Financial crisis and female entrepreneurship: Evidence from South Korea
Abstract
We document a drastic increase in the number of female-owned new firms in the manufacturingindustry in South Korea after the Korean financial crisis of 1997. During the crisis, a majorbanking-sector reform was conducted, and inefficient banks were liquidated. We find that morefemale-owned and fewer male-owned firms were created after the crisis in areas that experiencedseverer banking-sector reform. We show evidence of discrimination against female entrepreneurs in the banking sector before the crisis: capital was misallocated in favor of less-performing malefirms before the crisis, even though investing in female firms generated higher returns and lowerrisks on average. Using a simple theoretical framework, we show that the data patterns are moreconsistent with taste-based discrimination than statistical discrimination and that the reductionin taste-based discrimination in the banking sector can explain the rise of female entrepreneurship.