On Banking Credit Default Behavior Of SMEs

Small-and-medium-sized enterprises (SMEs) are assuming increasingly critical importance in the social and economic development of China. To boost the national economy of the country and to settle social issues such as unemployment, it is an essential prerequisite to pay more focus on the development of SMEs. However, statistics shows that in financing their activities, SMEs have been constantly facing great difficulties, which are mainly due to the high default rate of loans to SMEs. Then, what contributes to such defaults? And how can they be prevented? These are of significant theoretical importance and practical implications, especially for the state to stimulate commercial banks to play an active part in financing SMEs, to effectively cope with SMEs' financing difficulties, and to drive the boom of SMEs.The paper intends to address these problems through research into the banking credit default behavior of SMEs. With the aid of the information asymmetry paradigm and the game theory, through mathematical modeling and quantitative analysis, the following purposes are implemented:(1) An banking credit default behavior framework is constructed on the basis of the integration of divers factors, such as information asymmetry, soft budget constrain and influences of juristic & credit environment.(2) The differences of loans to SMEs and loans to large firms are addressed and a method of defining banking credit granted to SMEs in accordance with credit management requirements is proposed.(3) Also discussed is the rationality of SMEs in connection with banking credit default behavior as well as reasons for the default rate therein to be so high, results of which are tested positively in a discrete time hazard framework.(4) The short-term influence of the imperfection of information and of bankers' decision-making technology is examined and tested positively. What is more, some alternative strategies are specifically structured according to the status quo of the banking credit default of Chinese SMEs.