Gender bias in the aftermath of fraud: Evidence from the Theranos case

Abstract: The gender gap in start-ups is an important source of inefficiency. We show that negative, gender-specific, spillovers resulting from fraudulent behaviour of women entrepreneurs can exacerbate this gap. Our study focuses on the fraud committed by one of the world's most promising biotech start-ups, Theranos, and its female founder Elizabeth Holmes. We find that the average investment volume in female-led start-ups drops by 18 % after the uncovering of the fraud. This represents a doubling of the gender gap in financing. Evidence further indicates that female entrepreneurs are turning to government grants in response to the increasingly adverse conditions in the private capital market. As the average value of grants is orders of magnitude smaller than the average investment raised in the private market, this implies that the spillovers generate substantial welfare losses. We further find that negative gender-specific effects extend beyond start-ups. The share prices of companies led by female CEOs drop following the exposure of the Theranos fraud.

Further information on the Economics Research Seminar can be found here. 

Autor: Responsible: Thomas Steger