Research On Financing Difficulties Of Small And Medium Sized Enterprises

This dissertation,with an asymmetric information perspective,analyzes the problem of financing difficulties of SMEs and tries to give out some possible approaches to dissolve the problem.SMEs are short of capital,business management lag behind, as a result,SMEs are hard to get funded from outside capital market.The most critical factor is asymmetric information,which can be classified by two, before-hand information asymmetry and afterwards information asymmetry. Before-hand information asymmetry may lead to reversal selection,and afterwards information asymmetry may lead to moral hazards.Credit rationing theory indicates that reversal selection exists in credit markets.Since information is asymmetric,banks tend to formulate an average interest rate,at which rate banks maximize their expected earnings.It can be called banks'credit rationing. Here, reversal selection occurs.At the average rate of interest, a part of enterprises drop out the capital market since they can't afford this rate of interest with respect to their expected earning-risk rate.As the process repeats,low risk enterprises keep dropping out the capital market.Those which stay in the market have the high risk.The pecking-order theory indicates enterprises should choose their financing ways according to the optimizing sequence,that is,retained earnings financing,bond financing and equity financing.The enterprise life cycle theory indicates that enterprises chose their financing ways according to their life cycles. That is,starting-up enterprises,fast developing enterprises and grown enterprises have different financing ways.The last part of this dissertation tries to give out five possible approaches to difficulties of SMEs financing:(1)strengthen SMEs own capabilities;(2)improve the channel of indirect financing;(3)improve the channel of direct financing;(4)develop and reinforce the trust system and (5)government policies that support SMEs development.