Formal Versus Informal Finance : Evidence from China
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 secto...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2008/01/8916707/formal-versus-informal-finance-evidence-china http://hdl.handle.net/10986/6462 |
| id |
okr-10986-6462 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
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 |
| spellingShingle |
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 Ayyagari, Meghana Demirgüç-Kunt, Asli Formal Versus Informal Finance : Evidence from China |
| geographic_facet |
East Asia and Pacific China |
| relation |
Policy Research Working Paper; No. 4465 |
| description |
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. |
| author2 |
Maksimovic, Vojislav |
| author_facet |
Maksimovic, Vojislav Ayyagari, Meghana Demirgüç-Kunt, Asli |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ayyagari, Meghana Demirgüç-Kunt, Asli |
| author_sort |
Ayyagari, Meghana |
| title |
Formal Versus Informal Finance : Evidence from China |
| title_short |
Formal Versus Informal Finance : Evidence from China |
| title_full |
Formal Versus Informal Finance : Evidence from China |
| title_fullStr |
Formal Versus Informal Finance : Evidence from China |
| title_full_unstemmed |
Formal Versus Informal Finance : Evidence from China |
| title_sort |
formal versus informal finance : evidence from china |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2008/01/8916707/formal-versus-informal-finance-evidence-china http://hdl.handle.net/10986/6462 |
| _version_ |
1764400146506842112 |
| spelling |
okr-10986-64622021-04-23T14:02:30Z Formal Versus Informal Finance : Evidence from China Ayyagari, Meghana Demirgüç-Kunt, Asli Maksimovic, Vojislav 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 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. 2012-05-25T19:50:20Z 2012-05-25T19:50:20Z 2008-01 http://documents.worldbank.org/curated/en/2008/01/8916707/formal-versus-informal-finance-evidence-china http://hdl.handle.net/10986/6462 English Policy Research Working Paper; No. 4465 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific China |