The Loyalty Tax: How Founder Gender Affects Organizational Legitimacy and Employee Turnover

• In Event: Organizational Mechanisms of Inequality in Work and Entrepreneurship

Abstract

This paper examines how founder gender shapes employee retention in entrepreneurial ventures, a critical yet overlooked dimension of success of new businesses. Although entrepreneurship is often portrayed as a path for women to bypass workplace inequality, women-led ventures face distinct challenges in building and sustaining their teams. Using longitudinal data on over 54,000 U.S. startups and 5.7 million employees founded between 2000 and 2023, we find that ventures led by women exhibit systematically higher rates of employee turnover than those led by men. Additional analyses suggest these disparities stem from gendered perceptions of founder legitimacy that weaken employees’ attachment to women-led organizations and constrain women’s ability to retain talent. Furthermore, we show that elevated turnover substantially lowers the likelihood of key growth outcomes, including IPO exits. By shifting attention from financial capital to the human capital dimension of entrepreneurial growth, this study reveals how gendered legitimacy dynamics within entrepreneurial organizations reproduce inequality and create enduring disadvantages for women founders.

Authors

• Ming D. Leung, University of California-Irvine

• Simon (Seongbin) Yoon, University of California Irvine