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Competition, small business financing, and discrimination: evidence from a new survey

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Author Info
Ken Cavalluzzo
Linda Cavalluzzo
John Wolken

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Abstract

Using data from the 1993 National Survey of Small Business Finances, we examine some of the factors influencing differences in small business credit market experiences across demographic groups. We analyze credit applications, loan denials, and interest rates paid across gender, race and ethnicity of small business owners. In addition, we analyze data gathered from small business owners who said they did not apply for credit because they believed that their application would have been turned down. This set of analyses, in combination with important new information on the personal credit history of the principal owner, the business credit history of the firm, a rich set of additional explanatory variables, and information on local bank market structure, helps us to understand better the sources of observed differentials in the credit market experiences of small business operators across demographic groups. Credit market experiences often differ markedly among demographic groups. However, so do the characteristics of firms and owners. Results of our multivariate analyses show that many of the factors we consider help to explain the observed differences in credit market experiences However, even after controlling for a large number of firm and owner characteristics, substantial differences often remained. There was also evidence that some of the differentials were associated with the degree of lender market concentration in the firm's local area.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-25.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-25

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Keywords: Small business Discrimination in consumer credit

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  21. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March. [Downloadable!] (restricted)
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  24. 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. [Downloadable!] (restricted)
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  25. Black, Harold & Schweitzer, Robert L & Mandell, Lewis, 1978. "Discrimination in Mortgage Lending," American Economic Review, American Economic Association, vol. 68(2), pages 186-91, May. [Downloadable!] (restricted)
  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 771-92, November.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wei Fan & Michelle J. White, 2001. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Center for Financial Institutions Working Papers 01-11, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  2. David G. Blanchflower & Chris Shadforth, 2007. "Entrepreneurship in the UK," IZA Discussion Papers 2818, Institute for the Study of Labor (IZA). [Downloadable!]
  3. David G. Blanchflower & Jon Wainwright, 2005. "An Analysis of the Impact of Affirmative Action Programs on Self-Employment in the Construction Industry," IZA Discussion Papers 1856, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Fairlie, Robert W. & Robb, Alicia M., 2004. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," IZA Discussion Papers 1292, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Wei Fan & Michelle J. White, 2002. "Personal Bankruptcy and the Level of Entrepreneurial Activity," NBER Working Papers 9340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Alexander Muravyev & Dorothea Schäfer & Oleksandr Talavera, 2007. "Entrepreneurs' Gender and Financial Constraints : Evidence from International Data," Discussion Papers of DIW Berlin 706, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  7. William E.Jackson, III & Ben R. Craig & James B. Thompson, 2006. "Does Small Business Administration guaranteed lending improve economic performance in low–income areas?," Proceedings – Community Affairs Dept. Conferences, Federal Reserve Bank of Kansas City, issue Jul, pages 55-85. [Downloadable!]
  8. Magnus Lofstrom & Chunbei Wang, 2006. "Mexican-Hispanic Self-Employment Entry: The Role of Business Start-Up Constraints," IZA Discussion Papers 2422, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Wendy Edelberg, 2007. "Racial dispersion in consumer credit interest rates," Finance and Economics Discussion Series 2007-28, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Lloyd Blanchard & Bo Zhao & John Yinger, 2005. "Do Credit Market Barriers Exist for Minority and Women Entrepreneurs?," Center for Policy Research Working Papers 74, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
  11. Robert Fairlie & Alicia Robb, 2005. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," Working Papers 05-06, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  12. Ken Cavalluzzo & John Wolken, 2002. "Small business loan turndowns, personal wealth and discrimination," Finance and Economics Discussion Series 2002-35, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  13. Jeremy Berkowitz & Michelle J. White, 2002. "Bankruptcy and Small Firms' Access to Credit," NBER Working Papers 9010, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Philipp Köllinger & Maria Minniti, 2006. "Not for Lack of Trying : American Entrepreneurship in Black and White," Discussion Papers of DIW Berlin 574, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
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