The clan and informal financing in China: An analysis of the trickle-down effect

Abstract

This study investigates the impact of clans on a household's informal financing. Using data from the China Family Panel Studies (CFPS), we find that clans significantly promote informal financing; a series of robustness checks verify this result. We further demonstrate that clans motivate affluent households with a collectivist ethos to lend, thus aiding households facing liquidity constraints in entrepreneurship, mortgage repayments, and medical expenses. However, our findings indicate that poor households do not benefit from clans, reflecting the proverb “help the starving but not the poor.” We confirm the indispensable role of clans in informal financing through analyzing the development of formal finance and population outflows. Our results clarify the relationship between clan culture and informal financing in contemporary China.