CES-WP-06-33
Access to Financial Capital Among U.S. Businesses: The Case of African-American Firms
Alicia Robb, Robert Fairlie
December 01, 2006
The differences between African-American business ownership rates and white business ownership rates are striking. Estimates from the 2000 Census indicate that 11.8 percent of white workers are self-employed business owners, compared with only 4.8 percent of black workers. Furthermore, black-white differences in business ownership rates have remained roughly constant over most of the twentieth century (Fairlie and Meyer 2000). In addition to lower rates of business ownership, black-owned businesses are less successful on average than are white or Asian firms. In particular, black-owned businesses have lower sales, hire fewer employees and have smaller payrolls than white- or Asian-owned businesses, on average (U.S. Census Bureau 2001, U.S. Small Business Administration 2001). Black firms also have lower profits and higher closure rates than white firms (U.S. Census Bureau 1997, U.S. Small Business Administration 1999). For most outcomes, the disparities are extremely large. For example, estimates from the 2002 Survey of Business Owners (SBO) indicate that white firms have average sales of $437,870 compared with only $74,018 for black firms.
View Paper 37 Pages 203474 Bytes
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CES-WP-06-32
Determinants of Business Success: An Examination of Asian-Owned Businesses in the United States
Alicia Robb, Robert Fairlie
December 01, 2006
Using confidential and restricted-access microdata from the U.S. Census Bureau, we find
that Asian-owned businesses are 16.9 percent less likely to close, 20.6 percent more likely to
have profits of at least $10,000, and 27.2 percent more likely to hire employees than whiteowned
businesses in the United States. Asian firms also have mean annual sales that are roughly
60 percent higher than the mean sales of white firms. Using regression estimates and a special
non-linear decomposition technique, we explore the role that class resources, such as financial
capital and human capital, play in contributing to the relative success of Asian businesses. We
find that Asian-owned businesses are more successful than white-owned businesses for two main
reasons – Asian owners have high levels of human capital and their businesses have substantial
startup capital. Startup capital and education alone explain from 65 percent to the entire gap in
business outcomes between Asians and whites. Using the detailed information on both the
owner and the firm available in the CBO, we estimate the explanatory power of several
additional factors.
View Paper 58 Pages 168898 Bytes
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CES-WP-06-31
A General Inter-Industry Relatedness Index
David Bryce, Sidney Winter
December 01, 2006
Firm growth and expansion is widely believed to be guided by the desire to leverage
existing resources. But which resources? The answer depends largely on context—the
peculiarities of industries, firms, technologies, production, customers, and a host of other
dimensions. This fact makes pointing to any particular set of resources as the source of
expansion decisions potentially problematic and makes more difficult tests of theories such as
the resource-based view of the firm. This paper tackles the problem by developing a general
inter-industry relatedness index that can be usefully applied across industry and firm contexts.
The index harnesses the relatedness information embedded in the multi-product organization and
diversification decisions of every firm in the US manufacturing economy. The index is general in
that it implicitly varies the underlying resources upon which expansion proceeds with the
industries in question and provides a percentile relatedness rank for every possible pair of fourdigit
SIC manufacturing industries. The general index is tested for predictive validity and found
to perform as expected. Applications of the index in strategy research are suggested.
View Paper 39 Pages 449207 Bytes
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CES-WP-06-30
Gross Job Flows for the U.S. Manufacturing Sector: Measurement from the Longitudinal Research Database
Lucia Foster, John Haltiwanger, Namsuk Kim
December 01, 2006
Measures of job creation and destruction are now produced regularly by the U.S. statistical
agencies. The Bureau of Labor Statistics releases via the Business Employment Dynamics (BED) on a
quarterly basis measures of job creation and destruction for the U.S. nonfarm business sector and related
disaggregation by industrial sector and size class. The U.S. Census Bureau has developed the
Longitudinal Business Database (LBD) covering the nonfarm business sector that has been used to
produce research analysis and special tabulations including tabulations of job creation and destruction.
Both of these data programs build upon the measurement methods and data analysis of job creation and
destruction measures from the Longitudinal Research Database (LRD) developed and published by Davis,
Haltiwanger and Schuh (1996). In this paper, the LRD based estimates of job creation and destruction are
updated and made available for consistent annual and quarterly series from 1972-1998. While the BED
and LBD programs are more comprehensive in scope than the LRD, the extensive development of the
LRD permits the construction of measures of job creation and destruction for a rich array of employer
characteristics including industry, size, business age, ownership structure, location and wage structure.
The updated series that are released with this working paper provide measures along each of these
dimensions. The paper describes in detail the changes in the processing of the Annual Survey of
Manufactures over the 1972-1998 period that are important to incorporate by users of the LRD at Census
Research Data Centers as well as users of products from the LRD such as job creation and destruction.
View Paper 42 Pages 215646 Bytes
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CES-WP-06-29
Industry Learning Environments and the Heterogeneity of Firm Performance
Natarajan Balasubramanian, Marvin Lieberman
December 01, 2006
This paper characterizes inter-industry heterogeneity in rates of learning-by-doing and
examines how industry learning rates are connected with firm performance. Using data from the
Census Bureau and Compustat, we measure the industry learning rate as the coefficient on
cumulative output in a production function. We find that learning rates vary considerably among
industries and are higher in industries with greater R&D, advertising, and capital intensity. More
importantly, we find that higher rates of learning are associated with wider dispersion of Tobin’s
q and profitability among firms in the industry. Together, these findings suggest that learning
intensity represents an important characteristic of the industry environment.
View Paper 54 Pages 293343 Bytes
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CES-WP-06-28
The Industry R&D Survey: Patent Database Link Project
William Kerr, Shihe Fu
November 01, 2006
This paper details the construction of a firm-year panel dataset combining the NBER
Patent Dataset with the Industry R&D Survey conducted by the Census Bureau and
National Science Foundation. The developed platform offers an unprecedented view of
the R&D-to-patenting innovation process and a close analysis of the strengths and
limitations of the Industry R&D Survey. The files are linked through a name-matching
algorithm customized for uniting the firm names to which patents are assigned with the
firm names in Census Bureau’s SSEL business registry. Through the Census Bureau’s
file structure, this R&D platform can be linked to the operating performances of each
firm’s establishments, further facilitating innovation-to-productivity studies.
View Paper 29 Pages 87667 Bytes
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CES-WP-06-27
Stability and Change in Individual Determinants of Migration: Evidence from 1985-1990 and 1995 to 2000
Charles Tolbert, Troy Blanchard, Michael Irwin
November 01, 2006
In this paper, we compare the reliability of migration estimates from two rather different macroeconomic periods in recent U.S. history. One of these periods, 1985-1990 coincides with the culmination of a vast industrial restructuring which saw a significant decline in manufacturing employment. The other period, 1995-2000, encompasses a time of robust economic growth and tight labor markets driven by productivity gains associated with new technologies. Our interest here is in the stability of common individual-level predictors of migration in these rather disparate macroeconomic contexts. Using confidential internal versions of the 1990 and 2000 Census long-form data, we estimate logistic models of the likelihood that individuals will migrate. The geographic detail in the internal Census data permits us to measure migration in ways that are not possible with public-domain Census data on persons. We develop migration definitions that distinguish between local residential mobility likely associated with life course transitions from migration out of the labor market area that may be driven more by employment and other socioeconomic considerations. Using logistic modeling, we find that the same individual attributes predict migration reasonably well during both periods. We also compute some illustrative probabilities of migration that show temporal stability in migration predictors could be lessened by certain changes in population composition.
View Paper 31 Pages 151248 Bytes
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CES-WP-06-26
Efficiency Implications of Corporate Diversification: Evidence from Micro Data
Ekaterina Emm, Jayant Kale
November 01, 2006
In this study, we contribute to the ongoing research on the rationales for corporate
diversification. Using plant-level data from the U.S. Census Bureau, we examine whether
combining several lines of business in one entity leads to increased productive efficiency.
Studying the direct effect of diversification on efficiency allows us to discern between
two major theories of corporate diversification: the synergy hypothesis and the
agency cost hypothesis. To measure productive efficiency, we employ a non-parametric
approach—a test based on Varian’s Weak Axiom of Profit Maximization (WAPM). This
method has several advantages over other conventional measures of productive
efficiency. Most importantly, it allows one to perform the efficiency test without relying
on assumptions about the functional form of the underlying production function. To the
best of our knowledge, this study is the first application of the WAPM test to a large
sample of non-financial firms. The study provides evidence that business segments of
diversified firms are more efficient compared to single-segment firms in the same
industry. This finding suggests that the existence of the so-called ‘diversification
discount’ cannot be explained by efficiency differences between multi-segment and
focused firms. Furthermore, more efficient segments tend to be vertically integrated with
others segments in the same firm and to have been added through acquisitions rather than
grown internally. Overall, the results of this study indicate that corporate diversification
is value-enhancing, and that it is not necessarily driven by managers’ pursuit of their
private benefits.
View Paper 69 Pages 680256 Bytes
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CES-WP-06-25
Explaining Cyclical Movements in Employment: Creative-Destruction or Changes in Utilization?
Andrew Figura
November 01, 2006
An important step in understanding why employment fluctuates cyclically is determining
the relative importance of cyclical movements in permanent and temporary plant-level
employment changes. If movements in permanent employment changes are important, then
recessions are times when the destruction of job specific capital picks up and/or investment in
new job capital slows. If movements in temporary employment changes are important, then
employment fluctuations are related to the temporary movement of workers across activities (e.g.
from work to home production or search and back again) as the relative costs/benefits of these
activities change. I estimate that in the manufacturing sector temporary employment changes
account for approximately 60 percent of the change in employment growth over the cycle.
However, if permanent employment changes create and destroy more capital than temporary
employment changes, then their economic consequences would be relatively greater. The
correlation between gross permanent employment changes and capital intensity across industries
supports the hypothesis that permanent employment changes do create and destroy more capital
than temporary employment changes.
View Paper 34 Pages 150298 Bytes
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CES-WP-06-24
Why Are Plant Deaths Countercyclical: Reallocation Timing or Fragility?
Andrew Figura
November 01, 2006
Because plant deaths destroy specific capital with large local economic impacts and
potentially important macroeconmic effects, understanding the causes of deaths and, in
particular, why they are concentrated in cyclical downturns, is important. The reallocationtiming
hypothesis posits that plants suffering adverse permanent demand/productivity shocks
delay shutdowns until cyclical downturns when plant capacity is less valuable, while the fragility
hypothesis posits that shutdowns occur in downturns because the option value of maintaining the
plant through low profitability periods is too small. I show that the effect that a plant’s specific
capital has on the timing of plant deaths differs across these two hypotheses and then use this
insight to test the hypotheses’ relative importance. I find that fragility is the dominant cause of
the countercyclical behavior of plant deaths. This suggests that the endogenous destruction of
capital is likely an important amplification and propagation mechanism for cyclical shocks and
that stabilization policies have the benefit of reduced capital destruction.
View Paper 43 Pages 224536 Bytes
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