Empirical Analysis Of Small Enterprise Credit Default

Small enterprises are one of the crucial backbones for social stability and economic development whether in developed or developing countries. However, on the one hand, the huge demand gap of funds from small enterprises in their development process; on the other hand, financial institutions usually reserve remarkable surplus credit funds. Thus in the credit market with asymmetric information, the serious imbalance of supply and demand of credit resource puts the financial credit into a dilemma between small enterprises and banks, which results from frequent occurrence of small enterprises credit default. Commercial banks’rational decision on deploying the credit line to small enterprises, which is due to their behavior logic, has worsen the dilemma in credit financing of small enterprises. Therefore, correcting small enterprises credit default is significant to reduce the probability of small enterprises credit default, solve the difficult credit issue of small enterprises, to reduce credit risks of commercial banks and to encourage the banks to develop credit market for small enterprises.Small enterprises credit default is a complex system problem, and the present research can not explain it as a whole in logics, but can just solve part of it. So referring to previous achievements, the writer analyzes systematically and comprehensively the issue of the small enterprises credit default in the means of the asymmetric information and incomplete contract theories. The research aims to explore the mechanism of small enterprise credit default and to analyze empirically it evidently factors which affect small enterprises credit default. (1) Aiming to explore the mechanism of small enterprises credit default. Here the writer has built a complete theoretical framework to analyze the interior mechanism of small enterprises borrowing characteristics by the four elements, which consist of small enterprise credit behavior characteristic, asymmetric information between banks and enterprises, incomplete contract and costs for default; (2) Exploring the factors impacting small enterprise credit default so as to provide theoretical basis for the empirical research. (3) Analyzing the affecting factors of small enterprise credit default by data from questionnaire empirically so as to provide a support for theoretical research. (4) Proposing the relevant policy and suggestion on how to correct the small enterprises’credit default.This essay uses descriptive statistical analysis and econometric model analysis to conduct empirical research in terms of empirical research methods. Chapter 3 analyzes the characteristics of small enterprise crediting by descriptive statistical analysis. Chapter 5 analyze the significant factors impacting small enterprise credit default, and reviews their prominent effects by the Logit model .The conclusions from the theoretical and empirical research are as follows: (1) When confidence level is 95%, the factors such as quick ratio, asset turnover, enterprises properties (state-owned, share-holding and partnership), registered capital, staff ( less than 20 people ), line of business (agriculture and architecture ), types of business (export-oriented), credit rating (A,B and C), owners’annual income and assets, interest rates, use of loan (circulating funds), loan ways (mortgage loan, secured loan and joint guaranteed loan) and relationship between banks and enterprises have significant influence on small enterprises default. (2) When confidence level is 90%, the factors such as debt-equity ratio, founding time, staff (21 to 50 people), and credit rating have also significant influence on small enterprises default. (3) Other factors such as business owner’s education level, enterprise’s location and acquaintances are insignificant.This essay analyzes the small enterprise credit default by the asymmetric information and incomplete contract theories; therefore, it has certain innovation to some extent. (1) Here the writer has built a relatively complete theoretical framework to analyze the interior mechanism of small enterprises credit default by the four elements, which results from the small enterprise behavior characteristics, the information framework between banks and enterprises, incomplete contract of financial institutions and external environment. (2) The writer also proposes 25 indices of affecting factors to impact small enterprises default, which are in the terms of small enterprises themselves, financial institutions, relationship between banks and enterprises and external environment, and reveal the mechanism of small enterprises credit default objectively and comprehensively. (3) A Logit model in this paper is built to research empirically the factors impacting small enterprise credit default. Meanwhile the writer brings all relevant variables into a model for calculation to achieve innovation of research methodology.Of course there is something for further exploration attempt but there is much insufficiency in the essay, which reflects in the aspects as follows: (1) With the development of economy and society, the research range of small enterprise will change, therefore the research results and conclusions are time-limited. (2) Because the data about small enterprises credit default refers to the business secrets of the concerned enterprises and financial institutions, it is quite difficult to collect the available data. The 456 small enterprises investigated in this research are those which have credit relationship with Fujian Branch Business Department of Agricultural Bank of China (including some small enterprises applying for the loan), therefore there is likely to be some inaccuracy in the data.