NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Informal Financial Networks: Theory and Evidence

Mark J. Garmaise, Tobias J. Moskowitz

NBER Working Paper No. 8874
Issued in April 2002
NBER Program(s):   AP   CF

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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Document Object Identifier (DOI): 10.3386/w8874

Published: Garmaise, Mark and Tobias J. Moskowitz. “Informal Financial Networks: Theory and Evidence." Review of Financial Studies 16, 4 (2003): 1007-1040.

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