Minority owned businesses are an increasing important component of the U.S. economy, growing at twice the rate of all U.S. businesses between 2002 and 2007. However, a growing literature indicates that minority-owned businesses may have been especially impacted by the Great Recession. As house prices declined, foreclosures fell disproportionately on urban minority neighborhoods and one of the sources of credit for business owners was severely constrained. Using 2002-2011 data from the Longitudinal Business Database linked to the 2002 Survey of Business Owners, this paper adds to the literature by examining the employment growth and survival of minority and women employer businesses during the last decade, including the Great Recession. At first glance, our preliminary findings suggest that black and women-owned businesses underperform white, male-owned businesses, that Asian-owned businesses outperform other groups, and that Hispanic-owned businesses outperform non-Hispanic ones in regards to employment growth. However, when we look only at continuing firms, black-owned businesses outperform white-owned businesses in terms of employment growth. At the same time, we also find that the recession appears to have impacted black-owned and Hispanic-owned businesses more severely than their counterparts, in terms of employment growth as well as survival. This is also the case for continuing black and Hispanic-owned firms.
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Small Business Growth and Failure during the Great Recession: The Role of House Prices, Race & Gender
November 2016
Working Paper Number:
carra-2016-08
Using 2002-2011 data from the Longitudinal Business Database linked to the 2002 and 2007 Survey of Business Owners, this paper explores whether (through a collateral channel) the rise in home prices over the early 2000's and their subsequent fall associated with the Great Recession had differential impacts on business performance across owner race, ethnicity and gender. We find that the employment growth rate of minority-owned firms, particularly black and Hispanic-owned firms, is more sensitive to changes in house prices than is that of their nonminority-owned counterparts.
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Past Experience and Future Success: New Evidence on Owner Characteristics and Firm Performance
September 2010
Working Paper Number:
CES-10-24
Because the ability of entrepreneurs to start their own businesses is key to the success of the U.S. economy and to the economic mobility of many disadvantaged demographic groups, understanding why entrepreneurship activity varies across groups and geography is an increasingly important issue. As a step in this direction we employ a novel set of metrics of business success to the growing literature and find great variation across groups and metrics. For example, we find that black-owned firms grow slower than white or Asian-owned firms. However, once we condition on firm survival, the differences disappear. Interestingly, we also find differences across groups in their start-up histories. For example, Asian-owned firms are less likely than white-owned firms to have started-out as nonemployers but firms owned by all other minority groups, as well as women-owned firms, are more likely to start-out without employees.
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Access to Financial Capital Among U.S. Businesses: The Case of African-American Firms
December 2006
Working Paper Number:
CES-06-33
The differences between African-American business ownership rates and white business ownership rates are striking. Estimates from the 2000 Census indicate that 11.8 percent of white workers are self-employed business owners, compared with only 4.8 percent of black workers. Furthermore, black-white differences in business ownership rates have remained roughly constant over most of the twentieth century (Fairlie and Meyer 2000). In addition to lower rates of business ownership, black-owned businesses are less successful on average than are white or Asian firms. In particular, black-owned businesses have lower sales, hire fewer employees and have smaller payrolls than white- or Asian-owned businesses, on average (U.S. Census Bureau 2001, U.S. Small Business Administration 2001). Black firms also have lower profits and higher closure rates than white firms (U.S. Census Bureau 1997, U.S. Small Business Administration 1999). For most outcomes, the disparities are extremely large. For example, estimates from the 2002 Survey of Business Owners (SBO) indicate that white firms have average sales of $437,870 compared with only $74,018 for black firms.
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Gender Differences in Business Performance: Evidence from the Characteristics of Business Owners Survey
December 2008
Working Paper Number:
CES-08-39
Using confidential microdata from the U.S. Census Bureau, we investigate the performance of female-owned businesses making comparisons to male-owned businesses. Using regression estimates and a decomposition technique, we explore the role that human capital, especially through prior work experience, and financial capital play in contributing to why female-owned businesses have lower survival rates, profits, employment and sales. We find that female-owned businesses are less successful than male-owned businesses because they have less startup capital, and business human capital acquired through prior work experience in a similar business and prior work experience in family business. We also find some evidence that femaleowned businesses work fewer hours and may have different preferences for the goals of their business.
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Determinants of Business Success: An Examination of Asian-Owned Businesses in the United States
December 2006
Working Paper Number:
CES-06-32
Using confidential and restricted-access microdata from the U.S. Census Bureau, we find that Asian-owned businesses are 16.9 percent less likely to close, 20.6 percent more likely to have profits of at least $10,000, and 27.2 percent more likely to hire employees than whiteowned businesses in the United States. Asian firms also have mean annual sales that are roughly 60 percent higher than the mean sales of white firms. Using regression estimates and a special non-linear decomposition technique, we explore the role that class resources, such as financial capital and human capital, play in contributing to the relative success of Asian businesses. We find that Asian-owned businesses are more successful than white-owned businesses for two main reasons . Asian owners have high levels of human capital and their businesses have substantial startup capital. Startup capital and education alone explain from 65 percent to the entire gap in business outcomes between Asians and whites. Using the detailed information on both the owner and the firm available in the CBO, we estimate the explanatory power of several additional factors.
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Financing, Ownership, and Performance: A Novel, Longitudinal Firm-Level Database
December 2024
Working Paper Number:
CES-24-73
The Census Bureau's Longitudinal Business Database (LBD) underpins many studies of firm-level behavior. It tracks longitudinally all employers in the nonfarm private sector but lacks information about business financing and owner characteristics. We address this shortcoming by linking LBD observations to firm-level data drawn from several large Census Bureau surveys. The resulting Longitudinal Employer, Owner, and Financing (LEOF) database contains more than 3 million observations at the firm-year level with information about start-up financing, current financing, owner demographics, ownership structure, profitability, and owner aspirations ' all linked to annual firm-level employment data since the firm hired its first employee. Using the LEOF database, we document trends in owner demographics and financing patterns and investigate how these business characteristics relate to firm-level employment outcomes.
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THE DYNAMICS OF LATINO-OWNED BUSINESS WITH COMPARISIONS TO OTHER ETHNICITIES
January 2016
Working Paper Number:
CES-16-33
This paper employs the Michigan Census Research Data Center to merge three limited-access Census Bureau data sets by individual firm and establishment level to investigate the factors associated with the Latino-owned Business (LOB) location and dynamics over time. The three main LOB outcomes under analysis are as follows: (1) the probability of a business being Latino-owned as opposed to a business being Asian-owned, Black-owned, or White-owned; (2) the probability of new business entry and exit; and (3) LOB employment growth. This paper then compares these factors associated with LOB with past findings on businesses that are Asian-owned, Black-owned, and White-owned. Some notable findings include: (1) only Black business owners are less associated with using personal savings as start-up capital than Latinos; (2) the only significant coefficient on start-up capital source is personal savings and it increases the odds of survival of a Latino business by 4%; (3) on average, having Puerto Rican ancestry decreases the odds of business survival; and (4) LOB are relatively likely to start a business with a small amount of capital, which, in turn, limits their future growth.
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An Analysis of Small Business Size and Rate of Discontinuance
January 1990
Working Paper Number:
CES-90-02
This study investigates small business failure rates in relation to several measures of firm size. Utilizing the new Characteristics of Business Owners ( CBO ) data base, a nationwide sample of firms is utilized that is representative of the small business universe. One subset--small business employers--is shown to have relatively low rates of failure, while another group--very small firms with no employees--exhibits relatively high rates of business discontinuance. The finding that the probability of firm failure is strongly (inversely) related to firm size is shown to hold up as well when the age of the business is controlled for.
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Analysis of Young Neighborhood Firms Serving Urban Minority Clients
May 2008
Working Paper Number:
CES-08-11
This study empirically investigates Michael Porter's hypothesis that urban minority neighborhoods offer attractive opportunities to household-oriented businesses, such as retail firms (1995). Our analysis compares the traits and performance of firms serving predominantly minority clients to those selling their products largely to clients who are nonminority whites. Controlling statistically for applicable firm and owner characteristics, our findings indicate that the minority neighborhood niche does not offer young firms an attractive set of opportunities. Relative to opportunities in the corresponding nonminority household niche and the broader regional marketplace, the neighborhood minority household market is associated with reduced business viability.
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Commercial Bank Lending Practices And The Development Of Black-Owned Construction Companies
December 1991
Working Paper Number:
CES-91-09
Although the construction industry has been a tremendous growth industry for black entrepreneurs in recent years, black-owned construction firms, on average, are less than half the size of those owned by nonminorities. Previous findings suggest that limited access to financial capital, particularly bank loans, has restricted the size of black-owned businesses. Examination of nationwide random samples of construction companies reveals that black firms are treated differently than nonminorities when they borrow from commercial banks: they get smaller loans than nonminorities who have otherwise identical traits. Undercapitalization, in turn, is shown to increase the likelihood of firm discontinuance. Alleviation of undercapitalization problems would help promote the development of black-owned businesses in the construction industry.
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