Financing Entrepreneurship and the Old-Boy Network
AbstractWe 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6288.
Length: 40 pages
Date of creation: Jan 2012
Date of revision:
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Other versions of this item:
- Eren Inci & Simon C. Parker, 2013. "Financing Entrepreneurship and the Old-Boy Network," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 232-258, 06.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-ENT-2012-02-20 (Entrepreneurship)
- NEP-PPM-2012-02-20 (Project, Program & Portfolio Management)
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