Credit Interaction Between Firms And Banks In A Real-options Model

Debt financing,as the main source of enterprise funds, is one of the many things needs special focus.As the main provider of corporate finance, interest is the main source of income for banks, so the determination of the optimal interest rate needs special attention.Also credit interaction is the main relationship between banks and enterprises.The study of the credit interaction gives us a new understanding of the relationship between enterprises and banks.At the same time, this kind of research is also a part of the market microstructure research,which has an important guiding significance for government micro policy and microeconomic regulation.In this paper, using a real-options theory, we established a model of interaction between corporate loans and bank credit.In the model, loan amount is the main decision variables for corporate manager,while the loan interest rate is the main decision variable for banks.At the end, a balanced amount of loan amount and loan rates is calculated and analyzed.We build this model in three steps: first, in the absence of loans,we set up a basic model for calculating the enterprise value;Then, we set up the interactive model between enterprises and banks when loans amount is small;Finally, we set up the interactive model between enterprises and banks when loans amount is large.The main conclusion the optimal loan amount equals the ceiling of safe debt,while the optimal loan rate for banks is when the first derivative equals zero. Our main conculusion is :The optimal loan amount increases with the equity capital,while there is no connect between the exit threshold 、 optimal loan interest and equity capital; the optimal credit amount and optimal loan interest increases with the expected growth of product price,while the exit threhold decreases with the expected growth of product price;the volatility of product price has a similar effect on these variables;the optimal credit amount increases with the efficiency of successor,while the exit threhold and the optimal loan interest decreases with the efficiency of successor. At the end of the paper,we propose a solution for the calculation of the equilibrium of loan amount and loan interest when the debt amount is very large.