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Informal Financial Networks: Theory and Evidence

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  • Mark J. Garmaise
  • Tobias J. Moskowitz
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    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.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8874.

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    Date of creation: Apr 2002
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    Publication status: published as Garmaise, Mark and Tobias J. Moskowitz. “Informal Financial Networks: Theory and Evidence." Review of Financial Studies 16, 4 (2003): 1007-1040.
    Handle: RePEc:nbr:nberwo:8874

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    Cited by:
    1. Anna Nagurney & Tina Wakolbinger & Li Zhao, 2006. "The Evolution and Emergence of Integrated Social and Financial Networks with Electronic Transactions: A Dynamic Supernetwork Theory for the Modeling, Analysis, and Computation of Financial Flows and R," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 27(2), pages 353-393, May.

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