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Social capital and access to informal finance – evidence from Chinese private firms
Author(s) -
Deng Lu,
Jiang Ping,
Li Sifei,
Liao Mingqing
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12586
Subject(s) - social capital , financial capital , finance , individual capital , information asymmetry , business , economic capital , access to finance , capital (architecture) , cost of capital , economics , market economy , human capital , social science , archaeology , sociology , history , incentive
This study investigates how firms’ social capital affects their access to informal finance. We argue that social capital helps reduce information asymmetry, increase trust between related parties and enforce lending contracts, so it has positive effects on firms’ access to informal finance. Using novel survey data of Chinese private firms, we find that firms with more social capital have more access to informal finance with lower costs. Further tests show that the effect of social capital is more significant when firms are located in regions with less developed market and lower community’s social capital and during the 2008 financial crisis.