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  5. Diversity, Culture and Finance
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Diversity, Culture and Finance

Paper Session

Saturday, Jan. 7, 2023 8:00 AM - 10:00 AM (CST)

Sheraton New Orleans, Orpheus
Hosted By: Association of Financial Economists & American Economic Association
  • Chair: Joshua Lerner, Harvard Business School

Venture Capital’s “Me Too” Moment

Sophie Calder-Wang
,
University of Pennsylvania
Paul Gompers
,
Harvard Business School and NBER
Patrick Sweeney
,
Harvard Business School

Abstract

In this paper, we document the historically low rate of hiring of women in the venture capital sector. We find that the high-profile Ellen Pao v. Kleiner Perkins gender discrimination trial had dramatic treatment effects on the hiring of female investors. In difference-in-differences regressions with heterogenous effects, we find that the rate of hiring of female venture capitalists increased substantially after the trial and that the hiring was more pronounced in states that were more attentive to the Pao Trial. Because it is unlikely that the supply of women desiring a job in venture capital increased as a response to the gender discrimination trial, the results are likely driven by increased demand for female investors by venture capital firms. We also show that the fraction of venture-backed founders who are female increased after the Pao Trial with both male and female venture capitalists increasing their investments in female founders, although the effect is only 40% as large as the increase in hiring of female venture capitalists. This is consistent with the treatment effect having some spillover on venture capital investments as well.

Is There Racial Discrimination in Private Placements?

Anup Agrawal
,
University of Alabama
Yuree Lim
,
Texas Woman’s University

Abstract

We examine whether entrepreneurs with different racial backgrounds raise capital successfully. After controlling for measures of firm and offering quality, we find that African American (Hispanic) entrepreneurs have 7% (5%) lower funding success and raise less capital than do Whites, which translates into $2.3 ($3) million lower capital raised. This effect appears to be partly due to information asymmetry and, especially for African Americans, investors discounting their credentials.

How Costly Are Cultural Biases? Evidence from FinTech

Francesco D'Acunto
,
Georgetown University
Pulak Ghosh
,
Indian Institute of Management Bangalore
Rajiv Jain
,
Fairassets Technologies India Private Ltd
Alberto G. Rossi
,
Georgetown University

Abstract

We propose a unique field setting to detect and estimate the effects of cultural biases on high-stake economic decision-making—a leading Indian peer-to-peer lending platform paired with an automated robo-advising tool. Comparing the choices lending consumers (“lenders”) make with those proposed by the tool, we find that both in-group vs. out-group bias and implicit bias based on religion and caste are pervasive and sizable. Culturally-biased choices and subsequent debiasing are stronger in locations with higher historical inter-ethnic and inter-caste conflict. Cultural biases affect performance negatively: lenders face 14% higher default rates before debiasing and increase the returns of their loan portfolios between 4.5 and 7.3 percentage points after debiasing. The substantially higher risk of the marginal borrowers from favorite demographic groups largely explains the worse performance of culturally-biased choices.

Discussant(s)
Mariassunta Giannetti
,
Stockholm School of Economics
Thomas Chemmanur
,
Boston College
Sumit Agarwal
,
National University of Singapore
JEL Classifications
  • G5 - Household Finance
  • J7 - Labor Discrimination