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The choice of formal or informal finance: Evidence from Chengdu, China

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  • Zhang, Guibin

Abstract

China's economic development since 1978 has been fuelled largely by a new private sector which is supported by both formal and informal financing channels. Although there is still a debate on the role of alternative financing mechanisms, the existence of such practices in China is accepted in the literature. This paper looks into the socio-economic patterns of private entrepreneurs regarding the choice of formal or informal finance, using survey data from Chengdu, China. Both the logit and ordered logit model are employed to examine the hypothesised factors. The results show that reputation and relationships play important roles in formal financing of the small private firms in China.

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  • Zhang, Guibin, 2008. "The choice of formal or informal finance: Evidence from Chengdu, China," China Economic Review, Elsevier, vol. 19(4), pages 659-678, December.
    • Handle: RePEc:eee:chieco:v:19:y:2008:i:4:p:659-678
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    8. Esho, Ebes & Verhoef, Grietjie, 2018. "The Funding Gap and the Financing of Small and Medium Businesses: An Integrated Literature Review and an Agenda," MPRA Paper 90153, University Library of Munich, Germany, revised 21 Nov 2018.
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    15. Sana Ullah & Muhammad Tariq Majeed & Babur Wasim Arif, 2021. "Social capital and firms’ choice of financing under credit constraints: microeconomic evidence from Pakistan," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(1), pages 3-13, March.
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    More about this item

    Keywords

    C42 E26 O17 R51 Informal economy Formal and informal sectors Private businesses in China Informal finance;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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