Differentials in business opportunities: explaining the gap-the case black (African American) small business owners

Abstract

Small businesses have been playing crucial economic roles in generating revenues and reducing unemployment rates. The rate of entrepreneurship among Blacks has been on an increasing trend. However, this progress has not been matched by an increase in revenue and business sustainability. Black businesses, especially in the United States, lag businesses owned by other races. This study used secondary data collected by the US Census Bureau known as Survey of Business Owners Public Use Micro Sample to investigate factors considered to be influential in businesses success. Business owner characteristics (gender, immigration status, age, education, startup capital, past business experience, family ownership) and firm characteristics (firm size, firm age, sector, access to funding, use of technology, export, and region of operation) are analyzed to determine their effects on sale performance and risk of firm closure. Applying the Oaxaca-Blinder multivariate decomposition models, the effects of owner and firm characteristics in explaining racial differences in sales and closure rate is determined as well. Notably, many of these factors were ignored by previous studies in explaining racial disparities; among others, the role of owner immigration status, e-commerce, international trade, source of loans, age of firm and size are contributions of this study to the body of existing literature. Generally, the study found that owner background and firm characteristics, individually and jointly, have significant impacts on the success of Black small businesses. Differences in these characteristics explained significant gaps in sales performance and business survivability between White-owned and Black-owned, Asian- and Black-owned and between Hispanic- and Black-owned firms. The findings suggest the deployment of impactful policy and programs that would support Black entrepreneurship to close the gap, particularly access to funding and increase of equity of loan programs. The need for business experience and academic qualification are also documented as success factors, besides industry of operation and regional dynamics. The scholarly review of literature as well suggested a lack of theoretical model in capturing the context of Black entrepreneurial gap. Thus, developing a theoretical model will be useful to capture the root causes of racial disparity in entrepreneurship and close the gap in success. This academic lacuna may be explored in further studies.