the fictional CEOs was in their mid-50s -- in other words, well beyond the usual age for having small children to raise -- male investors were more worried about the female CEO leaving the company for family reasons.

"Female CEOs were perceived to be three times more likely to leave for family reasons," Ms. Parks says. "When males reviewed the materials, there was a whopping statistical effect. They vastly preferred the one run by the guy."

There was no strong gender-based differences of opinion when female students read the same documents.

"Females believe females can run companies," Ms. Bigelow says.

Trouble is, women have a hard time convincing male investors of the same thing. Ms. Parks says the implications of the experiment are troubling, given the number of people women-owed companies employ.

"This disadvantage, grounded in antiquated stereotypes, not only has an impact on the women themselves, but also affects their potential economic contributions to their communities and employees," she says. "Have you come a long way baby? Well, maybe not as far as you thought."

Len Boselovic can be reached at or 412-263-1941.


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