Alternative Financing and Private Firm Performance

24 Pages Posted: 16 Dec 2012

See all articles by Daphne W. Yiu

Daphne W. Yiu

Chinese University of Hong Kong (CUHK)

Jun Su

Beijing Technology and Business University - Business School

Yuehua Xu

The Chinese University of Hong Kong (CUHK)

Date Written: 2012

Abstract

Why do private firms grow vibrantly in transition economies despite their limited access to formal financing? This study underscores the importance of informal financing in facilitating the growth of private firms in China. Drawing from the institutional economics argument, we posit that informal financing, in the form of underground financing and trade credit, substitutes formal financing in providing financial assistance and capital to private firms in China. We further posit that the effects of two kinds of informal financing vary across provinces with different levels of institutional development, and complement each other by supporting firms in different industries. We test our arguments with a sample of 284 private firms in 19 cities in China. The results generally support the value-added effects of alternative financing and its coexistence with formal financing. Our study contributes to the literature by highlighting informal financing as a void-filling institution in the capital markets in China.

Keywords: Alternative financing, Capital access, Private firms, China

JEL Classification: Q32

Suggested Citation

Yiu, Daphne and Su, Jun and Xu, Yuehua, Alternative Financing and Private Firm Performance (2012). Asia Pacific Journal of Management, 2013, Available at SSRN: https://ssrn.com/abstract=2189909

Daphne Yiu

Chinese University of Hong Kong (CUHK) ( email )

Hong Kong
Hong Kong

Jun Su (Contact Author)

Beijing Technology and Business University - Business School ( email )

11/33, Fucheng Road
Beijing, 102488
China
68984784 (Phone)
68984784 (Fax)

HOME PAGE: http://www.btbu.edu.cn

Yuehua Xu

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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