[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/cen/wpaper/21-11.html
   My bibliography  Save this paper

Black Entrepreneurs, Job Creation, and Financial Constraints

Author

Listed:
  • Mee Jung Kim
  • Kyung Min Lee
  • J. David Brown
  • John S. Earle
Abstract
Black-owned businesses tend to operate with less finance and employ fewer workers than those owned by Whites. Motivated by a simple conceptual framework, we document these facts and show they are causally connected using large firm-level surveys linked to universal employer data from the Census Bureau. We find that the racial financing gap is most pronounced at start-up and tends to narrow with firm age. At any age, Black-owned firms are less likely to receive bank loans, more likely to refrain from applying because they expect denial, and more likely to report that lack of finance reduces their profitability. Yet the observable characteristics of Black entrepreneurs are similar in most respects to Whites, and in some ways - higher education, growth-oriented motivations, and involvement in the business - would seem to imply higher, not lower, demand for finance. Concerning employment, we find that Black-owned firms have on average about 12 percent fewer employees than those owned by Whites, but the difference drops when controlling for firm age and other characteristics. However, when the analysis holds financial variables constant, the results imply that equally well-financed Black-owned rms would be larger than White-owned by about seven percent. Exploiting the credit supply shock of changing assignment to Community Reinvestment Act treatment through a Regression Discontinuity Design in a firm-level panel regression framework, we find that expanded credit access raises employment 5-7 percentage points more at Black-owned businesses than White-owned firms in treated neighborhoods.

Suggested Citation

  • Mee Jung Kim & Kyung Min Lee & J. David Brown & John S. Earle, 2021. "Black Entrepreneurs, Job Creation, and Financial Constraints," Working Papers 21-11, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:21-11
    as

    Download full text from publisher

    File URL: https://www2.census.gov/ces/wp/2021/CES-WP-21-11.pdf
    File Function: First version, 2021
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Timothy Bates, 1988. "Do black-owned businesses employ minority workers? new evidence," The Review of Black Political Economy, Springer;National Economic Association, vol. 16(4), pages 51-64, March.
    2. Laurent Bach, 2014. "Are Small Businesses Worthy of Financial Aid? Evidence from a French Targeted Credit Program," Review of Finance, European Finance Association, vol. 18(3), pages 877-919.
    3. J. David Brown & John S. Earle & Mee Jung Kim & Kyung Min Lee, 2019. "Immigrant Entrepreneurs and Innovation in the US High-Tech Sector," NBER Chapters, in: The Roles of Immigrants and Foreign Students in US Science, Innovation, and Entrepreneurship, pages 149-171, National Bureau of Economic Research, Inc.
    4. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 639-670.
    5. John (Jianqiu) Bai & Daniel Carvalho & Gordon M. Phillips, 2018. "The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity," Journal of Finance, American Finance Association, vol. 73(6), pages 2787-2836, December.
    6. Robert B. Avery & Kenneth P. Brevoort, 2015. "The Subprime Crisis: Is Government Housing Policy to Blame?," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 352-363, May.
    7. Karthik Krishnan & Debarshi K. Nandy & Manju Puri, 2015. "Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 28(6), pages 1768-1809.
    8. Robert W. Fairlie & Alicia M. Robb, 2007. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 25(2), pages 289-323.
    9. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
    10. Raj Chetty & Nathaniel Hendren & Maggie R Jones & Sonya R Porter, 2020. "Race and Economic Opportunity in the United States: an Intergenerational Perspective [“Intergenerational Mobility of Immigrants in the US Over Two Centuries,”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 711-783.
    11. Abhijit V. Banerjee & Esther Duflo, 2014. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 572-607.
    12. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
    13. Robert Fairlie & Alicia Robb & David T. Robinson, 2022. "Black and White: Access to Capital Among Minority-Owned Start-ups," Management Science, INFORMS, vol. 68(4), pages 2377-2400, April.
    14. Bates, Timothy, 1973. "An Econometric Analysis of Lending to Black Businessmen," The Review of Economics and Statistics, MIT Press, vol. 55(3), pages 272-283, August.
    15. Ellora Derenoncourt & Claire Montialoux, 0. "Minimum Wages and Racial Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 136(1), pages 169-228.
    16. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    17. Blanchard, Lloyd & Zhao, Bo & Yinger, John, 2008. "Do lenders discriminate against minority and woman entrepreneurs?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 467-497, March.
    18. Robert W. Fairlie & Bruce D. Meyer, 2000. "Trends in Self-Employment among White and Black Men during the Twentieth Century," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 643-669.
    19. Borjas, George J & Bronars, Stephen G, 1989. "Consumer Discrimination and Self-employment," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 581-605, June.
    20. J. David Brown & John S. Earle, 2017. "Finance and Growth at the Firm Level: Evidence from SBA Loans," Journal of Finance, American Finance Association, vol. 72(3), pages 1039-1080, June.
    21. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
    22. Michael A. Stoll & Steven Raphael & Harry J. Holzer, 2004. "Black Job Applicants and the Hiring Officer's Race," ILR Review, Cornell University, ILR School, vol. 57(2), pages 267-287, January.
    23. Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 229-265.
    24. Timothy Bates & Alicia Robb, 2015. "Has the Community Reinvestment Act increased loan availability among small businesses operating in minority neighbourhoods?," Urban Studies, Urban Studies Journal Limited, vol. 52(9), pages 1702-1721, July.
    25. Thomas M. Lyons & James J. Heckman & Petra E. Todd, 2000. "Understanding Black-White Wage Differentials, 1960-1990," American Economic Review, American Economic Association, vol. 90(2), pages 344-349, May.
    26. Cavalluzzo, Ken S & Cavalluzzo, Linda C, 1998. "Market Structure and Discrimination: The Case of Small Businesses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 771-792, November.
    27. Patrick Bayer & Kerwin Kofi Charles, 2018. "Divergent Paths: A New Perspective on Earnings Differences Between Black and White Men Since 1940," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1459-1501.
    28. Ellora Derenoncourt & Claire Montialoux, 2021. "Minimum Wages and Racial Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 169-228.
    29. Fairlie, Robert, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt84v8v0nr, Department of Economics, UC Santa Cruz.
    30. Terrell, Henry S, 1971. "Wealth Accumulation of Black and White Families: The Empirical Evidence," Journal of Finance, American Finance Association, vol. 26(2), pages 363-377, May.
    31. Neil Bhutta & Andrew C. Chang & Lisa J. Dettling & Joanne W. Hsu, 2020. "Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances," FEDS Notes 2020-09-28-2, Board of Governors of the Federal Reserve System (U.S.).
    32. Colleen Casey & Davita Silfen Glasberg & Angie Beeman, 2011. "Racial Disparities in Access to Mortgage Credit: Does Governance Matter?," Social Science Quarterly, Southwestern Social Science Association, vol. 92(3), pages 782-806, September.
    33. Neil Bhutta, 2011. "The Community Reinvestment Act and Mortgage Lending to Lower Income Borrowers and Neighborhoods," Journal of Law and Economics, University of Chicago Press, vol. 54(4), pages 953-983.
    34. Lee, Hyojung & Bostic, Raphael W., 2020. "Bank adaptation to neighborhood change: Mortgage lending and the Community Reinvestment Act," Journal of Urban Economics, Elsevier, vol. 116(C).
    35. Timothy Bates & Alicia Robb, 2016. "Impacts of Owner Race and Geographic Context on Access to Small-Business Financing," Economic Development Quarterly, , vol. 30(2), pages 159-170, May.
    36. Sterling A. Bone & Glenn L. Christensen & Jerome D. Williams, 2014. "Rejected, Shackled, and Alone: The Impact of Systemic Restricted Choice on Minority Consumers' Construction of Self," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 41(2), pages 451-474.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kim, Mee Jung & Lee, Kyung Min & Earle, John S., 2021. "Does the Community Reinvestment Act increase lending to small businesses in lower income neighborhoods?," Economics Letters, Elsevier, vol. 209(C).
    2. J. David Brown & John S. Earle & Mee Jung Kim & Kyung Min Lee & Jared Wold, 2022. "Black-Owned Firms, Financial Constraints, and the Firm Size Gap," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 282-286, May.
    3. Kim, Mee Jung & Lee, Kyung Min & Earle, John S., 2021. "Does the Community Reinvestment Act Increase Small Business Lending in Lower Income Neighborhoods?," IZA Discussion Papers 14681, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tan, Eugene & Zeida, Teegawende H., 2024. "Consumer demand and credit supply as barriers to growth for Black-owned startups," Journal of Monetary Economics, Elsevier, vol. 143(C).
    2. Bento, Pedro & Hwang, Sunju, 2023. "Barriers to black entrepreneurship: Implications for welfare and aggregate output over time," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 16-34.
    3. Kim, Mee Jung, 2023. "Impact of the Community Reinvestment Act on small business employment in lower income neighborhoods," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    4. Aaron K. Chatterji & Kenneth Y. Chay & Robert W. Fairlie, 2014. "The Impact of City Contracting Set-Asides on Black Self-Employment and Employment," Journal of Labor Economics, University of Chicago Press, vol. 32(3), pages 507-561.
    5. Nadia Simoes & Nuno Crespo & Sandrina B. Moreira, 2016. "Individual Determinants Of Self-Employment Entry: What Do We Really Know?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 783-806, September.
    6. Uwaifo Oyelere, Ruth & Belton, Willie, 2009. "Coming to America: Does Immigrant's Home Country Economic Status Impact the Probability of Self-Employment in the U.S.?," IZA Discussion Papers 4178, Institute of Labor Economics (IZA).
    7. Beck, Thorsten & Behr, Patrick & Madestam, Andreas, 2018. "Sex and credit: Do gender interactions matter for credit market outcomes?," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 380-396.
    8. Lina Aldén & Mats Hammarstedt, 2016. "Discrimination in the Credit Market? Access to Financial Capital among Self-employed Immigrants," Kyklos, Wiley Blackwell, vol. 69(1), pages 3-31, February.
    9. Aldén, Lina & Hammarstedt, Mats & Miao, Chizheng, 2020. "Financial Capital and Immigrant Self-Employment: Evidence from a Swedish Reform," Working Paper Series 1359, Research Institute of Industrial Economics.
    10. Amina Ika Micah, 2022. "Three essays on access to credit and financial shock in Nigeria," Economics PhD Theses 0422, Department of Economics, University of Sussex Business School.
    11. Colleen Casey & Timothy Bates & Joseph Farhat, 2023. "Linkages between regional characteristics and small businesses viability," Small Business Economics, Springer, vol. 61(2), pages 617-629, August.
    12. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x, April.
    13. Ruth Oyelere & Willie Belton, 2013. "Black–White gap in self-employment. Does intra-race heterogeneity exist?," Small Business Economics, Springer, vol. 41(1), pages 25-39, June.
    14. Uwaifo Oyelere, Ruth & Belton, Willie, 2008. "The Role of Information and Institutions in Understanding the Black-White Gap in Self-Employment," IZA Discussion Papers 3761, Institute of Labor Economics (IZA).
    15. Marco Caliendo & Frank M. Fossen & Alexander Kritikos & Miriam Wetter, 2015. "The Gender Gap in Entrepreneurship: Not just a Matter of Personality," CESifo Economic Studies, CESifo Group, vol. 61(1), pages 202-238.
    16. Beck, T.H.L. & Behr, P. & Madestam, A., 2011. "Sex and Credit : Is There a Gender Bias in Microfinance?," Other publications TiSEM 65849ab0-04f2-4dc9-9824-3, Tilburg University, School of Economics and Management.
    17. P. Köllinger & M. Minniti, 2006. "Not for Lack of Trying: American Entrepreneurship in Black and White," Small Business Economics, Springer, vol. 27(1), pages 59-79, August.
    18. Kim, Mee Jung & Lee, Kyung Min & Earle, John S., 2021. "Does the Community Reinvestment Act Increase Small Business Lending in Lower Income Neighborhoods?," IZA Discussion Papers 14681, Institute of Labor Economics (IZA).
    19. Aldén, Lina & Bastani, Spencer & Hammarstedt, Mats & Miao, Chizheng, 2020. "Ethnic Differences in Long-Term Self-Employment," Working Paper Series 1361, Research Institute of Industrial Economics.
    20. Iryna Demko & Ana Claudia Sant’Anna, 2023. "Impact of Race, Ethnicity, and Gender on the SBA Paycheck Protection Program (PPP) Loan Amounts," Economic Development Quarterly, , vol. 37(3), pages 211-229, August.

    More about this item

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cen:wpaper:21-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dawn Anderson (email available below). General contact details of provider: https://edirc.repec.org/data/cesgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.