The myths,facts, and theories of ethnic,small-scale enterprise financing |
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Authors: | Gavin M Chen John A Cole |
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Abstract: | This article combines the results of three financial studies that examine capital issues affecting minority business development.
The results are presented so as to explain or refute conventional wisdom regarding capital availability, cost of capital,
credit market discrimination, sources of capital and differences in firm capital composition. Generally, Asian and Hispanic
businesses more approximate nonminority businesses in the sources of capital, the cost of capital, total capital investment,
and access to capital. Black firms, on the other hand, face credit discrimination from all sources of capital, which limits
their access to capital, increases its cost, and affects firm profitability. Consequently, black firms have a smaller capital
composition at startup and during operations. The only deviation from this pattern occurs where minority and nonminority financial
institutions vie for black business patronage by reducing the cost of borrowing and increasing the availability of funds. |
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