Keywords: Discrimination, small business financing, personal wealth
Abstract: Using newly available data from the Federal Reserve, we examine the impact
of personal wealth on small business loan turndowns across demographic groups.
Information on home ownership, home equity, and personal net worth excluding
the business owner's home, in combination with data on the personal credit
history of the principal owner, the business credit history of the firm,
a rich set of additional explanatory variables, and information on the
competitiveness of local banking markets, contributes to our understanding of
the credit market experiences of small businesses across demographic groups.
We find substantial unexplained differences in denial rates between
African American-, Hispanic-, Asian-, and white-owned firms. We also
find that greater personal wealth is associated with a lower probability of
loan denial. However, even after controlling for personal wealth, large
differences in denial rates across demographic groups remain. Further,
consistent with Becker's classic theories (1957), we find some evidence that
African American-denial rates increase with lender market concentration.
Full paper (83 KB PDF)
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Last update: September 4, 2002