Abstract
This paper draws on a conceptual analysis of discrimination to improve the methodology for estimating discrimination in small-business credit markets and to provide some evidence about the possible causes of discrimination in these markets. Using a variety of statistical enhancements to existing studies, we find statistically significant evidence of substantial discrimination in loan approval against black-owned and Hispanic-owned businesses in 1998. We also find some hints that this discrimination takes the form of statistical discrimination, driven by lenders' stereotypes about the ability of black- and Hispanic-owned businesses to succeed under some circumstances. Although we find no discrimination, on average, in interest rates on approved loans, we also find that black-owned businesses do face discrimination in interest rates when they borrow from finance companies and businesses, such as mutual fund companies and leasing companies, with a primary mission other than lending. These findings suggest that federal financial regulatory agencies should re-double their efforts to uncover and prosecute lenders who discriminate against black- and Hispanic-owned businesses and that new tools may be needed to find discrimination by firms not well covered by the existing fair-lending enforcement system.
Original language | English (US) |
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Pages (from-to) | 467-497 |
Number of pages | 31 |
Journal | Journal of Urban Economics |
Volume | 63 |
Issue number | 2 |
DOIs | |
State | Published - Mar 1 2008 |
Keywords
- Lending discrimination
- Small-business credit
ASJC Scopus subject areas
- Economics and Econometrics
- Urban Studies