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E-MailJonathan Brogaard is the Kendall D. Garff Chaired Professor in the Finance department at the University of Utah’s David Eccles School of Business. Nataliya Gerasimova is an Associate Professor of Finance at the Norwegian Business School. Maximilian Rohrer is an Assistant Professor of Finance at the Norwegian School of Economics. The post is based on their article published in the Journal of Financial Economics.
Do female politicians alleviate barriers faced by women-owned-businesses (WOBs)?
It is well established that WOBs are underrepresented in the economy relative to the share of women in society, 36% versus 50%. More strikingly, this under-representation is by an order of magnitude bigger within government procurement: only 9% of government contracts were allocated to WOBs between 2008 and 2020. Receiving government contracts has been linked to long-run success, employment growth, and reducing financial frictions for small firms. Hence, alleviating barriers faced by WOBs in government contracting will increase their economic potential.
The main contribution of this paper is to identify a novel channel how female politicians reduced barriers faced by WOBs, namely increased allocation of government contracts. We establish causality by exploiting a regression discontinuity design around mixed-gender elections.
Our empirical set-up differs from prior work by focusing on government procurement. This provides three unique characteristics. First, the federal government is the largest customer in the US. Second, government transparency rules allow us to access high-quality data. Third, the government setting is one where gender bias should be hardest to observe, given the numerous programs supporting minorities.
We show that the election of a female representative increases the probability that a government contract is awarded to a women-owned firm by 4.5 percentage points. A back-of-the envelope calculation for the fiscal year 2020 suggests female representation led to a transfer of $6.9 billion from non-WOBs to WOBs in federal government procurement contracts. Lastly, government contracts are economically important to WOBs: For 26% of WOBs, government contracts amount to more than 50% of their revenue.
We explore two underlying mechanism: (1) a supply-side mechanism whereby the presence of female politicians changes the pool of WOBs or their behavior, leading to more contracts being allocated to them; or (2) a demand-side mechanism whereby the government actively allocates more contracts to WOBs because of the female politician.
We show that the supply-side mechanism is unlikely. The election of female legislators does not cause changes in the pool of contractors in general, contractors’ reallocation to female-led districts, or changes in their status as WOBs. Also, reallocation of contracts happens already 180 days after an election. This evidence is inconsistent with a supply-based mechanism, suggesting that our findings are due to demand-side forces.
Next, we explore the dynamics of the demand-side mechanism. First, the transition from a male to a female legislator increases the allocation of contracts to WOBs, while a transition from a female to a male legislator diminishes it. If a female succeeds another female, the WOB contract allocation only increases if the winning candidate is the incumbent, consistent with legislators having a more significant impact as their tenure increases. Second, we document that female legislators who sit on any congressional committee are particularly influential. We interpret this evidence as female legislators affecting contract allocation via the power of the purse (budgetary committees) and the power of oversight (oversight committees).
One potential criticism of increased WOB contract allocation is that it may negatively affect the costs and quality of government procurement. We rule out this concern. Shifting the focus to firm outcomes, we find that receiving government contracts predicts business opportunities, measured by two-year growth in revenue, number of employees, and credit score.
Our findings have important policy implications because the gender gap in government contracts has been prominent in public debate. Congress has initiated several explicit programs to increase female participation in government contracting. Our findings highlight an alternative pathway through which female politicians increase gender diversity in government contracting. This pathway is particularly timely given that, at the time of writing this paper, the number of female representatives in the House of Representatives is at an all-time high of 120 for the 117th Congress, and that the first female vice president was inaugurated in 2021.
