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Small Business Loan Turndowns, Personal Wealth, and Discrimination

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  • Ken Cavalluzzo

    (Wisconsin Capital Management)

  • John Wolken

    (Board of Governors of the Federal Reserve System)

Abstract

We examine the impact of personal wealth on small business loan turndowns across demographic groups. Information on home ownership, home equity, and personal net worth, in combination with a rich set of explanatory variables, furthers our understanding of the credit market experiences of small businesses across demographic groups. We find substantial unexplained differences in denial rates between African-American-, Hispanic-, Asian-, and white-owned firms. We find that greater personal wealth is associated with a lower probability of loan denial. However, even after controlling for personal wealth, large differences in denial rates across demographic groups remain.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 6 (November)
Pages: 2153-2178

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:6:p:2153-2178

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Web page: http://www.journals.uchicago.edu/JB/

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  1. Ken Cavalluzzo & Linda Cavalluzzo & John Wolken, 1999. "Competition, small business financing, and discrimination: evidence from a new survey," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-25, Board of Governors of the Federal Reserve System (U.S.).
  2. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 1-25, January.
  3. Avery, Robert B. & Bostic, Raphael W. & Samolyk, Katherine A., 1998. "The role of personal wealth in small business finance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(6-8), pages 1019-1061, August.
  4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  5. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc.
  6. Fairlie, Robert, 2014. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt49c4n0fg, Department of Economics, UC Santa Cruz.
  7. Robert B. Avery, 1999. "Access to credit for minority-owned businesses," Proceedings, Federal Reserve Bank of Chicago 759, Federal Reserve Bank of Chicago.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  9. Timothy Bates, 1999. "Available evidence indicates that black-owned firms are often denied equal access to credit," Proceedings, Federal Reserve Bank of Chicago 758, Federal Reserve Bank of Chicago.
  10. Ken S. Cavalluzzo, 2002. "Competition, Small Business Financing, and Discrimination: Evidence from a New Survey," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 75(4), pages 641-680, October.
  11. Cavalluzzo, Ken S & Cavalluzzo, Linda C, 1998. "Market Structure and Discrimination: The Case of Small Businesses," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(4), pages 771-92, November.
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