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Social networks and informal financial inclusion in China

Shijun Chai (), Yang Chen (), Bihong Huang () and Dezhu Ye ()
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Shijun Chai: Xinyang Normal University
Yang Chen: Xi’an Jiaotong-Liverpool University
Bihong Huang: Asian Development Bank Institute
Dezhu Ye: Jinan University

Asia Pacific Journal of Management, 2019, vol. 36, issue 2, 529-563

Abstract: Abstract Using the 2011 China Household Finance Survey (CHFS) database, we explore the heterogeneous impacts of social networks on informal financial inclusion for Chinese urban and rural households. We find that social networks significantly increase the probability of households’ participation in the informal financial market, augment the size of informal financial transaction, and raise the ratio of informal lending over the total household assets. We also identify the mechanisms through which the social networks affect households’ participation in the informal financial market. By reducing information cost, perceived risk and precautionary saving, social networks play a larger role for urban households than rural households. Notably, the effects of social networks on informal finance are strengthened with the development of formal financial market.

Keywords: Social networks; Informal financial inclusion; Perceived risk; Precautionary savings; Formal financial market (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10490-017-9557-5

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