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Discussion Paper Details

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

Author(s): Hans Degryse, Liping Lu and Steven Ongena

Publication Date: June 2013

Keyword(s): Co-Funding, Formal Finance, Growth and Informal Finance

Programme Area(s): Financial Economics

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 Reference

Degryse, H, Lu, L and Ongena, S. 2013. 'Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9519