These links appear to be driven partly, but not entirely, by opportunities to acquire both
general and specific business human capital from working in family members'
businesses. Business inheritances and partnerships with family members appear to play
only a minor role. We next examine whether these factors play a role in determining
small business outcomes conditioning on ownership.
THE DETERMINANTS OF SMALL BUSINESS OUTCOMES
Logit and linear regression models are estimated for several small business
outcomes available in the CBO. Table 2 reports estimates for regressions for the
probability of a business closure from 1992-1996, the probability that the firm has pro its
of at least $10,000 per year, the probability of having employees, and log sales.13 The
Appendix reports mean values for each of the dependent variables. Estimates from the
CBO indicate that nearly one quarter of small businesses existing in 1992 were not
operating by 1996, and slightly more than 30 percent of businesses report a net profit of
at least $10,000. Small firms also hire 1.77 employees on average with only 21.3 percent
hiring any employees. Finally, small businesses had mean sales of $212,791 in 1992.
In all specifications, we include the race, sex, region and urbanicity of the firm,
and the education level, marital status and previous work experience of the owner as
controls (mean values are reported in the Appendix). We also include dummy variables
for whether the owner had a family member who was a business owner, worked for that
13 Unfortunately, only a categorical measure of profits is available in the CBO. Estimates for the profit equation using a cutoff of $25,000 are similar to those reported below. The other possible cutoff of $100,000 yielded too few observations in which the dependent variable equals one. We use a logit model for the employment probability because most of the variation in employment among small businesses is between 0 and 1 employees. Roughly 80 percent of firms have no employees and only a small percent have more than 5 employees.