By Hosein Maleki (Rutgers Business School), Mahsa Kaviani (University of Delaware), Simi Kedia (Rutgers Business School), and Shaghayegh Pourvosoughi (Rutgers Business School)
When She Fails: Women Entrepreneurs and Gender Gaps in Business Bankruptcy studies whether the bankruptcy system delivers different outcomes to female- and male-owned firms and, if so, why. Using a large sample of U.S. small-business bankruptcy filings, we show that female-owned firms are more likely to be pushed into liquidation and less likely to emerge successfully from bankruptcy than observably similar male-owned firms. In our data, female-owned firms are 24 percent more likely to file under Chapter 7, and, conditional on filing under Chapter 11, are considerably less likely to receive a discharge. These patterns suggest that gender gaps in entrepreneurship extend beyond entry and financing and persist at the point of business failure, where legal institutions determine whether distressed firms are reorganized or shut down.
A natural explanation is that female-owned firms enter bankruptcy in worse financial condition. We test that possibility by linking bankruptcy cases to 1.9 million SBA loan records and examining observable pre-filing credit quality. We find little evidence that female-owned firms look systematically worse than comparable male-owned firms before filing. Female-owned firms often borrow less, consistent with longstanding financing constraints, but they do not appear weaker on observable credit-risk measures such as loan pricing or charge-off incidence. This weakens a simple creditworthiness explanation for the bankruptcy gap and points instead toward frictions that arise within the bankruptcy process itself. If anything, in our matched sample of bankrupt firms, we find that male-owned businesses have higher loan interest rates as well as worse charge-off rates.
We next examine the role of judicial capacity and court congestion. The discharge penalty for female-owned firms is concentrated among high-caseload judges, suggesting that disparities widen when decision-makers face heavier workloads. To sharpen identification, we study unexpected judicial departures that raise the workload of remaining judges. In event-study analyses around these judicial vacancy shocks, the female gap in bankruptcy outcomes widens after surviving judges experience higher caseload pressure.
Further, we show that women respond to these institutional frictions on the filing margin. When observing more congested courts, female entrepreneurs are more likely to turn to Chapter 7 liquidation rather than attempt Chapter 11 reorganization. This avoidance response is partly mitigated when debtors are represented by more experienced attorneys, although experienced counsel does not eliminate the gender gap in discharge outcomes once a firm is in Chapter 11.
Overall, the evidence identifies a post-failure institutional friction in entrepreneurship. Bankruptcy is often understood as a neutral mechanism for sorting viable from nonviable firms. Our findings suggest instead that the process may operate unevenly across entrepreneurs, with female business owners less likely to receive the second chance that reorganization is meant to provide.
Click here to read the full article.