How Ethnic Minority Executives Shape Firms’ Financing

 

Abstract

This paper investigates differences in financing outcomes between ethnic minority-led and non-minority-led private firms in Germany. I find that minority-led firms use less bank loans, while relying more heavily on alternative financing channels. Depending on firms’ broader organizational environment, these include trade credit and payables to shareholders or affiliated firms. These patterns are consistent with the notion that cultural alignment between contracting parties influences financial relationships and, more broadly, the degree of relational embeddedness within lending and supplier networks. The results further indicate that the availability of co-ethnic networks can facilitate financial relationships and mitigate cultural frictions in supplier relationships.