External Financing and the Survival of Black-Owned Start-Ups in the US

Yunwei Gai and Maria Minniti
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Yunwei Gai: Babson College, Babson Park, MA 02457, USA
Maria Minniti: Syracuse University, 900 South Crouse Ave, Syracuse, NY 13244

Eastern Economic Journal, 2015, vol. 41, issue 3, 387-410

Abstract: Since black-owned businesses tend to have access to lower informal financing, we hypothesize that, obtaining commercial financing should play a compensating role and have a stronger marginal effect on black-owned businesses than on businesses owned by other racial groups. Unexpectedly, we find that, while the use of commercial financing reduces the exit rates of new firms in general, the reduction is not significantly different across racial groups. We attribute this result to unobserved heterogeneity linked, at least in part, to the owner’s start-up capital and to other beneficial externalities that access to informal investors produces.

Date: 2015
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