Research Blog: Women-owned businesses in Canada

Periodically, the StatCan Blog publishes a guest post on research at Statistics Canada. This post is from Huju Liu, a senior economist in the Economic Analysis Division.

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Entrepreneurship has long been argued to be an important driver for innovation, job creation and productivity growth. However, men and women are still unequal in becoming entrepreneurs and growing their businesses: women are less likely to become entrepreneurs, and women-owned businesses are smaller than their men-owned counterparts. To achieve gender equality in business leadership and inclusive economic growth, the Government of Canada has adopted the new Women Entrepreneurship Strategy to promote entrepreneurship among women and to help grow women-owned businesses. Comprehensive data on female entrepreneurship and rate of ownership are essential for better understanding the state of women-owned businesses in Canada, which will allow policy makers to make well-informed and evidence-based decisions^{Footnote 1}.

What do we know about women-owned businesses in Canada so far? This blog highlights recent evidence and research on the differences between women-owned and men-owned businesses in Canada using the Survey on Financing and Growth of Small and Medium Enterprises and the Canadian Employer-Employee Dynamics Database.

Portraits of women-owned businesses in Canada

Women-owned businesses (that is, at least 51% of shares are owned by women) account for a relatively small share of all businesses in Canada. According to the latest Survey on Financing and Growth of Small and Medium Enterprises (SFGSME), they accounted for 15.6% of all small and medium enterprises (SMEs) in 2017, a share that has been fairly stable over the past decade. Women-owned businesses were more prevalent in service industries such as retail trade, accommodation and food services, and tourism, and less prevalent in agriculture, forestry, fishing and hunting; mining, quarrying, and oil and gas extraction; construction; and manufacturing. They were also more prevalent among enterprises with fewer than 20 employees (2017 SFGSME and Grekou, Li and Liu, 2018).

Yet women-owned SMEs have made progress over time in many areas, relative to their counterparts, men-owned SMEs. For instance, women-owned SMEs have improved access to financial resources. The share of these SMEs that requested external financing increased from 20.7% in 2007 to 40.6% in 2017, compared with 22.9% in 2007 to 47.4% in 2017 for men-owned SMEs. The ratio of the authorized-to-requested debt financing amount was about 9.6 percentage points lower in 2011 for women-owned SMEs than for their counterparts, and was only about 2.8 percentage points lower in 2017 (2017 SFGSME, Industry Canada, 2015, and Rosa and Sylla, 2016).

Women-owned SMEs have also progressed in export activity over time. The share of these SMEs that exported increased from 5.9% in 2007 to about 11.2% in 2017, while the share for men-owned SMEs remained largely unchanged, from 11.1% to 12.2%, over the same period (2017 SFGSME and Industry Canada, 2015).

These SMEs have also performed well relative to men-owned SMEs in innovation and adoption of digital technology. The share of SMEs that engaged in at least one type of innovation (product, process, organization or marketing) over the past three years was higher among women-owned businesses (39.5%) than men-owned businesses (37.0%) in 2011. By 2017, the share of innovators among SMEs remained similar between both types of SMEs. Moreover, the share of businesses holding at least one type of intellectual property, such as patents and trademarks, at the end of 2017 was also similar between both types of SMEs. The share of businesses that have adopted at least one type of digital technology, such as cloud computing, data analytics or having an Internet website, over the past three years was also similar between both types of SMEs at the end of 2017 (2017 SFGSME and Industry Canada, 2015).

Women-owned SMEs have also improved their growth performance over time. Their share of medium- to high-growth SMEs, that is, businesses with an annual sales or revenue growth rate above 10% over the past three years, increased from 16.5% in 2011 to about 18.5% in 2017, compared with 18.3% in 2011 to 20.8% in 2017 for men-owned SMEs (2017 SFGSME and Industry Canada, 2015).

Dynamics of women-owned businesses

Although informative at the aggregate level, these comparisons are static, based on cross-sectional surveys taken at different points in time rather than following businesses over time. It is not possible, for example, to determine whether an increase in the number of these businesses is due to more new women-owned businesses or fewer that exit. Furthermore, it is also difficult to uncover the underlying reason for the improved growth performance mentioned earlier by women-owned business: whether the surviving businesses truly improved their growth or low-growth businesses simply failed and exited.  Recently, a new database was developed from administrative sources to fill this data gap. The Canadian Employer–Employee Dynamics Database (CEEDD) links individual workers, business owners and businesses together. It is capable of tracking businesses and business owners over time and thus can complement the analysis on the business dynamics of women-owned business.

Research at Statistics Canada using the CEEDD offers new insights on the dynamics of women-owned businesses. Couture and Houle track the performance of start-ups with the CEEDD and find women-owned start-ups are less favoured. From 2005 to 2013, these start-ups accounted for less than one-fifth of all start-ups (new private corporations), while men-owned start-ups accounted for just under two-thirds. Women-owned start-ups had a slightly lower survival rate than men-owned start-ups. These start-ups had significantly lower labour productivity and research and development intensity than men-owned start-ups, conditional on survival. Moreover, women-owned start-ups also had a lower growth rate of net income than their men-owned counterparts. Women-owned start-ups were relatively smaller in terms of employment at the beginning, and on average could take five years to catch up to the size of men-owned start-ups. Grekou follows individual entrepreneurs over time and finds that incorporated women entrepreneurs tended to have lower income than men entrepreneurs, on average, before starting up their businesses between 2006 and 2015.

Conclusion

Statistics Canada has data sources to better understand female entrepreneurship and support in-depth research in this area. Recent evidence and research has established the fact that important differences remain between women-owned and men-owned businesses: women-owned businesses still remain underrepresented in the economy; their start-ups have lower growth rates of income and employment and lower survival rate then their men-owned counterparts. Future research needs to focus on better understanding what drives these differences: for example, why women are less likely to start a business and why women-owned businesses experience a lower growth than men-owned businesses.

Survey on Financing and Growth of Small and Medium Enterprises and the Canadian Employer–Employee Dynamics Database

The Survey on Financing and Growth of Small and Medium Enterprises (SFGSME) is sponsored by a consortium led by Innovation, Science and Economic Development Canada. It was conducted by Statistics Canada and repeated every three to four years, starting in 2000 and updated until 2017. The target population includes enterprises with 1 to 499 employees and more than $30,000 in gross revenue. It collects information on the financing used by small and medium enterprises; business activities, such as export, innovation and growth; and characteristics of ownership, including the shares of businesses owned by women or men.

The Canadian Employer–Employee Dynamics Database (CEEDD) is built upon administrative and tax records and links individual and business information. It is capable of following individuals and businesses over time. The CEEDD provides gender-specific ownership information for unincorporated businesses and incorporated privately held companies (mostly Canadian-controlled private corporations) for which information on ownership between 2005 and 2015 is available. Gender-specific ownership cannot be assigned to other businesses, such as publicly-traded corporations and private corporations that do not file shareholder information.

References

Couture, L., and S. Houle. Entry, Survival and Performance of Business by Gender. Statistics Canada. Forthcoming.

Grekou, D. Labor Market History and the Success of Women-owned Enterprises. Statistics Canada. Forthcoming.

Grekou, D., J. Li, and H. Liu. 2018. "Women-owned enterprises in Canada." Economic Insights. No. 83. Statistics Canada Catalogue no. 11-626-X. Statistics Canada.

Industry Canada. 2015. Majority Female-Owned Small and Medium-Sized Enterprises
Special Edition: Key Small Business Statistics.

Rosa, J, and D. Sylla. 2016. A Comparison of the Performance of Majority Female-owned and Majority Male-owned Small and Medium-sized Enterprises, Innovation, Science and Economic Development Canada.

Survey on Financing and Growth of Small and Medium Enterprises, 2017.