A Theoretical Analysis And Empirical Study On Selection Of Credit Rating Indicators Of Small Businesses For Small And Medium Banks

Zhejiang is among the first few provinces committed in solving finance difficulties of Small and Medium Enterprises in the nation, but according to the investigation of China Banking Regulatory Bureau, Zhejiang Branch, that nearly 60% of SME loan applications have been rejected by banks. So the development of SMEs is still being constrained by financing difficulties. Information asymmetry is an important character in small business credit market. Severe information asymmetry between banks and small businesses will bring banks about adverse selection risks before loan lending and moral hazard after lending, which is just the very reason why banks crunch small business loans. So the resolution to the problem of small businesses'finance difficulties is to solve the information asymmetry in small business credit market.Credit Rating is a kind of risk management philosophy proposed by international banks on purpose of reducing the harm caused by credit risk. Compared with large banks, S&M banks have two comparative advantages, which are their easy access to the small businesses'operation information and their low management costs on small businesses'loans. Thus this thesis holds that the building of small businesses'credit rating system is a bridge through which the S&M banks can effectively manage and take advantage of small businesses credit risks, which is not only conducive for S&M banks to realize the goal of differentiation operation, but is also helpful to small businesses in cutting financing costs . Ultimately banks and enterprises will recognize a win-win achievement. Based on the analysis and comparisons of the international and domestic theoretical researches and practices, the thesis notes that the debt solvency and debt service will are the two key factors affecting small businesses'credit rating, the evaluation of which are made by assessing small businesses'financial and non-financial indicators respectively.The determination of the rating indicators and measurement of their weights are the key and fundamentals of credit ratings. At the empirical research part, Chapter Two first of all analyzes the general characteristics of the Zhejiang small businesses from two respects: the number of staffs and the sales volume. Secondly, Chapter Three estimates the impact direction of the five key financial factors (short-term liquidity, long-term liquidity, profitability, operating capabilities and growth potential ability) on small businesses'debt solvency, and then employs the methods of the partial correlations analysis and regression analysis to determine their impact degree, namely the indicators'weights. Thirdly, on the basis of compiling questionnaires which were designed in accordance with past experiences and experts'advices, and field investigation, Chapter Four summarizes three key non-financial factors (the basic quality of small businesses, industry and market conditions, and external environments) influencing small businesses'debt service will, and then adopts the method of Analytic Hierarchy Process (AHP) to decide the qualitative indicators'weights. Last but not least, the thesis discusses the weight distribution between financial factors and non-financial factors.