Testing for racial bias in business credit scores

We develop a novel empirical test of racial bias based on comparisons between forward-looking, expectations-based credit scores and backward-looking, repayment-history-based credit scores. We then test for racial bias using confidential-access data from the Kauffman Firm Survey. Businesses founded by disadvantaged minorities have much lower average business credit scores, but these scores show no evidence of racial bias. If anything, forward-looking credit-score models under-predict the rate of payment delinquency among minority-owned businesses.

Duke Scholars

Author David T. Robinson Fuqua School of Business