Sme Financing Problem Under Asymmetric Information Conditions

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 enterprise, especially in the aspects of promoting market efficiency and economic growth,encouraging technical innovation as well as accelerating international trade and etc. However, a series of reasons such as the scope of the SMEs is small, the overall level of labor productivity is not high, and the transparency of information is in a relatively low grade, cause an inferior position in keen competition with large enterprises, which is particularly reflected by the problem of financing difficulty. The difficulty of getting financing and short-term bank loans has been a longtime bottleneck in the development of SMEs, if this problem cannot be well solved, SMEs can not get healthily and persistently developed. The asymmetric information theory came in the 1970s, it is widespread apply to each economic analysis domain. The application in capital market powerfully explains SMEs financing problem. On one hand, as the capital demander, SMEs are reluctant to disclose any company information regarding business direction,market strategy and intellectual property to the capital supplier in order to reduce the negative impacts caused by such releasing. On the other hand, representing the financial lending institutions, most banks are more prudent when it comes to offering financing to SMEs as to minimize Adverse Selection and Moral Hazard. As a result, the demand for financing and the supply of capitals do not cross each other. In thesis, the operational mechanism and decision-making process of both the demander and supplier are discussed and analyzed, in attempt to offer feasible solution under the Theory of Asymmetric Information to the difficulty faced by SMEs on getting financing and short-term loans.The first chapter of the thesis explains the research meaning of the thesis, reviews the relevant Chinese & foreign research achievements and current situations. In the second chapter we review the theory of asymmetric information, and analysis the credit rationing and the decrease of bank loan which caused by the asymmetric information theory. The concept of SMEs is defined and the role and the function in the economy is emphasized, as well as explaining the meaning,the form and the present situation of SMES financing in the third chapter. Among the chapter 4 and 5, we analysis the impact on the SMEs financing decisions-making by the asymmetric information theory from the point of demander and supplier of capital respectively. In chapter 6, based on the aforementioned analysis, this thesis will attempt to bring forward a few countermeasures and suggestions to the SMEs' financing difficulty.