Decomposing Racial and Ethnic Differences in Small Business Lending: Evidence of Discrimination
Review of Social Economy, 71(4), 443-473, 2013.
33 Pages Posted: 20 Jan 2014 Last revised: 27 Dec 2014
Date Written: January 14, 2013
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.
Keywords: minorities, small business finances, credit rationing, entrepreneurship, decomposition, discrimination
JEL Classification: J15, G21, L26
Suggested Citation: Suggested Citation