Consumer Demand and Credit Supply as Barriers to Growth for Black-Owned Startups
Abstract: We formulate a framework showing that differences in capital returns and capital intensity between groups of firms can identify relative differences in consumer demand and credit constraints. Using micro-data on Black- and White-owned startups, we find robust evidence that Black-owned startups have lower capital returns, implying that Black-owned startups face lower consumer demand due to race. In contrast, we find mixed evidence of tighter credit constraints due to race. We further show that differences in capital returns are persistent over time, whereas capital intensity differences are transitory. This suggests that lower demand, rather than credit constraints, might be the main barrier to growth for Black-owned startups.
File(s): File format is application/pdf https://www.minneapolisfed.org/institute/working-papers-institute/iwp79.pdf
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Opportunity and Inclusive Growth Institute Working Papers
Publication Date: 2023-11-03