IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/17264.html

Implicit Benefits and Financing

Author

Listed:
  • Allen, Franklin
  • Qian, Meijun
  • Xie, Jing

Abstract

Social relationship and business connections create implicit benefits between borrowers and lenders. We model how implicit benefits and repayment enforcement costs influence credit allocation, cost, and renegotiation. The optimal solution illustrates that financing with implicit benefits can in many circumstances achieve lower financing costs, higher managerial effort, and better economic outcomes for both the borrower and the lender. This result explains the continuing expansion of alternative financing despite advanced formal financial intermediation, the rise of corporate insider debt, and joint ownership of debt and equity. The growing size and complexity of projects and changes in community relationships explain the expansion of bank financing.

Suggested Citation

  • Allen, Franklin & Qian, Meijun & Xie, Jing, 2022. "Implicit Benefits and Financing," CEPR Discussion Papers 17264, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17264
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP17264
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Cheng, Feiyang & Gao, Haoyu & Pan, Xiaofei & Qian, Meijun & Zhou, Qing (Clara), 2025. "China's debt market: Evolution, regulation, and global integration," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    3. Franklin Allen & Meijun Qian, 2025. "Alternative finance in the international business context: a review and future research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 56(1), pages 43-61, February.
    4. Reddy, Ketan & Gopalan, Sasidaran, 2023. "Gender bias in access to trade credit: Firm-level evidence from emerging markets," Global Finance Journal, Elsevier, vol. 57(C).
    5. Sun, Chenhe & Ji, Yinuo & Chen, Zhenyun, 2023. "Insider selling and credit spread of corporate bonds1," Finance Research Letters, Elsevier, vol. 58(PB).
    6. Carli, Francesco & Uras, Burak R., 2024. "E-money, risk-sharing, and welfare," European Economic Review, Elsevier, vol. 169(C).
    7. Po Li & Tingting Que & Jing Xie & Yuxiang Zhong, 2025. "Convertible Bonds and Firm Value: Evidence from China and Beyond," Working Papers 202522, University of Macau, Faculty of Business Administration.
    8. Song, Fenghua & Thakor, Anjan & Quinn, Robert, 2023. "Purpose, profit and social pressure," Journal of Financial Intermediation, Elsevier, vol. 55(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:17264. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.