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

H. Degryse, L. Lu, S. Ongena

Research output: Contribution to JournalArticleAcademicpeer-review

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.
LanguageEnglish
Pages31-50
JournalJournal of Financial Intermediation
Volume27
Issue numberJuly
DOIs
Publication statusPublished - 2016

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Chinese firms
Finance
Financing
Funding
Small firms
Sales growth
Large firms
China
Scalability
Borrowing
Survey data
External finance

Cite this

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

In: Journal of Financial Intermediation, Vol. 27, No. July, 2016, p. 31-50.

Research output: Contribution to JournalArticleAcademicpeer-review

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AU - Ongena, S.

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AB - 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.

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