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

64 Pages Posted: 25 Jun 2013

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: June 2013

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: Co-Funding, Formal Finance, Growth, Informal Finance

JEL Classification: G21, G32, P2

Suggested Citation

Degryse, Hans and Lu, Liping and Ongena, Steven R. G., Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms (June 2013). CEPR Discussion Paper No. DP9519. Available at SSRN: https://ssrn.com/abstract=2284609

Hans Degryse (Contact Author)

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

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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