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

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Author Info

  • Degryse, H.A.
  • Lu, L.
  • Ongena, S.

    (Tilburg University, Center for Economic Research)

Abstract

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.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2013-034.

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Date of creation: 2013
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Handle: RePEc:dgr:kubcen:2013034

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Web page: http://center.uvt.nl

Related research

Keywords: Informal Finance; Formal Finance; Co-Funding; Growth;

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Cited by:
  1. Carmen Kislat & Lukas Menkhoff & Doris Neuberger, 2013. "The Use of Collateral in Formal and Informal Lending," Kiel Working Papers 1879, Kiel Institute for the World Economy.

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