Some minority business enterprises (MBEs) benefit from their participation in government preferential procurement programs and some do not. A subset of minority vendors identified in this study behaves in ways suggesting sensitivity to penalties for violating minority business certification and procurement program regulations. These firms flourish in the absence of fraud penalties. A different group of minority vendors selling to government benefits from an environment in which MBE certification is comprehensive, bonding and working capital assistance are available, and assistance is delivered by a staff dedicated to aiding potential and actual MBE vendors. The preferential procurement program can serve as either a valuable economic development tool for fostering minority business development, or it can promote MBE front companies that pass on their procurement contracts to nonminority firms. Some governments choose to operate the former type of program; others opt for the latter.
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Small Businesses Do Appear To Benefit From State/Local Government Economic Development Assistance
February 1995
Working Paper Number:
CES-95-02
This study analyzes traits of small businesses that received state/local government aid in such forms as managerial, technical assistance, help in obtaining loans or bonding, and procurement assistance. Over 13 percent of small firms nationwide were found to be involved in selling goods/services to state/local government. Among firms owned by nonminorities, aid recipients tend to be the larger small businesses, but this pattern did not typify minority-owned firms. Among the nonminority businesses, furthermore, those aided by state/local government are more likely than nonassisted firms to remain in operation, even when various form and owner characteristics are controlled for statistically; this pattern did not typify minority-owned firms. State/local government aid flows disproportionately to women- owned businesses and to firm owners who lack managerial experience. No evidence was found indicating targeting of assistance to specific industry groups.
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MICROENTERPRISE AS AN EXIT ROUTE FROM POVERTY:* RECOMMENDATIONS FOR PROGRAMS AND POLICY MAKERS
November 1998
Working Paper Number:
CES-98-17
The objective of this study is to shed light on whether and how microenterprise programs can be used as an economic development strategy to enable low-income people to achieve self-sufficiency through self-employment. Our findings provide little support for the notion that hard work and a small loan are sufficient ingredients for business success. Viable small firms are usually headed by well-educated owners and/or those possessing specific skills that serve as a basis for successful business creation and operation. Potential entrepreneurs lacking assets, skills, and support networks are unlikely to support themselves through self-employment earnings alone. As a poverty alleviation strategy, microenterprise is not a panacea. Nevertheless, programs targeting the poor who do have skills, resources, and support networks can be useful vehicles for helping some to escape poverty.
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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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Self-Employment Trends Among Mexican Americans
August 1990
Working Paper Number:
CES-90-09
Minority businesses are commonly aggregated into groups of 1) black, 2) Hispanic, and 3) Asian-owned firms. These analytical groupings may, in fact, be useful if blacks, Hispanics and Asians exhibit intra-group similarities and intergroup differences in terms of business development patterns. The applicable similarities and differences do appear to typify the Asian and black groups of self-employed, but they do not typify Hispanic-owned small businesses. In other words, "Hispanic" does not appear to be a useful category for analysis. The Hispanic subset, Mexican American-owned firms, is judged to be suitable for analysis. Most minority-owned firms have traditionally been started with minimal financial capital inputs by owners who have not attended college. The resultant small scale firms have frequently oriented their operations toward serving a low income minority clientele. In this study, I investigate two closely interrelated broad hypotheses on minority business dynamics, utilizing a sample of Mexican American business establishments drawn from the Characteristics of Business Owners data base: Traditional firms - these firms tend to a) be small scale, b) have high failure rates, c) and generate few jobs because of their minimal owner inputs of financial and human capital. Emerging firms, in contrast, are most commonly started by better educated owners--many of whom have attended four or more years of college--and financial capital inputs are high relative to those observed in traditional lines of business. It is because of these larger financial and human capital inputs that emerging firms tend to be a) larger scale, b) have lower failure rates, and c) generate more jobs, relative to their traditional cohorts. Sociologists have used the term "protected market" to describe the culturally-based tastes of ethnic minorities that can only be served by co-ethnic businesses. Particularly in the early years of settlement, immigrants are assumed to patronize co-ethnic enterprises, and this pattern of patronage seems to typify Hispanic enclaves in areas such as Southern California. Whether or not the resultant protected market is an asset to Mexican American firms-- particularly those in traditional fields such as small-scale retailing--is investigated econometrically. The evidence indicates that the protected market provided by immigrants patronizing co-ethnic enterprises is an absolute hindrance to Mexican American business viability. The very low incomes of most recent immigrants constrain the attractiveness of this protected market. The state of the barrio business community reflects the economic circumstances of its clientele.
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Survival Patterns Among Newcomers to Franchising
January 1997
Working Paper Number:
CES-97-01
This study analyzes survival patterns among franchisee firms and establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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Financing Small Business Creation: The Case of Chinese and Korean Immigrant Entrepreneurs
September 1996
Working Paper Number:
CES-96-09
Prevailing scholarly literature misrepresents the realities of how immigrant Korean and Chinese entrepreneurs finance entry into small business. Supportive peer and community subgroups are not major sources of startup capital; the majority of all loan funds are raised by borrowing from financial institutions. The major single funding source is equity capital, which derives almost entirely from family household wealth holdings. Controlling for firm and owner traits, comparison groups of nonminority and Asian American nonimmigrant self-employed borrowers are shown to have greater access to loan sources than Korean and Chinese immigrants. High equity capital investment offsets this disadvantage. Absent rotating credit associations, and other minor debt sources, the average Korean/Chinese startup possesses substantially more financial capital than its nonminority counterparts.
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Survival Patterns Among Newcomers To Franchising
May 1997
Working Paper Number:
CES-97-05
This study analyzes survival patterns among franchisee firms adn establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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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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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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Firms Started As Franchises Have Lower Survival Rates Than Independent Small Business Startups
May 1994
Working Paper Number:
CES-94-03
Aspiring entrepreneurs choosing to become franchisees certainly expect to improve their chances of survival during the turbulent early years of business startup and operation. Alignment with a franchiser parent company offers the franchisee managerial assistance, access to financial capital, and access to markets via the right to utilize the parent company trademark. This study examines survival patterns among franchise and nonfranchise small firms started between 1984 and 1987: survival through late 1991 is tracked for all firms. Although the franchise operations are larger scale, better capitalized young firms, the independent business startups are found to be more profitable and their survival prospects are better than those of franchises.
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