Credit Where Credit is Due?: Race, Gender, and Discrimination in the Credit Scores of Business Startups

Abstract

This research seeks to understand the degree to which credit scores of new business startups are influenced by racial or gender discrimination. It examines the degree to which access to business credit lines is influenced by racial and genderrelated factors that go beyond would-be borrowers' credit scores. Using credit data from new startups, the analysis finds that, when controlling for firm and human capital characteristics, Black-owned startups receive lower than expected business credit scores. Whites are more favorably treated in credit score determination than are African Americans with the same firm characteristics and owner characteristics. Moreover, Whites are more favorably treated when it comes to access to credit lines than are African Americans, Latinos, and Asians with the same firm characteristics, owner characteristics, and credit scores. Men are more favorably treated when it comes to access to credit lines than are women. A Blinder-Oaxaca decomposition suggests that credit lines for Black-owned businesses would more than double, Latino-owned businesses' lines of credit would nearly triple, Asian-owned businesses' lines of credit would more than triple, and those where the primary owners are women would be more than twice as large if their business lines of credit were determined in the same way as those for businesses owned primarily by Whites and by men. The implications of these results are discussed.

A Patterns of Masculinities in Discourse of Reports Assessing Condition of Polish Startups Organisations

“…The reluctance of investors to finance startups run by women is puzzling in light of the data showing that these startups are characterized by a lower degree of debt and a slightly higher profitability (see Demartini 2018;Illuminate Ventures 2010). From the research of Loren Henderson et al (2015) follows that startups owned by men also receive significantly higher credit scores than do new firms owned by women in the opinion of banks (Henderson et al 2015: 477). It should be noted that startups run by women not only receive support from financial institutions less often, but also apply for it less often (Kwapisz & Hechavarría 2018), which may be due to the awareness of the existing limitations.…”

Impact of Demographic Features of Young Entrepreneurs on Financial Literacy: Meta-Analysis in Delhi NCR

“…Prohibition of females from financial services has been accounted for, by various analyses that have discovered that ladies are more rejected than men both at the firm and individual levels. Studies report that female-dominated firms face more financial constraints more imperatives than male-dominated organizations (for example, Presbitero et al, 2014;Henderson et al, 2015;and Beck et al, 2011).…”

Black vs white owned new venture performance: a study of mediating effects

“…If certain sub populations get discriminated against on the assessment and others get favorable treatment in credit ratings, the net impact will be a systematic heterogeneous gap in the availability of financial and other resources based on the majority race ownership of the venture. The importance of credit scores in attaining resources is apparent, but the mechanism by which the scores are assessed is nebulous (Henderson et al , 2015; Spader, 2010). Discrimination in credit scores based on race, gender and other such “immutable” characteristics has been outlawed.…”