Considering the availabilities of financing of the dual credit markets and the costs and superiorities of formality, how to choose between formality and informality for small and micro businesses is a very important decision problem placed in front of both theory and practice fields. Based on the continuous investment model in a moral hazard framework, a choice model of small and micro businesses' formality and informality on their initial assets is built through the financing perspective. By introducing formality costs and different credit mechanisms of the two credit markets, the model analyzes the relative efficiency of the small and micro businesses' formality and informality under different levels of initial asset. The results show that, there exists an initial asset threshold, above which choosing formality is beneficial and under which choosing informality is beneficial. Then the model is further extended and the impact of the enforcement quality of the formal financial sector, the possibility of providing collateral by the small and micro businesses and the new type financial institutions providing small and micro businesses with financial services on the choice is discussed.
CHEN Xiao-hong, CHENG Lu-lu, YI Guo-dong
. Small and Micro Businesses' Choice between Formality and Informality——Based on A Dual Credit Market Structure[J]. Chinese Journal of Management Science, 2015
, 23(5)
: 116
-124
.
DOI: 10.16381/j.cnki.issn1003-207x.2015.05.015
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