Understanding informal financing

By Franklin Allen, Meijun Qian, Jing Xie. Journal of Financial Intermediation, 2019

181 citations recorded by the source corpus.

This paper offers a framework to understand informal financing based on mechanisms to deal with asymmetric information and enforcement. We find that constructive informal financing such as trade credits and family borrowing that relies on information advantages or an altruistic relationship is associated with good firm performance. Underground financing such as money lenders who use violence for enforcement is not. Constructive informal financing is prevalent in regions where access to bank loans is extensive, while its role in supporting firm growth decreases with bank loan availability. International comparisons show that China is not an outlier but rather average in using informal financing.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c9c674de8beec2ad598a1e3ab24e4e8b50592b41

Citations in the corpus

• Fintech and banking: What do we know? (2019, unknown): “…are modified in future research to include P2P and other forms of non-bank financing, it will also be useful to include informal financing that sometimes provides an effective resolution of information and enforcement problems (see Allen et al. (2019) for more on this role of informal financing).”