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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, Hans

    ()
    (BOFIT)

  • Lu, Liping

    ()
    (BOFIT)

  • Ongena, Steven

    ()
    (BOFIT)

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 Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 14/2013.

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Length: 54 pages
Date of creation: 18 Jun 2013
Date of revision:
Handle: RePEc:hhs:bofitp:2013_014

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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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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