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Financing Entrepreneurship and the Old-Boy Network

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  • Inci, Eren

    () (Sabanci University)

  • Parker, Simon C.

    () (Western University, Canada)

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.

Suggested Citation

  • Inci, Eren & Parker, Simon C., 2012. "Financing Entrepreneurship and the Old-Boy Network," IZA Discussion Papers 6288, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp6288
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    Cited by:

    1. Inci, Eren, 2013. "Occupational choice and the quality of entrepreneurs," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 1-21.

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    More about this item

    Keywords

    entrepreneurship; financiers; networks; start-up financing;
    All these keywords.

    JEL classification:

    • 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

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