PERFORMANCE OF NEWLY-FORMED MICRO FIRMS: THE ROLE OF CAPITAL FINANCING IN MINORITY-OWNED ENTERPRISES

Abstract

We sought to ascertain whether newly-formed micro firms owned by minority entrepreneurs would be as likely to be profitable or not when compared to non-minority business owners. Additionally, we placed special emphasis on the impact of equity and debt to determine if capital financing influences firm profitability the same or differently for minority as compared to non-minority owned micro firms. Using longitudinal data from the Kauffman Firm Survey, micro firms owned by Hispanic and Black entrepreneurs were less likely to be profitable than non-minority owned micro firms, whereas profitability differences were not found between the latter and Asian-owned micro firms. Moreover, Hispanic and Black-owned micro firms that made use of personal debt were more likely to be profitable than those using only equity to finance operations. Asian-owned micro firms that utilized business debt were more likely to earn a profit than those solely using equity. Alternatively, non-minority owners benefited in terms of profitability from the use of both personal and business debt. Implications of these findings for minority entrepreneurship are discussed.