Publication Type

Journal Article

Version

publishedVersion

Publication Date

9-2013

Abstract

Why do private firms grow vibrantly in transition economies despite their limited access to formal financing? This study underscores the importance of informal financing in facilitating the growth of private firms in China. Drawing from the institutional economics argument, we posit that informal financing, in the form of underground financing and trade credit, substitutes formal financing in providing financial assistance and capital to private firms in China. We further posit that the effects of two kinds of informal financing vary across provinces with different levels of institutional development, and complement each other by supporting firms in different industries. We test our arguments with a sample of 284 private firms in 19 cities in China. The results generally support the value-added effects of alternative financing and its coexistence with formal financing. Our study contributes to the literature by highlighting informal financing as a void-filling institution in the capital markets in China.

Keywords

Alternative financing; Capital access; Private firms; China

Discipline

Finance and Financial Management

Research Areas

Strategy and Organisation

Publication

Asia Pacific Journal of Management

Volume

30

Issue

3

First Page

829

Last Page

852

ISSN

0217-4561

Identifier

10.1007/s10490-012-9303-y

Publisher

Springer

Copyright Owner and License

Publisher

Additional URL

https://doi.org/10.1007/s10490-012-9303-y

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