Minority Business Formation and Survival: Evidence on Business Performance and Viability

• Published in: The Review of Black political economy 1998-07, Vol.26 (1), p.37-72
• Main Author: Christopher, Jan E.
• Format: Article
• Language: English
• Subjects: African Americans; Business conditions; Business ownership; Capital requirements; Censuses; Commercial banks; Economic aspects; Education; Employees; Executive compensation; Hispanic Americans; Human capital; Hypotheses; Minority & ethnic groups; Minority business enterprises; Minority Businesses; Minority owned businesses; Minority set aside programs; Organizational Dissolution; Organizational Effectiveness; Self employment; Small business; Small Businesses; Success; United States; Wages & salaries; Work experience
• ISSN: 0034-6446; 1936-4814
• DOI: 10.1007/s12114-999-1018-z

This article examines the factors that influence the formation and survival of black- and other minority-owned businesses. Various attributes of small business owners are studied in the context of socioeconomic and financial theories using the Characteristics of Business Owners (CBO) database and the Survey of Minority-Owned Business Enterprises (SMOBE) published reports. Industrial and geographic criteria are also stipulated as a part of the estimated models and explicative frames of reference. The probability of business survival was observed, estimated, and evaluated with reference to the characteristics of the individual business owner and the minority-owned firm. Business survival was found to be augmented by formal education, years of employment experience, initial financial capitalization, and length of business ownership. The survival rates of minority-owned businesses, including women-owned businesses, ranged from 55 to 85 percent in this study that focused on the years between 1987 and 1991. During this period approximately 20 percent of the owners in the CBO survey dissolved their businesses for various reasons. Survival rates were observed to increase at a decreasing rate with nominal increases in the levels of capital investment. The age of the firm was the most significant determinant of business survival. Formal education, work experience, and numerous unmeasured factors proved to be of secondary importance. Much unevenness was apparent in the racial identifiers in this analysis. Although much emphasis is currently being placed on the length of business ownership as an indicator of business performance and future business survival, non-economic determinants of business success included business continuity in a specific geographic area, as well as the businesses' contribution to the local and regional economies.