Informal Financial Networks: Theory and Evidence

Mark J. Garmaise and Tobias J. Moskowitz

No 8874, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of informal financial networks and present corroborating evidence by studying the role of professional property brokers in the U.S. commercial real estate market. Our model demonstrates how service intermediaries, who do not supply finance themselves, can facilitate their clients' access to finance via repeated informal relationships with lenders. Empirically, we find that, controlling for endogenous broker selection, hiring a broker strikingly increases the probability of obtaining a bank loan from 40 to 58 percent. Our results demonstrate that even in the U.S., with its well-developed capital markets, informal networks play an important role in controlling access to finance.

JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-mfd
Note: AP CF
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Citations: View citations in EconPapers (1)

Published as Garmaise, Mark and Tobias J. Moskowitz. “Informal Financial Networks: Theory and Evidence." Review of Financial Studies 16, 4 (2003): 1007-1040.

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