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

See all articles by Naranchimeg Mijid

Naranchimeg Mijid

Connecticut Center for Innovative Entrepreneurs

Alexandra Bernasek

Colorado State University - Department of Economics

Date Written: January 14, 2013

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.

Keywords: minorities, small business finances, credit rationing, entrepreneurship, decomposition, discrimination

JEL Classification: J15, G21, L26

Suggested Citation

Mijid, Naranchimeg and Bernasek, Alexandra, Decomposing Racial and Ethnic Differences in Small Business Lending: Evidence of Discrimination (January 14, 2013). Review of Social Economy, 71(4), 443-473, 2013., Available at SSRN: https://ssrn.com/abstract=2381281

Naranchimeg Mijid (Contact Author)

Connecticut Center for Innovative Entrepreneurs ( email )

185 Main St. Suite 403
New Britain, CT 06051
United States
860-328-2954 (Phone)

Alexandra Bernasek

Colorado State University - Department of Economics ( email )

Fort Collins, CO 80523
United States
970-217-1480 (Phone)

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