New study says men with daughters become richer

A May 2017 NBER working paper by Paul A. Gompers and Sophie Q. Wang of Harvard University points to promising evidence that being a parent to a daughter could be beneficial for senior partners at venture capital firms.

“First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances,” the researchers wrote.

There are specific reasons why, according to their data.

Why having a daughter matters

The researchers took a look at information on around 1,400 investing partners from the years 1990 to 2016, and 988 funds, and about 12,000 deals.

Of the many findings, here are some that stood out.

First, the lack of women employed in these positions: the researchers referred to previous work, which revealed that there have never been a woman employed as a senior investor at about 75% of venture capital firms.

The researchers found that the firms they studied hired an average of 4.58 new employees with any 5-year period, just 8.03% were women.

Having a daughter instead of a son led to an “increase in excess return for the fund” of 3.2%.

“We find that the proportion of female hires increases by 1.93% if you replace a son with a daughter for the existing partners in a firm. Given that about 8.03% of the new hires are female, this suggests a 24% increase in the probability of hiring a senior female investor when a son is replaced with a daughter for the existing partners,” the researchers write, based on their model.

‘Daughters reduce the bias one has towards women’

Based on their model, which is explained in much greater detail in the research, having a daughter instead of a son could have led to IPOs generating an extra $4.5 billion between 1990 and 2010.

They defined success as “deals whose acquisition values are greater than the total amount of capital invested.”

They found that current partners having a daughter instead a son, made the “female hired ratio” go up by 1.93%, versus the “base rate” of 8.03%, and the deal success rate went up by 2.88%.

Gompers and Wang said their findings didn’t necessarily mean that putting “a blunt gender quota” in place isn’t necessarily the answer, but rather, eliminating bias would probably be a better option.

“First, parenting daughters reduces the bias that one has towards women, which leads to more female hires. Given that the pool of potential female investors is relatively untapped, these female investors are of higher quality than the counterfactual male hires. The higher quality hires then generate higher returns,” they wrote.

They added that “different perspectives may reduce groupthink and allow venture capital firms to avoid costly investment mistakes,” and that “having more diverse backgrounds may attract a much wider deal flow and, hence, average deal quality may increase.”

Women disappearing from workplaces

Just like the representation of women in venture capitalism isn’t as nearly as high as it could be, Natalie Kitroeff explores the multi-layered concept of why some women are leaving work in a recent article in the Los Angeles Times.

Based on Bureau of Labor Statistics data, Kitroeff writes that “just over a third of prime-age women,” meaning those aged 24-54, had a job or looked for one in 1948. She adds that when 1999 came around, 76.8% of that group was in the labor force. The “participation rate” declined to 74.3% by 2016 and 12,000 more women were not searching for a job.

“Some see the abrupt reversal as an unsurprising result of more than two decades without any major legislation making it easier for new parents to take time off or pay for childcare. Any number of articles and analyses have pondered the effects of a stubborn gender pay gap, inflexible schedules that keep women out of the executive suite and an undercurrent of discrimination that, at its worst, leaves women vulnerable to regular harassment. But top economists now are pointing to another explanation. Women seem to be leaving the workforce for some of the same reasons men are:

Middle-class jobs are in short supply and working at the bottom pays less than it used to,” Kitroeff adds.

We still have a long way to go in terms of women’s representation in diverse jobs— employing more at venture capital firms could be a start.