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RFS Advance Access originally published online on August 11, 2003
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Rev Fin 2003; 16:1007-1040
© 2003 the Society for Financial Studies

Informal Financial Networks: Theory and Evidence

Mark J. Garmaise
UCLA

Tobias J. Moskowitz
University of Chicago and NBER

Address correspondence to Mark Garmaise, Anderson School of Management, UCLA, 110 Westwood Plaza, Box 951481, Los Angeles, CA 90095, or e-mail: mark.garmaise{at}anderson.ucla.edu.

Abstract

We develop a model of informal financial networks and present corroborating evidence by studying the role of property brokers in the U.S. commercial real estate market. Our model demonstrates that service intermediaries, who do not themselves supply loans, can facilitate their clients' access to finance through informal relationships with lenders. Empirically we find that, controlling for endogenous broker selection, hiring a broker strikingly increases the probability of obtaining bank finance. Our results demonstrate that even in the United States, with its well-developed capital markets, informal networks play an important role in controlling access to finance.


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