Are women really risk-averse? The lending behavior of women-owned banking cooperatives in India

• DOI: https://doi.org/10.1108/EDI-04-2017-0082
• Date: 20 August 2018
• Pages: 600-620
• Published date: 20 August 2018
• Author: Saibal Ghosh
• Subject Matter: HR & organizational behaviour,Employment law,Diversity, equality, inclusion

Are women really risk-averse?

The lending behavior of

women-owned banking

cooperatives in India

Saibal Ghosh

Centre for Advanced Financial Research and Learning,

Reserve Bank of India, Mumbai, India

Abstract

Purpose –The purpose of this paper is to examine the lending behavior of women-owned cooperatives

(WoCs) by exploiting the natural experiment of the financial crisis, employing a novel data set of Indian

cooperative banks during 2004–2013.

Design/methodology/approach –In view of the longitudinal nature of the data, the authors employ panel

data techniques for the purposes of analysis.

Findings –The findings indicate that WoC banks increased lending to both agriculture and small-scale

industries, especially in high-income states. Further disaggregation reveals that the possible weaknesses in

asset quality from lending to these sectors in low-income states could be driving the results.

Originality/value –To the best of our knowledge, this is one of the earliest studies for a leading emerging

economy to empirically investigate the behavior of WoC banks and relatedly, how their behavior evolved

during the financial crisis.

Keywords Gender, Banking

Paper type Research paper

1. Introduction

The role of women in policy making has come to the forefront of public policy debate in

recent times. Numerous scholars and policymakers have persuasively argued that women

are more risk averse than men. To provide some examples, after analyzing a whole host of

studies from 1967–1997, Byrnes et al. (1999) conclude that the female responders are more

risk averse than their male counterparts. Employing data on professional mutual fund

managers in the USA, Niessen-Ruenzi (2015) find that female managers adopt more

risk-averse strategies than their male counterparts.

One area where the role of women in decision making has been subject to systematic

empirical investigation has been in the sphere of banking. For example, Berger et al. (2014)

analyze three demographic characteristics of executive officers of German banks, including

gender, on bank risk taking. They document a positive association between female

representation on bank board and portfolio risk. As compared to this, employing data on

around 300 publicly listed US bank holding companies for the four-year period around the

financial crisis, Adams and Ragunathan (2014) show that banks with more women on board

were not necessarily more risk-averse; on the contrary, they displayed better performance

during the financial crisis.

Given this conflicting evidence, it remains an empirical question whether women-owned

banks are less risk averse. While the literature on gender differences and its impact on

different financial variables is quite significant, especially for advanced economies, the

literature in this context on emerging markets is less compelling and even more so, when it

comes to cooperative banks. We contribute to this debate by examining the lending behavior

of women-owned cooperative (WoC) banks for an extended timeperiod that encompasses the

financial crisis.To be more specific, we assemble data on a large sampleof urban cooperative

Equality, Diversity and Inclusion:

An International Journal

Vol. 37 No. 6, 2018

pp. 600-620

© Emerald PublishingLimited

2040-7149

DOI 10.1108/EDI-04-2017-0082

Received 18 April 2017

Revised 11 September 2017

10 November 2017

2 January 2018

Accepted 12 February 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/2040-7149.htm

600

EDI

37,6

banks (UCBs) in India, comprising of those which are women owned and those that are not.

We exploit theexogenous nature of the global financialcrisis within a difference-in-differences

(DID) specification to investigatethe lending and performance responseof these banks during

the financial crisis, after controlling for other observable characteristics.

Our findings indicate that WoCs expanded credit at a faster pace during the crisis, ceteris

paribus. The evidence holds in respect of loans both to agriculture and small-scale industries

(SSIs) and is primarily manifest in high-income states.

A potential question that arises is: why should the lending behavior of WoCs differ from

those of their non-WoC counterparts and especially, during the crisis. It is possible to

postulate several reasons for the same. First, on the demand side, female entrepreneurs

exhibit higher risk aversion and therefore, have a lower propensity to indulge in risky

lending strategies (Watson and Robinson, 2003). As a result, their business strategies are

not seriously impacted during the crisis. Second and from the standpoint of supply,

women-owned banks typically lend to less risky enterprises. Alesina et al. (2013) and

Muravyev et al. (2008) find that female firms do indeed have lower probabilities of obtaining

a bank loan, and even when they do, are charged higher interest rates than their male

counterparts. As a result, women-owned enterprises typically engage in small businesses

which are less susceptible to the vicissitudes of a crisis. Finally and more generally,

structural differences between women- and non women-owned banks such as those related

to size, balance sheet composition and industry orientation could also make a difference.

Specifically, these banks typically have much smaller balance sheet size and lend to

businesses with a lower intensity of financial capital (McKechnie et al., 1998), which are

likely to stand them in good stead during the financial crisis.

The analysis contributes to the literature in a few distinct ways. First, to the best of our

knowledge, it provides empirical evidence for an emerging market economy regarding the

impact of women-owned banks on lending behavior. Most prior studies explore the role of

male vs female loan officers on lending behavior. By way of example, using proprietary data

on a bank which introduced an incentive-based compensation system for a certain

proportion of its loan officers, Agarwal and Wang (2009) show that default loans on loans

originated by women are higher than men. This contrasts with Beck et al. (2013) who find

that the default probability of loans made by female officers is 4.2 percent lower than men.

In the context of lending relationships, Bellucci et al. (2010) show a significant gender gap in

extending credit, although this gap disappears for borrowers with longer duration of

relationship with the bank. Utilizing data on German banks for the period 1994–2010,

Berger et al. (2014) find that the presence of women in management is associated with higher

risk taking. In contrast, we focus on the behavior of women-owned banks on their lending

decisions. Since both the ownership and control of these banks are vested within the same

entity, it avoids the moral hazard problems involved in their separation (Berle and Means,

1932) and thereby provides compelling case to understand the impact of gender on bank

lending in a holistic fashion. Our findings indicate that WoCs are not necessarily risk-averse

in their lending behavior.

Second, we augment the literature on cooperative banking by focusing on the lending

behavior of these banks during the financial crisis. Several studies have focused on various

facets of cooperative banks and arrive at varied findings. In an early study on Austrian

cooperatives, Gorton and Schmid (1999) found that their performance declines as the

number of members increase. Other studies have observed that cooperative banks are more

stable and resilient in the face of crisis and competition (Hesse and Cihak, 2007; Delbano and

Reggiani, 2013; Fiordelisi and Mare, 2014; Chiaramonte et al., 2015). Murata and Hori (2006)

focus on the issue of market discipline and find strong evidence in support of this fact for

Japanese cooperative banks. More recently, Arnold et al. (2015) also provide evidence in

favor of market discipline, especially by German cooperative banks. In the Indian case,

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Women-owned

banking

cooperatives