Events

Ms. Victoria Y. Zhang
PhD Candidate in Management Science: Economic Sociology
Massachusetts Institute of Technology

While Black, Hispanic, and Asian individuals accounted for about 40% of the U.S. population in 2023, they only represented 23% of business owners, earning 12% of revenues. Scholars have typically explained this “racial gap” in entrepreneurial outcomes with supply-side mechanisms, such as entrepreneurs’ financial, human, or social capital. I investigate how the spatial segregation of customers affects inequality in entrepreneurial financial performance. Using Dun and Bradstreet’s ledger of credit applications, GPS data from U.S. cell phones, and credit and debit card data on establishment revenues, I identify the explanatory power of spatially segregated customers on entrepreneurs’ outcomes. Results show that lower-income customers explain about 30% of the gap between Black- and White business owners’ revenues and revenues per customer. Comparing minority and White-owners of similar fast-food establishments and using staggered COVID-19 stimulus checks, I find that minority entrepreneurs attract lower-income customers, which decreases their revenues compared to their White-owned counterparts. Accounting for differences in the income of the customers at Black-owned businesses accounts for 30% of the Black-White gap in revenues and 20% of that gap within the same franchise. This work underscores a key tension in minority entrepreneurship: in-group targeting, while necessary to attract local customers in largely segregated marketplaces, also increases resource disadvantages. Regional economic development thus aids entrepreneurs by improving the purchasing power of customers who frequent the business, augmenting claims that market failure creates barriers to entrepreneurship.