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Informal Financial Networks: Theory and Evidence

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  • Mark J. Garmaise
  • Tobias J. Moskowitz

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.

Suggested Citation

  • Mark J. Garmaise & Tobias J. Moskowitz, 2002. "Informal Financial Networks: Theory and Evidence," NBER Working Papers 8874, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8874
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    Cited by:

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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