Informal Financial Networks: Theory and Evidence

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.

Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition

Using a unique sample of commercial loans and mergers between large banks, we provide microlevel (within-county) evidence linking credit conditions to economic development and find a spillover effect on crime. Neighborhoods that experienced more bank mergers are subjected to higher interest rates, diminished local construction, lower prices, an influx of poorer households, and higher property crime in subsequent years. The elasticity of property crime with respect to merger-induced banking concentration is 0.18. We show that these results are not likely due to reverse causation, and confirm the central findings using state branching deregulation to instrument for bank competition.

Confronting Information Asymmetries: Evidence from Real Estate Markets

This paper studies the role of asymmetric information in commercial real estate markets in the U.S. We propose a novel and exogenous measure of information based on the quality of property tax assessments in different regions. Employing direct and indirect information variables, we find strong evidence that information considerations are significant in this market. We show that market participants resolve information asymmetries by purchasing nearby properties, trading properties with long income histories, and avoiding transactions with informed professional brokers. The evidence that the choice of financing is used to address information concerns is mixed and weak.

Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation

We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property non-recourse loan contracts. We employ commercial zoning regulation to capture the flexibility of a property's permitted uses as a measure of an asset's redeployability or value in its next best use. Within a census tract, more redeployable assets receive larger loans with longer maturities and durations, lower interest rates, and fewer creditors, controlling for the current value of the property, its type, and neighborhood. These results are consistent with incomplete contracting and transaction cost theories of liquidation value and financial structure.

Information, the Cost of Credit, and Operational Efficiency: An Empirical Study of Microfinance

We provide direct evidence on the impact of asymmetric information on both financing and operating activities through a study of credit evaluations of microfinance institutions (MFIs). We employ a regression discontinuity model that exploits the eligibility criteria of an evaluation subsidy offered by a non-profit consortium. Evaluations dramatically cut the cost of financing. This effect is strongest for commercial lenders and for short-term MFI-lender relationships. The impact of evaluations on the supply of finance is mixed. Evaluated MFIs lend more efficiently, extending more loans per employee

Financial Constraints and Labor Management in Entrepreneurial Firms

Nyborg. I thank the Harold Price Center for Entrepreneurial Studies for support. Financial Constraints and Labor Management in Entrepreneurial Firms We model the contrasting capital-labor decisions and work practices of financially constrained and unconstrained firms. We show that financially restricted firms use relatively more labor than capital because informed employees provide more efficient financing than uninformed capital suppliers. We demonstrate that constrained firms find it hard to attract new employees and thereby replace existing staff. This aligns owner-worker incentives and encourages workers to co-specialize with colleagues, so constrained firms grant more discretion to employees and more frequently produce in teams. Empirical tests on two data sets of small businesses confirm the central implications Small entrepreneurial firms and large companies have very different labor management policies. One important distinction is that small firms are much more labor-intensive in their production processes. For example, data from the 1997 Economic Census show that the average sales-toemploye