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Small Business Economics

, Volume 46, Issue 1, pp 79–91 | Cite as

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

  • Julie Ann Elston
  • Sandy Chen
  • Alois Weidinger
Article

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.

Keywords

Informal capital New venture growth Emerging markets China 

JEL Classifications

GOO L26 O53 

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Julie Ann Elston
    • 1
  • Sandy Chen
    • 2
  • Alois Weidinger
    • 3
  1. 1.Oregon State UniversityBendUSA
  2. 2.Ohio UniversityAthensUSA
  3. 3.Higher Colleges of TechnologyAbu DhabiUAE

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