Formal Versus Informal Finance :  Evidence from China

Ayyagari, Meghana; Demirgüç-Kunt, Asli

Formal Versus Informal Finance : Evidence from China

Autores

Ayyagari, Meghana

Demirgüç-Kunt, Asli

Editor

World Bank, Washington, DC

Descripción

China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Palabras clave

ACCESS TO BANK LOAN, ACCESS TO BANK LOANS, ACCESS TO CAPITAL, ACCESS TO CREDIT, ACCESS TO FINANCE, ACCESS TO FORMAL FINANCE, ACCOUNTING, ADDITIONAL FINANCING, AGRICULTURE BANK, ALLOCATION OF CREDIT, ALTERNATIVE FINANCING, APPLICATION PROCEDURES, AVAILABILITY OF FINANCE, AVERAGE GROWTH, BACK-ALLEY BANKING, BALANCE SHEET, BANK ACCESS, BANK COMPETITION, BANK DEPOSITS, BANK FINANCING, BANK FUNDING, BANK LENDING, BANK LOAN, BANK LOANS, BANK OFFICERS, BANK OFFICIALS, BANKING SECTOR, BANKING SYSTEM, BOND, BOND MARKET, BOND MARKETS, BORROWER, BRIBING, BROKERS, BUSINESS ACTIVITY, BUSINESS ANGELS, BUSINESS DEPARTMENT, CAPITAL ACCUMULATION, CAPITAL LOANS, CAPITAL MARKETS, CAPITAL REQUIREMENTS, CAPITAL STRUCTURE, CAPITALIZATION, CASH FLOW, CHECKS, COLLATERAL, COLLATERAL REQUIREMENT, COLLATERAL REQUIREMENTS, COMMERCIAL BANK, COMMERCIAL BANKS, CONSUMER, CONTRACTUAL OBLIGATIONS, CONTRIBUTION, CORPORATE BOND, CORPORATE FINANCE, CORRUPTION, CREDIT CARD, CREDIT COOPERATIVES, CREDIT HISTORIES, CREDIT MARKETS, CREDIT RATING, CREDIT RATING AGENCIES, CREDIT RATINGS, DEBT, DEVELOPING COUNTRIES, DIRECTED CREDIT, DIVERSIFICATION, DIVERSIFICATION STRATEGY, EARNINGS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMICS, ECONOMIES IN TRANSITION, EDUCATION LEVEL, EDUCATIONAL LEVEL, EMERGING MARKETS, EMPLOYEE, EMPLOYMENT, ENDOWMENTS, ENFORCEMENT MECHANISMS, ENTREPRENEURIAL VENTURES, ENTREPRENEURS, ENTREPRENEURSHIP, EQUITY FINANCE, EQUITY FINANCING, EQUITY MARKETS, EXCLUSION, EXTERNAL FINANCE, EXTERNAL FINANCING, FAMILY MEMBERS, FINANCES, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTION, FINANCIAL INTERMEDIATION, FINANCIAL LIBERALIZATION, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL PERFORMANCE, FINANCIAL STUDIES, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FINANCING NEEDS, FINANCING SOURCES, FIXED ASSET, FIXED ASSETS, FOREIGN BANKS, FOREIGN DIRECT INVESTMENT, FOREIGN FIRMS, FOREIGN INVESTMENT, FORMAL BANK, FORMAL BANKING, FORMAL BANKING SYSTEM, FORMAL EDUCATION, FORMAL FINANCIAL INSTITUTIONS, FORMAL FINANCIAL SECTOR, GOOD CREDIT, GOVERNMENT POLICY, GROWTH OPPORTUNITIES, HIGH INTEREST RATES, HOUSEHOLDS, INCOME, INCOME GROUPS, INDICATORS OF ACCESS, INDUSTRIAL ENTERPRISES, INFORMAL BANK, INFORMAL BANKS, INFORMAL CREDIT, INFORMAL FINANCE, INFORMAL FINANCIAL INSTITUTIONS, INFORMAL FINANCING, INFORMAL LENDERS, INFORMATION TECHNOLOGY, INITIAL FUNDING, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL INVESTORS, INTEREST RATE, INTEREST RATE CEILINGS, INTERNAL FINANCE, INTERNAL FINANCING, INTERNAL FUNDS, INTERNATIONAL BANK, INVESTMENT CLIMATE, INVESTMENT CLIMATES, INVESTMENT CORPORATIONS, INVESTOR PROTECTION, LACK OF COLLATERAL, LARGE COMPANIES, LARGE FIRMS, LAWS, LEGAL PROTECTION, LEGAL PROTECTIONS, LEGAL SYSTEM, LENDER, LIMITED ACCESS, LIMITED ACCESS TO BANK, LINE OF CREDIT, LOAN APPLICATION, LOAN APPLICATIONS, LOAN GUARANTEE, LOAN GUARANTEE PROGRAM, LOAN GUARANTEE PROGRAMS, LOAN OFFICERS, LOAN PORTFOLIOS, LOANS FROM FAMILY, LOCAL BANK, LOW INCOME, MARKET CAPITALIZATION, MARKETING, MEDIUM ENTERPRISES, MINORITY SHAREHOLDERS, MONEY LENDER, MONEYLENDER, MONEYLENDERS, MORAL HAZARD, OVERDRAFT, POSSESSION, PRIVATE ENTERPRISES, PRIVATE ENTREPRENEURS, PRIVATE PROPERTY, PRIVATIZATION, PROBABILITIES, PROBABILITY, PRODUCTIVITY, PROFITABILITY, PROPERTY RIGHTS, PUBLIC POLICY, QUESTIONNAIRE, REAL ESTATE, REGRESSION ANALYSIS, REINVESTMENT, REINVESTMENT RATES, REPAYMENT, REPAYMENT CAPACITY, RETAINED EARNINGS, RETURNS, RURAL CREDIT, SALE, SALES, SALES GROWTH, SECONDARY SCHOOL, SELF-FINANCING, SMALL BORROWERS, SMALL BUSINESS, SMALL BUSINESS FINANCE, SMALL BUSINESS LENDING, SMALL ENTERPRISES, SMALL FIRM FINANCE, SOCIAL CAPITAL, SOCIAL WELFARE, SOURCES OF FUND, START-UPS, STATE BANKS, STATE OWNED BANKS, STOCK MARKET, STOCK MARKETS, TRADE CREDIT, TRANSITION ECONOMIES, WAGES, WORKING CAPITAL