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Alternative financing and private firm performance

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  • Daphne Yiu
  • Jun Su
  • Yuehua Xu

Abstract

Why do private firms grow vibrantly in transition economies despite their limited access to formal financing? This study underscores the importance of informal financing in facilitating the growth of private firms in China. Drawing from the institutional economics argument, we posit that informal financing, in the form of underground financing and trade credit, substitutes formal financing in providing financial assistance and capital to private firms in China. We further posit that the effects of two kinds of informal financing vary across provinces with different levels of institutional development, and complement each other by supporting firms in different industries. We test our arguments with a sample of 284 private firms in 19 cities in China. The results generally support the value-added effects of alternative financing and its coexistence with formal financing. Our study contributes to the literature by highlighting informal financing as a void-filling institution in the capital markets in China. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Daphne Yiu & Jun Su & Yuehua Xu, 2013. "Alternative financing and private firm performance," Asia Pacific Journal of Management, Springer, vol. 30(3), pages 829-852, September.
    • Handle: RePEc:kap:asiapa:v:30:y:2013:i:3:p:829-852
    DOI: 10.1007/s10490-012-9303-y
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    5. Gokalp, Omer N. & Lee, Seung-Hyun & Peng, Mike W., 2017. "Competition and corporate tax evasion: An institution-based view," Journal of World Business, Elsevier, vol. 52(2), pages 258-269.
    6. Ruize Cai & Kyung Hwan Yun & Minho Kim, 2022. "Financing Constraints and Corporate Value in China: The Moderating Role of Multinationality and Ownership Type," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
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    10. Chakuu, Sumeer & Masi, Donato & Godsell, Janet, 2019. "Exploring the relationship between mechanisms, actors and instruments in supply chain finance: A systematic literature review," International Journal of Production Economics, Elsevier, vol. 216(C), pages 35-53.

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