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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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    4. Cull,Robert J. & Gan,Li & Gao,Nan & Xu,L. Colin & Cull,Robert J. & Gan,Li & Gao,Nan & Xu,L. Colin, 2015. "Dual credit markets and household access to finance : evidence from a representative Chinese household survey," Policy Research Working Paper Series 7454, The World Bank.
    5. Xiangping Jia & Franz Heidhues & Manfred Zeller, 2010. "Credit rationing of rural households in China," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(1), pages 37-54, May.
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    7. Wim Naudé & Melissa Siegel & Katrin Marchand, 2017. "Migration, entrepreneurship and development: critical questions," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-16, December.
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    9. Zhongming Tan & Krobea Asante Emmanuel & Guoping Ding, 2019. "Assessing Factors Affecting Formal Finance to Farmers in Ghana: Empirical Evidence of Sunyani West District," Business and Economic Research, Macrothink Institute, vol. 9(2), pages 169-181, June.
    10. Rocca Espinoza, Salustiano Eduardo & Duréndez Gómez-Guillamón, Antonio, 2017. "Factores determinantes que explican el acceso a la financiación bancaria: un estudio empírico en empresas peruanas," Small Business International Review, Asociación Española de Contabilidad y Administración de Empresas - AECA, vol. 1(1), pages 11-34, July.
    11. Naudé, Wim & Siegel, Melissa & Marchand, Katrin, 2015. "Migration, Entrepreneurship and Development: A Critical Review," IZA Discussion Papers 9284, Institute of Labor Economics (IZA).
    12. Liming Zhou & Shujie Yao & Jinmin Wang & Jinghua Ou, 2016. "Global financial crisis and China’s pawnbroking industry," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 14(2), pages 151-164, May.
    13. Florin Peci, 2015. "What determines the allowance of bank loans for investment – an overview of Kosovo SMEs," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 1(1), pages 27-35, April.
    14. Du, Julan & Li, Chang & Wang, Yongqin, 2023. "Shadow banking of non-financial firms: Arbitrage between formal and informal credit markets in China," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    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.
    16. Zhang, Heather Xiaoquan & Loubere, Nicholas, 2013. "Rural finance, development and livelihoods in China," Working Papers on East Asian Studies 94/2013, University of Duisburg-Essen, Institute of East Asian Studies IN-EAST.
    17. 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.
    18. Matthew Lowenstein, 2024. "Rotating savings and credit associations (ROSCAs) in prewar China: Communal finance and the roots of economic development," Economic History Review, Economic History Society, vol. 77(3), pages 796-822, August.
    19. Jun Du & Alessandra Guariglia & Alexander Newman, 2015. "Do Social Capital Building Strategies Influence the Financing Behavior of Chinese Private Small and Medium–Sized Enterprises?," Entrepreneurship Theory and Practice, , vol. 39(3), pages 601-631, May.
    20. Ha, Le Thanh & Dung, Hoang Phuong & Thanh, To Trung, 2023. "Bribery, global value chain decisions, and institutional constraints: Evidence from a cross-country firm-level data," International Economics, Elsevier, vol. 173(C), pages 119-142.

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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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