Essays on Finance, Business Growth, and Entrepreneurship



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This dissertation presents studies of the interactions of finance, business growth, and entrepreneurship. In the first essay, Does the Community Reinvestment Act (CRA) Promote Small Business Growth in Lower-Income Neighborhoods, I estimate the impact of the Community Reinvestment Act (CRA) on small business growth in “Low- and Moderate-Income” (LMI) neighborhoods in the United States. Using rich firm-level panel data on every U.S. employer, I use two principle identification strategies to estimate the effects on business employment. First, I exploit the sharp threshold cutoff for CRA eligibility based on median family income to use a regression discontinuity design (RDD) in an optimal bandwidth around the cutoff. Second, I exploit changes in CRA eligibility over time using difference-in-differences (DID) with firm fixed effects. Using both RDD and DID, I find that the firms located in the CRA eligible areas increase employment by about 0.8 percent compared to firms in non-CRA areas. The CRA effects are larger for young firms and firms in minority neighborhoods, which potentially face higher barriers to access credit, with employment effects of about 1.5 and 1.9 percent, respectively. I also find that increases in lending in the CRA areas are related to the number of banks, implying that the channel is greater access to finance. In the second essay, The Financing of African American Entrepreneurship, I study financing patterns by African American business owners more closely using rich data on U.S. businesses. I exploit unusually detailed owner characteristics and financing variables from the Annual Survey of Entrepreneurs (ASE) at the U.S. Census Bureau. The outcome variables include not only amount and source of startup capital but also source of new financing and other questions bearing on credit constraints. I estimate the differences in financing between African American and white business owners after controlling for a range of owner and firm characteristics, including age, gender, education, motivation, industry, and other choices owners make about their businesses. Although part of the gap is explained by different owner and firm characteristics, I still find that an unexplained gap in finance between African American and white entrepreneurs even with these controls, suggesting that African American entrepreneurs are more financially constrained. In the third essay, Immigrant Entrepreneurs and Innovation in the U.S. High-Tech Sector, I and co-authors estimate differences in innovation behavior between foreign versus U.S.-born entrepreneurs in high-tech industries. Our data come from the Annual Survey of Entrepreneurs, a random sample of firms with detailed information on owner characteristics and innovation activities. We find uniformly higher rates of innovation in immigrant-owned firms for 13 of 14 different innovation measures; the only exception is for copyright/trademark. The immigrant advantage holds for older firms as well as for recent start-ups and for every level of the entrepreneur’s education. The size of the estimated immigrant-native differences in product and process innovation activities rises with detailed controls for demographic and human capital characteristics but falls for R&D and patenting. Controlling for finance, motivations, and industry reduces all coefficients, but for most measures and specifications immigrants are estimated to have a sizable advantage in innovation.