Financial constraints of ethnic entrepreneurship: evidence from Germany

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This is the first attempt to test hypotheses about financial constraints of ethnic minority owned businesses in Germany. Using data from a survey among 3,000 ethnic and native entrepreneurs, we examine differences in the financing patterns between both demographic groups. We find that entrepreneurs with a migration background are more likely to be denied credit or to obtain smaller loan amounts than requested. After controlling for observed risk factors and financial relationships as explanatory variables, ethnicity plays no role in explaining differences in the probability of credit rationing. These can be rather explained by the firm's location and characteristics of the bank-customer relationship. Thus, we find no evidence for prejudicial discrimination in the loan market. Terms of use: Documents inJEL Code: G21, G32

Financial Inclusion, Regulation, and Education in Germany

“…The share of over-indebted individuals 8 without a current account declined from 22.1% in 2004 to 10.5% in 2013, which seems to be due to the introduction of the so-called attachment protection account 9 in 2010 (Knobloch et al 2014). Entrepreneurs with an immigration background are more often denied credit than natives (Bruder, Neuberger, and Räthke-Döppner 2011). Young entrepreneurs have to pay higher loan rates than older ones because of lacking liquidity and smaller businesses (Neuberger and Räthke-Döppner 2015).…”

Challenges and issues facing ethnic minority small business owners

“…As discussed in more detail below poor language skills leading to a lack of confidence or simply fear of debt can also play a role in dissuading ethnic minority and particularly immigrant entrepreneurs from trying to access the formal banking system (Sepulveda et al, 2008;Bruder et al, 2011;Levie and Hart, 2011). This pushes them towards their own communities for informal solutions.…”

“…In part this may reflect entrepreneurs from ethnic minority backgrounds having advantages in terms of the resources that they can access (Ram et al, 2000;Levent et al, 2003;Wilson and Portes, 1980). At the same time studies of ethnic minority entrepreneurs in a variety of countries have found that entrepreneurs are also constrained by a number of barriers (Sepulveda et al, 2008;Bruder et al, 2011;Bates and Robb, 2014;Freeland and Keister, 2014). However, a vast majority of these studies have concentrated on entrepreneurs operating in areas with larger ethnic minority populations (Jones et al, 2014;Zhang, 2015), and less is known about the challenges faced by ethnic minority entrepreneurs operating in cities or towns with a smaller co-ethnic community to draw upon.…”

The Impact of Owner and Firm Characteristics on External Capital Acquisition at Start-up: Empirical Evidences from Swedish Data

“…The challenge to finance the new business, however, has been assumed to be one of the main obstacles faced by immigrant-and ethnic minority-owned firms at startup stage (Bruder et al, 2011;Irwin & Scott, 2010). It is supposed that many immigrants have difficulties with the financing of start-up capital (Ram et al, 2008;Ramangalahy et al, 2002;Smallbone et al, 2005), and face harder difficulties than their native-born counterparts (Lo et al, 2002).…”

“…Businesses owned by women and immigrants are also highly concentrated in the service sector (Hedberg, 2009;Kalleberg & Leicht, 1991). Also legal form of the business has been used as analysing factor for differences (Bruder et al, 2011;Papadaki & Chami, 2002).…”