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

H.A. Degryse, L. Lu, S. Ongena

Research output: Working paperDiscussion paperOther research output

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Abstract

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.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages63
Volume2013-006
Publication statusPublished - 2013

Publication series

NameEBC Discussion Paper
Volume2013-006

Fingerprint

Finance
Financing
Chinese firms
Funding
Small firms
Sales growth
Large firms
Survey data
Developing countries
Financial crisis
Monitoring
Firm growth

Keywords

  • Informal Finance
  • Formal Finance
  • Co-Funding
  • Growth

Cite this

Degryse, H. A., Lu, L., & Ongena, S. (2013). Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms. (EBC Discussion Paper; Vol. 2013-006). Tilburg: EBC.
Degryse, H.A. ; Lu, L. ; Ongena, S. / Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms. Tilburg : EBC, 2013. (EBC Discussion Paper).
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Degryse, HA, Lu, L & Ongena, S 2013 'Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms' EBC Discussion Paper, vol. 2013-006, EBC, Tilburg.

Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms. / Degryse, H.A.; Lu, L.; Ongena, S.

Tilburg : EBC, 2013. (EBC Discussion Paper; Vol. 2013-006).

Research output: Working paperDiscussion paperOther research output

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N2 - 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.

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KW - Formal Finance

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Degryse HA, Lu L, Ongena S. Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms. Tilburg: EBC. 2013. (EBC Discussion Paper).