Non-financial Information And The Bank Credit Decision

Under the background that SMEs still remains financially constrained this thesisstudies how the commercial bank should do to reduce the information asymmetry toease SMEs’ financing difficulties.Hard information is referred to those information that can be easily spread to thirdparties such as financial statement while soft information refers to firm owners’management ability, integrity, character, business prosperity, competitiveness and sonon which is not easy to be codified and to be conveyed to the third parties and which isalso called non-financial information.Because of their small size, unsound accounting systems, unattractive financialstatement information SMEs usually confront financial constraint in the traditionalregime of bank loan decision. Non-financial information is stable, in a sense, which ismore important than the financial information. In order to alleviate the financingdifficulty of small and medium-sized enterprises, but also to exploit the small andmedium-sized enterprise loan business opportunities, the bank must attach moreimportance to non-financial information of SMEs.The contribution of this thesis lies in that I develop a conceptual model of bankcredit decision combing financial information and non-financial information;furthermore I identify the content of non-financial information content and how we canget it. In my perspective, non-financial information mainly includes the firm owners’age, education background, character, the management state of the enterprise,employees’ mental state, etc.. Non-financial information is obtained by field survey anddeep talk with the management.I employ case study and empirical study research methods. I find that non-financialinformation do play an important role in the bank credit decision. Non-financial andfinancial information together determine the bank credit decision. Empirical studyshows that a loan applicant’s age, gender, marital status, the use of the loans, collateralvalue has significant influence on the amount of loans.The practical value of this thesis lies in that I study on the role non-financial information can play in the bank credit decision-making. The policy implication of thisthesis is that in order to alleviate the financing difficulty of small and medium-sizedenterprises, the government should encourage banks to collect enterprise non-financialinformation to ease the credit rationing problem caused by information asymmetry.