Why are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital

48 Pages Posted: 8 Sep 2004

See all articles by Alicia Robb

Alicia Robb

University of Colorado at Boulder; Next Wave Impact; Federal Reserve Banks - Federal Reserve Bank of Atlanta

Robert W. Fairlie

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2004

Abstract

Four decades ago, Nathan Glazer and Daniel Patrick Moynihan made the argument that the black family was not strong enough to create those extended clans that elsewhere were most helpful for businessmen and professionals. Using data from the confidential and restricted access Characteristics of Business Owners Survey, we investigate this hypothesis by examining whether racial differences in family business backgrounds can explain why black-owned businesses lag substantially behind white-owned businesses in sales, profits, employment size and survival probabilities? Estimates from the CBO indicate that black business owners have a relatively disadvantaged family business background compared with white business owners. Black business owners are much less likely than white business owners to have had a self-employed family member owner prior to starting their business and are less likely to have worked in that family member's business. We do not, however, find sizeable racial differences in inheritances of business. Using a nonlinear decomposition technique, we find that the relatively low probability of having a self-employed family member prior to business startup among blacks does not generally contribute to racial differences in small business outcomes. Instead, the lack of prior work experience in a family business among black business owners, perhaps by limiting their acquisition of general and specific business human capital, negatively affects black business outcomes. We also find that limited opportunities for acquiring specific business human capital through work experience in businesses providing similar goods and services contribute to worse business outcomes among blacks. We compare these estimates to contributions from racial differences in owner's education, startup capital, geographical location and other factors.

Keywords: business outcomes, race, family, self-employment

JEL Classification: J15, J23

Suggested Citation

Robb, Alicia and Fairlie, Robert W., Why are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital (September 2004). IZA Discussion Paper No. 1292. Available at SSRN: https://ssrn.com/abstract=588142

Alicia Robb

University of Colorado at Boulder ( email )

Leeds Business School
Boulder, CO 80309
United States

Next Wave Impact ( email )

7455 Park Lane Road
Longmount, CO 80503
United States

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Robert W. Fairlie (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Department of Economics
Engineering 2 Bldg.
Santa Cruz, CA 95064
United States
831-459-3332 (Phone)

HOME PAGE: http://econ.ucsc.edu/~fairlie/

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