Credit Guarantees And Dynamic Investment Of SME

Recently small and medium-sized enterprises(SMEs)are facing a serious "financing dilemma" in China.To solve this problem,a variety of financing methods or financial instruments have been created.Innovative credit guarantee swap is one of them and is regarded as one of the most important ways.According to the world bank's data,79% of the world's loans need to be guara nteed.Based on the above understanding,this thesis studies innovative credit guarantee contracts,which are wildly used and are very popular in China.Specifically,we explore the effects of corporate external risk(ambiguity uncertainty and macroeconomic risk)and corporate governance(compensation incentive)on investment decisions and optimal capital structure of SMEs under symmetric information.And then we investigate the impacts of asymmetric information on investment decision of SMEs and the design of credit guarantee contracts.Using the risk neutral pricing theory,we develop a tractable financial structure model,price the innovative credit guarantee contracts,discuss investment decision of SMEs and optimal capital structure under symmetric information.Using the theory of financial economics,we analyze the relationship between credit guarantee swaps and firm equity's moral hazard as well as debt overhang.Finally,we explore investment decisions of SMEs under information asymmetry.This paper is divided into the following aspects:First,we study the investment decision and optimal capital structure of SMEs under information symmetry.Assume that there is a serious information asymmetry between SMEs and the bank,while there is information symmetry between SMEs and the guarantee company.From the perspective of SMEs,we investigate the impact of new credit guarantee on investment decisions and optimal capital structure.We show that the credit guarantee can not only effectively overcome the financing difficulties of SMEs,but also can significantly improve the value of the enterprise.we document a U-shaped relationship between optimal investment level of SMEs and the financing gap.Compared with the case in that the debt is without credit guarantee swap and is risk-free from the view of the bank,the firm's optimal leverage ratio significantly increases when the firm finances the investment opportunity by credit guarantee swap.Second,due to market participants(SMEs,guarantee company and banks)have different on future prospects of enterprises,the firm value are different from the point of their view.This uncertainty arises from the fact that different market participants evaluate the future earnings in the different probability measure,which is called as Knightian uncertainty.We examine the impact of ambiguity on the pricing and timing of the option to invest.There is a funding gap to undertake the investment,which is covered by entering into an equity-for-guarantee swap(EGS).Our model predicts that the more ambiguity-averse the agents,the less the option value,the later the investment,the higher the guarantee cost and the leverage.If the entrepreneur is more ambiguity-averse than the insurer,the investment threshold slightly rises as the perceived ambiguity increases and on the contrary,if the entrepreneur is less ambiguity-averse than the insurer,the investment threshold increases sharply as the perceived ambiguity rises.Third,we discuss the impact of macroeconomic risk on the pricing of credit guarantee and the investment decision of SMEs.Intuitively,the financing cost of SMEs drops in the boom,while rises in the recession.We develop a model in that macroeconomic risk has been considered,price the company's securities,and derive the optimal investment decisions.We find that compared with the model without considering macroeconomic risk,macroeconomic risk will lead to postpone investment in the boom,while accelerate investment in the recession.These results imply that macroeconomic risk can significantly influence the investment decision of SMEs.Fourth,we explore the significance of employee compensation on the investment decision.We develop a financial model that incorporates the compensation incentive.We show that managers' investment incentive is posi tively correlated with fixed salary and the equity ratio of managers.Managers' risk-taking motivation is negatively correlated with fixed salary,but positively related to the equity ratio of managers.It implies that compensation incentives can motivate managers to invest.However,the motivations of managers' risk-taking depend on the design of compensation contracts.Finally,the above chapters of this paper study the investment and financing decisions of SMEs and the pricing of credit guarantee under i nformation symmetry.However,some "soft information" of SMEs is still their private information,and th e private information is likely to lead guarantee corporation to underestimate the credit risk of SMEs.In order to value the impact of information asymmetry on SME investment decisions,we develop a simple one-period model,derive the expected value of corporate securities and the pricing analysis formula of fair credit guarantee swaps.We find that information asymmetry leads to an incentive for enterprises with negative benefits to invest in risk projects by applying for loan guarantees,resulting in loss of social welfare.In addition,in some cases,asymmetric information will lead to the transfer of part of the revenue to the guarantee corporation to show its own type of business.