Do Credit Market Barriers Exist for Minority and Women Entrepreneurs?

Lloyd Blanchard, Bo Zhao and John Yinger

No 74, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper examines whether methodological deficiencies in the literature on discrimination in small business credit markets have a significant impact on the estimation of discrimination and provides a preliminary investigation into the causes of discrimination in these markets. We find substantial, statistically significant evidence of discrimination in loan approval against black-owned and Hispanic-owned businesses in 1998 with additional control variables, with a variety of different specifications, and with a simultaneous model of the application and loan-denial decisions. We also find that discrimination in small business lending may take the form of statistical discrimination, driven by lenders' stereotypes about the ability of black- and Hispanic-owned businesses to succeed under some circumstances. In addition, we find that neither adding additional control variables nor accounting for possible endogeneity alters the conclusion that there is no discrimination in interest rates on approved loans. We also find, however, that black-owned businesses do face discrimination in interest rates when they deal with some types of lenders, particularly finance companies. Because finance companies specialize in higher-risk borrowers, this finding might indicate that they are willing to consider group-membership as a risk predictor despite the illegality of this practice. These findings suggest that federal financial regulatory agencies should re-double their efforts to uncover and prosecute lenders who discriminate against black- and Hispanic-owned businesses.

Keywords: credit; discrimination; entrepreneur; minority-owned business; small business (search for similar items in EconPapers)
JEL-codes: G21 J15 M13 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2005-12
New Economics Papers: this item is included in nep-ent, nep-fin, nep-fmk and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://surface.syr.edu/cpr/90/ (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:74

Access Statistics for this paper

More papers in Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University 426 Eggers Hall, Syracuse, New York USA 13244-1020. Contact information at EDIRC.
Bibliographic data for series maintained by Katrina Fiacchi ().