| Abstract: |
This empirical study investigates the linkages among entrepreneurship in the
form of establishment entry, local banking markets, and broadband
availability, focusing on minority areas in the US. Lack of access to banks
and lack of competition in the market for small business loans can make it
more difficult for an entrepreneur to overcome the liquidity constraint to
starting a new business. Broadband internet access can facilitate startups
directly by enhancing firm profitability and indirectly by stimulating
competition in the loan market, lowering the cost of access to finance, and
enabling access to financial capital from fintech lenders. The barriers to new
business creation erected by local banking markets are hypothesized to be even
higher in minority areas, given the greater difficulty minority entrepreneurs
face in raising financial capital. The empirical results show that broadband
availability, local bank density, and competition in small business loans all
facilitate startups. Broadband lowers barriers for entrepreneurs as
hypothesized through both the direct and indirect channels. Broadband
availability attenuates the barriers from insufficient access to local banks
and lack of competition in small business loans from banks. For some
industries, higher bank density and greater loan competition facilitate
startups more in minority areas than in mostly white areas. Given that
minority areas have many fewer banks per capita and much less loan competition
than mostly white counties, the results imply that minority areas face even
higher barriers to entrepreneurship from insufficient local formal financial
resources. The moderating effect of broadband on local financial constraints
applies even more so to Black communities; thus while the barriers for Black
entrepreneurs may be higher, access to broadband has a greater alleviating
effect on those barriers. Business creation in Hispanic areas also faces
obstacles from the local banking environment, but broadband does not appear to
help reduce them, although it still has a positive direct effect on entry.
Additional evidence shows that broadband helped small businesses in minority
areas procure more bank loans. Broadband access can thus help entrepreneurs in
general, Blacks in particular, and to a lesser extent Hispanics surmount the
liquidity constraint to starting a business. The implications of the results
are discussed with reference to current and proposed policy to promote
broadband availability, usage, and digital equity. |