Implicit benefits and financing

Social relationship and business connections create implicit benefits between borrowers lenders. We model how repayment enforcement costs influence credit allocation, cost, renegotiation. The optimal solution illustrates that financing with may achieve lower costs, higher managerial effort, better outcomes for both This result is consistent the continuing expansion of alternative despite formal financial intermediation, rise corporate insider debt, joint ownership debt equity. growing size complexity projects changes in community relationships can explain standard intermediation.