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Gender gap in bankruptcy

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NUS study supports call for greater involvement of women in financial decisions

There is a saying, "Life is all about taking risks. If you never take a risk, you will never achieve your dreams".

It appears that this is the mantra that men go by.

Studies have shown men to be more willing to take risks than women.

But some of such risk-taking behaviour has landed them in the soup.

In the United States, men trade 45 per cent more than women and this higher trading activity has led to poorer portfolio returns compared to their risk-averse female counterparts.

In some instances, this has resulted in indebtedness; more men than women are considered bankruptcy risks.

Women vis-àvis men become comparatively more risk averse as they get older

In the US, the proportion of female bankrupts is far lower than that of male bankrupts.

One of the drivers of such differences in risk preferences is their perception of risks.

Men are more likely to see a risky situation as a challenge that calls for participation; women see the same situation as a threat that discourages participation.

At the National University of Singapore, we wanted to know whether Singapore women and men differ in their bankruptcy propensity and if there is an association with risk preferences.

To help us gain such insights, we obtained more than 65,000 personal bankruptcy filings at the Supreme Court of Singapore from 1980 to 2012, which included information on the debtor's bankruptcy frequency and total bankruptcy amount.

We were able to obtain demographic information of these debtors such as gender, age, ethnicity and type of residence.

We found that for every four men who filed for personal bankruptcy, there was only one female bankrupt, after accounting for other demographic differences and housing type.

Women are also 36 per cent less likely to encounter multiple bankruptcies than men.

Perhaps women learn from their financial mistakes better than men, which saves them from getting into a financial crisis again.

Additionally, our study offers an interesting pattern for the gender-gap variation across age, ethnicity and residential type.

While young men and women are just as likely to become bankrupt, a pronounced gender gap emerges as they get older.

Women vis-à-vis men become comparatively more risk averse as they get older, posing a less likely bankruptcy risk than men.

By ethnicity, although there are higher bankruptcy rates in males than females across all ethnic groups, the gender effect is larger among Chinese than Malays and Indians.

Not only are there far more Chinese men filing for bankruptcy than Chinese women, these men are also more likely to file for multiple bankruptcies.

The smaller gap in Malays and Indians, however, also implies that more Malay and Indian female debtors face bankruptcy than Chinese female debtors, given the same number of male debtors.

We also studied whether such gender differences varied by housing type.

The gender gap persisted but is particularly large among individuals living in public housing flats rather than those with private housing addresses.

This means that men are more likely to be bankrupts than women, but even more so among those living in public housing than private residences.


While our findings show robust gender differences in bankruptcy risks, are women more risk-averse than men in making financial decisions?

If bankruptcy risk is associated with the innate risk attitude of debtors, then they are more risk-taking, and this potentially could be revealed in their behaviour in other activities such as driving.

To explore this possibility, we used the lawsuit data set containing almost 270,000 motor accidents in Singapore from 1980 to 2012 and matched the data with the bankruptcy data set.

Motorists with a risk-taking attitude are likely to engage in behaviours that are more prone to result in accidents, which will be captured by a record of motor accidents.

We checked through the consequences of these motor accidents and studied only those involving minor-injury outcomes to rule out the possibility that the motor accident is the direct cause for personal bankruptcy.

We found that women are associated negatively with motor accident occurrences, implying that they are less of risk takers than men.

Moreover, the male-female difference in bankruptcy risks is larger for debtors involved in past motor accidents than those without a history of accidents.

These suggest that a reason for the male-female divide in bankruptcy risk stems from their differential appetite for risks.
While the saying is that one has to take risks to achieve dreams, our research suggests that underpinning such risk taking is taking calculated risks.

Taking any risk may undermine success and shatter any dream that one has.

Men, especially, have to temper their risk propensity and take calculated risks to protect themselves from financial downfall.

Our findings also have policy implications. While the last two decades have witnessed improvement in women's access to credit, women - especially those from impoverished areas - are still sometimes unable to meet their capital needs either for their own enterprise or personal use.

Our findings provide support for policies designed to ease such credit constraints to women as they pose lower bankruptcy risks.

There are also issues regarding how rights, resources and responsibilities are distributed within the household and the boardroom.

Our findings support the call for greater involvement of women in household financial decisions, which can help to reduce household bankruptcy risks.

At a broader level, boardroom diversity allows for a more balanced perspective towards corporate financial undertaking to protect shareholders' interests.

Sumit Agarwal is the Low Tuck Kwong Professor of Finance at the National University of Singapore (NUS) Business School, where Zhang Jian was a PhD student. Sing Tien Foo is the Dean's Chair Associate Professor in real estate at NUS. The opinions expressed are those of the writers and do not represent the views and opinions of NUS.

This article appeared in The Business Times yesterday.