more likely to close and are less likely to have employees, but are more likely to have
large profits and have higher sales than firms located in non-urban areas.
Having a family business background is important for small business outcomes.
The main effect, however, appears to be through the informal learning or apprenticeship
type training that occurs in working at a family business and not from simply having a
self-employed family member. The coefficient estimates on the dummy variable
indicating whether the owner had a family member who owned a business are small and
statistically insignificant in all of the specifications except for the closure probability
equation. In contrast, working at this family member's business has a large positive and
statistically significant effect in all specifications. The probability of a business closure is
0.042 lower, the probability of large profits is 0.032 higher, the probability of
employment is 0.055 higher, and sales are roughly 40 percent higher if the business
owner had worked for one of his/her self-employed family members prior to starting the
business.16 The effects on the closure, profit and employment probabilities represent 15.3
to 26.6 percent of the sample mean for the dependent variables.
The findings from the closure equation are roughly consistent with the findings
from previous studies. Using a sample of white male-owned firms from the 1982 CBO,
Bates (1990b) finds that having a close relative who was self-employed has a negative,
but statistically insignificant (t-statistic of 1.41) effect on the probability of a business
failure. In the 1982 CBO "close relatives," however, are defined to include non-family
members with whom frequent contact was maintained by the owner. Fairlie (1999)
provides additional evidence from the Panel Study of Income Dynamics (PSID). Having
16 These estimates are not overly sensitive to the exclusion of firms started before 1980. In addition, estimates from the log sales specification are not sensitive to the exclusion of firms with