A Study On Small And Medium-sized Enterprises Credit Financing Under Asymmetric Information

With reforming and opening up, it has been more than30years. The medium and small enterpriseshave made outstanding contributions to economic and social development, economic prosperity, and thepromotion of technological innovation. They are playing an important role in many new industries. But thedevelopment of medium and small enterprises is not easy. They face many difficulties and problems. Themost noticeable point of these difficulties and problems is the issue of medium and small enterprises’financing. China’s medium and small enterprises account for more than99%of the total number ofenterprises, but the funds they can loan is less than30%of the total number. Such a situation is veryunfavorable for the development of medium and small enterprises.So what causes the financing difficulties of medium and small enterprises? To answer this question, inthe academic circles, there are many opinions and conclusions. The more representative theories arefinancial repression theory from McKinnon and Shaw, and credit rationing theory from Stiglitz and Weiss.The typical theory in China is asymmetric information theory between banks and enterprises. Still, there isalso the theory to find a cause from a system perspective. This paper has a view that credit financingdifficult is based on the asymmetric information. Its financing difficulty extremely does not match with thecontributions to the national economy from medium and small enterprises. There is a serious informationasymmetry between banks and other financial institutions and medium and small enterprises. Medium andsmall enterprises’ access to financing is divided into two kinds, endogenous financing and exogenousfinancing. According to the financing order theory of Myers (POH), the choice of corporate finance shouldbe the internal financing first, and then external financing. But due to the medium and small enterprisesthemselves have a lot of problems, such as no sound business management system, no sound financialsystem and credit system, the endogenous financing is difficult to achieve better. Exogenous financingbecause of information asymmetry is equally difficult to achieve. There are differences on the informationowned by financial institutions and banks, such as in the credit markets, medium and small enterprises havea higher degree about information, but the bank is informed of less information. Medium and smallenterprises hold more information than the bank on practical use of income and capital and the level ofproject risk. The medium and small enterprises may use information superiority to profit, and the bank may make incorrect decisions. Therefore, the information in the credit market must be asymmetrical.From the existing commercial banks’ credit financing system, this paper analyzes the credit financingsystem, credit management system and the existing loan approval system, and obtains that commercialbanks are in favor of large state-owned enterprises, and no optimistic with medium and small enterprises.Commercial banks take more defensive treasures to solve the problem of asymmetric information. Thispaper carries out a detailed analysis on the problem of information asymmetry from moral hazard andadverse selection to the credit behavior of decision-making between banks and enterprises. In addition, thesupply of bank funds is constrained by cost, and medium and small enterprises also consider the cost offinancing. The fifth chapter focuses on the credit game model between medium and small enterprises andbanks. Bayesian Nash equilibrium in the credit game model obtains two sides (to apply for loans, toprovide loans), but this balance is not Pareto optimal. The banks are likely to reject good business, oraccept bad business. This results in that the interests of both sides are damaged. Game of the credit modelindicates that due to asymmetric information, banks in order to protect their own interests select the optimalstrategy that they refuse business loans or accept less business loans. Mortgage model makes the resultstransformed due to the factors of mortgage-backed. When enterprises apply for loans, the bank can askmedium and small enterprises to provide physical assets and securities as collateral, or require thethird-party guarantees loan to protect self-interest against loss or less loss when the enterprise fails ininvestment projects. Game of the mortgage model shows that mortgage not only expands the bank loansupply for good business, but also reduces the amount of bad corporate financing. To some extent, thisalleviates the bank’s credit crunch and enhances social efficiency.So, to solve the problem of credit financing, it should proceed from asymmetric information. Financialinstitutions need change the existing credit management mechanism, the state should take actions forguidance and development of medium and small enterprises, and medium and small enterprises themselvesshould strengthen the internal mechanisms. The government need support medium and small enterprisesand improve the construction of credit guarantee system from the macro level.