Black-Owned Firms, Financial Constraints, and the Firm Size Gap
AEA Papers and Proceedings
vol. 112,
May 2022
(pp. 282-86)
Abstract
We document the smaller average employment size and lower financial access of Black-owned businesses compared to White-owned businesses. Controlling for other characteristics, we find that observed differences in finance account for 60 percent of the 11.3 percent racial gap in number of employees; differences in returns account for 103 percent. The results imply that if both the levels and returns on finance were equalized across races, then Black-owned firms would be 18.4 percent larger than their actual size. Equalizing financial factors alone would reverse the firm size gap so that Black-owned firms would be larger than White-owned firms by 7.1 percent.Citation
Brown, J. David, John S. Earle, Mee Jung Kim, Kyung Min Lee, and Jared Wold. 2022. "Black-Owned Firms, Financial Constraints, and the Firm Size Gap." AEA Papers and Proceedings, 112: 282-86. DOI: 10.1257/pandp.20221027Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- J15 Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
- L25 Firm Performance: Size, Diversification, and Scope