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

54 Pages Posted: 5 Jul 2013

See all articles by Hans Degryse

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Liping Lu

VU University Amsterdam

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 5 versions of this paper

Date Written: June 18, 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: informal finance, formal finance, co-funding, growth

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 18, 2013). BOFIT Discussion Paper No. 14/2013, Available at SSRN: https://ssrn.com/abstract=2289779 or http://dx.doi.org/10.2139/ssrn.2289779

Hans Degryse (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Liping Lu

VU University Amsterdam

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Steven R. G. Ongena

University of Zurich - Department 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

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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