nach oben

Small Business Economics

Erschienen in:

01.01.2016

The role of informal capital on new venture formation and growth in China

verfasst von: Julie Ann Elston, Sandy Chen, Alois Weidinger

Erschienen in: Small Business Economics | Ausgabe 1/2016

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This study examines the nature and role of informal capital used by micro-firms in the dynamic emerging market of China. Using a unique source of data for 260 urban entrepreneurs, this study provides empirical evidence that entrepreneurs’ personal savings and family funding are important sources of start-up capital. However, household income was found to be the most important funding source in driving firm growth over time. This research directly addresses the lacuna of studies on entrepreneurship in emerging economies and contributes to our understanding of the critical role informal capital plays in the Chinese entrepreneurial process. Overall findings suggest that informal capital is still predominantly used over formal capital sources for financing firm start-up, underscoring the slow transition in China from an emerging to a modern economy.

Vorheriger Artikel Does new entry drive out incumbents? The varying roles of establishment size across sectors

Nächster Artikel Spinoffs in Germany: characteristics, survival, and the role of their parents

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Their survey of the literature was from 1980 to 2005 of 11 leading English language journals. Of these 68 studies on China’s transition economy, only 13 were either firm-level or micro-level studies.

AQQ (2005) also emphasized the importance of studying micro-firms noting that “firm-level studies are needed to ascertain the sources and importance of other capital used by firms in China, especially high-growth private firms.”

Xiao (2011) reports on the frequency of informal capital sources for 74 small high-technology firms in two Chinese provinces, Guangdong and Guangxi.

Also see Bruton et al. (1999).

For a discussion on the importance of local context for entrepreneurial activity, see Feldman (2014), Tavassoli & Carbonara (2014), among others.

Bhide (2000) and others find that start-up capital can be rather modest in developing countries.

For more details on growth theory foundations and evidence for the USA, see Hall (1987).

For example, historically in Germany, larger firms grew faster until about 1990s, when the growth of high-technology firms was documented as exceeding that of the older manufacturing sector (AE, Audretsch and Elston 2006).

In one study, US high-technology entrepreneurs used earnings from a second job, and loans from either individuals or banks are their most common sources of capital to start a firm (Elston and Audretsch 2010).

Although Daunfeldt and Halvarsson (2015) find empirical evidence that high-growth firms may be “one hit wonders” as high rates of firm growth were often followed by periods of low growth in their Swedish sample. This finding questions the efficacy of using policies to promote consistent high firm growth over time.

Unlike many countries in the West, institutional investors such as pension and mutual funds and insurance companies play a relatively minor role in China (Eun and Resnick 2012). The newly established Shanghai Stock Exchange, Shenzhen Stock Exchange, and the more established Hong Kong Stock Exchange are all growing with newly listed firms from all over China, but are not expected to be the primary funders of micro-firms.

In a study on US entrepreneurial ventures, Becker-Blease and Sohl (2015) find that quality top management teams, advisors, and developed products are viewed more favorably by angel investors and likely have better access to these investors, suggesting that firm quality also impacts access to capital.

AQQ (2005) conclusions are based on data and figures from the Chinese Securities and Futures Statistical Yearbook (2001) and the Chinese Statistical Yearbook (2000).

Noted exceptions include micro-financing from institutions such as the Grameen Bank founded Mohammed Yunis to provide small amounts of credit to uncollateralized entrepreneurs in Bangladesh.

Growth of the firm can be estimated using any of these three proxies for firm size where Growth_i,t = [ln(S_i,t) − ln(S_i,t − 1)]/ln(S_i,t − 1).

Section 2 of the survey included three sets of questions asking about motives in starting up the business, business operation goals, and perceived barriers to starting and operating a business, which were not utilized in this study.

Initially, we conducted a pilot study with 10 small business owners in a small city located in Hubei Province to refine the clarity and suitability of all survey questions before finalizing the data collection process.

The “Other choices” category was recoded to include not only the “other funding sources” category on the survey, but all other low-frequency categories including funding by: colleagues = 2, banks and financial institutions = 1, employer = 1, and government programs = 0.

Similarly, GROWTH_R is the growth of firm as measured by gross revenues, calculated as [ln(Size_R_2010) − ln(Size_R_2009)/ln(Size_R_2009)]. And GROWTH_P is the growth of the firm as measured by profits calculated as [ln(Size_P_ 2010) − ln(Size_P_ 2009)/ln(Size_P_2009)].

It is also possible that there may be feedback in the model in that when the firm grows, the entrepreneur’s household income grows. Since this depends on how much money is being taken out of the firm, which is unobservable, we are unable to control for this possibility.

While we control for gender in our study, the role of gender in financing is undoubtedly more nuanced, and worthy of future examination. For example, in a related study examining US-based venture capital, Becker-Blease and Sohl (2007) find that US women seek angel financing at rates substantially lower than that of men, but have an equal probability of receiving investment.

In this context, household income or wealth is internal where bank credit, institutional loans, or equity would be external.

Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–116.CrossRef

Aryeetey, E. (2008). The informal economy, economic growth and poverty in sub-Saharan Africa. In Framework Paper for the African Economic Research Consortium Project Workshop on ‘Understanding Links between Growth and Poverty Reduction in Africa’, Nairobi, AERC.

Audretsch, D. B., & Elston, J. A. (2002). Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany. International Journal of Industrial Organization, 22, 1–17.CrossRef

Audretsch, D. B., & Elston, J. A. (2006). Can institutional change impact high-technology firm growth? Evidence from Germany’s Neuer Markt. Journal of Productivity Analysis: Special Olympic Issue, 25(1/2), 9–23.CrossRef

Becker-Blease, J. R., & Sohl, J. E. (2007). Do women-owned businesses have equal access to angel capital? Journal of Business Venturing, 22(4), 503–521.CrossRef

Becker-Blease, J. R., & Sohl, J. E. (2015). New venture legitimacy: The conditions for angel investors. Small Business Economics,. doi:10.1007/s11187-015-9668-7.

Bhide, A. (2000). The origin and evolution of new businesses. Oxford: Oxford University Press.

Bruton, G., & Ahlstrom, D. (2003). An institutional view of China’s venture capital industry: Explaining the differences between China and the West. Journal of Business Venturing, 18(1), 233–259.CrossRef

Bruton, G. D., Ahlstrom, D., & Obloj, K. (2008). Entrepreneurship in emerging economies: Where are we today and where should the research go in the future. Entrepreneurship Theory and Practice, 32(1), 1–14.CrossRef

Bruton, G., Dattani, M., Fung, M., Chow, C., & Ahlstrom, D. (1999). Private equity in China: Differences and similarities with the Western model. Journal of Private Equity, 2, 7–14.CrossRef

Caves, R. E. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36(4), 1947–1982.

Claessens, S., Djankov, S., & Lang, L. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58, 81–112.CrossRef

Daunfeldt, S.-O., & Halvarsson, D. (2015). Are high-growth firms one-hit wonders? Evidence from Sweden. Small Business Economics, 44(2), 361–383.CrossRef

Elston, J. A., & Audretsch, D. B. (2010). Risk attitudes, wealth and sources of entrepreneurial start-up capital. Journal of Economic Behavior & Organization, 76(1), 82–89.CrossRef

Eun, C., & Resnick, B. (2012). International financial management 6/e. New York: McGraw-Hill.

Feldman, M. (2014). The character of innovative places: Entrepreneurial strategy, economic development, and prosperity. Small Business Economics, 43(1), 9–20.CrossRef

Frederick, H., & Bygrave, B. (2004). How we finance our new and growing firms. International Journal of Entrepreneurship and Small Business, 1(3/4), 287–293.CrossRef

Gentry, W. M., & Hubbard, R. G. (2000). Tax policy and entrepreneurial entry. The American Economic Review, 90(2), 283–287.CrossRef

Geroski, Paul. (1995). What do we know about entry? International Journal of Industrial Organization, 13, 450–456.

Hall, B. (1987). The relationship between firm size and firm growth in the US manufacturing sector. International Journal of Industrial Organization, 35(4), 583–604.

Keng, C. W. (2006). China’s unbalanced economic growth. Journal of Contemporary China, 15(46), 183–214.CrossRef

Lau, C. M., & Busenitz, L. (2001). Growth intentions of entrepreneurs in a transitional economy: The People’s Republic of China. Entrepreneurship Theory and Practice, 26(1), 5–20.

Lingelbach, David C, De La Vina, Lynda and Asel, Paul, (2005) What’s distinctive about growth-oriented entrepreneurship in developing countries?. In UTSA College of Business Center for Global Entrepreneurship Working Paper No. 1. Available at SSRN: http://ssrn.com/abstract=742605 or doi:10.2139/ssrn.742605

Logan, J. (2002). The new Chinese city: Globalization and market reform. Oxford: Blackwell.

Scott, W. (2005). Institutional theory. In K. G. Smith & M. A. Hitt (Eds.), Great minds in managment: The process of theory development. Oxford: Oxford University Press.

Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35(1), 40–59.

Tavassoli, S., & Carbonara, N. (2014). The role of knowledge variety and intensity for regional innovation. Small Business Economics, 43(2), 493–509.CrossRef

Tsai, K. S. (2004). Back-alley banking: Private entrepreneurs in China. Ithaca: Cornell University Press.

Van Auken, H. E., & Neeley, L. (1996). Evidence of bootstrap financing among small start-up firms. The Journal of Entrepreneurial and Small Business Finance, 5(3), 235–249.

Vanacker, T., Manigart, S., Meuleman, M., & Sels, L. (2011). A Longitudinal study on the relationship between financial bootstrapping and new venture growth. Entrepreneurship and Regional Development, 23(9–10), 681–705.CrossRef

Xiao, L. (2011). Financing high-tech SMEs in China: A three-stage model of business development. Entrepreneurship and Regional Development, 23(3–4), 217–234.CrossRef

Xiao, L., & North, D. (2012). Institutional transition and the financing of high-tech SMEs in China: A longitudinal perspective. Venture Capital, 14(4), 269–287.CrossRef

Yang, J., & Li, J. (2008). The Development of Entrepreneurship in China. Asia Pacific, Journal of Management, 25, 335–359.CrossRef

Titel: The role of informal capital on new venture formation and growth in China
verfasst von: Julie Ann Elston
Sandy Chen
Alois Weidinger
Publikationsdatum: 01.01.2016
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 1/2016
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-015-9674-9

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 1/2016

Does new entry drive out incumbents? The varying roles of establishment size across sectors

Business owners and income-shifting: evidence from Finland

A matching model of university–industry collaborations

Impact of global economic crisis on firm growth

Policy and entrepreneurship education

Spinoffs in Germany: characteristics, survival, and the role of their parents

Premium Partner