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Abstract

In spite of an overall increase in minority self-employment, the difference between the percent of self-employed black and white Americans is still striking (11.6% vs 3.8% respectively). We use the data from the Kaufman Foundation survey to examine whether the use of commercial financing has a different impact on the survival of black owned firms compared to that of other groups. Since the survival of a startup is largely determined by the owners’ human capital, we use propensity score matching method to address the endogeneity problem, and panel data and survival models to account for the fact that survival rates change significantly with the age of the business. Our results suggest that the use of commercial financing reduces the exit rates of new firms regardless of the race of their owners but that the reduction is smaller for black owned businesses. We attribute this differential to unobserved heterogeneity probably linked to owners’ startup capital.

Academic Division

Economics

Disciplines

Economics | Survival Analysis

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