Women-run companies ‘less likely to go bust’ than those led by men

New research by a leading insolvency firm found that female-run companies are far less likely to go bust than ones run by men.

In fact, the potentially controversial study found that the SME insolvency rate is 71% higher in companies run by men.

The team behind the Company Rescue site analysed data from over 4 million small and medium-sized businesses in the Creditsafe database to see if there was a correlation between the gender makeup of company directors and the likelihood of a company becoming insolvent.

The team examined the gender of the boards of companies that had entered liquidation or administration over the past 12 months.

What methodology was used in this study?

The number of active companies with just two men on the board, or a majority of 75% of the board, was 707,498. Over the past 12 months, 5007 went into liquidation or administration.

The number of active companies with just two women on the board, or a majority of 75% of the board, was 76,715. Over the past 12 months, just 318 went into liquidation or administration.

According to this methodology, the insolvency rate for companies dominated by men was 0.7% compared to a rate of 0.41% in women-dominated companies.

It is important to note that one-‘man’-bands were excluded from the calculations as they are often used as a form of self-employment, unlike many SMEs that employ others and require complex financial controls.

How can we explain the higher insolvency rate in male-dominated companies?

Understandably, Keith Steven, MD of Company Rescue, is cautious about drawing conclusions about the study’s findings, although the results are broadly similar to those of previous studies carried out since 2018.

The data doesn’t automatically show that men are inherently worse at running businesses than women.

It may well be that the businesses that tend to be more likely to become insolvent due to the nature of the industry or recent economic events are coincidently run by men.

However, having looked deeper into data surrounding different industry sectors, Steven suggests that business sectors aren’t that relevant when explaining the study’s results; in fact, the difference might point to “a higher financial competency, or less risk-taking, by women directors.”

Further reading

If you’re interested in finding out more, try these ByteStart guides:

• Guide to insolvency, liquidation and bankruptcy for business owners
• 8 signs that a small business may be approaching insolvency