The Effect of Ethnic Stereotypes and Evaluators’ Ethnic Identity on Funding-Worthiness: Evidence About Latinx Entrepreneurs in the United States

Abstract Despite the growing importance of entrepreneurship as a pathway to economic mobility, ethnic minority entrepreneurs continue to face persistent disadvantages in access to capital, particularly following business failure. This study examines how ethnic stereotypes and evaluators’ ethnic identity shape perceptions of funding-worthiness for Latinx entrepreneurs relative to White non-Latinx entrepreneurs in the United States. Using a full-profile conjoint experiment comprising 12,496 evaluations from 781 evaluators, we provide evidence of systematic ethnicity-based disparities in post-failure funding assessments. Latinx entrepreneurs are evaluated as less funding-worthy than White entrepreneurs, even when objective financial indicators such as the level of debt indicate comparable or lower financial risk. These findings suggest that favorable financial attributes do not fully offset ethnicity-based disadvantages in evaluations. We further show that the ethnic identity of evaluators conditions these evaluations. Shared ethnic identity does not mitigate ethnicity-based disparities in perceived funding-worthiness. Instead, Latinx evaluators evaluate Latinx entrepreneurs less favorably than White evaluators. Together, these findings show how post-failure funding evaluations are shaped by embedded ethnic hierarchies, reproducing inequality in entrepreneurial finance. By identifying how ethnic stereotypes and ethnic identity jointly influence funding assessments, this study advances research on ethnic minority entrepreneurship and contributes to business ethics scholarship by clarifying mechanisms through which systemic inequality is sustained in evaluative decision-making.