Research On The Contract Incentives Of The Small And Medium Enterprises’ Growth Under Asymmetric Information

Small and medium enterprises (SME) contribute much to the economic development, and they play an important role in solving the social problems in one country. But the status quo of SME’s growth is serious, which can be found that many SMEs survive with the growth difficulty and many of them have short life spans. Therefore, the research on SME’s growth is valuable for both the country and the enterprises. The growth of SMEs is explained and analysed from the views of resources and management operation in the previous literatures, but here SME viewed as a contract party, the contract relationship and incentive mechanism about the SME-related contract parties are discussed from the view of the incentive contract. Three key factors (credit financing, cooperation strategy, staff development) which affect the growth of SMEs are analysed, based on three kinds of asymmetry information relationship (between banks and SMEs, between SMEs and the related cooperate enterprises, as well as between SMEs and their employees), and the contract incentives within the SME-related contract parties (SMEs, banks, related companies, employees) are discussed in details to improve the resource allocation efficiency and promote the small and medium businesses’growth.The main contents and conclusions are as follows:(1) The essence of mechanism design and the game form of the mechanism are introduced, and the major economic topics that have developed from or been enriched by mechanism design theory are spread out. Based on the relationship analysis of asymmetric information and incentive problems, the principal-agent model, the contract theory under adverse selection are discussed, which provide a theoretical basis for the contract incentives research about the asymmetric information mentioned above.(2) Based on asymmetric information relationship between banks and SMEs, the credit contract about the SME financing is discussed.This chapter is divided into two parts. Firstly, by analysing the theories of SME financing, it indicates that the credit rationing caused by asymmetric information between SMEs and financial institutions contributes to the financing constraints. Then based on the game form of mechanism it is proved that the financing dilemma of SMEs is a Nash equilibrium, and it can be further explained that the mismatch of interest-seeking nature of financial captical and the resource-limited status of SMEs is the real cause of the financing problem of SMEs. Secondly, Bester credit contract model is analysed and it is concluded that the interest rate and mortgage as contract variables may lead to adverse selection and moral hazard problems. Therefore, the SME realities are considered and the third-party security company is introduced theoretically to the credit contract model in which the ration rate and the compensation rate are the contract variables for SMEs’ credit financing.(3) The cooperation contract is studied based on asymmetry information relationship between SMEs and the related cooperation enterprises. By introducing the relevant economic theories about the survive and development of the large enterprises and SMEs, it indicates that co-operation is significant for the survival and growth of SMEs. Then based on the Mirrlees-Holmstrom principal-agent model, different performance measures, different risk preferences and different output functions are designed in the cooperation contract, and comparative analysis about the contract incentive effects shows that performance measures are very important to the cooperate incentive contracts and have an impact on the free-ride behaviors and the moral hazard problem of the cooperation parties. Moreover, the risk preference may affect their expected benefits in that the slack behavior may happen if the risk preference increases, so do the cooperate output functions. Taking all these factors into consideration, the double-side moral hazard problems are discussed. The conclusions drawn from the cooperation incentive contract provide an explanation of the behaviors of economic agents from the micro level.(4) The staff-incentive contract are designed to motivate the staff’s valuable behaviors based on the information asymmetry between SME and its employees. Firstly, the staff-incentive problems are described, and they show that the incentive mechanisms about the growth of the SME’s employees are more necessary relative to the large enterprises. Then the Gibbons-related contract theories are applied to design the incentive mechanism to improve the employees’ efforts and motivate employees to invest more "enterprise-specialized resources". In addition, taking into account the importance of the core staff’s growth, by the arrangement of an additional task to the core employees, the incentive contract to encourage the core staff to input his key resources is designed based on the multi-task principal-agent model.