Minority Business Enterprises Research Articles

Linkages between regional characteristics and small businesses viability

Our study identifies regional traits associated with small business viability, paying particular attention to bank lending to minority-owned firms. Although creditworthy minority business enterprises (MBEs) have less access to bank financing than similar White-owned firms, they have increased their nationwide employee numbers substantially since 2002, more so indeed than White-owned firms. The discouraged borrower incidence among creditworthy MBEs, nonetheless, is quite high. Given their limited access to financing, the dynamism displayed by these firms is surprising. To link regional characteristics to bank lending policies, local economic well-being measures and racial intolerance levels are used to identify areas where banks participate in Community Reinvestment Act (CRA) agreements, a proxy for their willingness to disregard owner race and firm geographic location when financing firms. We find that regional prosperity is positively linked to CRA agreement presence, while a legacy of institutionalized racism is negatively linked. We next explore whether the presence of local CRA agreements is linked to relatively fewer discouraged small business borrowers. The incidence of creditworthy borrowers discouraged from seeking bank financing drops significantly when CRA agreements are present locally.

Managing diversity in minority business enterprises: the impact of employee homogeneity on financial performance

PurposeThe purpose of this paper is to investigate the impact of employee homogeneity on the financial performance of minority business enterprises (MBEs). It is widely postulated that MBEs tend to hire minorities that resemble the ethnicity of the founder(s) and that this is beneficial by helping to decrease minority unemployment rates as well as providing new opportunities to minorities that they might not otherwise receive at White-owned firms.Design/methodology/approachThe study used hierarchical linear regression on archival data of 271 MBEs to determine if employee homogeneity will be a factor in understanding their financial performance. The authors also conducted exploratory interviews with a convenience sample of MBEs to gain insight into the concept of employee homophily.FindingsThe research uncovered that as homogeneity increases, MBE financial performance decreases, and this effect is more pronounced the longer the MBE is in business.Research limitations/implicationsThe data set is cross-sectional in nature and lack the perspective and clarity of time. The paper only contains a small set of exploratory interviews. The most significant implication from the study is that a lack of diversity decreases the long-term financial viability of MBEs which is to counter mainstream arguments that speak only to the positive aspects of MBEs hiring their own.Originality/valueThe research builds on the scant literature on the impact of diversity within MBEs. It also provides guidance to MBEs by suggesting they be strategic in diversifying their employee base in order to improve performance.

How Do Large Purchasing Organizations Treat Their Diverse Suppliers? Minority Business Enterprise CEOs’ Perception of Corporate Commitment to Supplier Diversity

Supplier diversity programs were created in the United States nearly 50 years ago to encourage private sector companies to provide business opportunities to underutilized minority business enterprises. In order to assess the experiences that minority business enterprise CEOs have with large purchasing organizations and their perceptions of justice and commitment of large purchasing organizations to the buyer–supplier relationship (BSR), this study utilizes survey data collected from 206 minority business enterprise CEOs who supply large purchasing organizations that espouse a strong commitment to supplier diversity. The theoretical framework of organizational justice is utilized to establish testable hypotheses. The results from hierarchical linear regression show minority business enterprise CEOs’ perception of large purchasing organizations’ commitment to the BSR is positively related to the distributive and informational dimensions of organizational justice. Surprisingly, the procedural dimension was found to have a significantly negative relationship. This research also found a significant, negative relationship between minority firm CEOs’ perception of distributive and informational justice and their perceptions of unethical behavior by large purchasing organizations.

The Modern American Law of Race

This article explores the modern American law of race. Part I of this Article addresses the origins and development of modern racial categorizations -- African American, Asian, Hispanic, Native American, White -- in the United States. These categories arose from categories used for federal anti-discrimination enforcement and affirmative action policies. There has never been a coherent or comprehensive explanation from any federal source as to why some minorities are deemed to be “official” minority groups and others are not, or why groups have the precise, and often seemingly arbitrary, boundaries they do. As documented in Part I of this Article, the scope and contours of official minority status have come about from a combination of which groups were deemed analogous to African Americans, bureaucratic inertia, lobbying campaigns, political calculations by government officials, a failure to anticipate future immigration patterns, and happenstance. Part II discusses state variations on the scope of the standard ethnic categories, in particular in the states’ Minority Business Enterprise (MBE) programs. Having discussed the origin and scope of official minority categories at the federal and state level, this Article next turns to a second issue -- what evidence individuals must provide to demonstrate membership in these categories. Conventional wisdom is that these categories are purely a matter of self-definition based on informal norms. However, various states require a wide range of proof of minority status to participate in MBD programs, ranging from providing an official document such as a birth certificate listing one’s race, to providing letters of support from ethnic organizations, to relying on certification by the National Minority Suppliers Development Corporation. Perhaps surprisingly, challenges to the under- or over-inclusiveness of a government’s definition of the scope of racial or ethnic categories are rare. Part IV of this Article discusses the only three such cases this author found. Part V of this Article reviews cases in which a denial of minority status to a petitioner seeking Minority Business Enterprise status has been adjudicated and resulted in a published opinion. Most of the cases discussed in Part V involve the question of Hispanic status, the boundaries of which have proved especially vexing to administrators and courts. The next section of this Article, Part VI, turns from racial categorization in the Minority Business Enterprise context to adjudication of claims of minority status by individuals seeking to benefit from affirmative action in employment. Part VII of this Article discusses two other contexts in which courts have had occasion to determine racial or ethnic identity; first, cases in which a plaintiff has needed to show he is a member of a protected class under anti-discrimination laws, and second, cases involving “Indian” status under the Major Crimes Act. This Article concludes by noting that laws dictating ethnic and racial categories were designed primarily to assist African Americans overcome the legacy of slavery, Jim Crow, and discrimination. As the United States has become more demographically diverse, however, African Americans are now a shrinking minority of non-whites protected from ethnic and racial discrimination, and of those eligible for affirmative action programs. Given high rates of interracial marriage among other minority groups and the reality that mixed-race and mixed-ethnicity individuals can check whichever box most benefits them, the percentage of non-African-American individuals eligible for minority status for affirmative action purposes will continue to grow, putting increasing strains on the current method of categorization.

Green Forever Landscaping and Design, Inc.: how an entrepreneur grew his business

Theoretical basis The case should be introduced after students have been exposed to the following topics: the practice of entrepreneurship, opportunity recognition, market segmentation and minority business enterprise. Research methodology The names of the companies and individuals in this descriptive case have not been disguised, with the exception of the solar company representative and his company affiliation. Information was obtained from interviews (i.e. first-hand accounts) with Nikita Floyd, President and Owner of Green Forever Landscaping and Design, Inc., and secondary sources cited. Case overview/synopsis Nikita, a 50-year old, African American male, had grown his business from a one-person seasonal landscaping business to a year-round landscaping and design business with full-time, part-time, and seasonal employees and an array of services and customer segments. To his delight, he was able to unite his avocation with his vocation. With over 30 years of experience in landscaping and landscape design Nikita was always scanning the landscape for new business opportunities that would align with his company’s mission statement and help sustain Green Forever’s core business. Complexity academic level This case is most appropriate for introductory undergraduate and graduate level courses in entrepreneurship.

Impacts of Owner Race and Geographic Context on Access to Small-Business Financing

Multiple studies document both the scarcity of small-business financing in inner-city minority communities and the higher loan application rejection rates among minority business enterprises (MBEs), compared with equally creditworthy White-owned firms. When MBEs do receive bank financing, they get smaller loans than Whites. Two aspects of these findings are troublesome. First, urban MBEs are heavily concentrated geographically in minority communities, raising the issue of whether difficulties accessing financing reflect firm location, minority ownership, or both. Second, applicable studies rest on weak theoretical foundations. The authors’ findings suggest that banks engage in discriminatory practices limiting credit availability to MBEs. Controlling for risk factors, however, firm location in a minority or inner-city neighborhood has no apparent impact on loan availability or size. Owner race/ethnicity, in contrast, is important. Subtle processes discourage MBEs from seeking bank loans. Owner race and wealth both powerfully shape loan access: high wealth opens doors, minority ownership closes them.

Supplier diversification by executive order: Examining the effect reporting compliance, education and training, outreach, and proximity to leadership have on government procurement behavior with minority business enterprises

Much of our understanding concerning the interaction between minority business enterprises (MBEs) and government procurement has focused on the legal aspects of set-asides. Therefore, it is difficult to ascertain what key determinants specifically affect government procurement behavior. In this paper, we investigate the implementation of an executive order that originated in 2009 to increase government expenditures on MBEs. We utilize implementation theory to hypothesize that after the intervention of the executive order, government expenditures on MBEs will increase. We also posit that government agencies closest to the governor (cabinet agencies) will spend more on MBEs than other agency types. Furthermore, we hypothesize that outreach, training and education, and reporting compliance will have a positive relationship with government expenditures on MBEs. Our findings suggest cabinet agencies have more expenditures on MBEs than colleges and universities; however, there was no significant difference between cabinet agencies and non-cabinet agencies. Moreover, there was no significant difference between non-cabinet agencies and colleges and universities with respect to their expenditures with MBEs. Our results also find that training and education as well as reporting compliance are positively associated with increased levels of government expenditures on MBEs. Unexpectedly, outreach was negatively associated with government expenditures on MBEs. We believe our findings may help government agencies and policy makers create and/or improve upon how they implement new policies directed at changing government procurement behavior.

Supplier Diversity: From “Checking the Box” to Developing a Trusted and Valued Partner

This article discusses why supplier diversity is so important. Companies in the private and public sectors are asking vendors to identify the amount of funding they will spend on minority and diverse firms as they bid for potential projects. This often leaves vendors scrambling to find a qualified minority business enterprise (MBE) to support their needs. An MBE is defined as a for‐profit enterprise, regardless of size, that is physically located in the United States or its trust territories and is owned, operated, and controlled by minority group members ‐ US citizens who are Asian, black, Hispanic, or Native American.

Homophily Matters: The Impact of Minority Group Homophily on the Performance of MBEs

Minority business enterprises (MBEs) in the U.S. are significantly outpacing the growth rate of non-minority-based businesses. A look at the changing demographics reveals that America’s competitive...

The Challenges of Business Ownership: A Comparison of Minority and Non-Minority Women Business Owners

IntroductionWomen-owned businesses represent a rapidly growing segment of the U.S. economy. According to the Small Business Administration (2011), the number of women-owned businesses increased by 44% since 1997 which was double the growth in male-owned firms. In 2011, women-owned businesses accounted for 36% of all firms. While business ownership presents its own set of challenges, it may be particularly challenging for women business owners (e.g., Winn, 2004). Minorities comprise an increasing share of new entrepreneurs, increasing from 23.6% in 1996 to 39.8% in 2011 (Fairlie, 2012). Among women business owners, minority women may experience greater challenges than their non-minority counterparts. Smith-Hunter and Boyd (2004) found that minority women became business owners for different reasons than did non-minority women, and that they faced greater challenges in starting and operating their businesses. Drawing from Aj zen's theory of planned behavior (1991), differences in perceptions of challenges may affect the decisions the business owners make and ultimately the direction and success of the business. The purpose of this study is to examine differences in the perceptions of challenges faced by minority and non-minority women business owners.Literature ReviewPrevious research has focused on differences in the business environment for women- and minority-owned businesses, examining differences in challenges associated with major business functions, accessing financial capital, and developing social capital. Considerable research has been performed on the differences between male and female entrepreneurs as well as between minority and non-minority entrepreneurs; however, due to sample size constraints, few studies have been able to examine the joint effects of gender and minority status simultaneously, particularly for minority women business owners.Harris (2011) examined the differences between small business owners' perceptions of problems presented by major business functional areas by gender and ethnicity. He found few differences between the perceived problems of male and female small business owners (women perceived greater problems in the area of strategic goal development), but found many differences between minority and non-minority business owners of both genders combined. Minority small business owners perceived greater problems in the areas of finance, accounting, personnel management, and purchasing.The challenge of woman- and minority-owned businesses in obtaining financial capital is well documented. Pearson, Fawcett, and Cooper (1993) listed the most significant impediments to successful relationships involving minority businesses from the perspectives of both owners of minority business enterprise (MBEs) and corporate purchasing personnel (CPPs). Undercapitalization was perceived as the first issue for both MBEs and CPPs. Lucas (2006) argued that minority women business owners may have difficulty in obtaining access to capital because of a lack of both business experience and industry-specific experience and because their businesses tend to be smaller and newer. Rosa and Hamilton (1994) examined how gender barriers and stereotypes disadvantage women business owners in acquiring business funding. Christopher (1998) estimated that 46.6% of African American, 38.7% of Hispanic, and 33.4% of Asian business owners utilized commercial bank loans as compared to 55.4% for non-minority business owners. Christopher (1998) also found that a threshold debt to equity ratio of 65% with access to commercial capital increased the likelihood of survival of the enterprise, thus highlighting the importance of access to capital. Coleman (2004) examined the relationship between the business owners' gender, race, level of education and their ability to borrow money. She found that white women were no less likely than white men to apply for loans or to avoid applying because of a fear of being turned down. …

Greater Access to Capital Is Needed to Unleash the Local Economic Development Potential of Minority-Owned Businesses

Limited access to financing restricts the ability of minority business enterprises (MBEs) to achieve viability, to generate new jobs, and, generally, to reach their full potential to contribute to the economic development of the communities and regions in which they operate. Although MBEs rely more heavily on financial institutions for loans than all other borrowing sources combined, they experience higher costs than White firms when they borrow, receive smaller loans, and have their loan applications rejected more often. For MBEs in minority neighborhoods, these borrowing problems are compounded. Action is needed. The federal government needs to prosecute financial institutions that discriminate against MBEs on the basis of borrower race. Local governments can assist by weighing bank-lending activity in local minority communities when choosing the local banks with which they do business. Prompt payment of MBE vendor invoices by public-sector clients is needed.

THE CAUSES AND DYNAMICS OF MINORITY ENTREPRENEURIAL ENTRY

This study examines the causes and dynamics in the creation of business ventures by minority nascent entrepreneurs. Minority business enterprises are an important source of job creation and innovation in the US economy, as well as economic development engines in their respective communities. However, little is understood about the unique motivations, business strategies and plans in the early stage of their venture formation. This paper utilizes the Panel Study of Entrepreneurial Dynamics (PSED) dataset in investigating black and Hispanic entrepreneurial entry as compared to white nascent entrepreneurs around three important dimensions: motivation, business strategy, and community resources. It is found that blacks are highly driven by a range of motivational factors while Hispanics value intergenerational inheritance and role models in business ownership. Both groups heavily focus on a niche market strategy by lowering prices, serving markets missed by others and locating close to customers. Contrary to expectation, their perceptions of community resources are not more favorable than whites. Public policy implications are discussed.

REVIEWER APPRECIATION ISSUE

As I have stated on various occasions, the JDE depends on our numerous reviewers from many countries in which the Journal has a presence. Without thorough, constructive and timely reviews from our area experts, our publication would not be possible. I am grateful to you all! To show our appreciation for the work our reviewers do, we have established a Reviewer of the Year Award. It is my pleasure to announce that the recipient of this Award for 2011 is Professor Howard Van Auken of Iowa State University. Howard has done a stellar job! I think we actually overworked him! As a token of our appreciation, Howard will receive a one-year subscription to the JDE. Thank you, Howard! The March 2012 issue includes six outstanding articles. The first article in the issue is titled Nascent Entrepreneurs and the Transition to Entrepreneurship: Why Do People Start New Businesses? by Stelios Zanakis, Maija Renko and Amanda Bullough. To answer the central question, the authors examine motivation and cognition, knowledge and experience and social support. The authors find that experienced, persistent, confident individuals, motivated mostly by non-financial outcomes, perceiving support from their social contacts and institutional environment, are likely to make the transition to a successful business. Lynn Neely and Howard Van Auken present us with An Examination of Small Firm Bootstrap Financing and Use of Debt. Bootstrap financing helps alleviate liquidity issues by providing small firms additional sources of capital when more traditional sources are not accessible. The authors find that use of shortand long-term debt capital is directly associated with the use of bootstrap financing sources. They draw implications of their findings for small firm owners, consultants and educators. CathyYang Liu examines the causes and dynamics in the creation of business ventures by minority nascent entrepreneurs. In her contribution to this issue, titled The Causes and Dynamics of Minority Entrepreneurial Entry, the author reminds us that minority business enterprises are an important source of job creation and innovation in the U.S. economy, as well as economic development engines in their respective communities. The article helps us close the gap of our understanding of the unique motivations behind these enterprises, their business strategies and their plans in the early stage of their venture formation. Journal of Developmental Entrepreneurship Vol. 17, No. 1 (2012) 1202001 (2 pages) © World Scientific Publishing Company DOI: 10.1142/S1084946712020013

Sub-Optimal Risk–Return Profiles in Private Equity: The Case of Minority Business Enterprises Investing

The influence of socially responsible investing (SRI) on large and listed companies is limited. Private equity could be successful but methods have to be adapted to avoid the costs associated to SRI post-investment monitoring. Criteria have been applied in the investment screening process, notably in minority-related private equity investments. Despite its promising endeavour, minority-related investing is still not part of mainstream private equity, because the minorityrelated private equity risk–return profile is sub-optimal. The roots of the underperformance lie in the definition of intervention of private equity fund managers focusing on different opportunities. The author suggests that these private equity fund managers redefine the scope of their intervention from geographical or ethnical criteria to underprivileged people. Private equity fund managers will need to redefine the way they create value for their portfolio companies. The extra work would result in risk reduction and benefit usual private equity investors. <b>TOPICS:</b>Private equity, ESG investing, fundamental equity analysis, risk management

Sub-Optimal Risk–Return Profiles in Private Equity:The Case of Minority Business Enterprises Investing

Sub-Optimal Risk–Return Profiles in Private Equity:<i>The Case of Minority Business Enterprises Investing</i>

Utilizing Affirmative Action in Public Sector Procurement as a Local Economic Development Strategy

Using detailed spending and survey data of a large local governmental authority, this study analyzes how actual preferential procurement policies affected minority business enterprises (MBEs) selling to government clients. Current public sector preferential procurement policies have evolved in an environment of legal constraints in which procurement spending targeting MBEs has often been viewed as reverse discrimination. The objective of achieving a “level playing field” was adopted in response to this legal environment. Preferential procurement policies often miss their objectives, achieving perverse outcomes such as minimal assistance to MBEs and negligible local economic development impacts. Strategies for simultaneously achieving fundamental fairness in government procurement while increasing MBE capacity and job creation are identified.

Minorities and Venture Capital: A New Wave in American Business

This study of the venture capital firms that concentrate on making equity investments in minority business enterprises is based on a survey conducted in 2001 of 24 respondents from 50 venture capital funds operated by members of the National Association of Investment Companies. The issues considered include: to what extent minority owned businesses have access to venture capital, what types of businesses get such support, the origins of the venture capital funds, and the profitability of these venture capital firms.The study revealed the following points: mature, minority-oriented venture capital funds are highly profitable; such funds did not over-concentrate in dotcoms and other high-technology ventures; and the major sources of funding for minority-oriented venture capital funds are public pension funds, commercial banks, and insurance companies.With continued successful investing, this financial industry niche may sustain its rapid growth. These funds are less risky and may exhibit less volatility than has plagued the industry. The high returns generated by these successful companies will dispel the mistaken assumption they are low-return social investors.

Venture‐Capital Investment in Minority Business

This study analyzes the performance of mature investments made by venture‐capital (VC) funds that specialize in financing minority business enterprises. We explore the hypothesis that VCs focusing on investing in minority businesses earn attractive returns because this market niche is underserved. Minority VC funds collectively earned yields on their realized investments that were estimated to be broadly equivalent to those of the mainstream VC industry. However, these yields vary greatly from fund to fund. VC fund traits that predict high yields on individual investments are identified by estimating multivariate regressions explaining net investment returns.

Traits and Performance of the Minority Venture-Capital Industry

This study analyzes the performance of investments made by venture-capital (VC) funds that specialize in financing minority business enterprises (MBEs). Existing studies document that MBEs have less access to financing—equity as well as debt—than similarly situated firms owned by nonminority whites. The apparent existence of a discriminatory financing environment creates an underserved market and, hence, attractive opportunities are available to firms capable of identifying and serving MBE financing needs. Analyzing cash-flow data on VC investments, we find that the minority-oriented funds earned yields on their realized equity investments that were slightly higher than the returns reported by mainstream VC funds. Considering differences in methodologies used to generate rate-of-return data for the MBE—as opposed to the nonminority-oriented funds—we conclude that the minority VC funds are earning yields on their realized investments that are at least equivalent to those of the broader VC industry.

Minority Business Bidding for Local Government Contracts: The Complexity of Availability

SUMMARY While minority-business enterprises (MBEs) have gained some access to local government contracts during the last three decades, these firms continue to receive a small share of local government contract spending relative to the number of available firms. Researchers have suggested two general explanations for the low representation of MBEs in contract awards: (1) lack of qualifications and capacity among MBEs, and (2) public and private discrimination against MBEs in contracting processes. This study on prime contract opportunities in a Northern central city and county with a large minority population finds that low bid rates greatly contribute to the low MBE shares of prime contracts and that bidding is reduced by both local government processes and characteristics of the firms. Some implications of these findings are that local governments need to: (1) monitor MBE shares of prime contract bids by size of contract and use share of bids as one measure of program and organizational effectiveness; (2) identify MBEs that are qualified for prime contracts and encourage and help interested firms to submit competitive bids; and (3) ensure that local government policies and practices do not diminish access to information about prime contract opportunities for qualified and interested minority firms. Another implication is that bidders lists should not be a primary basis for determining MBE availability, since many qualified and interested MBEs do not bid because of perceived barriers in local government.