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The role of informal capital on new venture formation and growth in China

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  • Julie Elston

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  • Sandy Chen
  • Alois Weidinger

Abstract

This study examines the nature and role of informal capital used by micro-firms in the dynamic emerging market of China. Using a unique source of data for 260 urban entrepreneurs, this study provides empirical evidence that entrepreneurs’ personal savings and family funding are important sources of start-up capital. However, household income was found to be the most important funding source in driving firm growth over time. This research directly addresses the lacuna of studies on entrepreneurship in emerging economies and contributes to our understanding of the critical role informal capital plays in the Chinese entrepreneurial process. Overall findings suggest that informal capital is still predominantly used over formal capital sources for financing firm start-up, underscoring the slow transition in China from an emerging to a modern economy. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Julie Elston & Sandy Chen & Alois Weidinger, 2016. "The role of informal capital on new venture formation and growth in China," Small Business Economics, Springer, vol. 46(1), pages 79-91, January.
  • Handle: RePEc:kap:sbusec:v:46:y:2016:i:1:p:79-91
    DOI: 10.1007/s11187-015-9674-9
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Florian LEON, 2018. "Long-Term Finance and Entrepreneurship," CREA Discussion Paper Series 18-01, Center for Research in Economic Analysis, University of Luxembourg.
    2. Anna M. Ferragina & Fernanda Mazzotta & Khalid Sekkat, 2016. "Financial constraints and productivity growth across the size spectrum: microeconomic evidence from Morocco," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 361-381, December.
    3. repec:kap:sbusec:v:50:y:2018:i:2:d:10.1007_s11187-016-9830-x is not listed on IDEAS
    4. Wei Huang & Agyenim Boateng & Alexander Newman, 2016. "Capital structure of Chinese listed SMEs: an agency theory perspective," Small Business Economics, Springer, vol. 47(2), pages 535-550, August.
    5. repec:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9797-7 is not listed on IDEAS

    More about this item

    Keywords

    Informal capital; New venture growth; Emerging markets; China; GOO; L26; O53;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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