Financing Entrepreneurship and the Old-Boy Network

Eren Inci and Simon Parker ()

No 6288, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study entrepreneurs' start-up financing from banks and local financiers. An informal network, whose membership cannot be observed by outsiders, conveys the good signals it gets about the hidden types of network entrepreneurs to local financiers, which are then reflected in different loan terms. We show that there are winners and losers as a result of the network even among its members. Because all projects have positive net value, it is efficient to finance them even in the absence of a network. Thus, the formation of the network is inefficient as entrepreneurs incur networking costs for purely redistributive gains in the form of better loan terms as network members.

Keywords: start-up financing; networks; financiers; entrepreneurship (search for similar items in EconPapers)
JEL-codes: D82 G20 L26 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-01
New Economics Papers: this item is included in nep-ent and nep-ppm
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Published - published in: Journal of Economics & Management Strategy, 2013, 22 (2), 232-258

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Journal Article: Financing Entrepreneurship and the Old‐Boy Network (2013)
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