Study On Small-and-Medium Enterprises' Bank Financing Under Information Asymmetry

It is generally admitted that small-and-medium enterprises (SMEs) will play an important role in economic development during the twenty-first century. SMEs can not be substituted by large enterprises, especially in the aspects of promoting market efficiency and economic growth, encouraging technical innovation as well as accelerating international trade and etc. China is characterized by abundant labor force and scarce capital. Therefore, SMEs have both development and reform significance in national economy. However, SMEs' external financial constraint is one of the factors that prevent their potentials and speed for further development. Under Chinese bank-dominated financial system, bank loan is the primary form of SMEs external financing. Some factors such as debt contract, transition of bank structure and establishment of loan guarantee, will have profound effects on SMEs' bank financing. Accordingly, a comprehensive study on SMEs' bank financing is significant both in theory and in practice.This paper is based on information asymmetry of SMEs' credit market and aimed at offering theoretic explanation and policy implications for the harmonic development between Chinese bank structure and SMEs. By virtue of applying advanced modern economic theories and research methods such as normative and positive, static and dynamic, conclusive and comparative approaches, the paper makes an analysis on the relationship between credit contract, bank structure, loan guarantee and SMEs' bank financing from macro and micro perspective.This paper consists of eight parts. The first chapter introduces the significance of writing, and the relative literatures paper concerned. It also summarizes the paper's research method, basic framework, main opinions, innovation and deficiencies as well.The second chapter focuses on the SMEs' financing features and the existence of SMEs' financial gap. It is examined that SMEs have important position in modern economy. Different types of SMEs have different financing demands. Their financial growth cycle needs a multi-levels and diversified financial system to match its financing demands in different phases. Compared with big enterprises, SMEs are inclined to internal and debt financing. However, SMEs' external financing is apt to be suffered by financial gap, which result from information asymmetry, scale diseconomy, financial institution and government control.The third chapter summarizes and concludes the theories about SMEs' bank financing. From three different angles of financial structure, financial intermediary and credit ration theories, some viewpoints can be obtained to explain SMEs' bank financing. Agency cost theory, signal approach and pecking order hypothesis are the three most convincing theories to illustrate SMEs' bank financing. Traction cost theory and delegation theory composed of financial intermediary theory establishes the theory foundation to interpret the advantages of information producing, delegated monitoring and reputation mechanism of commercial banks. SMEs' credit ration synthesized model based on the variables of enterprise scale, project risk, guarantee value and regional factors, provides theoretic support for a general phenomenon in credit market that SMEs is prior to be victim of bank credit ration.The fourth chapter investigates the relationship between debt contract and SMEs' bank financing. Some relevant factors such as information, banking structure, interest rate system, mortgage and guarantee, have influences on SMEs' credit contract respectively, which either make credit contract difficult to reach, or result in equilibrium in low efficiency. To eliminate the dilemma of SMEs' bank financing, it is necessary to improve technology of project evaluation and risk management of SMEs based on the perfection of bank competition structure, promote interest rate reform and reduce dependence on mortgage and guarantee.The fifth chapter put forward a new theoretic framework to discuss the relationship between bank structure and SMEs' bank financing, from the perspective of comparative advantages, institution and technology. Bank structure consists of bank size structure and bank market structure. Literatures accounts for that intensive tendency of commercial banks resulting from merger and acquisition in large scales have different impacts on availability of SMEs' bank financing. By comparing the advantages between information and risk-share of different scale banks, it is indicated that bank size structure has no direct connection with difficulty of SMEs' bank financing, so that it is generally doubted for the so called 'small bank advantage hypothesis'. Practically speaking, following the progress of information technologies, even the large banks could strengthen their position and advantages in SMEs' bank financing.The sixth chapter stresses on the credit guarantee system for SMEs. Although the existence of guarantee system is rational, adverse selection and moral hazard can't be eliminated at all. China should acquire international experiences on the framework of guarantee system from some developed and developing countries. Under the circumstance of Chinese incomplete bank market reform, it is essential to establish guarantee system as supplement for SMEs' bank financing on condition that the function of guarantee system can't be over-magnified. With regard to Chinese imperfect SMEs' guarantee system, government should form the scientific awareness of development ideas, organizational structure and operational form so as to make better function in SMEs' guarantee system.The seventh chapter makes a positive analysis on status, micro-constraint factors of SMEs' financing and dilemma of Chinese bank structure with SMEs' bank financing. Data from research report and questionnaire indicated that SMEs' bank financing is in very difficult condition in China. With positive analysis and inspection, a conclusion can be draw that credit condition, SMEs' financial index and time lag of approval are the main reasons for the difficulty of SMEs' bank financing. In China, discrimination of SMEs' bank financing isn't caused by bank scale, but by bank ownership and governance mechanism. Therefore, it is unilateral in China to over- emphasize the idea that deal with the problem of SMEs' bank financing only by developing small banks and small non-bank financial institutions.The Eighth chapter dwells on the institutional causes of Chinese SMEs' bank financing constraint and discusses its possible countermeasures. There are many kinds of institutional factors preventing SMEs' bank financing, which contains lack of SMEs' credit system, the drawback of bank mechanism and competition structure, the lagging of bank credit management and techniques, financial repression, etc. China should learn experiences on SMEs' bank financing policies from developed countries to build SMEs' credit system and strengthen creditor's right protection. In order to improve SMEs' bank financing, it is also necessary for China to take many important measures such as adjusting its bank structure, building its mechanism for credit incentive and constraint, innovating SMEs' credit technique and setting up laws and regulations system at all levels.The innovations of this paper are as follows. Firstly, the paper investigates the characters of SMEs' bank financing in terms of different types, phases and scales as well. Secondly, it tries to search for the conniving theories that SMEs' bank financing concerned by making use of the new economic theories, such as financial structure, financial intermediary and credit ration theories. Thirdly, it applies the debt contract approaches into the study of SMEs' bank financing, and infers some valuable policy implications. In addition, it affords a new theoretic framework to discuss the relationship between bank structure and SMEs' bank financing, from the angles of theory, history and technology. At last, the paper makes a systematic analysis on loan guarantee of SMEs' bank financing.This paper attaches more importance on theoretic analysis by reason of data availability. And meanwhile, the positive analysis is lack of applicability to some extent caused by selecting the special samples. What's more, SMEs' bank financing is such a kind of research issue that covers many fields. On account of limited literatures, this paper only selects some aspects to make analysis. Until now, it has not found an appropriate and comprehensive theoretical framework to research, which is also the direction for further study.