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

Elston, Julie Ann; Chen, Sandy; Weidinger, Alois

doi:10.1007/s11187-015-9674-9

Cited by 56 publications

(52 citation statements)

References 25 publications

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“…The obstacles in the consolidation of ventures include a lack of legitimisation and the low reputation of entrepreneurs (Coad and Pawan Tamvada 2012). For well-established entrepreneurship without an innovative orientation, the most favourable conditions have been the informal sources of funding-such as personal savings, family, and friends-in the consolidation of micro ventures in China (Elston et al 2016) and the credit guarantee that supported the consolidation in Korea (Kang and Heshmati 2008). Competitive intensity has positively influenced the consolidation of small-and medium-sized ventures in India (Gupta 2016).…”

Section: Developing Economiesmentioning

confidence: 99%

The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies

2020

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Over the past 30 years, the academic literature has legitimised the significant impact of environmental conditions on entrepreneurial activity. In the past 5 years, in particular, the academic debate has focused on the elements that configure entrepreneurship ecosystems and their influence on the creation of high-growth ventures. Previous studies have also recognised the heterogeneity of environmental conditions (including policies, support programs, funding, culture, professional infrastructure, university support, labour market, R&D, and market dynamics) across regions/countries. Yet, an in-depth discussion is required to address how environmental conditions vary per entrepreneurial stage of enterprises within certain regions/countries, as well as how these conditions determine the technological factor of the entrepreneurial process. By reviewing the literature from 2000 to 2017, this paper analyses the environmental conditions that have influenced the transitions towards becoming potential entrepreneurs, nascent/new entrepreneurs, and established/consolidated entrepreneurs in both developed and developing economies. Our findings show why diversity in entrepreneurship and context is significant. Favourable conditions include professional support, incubators/accelerators, networking with multiple agents, and R&D investments. Less favourable conditions include a lack of funding sources, labour market conditions, and social norms. Our paper contributes by proposing a research agenda and implications for stakeholders.

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Section: Developing Economiesmentioning

confidence: 99%

The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies

2020

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“…Challenges faced by SMEs in accessing external financing are even more pronounced in emerging economies such as China due to a weak institutional environment, which has resulted in the limited development of debt and equity markets for small enterprises (Newman et al 2012). A recent study by Elston et al (2016) suggests that informal capital in the forms of personal savings, family funding, and household income is still predominantly used over formal capital sources in the start-up phase, underscoring the slow transition in China from an emerging to a modern economy.…”

Section: Introductionmentioning

confidence: 99%

Capital structure of Chinese listed SMEs: an agency theory perspective

2016

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Prior work examining the antecedents of capital structure for small and medium-sized enterprises in emerging markets is limited. This paper sheds light on how the corporate governance mechanisms adopted by firms on the newly established Growth Enterprise Market (GEM) in China influence their use of debt. We find that the financial leverage of GEM firms is positively influenced by executives' shareholding and their excess cash compensation. Ownership concentration appears to reduce leverage, whereas the percentage of tradable shares increases leverage. In contrast, institutional investors' shareholding does not influence the level of debt. Traditional factors such as tax and operating cash flow are insignificant in explaining the debt levels among GEM firms.

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“…(2015) find a positive effect of external finance on a household's decision to set up a business in China, Elston et al (2016) underline the role of informal finance for Chinese entrepreneurs. In another context, Demirgüç-Kunt et al (2011) show that access to bank finance is not crucial in a decision to launch an entrepreneurship venture in Bosnia and Herzegovina.…”

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confidence: 99%

Long-term finance and entrepreneurship

Léon

2019

Economic Systems

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This paper investigates whether long-term finance affects the firm entry across the world. We construct a new database on short-term and long-term credit provided by commercial banks to the private sector in 85 countries over the period 1995-2014. We then analyze whether differences in entrepreneurship are correlated with the provision of short-term and long-term bank credit. Data on entrepreneurship are extracted from two frequently used databases: the Global Entrepreneurship Monitoring dataset and Entrepreneurship Database, each of which captures different aspects of firm creation. Econometric results indicate that long-term credit does not stimulate the firm entry. On the contrary, we find that short-term credit exerts a positive impact at each stage of firm creation from activity birth to registration. Our findings are robust to a battery of sensitivity tests, including additional control variables, alternative dependent variables, alternative sample, and changes in econometric specification. Our findings suggest that better provision of short-term credit allows entrepreneurs to apply for a formal loan instead of relying exclusively on informal loans or internal funds, contrary to long-term loans.

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

Cited by 56 publications

References 25 publications

The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies

The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies

Capital structure of Chinese listed SMEs: an agency theory perspective

Long-term finance and entrepreneurship

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