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

Hans Degryse, Steven Ongena and Liping Lu

No 9519, CEPR Discussion Papers from Centre for Economic Policy Research

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 (search for similar items in EconPapers)
JEL-codes: G21 G32 P2 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ifn, nep-iue, nep-mfd and nep-sbm
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Related works:
Working Paper: Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms (2013)
Working Paper: Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms (2013)
Working Paper: Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms (2013)
Working Paper: Informal or formal financing? Or both? First evidence on the co-funding of Chinese firms (2013)
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