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Small Business Economics

, Volume 50, Issue 3, pp 429–443 | Cite as

Testing for racial bias in business credit scores

  • Alicia Robb
  • David T. Robinson
Article

Abstract

We develop a novel empirical test of racial bias based on comparisons between forward-looking, expectations-based credit scores and backward-looking, repayment-history-based credit scores. We then test for racial bias using confidential-access data from the Kauffman Firm Survey. Businesses founded by disadvantaged minorities have much lower average business credit scores, but these scores show no evidence of racial bias. If anything, forward-looking credit-score models under-predict the rate of payment delinquency among minority-owned businesses.

Keywords

Business credit scores Banking·minority entrepreneurship 

JEL classification

G21 J15 L26 

Notes

Acknowledgements

This research was supported under grant SBAHQ-12-Q-0044 from the Small Business Administration. Certain data included herein are derived from the Kauffman Firm Survey release 6.0. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the Ewing Marion Kauffman Foundation. The authors wish to thank Tim Bates, Bill Bradford, Rob Seamans, and workshop participants at the Kauffman-sponsored MBE sessions at the 2016 AEA meetings and the 2016 AoM meetings. Jonathan Zandberg provided expert research assistance.

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.University of Colorado at Boulder and University of California, BerkeleyBoulderUSA
  2. 2.Duke University and National Bureau of Economic Research, Fuqua School of BusinessDurhamUSA

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