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Decomposing Racial and Ethnic Differences in Small Business Lending: Evidence of Discrimination

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  • Naranchimeg Mijid
  • Alexandra Bernasek

Abstract

In this paper, we use the Blinder-Oaxaca method for nonlinear models to decompose observed differences in credit rationing of small businesses between white- and minority-owned firms in the USA. We utilize a representative dataset of small businesses from the Survey of Small Business Finances between 1987 and 2003. Our results show that minority owners, on average, have about a 24 percentage points higher loan denial rate than white-owned firms and about three quarters of the difference is attributed to discrimination in bank lending. Although the difference in the probability of getting a smaller loan than requested is only 5 percentage points, this difference is almost entirely attributed to discrimination.

Suggested Citation

  • Naranchimeg Mijid & Alexandra Bernasek, 2013. "Decomposing Racial and Ethnic Differences in Small Business Lending: Evidence of Discrimination," Review of Social Economy, Taylor & Francis Journals, vol. 71(4), pages 443-473, December.
    • Handle: RePEc:taf:rsocec:v:71:y:2013:i:4:p:443-473
    DOI: 10.1080/00346764.2012.761751
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    Cited by:

    1. Vassilis Monastiriotis & Angelo Martelli, 2021. "Crisis, Adjustment and Resilience in the Greek Labor Market: An Unemployment Decomposition Approach," International Regional Science Review, , vol. 44(1), pages 85-112, January.
    2. Darden, Bryan B. & Kellermanns, Franz W. & Best, Emma L., 2022. "Entrepreneurial fear of failure: Transgender versus cis-gender entrepreneurs," Journal of Business Venturing Insights, Elsevier, vol. 18(C).
    3. Giulio Cornelli & Jon Frost & Leonardo Gambacorta & Julapa Jagtiani, 2022. "The Impact of Fintech Lending on Credit Access for U.S. Small Businesses," Working Papers 22-14, Federal Reserve Bank of Philadelphia.
    4. Loren Henderson & Cedric Herring & Hayward Horton & Melvin Thomas, 2015. "Credit Where Credit is Due?: Race, Gender, and Discrimination in the Credit Scores of Business Startups," The Review of Black Political Economy, Springer;National Economic Association, vol. 42(4), pages 459-479, December.
    5. Rachel Atkins & Lisa Cook & Robert Seamans, 2022. "Discrimination in lending? Evidence from the Paycheck Protection Program," Small Business Economics, Springer, vol. 58(2), pages 843-865, February.
    6. Michael Carr & Aurelie Charles & Wilfred Dolfsma & Robert McMaster & Tonia Warnecke, 2015. "Effective Contributions to the Review of Social Economy and Social Economics—Editorial," Review of Social Economy, Taylor & Francis Journals, vol. 73(2), pages 139-145, June.
    7. Naranchimeg Mijid & Caroline Elliott, 2015. "Gender differences in Type 1 credit rationing of small businesses in the US," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1021553-102, December.
    8. Alicia Robb & David T. Robinson, 2018. "Testing for racial bias in business credit scores," Small Business Economics, Springer, vol. 50(3), pages 429-443, March.

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