Informal or Formal Financing? Evidence on the Co-Funding of Chinese Firms

41 Pages Posted: 17 Mar 2012 Last revised: 1 Feb 2016

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Liping Lu

VU University Amsterdam

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 5 versions of this paper

Date Written: February 1, 2016

Abstract

Different modes of external finance provide heterogeneous benefits for the borrowing firms. Informal finance offers informational advantages whereas formal finance is scalable. Using unique survey data from China, we find that informal finance is associated with higher sales growth for small firms but 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. Co-funding, thereby simultaneously using the informational advantage of informal finance and the scalability of formal finance, is therefore the optimal choice for small firms.

Keywords: informal finance, formal finance, co-funding, sales growth

JEL Classification: G21, G32, P2

Suggested Citation

Degryse, Hans and Lu, Liping and Ongena, Steven R. G., Informal or Formal Financing? Evidence on the Co-Funding of Chinese Firms (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=2023751 or http://dx.doi.org/10.2139/ssrn.2023751

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Liping Lu (Contact Author)

VU University Amsterdam

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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