Differential Access to Capital from Financial Institutions by Minority Entrepreneurs

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Abstract

This article examines whether minority small business borrowers have the same access to loans from financial institutions as similar white borrowers. Using matching methods, I find that African-American borrowers are rejected at an approximately 30 percent higher probability than similar white borrowers. I also find that the impact of unobservable variables has to be greater than 85 percent the impact of observable variables to show no discrimination. This bound seems to be a high number given that I have controlled for a large number of borrower, firm, and lender characteristics. No such differential effect is found for Asian and other minority borrowers. I also find equal expected default losses between African-American and white borrowers. These results are consistent with the information-based, laissez faire, and group hoarding theories of discrimination, and against the taste-based theory of discrimination.

Original languageEnglish (US)
Pages (from-to)756-785
Number of pages30
JournalJournal of Empirical Legal Studies
Volume13
Issue number4
DOIs
StatePublished - Dec 1 2016

All Science Journal Classification (ASJC) codes

  • Education
  • Law

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