BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Informal or formal financing? Or both? First evidence on the co-funding of Chinese firms
(), Liping Lu
() and Steven Ongena
Abstract: The recent financial crisis has reopened the debate on the
impact of informal and formal finance on firm growth in developing
countries. Using unique survey data, we find that informal finance is
associated with higher sales growth for small firms and lower sales growth
for large firms. We identify a complementary effect between informal and
formal finance for the sales growth of small firms, but not for large
firms. Informal finance offers informational and monitoring advantages,
while formal finance offers relatively inexpensive funds. Co-funding, i.e.
the simultaneous use of formal and informal finance, is the optimal choice
for small firms.
Keywords: informal finance; formal finance; co-funding; growth; (follow links to similar papers)
JEL-Codes: G21; G32; P29; (follow links to similar papers)
54 pages, June 18, 2013
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