The State of Minority- and Women- Owned ... - Cleveland.com

Statistical Disparities in Capital Markets
improved set of controls for the creditworthiness of the firm and its owner. In 1998, three new
variables are included regarding the financial viability of the firm:
a) The value of the equity, if any, in the owner’s home.
b) The owner’s net worth excluding home equity and equity in the firm.
c) The firm’s Dun & Bradstreet credit rating in five categories (low, moderate, average,
significant and high) indicating the likelihood of loan default. 291
Despite the fact that these new variables do help to predict loan denials, 292 the estimated race
differences including these variables are unchanged from those reported above. 293 This suggests
that the large estimated differences in the denial probabilities that were estimated in 1993 were
not biased significantly upwards by the fact that these variables were unavailable.
3. Effect of 1998 Survey Design Changes on Differences in Loan Denial Rates
The question we used to examine the 1998 data was somewhat narrower than the question used
in the 1993 survey because it was changed by the survey designers. The 1998 question asked
about new loans over the preceding three years, whereas the 1993 question covered all loans,
including renewals. Responses in 1998 were as follows:
Applied for New Loans Last Three Years Number Percent
Did not apply 2,599 73.0%
Always approved 713 20.0%
Always denied 166 4.7%
Sometimes approved/sometimes denied 83 2.3%
Total 3,561 100.0%
The dependent variable used in Tables 6.18 and 6.19 was set to one if the loan application was
always denied and was set to zero if the application was always approved or sometimes
approved/sometimes denied. An alternative dependent variable–denylast–is set to one if the
application is always denied, set to zero if always approved. Those responding “sometimes
approved/sometimes denied” are excluded from the analysis. Column (1) of Table 6.20 replicates
Column 1 of Table 6.18 using denylast as the dependent variable with the smaller sub-sample.
African Americans, Hispanics, Asians/Pacific Islanders, and nonminority females are all
confirmed to face higher denial rates than nonminority males using this specification. For
291 The D&B Commercial Credit Score Report predicts the likelihood of a company paying in a delinquent manner
(90+ days past terms) during the next 12 months based on the information in D&B’s file. The score is intended
to help firms decide quickly whether to accept or reject accounts, adjust terms or credit limits, or conduct a more
extensive review based on the report D&B provides. Firms can also determine the company’s relative ranking
among other businesses in the D&B database.
292 The coefficients and t-statistics on the credit score variables when they were included alone in a U.S. loan denial
model was as follows: moderate risk = .228 (2.45); average risk = .295 (3.25); significant risk =.319 (3.28); high
risk = .391 (3.53); n =924; pseudo r 2 =.0253. Excluded category “low risk.” Results were essentially the same
when a control for ENC was also included.
293 This confirms the findings of Cavalluzzo, Cavalluzzo and Wolken (1999) who performed a similar exercise with
the 1993 data.
NERA Economic Consulting 219