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Commercial Bank Lending Practices And The Development Of Black-Owned Construction Companies

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  • Timothy Bates
  • Caren Grown

Abstract

Although the construction industry has been a tremendous growth industry for black entrepreneurs in recent years, black-owned construction firms, on average, are less than half the size of those owned by nonminorities. Previous findings suggest that limited access to financial capital, particularly bank loans, has restricted the size of black-owned businesses. Examination of nationwide random samples of construction companies reveals that black firms are treated differently than nonminorities when they borrow from commercial banks: they get smaller loans than nonminorities who have otherwise identical traits. Undercapitalization, in turn, is shown to increase the likelihood of firm discontinuance. Alleviation of undercapitalization problems would help promote the development of black-owned businesses in the construction industry.

Suggested Citation

  • Timothy Bates & Caren Grown, 1991. "Commercial Bank Lending Practices And The Development Of Black-Owned Construction Companies," Working Papers 91-9, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:91-9
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    File URL: https://www2.census.gov/ces/wp/1991/CES-WP-91-09.pdf
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    References listed on IDEAS

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    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. Timothy Bates & Robert McGuckin, 1990. "The Characteristics of Business Owners Data Base," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 736-751.
    3. Bates, Timothy, 2011. "Minority Entrepreneurship," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 7(3–4), pages 151-311, October.
    4. Alfred R Nucci & Timothy Bates, 1990. "An Analysis of Small Business Size and Rate of Discontinuance," Working Papers 90-2, Center for Economic Studies, U.S. Census Bureau.
    5. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-559, November.
    6. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 265-294, April.
    7. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    9. Faith Ando, 1988. "Capital issues and the minority-owned business," The Review of Black Political Economy, Springer;National Economic Association, vol. 16(4), pages 77-109, March.
    10. Timothy Bates, 1985. "Impact of preferential procurement policies on minority-owned businesses," The Review of Black Political Economy, Springer;National Economic Association, vol. 14(1), pages 51-65, June.
    11. 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.
    12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    Citations

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    Cited by:

    1. David Neumark & Harry Holzer, 2000. "Assessing Affirmative Action," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 483-568, September.
    2. Price, Gregory N., 1995. "The determinants of entry for black-owned commercial banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(3), pages 289-303.
    3. Brian Headd, 1999. "The Characteristics of Business Owners Database, 1992," Working Papers 99-8, Center for Economic Studies, U.S. Census Bureau.
    4. Thomas Åstbro & Irwin Bernhardt, 2005. "The Winner’s Curse of Human Capital," Small Business Economics, Springer, vol. 24(1), pages 63-78, February.
    5. Bates, Timothy, 1995. "Self-employment entry across industry groups," Journal of Business Venturing, Elsevier, vol. 10(2), pages 143-156, March.
    6. Boyd, Robert L., 2008. "Trends in the occupations of eminent black entrepreneurs in the United States," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2390-2398, December.
    7. Alfred R Nucci, 1992. "The Characteristics of Business Owners Database," Working Papers 92-7, Center for Economic Studies, U.S. Census Bureau.
    8. Timothy Bates & Darrell Williams, 1995. "Preferential Procurement Programs Do Not Necessarily Help Minority-Owned Business," Working Papers 95-1, Center for Economic Studies, U.S. Census Bureau.
    9. Dahlin, Kristina & Taylor, Margaret & Fichman, Mark, 2004. "Today's Edisons or weekend hobbyists: technical merit and success of inventions by independent inventors," Research Policy, Elsevier, vol. 33(8), pages 1167-1183, October.
    10. Thomas Astebro & Irwin Bernhardt, 1999. "The Winner's Curse of Human Capital," Working Papers 99-5, Center for Economic Studies, U.S. Census Bureau.

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