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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31577
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| Title: | Financing from Family and Friends |
| Authors: | Lee, Samuel
Persson, Petra |
| Issue Date: | 28-Jun-2012 |
| Series/Report no.: | FIN-12-007 |
| Abstract: | Financing from family and friends is the predominant type of informal
finance. This paper proposes a theory that reconciles two seemingly
paradoxical traits of this form of finance, namely, it is often provided
at negative prices but nevertheless eschewed by borrowers. A central
prediction is that such finance, while breeding trust, deters risk
taking. Demand is thus constrained: entrepreneurs may forgo risky
investment rather than finance it through family and friends. Formal
finance is valuable precisely because it is regulated only by contract.
The highlighted trade-offs between formal and informal finance are
potentially relevant for the provision of microventure capital. |
| URI: | http://hdl.handle.net/2451/31577 |
| Appears in Collections: | Finance Working Papers
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