A TALE OF THREE PEOPLES: Hispanic-, Black- and White-Owned Business Startup Capital, Exports and E-commerce

Abstract

This paper uses data from the Public Use Microdata Sample (PUMS) file created for the 2007 Survey of Business Owners and Self-Employed Persons (SBO) – the first of its kind. First, I present evidence for depressed startup capital accumulation for majority Hispanic- and majority Black-owned businesses in comparison to their majority White-owned counterparts. Second, I demonstrate that the probability of a government loan, credit card financing and/or a home equity line of credit constituting a fraction of startup capital for a business with a majority Hispanic or majority Black ownership is greater than for a majority White-owned business. The probability of a bank loan or a loan from family and friends making up part of startup capital decreases with majority Hispanic or Black business ownership. There is also limited evidence that suggests a negative relationship between a company with an ownership comprised of at least 50 percent minority group individuals and receiving money from a venture capitalist as a source of startup capital. In addition, a Black-owned business is more likely to use personal savings as part of its startup capital package. A series of specification checks indicates that it is improbable that this gap is attributed to omitted variable bias and may be in part explained by discrimination. In addition, even these findings are likely to understate differences in generating startup capital because many potential Hispanic- and Black-owned businesses are not in operation due to a lack of credit or simply because they are afraid to apply. Finally, I find that majority Hispanic-owned firms have higher levels of exports and e-commerce sales than their majority White-owned counterparts. Conversely, businesses with majority Black ownership have reduced levels of exports and e-commerce sales as a percentage of their total sales in comparison to their White-owned counterparts.